Can mutuals become mainstream in the public sector?

The drive to outsource public services to worker cooperatives is gathering pace. How far will it extend and what are the prospects for success? Personnel Today’s Guy Sheppard finds out.

Co-ownership of public sector services by their workers might once have been an idea ascribed to the “looney left”. Yet it now forms a key part of the coalition Government’s “Big Society” agenda.

Cabinet Office minister Francis Maude predicts that, by 2015, one million public sector workers could be “co-owners in some form of the public service entity that they are part of”.

Employee-led mutuals, a term which embraces worker cooperatives, social enterprises and joint ventures with other organisations, are seen as a way of increasing diversity among public service providers and boosting productivity through increased staff engagement.

Around 45,000 employees currently work for a public sector mutual, according to the Cabinet Office, which has established 21 “pathfinder mutuals” so that staff can gain first-hand experience of the support and structures needed to make the idea succeed. The Government has also recruited mentors from some of the country’s best known mutual organisations, including John Lewis Partnership, to provide guidance.

Barriers to the growth of mutuals

However, there have been some barriers to the growth of mutuals, including TUPE (Transfer of Undertakings (Protection of Employment) Regulations) legislation. To address this, the Cabinet Office has announced a new package of support for individuals that are considering the idea.

The Mutuals Information Service (MIS) has received nearly 300 separate inquiries within the last year. Chris Dale, an MIS founder, says: “The size of the organisations contacting us range in size and include £20 million to £30 million organisations. We’re not just getting people from the front line but also senior managers and chief executives.”

According to the Employee Ownership Association, interest is in fact much more widespread than the MIS inquiry numbers suggest. Policy director Carole Leslie says: “Based on the inquiries we’re receiving, it is across all sectors, from education and health to local and central government.”

Translating that interest into practical action may prove much harder, however. Mark Sesnan, MD of GLL, an employee-owned social enterprise managing public leisure centres in Greenwich, South-East London, says that setting up a mutual is complex. “It’s as much about winning hearts and minds as it is about business planning,” he explains. Sesnan believes that councils are understandably nervous about the idea because putting a service out to tender is easier than setting up a mutual, which needs nurturing.

Establishing long-term viability

This caution may partly reflect a lack of understanding about what mutuals can achieve. According to the Association of Public Service Excellence, which published a performance review in August 2011, there is a distinct lack of evidence to substantiate their long-term viability.

Peter Reilly, the Institute of Employment Studies’ director of HR research and consultancy, detects a clear divide in local government between those willing to experiment with the idea and those who still need convincing. “I think you have got a much bigger number of councils watching and waiting to see what comes of it,” he says. He questions whether or not councils have the management capacity to undertake such a change “if you are also trying to take out 25% of your costs at the same time”.

Councillor Steve Reed, leader of Labour-controlled Lambeth Council in London, which embarked on a mutual approach to running services more than two years ago, acknowledges this problem. “It’s a huge ask of the organisation, if I am honest. We’re dealing with cuts bigger than managers have ever dealt with in their lives and then you ask them to manage in a completely different way.”

He believes that the pain is worthwhile, though, because, in the long run, the transformation will improve efficiency and save costs. But his vision differs from the one outlined by the Government, in that Lambeth is trying to empower users of its services rather than its employees. “Provider-led cooperatives would be much easier to privatise,” he warns.

This fear is echoed by Unison’s national officer Mike Short, who says: “The Government’s aim is to outsource as many public services as possible on the basis of who can provide it cheapest rather than who can provide the best service.”

MyCSP prepares for mutualisation

MyCSP, which employs around 450 people to manage civil service pension schemes, is the first big central Government function to prepare for mutualisation. By teaming up with a private sector partner, it will gain access to capital investment to upgrade its IT infrastructure and, according to the Cabinet Office, have greater clout when competing for other work.

But Public and Commercial Services Union policy officer John Medhurst objects: “It is not a workers’ cooperative in any sense of the word, but a commercial model that is being imposed on them.” He predicts that commercial partners will gobble up such ventures once they encounter problems.

Anne Gibson, president of the Public Sector People Manager’s Association, takes the opposite view, arguing that there are enough national organisations to provide help and enough talent among employees to cope with the challenges. “I think there’s an attitude that they won’t have the business knowledge or whatever, but there’s a hell of a lot of talent out there and they are absolutely capable of doing that,” she says.

Sesnan, who helped found GLL when Greenwich Council’s assistant director of leisure, is a case in point. He leads an organisation that started with 110 employees 1993 and now has nearly 5,000. He believes the arguments in favour of setting up a mutual are now more powerful than ever. “If staff think they can stay as they are, they are blinkered and blind to the financial climate we are in. To do nothing is either to be made redundant or be privatised.”

But for Leslie, such intense pressure is dangerous because she believes that gaining employee commitment is such a vital part of the journey to becoming a mutual: “When you look at the successful mutuals we have already, it is people who are achieving that [commitment].”

Case study: Inclusion Healthcare

Inclusion Healthcare in Leicester has been run as a social enterprise since September, 2010. Its 12 employees provide a drop-in health service for 900 homeless and vulnerable adults who would otherwise miss out on NHS treatment.

Any profits are ploughed back into the service, which means that some non-essential services such as podiatry are maintained despite a funding reduction from the NHS.

Business manager Beverley Fall says that NHS terms and conditions have been retained for both existing and new staff. “Everybody says they are far happier being part of this organisation. Before, when led by the primary care trust, you were spending someone else’s money. Suddenly, it is our money and we are all playing a part in making this successful.”

Staff employed by the organisation for more than one year are made shareholders, which allows them to make representations at the annual general meeting and be involved in the selection of directors and non-executive directors.

Inclusion Healthcare is one of the Government’s 21 pathfinder mutuals that have been set up since August 2010 to highlight potential challenges facing such enterprises. Fall says that these have included finding out the true cost of the £800,000-per-year-turnover operation. “It probably took us nine months to get our own telephone bill and pay for it,” she says. Bidding for other contracts is also difficult: “As a fledgling business, you are discriminated against because you don’t have a trading history.”

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