Mr Robert Paterson, HSE, Chair
Mr Bob Kyle, UKOOA
Mr Paul Holman, BROA
Mr Alan MacLeod, IADC
Mr Mark Reyland
Mr Kelvin McFadyen, HID, Secretary
1. The Chair welcomed everyone to the meeting. Apologies had been received from Bill Murray (OCA), Jane Bugler (IMCA) and Dominic Cattini (IADC) for whom Mr MacLeod was deputising. Mr Paterson was deputising for Mr Whewell.
2. The minutes had been agreed by correspondence and published on the HSE website.
3. The revised queries and disputes procedure had been put out to consultation and an updated version published on the website.
4. The outturn figures had been circulated prior to the meeting. It was explained that these figures break down the 2005/06 costs and show what should have been charged for HSE to break even. It showed that the rate should have been £141 rather than the £152 charged. This resulted in an accidental surplus retained by HSE to spend on H&S priorities at a corporate level.
5. It was agreed to provide industry with the amount of the surplus and a comparison with the previous years outturn figures. (Secretary’s note: The 2005/06 surplus was £641k. The outturn analysis is attached as an Annex to these minutes.)
6. In response to a query it was stated that the search for efficiency gains continued to be an ongoing process. New IT systems coming on stream were aimed at saving costs centrally, accommodation costs were under scrutiny and projects in hand to reduce these. HSE was also subject to a fundamental review of its operations. Industry asked whether the customer perspective of HSE could be fed into this review. It was agreed to investigate this possibility.
7. Members had previously been notified of a proposed rate of £151. That proposal has had to be withdrawn and the rate recalculated. It is possible that the rate could increase further. The need for further calculation arises from the loss of staff, many attracted by higher salaries to industry, and increased costs. There is a need to replace the staff lost, but to attract the right calibre of staff HSE has to review the salaries paid, the cost of relocating existing staff and other factors. It is expected that a revised proposal should be available to industry by 10 November. This has to be done fairly quickly as the proposal has to be approved by the HSE Board, Commission and Ministers before the 2007 Fees Regulations are laid in time to come into force in April 2007.
8. Industry were unsure how they could put this to their members given that the 2005/06 outturn rate was£141, £11 less than that being charged, and the proposed rate of £151 for 2007 was now likely to increase. They were supportive of HSE being properly resourced but do not want to pay now if the money is not being spent. It was suggested that any surplus generated should be ring fenced for improvements related to offshore safety, such as research.
9. Industry asked how many chargeable hours were worked in previous years.
(Secretary’s note: The chargeable hours worked in the last three years were; 2003/4 – 56574; 2004/5 – 53298; 2005/6 – 56574)
10. Industry had specifically asked to revisit this topic. HSE has no problem with an alternate method, and was open to suggestions. However HSE needed to know the features of a charging regime that the industry would find acceptable. It would be particularly helpful if there were a strong level of support for a particular approach requirements and its full backing for a different scheme. There will be winners and losers with any change of method. HSE hoped to be able to develop proposals for an alternative charging regime next year.
11. Previously it has been stated that a change in primary legislation was necessary for a change to be made. However, there is a Bill going through Parliament that may not make this necessary. Previous work done in 2001 on an alternate scheme for COMAH is currently being reviewed for those industries. HSE’s lawyers have said that any fee scheme has to be within +/- 15% of actual costs to avoid being viewed as taxation. HSE needs a strong proposal from industry on the key factors it wants in a charging scheme, which could be sufficiently articulated in a paper.
12. It was agreed to let industry members have a copy of the 2001 report on the COMAH alternate scheme (Note: e-mailed to members 1 November). Industry could form a group to discuss the matter.
13. Following the lead of DTI in charging for safety zone orders for offshore wind farms it should be noted that HSE is considering charging for similar orders for sub-sea installations.
14. A meeting to be arranged for October 2007, although it may be necessary to have an interim meeting should progress on other matters discussed at this meeting warrant it.
Outturn (breakeven rate) £145 £141
Chargeable Hours 53,298.2 58,346.9
The £4 reduction in the breakeven rate between 2004/05 and 2005/06 can be attributed, in the main, to efficiencies brought about by reorganisation of support staff together with savings in direct salary costs. The former relates to the support provision now being provided by a central HSE team rather than a specific team within the directorate. Providing support more centrally across all operational divisions within HSE has negated the need for dedicated support staff within individual areas, which has resulted in efficiencies. The latter is due to the loss of some higher paid inspectors through retirement.
The above savings can be seen when comparing the elements of the outturn rate over the two years. Direct salary costs accounted for 61% of the outturn rate in 04/05 and only 60% in 2005/06. Similarly salary costs of support staff also saw a reduction of 1% in 2005/06. (For full breakdown see annex 1 attached).
Further efficiencies are apparent when looking at cost versus chargeable hours across both financial years. The division, without incurring any extra cost, was able to undertake approximately 5000 more chargeable hours in 05/06. This occurred as a direct result of improved working practices, which reduced downtime (spent on overhead type activities) and permitted inspectors to spend a greater proportion of their time on chargeable work.
1) In line with HM Treasury’s Fees and Charge Guide, HSE is required to recover the full cost of any statutory functions that are charged for i.e. to break-even. Although HSE is not allowed to set any fees to deliberately achieve surpluses or deficits, there are timing issues and assumptions around costs, chargeable hours and events that happen in-year, that will, inevitably, mean that the fee charged will differ from our original estimate. HSE makes every effort possible to minimise the risk of this happening.
2) The Memorandum Trading Account (for enforcement of offshore safety legislation) for 05/06 showed a surplus of £641k. This means that £141 per hour would have been required to break-even, whereas HSE actually charged £152. The main reasons for the difference in the forecast and outturn rates were a significant increase in the chargeable hours and a reduction in the anticipated payroll costs i.e. less people than forecast did more chargeable work. As a result of a reassessment of the cost base and chargeable hours this time last year, the current charge-out for 06/07 was reduced to £147.
3) The outturn MTA for 05/06 has been used as the baseline for costs for 07/08. All appropriate resource expenditure has been examined to determine whether an inflationary increase should be applied. For example, an annual pay rise for HSE staff was effected in October 2006 and we know what the average pay rise will be from October 2007, so these have been factored into the calculation. Equally, there are some areas where HSE expects to make efficiency savings or budget reductions and these have also been factored in to partially offset increases.
4) Additional Permanent Transfer Expenses (PTE) of £100k have been built in to the cost base. This represents the cost of two internal moves to Aberdeen and four external recruits. This supports HSE’s aim to recruit and retain staff with scarce skills in the right location. This increase adds approximately £1 per hour to the current rate.
5) Chargeable hours are notoriously difficult to predict, particularly so far away from the start of the financial year. Our best estimate for 07/08 is 52,500 hours, reflecting the loss of key charging staff and the fact that new staff will take time to get up to speed.
6) Taking all of the above into account (see below), a charge-out rate of £155 per hour (for 07/08) is proposed.
7) Summary of movement in the outturn rate for 05/06, current rate and proposed rate for 07/08:
|05/06(budget)||05/06 (outturn)||06/07 (current)||07/08 (proposed)||Variance|
|Payroll||96||89||92||96||-7+3+4 = 0|
|Additional PTE||0||0||0||1||0+0+1 = +1|
|GAE/Overheads||56||52||55||58||-4+3+3 = +2|
|Total||152||141||147||155||-11+6+8 = +3|
|Chargeable hours||55,070||58,347||55,758||52,500||+3,277-2,589 -3,258 = -2,570|
i) The 4.3% increase between the 05/06 outturn rate (£141) and the current rate (£147) is mainly attributable to the impact of the pay award and increases at or around inflation for most other costs. As well as increases in costs, there are other factors that influence the charge out rate. Various combinations of increases or decreases in chargeable hours can have a significant impact on the rate.
ii) A 5.4% increase on the current rate is proposed for 07/08. Again, this reflects an increase of around 4% for payroll related costs and inflationary increases (approx 2.5%) for other costs. Additionally, £1 of the increase relates to the Permanent Transfer expenses associated with attracting the right calibre of staff into HSE’s offshore function in Aberdeen.
|£ p/h||%||£ p/h||%|
|Gross salaries of staff actually carrying out offshore work, their line managers and support staff||88||61||85||60|
|Gross salaries of operational strategy and management||6||4||4||3|
|General admin expenditure||38||26||37||26|