Magazine article Public Finance

Flawed Inflation Formula Exaggerates RSLs' Savings

Magazine article Public Finance

Flawed Inflation Formula Exaggerates RSLs' Savings

Article excerpt

Ministers have admitted that housing associations were given out-of-date information when they calculated efficiency gains as part of the Gershon review.

Instead of using the latest inflation measure for assessing building costs, associations were told to apply the previous year's figure, which was significantly higher.

Building cost inflation for capital works fell from 10.5% to 2.3% between 2004/05 and 2005/06. By applying the higher figure, registered social landlords had less difficulty showing efficiency gains regardless of whether they represented true savings.

'We recognise that some efficiency gains may have been predicted on a higher inflation figure and may therefore be at risk,' said an Office of the Deputy Prime Minister spokesman.

'How much will remain to be seen.'

The flawed methodology was first highlighted by Kevin Rodgers, finance director at Coventry-based Whitefriars Housing Group, at the National Housing Federation's finance conference in March. …

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