skip tocontent

corporate plans and budgets » Plan & Budget 2002/03 - Budget 2002/03

‘our target was to bring our unit cost below that of the previous schemes during the year 2002/03. We have achieved this a year earlier than expected’

introduction

8.1 In last year’s budget we saw 2001/02 as the transitional year and 2002/03 as the year in which our customers and the industry would see genuine returns in terms of quality and cost effectiveness.

8.2 Our target was to bring our unit cost below that of the previous schemes during the year 2002/03. We have achieved this a year earlier than expected. For 2002/03, with no increase in unit cost after absorbing salary increases and an increased depreciation charge, we aim to improve our service quality.

8.3 We expect expenditure for 2001/02 to be in line with budget at £27.6m. The budget for 2002/03 is £28.2m, an increase of 2.2%. The cost increase has been kept below the rate of inflation by holding the casework divisions to their unit cost level in 2001/02, and the support divisions to their cash spend during that year.

summary expenditure forecast and budget

8.4 A summary is as follows:

2001/02 Forecast £m
2002/03 Budget £m
Staff and staff-related costs
19.4
19.9
Professional fees
0.5
0.5
IT running costs
0.6
0.5
Premises & facilities
3.5
3.5
Other costs
0.4
0.5
Depreciation
2.1
2.6
Operating costs
26.5
27.5
Financing costs
1.1
0.7
Total costs
27.6
28.2
Case closures
38,500
40,000
Unit cost*
£688
£688

*Unit cost is calculated before financing charges

head count

8.5 Increasing productivity should allow us to reduce the ‘full time equivalent’ headcount by 12 from the previous year’s budget to 458.

2001/02 Budget
31 Oct 2001 Actual
31 March 2003 Budget
customer contact/enquiries
84
82
87
best practice/management information system unit
6
6
9
investment casework
179
171
161
insurance casework
61
59
61
banking and loans casework
65
61
61
legal casework
10
10
10
company secretarial/library
5
5
5
finance/IT/HR/facilities
41
42
45
technical advice/communications
15
15
16
management
4
3
3
Total
470
454
458

8.6 The reason for the anticipated increase in support staff during 2002/03 is due to the change in the way we are funded. The Financial Ombudsman Service is now responsible for invoicing firms directly for the levy and case fees and for collecting these amounts from them. (In the past two years the schemes making up the new ombudsman service paid service charges to the Financial Ombudsman Service.) There is therefore a need for additional strength in finance, IT and credit control. In addition, we propose to begin charging firms for the new complaints leaflets, which were provided free for N2.

alternative scenarios

8.7 In the two alternative scenarios the impact would be as follows:a) higher complaint levels In this situation, total costs before interest would be £0.6m higher than the base budget - £28.1m instead of £27.5m. Staff numbers would be 21 higher than the base budget - 479 instead of 458. b) falling complaint levels In this situation, costs would be £0.6m lower than the base budget - £26.9m instead of £27.5m. Staff numbers would be 24 fewer than the base budget - 434 instead of 458.

voluntary jurisdiction

8.8 We are required to show the allocation of costs between the Compulsory and Voluntary Jurisdictions. In the year to March 2003, the costs of the Voluntary Jurisdiction are expected to be immaterial at less than 1% of the total expenditure.

cashflows

8.9 The FSA guaranteed an overdraft facility of £25m. But after we reviewed this figure in the light of our experience, this limit was reduced to £18m. However, the facility was extended by one year because N2 was delayed. Part of the borrowing is attributable to the costs of establishing the Financial Ombudsman Service, some £4.9 million. We intend to eliminate this overdraft over the next eight years, by collecting our establishment costs levy and reducing our capital expenditure in relation to our depreciation charge. The expected cash flows are as follows:

2001/02 £m
2002/03 £m
Total costs before depreciation
(25.5)
(25.6)
Capital expenditure
(2.6)
(1.5)
Establishment costs
(0.4)
Lease premium
(0.6)
Cash outflow
(29.1)
(27.1)
Income from schemes
30.5
Levies/case fees
1.2
27.3
Establishment costs
1.5
Net cash inflow
2.6
1.7
Opening bank balance
(14.3)
(11.7)
Closing bank balance
(11.7)
(10.0)

8.10 The budget for capital expenditure for 2002/03 includes £1.0m for computer development and £0.5m for computer infrastructure. We propose to continue developing our case-handling system by adding document image management and an intranet/extranet capability. We will also need to enhance our infrastructure so that it will be suitable for our longer-term development programme.

conclusion

8.11 Given that inflation is expected to rise by around 2.0% our budget remains stable in real terms, rising in absolute terms from £27.6m to £28.2m - no more than 2.2%. The unit cost also falls in real terms, remaining constant in absolute terms at £688.