From the TUC

Our mutual friend?

17 Nov 2010, by in Public services

The Government announced today  that it is set to roll out new ‘Rights to Provide’ across public services enabling front line staff  to take over and run their services as mutual organisations.  Francis Maude has also unveiled new support for public service ‘spin-outs’, including over £10million to help the best fledgling mutuals reach investment readiness.

The idea of using employee-ownership models such as mutuals in the delivery of public services is not a brand new idea, of course, we produced this briefing for trade unions earlier this year.  The previous Labour Government advocated a similar approach.  More broadly, the concept of employee ownership has had its champions on both the left and right and the TUC believes that there’s merit in exploring some of the issues further.  There’s certainly been some interesting debate on some of the better blogs.

However, today’s announcement does give us some cause for concern.  This is particularly so given the context of massive spending cuts, job losses and attacks on pay and pensions  across the public sector.

Our concerns fall under six main headings.

First, this sounds suspiciously like privatisation, albeit in nicer packaging.  For instance, health services that are turned into shared ownership enterprises will have to win contracts and compete with private companies to survive under the government’s proposed “any willing provider” model and will be vulnerable to take-over from larger companies and multinationals.  This is particularly true when economies of scale dictate that greater efficiencies can be derived when a number of enterprises are brought together under a larger umbrella.  Private sector involvement in public service delivery has demonstrated this plenty.

Second, public service accountability becomes compromised by the existence of a myriad of providers, particularly shared-ownership enterprises with their own structures for reporting back to their members and users.  Further fragmentation between commissioning bodies and providers adds layers of complexity when it comes to understanding who is accountable to whom.  All of this exacerbates the increasing disconnect between public services and the democratic structures of local and national government that are ultimately responsible.

Third, according to the Office for Public Management, benefits derived from employee ownership models, e.g. innovation, efficiency and creativity, only work where there is genuine employee ownership and buy-in.  This process cannot be driven from the top and employee ownership can not be a token add on. Experience from unions suggest that, contrary to the government’s claims, moves towards social enterprise status have mainly been led by management rather than staff, and workers have felt under pressure to support the change.  At a time when minds are focussed on job losses and attacks on pay and pensions, are public sector workers really queueing up to throw themselves into the market?

What’s more, are the public that bothered?  Research from IPSOS/Mori for Public Services 2020 suggests not, with a  lukewarm response to public service reform generally and to employee and user co-operatives more specifically.

Fourth, we have concerns about the impacts on joined up services and continuity of delivery.  Under the current system, contracts to social enterprises are usually awarded for three to five years, after which there is no guarantee of what happens to the services they deliver. Instability may well affect service delivery.

Fifth,  there has been little  from the Government on what will happen in those cases where mutuals fail.  Not necessarily impossible given the huge obstacles faced by mutuals in competitive markets where awareness of the model is low, commissioning complex, preferences remain for larger operators who can deliver to scale and huge difficulties face social enterprises of all kinds in accessing finance.  We can only assume that in the event of failure it is the tax payer that will incur the cost, while service users face the disruption and the employees, who knows?

Finally, there are bound to be long term repercussions for employment standards.  Shared ownership organisations rely on generating surpluses to raise funds and maintain long term stability.  Where these surpluses are derived is open to question, particularly given the Government’s priority for achieving savings to the tax payer.  In the announcement today, the minister Francis Maude made clear “that mutual proposals will be expected to deliver savings”, operating at lower cost than their public sector parent organisations.

While efficiencies may be derived from leaner structures, there will be downward pressure on wages and pensions.  TUPE provisions may well protect transferred staff but there is little safeguarding for new entrants, particularly given the government’s intention to abolish the two-tier code.  It is unlikely that a shared ownership business model would successfully incorporate comparable terms and conditions with directly employed public sector workers.

The TUC is happy to  look further into the issues of employee ownership and other forms of social enterprise.  We’d very much welcome the Government looking at advocating the use of different models of corporate governance in the private sector, which they’ve been largely silent on.

There are some serious questions here and until they are properly addressed, its hard to see anything but further privatisation by the back door.

One final point is worth making.  Although £10 million is a small sum given the context, allocating resources to promote this relatively untested model of public service delivery at a time when (for example) DCLG faces an across the board cut of 28% undermines the government’s argument that this is not an ideological attack and there is no alternative to cuts.