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The future of value for money regulation

An update of the HCA’s Value for Money Standard will set out a new code of practice, says Julian Ashby

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Picture: Getty
Picture: Getty
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The future of value for money regulation, by Julian Ashby

Over the summer holiday I expect many of you were enjoying some time away from work and will have taken a good book to keep you company. If, however, you are still looking for a gripping read, then can I recommend the sector risk profile that we published at the end of July?

Like all the best non-fiction, there should be plenty in there to inform and provoke reflection and hopefully help your organisation to plot its own future. Reading the document again after the summer, I am struck by the range of issues that boards of housing associations need to grapple with.

The sector is diversifying, becoming more commercial and taking more risks, but the tragic events at Grenfell have starkly reinforced the importance of the day job of managing homes and protecting tenants as a challenge that boards have to meet every day.


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Getting the balance right between managing existing homes, building new ones, supporting the communities in which they work and maintaining financial viability is not always easy for boards to achieve. How they handle these competing priorities is clearly a matter for them. But following the events at Grenfell and in light of the continuing housing crisis, the outside world is looking at what all social housing providers do with unprecedented interest.

In the coming months you can expect interest from politicians, the press and the general public in what you do and how you do it. Boards will need to ensure that their organisations can clearly articulate the value they are creating for their communities and why they should be trusted as delivery partners of government.

This increased scrutiny is a clear recognition of the importance of councils and housing associations to solving the housing crisis and protecting some of the most vulnerable members of society. However we have seen in other sectors that increased scrutiny means boards must be able to withstand the greater challenges this brings. This is absolutely not a call for the sector to start employing PR consultants, but to ensure that they are doing the right things for the right reasons and that they are able to clearly articulate that to their stakeholders.

“This month sees the launch of our statutory consultation [on value for money] and welcome views from across the sector.”

Housing associations have in the past struggled to convince stakeholders of the value for money that they deliver. While some of this comment has been based on misconception, the fact remains that for their core social rented product, associations are not in a competitive market where customers can choose their landlord. In light of this, parliament has given the regulator a set of fundamental objectives that include ensuring that the sector is delivering value for money and that is why we set a standard in this area.

 

As many of you will know, we have been having discussions with the sector about updating our Value for Money Standard. This month sees the launch of our statutory consultation and we welcome views from across the sector.

The proposed new standard places a strong emphasis on board leadership and transparency. We expect to see a strategic approach that includes reappraisal of the optimal use of your assets. We also propose a focus on how you organise and focus your operations to achieve your objectives, including how you are balancing the competing pressures you face.

We will expect to see explicit targets and reporting against them. We would not prescribe how you should manage your resources or assets but we expect you to be able to demonstrate how you are making the best use of them in relation to your objectives. Similarly, we will not prescribe your operational structure or your level of investment in non-social housing activities. But we will expect to see evidence of rigour in appraisals of different operating models and a clear match of rewards and risks in relation to non-social housing activities.

So the proposals are still for a co-regulatory approach. Your strategic focus, organisational design and approach to the management of assets and resources are for you to determine.

We are also discussing a small suite of metrics, informed by the Sector Scorecard metrics many of you are already piloting, that will enable us to monitor sector-wide performance at a macro level. However, it is up to each of you to determine your own targets and to report against them. This is a move away from narrative self-assessments to a more transparent and focused reporting.

“We will expect to see stretching targets, evidence of strong appraisals and reappraisals, and board leadership.”

A new aspect of our proposed Value for Money framework is the inclusion of a code of practice. A problem with the previous standard was the wide variation in how providers interpreted its requirements. The proposed code of practice seeks to address that issue by helping to explain what compliance will look like. It explains our intentions but does not add any more requirements. At the end of the day it is compliance with the standard that we require; how you achieve that is for you to determine.

We will continue to update our unit cost analysis and will have the benefit of our developing suite of analytics that use all the multiple sources of data you provide to us. So you will find that our value for money challenge during in-depth assessments is increasingly data driven. But this does not mean we expect you all to look alike or adopt the same approach.

We will be looking for a golden thread that runs from your strategic objectives through your organisational structure and approach to assets and resources. We will expect to see stretching targets, evidence of strong appraisals and reappraisals, and board leadership. Where we don’t find it, there will be robust challenge from us and, if satisfactory evidence of compliance is not forthcoming, the likelihood of a governance downgrade.

Julian Ashby, chair, Homes and Communities Agency Regulation Committee

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