Guidance

Value for Money metrics: Technical note guidance – May 2022 (accessible version)

Updated 5 April 2022

Applies to England

1. Introduction

1.1 The Value for Money Standard requires registered providers to annually report on their performance against a suite of measures defined by the regulator along with their own value for money measures and targets, with which to measure economy, efficiency and effectiveness.

1.2 This document sets out the detail of the regulator’s VFM metrics and how these metrics are defined. It also sets out how these metrics are calculated from the 2022 Electronic Annual Accounts (referred to as FVA). The regulator’s VFM metrics remain the most appropriate set of measures to capture performance across the sector in a fair and comparable way.

1.3 Registered providers should submit regulatory returns as soon as practicable. The latest submission date for the FVA return is six months after a provider’s year end. For most of the sector this will be 30 September 2022.

1.4 Small registered providers (those owning or managing fewer than 1,000 homes), should refer to Annex B which sets out how the VFM metrics are calculated, using designated lines from providers’ Annual Accounts (Financial statements).

2. Reporting expectations

2.1 The regulator has selected the VFM metrics that work for the majority of providers. However, we acknowledge that any metric, however calculated, will inevitably be more appropriate for some providers than others, and there may be a minority of cases where reporting on a particular basis is difficult, or inappropriate, given the unusual nature of a given organisation’s business or differences in accounting practice.

2.2 The regulator cannot change the required VFM metrics on this basis, where it works for the majority of the sector. However, where a provider’s reported data is affected by a factor particular to that organisation, they should clarify this in the commentary accompanying the publication of their data.

2.3 If registered providers are reporting on a wide range of different bases, then this clearly undermines the overall objectives of transparency and comparability. All registered providers are required to follow the calculations in this technical note and, in their reporting in the Annual Accounts, should not seek to make adjustments to the VFM metrics themselves.

2.4 One of the regulator’s key objectives in defining a set of standard VFM metrics was to support transparency and allow providers to analyse their performance alongside that of their peers on a comparable basis. To support this objective the regulator has published the metrics for all providers with more than 1,000 properties alongside Global Accounts datasets for each of the last three years. In order to drive better reporting performance, the regulator has provided commentary set out in the Value for money metrics and reporting 2021 publication accompanying the datasets to help boards with future reporting.

2.5 The regulator will continue to seek assurance that providers make best use of their resources and of their assets and have on-going plans in place to make improvements to the value for money in their organisations. As a part of that assurance work, the regulator will use the value for money metrics to support its understanding of providers overall strategic delivery performance. Where we become aware of non-compliance with the requirements of the Value for Money Standard, we will determine the most appropriate regulatory engagement route.

2.6 The specific reporting expectations on value for money are set out in 2.2a and 2.2b of the VFM Standard and amplified in the VFM Code of Practice.

2.7 Further detail of the regulator’s approach to value for money regulation is set out in Regulating the Standards.

3. The Value for Money metrics

(Value codes [footnote 1]: Negative, Positive, Either)

Metric 1 – Reinvestment %

3.1 The Reinvestment metric looks at the investment in properties (Existing stock and New Supply) as a percentage of the value of total properties held [footnote 2].

Measurement of VFM Cost Chain – Efficiency
[Development of new properties (Total housing properties)
+Newly built properties acquired (Total housing properties)
+Works to Existing (Total housing properties)
+Capitalised Interest (Total housing properties)
+Schemes completed (Total housing properties)]
Divided by [footnote 3]
[Tangible fixed assets: Housing properties at cost (Current period)
OR Tangible fixed assets: Housing properties at valuation (Current period)]

Metric 2 – New supply delivered %

3.2 The New Supply metric sets out the number of new social housing and non-social housing units that have been acquired or developed in the year as a proportion of total social housing units and non-social housing units owned at period end.

3.3 Registered providers will report on two New Supply delivered ratios:

A: New Supply delivered (Social housing units)

B: New Supply delivered (Non-social housing units)

Measurement of VFM Cost Chain – Effectiveness
A. New supply delivered (Social housing units)%
[Total social housing units developed or newly built units acquired in-year (owned)
(Social rent general needs housing (excluding Affordable Rent), Affordable Rent general needs housing, social rent supported housing and housing for older people (excluding Affordable Rent), Affordable Rent supported housing and housing for older people, Low Cost Home Ownership, care homes, other social housing units, Social leasehold)]
Divided by
Total social housing units owned at period end (‘social units’ as defined in numerator)
Measurement of VFM Cost Chain – Effectiveness
B. New supply delivered (Non-social housing units)%
[Total non-social units developed or newly built units acquired in-year (owned)
(Total non-social rental housing units owned, non-social leasehold units owned, New outright sale units developed or acquired)]
Divided by
[Total social and non-social housing units owned (Period end)
(Total social housing units owned, Total non-social rental housing units owned, social leasehold units owned, non-social leasehold units owned (Period end))]

Metric 3 – Gearing %

3.4 The gearing metric assesses how much of the adjusted assets are made up of debt and the degree of dependence on debt finance. It is often a key indicator of a registered provider’s appetite for growth.

3.5 Note: Registered providers can be restricted by lenders’ covenants and therefore may not have the ability in which to increase the loan portfolio despite showing a relatively average gearing result.

4. Measurement of VFM Cost Chain – Efficiency
[Short-term loans
+Long-term loans
-Cash and cash equivalents
+Amounts owed to group undertakings
+Finance lease obligations]
5. Divided by [footnote 4]
[Tangible fixed assets: Housing properties at cost (Current period)
OR Tangible fixed assets: Housing properties at valuation (Current period)]

Metric 4 – Earnings Before Interest, Tax, Depreciation, Amortisation, Major Repairs Included Interest Cover %

3.6 The EBITDA MRI interest cover measure is a key indicator for liquidity and investment capacity. It seeks to measure the level of surplus that a registered provider generates compared to interest payable; the measure avoids any distortions stemming from the depreciation charge.

6. Measurement of VFM Cost Chain – Efficiency
[Operating surplus/(deficit) (overall)
-Gain/(loss) on disposal of fixed assets (housing properties)
-Gain/(loss) on disposal of other fixed assets
-Amortised government grant
-Government grants taken to income
+Interest receivable
-Capitalised major repairs expenditure for period
+Total depreciation charge for period]
Divided by
[Interest capitalised
+Interest payable and financing costs]

Metric 5 – Headline social housing cost per unit

3.7 The Headline social housing cost per unit metric assesses the headline social housing cost per unit as defined by the regulator.

Measurement of VFM Cost Chain – Economy
[Management costs
+Service charge costs
+Routine maintenance costs
+Planned maintenance costs
+Major repairs expenditure
+Lease costs
+Capitalised major repairs expenditure for period
+Other (social housing letting) costs
+Charges for support services (Operating expenditure)
+Development services (Operating expenditure)
+Community / neighbourhood services (Operating expenditure)
+Other social housing activities: Other (Operating expenditure)
7. Divided by
Total social housing units owned and/ or managed at period end [footnote 5]
(Social rent general needs housing (excluding Affordable Rent), Affordable Rent general needs housing, social rent supported housing and housing for older people (excluding Affordable Rent), Affordable Rent supported housing and housing for older people, Low Cost Home Ownership, care homes, other social housing units)

Metric 6 – Operating Margin %

3.8 The Operating Margin demonstrates the profitability of operating assets before exceptional expenses are taken into account. Increasing margins are one way to improve the financial efficiency of a business. In assessing this ratio, it is important that consideration is given to registered providers’ purpose and objectives (including their social objectives). Further consideration should also be given to specialist providers who tend to have lower margins than average.

3.9 Registered providers will report on two Operating Margin ratios:

A. Operating Margin (social housing lettings only)

B. Operating Margin (overall)

8. Measurement of VFM Cost Chain – Efficiency
Operating Margin (social housing lettings only)%
Operating surplus / (deficit) from social housing lettings [footnote 6]
Divided by
Turnover from social housing lettings
10. Measurement of VFM Cost Chain – Efficiency
Operating Margin (overall)%
[Operating surplus / (deficit) (overall)
-Gain/(loss) on disposal of fixed assets (housing properties)]
-Gain/(loss) on disposal of other fixed assets
11. Divided by
Turnover (overall)

Metric 7 – Return on capital employed %

3.10 The ROCE compares the operating surplus to total assets less current liabilities and is a common measure in the commercial sector to assess the efficient investment of capital resources. The ROCE metric supports registered providers with a wide range of capital investment programmes.

12. Measurement of VFM Cost Chain – Efficiency
[Operating surplus / (deficit) (overall)
(including gain / (loss) on disposal of fixed assets)
+Share of operating surplus/(deficit) in joint ventures or associates]
Divided by
Total assets less current liabilities

Annex A: Reference lines to FVA 2022

Metric FVA 22 Field
(Value codes: Negative, Positive, Either)
FVA22
Part
FVA22
Line
FVA22
Column
1. Reinvestment [Development of new properties (Total housing properties) E: Notes 1 33 7
  +Newly built properties acquired (Total housing properties) E: Notes 1 34 7
  +Works to existing (Total housing properties) E: Notes 1 35 7
  +Capitalised Interest (Total housing properties) E: Notes 1 36 7
  +Schemes completed (Total housing properties) E: Notes 1 37 7
  Divided by      
  [Tangible fixed assets: Housing properties at cost (Current period) C:SOFP 2 1
  OR Tangible fixed assets Housing properties at valuation (Current period)] C:SOFP 3 1
Metric FVA 22 Field
(Value codes: Negative, Positive, Either)
FVA22
Part
FVA22
Line
FVA22
Column
2. New supply delivered % (social housing and non-social housing) A. New supply delivered (Social housing units)%
[Total social units developed or newly built units acquired in-year (owned)
     
  (Social rent general needs housing (excluding Affordable Rent), Affordable Rent general needs housing, social rent supported housing and housing for older people (excluding Affordable Rent), Affordable Rent supported housing and housing for older people, Low Cost Home Ownership, care homes, other social housing E: Notes 1 10 2
  +social leasehold units owned)] E:Notes 1 16 2
  Divided by      
  Total social housing units owned (Period end) E:Notes 1 10 6
  +social leasehold units owned (Period end)] E: Notes 1 16 6
  B. New supply delivered (Non-social housing units) %
[Total non-social housing units developed or newly built units acquired (owned)
     
  (Total non-social rental housing units owned E: Notes 1 13 2
  +non-social leasehold units owned E:Notes 1 19 2
  +new outright sale units developed or acquired)] E: Notes 1 22 1
  Divided by      
  [Total social and non-social housing units owned (Period end)
Total social housing units owned (Period end)
E: Notes 1 10 6
  +Total non-social rental housing units owned (Period end) E: Notes 1 13 6
  +Social leasehold units owned (Period end) E: Notes 1 16 6
  + Non-social leasehold units owned (Period end)] E: Notes 1 19 6
Metric FVA 22 Field
(Value codes: Negative, Positive, Either)
FVA22
Part
FVA22
Line
FVA22
Column
3. Gearing % [Short-term loans C:SOFP 18 1
  +Long-term loans C:SOFP 25 1
  -Cash and cash equivalents C:SOFP 14 1
  +Amounts owed to group undertakings C:SOFP 26 1
  +Finance lease obligations] C:SOFP 27 1
  13. Divided by      
  [Tangible fixed assets: Housing properties at cost (Current period) C:SOFP 2 1
  OR Tangible fixed assets: Housing properties at valuation (Current period)] C:SOFP 3 1
Metric FVA 22 Field
(Value codes: Negative, Positive, Either)
FVA22
Part
FVA22
Line
FVA22
Column
4. EBITDA MRI Interest Cover % [Operating surplus/(deficit) (overall) B:SOCI 6 1
  -Gain/(loss) on disposal of fixed assets (housing properties) B:SOCI 4 1
  -Gain/(loss) on disposal of other fixed assets B:SOCI 5 1
  -Amortised government grant D: Op Surp Note 20 5
  -Government grants taken to income D: Op Surp Note 21 5
  +Interest receivable B:SOCI 10 1
  -Capitalised major repairs expenditure for period F: Notes 2 1 1
  +Total depreciation charge for period] F:Notes 2 2 1
  14. Divided by      
  [Interest capitalised E: Notes 1 115 1
  Interest payable and financing costs] B:SOCI 11 1
Metric FVA 22 Field
(Value codes: Negative, Positive, Either)
FVA22
Part
FVA22
Line
FVA22
Column
5. Headline social housing cost per unit (Management costs D: Op Surp Note 25 5
  +Service charge costs D: Op Surp Note 26 5
  +Routine maintenance costs D: Op Surp Note 27 5
  +Planned maintenance costs D: Op Surp Note 28 5
  +Major repairs expenditure D: Op Surp Note 29 5
  +Lease costs D: Op Surp Note 31 5
  +Capitalised major repairs expenditure for period F: Notes 2 1 1
  +Other (social housing letting) costs D: Op Surp Note 34 5
  +Charges for support services D: Op Surp Note 2 3
  +Development services D: Op Surp Note 3 3
  +Community neighbourhood services D: Op Surp Note 4 3
  +Other] D: Op Surp Note 6 3
  Divided by
Total social housing units owned and/or managed at period end
E: Notes 1 8 6
Metric FVA 22 Field
(Value codes: Negative, Positive, Either)
FVA22
Part
FVA22
Line
FVA22
Column
6. Operating Margin % 15. A. Operating Margin (social housing lettings)%      
  Operating surplus/(deficit) (social housing lettings) D: Op Surp Note 36 5
  16. Divided by      
  Turnover from housing lettings D: Op Surp Note 24 5
  B) Operating Margin (overall%)      
  Operating surplus/(deficit) (overall) B:SOCI 6 1
  -Gain/(loss) on disposal of fixed assets (housing properties)] B:SOCI 4 1
  -Gain/(loss) on disposal of other fixed assets B:SOCI 5 1
  17. Divided by      
  Turnover (overall)] B:SOCI 14 1
Metric FVA 22 Field
(Value codes: Negative, Positive, Either)
FVA22
Part
FVA22
Line
FVA22
Column
7. Return on capital employed % Operating surplus/(deficit) (overall)
(including gain/(loss) disposal fixed assets)
B:SOCI 6 1
  +Share of operating surplus/(deficit) in joint ventures or associates] B:SOCI 9 1
  18. Divided by      
  Total assets less current liabilities C:SOFP 24 1

Annex B: Guidance note on the Value for Money metrics reporting for small providers

(Registered providers with fewer than 1,000 units)

This part of the guidance should be used by registered providers with a stock holding of fewer than 1,000 units, (those providers that are not required to submit an electronic copy of the Annual Accounts, to the regulator).

The Value for Money Standard requires registered providers to report on all of the VFM metrics, including the two sub-metrics, within the Annual Accounts. For reporting purposes, registered providers should discuss and agree the format of their Annual Accounts (Financial statements) with their Auditor or their Accountant.

This guidance note is intended to help small providers calculate the VFM metrics from their Annual Accounts (Financial statements).

The regulator is aware that not all the VFM metrics will be applicable to every small provider given the diversity of business models across the sector. In the spirit of transparency and accountability, where the value of a VFM metric is calculated as zero, this should be reported as so.

Key

  • Numerator – the figure(s) in an equation which is above the line
  • Denominator – the figure(s) in an equation which is below the line
  • SOCI – Statement of Comprehensive Income (Housing SORP)
  • SOFP – Statement of Financial Position (Housing SORP)
  • SOFA – Statement of Financial Activities (Charity SORP)
  • BS – Balance Sheet (Charity SORP)
  • Note TOE – Note: Turnover and Operating Expenditure; this note may have different names including Income and Expenditure from social housing lettings.
  • Note Creds <1 – Note: Creditors: Amounts falling due within one year
  • Note Creds >1 – Note: Creditors: Amounts falling due after more than one year
  • Note Units in Management may have different names including Accommodation in Management

Please note the following is shown in the PDF version but cannot be shown in this HTML:

  • Items in red should be entered as negatives
  • Items in black should be entered as positives
  • Items in blue can be entered as either negatives or positives

Where the location of data differs between the Charity SORP and the Housing SORP, this is shown in italics.

Value for Money metrics calculations

Metric 1: Reinvestment %

+/- Numerator/Denominator Line Statutory Accounts Location Comments
+ Numerator Development of New Housing Properties (Total housing properties) Note: Fixed Assets  
+   Newly built properties acquired (Total housing properties) Note: Fixed Assets  
+   Works to Existing (Total housing properties) Note: Fixed Assets This should include only those works to existing properties which were capitalised (i.e. added to Fixed Assets in the Statement of Financial Position / Balance Sheet)
+   Capitalised Interest (Total housing properties) Note: Fixed Assets This is sometimes shown in the narrative beneath the Note, rather than as a line in the Note itself.
+   Schemes completed (Total housing properties) Note: Fixed Assets The net value for this is often nil.
    Divided by    
+ Denominator Tangible fixed assets: Housing Properties at Cost (Period end) Note: Fixed Assets These lines should be Net Book Value, which includes accumulated depreciation. Providers should use the measure agreed in their Statement of Financial Position / Balance Sheet. The figure should be either historic cost or valuation
+   Tangible fixed assets: Housing Properties at Valuation (Period end) Note: Fixed Assets  

Metric 2a: New Supply (Social Housing Units) %

+/- Numerator/Denominator Line Statutory Accounts Location Comments
+ Numerator Total social units developed or acquired in-year Note: Units in Management These lines should exclude existing properties transferred from other providers.
Where a provider develops a unit on behalf of another provider, the new units should only be reported by the provider acquiring (and owning and/ or managing the unit).
These include shared ownership units and other units which are leased to tenants by the provider as social lettings.
+   Social leasehold units (acquired in-year) Note: Units in Management  
    Divided by    
+ Denominator Total social housing units owned (Period end) Note: Units in Management These lines should only include properties owned by the provider.
+   Social leasehold units owned (Period end) Note: Units in Management  

Metric 2b: New Supply (Non-social housing units) %

+/- Numerator/Denominator Line Statutory Accounts Location Comments
+ Numerator Total non-social rental housing units owned (acquired in-year) Note: Units in Management These lines should exclude existing properties transferred from other providers.
Where a provider develops a unit on behalf of another provider, the new units should only be reported by the provider acquiring (and owning and/ or managing the unit).
+   Non-social leasehold units owned (acquired in-year) Note: Units in Management  
+   New outright sale units developed or acquired) Note: Units in Management  
    Divided by    
+ Denominator Total social housing units owned (Period end) Note: Units in Management These lines should only include properties owned by the provider.
+   Total non-social rental housing units owned (Period end) Note: Units in Management  
+   Social leasehold units owned (Period end) Note: Units in Management  
+   Non-social leasehold units owned (Period end) Note: Units in Management  

Metric 3: Gearing %

The metric result for the gearing ratio may be negative where for example a registered provider has no loan agreements in place.

+/- Numerator/Denominator Line Statutory Accounts Location Comments
+ Numerator Short-term loans Note: Creds <1 These lines should include “Amounts owed to related/ connected parties”.
+   Long-term loans Note: Creds >1  
-   Cash and Cash Equivalents SOFP / BS  
+   Amounts owed to group undertakings Note: Creds <1 and / or Note: Creds >1  
+   Finance lease obligations Note: Creds <1 and / or Note: Creds >1  
    Divided by    
+ Denominator Tangible fixed assets: Housing Properties at Cost (Period end) Note: Fixed Assets These lines should be Net Book Value, which includes accumulated depreciation.
Providers should use the measure agreed in their Statement of Financial Position / Balance Sheet. The figure should be either historic cost or valuation.
+   Tangible fixed assets: Housing Properties at Valuation (Period end) Note: Fixed Assets  

Metric 4: EBITDA MRI Interest Cover %

+/- Numerator/Denominator Line Statutory Accounts Location Comments
+ Numerator Operating surplus/(deficit) (overall) SOCI / SOFA  
-   Gain/(loss) on disposal of fixed assets (housing properties) SOCI / SOFA This figure should only be deducted if it is included in the Operating surplus (overall).
-   Gain/(loss) on disposal of other fixed assets SOCI / SOFA This figure should only be deducted if it is included in the Operating surplus (overall).
-   Amortised government grant Note TOE  
-   Government grants taken to income Note TOE  
+   Interest Receivable SOCI / SOFA  
-   Capitalised major repairs expenditure for period Note: Fixed Assets  
+   Total depreciation charge for period Note: Fixed Assets This should include depreciation for all assets, not just housing properties
    Divided by    
+ Denominator Interest capitalised Note: Fixed Assets  
+   Interest payable and financing costs SOCI / SOFA This includes the financing costs (i.e. interest payable) in respect of defined benefit pension schemes.

Metric 5: Headline Social Housing Cost £

+/- Numerator/Denominator Line Statutory Accounts Location Comments
+ Numerator Management costs Note TOE  
+   Service charge costs Note TOE  
+   Routine maintenance costs Note TOE This figure should include Void Repairs if these are disclosed separately).
+   Planned maintenance costs Note TOE  
+   Major repairs expenditure Note TO  
+   Lease costs Note TOE  
+   Capitalised major repairs expenditure for period Note: Fixed Assets  
+   Other (social housing letting) costs Note TOE  
+   Charges for support services Note TOE  
+   Development services Note TOE  
+   Community/neighbourhood services Note TOE  
+   Other social housing activities: Other Note TOE  
    Divided by    
+ Denominator Total social housing units owned and/or managed at period end Note: Units in Management This figure includes properties which are either owned by the provider or managed for others.

Metric 6a: Operating Margin (social housing lettings) %

+/- Numerator/Denominator Line Statutory Accounts Location Comments
+ Numerator Operating surplus/(deficit) (social housing lettings) Note TOE  
    Divided by    
+ Denominator Turnover from social housing lettings Note TOE  

Metric 6b: Operating Margin (Overall) %

+/- Numerator/Denominator Line Statutory Accounts Location Comments
+ Numerator Operating surplus/(deficit) (overall) SOCI / SOFA  
-   Gain/(loss) on disposal of fixed assets (housing properties) SOCI / SOFA This figure should only be deducted if it is included in the Operating surplus
-   Gain/(loss) on disposal of other fixed assets SOCI / SOFA This figure should only be deducted if it is included in the Operating surplus
    Divided by    
+ Denominator Turnover (overall) SOCI / SOFA  

Metric 7: Return on Capital Employed %

+/- Numerator/Denominator Line Statutory Accounts Location Comments
+ Numerator Operating surplus/(deficit) (overall) SOCI / SOFA This should include the gain / (loss) on disposal of fixed assets.
+   Share of operating surplus/(deficit) in joint ventures or associates] SOCI / SOFA  
    Divided by    
+ Denominator Total assets less current liabilities SOFP / BS  
  1. Codes indicate where values are anticipated to be entered as positive, negative or of either value in the FVA. For some fields the FVA will allow users to enter a different value to that anticipated. 

  2. This metric is not based on cashflow data given the limitations on data collected as part of the FVA regulatory return. 

  3. Providers should use the measure agreed in their Statement of Financial Position / Balance Sheet. The figure should be either historic cost or valuation. 

  4. Providers should use the measure agreed in their Statement of Financial Position / Balance Sheet. The figure should be either historic cost or valuation. 

  5. Leasehold units, which for example include Right to Buy and fully stair-cased shared ownership units where the provider retains the freehold, are excluded from the denominator of this metric. 

  6. Gain/(loss) on disposal of fixed assets must be excluded.