3 Opening public services to alternative
32. The charitable sector ('the third sector' or
'civil society'), has a long and proud history of delivering public
services: many witnesses pointed out that charities used to be
the sole provider of public services. Sir Stephen Bubb, Chief
Executive of the Association of Chief Executives of Voluntary
Organisations, highlighted the example of St John's Hospital in
Bath which has been providing services for the elderly since 1137,
previously funded through charitable donations, and now funded
by the state. Sir
Stephen also spoke of charities which had come into existence
through dissatisfaction with "bureaucratic [and] inflexible"
state-delivered public services, citing Mencap and Scope as examples.
33. There is no doubt that many charitable organisations
can and do provide good and innovative public services, particularly
for clients who do not want to be involved with officialdom, for
example in the field of rehabilitation, where substantial reductions
in reoffending rates have been achieved.
Journalist Polly Toynbee suggested that charities can "do
it better than the state, because they are often innovators, they
often lever in all sorts of other things, they are often much
closer to communitiesnot always, but they can be."
The TUC also praised the "added-value, niche services"
which voluntary groups could provide, in partnership with the
public sector, because they "are often able to engage with
hard to reach clients and communities that may be beyond the scope
of the public and private sector".
34. While some charities and voluntary groups told
us they were keen to take a more active role in service delivery,
we also heard that this did not necessarily reflect the position
of the whole charitable sector. The Third Sector Research Centre
argued that their research showed that "not all voluntary
and community organisations necessarily need, or wish to, take
on a greater role in delivering services". They identified
in particular smaller organisations who were unable to meet contract
requirements and were instead reliant on charitable income.
Some of these groups are simply too small in scale to work with
Government departments or local authorities. Danny Kruger, whose
charity, Only Connect, works to prevent re-offending, told us
that "there is no contract that our tiny little outfit could
possibly enter into with Whitehall".
Instead, the most they could hope for would be to "be a subcontractor
to a subcontractor to Serco".
35. There were also doubts that the majority of charities,
small in size and operating on a very local basis, have "the
resources and skills to competitively tender", a problem
exacerbated in the view of Timebank, a national volunteering charity,
by cuts to "the infrastructure organisations that could up-skill
these organisations to tender".
These organisations, which include local community and voluntary
services (CVS) and volunteer centres, have, according to the Charity
Finance Directors' Group, "a valuable role in fostering civil
society engagement and up-skilling the sector, [and] should be
at the heart of the Big Society project but instead are being
compromised" by spending cuts.
At the same time, Ministers cite Treasury figures which show
that by the end of this Parliament, the public sector will still
spend more than 40 per cent of our GDP, the same proportion as
in 2006/07. The overall
funding position for civil society may be backpedalling slightly,
but it follows years of enormous increase.
36. The lack of recognition of the diversity of the
charity sector was criticised by the Our Society network, which
accused Ministers of being "oblivious to the enormous differences
between national charities, community and neighbourhood organisations,
and informal groups [...] The experience of voluntary organisations
over recent years is that only a few large ones are in a position
to handle contracts of any scale."
37. Other charities currently provide public services,
and would be happy to expand the good and effective work they
do, but only on a small scale, as they "do not aspire to
large-scale service delivery".
Kevin Curley of NAVCA made the following suggestion:
I think that an organisation such as Derby Women's
Aid, which provides a 12-bedded hostel, would aspire to providing
a second 12-bedded hostel, but would not aspire to running all
the women's refuges across the East Midlands. To take the example
of the Hull citizens advice bureau, it would very much like to
run a branch bureau on a deprived estate like Preston Road or
Orchard Park, but it does not want to provide advice services
across the whole of East Yorkshire, by and large.
welcome the Government's commitment to encourage the participation
of the charitable sector in the provision of public services.
We recognise that not all public services are suitable to be delivered
by charities and that not all charities are willing or capable
to deliver services. Charities and community groups have shown
that they can provide some public services at better value for
money than those delivered by the state and that some wish to
do so. We have yet to see how the Government will encourage this
since contracting out continues to favour the larger, more commercial
providers. In essence, this is the challenge: to build the 'little
society', rather than the 'Tesco' charities that are skilled at
A cheaper provider?
39. Some witnesses doubted whether commissioning
services from voluntary and charity groups would necessarily be
cheaper than the same services delivered by the state.
The Minister confirmed that if a charity was to win a contract
it must "show not only that they are able to deliver the
quality but they are able to provide good value."
UNISON suggested that "communities may not be more efficient
providers of a service",
while David Lewis,
Professor of Social
Policy and Development at the London School of Economics and Political
Science, has argued that "the voluntary sector may well
offer the possibility of better services, but not necessarily
40. We also heard that charities should not be expected
to subsidise public service delivery through the use of their
own funds. NAVCA described the use of charitable income "to
subsidise statutory services which should be properly funded from
general taxation" as highly inappropriate.
The Charities Aid Foundation (CAF) has warned that:
[charities and voluntary organisations] should not
be seen as "the cheap option" for service delivery because
they are able to draw on charitable income and volunteers. Commissioners
must be willing to pay an appropriate price for services. It is
entirely unreasonable to expect charitable income or volunteer
labour to subsidise their costs.
41. The opening up of public services to new providers
can in turn increase the cost on the public purse, once the cost
of tendering and monitoring contracts is taken into account.
The costs of the tendering process have in some instances led
local authorities to merge local contracts into a larger geographical
area in order to make economies of scale. The larger geographical
area also means a larger contract size, which may then place the
contract out of the reach of small local organisations.
42. We would
be concerned if commissioners were faced with a choice between
either simply choosing the cheapest option or commissioning a
more expensive service from a small local charity which might
be able to provide a better service, but would be unable to compete
with larger charities or the private sector on cost grounds.
Effect on the voluntary sector
43. An increase in public service delivery by charities
and voluntary groups is likely to change the nature of the voluntary
sector as a whole.
We heard of fears of a polarisation within the sector: Exeter
Council for Voluntary Services warned that the focus on service
delivery may lead to "a larger gulf between large, 'professionalised'
or 'corporate' charitable companies, and small, local, entirely
voluntary community groups".
44. The independence of the sector may also be compromised.
Charities which deliver public services have reported feeling
that their independence is threatened. We heard from voluntary
groups who were keen to stress that the sector "should not
be reduced to "just" being a service provider",
as this might restrict their role as community activists.
45. The voluntary sector may also be affected as
a result of 'mission drift' by charities that provide services.
The TUC cited Charity Commission research showing that "charities
that deliver public services are significantly less likely to
agree that their charitable activities are determined by their
mission rather than by funding opportunities."
The Third Sector Research Centre accepts this danger, but concludes
in the absence of focused empirical research on the
maintenance or elasticity of third sector organisation missions
over time, we are left with some concern about the potential for
mission drift, but no clear indication of its prevalence or the
causes and consequences of drift.
46. A more likely effect may be the loss of responsiveness
and innovation of groups providing public services. The Third
Sector Research Centre flagged up the danger of 'isomorphism':
that is, that charities seeking to provide services for the lowest
possible cost may adopt "practices
that mimic those of their commercial competitors".
They warned that this could result in the erosion of "the
distinctive values and ethos of the third sector".
UNISON concurred, arguing that commissioning services directly
from voluntary groups did not necessarily lead to the benefits
of their innovation, but instead drove charities and voluntary
groups to focus on winning contracts by delivering cheaper services,
losing the added value that such organisations can bring to public
47. Over half of all new charities registered with
the Charity Commission between April and September 2011 have contracts
to deliver public services, in comparison with only 39% of all
charities as a whole. This
suggests that any distorting impact on the charitable sector as
a result of charities delivering public services may become more
prevalent, due the number of new charities focusing on this role.
the number of charities and community groups that deliver public
services will change how the charity sector operates as a whole.
There is a danger that charities may become agents of public policy,
subject to targets and incentives and thereby becoming an extension
of the state. We expect to consider the state of the charity sector
in a later inquiry.
The role of the private sector
49. How voluntary groups and private companies compete
and work together to provide public services is critical to the
success of the Big Society project. Francis Maude, Minister for
the Cabinet Office, was adamant that "there is a huge role
for profit-making companies in our society and our economy",
noting the number of public services already delivered by profit-making
50. It was also suggested that in some situations
the resources and expertise of private companies may be more appropriate
than that of the voluntary sector. Shona Nicholls, Group Marketing,
Communications and Sustainability Director for Capita, spoke of
a scenario where
a small to medium-sized charity is to take over and
look afterto have transferred to them on one day3,000
people, it probably does not have the capacity, ability, investment,
funds, etc, to make sure that it can run that and do so sustainably
51. We also heard claims of the cost savings that
could be provided by private companies. Capita claimed that it
provided 15% to 30% cost savings to local authorities in outsourcing
contracts. The think-tank
Reform argued that the profit motive gave companies the crucial
incentive to provide the cost savings Ministers required, and
the scale to deliver these savings.
52. The evidence we received from trade unions took
an opposing view. The TUC argued that private companies running
large scale outsourcing operations could create "an unbalanced
marketplace" through their economies of scale and their capacity
to run loss-leaders.
UNISON told us that
no credible view of a Big Society should include
organisations which make profits for their own sake ... If profits
are made by public service providers, and not re-invested in the
service, then this represents a subsidy of the private sector
by taxpayers, and a lost opportunity to improve those services.
This is an inappropriate and inefficient use of public money,
especially in a time of limited funds, and it is contrary to the
Government's aims of reforming public services and increasing
up public services to new providers raises the prospect of much
greater private sector involvement, as many of our witnesses have
indicated. Private sector large contractors may provide the cheapest
option in the first round, which may drive out smaller, more innovative,
more local and more accountable providers. We recommend that the
Government regularly review the level of large private sector
involvement in public services to ensure that the objective of
the Big Society project of empowering communities over local services
is being achieved.
A voluntary sector bias?
54. Francis Maude spoke of a new world in public
services where "the expectation is not that big, monolithic
public sector providers are the default setting for public service
The new world also goes beyond a "binary choice" between
services being delivered either by a public sector monopoly or
by private companies, and to a "much more mixed economy and
a more sophisticated array of providers" including charities,
mutuals and social enterprises.
The White Paper recognises that "poor-quality services can
occur in any sector"
and states that all sectors are viewed equally:
We do not have an ideological presumption that only
one sector should run services: high-quality services can be provided
by the public sector, the voluntary and community sector, or the
55. Ministers have nevertheless stressed the primary
role of charities and voluntary groups in the Big Society project.
The Minister for the Cabinet Office said that "whilst the
Big Society is broader than any one sector, charities, social
enterprises and mutuals, and community groups have been playing
a strong role in strengthening communities and society for many
Minister believes that the role in the community and their local
knowledge will enable voluntary groups to provide higher quality,
more innovative and better value public services.
56. The think-tank Reform has criticised the focus
on charities and voluntary groups delivering public services,
and said that "the impression given by Downing Street is
that it wants the private sector off the table for this Parliament".
57. Paul Pindar, Chief Executive of Capita, has given
a contrasting view: he was quoted in the press as having said
of multi-billion government outsourcing deals that:
there is absolutely no way on the planet that [that
sort of contract] is going to be let to a charity. And it can't
get let to a small or medium-sized enterprise.
Mr Pindar was further quoted as saying that the charity
sector "will not be a massive player" in the delivery
of public services as charities and voluntary groups "simply
don't have the scale" and "can't bear the risk."
When these comments were put to Capita, Shona Nicholls, their
Group Marketing, Communications and Sustainability Director, said
that they had been "taken out of context"
and further added:
Basically, he was saying, 'Is there a market for
Capita going forward with all of this change?' I do not know
in terms of that soundbite that came across, but what Paul was
trying to explain, as I was earlier, was that there are different
roles for different organisations as they stand at the moment
[...] He is not anti the voluntary sector; he was just trying
to explain that there are barriers for various charities and other
voluntary sector organisations to take on some of the large chunks
of central or local government. 
have spoken both of promoting charities as the favoured provider
for public services and in favour of a more mixed economy with
private sector providers also involved. The officials responsible
for commissioning and managing contracts for public services need
to know whether Ministers wish them to prefer the voluntary sector
over offers of potentially better value. Clear Ministerial guidance
to the civil servants and local authority officials responsible
for the commissioning and tendering of public services is therefore
66 Q 408 Back
Q 457 Back
Ev w127, Ev w226 and Q 438 [Sir Stephen Bubb] Back
Q 93 Back
Ev 107 Back
Ev w243 Back
Q 115 Back
Q 117 Back
Ev w243 Back
Ev w138 Back
"David Cameron: Together in the national interest" The
Conservative Party www.conservatives.com 6 October 2010, HM
Treasury, Spending Review 2010, Cm 7942, October 2010, p 17 Back
Ev w146 Back
Q 447 Back
Ev w172, Ev w178 Back
Q 615 Back
Ev w7 Back
"The voluntary sector is at the centre of the government's
Big Society plans. This may offer the possibility of better services,
but not necessarily cheaper ones" LSE British Politics
and Policy Blog 21 June 2011 blogs.lse.ac.uk/politicsandpolicy
Ev 116 Back
FVS Ev 61 Back
Ev w5 Back
Ev w120 Back
Ev 106 Back
Ev w121 Back
Ev w120 Back
Ev w107 Back
Ev 109, citing 'Stand and Deliver: The Future for Charities Delivering
Public Services' Charity Commission 2007 Back
The Third Sector Research Centre, The third sector delivering
public services: an evidence review, (London: 2010), p 23 Back
Ev w243 Back
Ev w243 Back
Ev w5 Back
"Over half of newly registered charities do public service
delivery" Civil Society website 16 November 2011 www.civilsociety.co.uk
Q 488 Back
Q 487 Back
'The Big Society needs a profit motive' The Daily Telegraph
18 April 2011 Back
Q 455 [Paul Nowak] Back
Ev w6 Back
Q 525 Back
Q 587 [Francis Maude] Back
Cabinet Office, Open Public Services White Paper, Cm 8145,
July 2011, p 9 Back
Ibid.p 9 Back
Ev 120 Back
'The Big Society needs a profit motive' The Daily Telegraph
18 April 2011 Back
'Companies win vow on public procurement' Financial
Times 16 May 2011 p 4 Back
Q 488 Back
Q 488 Back