FSA Annual Report 2006/07 - Better Regulation Ltd
FSA Annual Report 2006/07 - Better Regulation Ltd
FSA Annual Report 2006/07 - Better Regulation Ltd
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48<br />
Section four – Financial review<br />
<strong>FSA</strong> <strong>Annual</strong> <strong>Report</strong> <strong>2006</strong>/<strong>07</strong><br />
Movement in the <strong>FSA</strong>’s reserves<br />
We believe that our new revolving<br />
credit facility provides sufficient<br />
financial capacity to allow us to<br />
meet any likely expenditure to<br />
address unforeseen events.<br />
Consequently, we have reduced our<br />
targeted reserves (that is the<br />
cumulative excess of our fees over<br />
our costs) from 5% (+/-2%) of the<br />
cost of our ORA to £nil (+/-2%) of<br />
the cost of our ORA, so reducing<br />
the future fee burden on our feepayers.<br />
Our ORA reserves at 31<br />
March 20<strong>07</strong> were £nil (2005/06:<br />
£7.2m) and at the centre of the<br />
range we have set for them.<br />
In our Business Plan 20<strong>07</strong>/08 we<br />
introduced two new components in<br />
the calculation of our <strong>Annual</strong><br />
Funding Requirement, and so in<br />
future will hold reserves or deficits<br />
against them. They contribute<br />
towards funding:<br />
• A three-year transition<br />
programme as part of our move<br />
towards principles-based<br />
regulation. The surplus income<br />
(£8.0m) for this year, together<br />
with the ORA reserves we held at<br />
the beginning of the year<br />
(£7.2m), have been applied to<br />
fund this transition. In <strong>2006</strong>/<strong>07</strong><br />
£1.5m was incurred against that<br />
budget, so by the end of the year<br />
we had set aside reserves of<br />
£13.7m to cover those costs. We<br />
intend to increase our funding of<br />
this budget annually as needed,<br />
up to a maximum of £50m.<br />
• A £20m prepayment generated<br />
by the additional pension deficit<br />
reduction contributions made in<br />
<strong>2006</strong>/<strong>07</strong>. £4.8m of that<br />
prepayment was amortised<br />
during the year (funded by the<br />
shortfall in our expenditure<br />
relative to the budget we set for<br />
the year) leaving a balance of<br />
£15.2m at the end of the year.<br />
Movements in our reserves /<br />
(deficits) are summarised in<br />
Table 4.5:<br />
Table 4.5<br />
Reserves/ (Deficits) movements<br />
PBR Additional<br />
ORA transition pension<br />
reserve reserve payment Total<br />
£m £m £m £m<br />
At 1 April <strong>2006</strong> 7.2 7.2<br />
Unbudgeted Pension contribution (20.0) (20.0)<br />
Excess Revenue collected 8.0 8.0<br />
Budget not spent 4.8 4.8<br />
Amortise pension contribution (4.8) 4.8 –<br />
Create PBR transition reserve (15.2) 15.2 –<br />
PBR costs (1.5) (1.5)<br />
Total management reserves<br />
at 31 March 20<strong>07</strong> Nil 13.7 (15.2) (1.5)<br />
Net Pension liability (79.9)<br />
Total Statutory reserves at<br />
31 March 20<strong>07</strong> (81.4)