Attachment A - Option B – reduce costs to match income from current fees

Proposal

To reduce costs of fee funded services to match income from current fees would involve cuts of the order of £5 million. This would result in additional costs to our customers estimated below. Some short term savings would result in long term additional costs to VOSA, which would have to be met by customers in future years.

Central overheads (such as corporate management, finance and personnel management) have been under scrutiny and reduced as far as practical over several years. Any further reductions believed practical have already been taken into account in the planned budgets for 2008/09. There is little realistic possibility of any further significant reduction below planned levels without affecting delivery of front line services.

A likely allocation of the £5 million cost reduction would be:

• reduced building maintenance and investment in equipment upgrading by £1 million – this includes reductions in current expenditure and in repayments and interest on loans not taken up for capital expenditure;
• reduced investment for new and upgraded electronic systems and for replacing existing systems by £1 million – again this includes reductions in current expenditure and in repayments and interest on loans not taken up for capital expenditure;
• reduced staff numbers by a further 6% over the reduction required by existing value for money plans. However, severance costs would actually increase costs for 2008/09. These costs would have to be repaid in later years and would have the effect of limiting the application of income from future fees;
• the effects on staff number are greater than the 5% to take account of the fact that VOSA is already committed to some of the additional expenditure (such as loan repayments, facilities improvement and IT developments) which the fee increase is aimed at meeting.

The possible effects of reducing operating budgets in 2008/9 could be as follows.

Testing and Inspection activities

Reduction in staff of about 6% would be likely to mean:

• longer waiting time for test and re-test appointments – leading to greater vehicle down time. Greater lead times for test bookings could be partially alleviated by operators booking further in advance but increased waiting times for retests would be more difficult for operators to control;
• withdrawal of some of the recent changes which have reduced the time that vehicles spend at test stations (such as reverting to drivers having to go to the counter at before and after every test);
• less frequent opening of part time test stations and reduction in opening hours of many other test stations – leading to increased vehicle down time, increased costs and increased carbon footprint, particularly for operators in rural areas, because of longer journeys to test stations;
• withdrawal of service from more lightly used designated premises and less frequent visits to those still supported – leading to increased vehicle down time, increased costs and increased carbon footprint because of longer journeys to test stations.

Reduction in maintenance and investment in facilities and equipment could mean:

• reduced maintenance and investment in replacing old equipment at test stations – leading to increased short notice test cancellations because of equipment or building faults, greater inconsistency of test results because of worn out equipment and longer test times where less efficient manual test methods are used;
• Potentially higher future rates of fee increase to cover greater building repairs and to replace some equipment the repair or updating of which had been put off for the sake of short term savings.

Reduction in investment in new IT systems could mean:

• postponed plans to increase on-line services to customers – leading to:
• • customers continuing to do business with VOSA by telephone, by visiting our offices during office hours, or by fax and post;
  • VOSA being unable to realise the planned staff redeployment and reductions in support staff thus worsening the impact of staff reductions on those in the front line service delivery;
  • future development of these services is likely to be more expensive due to lost knowledge and expertise in project teams;
  • costs of future development costs are likely to be higher since suppliers would need to budget for greater risks of contract cancellation or renegotiation.
• Postpone upgrading and replacement of existing IT systems could mean:
• • inability to correct faults in existing IT systems – leading to a continuing need to divert resources from service provision to work around faults;
  • existing IT systems becoming more prone to breakdown – leading to systems being off-line for longer with extra costs for both VOSA to catch up on work and for customers in having to try again after the system has been restored;
  • some existing systems may need to be switched off because they have become impossible to maintain and their replacements have not been developed – leading to extra costs and lower convenience of operating replacement manual systems.

Operator licensing and enforcement activities

Staff reductions of the order of 6% could mean:

• longer turnaround times for licence applications, renewals and variations – leading to operating losses because of delays in starting up and expanding businesses;
• withdrawal of counter enquiry services from Traffic Area Offices – leading to customers being unable to get face to face advice on applications or other matters;
• reduction in enforcement compliance checks for operator licences, vehicle maintenance, drivers hours, weights and road safety matters generally –will decrease the deterrent effect of such checks and lead to more road casualties caused by unsafe vehicles or tired drivers.

Reduction in maintenance and investment in facilities and equipment could mean:

• the effects on enforcement sites would be similar to those discussed above for testing facilities – these would lead to less weighing of potentially overweight vehicles because of weighbridge faults.

Reduction in investment in IT systems could mean:

• in addition to the effects mentioned above for testing and inspection activities, we would have to postpone investment in additional equipment to help us target higher risk operators and reduce the burden on low risk operators;
• the equipment already in use would also become less reliable, reducing our ability to target enforcement activities.

Modelling the effects of expenditure reductions

Fuller details of the model used to produce the figures quoted in the summary sheet are at Annex D.

As in option A, the effects on HGV operators only have been modelled. This is primarily because of lack of credible information on other sectors; however, we have no reason to believe that they will be affected to a significantly greater extent.

The model assumes that some businesses will be sufficiently well organised to book tests earlier than they have come to expect in recent years, though even they would be affected by longer waiting times for re-tests. Those less well organised or unaware of the need to book earlier will bear the brunt of the effects. The model takes no account of the effects on business cash flow of fees being paid earlier. Neither does it take account of the risk that even by operating in a way which was more efficient for VOSA, albeit more expensive for operators, that the total capacity of VOSA to deliver services falls short on the demand for those services.

The effects of expenditure reductions in wider DfT and Government terms

The cutbacks outlined above would also mean that VOSA would not be making a positive contribution in-year towards wider Departmental and Government aims such as those set out by Hampton, Eddington and Stern. Indeed in some respects we would be forced to move in the opposite direction.