Measure for measure

Everyone in social housing knows they’re supposed to be working more efficiently. The murky part is what this actually means, how you know when you’re doing it and, crucially, how these supposed savings are meant to be measured.

Last July’s announcement by the Treasury and the ODPM that social housing providers must make savings of about £1.5bn by 2007/8 was fairly unambiguous. But for months there was a lack of detail about how the ODPM plans to measure councils’ and housing associations’ performance on efficiency.

Now, however, the situation is becoming clearer – to an extent. On 21 February, the ODPM report Social Housing Efficiency:

A discussion paper revealed that councils and housing associations would have to measure their own efficiency and submit the results to the regulators.

The Housing Corporation responded to this on 24 March, issuing a guidance note on the process and framework for the production of efficiency statements. It added that the corporation would be issuing a circular, on an unspecified date, detailing its requirements for production and submission of associations’ statements.

Formal responses to the ODPM discussion paper are still being collected but, informally, many housing providers say they remain unsure of how to measure the more complicated gains and are worried the existing guidance is not enough.

Why self-assessment?

The ODPM’s discussion paper acknowledges that working out how much housing providers have saved will be a tricky task.

So much so, in fact, that it is leaving it to housing providers to do the calculations themselves. “We decided to pursue the self-assessment option as it provides local ownership of the measures of efficiency gain and supports local innovation,” says an ODPM spokeswoman.

The ODPM also argued more prescriptive methods of measuring savings, or setting a framework of nationwide indicators, would increase bureaucracy. “A framework opens up the dangers of a ‘one-size’ solution, and the associated burdens and distortions that could arise – it could be over-simplistic or create a complex bureaucracy which measured things that were not important and prevented real gains being created and used,” the spokeswoman adds.

How it works

Each local authority and housing association must complete these annual efficiency statements – and the first are due in from local authorities on 15 April. The statement will consist of two one-page documents, the “backward look” and the “forward look”. The backward look will set out the amount of savings made in the past financial year – in areas covered by the ODPM’s targets for “efficiency gains” – whereas the forward look will briefly outline the strategy for making savings in the following year.

The ODPM has set targets for efficiency gains for 2005/6, 2006/7 and 2007/8 in the following areas: procurement of new homes; procurement of goods; repairs; and management and maintenance.

Local authorities’ statements will be judged by the Audit Commission, while those of housing associations will go to the corporation. The ODPM wants to see savings of £274m in 2005/6, £550m in 2006/7 and £835m in 2007/8.

The baseline against which savings will be measured is costs incurred in 2004/5.

The ODPM says efficiency is about improving quality,
but with no methodology for measuring efficiency, organisations feel they have to focus on cost-cutting

A cold reception

But those who’ll be making the savings, or helping authorities and associations do this, still feel left in the dark. Ross Fraser, chief executive of benchmarking organisation Housemark, has provided some guidance on how to calculate statements, but says that unless the government provides more advice on meeting efficiency targets, housing services could suffer.

“Self-assessment is definitely the way forward but it would be helpful for organisations to have more of a framework in which to exercise this,” he says. “The ODPM says efficiency is about improving quality and not making cuts, but in the absence of any real methodology for measuring efficiency and quality, organisations may feel they have to focus on cost-cutting.”

One director of housing at a city council, who did not want to be named, agrees the advice the ODPM has provided so far is too vague. “The ODPM is struggling with these more general measures of efficiency,”

he says. “There has to be more recognition of the need for mechanisms for identifying good practice. One method could be the cost of management per property, but if you’re already providing an efficient service it will be difficult to demonstrate savings.”

Money isn’t everything

Much of the confusion centres on the issue of “non-cashable gains”, savings made through improvements in quality or increases in output, but with the same level of expenditure. This is as opposed to cashable gains, where savings can be made available for reinvestment elsewhere. “We can show [cashable] savings in pounds and pence – but when it comes to other savings, how do we identify them and how do we account for them?” asks Keynote Group chief executive Tom Murtha.

Reassuringly for the sector, the ODPM does appear to be taking quality of services into account. “We accept that improvements in quality will be the most difficult gain to measure, but the sector already focuses on a number of customer-oriented outputs,” the spokeswoman says. “It’s important to stress that any reductions in quality negate any proposed efficiency gain.”

Roy Irwin, chief inspector for housing at the Audit Commission, acknowledges that there will be calls for more guidance on how to make efficiency savings, but says the commission’s role won’t just focus on cash savings. “We will be looking at how they use the resources they’ve got and what they are getting for their money.” But not all housing associations feel they need more guidance.

The William Sutton Group has calculated that, in order to meet the ODPM’s target, it needs to save £437,500 on management and maintenance, £125,000 on commodities and £25,000 on capital works in 2005/6.

“I’d prefer the ODPM to just give us the broad figures and let us get on with it,” says Mike Morris, the group’s chief executive.

“I recognise we haven’t got firmer detail, but we shouldn’t need it – we should make the running.”

With many issues left unresolved, initial assessments of efficiency statements will inevitably involve an element of trial and error. “Regulators must respect the difficulties that housing providers are going to experience,” says Fraser. “The first year will be a learning curve for everyone.”