Thread by @LiamSpender

1/7 "The largest housebuilders have spent or committed approaching £1 billion" should be taken with a pinch of salt.

Many of them have made accounting provisions. That is not the same as agreeing to pay costs, or actually paying costs.

https://twitter.com/lewis_goodall/status/1479758940921548808

2/7 The £1 billion figure above also may not be strictly related to cladding costs. For example, a large part of Barratt's provision appears to relate to defective concrete frames, legal costs and the costs of buying back flats.

3/7 According to Note 3.6 to Barratt's 2021 financial statements, of its total provision of £67.6 million for building safety issues, £26 million (38%) still relates to Citiscape (defective frame).

It is unclear if that £26 million is included in the £1 billion number above.

4/7 Other large builders have similar multi-faceted provisions. For example, Persimmon's 2020 financial statements (note 21) say that its provision of £75 million includes both costs of remediation and costs of "technical assistance".

Is this included in the £1 billion?

5/7 Provisions also commonly include the estimated legal fees associated with the matter causing the provision to be made. Unknown whether the builders' provisions do.

And the fact that a provision has been made does not necessarily mean any money will actually be spent.

6/7 The accounting test (at least under IFRS) is whether it is "probable that an outflow of cash or other economic resources will be required to settle the provision".

The timing and amount of a provision are therefore finely balanced matters of director and auditor judgment.

7/7 Having spent years of my working life dealing with accountants and auditors over updates to litigation provisions, unpicking what is and what is not included in these provision numbers from outside the business is no easy task.

Treat the £1 billion number with caution.