Why a Right to Mutualise is less important than a Case to Mutualise

by Craig Dearden-Phillips 20/03/2017

Despite the vocal enthusiasm of ex-John Lewis supremo Andy Street, who is running for Mayor of Birmingham, it is probably fair to say that Public Service Mutuals (PSMs) have not taken local government by storm in the 2010-17 period.

While over 100 PSMs have been set up from Councils and the NHS employing 35,000 staff and £1bn in services - mainly in adult care and library and culture services - roll out has been fragmented.

Other forms of alternative delivery vehicles have been far more popular, in truth.

Most notable among these are Council-owned trading companies, some trading as social enterprises. For example, Kingston and Richmond Council's Achieving for Children is now co-running or advising several Councils’ Children’s Departments from Slough to Sunderland.

Given the change of administration, are PSMs still on the Governments radar?

Apparently so. Theresa May’s office is said to be keen to launch a new wave of Public Service Mutuals under her ‘inclusive economy’ agenda. Hence Andy Street's words in Birmingham last week, touting PSMs as part, at least, of the solution in social care.

So how can Government get local authorities interested this time around?

Let’s start by looking at what went a bit wrong last time out. As I toured the town halls during the last Parliament, the message I got back, repeatedly, was that PSMs weren't really cutting it as a solution: ‘Complicated to set up’. ‘Risky’. 'Unaccountable'. These were the messages I heard time and again.

I was also asked by CEOs and Directors what these new PSM companies were bringing to the table in terms of fresh investment or commercial skills. Which, in truth, was often very little, at least in the short-term. And ‘jam-tomorrow’ is never going to persuade a local authority Treasurer!

So, unsurprisingly, I often walked away without a deal – mainly because the PSM offer wasn’t, in fact, a deal at all.

What Government was asking, in effect, was for Councils to take a one-way gamble on a new company with no assets, or cash, led by people with no commercial experience to run a business that the Council itself neither owned or controlled. For lots of authorities, this felt far too open-ended with a big downside if anything went wrong. And no-one on the scene, except the Council, to clear up any mess.

While we did get some PSMs set up, this only happened when Council leaders wanted to specifically back a highly talented group of officers. Or when the service was otherwise doomed and mutualisation was the last throw of the dice.

Meanwhile, the alternatives to PSMs flourished. Councils all over the country have ramped up their own enterprises, either alone or with other authorities. Some of these, like Vertas, in Suffolk, are developing into group-companies which include joint-ventures with other Councils.

This solution represents a clear values-proposition to Councils. Trading companies are relatively easy to set up in terms of procurement, pensions and local politics. Capital for these businesses can be accessed quite easily, due to the favourable lending terms that councils can secure. Corporate governance can be set up which draws in external talent but keeps a strong link back to the Council. And profit can come straight back to the shareholder – the Council.

Similarly, partnerships with the private sector, both large and small, are growing quickly.

While procurement is often lengthy, the successful commercial partner is able to share risk, bring expertise, new business models and new resources into a relationship with a Council.

While some of the really massive outsourcing deals with the likes of Capita and others are being unwound, notably there has been overall growth in these kinds of risk-sharing deals.

Again, the value-proposition of a private sector partnership is very clear, if the politics can be managed.

The same simply could not be said for Public Service Mutuals (PSMs). To date, these have been, quite frankly, poorly sold.

Instead of promoting PSMs in terms of what Councils said they wanted – step-change efficiency, fresh investment, and new business models, PSMs were pitched, mistakenly, in the language of a ‘Right to Mutualise’ on the part of staff and the purported future benefits of employee-ownership.  

Little was said about the immediate benefits to Councils. It all sounded rather entitled but also vague - and a long way from a clear value-proposition or a deal.

So what does Theresa May’s Government need to do to breathe new life in the Public Service Mutuals agenda in local government?  

Three things spring to mind. Firstly, the case for a PSM must be cast into the narrative of Councils’ need for cheaper, better, business-like services that communities can trust. Less about 'rights' more about 'improvements'. 

Here there is a good story to tell. The record of PSMs, as independent providers has, in fact, been very good indeed. They have proved themselves resilient, capable of improving services while absorbing cuts, growing new business, attracting talent and connecting well with their councillors and communities. It’s attractive.

Secondly, the perceived risks around PSMs must be dialled-down. At the moment, the PSM is too much of a ‘punt’ for senior people in Councils, a banana-skin too many. 

To counter this, the PSM offer has to bring new capital, new senior talent and proven commercial track-record to the table from the off.  

Which, of course, means PSMs don’t just involve the Council workforce but road-test commercial partners.  

Then Councils can see, without leaps of imagination, how services could be improved and what a deal with a PSM could look like.   

Thirdly, a PSM needs to offer Councils a slice of the action. PSMs, to date, have tried, very hard, to keep Councils away from any sense of ownership.   

This has to change. Councils are the main customer of PSMs. Failure rebounds heavily, if it happens. So, therefore, should success.  

Furthermore, a material stake for Councils in a PSM could better tie PSMs and their communities together. Again, a much more attractive offer for the Council.  

What does this all this point towards? To look desirable next to the obvious alternatives, Public Service Mutuals need to appear to offer the best of both worlds: the local accountability and trust that goes with a Council owned company and the commercial acuity and track-record of a private sector partner.   

This requires, from the very beginning, that Public Service Mutuals are set up, in effect, as a joint effort between the Council, its staff and, to bring the missing ingredients to the table, one or more external commercial partners with a socially responsible approach. 

Such providers now exist: Prospects, Bridges Ventures, Social and Sustainable Capital, Stepping Out  - to name just a handful.

It suggests, as well, that PSMs that are not made up just of council staff asserting their ‘rights’ to mutualise, but new forms of public service providers that are joint-ventures between local government, its staff, its commercial partners and its communities. 

This is all a far cry from Lord Francis Maude and his call to let a thousand flowers bloom by encouraging public sector workers to set up their own businesses to trade with Councils, the NHS and central government.  

That call was mostly ignored by local authorities who didn’t see PSMs as any solution to austerity. For PSMs to enjoy greater success in local government under Theresa May, they will need a better value-proposition to the existing alternatives. 

That is where the thinking in Government needs to go, not on the 'right' to mutualise but the cold, hard for mutualisation.

Back to stepping out now