The Financial Services Compensation Scheme (FSCS) has managed to keep management expenses for the coming year under control but still faces imposing a £129m levy increase in 2025/26.

The industry-funded safety consumer net said in a budget update today that it was proposing an increase in its management expenses costs of only 0.5% for 2025/26.

However, the using up of previous surpluses means the levy, paid by industry firms, is likely to rise by £129m from £265m in 2024/25 to £394m in 2025/26.

It's not yet clear what this will mean for the levy imposed on individual regulated firms.

In its budget update, the FSCS said it had managed to keep management expenses under control for the coming year.

It anticipates needing an annual operating budget of £103.6m in the coming year. To help pay for this it saids the total levy remains as forecast in November which means a forecast large levy increase is now likely to go ahead.

The FCA and the Prudential Regulation Authority (PRA) will consult on an overall 2025/26 FSCS Management Expenses Levy Limit of £108.6m. This includes a core budget of £103.6m and an unlevied reserve or contingency fund of £5m. This reserve is unchanged from the contingency fund in 2024/25.    

The FSCS says the management expenses forecast for 2024/25 is currently within the budget of £103.1m. The body has made some savings, with lower claims-processing costs than previously anticipated. 

In November the FSCS said its 2024/25 levy remained unchanged at £265m but compensation costs for the year were forecast at £372m, a slight increase from a May forecast of £363m. The FSCS has continued to secure “substantial recoveries” from failed firms and expected to recover £33m in 2024/25.

The body forecast in November that its 2025/26 levy could be £394m, much higher than the previous year's £265m. It expects to pay out £367m in compensation in the coming year, similar to 2024/25, but the levy will likely be much higher as lower surpluses are available to reduce the levy. In recent years the FSCS has been able to use substantial surpluses to keep levy costs down.

It expects to recover a slightly lower amount of £32m in the coming year from previously failed firms.

Martyn Beauchamp, interim CEO of the FSCS, said: “We have continued to ensure we absorb as many inflationary rises as possible, keeping our expected management expenses in line with the current financial year. 

“We have invested in staff to enhance our team of experts and strengthen our internal capabilities. We are funding this investment in expertise with savings from reductions in outsourced claims-handling costs and professional fees.” 

“Next year we come to the end of our three-year plan to build our in-house claims-handling capability. This major change to our operating model has given us greater control and flexibility to handle the variety of claims we receive each day. This transition is progressing well, continuity of service has been maintained, and we are on schedule to be fully embedded in the 2025/26 financial year.”

Despite the likely increase in the levy this year the FSCS says the levy figure for 25/26 is still significantly lower than some recent years, such as 2022/23 when it was £625m.