What does the Spending Review mean for housing providers?

The Chancellor has revealed the outcome of his long awaited Comprehensive Spending Review. Andy Ballard and Rebecca McGuirk outline the implications for housing providers and provide five ideas for a way forward.

The headline figures of the Comprehensive Spending Review are not as stark as first thought, but include:

• public spending cut by 19% over the next four years
• 490,000 public sector jobs lost over ten years
• local authority spending down 7.1% for each of the next four years
• 150,000 new social housing homes built over the next four years
• Department for Communities and Local Government spend reduced by £1.1billion per year
• welfare benefits down £7billion per year
• new tenancies no longer for life
• new tenancies subject to intermediate (80%) market rent

The cuts are thought to be the deepest in living memory.

Bonfire of the quangos

On 14 October 2010 the Government issued a document entitled Proposals for Change, highlighting those quangos it felt ought to change. The Government website tells us:

• Charity Commission for England and Wales – retained
• Committee on Standards and Public Life – retained
• Audit Commission for Local Authorities – no longer a public corporation – disband and transfer audit practice into private ownership as previously announced
• Homes and Communities Agency – retain and substantially reform – similar enabling and investment body working for local communities. Intend to devolve London functions to mayor of London. Taking on regulation of social housing
• Independent Housing Ombudsman Limited – retained
• National Tenant Voice – abolish body and function
• Rent Assessment Panel/Residential Property Tribunal Service – abolish and transfer jurisdiction of these Tribunals into MOJ’s Tribunal Service
• Office for Tenant and Social Landlords (TSA) – abolish body. Regulatory functions passed to Homes and Communities Agency. Independent economic regulation safeguarded. Consumer regulation slimmed down.

In effect, the sixth of the TSA standards in respect of financial viability will move to the HCA with the other five standards potentially taking a less significant role.

Background

According to the Treasury "reducing the budget deficit is the most urgent issue facing Britain".  The level of borrowing is said to "undermine fairness, growth and economic stability in the UK".

Government debt interest was forecast to reach £70bn by 2014-15, a sum greater than the total spend on schools. Put simply the Treasury says: “public borrowing is only taxation deferred, and it would be irresponsible to accumulate substantial debt that would have to be paid off by subsequent generations in the decades to come.”

A great deal has been said about fairness and about responsibility and we have all heard on many occasions those in the coalition government state "we are all in this together".

Sir Philip Green: Efficiency Review

The efficiency review by Sir Philip Green made damning reading. It gave a number of examples (and we appreciate these are merely examples) including:

• one government agency that moved its headquarters from London to the Midlands signed a 20-year lease with no break for the first 15 years and at an annual rent of £1.2m. Sir Philip concluded the building was too large, but in any event the agency was abolished after nine months and that as a minimum "the unnecessary rental commitment is £18m"
• Sir Philip referred to mobile phone contracts, pointing out that the Government has 105,000 such devices in use and that 98% of government spend was with one provider, yet there were 68 separate contracts all running for different lengths of time and on different terms. Procurement was not joined up.
• Finally, Sir Philip pointed out that there were as many as 60,000 laptops in government use acquired without a standard specification and for various departments. The prices ranged from the highest level of £2,000 per unit to the lowest level of £353 per unit.

Many of us will no doubt know of similar examples. Some may be within our own organisations and some from organisations with which we work. The point remains that there are deep cuts coming that are bound to affect service delivery. As such, all organisations need to be leaner, joined up and focused.

So what does this mean for housing providers. Here are five ideas:

Do you have an efficiency champion?

Is there someone in your organisation who is looking at:

• your spend
• your receipts
• procurement
• outcomes/service delivery.

How do you get substantially more from substantially less? Your colleagues all have views. Are you capturing those views? One recent simple example showed how substantial savings could be made by simply folding A4 correspondence into smaller envelopes rather than using larger ones.

Although only a simple example, it does show that colleagues within all our organisations can contribute to the debate. Each and every one of them has at some stage asked themselves "Why do we do things this way?" No one knows more about service delivery than those delivering the service – so ask them with the aid of an efficiency champion.

Reward efficiency

Schedule 1 has gone. All organisations have now no doubt reviewed probity and/or governance and have a view as to its approach to matters of finance but why not a simple reward scheme? It need not be high value. Rewards can be as modest as £25.

My tip would be to avoid overcomplicating matters. Rewards based on the value of the saving become complex and contentious. Encourage your teams to get together and look at ways of creating efficiency and make modest rewards for those you adopt. At the same time make sure those making the suggestion feel the effort was valued. If you are to make an award perhaps it should come from a chief executive or the chair. Publish the results. Give examples for other colleagues to generate debate. Each organisation will have a different view on its approach to reward, but on the basis that "we are all in this together", teams joining up and working together on efficiency are good for business.

Procure wisely

Whether or not you are deemed to be a ‘public authority’ and caught by EU procurement, securing the best from your suppliers is critical. Sir Philip pointed out in his report that few, if any, government departments secure greater value in contracts based purely on the fact that it is the government buying and therefore payment is certain. The value of purchases can be used as a lever to secure discounts. Buy in bulk!

The ‘trick’ is to make sure you buy on your terms and conditions and not those of your supplier. Talk to your suppliers, set out what you want and how much you are prepared to pay. Benchmark and procure accordingly, but remember, cheapest is not always best. We have all read of the difficulties of Connaught.  When procuring, make sure you take up good references and you are as certain as you can be your service provider is able to deliver the service to specification, on time and on budget. Follow procurement regulations!

Restructure

Those in the Supporting People and/or the shared ownership market will have seen significant change in recent times. The issue for you is whether your existing staff complement best meets the needs of your customers moving forward. If not, you may need to restructure again. Although restructuring can at times prove expensive on the balance sheet if colleagues are to be made redundant, the sooner these matters are addressed the better.

It goes without saying there are complex issues of employment law not only in respect of process, but also in respect of pensions, so take advice before implementing change. Look at your risk map. Look at impact assessment. If your organisation makes the changes suggested, what is the risk going forward and how will that impact on your business and service delivery? Ask the simple question: “Is our current structure fit for purpose?”

Shared services

Housing providers have been talking about shared services for many years. I appreciate it is difficult to persuade organisations to join together. Some fear it might be a step on the road to merger. Others feel it might highlight inefficiency. Efficient organisations may in the short term increase costs if they have to adapt to meet other standards.

However, it is worth thinking about, if only from the point of view of your organisation selling your services to other providers. Clearly there are issues in respect of VAT, charitable status (if any) and tax, but at least begin the debate. Does your organisation do anything that it could and should sell to others? Do other organisations provide services more cheaply than you do? If in doubt, benchmark.

So where do we go?

The economy is not in good health. We face a very serious risk of a double dip or second recession towards the end of next year.

Much of what happens in the UK economy takes the form of a reaction to what happens in the US economy, so watch what happens over there. If it slips back into recession there is a very real chance we in the UK will follow about two quarters later. Your organisation needs to be lean, efficient and competitive to maintain market share, never mind grow your business.

Use an efficiency champion. Reward efficiency. Procure wisely. Restructure if your organisation does not do what it should. Share services where possible.

Andy Ballard and Rebecca McGuirk are partners at Shoosmiths. Andy can be contacted on 0370 086 4102
or by email at This email address is being protected from spambots. You need JavaScript enabled to view it.. Rebecca can be contacted on 0370 086 4103
or by email at This email address is being protected from spambots. You need JavaScript enabled to view it..