Dear Listener

Policing the financial services industry and compensating those who nevertheless are mis-sold will cost more than £1 billion next year.

Documents released by the Financial Services Authority this week show that its budget alone will rise by 15.6% to £578.4 million in 2012/13. The FSA blames the increase partly on the cost of preparing for the big changes in regulation which will begin in 2013/14. There is also increased spending on IT and a rise of 5.9% (which the FSA bizarrely calls ‘broadly in line with inflation’ which is in fact 4.2% and falling) in its operating costs. That includes a 3.5% rise in staff pay after two years in which pay for individuals was, it says, frozen. Average pay in the economy is rising by around 2%.

The Financial Services Compensation Scheme, which pays customer redress after mis-selling by a firm which has gone bust, will cost a similar amount – £581.7 million.

Add to that the cost of the Financial Ombudsman Service (a modest £17.7 million) and the new Money Advice Service, which is doubling its budget to £86.8 million, and the grand total for policing, compensating, arbitrating, and educating will come to an estimated £1.2 billion in 2012/13.

The total cash cost of the FSA alone since it began in shadow form in 1996/97 will be £4.7 billion by March 2013. Each year since it was fully in operation its costs have risen above inflation, an average rise of 9.7% a year since 2001.

All these costs are paid by the financial services industry through levies – and ultimately of course they fall on us, the customers.

In 2013/14 the FSA will be replaced by two new bodies – the Financial Conduct Authority and the Prudential Regulation Authority. No estimates of their budgets have been published. But it seems unlikely the change will lead to a reduction in the cost of policing the financial services industry.

***IN MONEY BOX THIS WEEK***

“Sharp practice and murky pricing” mean that half a million people who retire each year are being diddled out of a £1 billion. That is the striking conclusion of a report into the way people are sold a pension when they come to convert their savings into an annuity. The National Association of Pension Funds makes the accusation; the pensions industry defends itself, live on air.

Virgin Atlantic and some other airlines are forcing new staff to pay for their own criminal records and HMRC checks. That can cost £25 and many hours of work. Should the firms be paying?

A new campaign is launched this week to force investment funds to be more open about the costs that come out of customers’ investments before they see any return. The firm calling for the change debates live with the organisation representing the funds.

With two live debates we aren’t even going to try to fit in a fifth item. Listen to the sparks fly live, Saturday at midday, catch the repeat Sunday at 9pm, or listen anytime online www.bbc.co.uk/podcasts/series/moneybox. Remember you can put in a regular order for the top audio business podcast (ours) through iTunes. It’s free.

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Energy costs and savings is the topic on Money Box Live with Vincent Duggleby (it’s my month off) on Wednesday at 3pm. Call with your question after 1pm on Wednesday 8^th February on 03700 100 444 or email through the website when the programme page is up later today. Or of course just listen.

Best wishes,

Paul

PS. I will be on Breakfast on BBC One around 0845 on Saturday with a programme trail and back on Breakfast later in the week, probably on Thursday and usually around 0640 and 0820 talking about a money story and answering emails and tweets. But the time, and occasionally the day, can vary.

e-mail Paul Lewis