Budgeting for 2011-12

Good morning Ladies and Gentlemen.

I shall be inviting you this morning to approve a motion from Council that the practising certificate fee for year 2011-12 remains unchanged at £550. Council have already approved that the non-practising membership and retention fees are also to remain unchanged at £150 and £70 respectively.

To begin I would draw to your attention that the budget is a deficit budget for the second consecutive year. Members will recall that last year the Society budgeted for a deficit, to be funded from reserves, in order to allow a further reduction in the practising certificate fee by £15 to the current level. It is also likely that we will finish this year in a better position than originally budgeted, with greater income and lower expenditure.

We are all well aware that no business or organisation can continue to produce deficit budgets on an ongoing basis. However, as I said last year to the SGM, in a time of economic uncertainty with challenges faced by many in the profession, where the Society was holding significant reserves, these should be used at this time to benefit members and their firms without at the same time doing anything to adversely affect the long term financial strength of the Society.

It is the view of the Finance Committee and Council that over the coming years, effective planning for appropriate and justifiable increases in the PC fee will be necessary, at the same time balancing the Society's financial stability with the impact and effect of fee levels on members. At this stage Council are satisfied, as were our Audit Committee, that despite a second year of budgeting for a deficit, reserves will remain at the end of 2011-12 at a satisfactory level. Council does not want to return to the days when there were significant swings in one direction or another in the level of the practising certificate fee and would want to be able to provide clear reasons for any increases in the coming years. To this end Council approved earlier in the year the appointment of a new finance director. When the Society’s former management accountant, Heather Kiteley, left earlier in the year it was decided to strengthen the finance team by the appointment of a finance director, and the new finance director Ken Tudhope is attending his first general meeting today.

In the income and expenditure account the budget has assumed a reduction in the number of PC holders by approximately 200, although it has to be said that based on previous years' experience this is likely to be on the cautious side. On the expenditure side, staffing numbers remain stable at 120, and although the budget makes provision for a percentage pay rise of 3%, this has not been agreed and no decision will be made until later in the year.

The total income and expenditure figures appear to have risen quite significantly, but this is purely as a result of a change in accounting practice necessitated as a result of the Legal Services Act 2010, whereby the costs of financial compliance and interventions required to be shown in the Society’s accounts rather than in the Guarantee Fund accounts. For information purposes, the Guarantee Fund subscription which has been approved by Council will be £50 less than in 2010-11.

Within income there is a significant increase budgeted under representation. This is anticipated due to increases in commercial income sources, along with additional CPD opportunities such as e-learning. On the expenditure side members will be pleased to note the ongoing savings from the Society’s perspective in terms of regulation. Significant savings have already been achieved, and scope for further reduction has been built into the 2011-12 budget.

In the balance sheet the Society’s anticipated reserves remain consistent with the reserves policy. At the end of 2011-12 the reserves are forecast to be £3.7m, representing around five months' average budgeted expenditure. It is not possible at this stage to know the actuarial assessment of the FRS17 valuation, which determines the size of the pension scheme liability stated in the accounts. This will appear in the accounts to 31 October 2011 and this could result in a further reduction in stated reserves. However in connection with the pension scheme liability, members will note in the income and expenditure account for 2011-12 a payment of £189,000. This is the first annual payment in respect of a 10 year recovery plan which has been agreed by the Society with the pension scheme trustees. It is a requirement of the legislation monitored by the Pensions Regulator that a recovery plan for the scheme required to be submitted within 15 months of the triennial actuarial valuation. Members will recall that the Society closed the final salary pension scheme to future accrual in April 2010, and options to reduce our exposure to further risk are being examined.

In conclusion I would want to remind members that the budget for 2011-12 is one which has been reached after a thorough and studied approach to budgets by all departments within the Society over the past five or six months. The deficit is supported by the existing level of reserves, but the Finance Committee and Council recognise that it will not be possible to deficit finance in future years as this is neither sustainable nor desirable. The Society is continuing to develop a financial planning strategy on a long term basis to ensure consistency with the corporate plan which you have heard more about this morning, and to also provide a transparent strategy for members which will allow for the likely level of the practising certificate fee levels to be known over a number of years.

Finally, I want to take this opportunity to thank the senior management team within the Society, and in particular Ken Tudhope, Director of Finance and his colleague Paul Valente and all those others working within the finance team.

[The meeting approved the motion that with effect from 1 November 2011 the annual practising certificate fee payable by each member of the Society holding a full practising certificate will be £550.]