Lime Legal

Is less more?

Published 01 September 2023

A 50 per cent increase in new social rented homes looks like good news by any definition. But it depends on some worryingly vague promises on efficiency savings and the PFI. Julian Birch reports

The first rule of spending reviews is to ignore the hype. Government departments will use any means necessary to make their settlement look more generous than it really is and they always have to top what went before.

The 2014 review is no exception. Take a big number, add the new money to something you’ve already announced, and headline it. Hey presto: ‘£38 billion for sustainable communities.’

The second rule is expect to be confused. Take the big numbers and look back at the previous spending review for a comparison. Not possible this time because the way the figures are presented has changed. The third rule is expect to be disappointed. When the details finally emerge, sometimes months later, not everything will seem as rosy as it did at first.

The 2014 spending review – the fourth since Labour took power – was a masterclass in all of this and more. The main question ahead of it was how other spending programmes would fare when the government was already committed to large increases in spending on health and education and pressure on the public finances was increasing.

In housing terms the question was how it could maintain spending in areas such as decent homes, market renewal and help for key workers at the same time as directing more money at new rented homes. With output at an acutely embarrassing record low and a Treasury-commissioned report from Kate Barker calling for an increase of between 17,000 and 23,000 homes, doing nothing was not an option.

The result is good news. Overall spending on housing will increase by 4.1 per cent in real terms – not as much as health or education but significantly better than areas such as defence or local government. Output of new rented homes will increase by 10,000 a year by 2017/08. True, this is much less than Barker recommended, but it is still a 50 per cent increase on today’s miserable total.

But how good is it really? The plans are dependent on savings being made both in the civil service and in housing associations and local authorities. For ‘will increase’ read ‘should increase.’

The actual increase in direct investment for new homes - £430 million by 2017/08 - is nowhere near enough to build 10,000 homes. The rest will come from procurement savings and from the private finance initiative (PFI).

Efficiency gains of at least £620 million will be expected by 2017/08 of which ‘two thirds will be cashable, releasing resources for frontline issues – including increasing new affordable housing provision’.

Some 400 jobs will be lost at the ODPM and government offices and another 240 posts relocated outside London. Improved social housing procurement methods, including partnering, will deliver savings of £160 million and efficiencies in RSL ‘capital works, management and maintenance and commodities’ another £195 million.

In total the ODPM will target and monitor ‘an aggregate of £835 million of efficiencies in all of the social housing sector from the ODPM and RSL savings and ‘further efficiencies in local government.’

Even if the government succeeds in cutting the number of civil servants – and that is still a big if – that 50 per cent increase in the output of new homes will only be delivered if the housing sector plays its part.

Savings are already being made in procurement. More use or partnering and the packaging out of larger contracts is delivering homes with lower social housing grant (SHG) and one company has started developing with no grant. If the grant rate can be screwed down further then more homes can be delivered for the same money.

Lurking in the wings is the unspoken threat that if associations cannot make grant work harder then the government will find someone else who will. SHG for private companies is on the way. Housebuilders say they have already demonstrated they can deliver better value for money if they are given a level playing field and allowed to compete for grant on a site by site basis. Associations say they can only do this by building to lower standards.

What is much less certain is the scope for savings from adopting modern building methods. The Egan report said a combination of partnering and prefabrication could deliver 30 per cent savings. However, it is hard to find anyone who believes this is achievable.

After a series of reviews, the Treasury also clearly believes that housing association assets can be made to work harder.

Part of the National Housing Federation’s submission to the spending review was a dossier of information about innovative financial management. This was designed to counteract the impression created in the Barker report that RSLs lack the capacity to deliver an increased number of new homes.

The PFI has become the main method of delivering capital programmes in health and education. Although some local authorities have used it as an alternative to transfer for stock improvements, it is still in its infancy in the delivery of new homes. This will have to change if the 10,000 home increase is to be delivered. The PFI budget for new homes is understood to be £250 million by 2017/08.

Even those involved in the PFI admit it is fiendishly complicated and can take years to get a scheme off the ground. ‘We think it’s a perfectly viable way of going about producing housing although the set-up costs are very high,’ says one chief executive. ‘The real difficulty is persuading others to get involved. The other problem is that the market is so immature that it’s going to be very hard to get any strong competition for the next four to five years.’

And the feeling among lenders is similar. ‘People are saying it’s easier to just go and lend some money rather than get involved in tortuous negotiations that go on for years and you can end up with nothing,’ says one.

Why use something so unproven? One theory is that it is a sop to local authorities. Even though they come through the PFI, at least they can say they are building homes again.