Our Interim Chief Executive's statement
As we approach the end of the current financial year, I’m pleased to introduce our latest FSCS Budget Update. This publication focuses on our management expenses, and our plans for the upcoming year.
As a reminder, you can find our full 2024/25 levy forecast, including the compensation we expect to pay over the year, in last November’s Outlook. We’ll provide our next full levy update in the spring.
Latest 2023/24 forecast
Our management expenses forecast for 2023/24 now stands at £99.7m. This is approximately £0.2m less than when we first published the management expenses budget in January 2023. This reduction is due to FSCS incurring lower claims processing costs than previously anticipated.
Our proposed 2024/25 budget
We are proposing a management expenses budget of £103.1m for next year. Overall, this is an increase of 3% on the 2023/24 budget.
The majority of our budget covers claims-handling costs. It also funds essential work including pursuing recoveries, raising awareness of FSCS protection and investing in our systems to ensure we continue being fit for the future.
The overall proposed Management Expenses Levy Limit (MELL) is £108.1m, which includes a £5m unlevied reserve on top of the core budget. This reserve, which is £5m less than proposed in January 2023, has now returned to its pre-pandemic level. In the previous three financial years, the reserve was higher due to elevated levels of uncertainty around firm failure.
How we’ve balanced the budget
I’m conscious that day-to-day costs are rising across the board for individuals and businesses, and we have worked hard to keep the rise in our own management expenses below inflation.
However, we do anticipate a nominal increase in our costs next year due to the strategic decision to reduce our outsourcing. We believe that increasing our in-house expertise is the best way to manage the complex claims and enquiries that currently make up the majority of FSCS’s work.
We’re forecasting an £8.7m increase in our operational budget as part of this necessary transition. This includes recruitment, training and a short period of overlap to ensure continuity for our customers and others we work with.
To offset this increase, we’ll be making savings across the business through an organisation-wide re-prioritisation exercise. This will enable us to keep our proposed management expenses below the rate of inflation, whilst also funding our investment in claims- handling capability.
Last year, we commenced the first year of a three-year plan to invest in our people and systems, which is necessary for FSCS to continue providing an efficient and effective compensation service. For 2024/25, we expect to require less investment in this area and as such, we propose reducing our investment budget by an estimated £2.9m in 2024/25. Next year’s budget will exclusively fund critical statutory and operations projects including updating our IT infrastructure for insurance claims. It also includes work on depositor protection – supporting both electronic payments in the event of insolvency, and the government's proposed enhancements to the special resolution regime.
The FCA and the PRA are jointly consulting on our budget, and you can find this consultation on their respective websites. The MELL consultation closes on Monday 12 February, 2024.
Interim Chief Executive