|
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. |
