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Our strategic plan for the next three years: your views

 

 

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Expenditure plans

05 July, 2022

As we prepared this draft strategy, we also developed draft plans for the expenditure necessary to deliver it. Those plans inform our forecast of the fees that we will need to charge.

We are not consulting on those fees, but we are explaining our fee setting policy, expenditure plans and the assumptions we have made. We are also forecasting a figure for the Annual Retention Fee (ARF), derived from the draft expenditure proposals at the time of writing, to make this consultation meaningful to dental professionals.

Current economic challenges affect everyone whether they are members of the public, dental professionals, or bodies such as the GDC. We have already worked to ensure our expenditure plans are sensitive to that context, and we will continue to drive efficiencies and challenge our cost assumptions and expenditure plans before our fees are set this year and in future years.

However, it is highly probable that we will need to increase our fees to dental professionals. We know this is not a good time (and indeed there is no good time), to take this action. So we have taken steps to minimise the impact of economic volatility and potential high inflation, in order to minimise any increases we need to make to the ARF in the first year of our three year plan, and to provide certainty that if it is increased in years two and three that it will be limited to specific situations that outline below.

This consultation on our strategy and the costs of delivering it is in line with the commitments we made in our fees policy, both in relation to how we calculate the fees we charge and how we explain it to registrants.

The fees policy sets out three key principles:

Fee levels should be primarily determined by the cost of regulating each registrant group: we will seek to minimise the ways in which registrants fund regulatory activity that is not generated by them by removing, as far as practicable, cross subsidy between different groups. We will do this by allocating costs, as far as possible, where they fall. Where a degree of cross subsidy is necessary, we will explain this.

The method of calculating fee levels should be clear: we will be open with registrants about how we allocate the income we receive from them and why, and provide sufficient information about cost drivers, giving them the opportunity to contribute to the debate. We will seek to show a clear link between fee income and regulatory activity.

Supporting certainty for registrants and the workability of the regulatory framework: we need to make sure that decisions on the allocation of costs do not lead to undesirable outcomes in the form of unacceptably high or variable costs for some groups of registrants. For example, in determining (as our policy requires) whether cross subsidy is necessary, we will need to consider the impact on the volatility of fee levels (i.e. how much small changes in workload would cause the fee to change). This is likely to be of particular relevance to small registrant groups, where distribution of costs among small numbers of registrants has the potential to give rise to significant levels of volatility (and therefore, uncertainty) and/or prohibitively high fees.

Determining expenditure and allocating it to dentists or dental care professionals is complex. We closely examine our expenditure, challenge our costs and efficiency, and make a robust forecast about the number of dentists and dental care professionals on our register since all of these affect the fees we charge. We have also developed new strategic aims and objectives and established what delivering them will cost. This required us to make certain assumptions, which we set out below.

Financial assumptions: inflation

Inflation is the rate at which the average price of a basket of selected goods and services in an economy increases over a given period of time.

The last period of very high inflation in the UK was the 1970s but it took until 1997 for the rate of inflation to drop below the target of 2%. Over the course of that time, the rate of inflation was volatile and changed significantly. The period of high inflation in the 1970s was caused by a combination of factors including severe external shocks to the economy such as increases in oil prices, strike action, and stock market crashes, which occurred alongside high public debt and continued high public expenditure.

Some broadly similar factors are playing out now and so we have included in our forecast the financial risk that inflation will peak in 2022 at around 10%, remain well above 2% for a period of years and fluctuate unpredictably over that time. However, we must be able to adapt to changing circumstances: the only predictable impact of inflation is that a given sum of money will buy a lesser amount of goods or services.

Everyone is being impacted by inflation and that means that members of the public, dental professionals and dental service providers will be affected as they make choices about seeking and providing dental care and making other decisions in their daily lives. We recognise the need to be even more careful than normal about the impact of the cost of regulation on dental professionals over the coming years.

For the GDC, inflation causes a particular challenge because its consequences occur throughout the year whereas we establish the ARF level for a three year cycle and set it annually, normally set two months in advance of collection for dentists and eight months ahead of collection for dental care professionals. This has the advantage of providing clarity and predictability to dental professionals and has worked well in recent years when price inflation has been low and stable. We have been able to make a limited but prudent risk provision to meet the low inflation levels we encountered and the level of the ARF remained unchanged over the strategy period from 2019 to 2022, following a reduction in 2019.

But this approach works less well during a period of higher inflation because we budget for our income well ahead of the time when we incur expenditure, leading to a significant risk to our ability to sustain our activities if our fixed income (including the costed provision for inflation) is unable to meet increasing costs.

If we used this approach to manage high inflation, we would need attempt to forecast now the effects of inflation over the whole three year period. That would likely to lead to two negative consequences. The first that we would need to make a robust provision for that three-year inflation risk, which would require the ARF to be higher from 2023. The second that the volatility in the rate of inflation means there is a significant possibility that the forecast would be inaccurate, so as a result, we would not be able to guarantee that the fee would not increase further in 2024 and 2025.

Our existing fees policy allows for fees to be increased without further consultation in exceptional circumstances when unforeseen costs arise. This is a mechanism we have not needed to use previously. We think that the rate of inflation remaining elevated over the strategy period is now probable. However, we think that the problem is that the degree to which inflation will be elevated, and the duration of particular rates, is unpredictable. This combination of an increased and volatile rate of inflation constitutes an exceptional circumstance. The volatility in the rate of inflation means there is an increased risk that any forecast we make now will turn out to be too high or too low in the second and third years of our expenditure plan. That could mean we under or overestimate our expenditure plans and therefore the level of the ARF.

We are therefore taking a different approach under our existing fees policy to provide greater certainty, more accurately respond to the current economic volatility and thus prevent significant under or over recovery of fees. We can increase the ARF to respond to any shortfall but we think it’s important to provide a level of certainty to dental professionals about the impact of inflation so we are including in this consultation information about how we will manage this exceptional circumstance.

We will take the following steps:

  • As our fees policy requires, the level of the ARF due for 2023 will be set at the level needed to meet the costs of delivering the Costed Corporate Plan due to be agreed by Council in October 2022, taking account of prevailing levels of prices at that time and including a limited risk provision for inflation.
  • In the two subsequent years, we will consider our expenditure plans in the light of the prevailing level of prices and any opportunities to make efficiency improvements. We may then increase the ARF for the following year, but any such increase will, at most, be in line with the rate of inflation at the time.
  • We will only otherwise change the level of the ARF over this three year period if exceptional circumstances arise which are not related to the rate of inflation.

To maximise transparency and predictability for registrants, we will base increases on the published index which most closely tracks our costs, acknowledging that the variety of the types of cost we incur are impacted differently. The index that we will use to make this decision is the Consumer Price Index (CPI). We have chosen CPI for the following reasons:

  • CPI more closely tracks the kinds of costs of that we incur as an organisation than other published indices, such as the Retail Price Index (RPI) or the CPI including owner occupiers’ housing costs (CPIH)
  • many of our contracts with service providers include CPI adjustments, so our costs in some areas will be increasing directly in line with this indicator
  • it is the most widely used and best understood indicator for inflation, so we think it is more transparent.

Prior to the annual decision on our fee levels for 2024 and 2025 in October of each year we will use the CPI index in September to review and set a fee that recovers the costs related to our expenditure plans.

Our current expectation is that we will repeat this pattern for subsequent three-year strategy periods, setting the ARF in the first year in relation to planned expenditure for the period, and limiting changes in the second and third years to the effects of inflation, other than in exceptional circumstances.

Financial assumptions: expenditure

We anticipate receiving around 1,420 fitness to practise concerns, annually, over the three-year period. This represents an increase in the levels of incoming concerns following a period of reduction during the COVID-19 pandemic when dental care provision was reduced. Now that dental services are more accessible, our assumption is that the number of concerns will return to and may exceed pre-pandemic levels.

It is important to understand that the number of incoming concerns does not necessarily translate into cases being opened or cases reaching a hearing, which is where costs tend to be concentrated. Furthermore, the number of cases reaching hearing is not the only driver of cost; the complexity of cases is also a significant factor. Thus, changing levels of concerns does not lead to an equivalent change in expenditure.

The fees charged to dental professionals will include the cost of funding the activity over the three-year period, and of maintaining our level of free reserves within the range specified in the Council’s Reserves Policy. The Council reviews the level of free reserves necessary every year to ensure we remain a viable organisation. The current assessment is for free reserves to be equivalent to 4½ months of operating expenditure over the same period. This is our current planning assumption and is the level assessed by Council as delivering the necessary financial resilience.  

Our fees policy includes setting fee levels for first registration to cover the costs of these activities. The costs associated with first registration have been calculated separately.

For the purposes of calculating the ARF, costs have been apportioned between the two registrant groups of dentists and dental care professionals, according to how they were generated (e.g. the cost of investigating fitness to practise concerns related to each group).

Where it has not been possible to apportion costs directly in this way (for example, in relation to fixed costs such as premises or communications activity), they have been apportioned in line with the average split of measurable activities across the whole of the GDC.

The fee calculations seek to limit cross-subsidy in line with the fee setting policy. However, as the dental care professional group comprises a number of discrete professions, some limited internal cross-subsidy between them is necessary to avoid the risk of large and unpredictable fluctuations in the ARF if it were set separately for each of the individual titles.

Financial assumptions: income

Our calculations have been based on the premise that the number of professionals on the registers will remain as they were in 2022. No increase or decrease has been incorporated into the projections. Therefore, we are assuming that income will vary materially over the period only as a result of changes in the level of the ARF and other fees. In the exceptional circumstances of a change in the number of registrants which resulted in a significant reduction in income, we would first seek to reduce our costs where possible, but might also need to increase the ARF for 2024 or 2025.

What this means for ARF levels

Our policy requires us to apportion costs to reflect the cost of regulation. In practice the cost of regulating dental care professionals has increased since the ARF was last set, while the cost of regulating dentists has reduced very slightly. Overall though, the effect of a currently high level of inflation and the risk of its continuation mean that the cost of regulation has increased and is likely to increase further. Other than in exceptional circumstances, we will not increase the ARF in real terms over the planning period.

The impact of this is an increase to the ARF for both dentists and dental care professionals. We cannot know the precise level of the ARFs until later in the year, when we have consulted upon and agreed the strategic plan and completed the detailed planning for the Costed Corporate Plan. We will be continuing to challenge our costs over the course of the consultation period before decisions are made about the level of the ARF.

Additionally, the consultation may lead to changes in the strategy which impact on costs. However, the current draft plan implies that the 2023 ARF is likely to be around £730 for dentists, and around £120 for dental care professionals. These are our current best estimates of the level at which the fees will be set, but it must be emphasised that the actual level will be set in relation to the final expenditure plan adopted by the Council following this consultation.

All expenditure is allocated to one of the strategic aims. The table and graph below show how our expenditure is allocated the proposed strategic aims that we are consulting upon.

Table 1: Proposed expenditure by strategic aim

Strategic aims2022-2024
(3 years)
(millions)

2023-2025
(3 years)
(millions)

2023
(1 year)
(millions)
1. Dental professionals reach and maintain high standards of safe and effective dental care£32.1£33.2£11.1
2. Concerns are addressed effectively and proportionately to protect the public£77.3£78.8£26.7
3. Risks affecting the public’s safety and wellbeing are dealt with by the right organisations£-£1.7£0.6
4. Dental professional regulation is efficient and effective and adapts to the changing external environment£10.9£11.8£4.1
Totals£120.3£125.4£42.5

Figure 1: Proportion of expenditure by strategic aim 2023-2025

 

Consultation questions

5. Thinking about our expenditure plans, to what extent do you agree/disagree with the following statements (1 being strongly agree to 5 strongly disagree):

  • I understand the explanations.
  • I understand the assumptions underpinning the plan.
  • I understand the approach to manage the risk of inflation on the costs of regulation and the ARF.

Please explain your responses.

6. Do you have any other comments to make on our expenditure plans?

Respond using the online form.