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The proposed VfM Standard: what you need to know

5 October 2017 • Jo Loake

As the HCA issues key consultation on the Value for Money Standard for RPs, Croftons’ Head of Governance & Regulation Jo Loake gives the lowdown on the proposed new standard, its implications for housing providers, and ponders whether a more target-based approach will actually help deliver better value in the sector.

 

The purpose of the consultation

The HCA is looking for views from the sector on a new standard and code of practice they intends to issue – but it’s not simply a tick box exercise for achieving VfM, it is also to allow the HCA to strengthen its requirements for board accountability and provides a set of metrics in a separate technical note.

Through the new standard the HCA is looking to improve the current VfM regime, moving the "focus of the regulatory approach away from the primarily narrative self-assessment to more outcome-based reporting" intended to:

  • continue to drive improvements across the sector;
  • ensure that VfM forms part of RPs’ strategic objectives;
  • encourage investment in existing and new homes; and
  • enhance the consistency, comparability and transparency of VfM reporting.

Essentially, VfM reporting will be moving away from the previous self-assessment to a more structured and regulated approach. Reports will be made in the annual accounts and must be made in a way which is clear, concise and appropriate to an RP’s stakeholders.

The proposed standard

The proposal expects RPs to set targets to measure performance in achieving VfM, against which the delivery of strategic objectives will be measured. The standard will apply to all RPs, including for profit RPs and those with <1000 units, but not to local authorities.

As with existing standards, Boards will be expected to ensure compliance with the VfM standard. A code will be published which will expand on the content, however, RPs should be aware that it will not be a ‘tick list’ and they are free to meet the proposed standard in any way which is appropriate for their business. However, the HCA will have regard for the code when it is assessing compliance.

RPs must be able to demonstrate a robust approach to VfM, and a rigorous appraisal process for options to improve performance. This includes a robust approach to decision making and options appraisals. When making decisions, Boards must consider VfM across the whole of the business, including any non-social housing activity, risk v reward, alternative commercial, organisational and delivery structures, and all against performance targets which must be regularly monitored.

The required outcomes

It will be for RPs to ensure that their strategic objectives include an approach to VfM, which can be demonstrated to stakeholders. Strategic objectives will need to include a strategy for delivering homes which meet a range of needs, and the derivation of optimal benefits from resources and assets, including the optimisation of economy, efficiency and effectiveness in meeting their objectives.

This is likely to mean that boards must make decisions about maximising returns from assets and resource whilst also ensuring that it is consistent with achieving the organisation’s wider purpose.
RPs will need to publish evidence annually to enable stakeholders to understand performance against targets and metrics, comparison to peers and measurable plans to address underperformance.

The Code – a few points to note

  • As already mentioned, existing strategic objectives could embed VfM, or VfM could be a standalone strategy, however, RPs are expected to achieve optimum efficiency, effectiveness and economy in delivering their objectives and should include factors such as available resources, risk and matters such as health and safety, to ensure long term financial viability, whilst maximising financial return for assets and activities.
  • RPs must maximise the return on assets, and where an RP has had to accept a lower than market return, in pursuit of their purpose, the rationale for this must be clearly articulated and justified. In short, if an RP is disposing of stock at less than market value there may no longer be a need for consent from the HCA, but it must be shown that it was justifiable as part of the VfM standard.
  • When considering the use of resources and assets, they are to be considered in a wide sense, and should include matters such as investments into services or business steams and approach to employment and remuneration.
    RPs must understand what is driving their costs, how they have changed over time and how their costs compare to other RPs. The end goal is to ensure the correct quality at the lowest price.
  • RPs should consider whether their structure is suitable to enable it to achieve it aims, and Boards must actively consider alternatives, such as corporate structure, diversification, partnerships etc,.
  • Where an RP is considering investing in non-social housing activity, it should generate returns commensurate with the risks involved, therefore Boards will need to be certain that risks are assessed and measured, including the impact of the risks crystallising.

Conclusion

Clearer regulation or an administrative burden?

The proposed VfM standard is welcome in many respects, as guidance on VfM in the past has been slight. With a standard and a code of practice, RPs will be able to clearly see what is expected of them by their regulator.

However, despite the consultation asserting that the administrative burden on RPs will not be too great, RPs will now have to ensure that the standards are met and where they are not, have a justification as to why, especially given that the HCA will use the code which accompanies the standard to assess compliance, as well as ensure that they have targets against which the achievement of VfM can be measured.

The consultation appears to suggest that RPs can set their own targets against which they can measure their performance, such targets allowing for the individual needs of the organisation. However, it also says that RPs would also be expected to report against the suite of metrics defined by the HCA.

What about non-social housing activity?

There is also an expectation that RPs will report on different activities and assets appropriate to its business priorities, separately to the social housing activity. What is not clear is whether this means that RPs who carry out non-social housing activities in commercial subsidiaries should report on those activities. Whilst it would be understandable for an RP to report on any investment it may have made in a commercial subsidiary, or on the gift aid received from a commercial subsidiary, and for the RP and the HCA to be able to ensure that any relationship between such group members does not adversely impact on the social housing assets of the RP, it would seem inappropriate for the HCA to be assessing the activities of a commercial subsidiary which is not an RP, as such entities aren’t bound by the regulator.

It’s arguable that the proposed standard intends to address the possible freedoms that came with the abolition of the consents regime. By asking RPs to ensure that the full range of operational and strategic issues in delivering VfM have been considered, this may impact on decisions RPs make about divesting itself of any social housing assets.

Will targets help deliver VfM?

A key question posed by the consultation is whether a target based approach will help to deliver VfM. Whilst this approach provides RPs with some guidance as to the expectations of the HCA, it will not address any unforeseen blows to RPs from external influences, such as seen by the rent cut, or the impact of universal credit.

Having guidance is to be welcomed, if nothing else it will go some way towards a consistent approach in evaluating whether the VfM standard has been met by RPs, which was a problem with the self-assessment regime. However, what the sector would probably not want to see is something that is prescriptive in its nature and restricts them when making decisions.

The short conclusion is that RPs will be expected to enshrine VfM in all decisions and decision making processes and justify any deviation.

Need advice?

If you would like to discuss any of the issues raised by the consultation and the implications of the new standard please do get in touch – click here to contact Jo.

The consultation period closes on 20th December 2017 - click here to view the documents on the Government website


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