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corporate plan and 2010/11 budget

January 2010

proposed budget for 2010/11

income and expenditure

Income for 2009/10 is expected to be £1.3 million above budget - partly because the industry grew between the time the tariff rates were set and the levy was collected, and partly because there were fewer than expected free cases. Expenditure for 2009/10 is expected to be £4.3 million above budget - mainly reflecting an increase in staff, including outsourced staff, to deal with more new cases than budgeted. This means that for 2009/10 we are currently expecting a deficit of £2.7 million, rather than the budgeted surplus of £0.3 million.

For 2010/11, we have budgeted to break even. We do not propose to increase either the total of the levy or the amount of the case fee, which will remain at 2009/10 levels. But we plan to close significantly more cases, and our 2010/11 budget will increase in line with the additional case fees. The corresponding expenditure reflects:

  • a significant increase in employment costs to cover staff required to resolve 210,000 cases; and
  • rent reviews on our existing premises plus some additional premises taken on during 2009/10.

In addition we have assumed a capital expenditure budget of £1.0m to cover both IT systems-development costs and office repairs (mainly essential work to the lifts).

Out of the total income and expenditure budgeted for 2010/11:

  • 97.9% relates to our compulsory jurisdiction;
  • 1.6% relates to our consumer credit jurisdiction; and
  • 0.5% relates to our voluntary jurisdiction.
  actual
2008/09
£ m
budget
2009/10
£ m
forecast
2009/10
£ m
budget
2010/11
£ m
income        
levy 19.3 19.5 20.2 19.5
case fees 46.4 73.4 74.2 94.5
other income 0.4 0.4 0.2 0.2
provision for bad/doubtful debts (0.3) (0.5) (0.5) (0.5)
total 65.8 92.8 94.1 113.7
         
expenditure        
staff and staff-related costs 46.8 77.5 83.0 97.7
professional fees 0.9 1.6 1.3 1.6
IT costs 1.4 1.6 1.6 1.8
premises and facilities 3.7 6.5 6.1 7.0
other costs 3.8 3.0 2.8 3.5
depreciation 1.4 2.1 1.8 1.9
operating costs 58.0 92.3 96.6 113.5
financing costs 0.1 0.2 0.2 0.2
total costs 58.1 92.5 96.8 113.7
         
surplus (deficit) 7.7 0.3 (2.7) 0.0
cases resolved 113,949 165,000 165,000 210,000
unit cost 509 559 587 540

unit cost

Our unit cost represents our total costs (apart from the cost of financing) divided by the number of cases resolved.

The unit cost for 2009/10 is expected to be £587. This is £28 above budget, reflecting the increased expenditure (including additional outsourcing) described earlier, to deal with the record number of new cases.

The unit cost for 2010/11 shows a decrease of 8% to £540.

staff

For 2010/11 the year-end headcount budget is distributed as follows:

  budget
March
2010
forecast
March
2010
budget
March
2011
casework divisions and ombudsmen 918 1,284 1,341
customer contact division 121 109 125
support services 131 142 148
total 1,170 1,535 1,614

The additional, mainly outsourced, casework staff are required to resolve our target of 210,000 cases.

2010/11 case fees and levy

The additional funding required will come from the case fees relating to the extra cases we resolve. We plan to keep unchanged from 2009/10:

  • the total of the levy in the compulsory jurisdiction;
  • the amount of the case fee (£500); and
  • the number of free cases (three).

This means that 80% of our funding will come from case fees, reflecting the views that have been expressed to us in favour of case fees forming an increasing part of our funding.

Raising the number of free cases from the three that are currently available to each business would mean increasing the rate of the levy. This would benefit those few, mainly large, financial businesses that already take up their existing allocation of free cases - but it would require all financial businesses, including smaller ones, to pay more levy.

compulsory jurisdiction levy

The method of allocating the levy was consulted on in consultation paper CP74. Broadly, it involves two stages:

  • The total levy is divided among industry blocks (based on activities) according to the number of case-handling staff we expect to need for cases from that sector.
  • The levy for each industry block is divided among the firms in that block, according to a tariff rate (relevant to that sector) which is intended to reflect the scale of the firm's business.

This means that an individual industry block's share of the total levy may change - to reflect the sectors from which our workload comes.

The levy payable by individual FSA-regulated firms in the compulsory jurisdiction is set by the FSA, which will be consulting on this separately. Annex B sets out, on an indicative basis, how the levy might be divided.

The minimum levy in each industry block would be likely to stay the same or reduce - except for an increase of £5 in block 17 (general insurance mediation). We estimate that around 82% of the firms liable to pay the levy will pay only the minimum levy for their industry block.

The total levy in each industry block would also be likely to stay the same or reduce - except in block 1 (deposit acceptors, mortgage lenders and administrators) and block 17 (general insurance mediation).

The increases in blocks 1 and 17 reflect the increased proportion of ombudsman service staff expected to be needed for cases from these sectors - covering mainly an anticipated increase in cases relating to various types of lending (block 1) and in relation to the sale of PPI (block 17).

Subject to the FSA's consultation, typical levies in the compulsory jurisdiction would be likely to be:

  2008/09 levy £ 2009/10
levy £
2010/11
levy £
bank or building society with 2 million relevant accounts 46,000 54,000 55,600
general insurer with £100 million of relevant gross premium income 12,600 12,600 10,300
life office with £200 million of relevant adjusted gross premium income 9,800 5,600 5,000
investment adviser that holds client money and has 50 relevant approved persons 4,000 2,250 1,750
three-partner firm of independent financial advisers that does not hold client money 120 120 105
mortgage intermediary firm 60 70 70
insurance intermediary firm with £0.5m commission income 60 80 120

consumer credit jurisdiction levy

The total levy for the consumer credit jurisdiction in 2010/11 has been set at £2.4 million (net of the Office of Fair Trading's collection costs), which is the same figure as for 2009/10. This is in line with our aim to average this levy over the 5-year renewal period for consumer credit licences. The OFT sets the amount of the levy payable by individual licensees who take out or renew licences during the year.

voluntary jurisdiction levy

The 2009/10 rates of levy proposed for voluntary jurisdiction (VJ) participants are set out in annex E.