HQN The Governor - December 2015

Governor the

HQN's MagaziNE foR BoaRDs, ExECutivEs aND lEaDERs

are you

DECEMBER 2015

ready

for The changing of The

guard?

There’s a new government and they want private developers to stand in your shoes read all about how associations, aLMos and councils are finding ways to stay on the front foot here’s your essential guide to VfM today

Want top marks for your in-depth assessment?

HQN helps you pass the test – choose the support that works for you: Mock deep dive visit Have a practice run – our team of experts will take you through your paces: • A desktop review of the documents you’ll need to submit • On-site interviews with the key people • Feedback to your board and executive team.

We’ll give you honest and constructive feedback about how you handled the practicalities, where your key areas of risk are, and ways to improve.

Training session for boards and SMTs One of HQN’s experts will come to your organisation and deliver a tailored session explaining the IDA process – what to look out for and how to prepare.

Practical help If you are tight on time or resources we will send one of our experienced consultants to help pull together your documents and critique your submission ahead of the HCA. We will highlight the areas the HCA are most likely to explore in their interviews – making sure you’re really prepared for the questions ahead.

Please contact Anna Pattison on 01904 557197 or anna.pattison@hqnetwork.co.uk to find out more.

Culture shock Building a successful business Thursday 14 January 2016 London The housing sector is undergoing radical, rapid change, with pressure from the government to cut costs, drive efficiency and deliver more. 2016 is set to be pivotal for many housing providers, with some already seeking to make redundancies, explore mergers or share services.

But it doesn't have to be all doom and gloom.

Many of the UK's leading companies have been forced to go on their own business transformation journeys after facing with significant challenges of their own. What lessons can housing learn from them?

For more information: hqnetwork.co.uk/events Rockingham House, St Maurice’s Road, York YO31 7JA Telephone 0845 4747 004 Fax 0845 4747 006 Internet www.hqnetwork.co.uk Email hqn@hqnetwork.co.uk HQN Limited Registered in England Reg No. 3087930

Priced at just £289 (discounts available), this event features some of the country's top business transformation experts.

HQN’s MagaziNE foR BoaRDs, ExECutivEs aND lEaDERs

CRAZY is george osborne a big fan of country music? it seems like it to me. His whole spending review reads like the life story of Willie Nelson. Yes indeed – the very man that wrote the hit song Crazy.

Why do i say that?

conTenTS 3

Crazy Comment by HQN Chief Executive alistair Mcintosh

Willie made a lot of money but he didn’t quite get round to paying any taxes. it’s an easy mistake for a busy guy working nights to make. Now i’m not saying that you don’t pay your way. far from it. You stand unflinchingly like la Pasionara in the face of the onslaught. But the way the us tax man dealt with Willie is very similar to what we will be going through.

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Can we do it?

Reactions o george osborne’s spending review

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Fast on their feet…

Creative new approaches are being found to boost vfM

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Weathering the storm How to do more for less

Poor old Willie had no actual cash on him. so what did the tax man do? He made Willie record a new album and share the proceeds with them. Does that sound familiar?

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Under pressure Boards need to up their game, too

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Are you in – or out? vfM in the repairs and maintenance world

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Game theory the lessons learned from iron grip

osborne is dipping his hands into your wallet as if it was his own. swoosh, let’s swipe some of the rent money. No one will notice that it’s gone. and it will bring down the benefit bill to boot. Next thing you know he’s selling your homes from under your very feet. What cheek! But where else can he get money to build more homes? He’s taking it one piece at a time and it don’t cost him a dime, as Willie’s old friend Johnny Cash once sang.

From the press our regular look at the world media’s view of governance 18

Governance round-up: Conflict resolution

Now this is where we can learn a thing or two from Willie Nelson.

He got back on top again. How did he do that? He kept on keeping on. Willie just did his job, wrote his songs and played his gigs. lots of them. Bit by bit he sorted it all out. and that’s what we must do too. i have total faith in you. Why is that? i’ve put in more miles on the road than an old bluesman this year. What have i seen? this might surprise some of you.

Doctor’s orders Living wage Bridging the gap

You might expect to see low morale and tumbling standards.

Not a bit of it. there is none of this feeling sorry for ourselves.

What i come across time and again is hard-working folk finding clever ways to do things. Necessity, as they say, is the mother of invention. this issue is packed full of just a few examples. i’m sorry if i did not include you but space is limited.

Just like Willie Nelson no grand gesture will get us through this.

Moaning won’t help either. all history shows that hard work, persistence and an open mind are the keys to success. to slightly alter a line in his great song – you’re not crazy for trying.

Alistair McIntosh Chief Executive, HQN

All articles in The Governor were written by Kate Murray unless otherwise stated.

Designed by Paul Miller

Prontaprint Scarborough

Print management

Turnstone Media & PR (www.turnstonemedia.co.uk)

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’It could have been worse’ seemed to be the initial reaction from many quarters to George Osborne’s spending review. the u-turn on tax credits hogged many of the headlines, while in some parts of the public sector, such as the police and the arts, there was relief that the news wasn’t as bad as had been feared. Yet as institute for fiscal analysis analysis shows, the autumn statement does not mean the end of austerity. Yes, the cuts are less severe than was believed.

But, the ifs stresses: “this spending review is still one of the tightest in post-war history. total managed expenditure is due to fall from 40.9% of national income in 2014/15 to 36.5% in 2019/20. a swathe of departments will see real terms cuts.” local authorities will be particularly hard hit according to the local government association. its chairman lord Porter said the ‘difficult’ £4.1bn funding cut, on top of £10bn in demand-led pressures for councils, would mean local services would be drastically scaled back or lost altogether. “the consequences for our local communities who will suffer as a result should not be underestimated,” he said.

“Even if councils stopped filling in potholes, maintaining parks, closed all children's centres, libraries, museums, leisure centres and turned off every street light they will not have saved enough money to plug the financial black hole they face by 2020.”

George Osborne has set out his stall for the next few years – and the pressure on housing looks set to ramp up 4

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Who will pick up the pieces as communities feel the impact? Where housing providers might once have looked to step in to provide extra support, it’s extremely unlikely they’ll be able to do so this time as they look to scale back non-core activities. in this era of ‘george the builder’, housing providers will be judged primarily on their performance as lean housebuilding machines and – with the spending review underlining the focus on homeownership – as enablers of would-be homeowners. the spending review target is 400,000 homes, and with support to build them going to the private sector as well as housing associations and local authorities, the pressure will be on to build the maximum number of units competitively.

What will need to be trimmed from where to keep providers competitive in the housebuilding market? Many organisations have already made the most obvious efficiency savings and may well need to think even more radically in future. and

HQN’s MagaziNE foR BoaRDs, ExECutivEs aND lEaDERs

WE

do iT?

how will those which want to keep providing rented homes for those who need them most make that stack up?

after the rent cut blew a hole in landlords’ business plans, there’s now another threat on the horizon – the change to Housing Benefit entitlement for new tenants, which will see benefit capped at local Housing allowance rates. Whatever your views about the logic of first encouraging providers to build funded by higher rents, and then making it more difficult to let the homes at those rent levels, the change will have a further impact on providers’ spending plans as arrears potentially rise as well as, of course, serious implications for tenants and would-be tenants. that’s likely to be compounded in the longer term by the shift to universal Credit. for while the tax credit changes were shelved, the cuts to universal Credit once it is finally rolled out were not. according to think-tank the Resolution foundation, that means that by 2020, more than three million households could lose an average of £1,000 – with some losing considerably more. as the foundation puts it, the tax credit reversal provides ‘short-term relief’ but the outcomes further along the line will be ‘broadly unchanged’. so how will the landscape look at the end of the spending review period? How many homes will have been sold under the Ha Right to Buy - and how many replaced? Will private developers have delivered the affordable step up onto the housing ladder at the scale the Chancellor wants to see? or will housing associations become the bearers

of the affordable ownership torch? Certainly many have a historic commitment to shared ownership – but the jury is still out on how the new array of shared ownership, starter homes and rent-to-buy-type schemes will be received, and more importantly how far they will help those who struggle to access the market.

associations, the National Housing federation tells us, ‘remain committed to building homes for affordable rent to meet the needs of people on all incomes’. they’ll need to be more creative than ever in finding ways to do so. as a number of associations tell us in this issue of The Governor, they’re redoubling efforts to stay true to their mission – but are already finding they need to ditch some of the ‘extras’ they’ve offered over the last few years. some will be tempted by the merger route, but with others insisting they’re better placed to face the future independently, it’s unclear just how much of a rush to merge we’ll see. Even more unclear is what the new shape of the sector will mean for those at the sharp end of spending cuts – residents and communities. one thing, though, is for sure. the next few years will be challenging as austerity continues. as ian Parker, lead associate for HQN’s Housing finance Excellence Network says: “george osborne’s destination is still the same – he’s just taking a different route to get there.” an HQN briefing setting out the housing announcements in the spending review is available at http://hqnetwork.co.uk/ products/housing-quality-network-member-briefings/ 2015/document6105.html

iN tHE DEtail: otHER aREas to WatCH Housing association Right to Buy pilots have begun at L&Q, Sovereign, Riverside, Saffron Housing and Thames Valley Housing. What will they demonstrate – and what will this mean for full roll-out of the scheme?

The big sell-off to fund services: the spending review ‘encourages and empowers’ councils to sell off assets – it says in England, they hold £225bn

of assets, including more than £60bn in property not used for schools or housing. What will go and how will it affect communities?

A shift in the way funding for temporary accommodation for homeless people is funded to an upfront fund, rather than through Housing Benefit. How will this affect the areas under most pressure?

Councils will be able to raise a new ‘social care tax’ of up to 2% on Council Tax to help fund adult social care provision. Will this be anywhere near enough to meet growing need – especially given that affluent areas with a higher tax base will do better out of the deal than more deprived parts of the country?

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faST case

ON THEIR

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Take a look at housing providers’ value for money assessments, and you’ll see that the concept of efficient, cost-effective services has become firmly embedded in the way organisations have been looking at themselves.

But with rent reductions on the horizon, driving efficiency has become not just a regulatory requirement, but a practical necessity. How does the aspiration for true value for money square with the tough reality providers face today? Does making efficiency savings inevitably mean job cuts? How can the housing sector best balance its social purpose with ensuring it only does what it can do well? Will excellence be a casualty? are mergers inevitable?

Providers are working through these issues now. squeezing more from less will mean some tough decisions. We’ve already seen significant numbers of redundancy warnings across the country. But there are some other responses too, and here we round up examples of how organisations are setting themselves up for the new reality. Whether it’s creating a new culture across an organisation, or introducing a ‘back to basics’ money-saving project, improving your efficiency – and demonstrating it – is not just the technical exercise it might once have been.

Understanding real value With the pace of change affecting the housing sector showing no sign of slowing, organisations need to be fast on their feet in response. and when they’re putting value for money under the spotlight, there are some key questions which need to be at the top of their list. What do our residents and communities really want from us? Where can we make the biggest contribution? if we save in one area, how can we use those resources to make a real difference? an example of how those sorts of questions can shape a housing association’s direction can be found at Severn Vale Housing. it has been using the ‘sprint’ system to make fast improvements in nine areas of the business, including asset

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management, customer care, involvement, housing services and it. staff across the organisation have been involved in identifying cost-saving and income-boosting activities under severn vale’s ‘one team’ banner, while service reviews to improve work processes in areas such as grounds maintenance and repairs and housing management, and a new stakeholder senate to scrutinise services are also being implemented.

Quick wins range from significant savings on legal services to a new smartphone app allowing for more efficient customer contact. But perhaps more significantly, there’s a whole organisation approach to resources which severn vale believes will equip it well for the future.

“You can’t make efficiencies by changing processes, you have to make sure people understand those processes and own them,” says Claudia Cobban, severn vale’s governance and strategy director. “together with the board, executive team and whole staff we have looked at what the changes [in the operating environment] mean. No one can predict exactly what will happen as things are changing so drastically all the time but you can set yourself up in an agile way to allow you to respond and to invest in what really matters. We are not stopping development as that is our purpose, we are not stopping investing in good governance, good risk management and financial skills – they are where you really need to create an organisation that is resilient.”

Back to basics sometimes you have to learn from the past to face the future. that’s certainly the case for Merthyr Valley Homes, which has racked up savings of well over six figures by taking a lesson from the housing history books. in common with most parts of the country, door-to-door rent collections in its patch had been abandoned years ago, largely because of concerns around staff safety.

But, as it tried to make tackling rent arrears a priority, MvH

HQN’s MagaziNE foR BoaRDs, ExECutivEs aND lEaDERs

Creative new approaches are being found to boost VfM was increasingly finding it was last in the queue for payment. “We would ring people up and ask them to make a payment but the money lenders and so on had been there before us. We just weren’t quick enough,” says MvH chief executive Mike owen. so the association introduced a mobile rent collection service, employing a member of staff with debt collection experience to go door to door, build up a relationship with tenants and encourage them to pay off at least a proportion of their arrears on a regular basis. last year, in the first full financial year of the new arrangement, the service brought in £140,000 in cash – money that Mr owen says it was unlikely the association would have seen otherwise. thanks to the service and other measures – such as incentives for Direct Debit payments – the organisation beat its arrears target last year.

“We are the third worst hit area by the bedroom tax,” says Mr owen. “We do a lot of good stuff, including on jobs creation. But we can only do that if the rents are coming in.

We have an absolute responsibility to do this.” obviously the association has had to make sure appropriate security precautions, including a safe in the rent collector’s van, are in place. the original staff member tasked with the job has now been poached by another association keen to replicate the scheme’s success, but MvH’s replacement is continuing to bring the money in. “the good thing about this kind of service is if we weren’t collecting more than it was costing, we could just stop it,” says Mr owen.

Market testing When Paul Dolan joined Johnnie Johnson Housing early in 2014, many had written the organisation off.

“People were saying there was no chance we would retain our independence,” he says now.

in Mr Dolan’s first few days in the job, Johnnie Johnson was downgraded for both governance and viability and placed on the regulator’s watch list, a position Mr Dolan has previously called ‘not so much a naughty step for problem children but a contamination unit for the afflicted’. the immediate response might have been to look for a merger partner to take the struggling association on.

But Johnnie Johnson’s response was wider – and bolder – than that. instead of going straight into merger discussions, the organisation, supported by external specialists, devised a market test, where an independent future was put under the microscope alongside three external housing organisation bidders. as part of the process, Johnnie Johnson’s internal bid team set out its mission for the future, centred around providing high-quality affordable housing for older people. But although the board helped shape the vision, its decision-making process on which organisation was the Governor DECEMBER 2015

CoNtiNuED

ovERlEaf

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faST

best placed to take it forward was a robust one, stresses Mr Dolan. “they were really clear that if the internal offer wasn't right for future and current residents and there was a stronger option on the table that would be the route they would take,” he says. thanks to internal work identifying £2m of management savings over the next five years as part of ‘rebuilding the business plan from scratch’, while still being able to pledge more investment than any of the external bidders, the board decided continuing as a stand-alone organisation would deliver the best value for money.

Eighteen months on, Mr Dolan says the process has actually put Johnnie Johnson in a stronger place than it would otherwise have been in addressing the challenges all housing associations now face. “We think we’re ahead of the curve because we had already been forced to change ourselves as an organisation – we weren’t driven by anything george osborne said,” he says. “it shouldn’t have taken that to get the organisation in the position it is now – but we are stronger now and we are really clear about our purpose. there is sometimes a reluctance of organisations to change – there are some housing organisations delivering fantastic value for money but that’s not consistently clear across the sector.”

‘Elastic band’ asset management the shock to the system housing providers were hit with at the budget has required serious thinking about the way they go about their core business. and one of the key areas they’ll need to be considering is how they maintain and invest in their stock. How radical should their thinking be? at a recent HQN seminar on practical responses to the budget, Barry Patient of Rand associates offered an interesting model of what a repairs and maintenance service might look like in the future, given that providers will be looking for something like a 15% saving to bridge the gap between the 1% rent reduction every year and their own earlier assumptions about rent increases.

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on response maintenance, he suggests, providers might well want to redefine what is seen as emergency, urgent and routine. Eventually this might mean a regular cycle of visits to homes where work has been requested. on voids, his model suggests, providers might need to be ‘meaner and leaner’ and on cyclical maintenance, decorations cycles could be extended. on planned investment, whereas providers were most likely working to a higher ‘Decent Homes plus’ standard, his model assumes working to a Decent Homes standard, undertaking works on a ‘just in time’ basis and sweating the assets like never before. the intention, he explains, is not to suspend work across the board but to induce ‘measured slippage’ using the ‘elastic band’ approach.

How might this work out in practical terms? Well, if you take kitchens for example, Mr Patient says whereas on a Decent Homes plus basis you might have aimed at 20 years for replacement, you would now be looking at 25 to 30. someone due a kitchen in year 4 would receive it in year 5; or if they were due one in year 8 they would receive it in year 10. there’s also the option of an interim repair regime which might extend the life cycle to 30 years and might mean newer kitchens would then receive a facelift in year 15. on Mr Patient’s model of a 10,000-home provider, extending life cycles by 25% would means reducing annual costs by 20%. and extending life cycles by 20% would mean reducing costs by 16-17% a year. on his modeling, savings across the board for the 10,000home association could amount to £1.7m or just over £2m with vat – still only part of the savings needed, but nonetheless with a significant fallout, not least from tenants.

Cost-sharing When Byker Community Trust took on the 1,800 homes of Newcastle’s iconic Byker estate back in 2012 it was an unusual stock transfer. instead of all staff responsible for the estate transferring to the new organisation as is the norm, contracts were agreed with Newcastle City Council and its arm’s-length management organisation Your Homes Newcastle to manage the homes and repairs. three years on, and with the contracts due to expire next year, BCt has come up with a creative way of

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bringing services closer to local residents – and making significant efficiency savings along the way. under the plans, Byker will bring housing management in-house and, in an innovative example of a new spirit of partnership to suit these challenging times, has agreed to team up with 17,000-home isos Housing in a partnership company. the deal will see isos providing repairs and maintenance and grounds maintenance for BCt. overall savings from the changes are estimated at £650,000 a year.

BCt chief executive Jill Haley says the combination of in-house housing management and the cost-sharing partnership for repairs will allow her organisation to build the closer community-focused services which residents want to see, while also allowing it to benefit from the experience and size of isos on the repairs and maintenance side. “this is something which not only allows us to reduce costs, but to get better value for money and improve quality,” she says. the plans, approved by the board in early November and now out for further consultation with tenants with a view to implementation next year, came after an extensive review of services by the board. Ms Haley says the idea with the cost-sharing arrangement is that it will allow BCt to buy in high-quality services on an open-book basis, potentially, for example, extending to support services such as HR, while also reducing overheads for isos. “it’s a true partnership – we are a partner and shareholder,” she says. “i do think that for the sector it shows ways to reduce costs and overheads without necessarily going down the merger route.”

BCt has already made great strides since transfer, investing £22m in the estate, and Ms Haley believes the mix of inhouse management and cost-sharing will pave the way for the next stage in Byker’s progress. “getting that closer relationship and influence with customers and our core business is what we are looking for. We are going into partnership with an organisation with the same values as us. it is so important for Byker to be able to offer the services that really meet the community’s needs.”

Value for money after merger it was the most high-profile rescue the housing world has ever seen.

When Sanctuary Group took over Cosmopolitan Housing group, it not only saved the struggling organisation from insolvency – but also prevented a wider fall-out for the whole housing sector. the scale of Cosmopolitan’s problems meant this was no straightforward merger, but an emergency takeover. Yet however unusual the circumstances sanctuary’s work in the couple of years since has shown how merger can drive real value for money gains. the analysis in sanctuary’s latest annual report and financial statements sets out how it turned Cosmopolitan’s performance around once it became part of sanctuary. among the key achievements are elements which show the potential benefits of economies of scale, strong asset management and improved performance. they include: a reduction in management costs per unit for the acquired homes from £945 to £575, following a review and streamlining of the housing service cost and delivery a reduction in tenant arrears from 6.9% to 4.6%. support has been made available for tenants hit by welfare reform in line with that offered to tenants across the sanctuary group the expansion of a telecare service formerly run by CDHt (part of Cosmopolitan) to a national customer base, increasing the number of connections from 7,912 to 19,070 the completion of full stock condition survey on the transferred assets, allowing for an asset management and reinvestment strategy that has seen more than 5,700 bathrooms and more than 3,700 kitchens fitted a reduction in Decent Homes standard compliance failures from 456 homes on acquisition to 22 a reduction in vacant stock from 2.45% to 1.27% the change of use of former Cosmopolitan group offices to benefit the sanctuary group as a whole, including one office now converted into a maintenance training centre, and one now being used as a national scanning centre to process all invoices a big turnaround in the student homes business, with occupancy rates increased from 93.2% to 96.4% and the contribution from the business increased from £2.4m in 2013 to £7.6m in 2015.

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the criticism, housing providers should be proud of their mission.

Steady as she goes is the ambition for Notting Hill Housing Group as it faces up to the tougher environment for housing.

Chief executive Kate Davies says her organisation has more choices than some, given its size – it has more than 30,000 homes – and its financial strength, which saw it post a record surplus of £121m last year. and what it’s choosing to do is to try and mitigate the impact of rent cuts – which will cost it £20m by year four of the changes – and so protect its mission of providing more homes for those in housing need. Neither wholesale job cuts nor an end to low cost housing are on the agenda.

“We've had the Chancellor saying housing associations are a broken project but i feel the exact opposite,” she says. “Housing associations in general are an amazing achievement, taking a relatively small amount of taxpayers’ money and delivering something that’s very difficult to deliver: low-cost housing for people on a low income. We have shown what a creative social enterprise can look like, not just demanding government grants but using them to grow our resources for a social purpose.”

Continuity strategy

A beautiful thing

KATE DAVIES

“our starting point is to have a continuity strategy,” says Ms Davies. “Yes, we need to change but the basic purpose of the organisation has not changed at all. We are not going to be saying we don't want to do social housing – we might change some of the mix, we might change some of the rent levels, we may not reappoint to jobs but with our turnover [£381m last year], it’s not the big deal it might be for some. i don't want to suggest this isn’t a major assault on the housing association movement as i do think it is, but some smaller associations or lsvts are perhaps going to be experiencing it in a more direct way than us.”

Notting Hill still feels that there is a huge demand for social housing and will try to deliver what it can – and to keep developing even at higher affordable rents in the hope of being able to have more options with the stock in future years. Ms Davies says despite

Both left and right, she adds, should be celebrating the work of housing associations. “it’s a beautiful thing, being able to marry entrepreneurship and enterprise with caring, compassion and social justice,” she says. “Yet the left dislikes us because we are developing and the right because we look after the poor. i really don’t think we’ve been very good at getting our message across.”

Ms Davies says the diverse responses from across the housing sector to the challenging environment are not necessarily a bad thing, given the different focus, capacities and specialisms of different organisations. for her part, she says she’s a pragmatist – but also reveals an idealistic streak. “We are redistributing wealth by our activities from the wealthier to the poorer,” she says. “if the government is not prepared to do that we can take it on by taking some of the profit we are making on housing and providing new homes for those who need them. Having a safe, affordable home is a great social benefit.”

WEATHERING THE

STorM Chief execs are taking different approaches to the challenges ahead 10

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HQN’s MagaziNE foR BoaRDs, ExECutivEs aND lEaDERs

as the pressure mounts on housing providers to do more for less, it sometimes feels as if the odds are stacked against small and medium-sized housing associations.

More mergers are inevitable, we are told, with only the biggest able to weather the storm ahead. David Bogle doesn’t buy it.

while at the same time bearing down on costs.

“There’s an assumption that one plus one equals three,” he says. “But if you put two housing associations together the result is only as strong as the component parts – it’s not some magic solution to getting more money. There’s talk about economies of scale but although that’s always in the plans, I’ve rarely seen it proven in practice.”

Sweating your assets

“We will be trying to keep our housing management costs down below inflation, continuing to get the best possible deals, not taking on staff unless we need to but at the same time we want to try and maintain the quality of our service,” he says.

And when it comes to performance, he adds, it’s not ‘absolute wealth’ – the biggest surplus or the biggest asset base – that counts, but how you use what you’ve got. “It’s about how well you’re performing per unit, how well you’re sweating your assets and what you can deliver in terms of value for money,” he says. “We compare pretty well against bigger associations when you look at the comparative figures.”

DAVID BOGLE

As chief executive of Hightown Housing, which manages around 5,000 homes, Mr Bogle says associations like his can continue to have a strong future.

Winning opportunities “A local housing association that’s well run and well financed and does the right job and works well with its local authority partners and others in the community is a very strong model,” he says. “In terms of local communities, I would always back a local association over a national one when it comes to winning opportunities or delivering what local stakeholders want.”

But with the pressure to deliver more homes mounting, and income reducing, what will the future look like for associations like Hightown? Mr Bogle says his organisation’s development programme of around 300 to 350 homes a year, while dwarfed by the big associations’ pipelines, means it is well-placed. It aims to boost efficiency by continuing to grow through development

Hightown has a strong care and support arm, which represents about a third of turnover and is committed to continuing this as well as to providing more affordable homes for those in housing need.

Mr Bogle says keeping true to the mission in the face of the dual pressure of austerity and the government’s home ownership focus is challenging. Housing associations, as a ‘kind of hybrid’ between the private and public sector are open to criticism, he believes.

“We can be criticised on the one hand for being too commercial and on the other for not being in the real world of business and too concerned with helping people who may or may not be see as deserving state support,” he says. “We are criticised for the voluntary deal [on Right to Buy] by local authorities who think we have left them in it and the next day for making surpluses.”

But he adds: “We have to keep getting the message out and stressing all the good stuff we do. We are doing a lot of good things, building 300 homes a year and that may not be as much as an L&Q but that’s 300 people who can't afford to access homes through the market.”

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as the pressure mounts on housing providers to deliver more for less, boards are being expected to up their game too. are they up for the challenge? remember the days when housing association boards were seen as a worthwhile hobby for the great and the good? If there ever was any truth in that picture of boards being a place for local worthies to do their bit, those days are long gone now. With the fast pace of change sweeping the housing sector, being a board member nowadays is a serious business.

“Times have changed and board members are now more aware that they have got huge responsibilities running multi-million pound businesses,” says Erika Stoddart, director of resources at North Lincolnshire-based Ongo.

“They need to have the skills and capacity to do that and whether you are paying them or not is irrelevant.”

But it’s not just about the scale of the organisation, or how much it’s spending, but the strategic vision. As Ms Stoddart points out, whereas once providers in the notfor-profit sector were more executive-led, and commercial companies more board-member-led, housing boards have taken on a bigger role in leading their organisations. Their leadership is especially key in these challenging times, when difficult decisions about how the organisation will face up to the next few years of shrinking income and growing demand need to be made.

So what does good governance now look like?

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“it’s about being clear-sighted,” says Ms stoddart. “When there is so much change going on, it’s easy to get caught like a rabbit in the headlights. But you need to be thinking about where you are heading in the long term and not be blown off course.”

Perspective Her own perspective on governance is helped by being a trustee of a college and she’s clear about the importance of the board’s vision in guiding the executive team.

“When the board sets a clear strategic direction, it makes it so much easier to make operational decisions,” she says. “if you don’t have that direction, you are constantly having to take things back for decision. Being clear-sighted is so important now especially as we can’t do everything.there was a time when [housing organisations] would have picked up and run with everything presented to them but now we have to be clear that we just can’t do everything.” some of the issues boards are now having to look at are tough ones, but according to alison inman, chair of Broadland Housing and a board member of Colne Housing association, there’s a real value in the process. “You’re having to look at your enduring purpose and be very clear about what you’re here to do,” she says. “in the good times, you could do a bit of everything and not think too critically about it. over the last few years organisations have maybe dabbled in a lot of things. Now we are having to be really clear about what is important, looking at what we do and having those conversations about whether we are always the best people to be doing some of these things.” as a former chair of an alMo, Ms inman says the experience of working with squeezed budgets is not a new one. “local authorities and alMos have already had to have some of those difficult conversations and had them with their residents,” she says. “if you have got your residents at the heart of what you are doing then that process is made more straightforward.”

Thorny issues some of the issues now facing boards are particularly thorny though, not least the recent vote on the ‘voluntary deal’ to extend the housing association Right to Buy. But Ms inman says boards just need to ‘concentrate on what’s in front of them’ rather than the wider political debate. “on a personal level, i had reservations at the time about whether there should have been a deal – but there was and turning it down would have been too risky and the retribution meted out swift and merciless,” she says. “We took a decision very overtly that we weren’t going to have a debate about whether we agreed with the Right to Buy as that would have been incredibly selfindulgent. We had to look at the situation in the here and now.” and while it may appear that it’s tougher than ever to be a board member, the challenges bring positives too. for one, says Ms inman, there’s a recognition that the whole value for money agenda has gone from being a regulatory matter to a very real and core issue. and boards know they have a central role in taking forward the vision and values of their organisations. “it is exciting. it’s the challenge of trying to get that value out of diminishing resources – but with what is still not an insignificant amount of money – and of challenging everything in what you are doing, going back to those first principles of what we are here for,” she says.

Boards are up for the challenge, says Ms stoddart. “i don’t get doom and gloom from around the board table – quite the opposite,” she says. “Board members just see this as one more challenge but they care passionately about housing and our community.” it’s a new era for boards. they’re no longer just the great and the good of times of past reputation. But nor are they just the repository for technical skills to supplement the executive that they seemed to be becoming in recent times. instead they have a far more important role – as holders of the vision and values of organisations reshaping themselves in the face of change.

UNDER

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Housing providers are looking at their options when it comes to getting more value for money from their repairs and maintenance service

ARE YOU It’s probably the bit of what you do that tenants care most about. and it accounts for one of the biggest slices of your budget too. so no wonder that when it comes to setting value for money priorities, repairs and maintenance services are often top of the list. as Kevin Bentley, lead associate for HQN’s tEaMnet asset management network puts it: “When you look at what most housing organisations spend, the vast majority of the money goes on either salaries or repairs and maintenance. so repairs and maintenance is a real big hitter.” in the current climate of rent reductions, which cumulatively over the next four years will take a big chunk out of business plans likely to have been set on the basis of rent increases, organisations have been looking at a number of ways of squeezing better value for money out of the way they run their repairs services. and for many, that means shifting away from outsourcing to in-house provision in the form of a direct labour organisation or Dlo. it’s a trend that had already picked up speed back in 2011 when the vat rise from 17.5% to 20% made the potential savings on offer even more attractive. “that was a major driver,” says Mr Bentley.

Certainly some landlords are reporting significant savings from creating or expanding in-house provision. southern Housing group, for example, launched a repairs and maintenance service for its homes in Kent in 2014 producing savings of around £200,000 in its first year of operation and the organisation is predicting almost £300,000 more will be saved annually by the roll-out to its thames gateway region which started this summer.

Off the shelf others have gone for an ‘off-the-shelf’ option, like Muir group which earlier this year bought the contractor which had been delivering repairs and maintenance for

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in

the association for the past six years. it says the move will not only save money but will give it more control over services as well as offering opportunities to help the wider community through apprenticeships. as Muir chief executive Catherine Dixson said at the time of takeover: “one of our key drivers is to control and manage our services to customers directly when it represents the best option in terms of providing excellent, efficient and effective services which demonstrate best value for money.”

But although there are benefits and savings, not just through vat but also through cutting out the private sector profit margin, there are also risks. and landlords which go down the Dlo route need to be well set up for it, said Mr Bentley. “one of the risks is that people will look at the 20% vat saving and think ‘we’ll go for a Dlo’, but it’s not as simple as that. Dlos can be either the best or the worst in the sector. a well-run internal contractor can deliver a very high level of service but when they are bad they can be so bad they haemorrhage money like it’s going out of fashion.”

He added: “one of the things that’s started to emerge over the last 12 months is that if an in-house contractor is going to want to increase its competitiveness it will have to look at moving some of its terms and conditions.”

Shining a light one organisation which has already gone through that, at times, painful process is aspire Housing, which inherited a Dlo as part of the stock transfer in which it was created 15 years ago. in recent years, the association made one abortive attempt to transform its Dlo, before last year launching a new programme to redraw terms and conditions to boost productivity and efficiency.

“We had to do what organisations have sometimes

HQN’s MagaziNE foR BoaRDs, ExECutivEs aND lEaDERs

OR ouT? shied away from because it’s too difficult,” Aspire managing director Wayne Hughes told an HQN event on DLOs. “You have to shine a light on it.”

The process involved protracted negotiations with the trade unions, grievances and strike action but has seen the organisation introduce new contracts redrawing salaries, working hours and allowances. Around 64% of staff affected saw a salary increase, and 36% a cut with a one-off compensation payment for those affected. Now the organisation is already recording productivity increases and is likely to achieve annual savings of £1m ahead of target.

Mr Hughes says although the process was difficult ‘no change was not an option’ and that now the organisation is in a position to start growing its repairs and maintenance operation. “We said to people right from the start that this was an element of the business we wanted to grow,” he said.

HOW THE WORK SPLITS in HQN’s cRaM (cost of Repairs analysis Model) of around 120 landlords, both housing associations and local authorities: • 50% Have aN iN-House coNtRactoR/dLo • 16% Have a Mixed coNtRactoR aRRaNgeMeNt • 34% Have aN exteRNaL coNtRactoR. on the 85% average repair cost measure, contractor costs ran at £71.06 with an 8.4 days average, while dLos came in a £60.06 with a 9.08 days average.

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source: HQN

Mr Bentley said a number of organisations were looking to grow new business by offering repairs and maintenance services to other providers, some to make up for a significant downturn in their in-house workload as investment work runs out.

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gaMe THEORY Fantasy writer Terry Pratchett once said ‘the games we play are lessons we learn’. His view was that the assumptions we make, the things we ignore, and the things we change while playing a game all ‘make us what we become’. so what can housing’s very own game tell us about what the housing sector is becoming? since HQN launched its iron grip role-playing challenge back in 2014 much has changed for housing providers. a new government has brought a new set of policies, new challenges and new risks. as more and more board members and executives are put through their paces tackling a range of scenarios in iron grip, the way they handle the pressures of the game is shedding light on how they might react to a real-life crisis within their organisation. in real life, of course, organisations have a bit longer to make key decisions than the few hours spent playing iron grip. But not necessarily that much longer, as the rush for boards to cast their vote over the housing association Right to Buy voluntary deal clearly showed. in this climate of constant change, time is of the essence and delaying a difficult decision just doesn’t cut it any more.

FROM THE

preSS Good governance is now a bit of a fashion statement, thanks to some of the scandals which have hit the headlines in recent months, according to a speech reported by Civil Society. Chair of actionaid uK Margaret Casely-Hayford told NCvo’s trustee conference that while governance was once a boring topic, the media spotlight had made it ‘the new black’.

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fast-paced role play is giving a good insight into the housing sector’s readiness to make tricky decisions as HQN lead associate ian Parker put it: “in the current environment, decisions have to be made quickly. You cannot keep asking questions or requesting further reports. the board have to take decisions that align with their vision and values and they need to support that decision until a better alternative appears.” there are some other key themes emerging from the first 50 or so organisations to play. iron grip requires participants to consider the impact a number of scenarios might have on their organisation. these scenarios are firmly rooted in real life and serve to highlight the big issues the housing world is now having to get to grips with.

Many participants say playing the game has been a good way of demonstrating the scale of change ahead. some have admitted to being taken aback, even disheartened, when they realise the cuts they may need to make.

Just as in the real world, some have had to commit in the game to savings of 15% across the board. Yet there’s a recognition too that, tough as some decisions might be, it’s vital to plan ahead. and a new realism is emerging about some of the more radical options on offer, like merger, or a wholesale service restructure. the full picture on some of the changes ahead, such as the detail on Right to Buy replacement for example, still remains to be seen. But if boards are to be ready to take some of the decisions that may be needed and to find fresh ways of delivering more for less, the thinking needs to start now.

But there’s still a way to go. it was ‘utterly bizarre’, Ms Casely-Hayford said, that legislation expected more from public companies serving shareholders, than from organisations serving society’s most vulnerable people. “in my view there needs to be a significant realignment in the minds of the public and the media about governance,” she said. “let’s be upfront about its importance and let’s be upfront about its cost.”

One unhappy staff member can cost an organisation £16,000, People Management reports. the magazine says research by CEB shows that seven in 10 uK employees feel they are stuck in a rut and are unhappy with their career prospects. the research suggests that offering better opportunities to staff could cut staff turnover by 33% – saving a significant sum given that turnover costs run at an estimated £16,000 per employee.

HQN’s MagaziNE foR BoaRDs, ExECutivEs aND lEaDERs

soME lEssoNs fRoM iRoN gRiP One-off costs can be addressed immediately, but it is ongoing small changes – increased rent losses, say – that have the biggest consequences

You cannot keep reducing the planned repairs programme in order to cut costs – this could come back to haunt you if your valuers and funders query the value of your underlying asset base

Cash is king. Rent collection rates need to be kept as high as possible.

But the impact of welfare reform on collection rates has been understated by many organisations

Radical service solutions may be the only true answer to cutting costs. You need to ask: “What will good service look like in two years time?” and then make sure your policies reflect what you should and can deliver

A more ‘nuanced’ style of leadership is increasingly overtaking the top-down Churchill-style approach. or at least that’s the premise of an article in the Financial Times, which claims nowadays ‘influence trumps power and position, networks trump hierarchies, and intelligence trumps force’. the article quotes sir Jeremy greenstock, former uK ambassador to the uN, who says leadership is now less ‘apexshaped’ and more circular and Dame athene Donald, master of Churchill College, Cambridge who claims people now need to lead by persuasion rather than coercion.

Ethnic minority representation in the UK’s company boardrooms is stuck at the level female directorships had reached almost two decades ago, according to a report in the Daily Telegraph. the paper,

Benchmarking figures will quickly become out of date.

Organisations which are currently classed as having low operating costs could suddenly find themselves moving into different quadrants because the whole sector is looking to reduce costs.

reporting on the spencer stuart 2015 uK Board index, found that there were 78 directors from a black and minority ethnic background in ftsE 150 companies – just 5% of the total. When companies based in emerging markets are excluded that figure fell to 58 directors, or 3.9%.

If board horror stories are your thing, then the five ‘governance gaffes’ rounded up by scotland’s Third Force News are worth a read. the cautionary tales include the story of the charity chair who resigned after criticism of his other role fronting what the publication calls a ‘foul-mouthed rock band’, and the departure of Hollywood a-lister angelina Jolie from the board of landmine charity Halo trust, where two trustees had been paid to carry out a restructuring review. the Governor DECEMBER 2015

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GOVERNANCE round-up

confLicT RESOLUTION Conflicts of interest among board members are more common than many believe – and need to be highlighted. that’s the message from the Charity Commission after the launch of the latest update to its guidance for charity trustees. the guidance contains some commonsense – but sadly sometimes overlooked – advice to trustees. for example, it underlines the need to challenge perceived wisdom. “it might not be the best thing to carry on doing something just because that’s the way you’ve always done it, or because the loudest voice in the room says so,” the Commission says. “ask awkward questions. say when you don’t understand. But when a decision is

reached, it means going along with it (unless you are so sure it’s seriously wrong that you need to tell the commission, or even resign).” and of course, all decisions need to be made in the organisation’s best interests. “it’s not about protecting your position as a trustee or even the jobs of all your staff. it’s not really about preserving your charity forever (although planning for the future is important, of course). it’s about doing the right thing.”

The essential trustee: what you need to know, what you need to do https://www.gov.uk/government/publications/ the-essential-trustee-what-you-need-to-know-cc3

docTor’S ORDERS When GPs are asked to build links with housing providers, it may seem like just another item to put on the bottom of a long ‘to do’ list.

Many wouldn’t know an Ha from an alMo and have traditionally looked for the medicine or treatment that will help their patients, rather than at their wider environment and preventative community approaches. so could getting more doctors on to housing boards help? that’s one of the suggestions in a report from sitra and the NHs alliance to help housing organisations develop better relationships with clinical commissioning groups.

Despite recent progress – including the acknowledgement in the 2014 Care act that housing provision should be integrated with care and health – there’s still a lot of work to do to convince health professionals to link up with housing. for a start many may struggle to understand why housing providers are interested in their patients’ health and wellbeing.

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“few health professionals have first-hand experience of being a customer of a housing or housing support organisation or have ever visited a housing office,” the Housing: Just what the doctor ordered report says. “Many have no mental picture or points of reference to the ‘world of housing’ and have little idea of the concept of the breadth of work that housing organisations do. in contrast, most if not all, housing professionals will have first-hand experience of the health system.” the report highlights a number of ways in which housing can help health professionals, including social prescribing schemes, hospital discharge initiatives and health and community hubs. it also encourages housing providers to reach out to health commissioners, who may be put off by not knowing how to navigate what they see as a ‘maze’ of different housing organisations. http://www.nhsalliance.org/wp-content/ uploads/ 2015/10/sitra-what-the-doctor-ordered-brochureprint-1.pdf

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BRIDGING THE gap While landlords work out how to bridge the funding gap created by the cut in rents, the evidence is mounting that the change will not help tenants themselves.

The most compelling analysis so far comes from the Institute for Fiscal Studies, which says the cuts will be of little or no benefit to most of England’s 3.9m social housing tenants.

The IFS’s report on social rent policy, funded by Trust for London, says the rent cut represents a ‘transfer from social landlords to the Exchequer, rather than to social tenants’. It adds: “This is because the reduction in social rents will automatically trigger an offsetting fall in Housing Benefit entitlements of £1.7bn. Tenants’ disposable incomes will rise by only £0.7bn.”

As housing providers are only too aware, the rent cut, which will reduce the income of social landlords by £2.3bn, will have a direct impact on housing supply.

The Office for Budget Responsibility is predicting 14,000 fewer homes will be built between now and 2020/21.

And the IFS has also highlighted the problems likely to arise from the other new development on rents: Pay to Stay. It suggests around 250,000 households – or 7% of those living in social housing – will be hit. With details still awaited on how sharply rents will increase once households reach the income threshold, the Institute warns: “If rents jump straight up to market levels when income reaches the threshold (a ‘cliff edge’), people earning £1 more could pay thousands of pounds more rent. That would be inequitable and create perverse incentives: any pay rise that meant crossing the threshold would trigger a rent increase averaging about £3,000 a year.”

All of which will be little comfort to boards grappling with the implications of the changes. As Robert Joyce, IFS senior research economist pointed out when the report was launched last month: “Recent policy on rent levels displays a worrying lack of consistency.” http://www.ifs.org.uk/publications/8036

STandard OF LIVING Efficiency is on all of our lips – not least in this issue of The Governor. But in some corners of the public sector, where costs have already been pushed hard and services cut, driving more efficiency through higher productivity will be a huge ask. in this context, the debate around the introduction of the new national living wage is a crucial one. according to new research from the Resolution foundation and the human resources professional body the CiPD, 54% of all employers say the legislation will have an impact on their wage bill – with a third of those across all sectors aiming to raise their efficiency and productivity in response. some businesses are also planning to raise prices or take lower profits.

But it’s in the sector where these options are not straightforward, or even feasible that the axe is most likely to fall on staff. More than a fifth of public sector employers, compared with 13% in the private sector, say they plan to respond to the national living wage by cutting workforce numbers. the prospect is a grim one for areas like social care, already squeezed hard by funding cuts, and, according to think tank ResPublica, facing disaster. its Care Collapse report predicts that by 2020/21 the care sector will face a funding gap of some £1bn, more than a third of which will be down to paying staff the national living wage. so where next? Many are rightly committed to paying a living wage. But work and funding are clearly needed to make this a reality right across the public sector. the Governor DECEMBER 2015

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