What does the General Election result mean for public sector reform?

by Craig Dearden-Phillips 11/05/2015

One consequence of a Conservative majority is an expected acceleration in outsourcing -  the move of public services out of direct government provision.    

A further question will be the role which public service mutuals (PSMs) will play in this new administration. PSMs were first championed by Francis Maude who oversaw the creation of 100 new PSMs employing 35,000 people and delivering £1 billion of public services. The view across Whitehall appears to be that PSMs have been a success, albeit at a smaller scale than envisaged. Success was measured in greater efficiency, innovation, strong new business growth and a far more engaged workforce.

So is the stage set, possibly, for a second wave of PSMs in the 2015-20 period? The omens are certainly good. The Cabinet Office ran a successful ‘Challenge Prize’ competition just before the election to design the next phase of mutual policy, the results of which will, no doubt, await the new Minister’s approval. Beyond this there is a wider imperative to find approaches to outsourcing beyond privatisation. While the big global outsourcers will, no doubt, have plenty to do as the Government cuts its operation down to size, there are plenty of services, particularly in local government, where the big private sector are not necessarily seen as the right partner. I am thinking here, in particular, of children’s services, community, leisure, libraries and parks. Services which depend on the goodwill of communities and workforces as well as socially-minded backers.  

Here, I believe, is the sweet-spot for Public Service Mutuals. If you look at areas in which the ones to date have been set up, it has been mainly in social care, community health care, libraries and other front-line sectors. These are not services that the private sector are interested in as perceived business - risk is high and the services are often messy, hard to scale-up and deeply dependent on public co-operation in their delivery. Obviously, these can also be provided by council-owned trading companies (LATCOs) but the savings required may render that model, with its in-built protection of public sector settlements, too much of a luxury.

So, here’s a scenario - the new Government is supportive – so how do we create more PSMs at a bigger scale in more places? The key to this, I believe, is for existing PSMs to be supported by social financiers and limited help from Government to incubate new ones. It is far quicker and easier to set up new PSMs when they can absorb the learning and experience of those who have gone before. Added to this, existing PSMs can use their credit-worthiness and market-presence to provide assurance to public sector partners that all will be well. Imagine a scenario where it is as easy to set up a PSM as it is to outsource in the traditional way, with the same assurance around investment and parent company guarantee, should it all go wrong.  

So - Mutuals Groups: well-capitalised, operating at scale and capable of partnering with local authorities and the NHS for large projects: This, I believe, is the key to unlocking the dream of the former Cabinet Secretary to move a million public sector workers into mutual. This more radical approach will not only save money but provide a version of public sector reform that is politically helpful to the Government during a difficult five years ahead.

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