Budget 2012-2013 - Council February 2012.pdf

Council meeting 9 February 201202.12/C/02Public businessBudget 2012/13PurposeTo approve the budget for 2012/13.Action requiredThe Council is asked to approve the budget for 2012/13.1.0 Introduction1.1. At its meeting in November 2011 Council discussed an outline approach tocreating a rolling corporate plan for 2012-2015. The comments made byCouncil formed the basis of the corporate plan 02.12/C/01.This paper seeks to use the strategic objectives detailed in the corporate planto inform the budget for 2012/2013 by allocating resources accordingly.1.2. The attached budget sets out the financial implications of the corporate plan for2012/13.2.0 Equality and diversity implications2.1. There are not considered to be any equality and diversity implications arisingfrom the provision of this paper as such. However it is understood that as ourstrategic objectives are developed the equality and diversity implications ofeach will need to be closely considered.02.12/C/02 Page 1 of 14

Budget 2012/13 Council 9 February 20123.0 Communications implications3.1 Delivering effective regulation is of interest to both patients and registrants. It isa fundamental assumption of our planning and budgeting that we must engageand communicate with all our stakeholders.4.0 Resource implications4.1. The resource implications for 2012/13 and the level of fees proposed for theimmediate following period are fully laid out in the attached paper. Consultationon future fee levels can be found at 02.12/C/03 of the Council agenda. One ofour overriding objectives is of course to ensure we continue to discharge ourregulatory objectives and to ensure that the Council continues to be financiallysustainable to enable us to do so, in both 2012/13 and the years ahead.5.0 Risk implications5.1. Failure to budget appropriately for the immediate year ahead could compromisethe GPhC’s ability to deal with the immediate pressures on its resources indischarging its regulatory responsibilities and moving forward to achieving itslonger term strategic objectives and thus its ability to continue to regulateeffectively for the benefit of patients, the public and registrants.Action requiredThe Council is asked to approve the budget for 2012/13.Bernard KellyDirector of Resources and Corporate Development020 3365 3510bernard.kelly@pharmacyregulation.orgDuncan RudkinChief Executive & Registrar020 3365 3501duncan.rudkin@pharmacyregulation.org25 January 2012Page 2 of 1402.12/C/02

Budget 2012/13 Council 9 February 20121. BackgroundBudgets 2012/20131.1 The budget for 2012/2013 has been compiled as the first year of the currentthree year corporate plan which is also on today’s agenda and which reflects thework Council has previously undertaken in developing its strategic plan and thecorporate planning workshop in November.1.2 In line with the objectives developed through that work the budget reflects theinvestments made to date in improving our customer services and fitness topractise activities and the continuing development of our organisation structure.For the first year since our inception we have a budget which we believe reflectsa steady state and fully staffed organisation.1.3 The attached appendices 1 and 2 show our consolidated result with expenditurebroken down by directorate and then by cost type. Appendix 3 analyses revenuein detail while Appendix 4 shows our projected balance sheet at the end of thebudget year.1.4 Included below are graphical representations of the composition of ourregistrants, from where our income is derived and the breakdown of expenditureby directorate.2. Income2.1 Our income assumptions reflect our best estimates for numbers of registeredpharmacists, pharmacy technicians and pharmacies as informed by the currentnumbers on the register.2.2 In anticipation of the Council discussions on fees, the income budgeted assumesa 10% reduction in renewal fees for pharmacists and pharmacy technicians.However as these revised fee assumptions would only be implemented fromOctober 2012 the impact in the budget year 2012/13 would be limited. The fulleffect would not be felt until 2013/14.3. Expenditure3.1 Our expenditure budgets as referred to above, reflect a fully staffed organisationstructure based on current or expected salary levels for existing or to beappointed staff. With effect from June 2012 an allowance of 4% of salary costshas been made. This does not presume upon any decisions still to be madeabout salary levels, but gives the organisation some scope for development,bearing in mind that the Remuneration Committee will be considering the resultsof a grading and pay policy review in the next few months.3.2 To meet our office accommodation needs, we have agreed to enter into a newtwo year lease with the RPS from September 2012. In the meantime toaccommodate our immediate needs, we have also taken a short lease on somespace within 3 Albert Embankment. The additional occupancy costs are reflectedin the budget numbers. The budgeted numbers also reflect a significant increase02.12/C/02 Page 3 of 14

Budget 2012/13 Council 9 February 2012in the rates payable on our current building as a result of the most recent raterevaluation exercise carried out by Lambeth Council.3.3 We are currently negotiating an outsourcing contract with a specialistinfrastructure service provider who will host and support our IT infrastructure anddisaster recovery services. This arrangement will require us to unwind ourarrangements with the RPS in the early part of the budget year. Unwinding thesearrangements will have a knock on effect on our headcount but will not be anymore expensive than the current arrangements. The move away from RPS asour IT service provider is an essential step towards our eventual move awayfrom co-location.4. Budget Outcomes4.1 Based on the above assumptions the proposed budget for the twelve months to31st March 2013 predicts a surplus of £3,313,463. This compares to the currentyear’s forecast of £6.4m, however as that forecast was put together somemonths ago there is every possibility that it could be exceeded.4.2 The income budgeted is £20,638,223 and expenditure is £17,466,920. Anallowance has been made for interest income of £180,000 on which tax of£37,800 would be payable.4.3 The surplus budgeted is lower than the current year forecast of £6.4m by some£3.0m. Income is £200k higher than the current forecast. Income frompharmacists is higher but that from pharmacy technicians is lower because oflower numbers of applications and we are recognising grant income, from the DHworking capital grants.4.4 Of the £3.2m variation in expenditure, £2.0m comes from employee related costswhich reflects both the first year we are working with a fully establishedheadcount and the expected TUPE transfer of staff from the RPS as we take inhouse finance and certain IT database development staff as we unwind some ofour current arrangements with the RPS. Although we will still outsource our ITinfrastructure support and HR activities, taking in house finance and IT databasedevelopment, will provide a more effective and cheaper service than the currentarrangements with the RPS. The balance of the variance predominantly arisesfrom the costs of our new space arrangements (£394k), higher levels ofdepreciation on our fixed assets (£307k) and project specific costs (£517k) whichreflect the ambitions of the Corporate Plan although there are presentationdifferences between the years.4.5 The variation in budgeted expenditure from the current year’s forecast arisesfrom increases in the budgets of each directorate as follows:-4.6 The Chief Executive budget is to increase by £188k which reflects the inclusionof full contingency budget of £300k which has only partially been used in2011/12.Page 4 of 1402.12/C/02

Budget 2012/13 Council 9 February 20124.7 Policy and Communications increases by £709k over the current year andreflects a full year of staffing, a full year of publishing “Regula+e” and “Upda+e”and the further work on the registered pharmacies project.4.8 The Regulatory Services budget increases by £839k over the current year and isreflective of a full year of staffing under the new organisation structure, 2011/12having been marked by a significant number of vacancies in key seniormanagement positions. It is also reflective of the full year impact of the CPD calland review programme that was suspended for part of the current year. Thebudget for our FTP Committee, Investigating Committee and legal costs aredriven by the model which has been developed to track and report on theprogression of cases through fitness to practise. The budget continues thereforeto reflect the significant efficiency improvements that have been made in2011/12.The recently appointed Head of Investigations and Case Managementwill work closely with the Head of Finance to further improve the accuracy andreliability of this model.4.9 The Resources and Corporate Development budget is showing an increase of£1,948K over the current year. Much of this is a presentation issue as IT(including the costs of the outsourced service provider) and Finance (a combinedincrease of £1.0m) are budgeted within the directorate. Previously these wereshown in the service level charges made by the RPS. The Resources Directoratebudgets, also contains a provision of £517k in respect of additional projectbudgets which will support the ambitions of the Corporate Plan. A further £307kof additional depreciation on investments in buildings and IT projects contributesto the balance of the increase in the budgets.4.10 Council and Governance expenditure is budgeted to increase by £137k whichreflects additional costs for the recruitment of new Council members, training andprofessional fees to support the drafting of new rules.4.11 Occupancy and Service costs are overall £594K lower. Service Level costs arelower by £1.0m as a result of IT and Finance costs now being budgeted for inResources and Corporate Development while higher rent and related occupancycosts of £394k reflect the additional space which will be occupied during theyear.4.12 An allowance of £62,500 has been made for the imposition of a levy to fund theactivities of the Professional Standards Authority (currently CHRE). It is assumedthis will be based on an estimated cost of £150,000 for a full year but which willonly be payable for the last five months of the year.5. Capital Expenditure5.1 We plan to invest in excess of £1.7m in capital next year. Almost all of theinvestment will be made in new IT equipment, the office move and systemsdevelopment. Of this £1.6m will be applied against the working capital grantsprovided by the DH. For accounting reasons the grants will be recognised byoffsetting them against the depreciation charge made against the investment inaccordance with our standard depreciation policy, total monies spent against theworking capital grants are expected to be £2.2m.02.12/C/02 Page 5 of 14

Budget 2012/13 Council 9 February 20126. Balance Sheet and Reserves6.1 The predicted balance sheet based on this budget indicates that the GPhC willhave reserves of £12.2m by the end of March 2013. Fixed assets will havereached £1.5m and current assets will be £24.9m of which cash is the largestcomponent at £24.1m. Current liabilities are expected to be £14.2m, the largestcomponent of which is the prepaid fee income of £11.6m.6.2 The GPhC is a new organisation launched in a highly volatile and challengingenvironment, with effectively no founding reserves. We have an ambitious andnecessary programme of work, including both long-needed upgrading of critical business systems and processes as wellas a number of essential major regulatory policy projects.And we will continue to operate, for the foreseeable future, within anunpredictable wider policy context (Law Commission review and potentiallyfurther major legislative upheaval to come). Against that background, relative tothe scale of the challenge facing the organisation, the costs of regulation, andthe known and currently unknowable risks, working towards a target reserve of£12.5m by the end of March 2013 represents a prudent and responsible position,without being excessively and disproportionately cautious.Page 6 of 1402.12/C/02

Budget 2012/13 Council 9 February 2012IncomePharmacist Income £12,707,261Premises Income £ 3,290,299Pharmacy technicianIncome £ 2,889,708Pre-Registration Income £ 993,140Other Fee Income £ 102,675DH Grant Income £ 444,009Other Income £ 211,132The table and chart above show how many registrants and premises we are budgetingto register in 2011 and 2012 and how the total income of is made up. Pharmacists andpharmacy technicians have had a 10% reduction in renewal fees budgeted, howeverthis would not come into effect until October 2013 so the full year impact of this wouldnot be felt until 2013/2014.02.12/C/02 Page 7 of 14

Budget 2012/13 Council 9 February 2012- Chief Executive £ 616,165- Policy & Communication £3,347,329- Regulatory Services £7,629,210- Resources & Corporate Development* £5,811,756*Includes the cost of Occupancy and Service CostsEmployee Costs £10,475,988Property Costs £ 244,694Office Costs £ 727,589Professional Costs £ 1,044,928Event Costs £ 467,916Marketing Costs £ 503,039Financial Costs £ 497,358Grant Costs £ 50,000IT Costs £ 810,004Other Costs £ 870,102Occupancy & Outsourced Services Costs £ 1,712,843CHRE Costs £ 62,500Page 8 of 1402.12/C/02

Budget 2012/13 Council 9 February 2012Appendix 1Consolidation2011/2012 2012/2013ReforecastBudgetIncome Total TotalPharmacist Income 12,318,262 12,707,261Fee income from the RPSGB 89,865 0Premises Income 3,364,615 3,290,299Technician Income 3,326,604 2,889,708Pre-Registration Income 980,569 993,140Other Fee Income 101,078 102,675DH Grant Income 0 444,009Other Income 260,867 211,132Total Income 20,441,860 20,638,223Expenditure- Chief Executive (428,334) (616,165)- Policy & Communication (2,638,396) (3,347,329)- Regulatory Services (6,790,489) (7,629,210)- Resources & Corporate Development (1,462,827) (3,410,710)- Council & Governance (556,689) (693,703)Total Directorate Costs (11,876,736) (15,697,118)- Service Level Cost (1,624,299) (637,051)- Rent (334,467) (524,994)- Service Charge (173,737) (261,281)- Rates (107,943) (210,327)- Utilities (42,915) (50,400)- Insurance (18,314) (23,290)Total Occupancy and Service Costs (2,301,675) (1,707,342)CHRE Costs 0 (62,500)Total Expenditure (14,178,410) (17,466,960)Net Operating Surplus/(Deficit) before interst & tax 6,263,450 3,171,263- Interest Receivable 157,008 180,000Net Operating Surplus/(Deficit) before tax 6,420,458 3,351,263- Corporation Tax Payable (32,972) (37,800)Net Operating Surplus/(Deficit) after tax 6,387,486 3,313,46302.12/C/02 Page 9 of 14

Budget 2012/13 Council 9 February 2012Appendix 2Consolidation by Income and Expenditure type2011/2012 2012/2013ReforecastBudgetIncome Total TotalPharmacists 12,318,262 12,707,261Fee Income from the RPSGB 89,865 0Premises 3,364,615 3,290,299Technicians 3,326,604 2,889,708Pre-Registration 980,569 993,140Other 361,945 757,816Total Income 20,441,860 20,638,223Costs- Employee Costs (8,520,319) (10,475,988)- Property Costs (171,050) (244,694)- Office Costs (251,848) (727,589)- Professional Costs (1,034,288) (1,044,928)- Event Costs (321,456) (467,916)- Marketing Costs (777,076) (503,039)- Financial Costs (234,210) (497,358)- Grant Costs (22,400) (50,000)- MIS Costs (365,271) (810,004)- Other Costs (178,787) (932,602)- SLA Charges & Building Costs (2,301,705) (1,712,843)Total Costs (14,178,410) (17,466,960)Net Operating Surplus/(Deficit) before interst & tax 6,263,450 3,171,263- Interest Receivable 157,008 180,000Net Operating Surplus/(Deficit) before tax 6,420,458 3,351,263- Corporation Tax Payable (32,972) (37,800)Net Operating Surplus/(Deficit) after tax 6,387,486 3,313,463Page 10 of 1402.12/C/02

Budget 2012/13 Council 9 February 2012Appendix 2continuedExpenditure breakdown2011/2012 2012/2013ReforecastBudgetTotalTotalChief Executive & Registrar- Chief Executive & Registrar (428,334) (616,165)Total Chief Executive & Registrar (428,334) (616,165)Policy & CommunicationDirector- Director (165,624) (218,489)Total Director (165,624) (218,489)Standards & Fitness to Practice Policy- Standards & Fitness to Practise Policy (227,789) (283,278)Total Standards & Fitness to Practice Policy (227,789) (283,278)Education & Registration Policy- Operations (140,838) (171,881)- Accreditation (459,070) (478,776)- CPD (65,180) (97,784)- Exam (118,898) (167,613)Total Education & Registration Policy (783,985) (916,054)Regulatory Development & Policy Planning- Regulatory Development & Policy Planning (145,928) (389,236)Total Regulatory Development & Policy Planning (145,928) (389,236)Communications- Communications (1,250,130) (1,359,510)Total Communications (1,250,130) (1,359,510)Devolution- Scotland (40,143) (80,031)- Wales (24,797) (100,731)Total Devolution (64,940) (180,762)Total Policy & Communication (2,638,396) (3,347,329)Regulatory ServicesDirector- Director (328,419) (401,458)Total Director (328,419) (401,458)02.12/C/02 Page 11 of 14

Budget 2012/13 Council 9 February 2012Appendix 2continuedCustomer Services- Operations (416,879) (289,847)- Call Centre (183,479) (245,265)- Applications Team 1 (662,075) (673,783)- Technical Support (Admin) (212,497) (413,380)- CPD (468,645) (465,818)- Exam (188,172) (196,250)Total Customer Services (2,131,747) (2,284,343)Investigations & Case Management- Operations (87,332) (211,669)- Case Progression (664,752) (632,674)- Investigations (519,681) (533,552)- Monitoring (12,565) (40,032)Total Investigations & Case Management (1,284,329) (1,417,927)Inspection- Operations (83,602) (200,675)- Inspectorate (1,808,557) (2,019,691)Total Inspection (1,892,158) (2,220,366)Legal Advice & Hearings Management- Operations (449,988) (608,705)- Appointments Committee (15,033) (67,534)- Fitness to Practise Committee (640,377) (569,191)- Investigating Committee (48,438) (59,687)Total Legal Advice & Hearings Management (1,153,836) (1,305,117)Total Regulatory Services (6,790,489) (7,629,210)Resources & Corporate Development- Director (436,181) (940,031)- Finance (270,844) (496,449)- HR (191,217) (320,195)- Business Development (393,702) (363,933)- IT (75,180) (876,956)- Facilities Management (95,703) (413,146)Total Resources & Corporate Development (1,462,827) (3,410,710)Council & Governance- Governance (273,272) (313,583)- Council (283,417) (380,120)Total Council & Governance (556,689) (693,703)Total Team Expenditure (11,876,736) (15,697,118)Page 12 of 1402.12/C/02

Budget 2012/13 Council 9 February 2012Appendix 3Income breakdown2011/2012 2012/2013ReforecastBudgetTotalTotalPharmacist IncomePractising Registrant Fees 11,874,943 12,285,308Application & Upgrade Fees 339,574 326,400Independent Prescriber Fees 20,742 21,120Registrant Administration Fee 36,284 36,738Scrutiny Fee - Pharmacist 37,033 37,695Pharmacist Restoration Fee 9,686 0Total Pharmacist Income 12,318,262 12,707,261Premises IncomePremises Retention Fee 3,026,378 3,059,319Premises Registration Fee 293,445 204,480Premises Administration Fee 22,506 22,800Premises Internet Pharmacy Logo 22,286 3,700Total Premises Income 3,364,615 3,290,299Technician IncomePractising Technician 2,274,311 2,545,052Application Fees 931,781 153,000Scrutiny Fee Technician 1,743 92,058Adjudicating Committee Fee 83,797 99,598Technician Overseas 28,596 0Technician Restoration Fee 6,376 0Total Technician Income 3,326,604 2,889,708Pre-Registration IncomePre-Registration Training Fee 359,257 509,690Pre-Registration Exam Fee 609,752 483,450Pre-Registration Admin Fee 11,560 0Total Pre-Registration Income 980,569 993,140Fee Income from RPSGB 89,865 0Other Fee Income 101,078 102,675Total Fee Income 20,180,993 19,983,082Accreditation Income 225,681 177,532Inspection Income 32,986 30,000Subscription Income 2,200 3,600DH Grant Income 0 444,009Total Income 20,441,860 20,638,22302.12/C/02 Page 13 of 14

Budget 2012/13 Council 9 February 2012Appendix 4Budgeted Balance Sheet 31st March 20132011/2012 2012/2013ReforecastBudgetFixed Assets Total Total- Tangible Assets 123,280 1,489,382- Intangible Assets 0 0123,280 1,489,382Current Assets- Trade Debtors 49,744 43,555- Other Debtors 483,901 377,443- Prepayments 88,786 311,149- Accrued Income 33,668 28,083- Bank & Cash 23,719,551 24,104,90824,375,650 24,865,136Current Liabilities- Trade Creditors 248,197 245,422- Deferred Income :-Working Capital 2,168,629 1,800,728Ring Fenced Grant 76,108 0DH Grants 109,882 109,882Fee Income 12,617,121 11,604,037Other Income 2,300 2,300- Accruals 423,598 425,59215,645,834 14,187,960Net Current Assets / (Liabilities) 8,729,816 10,677,177Total Assets less Current Liabilities 8,853,096 12,166,559Long-Term Liabilities0 0Net Assets 8,853,096 12,166,559Funds Employed- Accumulated Fund b/fwd. 2,465,610 8,853,096- Surplus/(Deficit) in Year 6,387,486 3,313,463Total Funds 8,853,096 12,166,559Page 14 of 1402.12/C/02