Research and analysis

Review of VFM reporting in the accounts 2023

Review of the 2023 value for money reporting

Applies to England

Documents

Value for Money reports and guidance

Details

Contents


The Value for Money standard places a requirement on all private registered providers to ensure that value for money is at the core of their strategies, detailing an approach that is transparent and accountable to their stakeholders. They are also required to provide a comprehensive view of how they have performed against their objectives and how they intend to deliver their strategies into the future. This includes reporting against their own value for money targets and a series of common metrics set by the regulator. The Standard requires providers to annually publish this evidence in their statutory accounts.

Effective management of value for money performance is also a key regulatory expectation for all providers. Better outcomes, service delivery and efficiency depend on it. Achieving these demands good quality information on and interpretation of performance which help shape strategic decision-making.

Section A addresses important issues on value for money reporting identified from a sample of recently published accounts and builds on feedback set out in previous years’ reports. It aims to inform boards on key aspects of performance reporting to inspire stakeholder confidence in the future.

Separately, section B provides an overview of key strategic themes and priorities relating to value for money also identified from providers’ accounts. For some boards, the strategic focus is a clear reflection of competing demands on their organisations and the difficult choices taken during these challenging times.

Where value for money statements fall short in respect of the VFM technical note or on wider reporting requirements of the standard, this can reflect weak internal reporting frameworks. Where such instances are identified they will be followed up through routine engagement with providers.

Part A

Feedback on value for money reporting in the accounts and compliance against the specific reporting expectations of 2.2. of the VFM standard.

The VFM standard expects providers to report performance against its own value for money targets and any metrics set out by the regulator.

What the review found

The VFM technical note prescribes the methodology for calculating the regulator’s metrics for reporting purposes. Many providers report on metrics that are not dissimilar to those set out in the Note, but which are calculated on a different basis, such as Gearing and EBITDA (earnings before interest tax depreciation and amortisation) interest cover*. Where we noticed significant differences in the past and fed back individually to providers, it was good to see some improvement this year.

Feedback

All providers must comply with the VFM technical note and calculate the metrics on the precise basis required. In addition, providers are also welcome to report on their own VFM measures that would aid stakeholders’ understanding of their performance. Where similar VFM metrics are reported, the measurements should be clear. This should ensure consistency, supporting the aim of comparable reporting across the sector.

The VFM standards expects providers to have appropriate targets in place for measuring performance, and to report their performance against these targets.

What the review found

Targets are important in setting the level of expectation by Board and play an important role in clarity for stakeholders. They help in understanding the provider’s strategic focus, providing insight into its expectations and assumptions as well as performance levels. While some providers demonstrated how they performed against targets, not reporting against them continues to be a common weakness for others. Our review found that around a half of providers did not provide a balanced report against target performance.

Feedback

Being clear about how an organisation is delivering against targets is fundamental in supporting stakeholders, including tenants, form their own views of performance based on its strategic objectives and historic data. To convey a complete picture, the information provided should enable comparisons of actual performance in the year with the performance that was expected. In addition to providing early warnings, analysis of trends enables stakeholders to see whether improvement is being achieved and whether future targets are likely to be reached.

The value for money standard expects providers to demonstrate how their performance compares to peers

What the review found

Thoughtful comparisons with similar organisations are key to effective performance management but remain an issue across the sector. Variations of performance may be due to genuine differences in efficiency or effectiveness but may also be the result of other factors such as asset management cycles or factors outside of the sector’s control.

Our review found that around a half of providers identified a relevant peer group in the context of their size, location, or business activity but for other providers the review did not allow for meaningful comparison and unlikely to help Boards or other stakeholders identify areas of challenge.

Feedback

Comparison against peers allows Boards and management to identify scope for improvement and efficiencies, and to understand similarities and differences between the organisation’s strategy and those of its peers.

Selecting a peer group that reflects your business context and objectives is pivotal and allows stakeholders to draw meaningful conclusions. The regulator’s VFM benchmarking tool and data provided by other benchmarking groups can help in selecting an appropriate peer group.

The value for money standard requires providers to have measurable plans to address any areas of underperformance

What the review found

A drive for continuous improvement means identifying areas from across the business where optimum levels of performance are not quite being achieved and addressing them.

Our review found that around a half of providers were transparent where they fell short against targets and provided effective feedback. Factors affecting performance included high operating and finance costs, driven by inflation, coupled with labour and supply-chain shortages. However, the review also found that too few providers are clear where shortfalls in performance are prevalent, most noticeably loss-making activities – a key weakness found in previous years reports also.

Feedback

Providers should acknowledge where they have not performed as expected and provide a reasonable explanation to stakeholders along with plans to address performance in the future (or the provider’s consideration of whether the target, and the underlying objective remain appropriate.) For some providers, loss-making business streams can often align with their social purpose such as regeneration and community investment or training. However, where other business activities (including non-core activities), are not performing as expected, providers should make clear their strategy for maintaining the activity. Where we find minimal disclosure on areas of underperformance this will also be raised through our regulatory engagement.

In conclusion

While we have seen some improvement with regards to value for money reporting, a common theme throughout reports in recent years is striking the right balance between comprehensive and concise performance reports which demonstrate how providers are achieving economy, efficiency, and effectiveness, while accommodating the complexities of the current operating environment.

Key areas that we expect our feedback to drive improvement in future reporting include:

  • renewed focus on achievements of economy, efficiency and effectiveness complementing the financial statements
  • improved disclosure between performance outturn and targets and less disconnect between these – including future outlook
  • more clarity within reports where there are shortfalls in performance – such explanations are important to stakeholders and critical for sector and investor confidence
  • more rigorous descriptions of the strategy for developing and preserving business capability in the context of value for money such as entering into or maintaining non-core business streams.
  • From April 2024, all registered providers are required to report on tenant satisfaction measures. In this context, it will be more important than ever for providers to consider the relationship between their reported VFM performance and other measures of performance for their tenants and stakeholders, including TSMs and any other key organisational performance metrics.

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Part B

Value for money strategic intelligence review

An evolving landscape coupled with a tough operating environment means Boards are carefully reconsidering their short to medium-term choices. The paradigm shift towards greater investment in to existing stock has created significant pressure on Boards to think about the resilience of their business models. Consequently, Boards are recalibrating their strategic priorities, delaying non-essential maintenance work and uncommitted development programmes while some others have identified new levers involving lease-based arrangements.

Common themes that we identified from providers’ strategic reviews included the following:

  1. Investment in to existing homes continues to be a key priority for all providers. Most reviews demonstrate awareness of the importance of fire, health and safety works and keeping tenants safe, while making clear their performance on these important matters now and into the future.
  2. Investment into sustainability, including energy efficiency and net zero targets, is more pronounced compared to previous years. An increasing number of providers have set out the extent to which their business models provide for these costs, including future funding requirements, although typically this remains at a macro level.
  3. Some reviews were more informative than others around decision-making and the trade-offs between the cost of retrofitting homes and asset disposal. Other strategic decisions centred on regeneration programmes (demolition and rebuild) and shared concerns regarding the cost of decanting residents.
  4. Providers remain committed to developing new homes – both affordable and for market sale, albeit at a lower rate than previously seen. However, there is evidence to suggest that a small number of providers are moving away from development programmes in the short term, in part to focus resources on existing stock, but also in response to the challenging operating environment, while others are more focused on the delivery of their existing pipeline but plan to scale back on future commitments.
  5. For some providers the opportunity cost is central to decision making and future planning as they actively consider the cost of providing services and homes where they lack significant presence and unlikely to achieve the desired outcomes that align with their value for money strategies. This includes decisions around stock swaps with, or sales to other providers.
  6. In addition, business consolidation was also a key theme drawn from some reviews; for example, board decision making around exit strategies or scaling back on specialist services, citing low margins and uncertainty around future funding streams as a key issue. On the other hand, a small number of providers are actively expanding their supported housing portfolio.
  7. Finally, there is an increased narrative around providers’ approaches to procurement. Developing multi-provider partnerships is key for some and seen as an alternative solution for securing funding in preparation for net zero and energy efficiency programmes. It’s clear that there is renewed focus on economy in consideration of contract renewal, such as repairs and maintenance, estate management, as well as back-office arrangements including insurance policies and energy suppliers. The approaches adopted however are non-uniform. For example, some providers have plans to expand their directly employed maintenance workforce with a view to cost savings and improving tenants’ outcomes, while for others, there are plans to outsource aspects of their finance function.

On balance, it is encouraging to see that most providers are actively considering the optimum solutions for their organisations.

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Updates to this page

Published 15 February 2024

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