Background and Outline

Huckfield writes this as a strong supporter of Social Enterprise, Cooperatives and Third Sector Organisations, wherever these emerge through genuine democracy and where governing bodies and employees were all part of a democratic decision taking process.

In its desperate haste to reduce the extent and size of the public sector before the next UK General Election on Thursday 07 May 2015, the UK Coalition Government is not really giving many in the public sector any choice. The message is that they will become a Mutual or Social Enterprise, often with encouragement to form a joint venture with the private sector. So trade unions are right to be concerned.

In many cases, this mutualisation processs is happening under Right to Request and Right to Provide procedures set up under New Labour.

Based New Labour’s foundations, UK Coalition Government policies mean that a wide range of national and local public services ultimately will be delivered by Capita, Serco, Sohexho, A4E and perhaps one or two big Charities.

Whether through opening up the NHS to private tendering, under the DWP’s Work Programme, or through contracting Probation and Prison Services under the National Offender Management Service and Ministry of Justice, most will be based on Payment by Results and Impact Measurement, with more funding through private Social Investment and Social Impact Bonds.

Private investment in public service delivery will be promoted as Britain’s offering to the G8 Summit at Lough Erne, Fermanagh from Sunday 16 June till Tuesday 18 June 2013.

Increasingly, these services will be benchmarked not by public service delivered but for the financial return they produce for private investors. JP Morgan’s Global Social Finance: Perspectives on Progress, January 07 2013 on page 16 refers to “standardised metrics for impact measurement” as “important for development of the industry.” For Independent Financial Advisers, Retail Social Investment has already been included in the Financial Services Authority’s Newsletter in February 2013.

Already up to £1bn is being provided by the Cabinet Office, Big Society Capital and various intermediaries to promote this Social Investment in Social Enterprise. But since Social Investment is being resisted by many Social Enterprises, for trade unions, the faster pace of forced mutualisation poses a more direct threat.

An example of the mutualisation process was given on page 32 of the Response from the Trades Union Congress to the Government’s Open Public Services White Paper October 13 2011:

    “The White Paper cites MyCSP (My Civil Service Pension) as an exemplar mutual spinning out from the Civil Service. However, there has been minimal consultation or negotiation with the workforce or union and PCS members at MyCSP have been so hostile to the move that industrial action was held in July of this year (2011).

    “Feedback from unions working in areas earmarked for the 20 or so Pathfinder Mutuals has been similar. In nearly every case, the drive has been from management. In many cases, there has been very little or no consultation with staff and even less with unions”

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75,000 jobs to the Private Sector – an Insight into Government Behaviour?

The ‘Independent’ newspaper on Wednesday 01 May 2013 carried the story The Great Civil Service Sell-off: Dozens of Services and 75,000 Staff set to be Transferred to Private Sector. These are the main points of the story:

  • Cabinet Office minister Francis Maude announced that the Government’s Behavioural Insights Team – its “Nudge Unit” – will become the most high-profile area of Government to be “mutualised”.
  • It will be turned into a profit-making joint venture with private companies invited to bid for a stake of up to 50%.
  • The move heralds a wider sell-off of Government functions and assets. Among areas under consideration are Whitehall’s IT, personnel and legal functions.
  • Cabinet Office sources said they hoped to support “dozens of such spin-offs” in a programme to raise £mns for the Treasury. It will leave a dramatically slimmed-down Civil Service providing only core functions of policy advice and implementation.
  • Eventually other Government bodies – the Land Registry and Office for National Statistics – could become candidates for mutualisation.

No wonder that Dave Prentis, General Secretary of Unison, the public sector union, called this “privatisation by stealth”.

    “The involvement of big private companies makes mutuals just another Tory party ploy to sell off public services. The Government is stretching the definition of mutuals to the limit – genuine coops and mutuals will be up in arms.”

For damage limitation, on the Civil Service site, Sir Bob Kerslake, the new Head of the Civil Service, replied on the same day in A Nudge in the Right Direction:

    “Some of you will have read today’s article in the ‘Independent’ claiming there will be a “Civil Service sell-off”. The first point to make is that there are no plans to transfer 75,000 civil servants into new organisations and we have no firm targets for services and employees spinning out of the public sector”.

But Sir Bob has a problem. This isn’t what is shown under Action 4 on Clarifying the Future Size and Shape of the Civil Service on the new Civil Service Beta site which is maintained by the Government Digital Service:

    “The Delivery Landscape and Arms Length Bodies
    By the end of March 2015 approximately 500 bodies will be reformed and the total number reduced by over 250. The Government estimate that public bodies will deliver administrative savings of £2.6bn over the spending review period. All remaining NDPBs are now subject to review every three years, which will seek to identify innovations and new models for delivery, such as mutualisation, joint venture partnerships and transferring to the voluntary or private sectors, and strengthen accountability and governance arrangements for NDPBs that remain.”

A footnote on the new Civil Service Beta site admits:

    “This site is provided by Government Digital Service, and once membership is up and running, we’ll moderate some of the community areas. Where groups are more specific in content, other teams take moderation responsibility. In comment sections we ask that you stick to our house rules”

This is really ‘Sir Humphrey speak’ for “We are still learning how to ‘spin’ our stories better”

If there are still any doubts about the size and scale of the Government’s intentions, the Cabinet Office Public Service Mutuals Presentation to Local Authorities on Friday 15 February 2013 in Slide 49 under the “Right to Provide” shows the full range of services now on offer for mutualisation.

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“With a Little Help from our Friends”

On this site Huckfield is frequently critical of the timid role of the Association of Chief Executives of Voluntary Organisations, Social Enterprise UK and the National Council Council for Voluntary Organisations which offer little resistance as the Cabinet Office, Big Society Capital and hordes of financial and legal intermediaries force inroads for private investment into Social Enterprise. But the Cabinet Office also has some “little helpers” in its mutualisation process.

The Cooperative Group has set up Public Service Mutuals to lend a helping hand. With Social Enterprise UK, the Employee Ownership Association, and the Baxi Partnership, Cooperatives UK is also a member of the Cabinet Office Mutuals Information Service.

The Cooperative Group’s Public Service Mutuals site proclaims:

  • “We believe the principles upon which mutuals are founded have a particular resonance in the public sector where there is an underlying sense of public purpose. Unlike private ownership which tends to be for the financial benefit of the few, mutual ownership is shared amongst stakeholders and is therefore more fitting for the delivery of a public purpose.
  • “Significant parts of the UK’s public sector are now in forms of cooperative or mutual ownership, the highest profile examples being NHS Foundation Trusts and cooperative schools.
  • “Across the political spectrum mutual organisations are now seen as a legitimate alternative to privatisation and we want to help you determine whether the mutual way is the right way for you.”

But surely the policy motives of the Cooperative Group with Public Service Mutuals and Cooperatives UK are not the same as those of the Cabinet Office with its ultimate aim of shifting more public service delivery to the private sector?

Ed Mayo, Secretary General of Cooperatives UK, wrote in the Guardian on Friday 03 May 2013 under Nudged Out: This is Mutualisation, but not as we know it:

    “But the Government’s entry definition of mutual ownership, with a paltry 25% for staff and no rights for service users, gives no guarantees of member control and leaves investors in charge. It is a start, but when public services have been sold in this way before, such as the bus firms in the 1980s, the assets moved as night follows day from being employee-owned into private hands.”

These are fine words. But does this mean that Cooperatives UK will remain a member of the Mutuals Information Service as the main body promoting all this? Does it mean that the Cooperative Group’s Public Service Mutuals service will now force the pace by insisting that genuine prior consultation with staff takes place?

Huckfield hopes that Cooperatives UK and the Cooperative Group will not follow established precedents where ACEVO, NCVO and Social Enterprise UK offer occasional, tepid and timid reservations about Government policies for Social Investment in Social Enterprise, but still support their general thrust.

This continuing timidity of London based Third Sector Organisations was questioned in the January 2013 ‘Independence under Threat’ Report of the Panel on the Independence of the Voluntary Sector. On Infrastructure Bodies, on page 43, the Report said:

    “We also believe that infrastructure bodies could do even more than just question practices that threaten the independence of the sector – for example by launching judicial reviews of contractual terms which reduce independence.”

What Others are Saying

The following shows that mutualisation and setting up mutuals might not be all that the Cabinet Office would like us to believe:

  • The House of Commons Select Committee on Communities and Local Government Report on Mutual and Cooperative Approaches to Delivering Local Services, November 21 2012, in its Conclusion in paragraph 94 on page 41:

      “Mutuals and cooperatives providing local services are not being set up in significant numbers. From the small number of mutuals and cooperatives in the local government sector the evidence is encouraging but it not sufficient either to demonstrate conclusive improvements in service or that savings can be made or that benefits in engagement and accountability will follow. The necessary critical mass will be slow to build up without more and better support”.

      The Committee’s Recommendations continued on page 42:

      “The evidence we received suggested that a small number of local authorities are using or have established mutual or co-operative bodies to deliver their services. There appears to be confusion in local government and beyond about what constitutes a co-operative or mutual service delivery organisation.”

  • The Association for Public Services Excellence in ‘Proof of Delivery? A Review of the role of Co-operatives and Mutuals in Public Service Provision’ August 2011. on page 11 says:

    • “co-ops and mutuals mean different things to different people….too often, terms such as ‘co-op’, ‘mutual’ and ‘Social Enterprise’ are conflated and used interchangeably”.
  • Public Finance on August 18 2011 summarised this Report:

      “The latest research publication from the Association for Public Service Excellence, ‘Proof of Delivery’, finds very little evidence base to support any of the claims made about the superiority of cooperatives and mutuals over any other form of service delivery in public services. From 1,600 sources our researchers were only able to find 12 case studies where any impact evaluation had been carried out.”

None of this offers a ringing endorsement of the Cabinet Office or its Mutuals Information Service

This surely isn’t supposed to happen as part of the service offered by Public Service Mutuals?

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A Range of Issues to be Considered

  • Legal Form and Governance Framework for giving workers a say.
    The Cabinet Office is happy for ‘mutual’ to remain a wide ranging term. ‘What is a Mutual?’ on its Mutuals Information Service site shows that mutuals may be a Limited Company (Limited by Guarantee or by Shares), Community Interest Company, Industrial and Provident Society (a Cooperative or Community Benefit Society) or Charitable Incorporated Organisation. The Government also encourages Joint Ventures which include private investment. The Quick Reference Guide to Legal Forms on the Mutuals Information Service site shows a legal minefield.

    This will be further complicated if under the current Business, Innovation and Skills Company and Business Names Consultation under its Red Tape Challenge, February 2013 protection for terms like “Cooperative” under the 2006 Companies Act is weakened. The Consultation Response from Cooperatives UK says in Section 4.21 that “businesses would be trading off the value of the cooperative identity, but also undermining it in that they are making essentially false claims as to the nature of their business”.
  • Funding Expected from a Commissioning Body
    While initially a mutual may receive a grant or contact from its Commissioning Body, most contracts will need to be retendered. Capita, Serco, A4E and some of the major Charities will be watching and waiting.

    Central Surrey Health. A major warning precedent on re tendering is from Central Surrey Health losing out to Virgin Healthcare in September 2011 when it failed to raise the required £10mn bond.

    Secure Healthcare, one of the original 2006 Department of Health Social Enterprise Pathfinders, despite an initial £0.5mn Department of Health grant, winning a £5mn a year contact with HMP Wandsworth and receiving further funding from Futurebuilders, went into debt in 2009 and was taken back into the NHS. The Wandsworth Council Health Overview and Scrutiny Committee January 11 2010 on Secure Healthcare recommends on page 14 that “No bidder should be allowed to progress within a tender process if they cannot prove themselves to be adequate on both a service delivery and qualitative basis and also on a Financial Capacity basis”.
  • Length and Extent of Initial Contact .
    From a standing start, after negotiating the obstacles above, any new mutual will need to rehearse its Business Plan and devise a Bidding Strategy. Capita, Serco, A4E and existing bigger Charities have full time teams working on tenders, able to submit them “off the shelf”

    DA Partnership, a mutual set up after the Secretary of State for Communities and Local Government abolished the Audit Commission in 2012 with an initial minority stake from accountants Mazars, bid for £90mn of private contacts and won only one out of 10. Others went to Grant Thornton, KPMG and Ernst and Young. Previous DA Partnership ‘mutual employees’ now feature under Public Services on Mazars Accountants’ site as ‘recently recruited former Audit Commission staff’
  • Competition to be faced by a Mutual following an Initial Contract
    EU Procurement Law means that the NHS, Councils and other Public Service Commissioners seeking to establish shared service, spinouts or ‘in house procurement’ must conform to various precedents for Teckal (in house or shared services) initiatives. This is not straightforward – as shown in Local Government Lawyer’s ‘Use of Teckal Company Structures in Public Service Delivery’. A new EU Directive is scheduled for 2014, with the requirement that a Teckal company undertakes at least 90% of activities for its owner public authority. Otherwise the tender must be offered under the full force of current EU Procurement Directives.
  • Accountability for Service Users and Commissioners
    Policy Network on October 12 2010, carried a major feature:

      “Without a clear mutual governance structure that retains them as community assets in which all members of that community (service users and staff) have a say in how they are run, those services become vulnerable to either collapse or the intervention of a private sector provider. It is Thatcherism disguised as mutualism.

      “The challenge for the left is to see this betrayal of mutualism in terms of its biggest progressive policy offer.”

    This was written by Michael Stephenson as General Secretary of the Cooperative Party on ‘The Limits of National State Social Democracy’ as part of research for Policy Network.

  • Pay, Conditions and Collective Bargaining
    Huckfield is a member of a Unite Not for Profit branch and well understands the difficulties for trade union representatives on behalf of their members in negotiations with mutual employers whose background may have been Third Sector but lacking trade union involvement.

  • Asset Locks .
    There are significant recent examples where neither employee ownership nor an asset lock under a Community Interest Company may be adequate to prevent private sector acquisition:

      EAGA
      As shown in Construction Inquirer, February 28 2011, EAGA was bought by Carillion for £306mn despite strong protests of more than half its workforce.

      Ealing Community Transport
      In June 2008, ECT Recycling was bought by the for-profit May Gurney construction company for £15mn. The ultimate result was that assets held for the interest of the community were transferred into private hands, despite ECT’s being registered as a Community Interest Company.

    All this shows that even with strict definitions of ownership, profit distribution and an asset lock, it is still possible that assets held for employees or the community may pass into private ownership.

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And, Finally

Huckfield recognises that this is detailed and perhaps pretty tedious stuff. The Cabinet Office and Mutuals Information Service will not emphasise that one of its main policy aims is to outsource and move public services from Central Government, NHS and Local Government to the private sector.

Because they have have the resources and staff, Capita, Serco, A4E and some bigger Charities have worked out most of this already. So even if they don’t win the first contract, they will have the muscle and resources to win the second – even if the contract is based on Minimum Wage, Zero Hours or payment only for “Face Time”.

Huckfield doesn’t believe that this is how public services should be delivered. But, based on policies and procedures put in place by New Labour, all this is UK Coalition Government policy.

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