The Big Society - Public Administration Committee Contents

3  Opening public services to alternative providers

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.[66] 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.[67]

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.[68] 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 communities—not always, but they can be."[69] 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".[70]

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.[71] 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".[72] Instead, the most they could hope for would be to "be a subcontractor to a subcontractor to Serco".[73]

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".[74] 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.[75] 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.[76] 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."[77]

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".[78] 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.[79]

38. We 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 tendering.

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.[80] 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."[81] UNISON suggested that "communities may not be more efficient providers of a service",[82] 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 cheaper ones".[83]

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.[84] 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.[85]

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.[86] 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.[87]

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.[88] 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".[89]

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.[90]

45. The voluntary sector may also be affected as a result of 'mission drift' by charities that provide services.[91] 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."[92] The Third Sector Research Centre accepts this danger, but concludes that:

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.[93]

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".[94] They warned that this could result in the erosion of "the distinctive values and ethos of the third sector".[95] 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 service delivery.[96]

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.[97] 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.

48. Increasing 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 companies.

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 after—to have transferred to them on one day—3,000 people, it probably does not have the capacity, ability, investment, funds, etc, to make sure that it can run that and do so sustainably going forward.[98]

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.[99] 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.[100]

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.[101] 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 efficiency.[102]

53. Opening 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 provision".[103] 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.[104] The White Paper recognises that "poor-quality services can occur in any sector"[105] 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 private sector.[106]

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 years".[107] The 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.[108]

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".[109]

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.[110]

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."[111] 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"[112] 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. [113]

58. Ministers 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 imperative.

66   Q 408 Back

67   Q 457 Back

68   Ev w127, Ev w226 and Q 438 [Sir Stephen Bubb] Back

69   Q 93 Back

70   Ev 107 Back

71   Ev w243 Back

72   Q 115 Back

73   Q 117 Back

74   Ev w243 Back

75   Ev w138 Back

76   "David Cameron: Together in the national interest" The Conservative Party 6 October 2010, HM Treasury, Spending Review 2010, Cm 7942, October 2010, p 17 Back

77   Ev w146 Back

78   Q 447 Back

79   Ibid. Back

80   Ev w172, Ev w178 Back

81   Q 615 Back

82   Ev w7 Back

83   "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  Back

84   Ev 116 Back

85   FVS Ev 61 Back

86   Ev w5 Back

87   Ev w120 Back

88   Ev 106 Back

89   Ev w121 Back

90   Ev w120 Back

91   Ev w107 Back

92   Ev 109, citing 'Stand and Deliver: The Future for Charities Delivering Public Services' Charity Commission 2007 Back

93   The Third Sector Research Centre, The third sector delivering public services: an evidence review, (London: 2010), p 23 Back

94   Ev w243 Back

95   Ev w243 Back

96   Ev w5 Back

97   "Over half of newly registered charities do public service delivery" Civil Society website 16 November 2011  Back

98   Q 488 Back

99   Q 487 Back

100   'The Big Society needs a profit motive' The Daily Telegraph 18 April 2011 Back

101   Q 455 [Paul Nowak] Back

102   Ev w6 Back

103   Q 525 Back

104   Q 587 [Francis Maude] Back

105   Cabinet Office, Open Public Services White Paper, Cm 8145, July 2011, p 9 Back

106   Ibid.p 9 Back

107   Ev 120 Back

108   IbidBack

109   'The Big Society needs a profit motive' The Daily Telegraph 18 April 2011 Back

110   Ibid. Back

111   'Companies win vow on public procurement' Financial Times 16 May 2011 p 4 Back

112   Q 488 Back

113   Q 488 Back

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© Parliamentary copyright 2011
Prepared 14 December 2011