Our 2021/22 budget
Overall costs and market operator charges
Our budget for 2021/22 totals £11,415k across the two components – core service delivery and our improvement programmes.
Headline messages for our 2021/22 budget:
- The costs of our core service delivery is lower due to continued improvements in efficiency
- The costs of our improvement programmes is higher due to the short-term peak in the Bilateral Transactions Programme costs
- The overall budget is slightly higher – but the short term increase in the cost of improvement programmes will be funded from our reserves, using savings realised in 2020/21
- Our Market Operator (MO) charges will reduce by 1.1 per cent, reflecting the improved level of efficiency
In assessing our budgeted costs for 2021/22, we have compared them with the budget for 2020/21. The actual costs incurred for 2020/21 have been subject to a number of one-off events, including COVID-19, and a shift in resources to our Bilateral Transactions Programme. This has made 2020/21 a very unusual year in terms of cost profile and we consider that comparing against the original 2020/21 budget provides a more realistic and useful comparison. Further analysis of our 2021/22 budget against expected outturn costs for 2020/21 is provided later in this section.
Core service delivery costs
Our three-year business planning is based on continuing to deliver our core services efficiently, making it easier and more cost-effective for members to access our services.
Our 2020/21 cost forecast includes a number of one-off savings that will not recur. Our 2021/22 budget also includes some new services, or scope, which we have not provided in previous years. The table below presents a cost comparison excluding both of these items, to enable a like-for-like comparison of the underlying cost to deliver our core services.
The like-for-like (or ‘underlying') cost of delivering our core services will remain broadly flat over the two years from 2019/20 through to 2021/22 – a change of less than 1 per cent which is well below the impact of inflation.
In 2019/20, the cost of delivering our core service costs was £9,126k. Our budget for 2020/21 proposed an increase to £9,640k (5.6 per cent) - our latest forecast is to outturn significantly below this budget – at £8,943k. This has been driven by a combination of one-off savings, efficiencies and our relentless focus on challenging and reducing cost.
One-off savings include lower than expected code change volumes, commercial credits and exceptionally low travel and meeting room costs as a result of restricted travel during COVID-19 lockdowns.
Our efficiency savings include the insourcing of all core legal activity through a newly established legal team, reducing third party spend. We have also negotiated improved commercial rates on key contracts, including the renewal of our contract with CGI in March 2020, and reduced our reliance on professional services in a range of areas. We have also made substantial savings by moving a proportion of Panel and committee meetings online for the longer term.
Our 2021/22 budget will retain these efficiencies and drive further savings. Our plan includes the insourcing of a proportion of trading party audit work, further reducing our professional service costs and leveraging digital tools to support greater use of online meetings and remote working. These efficiencies will offset the majority of inflationary pressures.
Our 2021/22 budget also includes some increases in cost as we expand the scope of what we deliver as core services. Whilst we will always seek opportunities to absorb these costs through cost savings, there are three clear areas which we deem as essential, and which have increased our budgeted costs. The changes amount to an increase in costs of £204k and include:
On a like for like basis (removing the impact of one-off cost savings and changes in the scope of what we deliver) our core service costs for 2021/22 are budgeted to increase by only 0.6 per cent from £9,128k to £9,186k.
A breakdown of core service delivery costs by area, with a year-on-year comparison of costs, explanation of the change and how we will ensure efficiency is provided on the 'Deep dive one - Core service delivery costs' page.
Improvement programmes - 2021/22
We have developed our improvement programmes for 2021/22 to allow for a more integrated delivery roadmap and provide a longer-term view to members.
Our budget for 2021/22 includes £2,025k in respect of improvement programmes.
Deep dives into each individual programme, setting out the scope, benefits and key deliverables can be found in the ‘Improvement Programmes’ section of this business plan.
Funding our improvement programmes – 2021/22
The phasing of spend on improvement programmes will vary more than our core service delivery, as it is dependent on the phasing of work, particularly for larger programmes of work.
Our plan seeks to spread the delivery and cost of our improvement programmes across the three years to avoid volatility in costs and therefore MO charges. This has meant moving some of our programmes to later years in the plan.
Even with this phasing, there remains an increased level of spend in 2021/22, when the majority of the Bilateral Transactions Programme is being delivered. The proposed budget of £2,025k is £465k higher than the equivalent budget for 2020/21.
Our plan enables us to fund this increased cost without increasing MO charges. £125k of the £465k difference will be funded by improved efficiency in our core services budget – which will be reinvested in our improvement programmes. The remaining £340k will be funded through MOSL reserves.
These reserves have been built up in previous years where total spend has been lower than the income we collect. A sustainable level of reserves is important, as it provides a buffer against unexpected costs or fluctuations in the timing of cash flows. Over the last few years, MOSL has been building reserves to a sustainable and adequate level to cover its needs.
Our forecast for 2020/21 is that reserves will increase, reaching circa £1,500k by the end of 2020/21 as our spend is lower than our income received. We will use part of these reserves to fund the short-term increase in spend on improvement programmes in 2021/22.
