Consultation on the Value for Money standard

The Federation is preparing to respond to a consultation on the Value for Money standard.

12 December 2017

The HCA is currently consulting on major changes to the Value for Money standard. At a time when housing is higher on the political agenda than for many decades, these changes reflect continuing concerns from politicians and ministers about the sector’s efficiency. The absence of stockholder pressure to reduce costs is again cited as a factor.

About the changes

The HCA proposes:

  • a robust approach to efficiency, including a requirement to set targets and achieve ‘optimal benefit’
  • a focus on outcomes rather than on a narrative self-assessment.

Achieving ‘optimal benefit’

According to the HCA, associations should focus on achieving ‘optimal benefit’ from the way they use their resources, and on maximising their ‘financial return’, so far as is consistent with their objectives.

The proposed standard, and the explanatory code issued with it, make it clear that achieving ‘optimal benefit’ means that the board should rigorously review all aspects of operations and structure. This will mean reviewing all the organisation’s activities, including non-core activities, to ensure that they are delivering the best return; as well as considering whether there are any fresh opportunities that should be taken.

Reviewing form and structure

Even more fundamentally, the review should extend to the organisation’s form and structure including its approach to remuneration of employees and the board, its corporate structure, procurement, how it partners with other organisations, and whether it better delivers its objectives as a standalone organisation or should consider merging.  

Moving to a metric-based regime

Furthermore, the HCA proposes a major shift away from the approach of recent years, relying largely on each provider’s narrative ‘self-assessment’. Instead, the HCA proposes a metric-based regime that draws heavily on the ‘Sector Scorecard’ that has been developed by a number of leading associations.

Associations will be required to incorporate in their annual accounts a report against the metrics required by HCA as well as any further targets that the association has set for itself. This report must also set out the association’s plan for dealing with any areas of underperformance.

The HCA included in its consultation seven proposed metrics, covering the following areas:

  • reinvestment
  • new supply delivered
  • gearing
  • interest cover
  • social housing cost per unit
  • operating margin
  • return on capital

The proposed metrics were subject to an earlier response deadline of 25 November, as opposed to the deadline of 20 December for the overall consultation.

About our response

We have already commented on the proposed metrics, and will shortly respond to the consultation more generally. We will support the use of metrics in principle (notwithstanding some concerns on the details); and welcome the demise of the narrative self-assessment, which clearly failed to meet the HCA’s expectations and was regarded as unnecessary and burdensome by many associations.

We will, however, express concerns on a number of points.

Assessment of ‘value’ in monetary terms

Our main concern is about the assessment of ‘value’ in monetary terms, and in particular about the references to maximising ‘financial return’. This emphasis creates a misleading impression of the nature and role of housing associations, whose fundamental purpose is the meeting of housing need and associated social benefits.

Although the consultation includes sections showing that the HCA does indeed recognise this fact, they are mostly located not in the standard but in the code and are not prominent.

The standard should contain a clear acknowledgment at the outset that it is social purpose that drives housing associations and any reference to maximising financial returns should be restricted to cases where an association has made a non-core investment specifically to generate a return.

Inclusion of efficiency in formal accounts

Provided enough information is given in the accounts to demonstrate the association’s performance and plans for improvement, it should be acceptable to provide fuller information about efficiency in separate published documents rather than in the formal accounts.  

Requirements for smaller associations

Most of the HCA’s requirements for regular submission of data do not apply to associations with fewer than 1000 units. Consequently, these organisations are not geared up to generate information in the form required by the proposed metrics.

Given that they collectively represent less than 5% of the sector (measured by stock numbers), we suggest that these smaller associations should be given greater flexibility to set their own targets and metrics for improving and measuring performance.