Survey shows local authorities are biggest motivator for budget cuts
Councils force ALMOs to cut costs
Pressure from local authorities has caused arm’s-length management organisations to cut costs by up to twice as much as housing associations.
A survey of ALMOs by auditing firm Baker Tilly found half of the respondents made annual cost reductions of between 6 and 10 per cent over the past 12 months.
In a similar survey of social housing providers carried out earlier this year, the firm found that average cuts were between 2 and 5 per cent.
Gary Moreton, head of social housing at Baker Tilly, said the bigger cuts for ALMOs were a result of pressure being applied by corresponding cuts to council budgets.
More than 60 per cent of respondents said that pressure from their local authority was the biggest motivating factor behind making cuts.
A quarter of ALMOs felt pressure from the board was the biggest contributing factor, while less than 15 per cent cited pressure from management.
‘The local authorities are owners of the business,’ said Mr Moreton. ‘They have pressure put on them from the government and are having to save 20 to 25 per cent and are just pushing that burden down to their subsidiaries [the ALMOs].’
Three quarters of those organisations that answered a question on the specifics of their cost cutting said they had targeted savings of at least £500,000, with 12.5 per cent aiming to save more than £5 million.
The majority of the savings have come from staff, with every ALMO that responded to the survey admitting to reducing its head count over the previous 12 months. However, not a single respondent said that a reduction in front line staff had resulted from a cut to services.
More than half of the respondents also admitted that they may be forced to cut staff again to meet increasingly tightened budgets.
‘They are pretty much all saying “same again”,’ said Mr Moreton. ‘But if you are still looking to reduce head count then at some point in time it will affect services.’
Philip Toni, finance director at Wolverhampton Homes, which manages 23,000 properties for Wolverhampton Council, claimed that many councils are spending money cut from ALMO budgets on improving their existing stock. He said that money often stayed in councils’ housing account even if it was not being paid to the ALMO.
‘Some ALMOs have been pushed to make savings on the revenue side but I think generally savings have led to more money being put in on the capital side,’ Mr Toni added.
ALMOs are responding well to these challenging times, says Gary Moreton
Baker Tilly’s survey of the arm’s-length management organisation sector clearly shows that ALMOs are operating under different cost pressures from the rest of the social housing sector.
The survey shows that most ALMOs are responding to pressures from councils, with 50 per cent of respondents achieving savings of 6 per cent to 10 per cent in the past year. This is impressive and when asked, their methodology to achieve this is very clear - strong executive support, clear targets and a planned approach. This is very much a textbook approach and clearly works.
Reducing head count has been ALMOs’ main focus, but this has been done by changing work practices. We have seen that ALMOs are very willing to challenge the status quo, and changing methods of operation to drive through efficiencies is proof of that. However, with no apparent change of approach cited over the next 12 months, this does beg the question as to how long this can continue and where further savings are going to come from without impacting on service or a major change in structure.
Baker Tilly is working with a number of social housing clients which are using a variety of approaches. These include reduced material costs by supply chain management, savings on maintenance service costs through partnering, re-tendering and repackaging contracts, collective procurement, service level agreement reviews and rationalising structures and service.
There is evidence that ALMOs are thinking radically; looking at different sources of income (pension funding and social impact bonds); different structures (council-owned, community-owned models, and charitable and commercial entities) and strategic alliances (‘super ALMOs’ and enhanced services for councils) are widely held discussions throughout the sector.
There is much debate on the future of the ALMO sector, but there is strong evidence that management and boards of ALMOs are responding to the challenge and setting new strategies to be fit for their future role.
Gary Moreton is head of social housing at Baker Tilly