On the money

A new financial year approaches and inevitably there are some new priorities and “buzzwords” for those in housing finance.

One issue that won’t go away is that continuing need for local authorities to grapple with the savings demanded in the Gershon review of public sector efficiency.

The government’s recent “efficiency technical note” for local government gives more details of its approach to measuring efficiencies. The note states that the government will be requiring a new return from local authorities: an annual efficiency statement. This statement will set out the authority’s strategy for securing and measuring its efficiency savings, its plan of action for doing so and its results.

The good news is that the government has promised to consult “extensively” on how Gershon efficiencies are to be delivered in the housing sector. There are some real choices to be made here – and some could make aspects of delivery a bit easier for your authority.

First, there are two different approaches being considered for the annual efficiency statement: self-assessment or framework assessment. Authorities have been invited to indicate which they would prefer.

Self-assessment offers more in terms of support and incentives for local ownership of the efficiency challenge, as well as simply keeping a running “score”. A framework assessment approach, on the other hand, brings with it a real risk that a whole industry of detailed standard form filling will be created.

The good news is that the government has promised to consult ‘extensively’ on how Gershon efficiencies are to be delivered in the sector

Second, the note points out that measurement methodologies will need to compare actual costs in 2007/8 with the costs that would have been incurred if efficiency had not been improved. Clearly, a sound baseline costing will be essential here and it should be one that meets with proper accounting practice for local government.

Another crucial element of all efficiency calculations will be the application of an inflation index. While notes for central government allow alternative deflators, the note for local government specifies that the inflation measure should be the gross domestic product deflator. Given the high pressures of employment and sector costs in local authority housing, if the calculations are not be distorted, authorities might well want to argue instead to be allowed to use the most appropriate deflator for each of the measures that they adopt. Alternatively, the government could consider a separate index for local government inflation.

Local government as a whole is expected to deliver £6.45bn in Gershon efficiency gains. The ODPM has said that it expects local authorities to make gains worth at least £480m a year by 2007/8 in social housing, and will be seeking to embed efficiency into housing inspection and housing investment.

Local authorities will want to seriously consider just what is the scope for efficiencies in housing, relative to that for other services, and in the context of external constraints, such as those posed by the housing repairs market.