House of Commons - Mutual and co-operative approaches to delivering local services - Communities and Local Government Committee

Mutual and co-operative approaches to delivering local services - Communities and Local Government Committee Contents

2 Co-operative models

The co-operative and mutual concepts

8. How should we define the terms 'co-operative' and 'mutual'? In the UK, there is no legal definition of a mutual or co-operative and in some cases the terms are used interchangeably. It was easier to establish what a mutual or co-operative was not: a traditional in-house service or a company run for the benefit of external shareholders. Beyond that mutuals and co-operatives are both owned by a defined group of members such as employees, service users, customers or others with an interest in the business. They have a governance structure which gives members a say in how the organisation is run and they are often run for the benefit of its members with profits retained within the business or distributed to its members.

9. The Association for Public Service Excellence (APSE), a not for profit organisation that promotes improvements in local authority services, recently undertook a review of the use of co-operatives and mutuals by local authorities. APSE used the following definition from Mutuo, a not for profit organisation promoting new mutuals, for mutuals:

organisations which are owned by, and run for the benefit of their current and future members. These are different to social enterprises in that a large proportion of the business should be owned by either employees and/or the local community.[7]

10. A difference between mutuals and co-operatives is that any co-operative is expected to have subscribed to the statement of identity agreed by the International Co-operative Alliance which defines a co-operative as:

an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.[8]

This definition therefore provides a set of values and principles, beyond the organisational concept that defines a mutual, which a co-operative must put into practice. These cover the economic contribution from members and co-operation between co-operatives as well as wider organisational structures than mutuals that include voluntary and open membership.[9] For the purposes of our Report we have used these definitions of co-operatives and mutuals. They exclude other not for profit organisations such as charities and many social enterprises.[10]

A SHORT HISTORY

11. Although there were earlier organisations with the characteristics of a co-operative in other countries, the 'Rochdale Pioneers' are generally regarded as the founders of the modern Co-operative Movement.[11] In 1844 workers in the cotton mills in Rochdale, formed the Rochdale Equitable Pioneers Society, in response to low wages and high prices of food and household goods.[12] They combined their financial resources to access goods at lower prices and established a shop at which customers could become members of the society and contribute to, and share, the mutual benefit it provided. The principles behind the Rochdale Pioneers were adopted across Europe and in 1862 Friedrich Wilhelm Raiffeisen founded the first credit union, in Heddesdorf, Germany, where members' deposits served to provide loans for other members.[13]

12. In addition to the traditional co-operative where the profits are shared by customers and employees, there is the employee-owned mutual where profits are shared by the employees. John Lewis, which has annual gross sales of over £8.7 billion, is arguable the most well know example of an employee-owned mutual business in the UK and, though it is not the only model, it was referred to frequently in the evidence we have taken and by Government.[14] A written constitution sets out the governance arrangements for the John Lewis Partnership which is owned in trust for its members. All permanent members of staff are partners who own the business. The Partnership is governed by three authorities: the Partnership Council which is directly elected by members; the Partnership Board which is appointed by the Partnership Council, and the Chairman. The constitution sets out the Partnership's ultimate purpose of "the happiness of all its members, through their worthwhile and satisfying employment in a successful business".[15]

Mutuals and co-operatives delivering services in the public sector

13. The Government has not prescribed how local authorities should use mutual and co-operative approaches to deliver their services. We wanted to find out what was happening. The Mutuals Taskforce—set up by the Government to engage with, challenge and promote the policy development work of Government to support the creation and development of Public Service Mutuals[16]—reported that around 20,000 employees work in public service mutual fulfilling contracts worth up to £1 billion.[17] Francis Maude, Minister for the Cabinet Office, told us:

I cover the development of mutuals right across the public sector. This started under the last Government, where there was a particular focus on health and social care. When the coalition Government was formed about two and a half years ago, I think there were eight public service mutuals in existence across the public sector. There are now about 50—it is a gradually rising number—with another 40 or so in the pipeline, so there has been significant growth. Across the range of the public sector, this is still relatively small but growing. They range in size from about 2,000 staff down to one of two people. [...]

Local authorities have tended to focus, although not exclusively, on the social care sector—more is happening in the area of youth services—and we are aware of 37 local authority projects, of which 14 are live. They have a wide geographical spread and cover a range of services including education, particularly the field of school support services, social care, social work, youth services, housing, leisure, community safety and the environment. We have a live project involving a fire brigade, with, I think, two other fire brigades interested in going down the mutual path.[18]

Don Foster, Parliamentary Undersecretary of State for Communities and Local Government, added that at present it was "very difficult" to get figures as to how many such organisations are providing services to local government.[19]

14. Our questionnaire to local authorities was designed to find out more. It asked the 353 principal local authorities in England for information on the extent to which they were using, or planning to set up, co-operative or not-for-profit organisations, to deliver services. We received 81 responses from local authorities and of these 43 appeared to be using at least one service delivery organisation that had a not for profit ethos or management structure resembling a co-operative or mutual model; 12 authorities were considering or were interested in using such organisations. However, because the unclear terminology which surrounds the issue of co-operatives and mutuals, we have noted these figures may have included some organisations run by or heavily dependent on volunteers, charities and charitable trusts, social enterprise companies and community organisations. The organisations varied and were delivering services such as social care, leisure, housing and financial services. A small number of local authorities described a strategic approach to delivering services through mutuals or co-operatives. In these cases it appeared that either it had been a long standing policy of the authority or a recent decision had been taken by the council to investigate the benefits of a mutual approach. The written memoranda also indicated that plans to establish co-operatives or mutuals were limited to a small number of local authorities. We received only five memoranda from local authorities or groups that provided examples of functioning mutuals and co-operatives.[20]

15. The written evidence we received confirmed that, while a variety of approaches were under consideration, there was a degree of confusion which chimed with the recent report from APSE, Proof of Delivery? A review of the role of co-operatives and mutuals in public service provision, which found that "co-ops and mutuals mean different things to different people" and that "too often, terms such as 'co-op', 'mutual' and 'social enterprise' are conflated and used interchangeably".[21] The evidence we received suggested that a small number of local authorities are using or have established mutual or co-operative bodies to deliver their services. There appears to be confusion in local government and beyond about what constitutes a co-operative or mutual service delivery organisation.

Mutual and co-operative models being used by local authorities

16. The governance and ownership structures of mutuals and co-operatives have been the focus of some research, which often focuses on the benefits that a particular model can deliver. We set out below evidence we took on the main models.

EMPLOYEE-OWNED MUTUALS OR CO-OPERATIVES

17. If a limited company is more than fifty percent owned by its employees it is usually described as 'employee-owned'. Employee-owned mutuals provide that employees have a controlling stake in the way that an organisation is run. The evidence from the Mutuals Taskforce examined the benefits from employee-owned mutuals. It gave the example of a social work practice, Evolve YP, formed by former staff of Staffordshire County Council. Donna Fallows, the Practice Lead and Senior Practitioner, at Evolve YP, is also a member of the Mutuals Taskforce. The Mutuals Taskforce explained how Evolve YP was formed.

Two years ago a group of social workers in Staffordshire decided to develop an entirely new and innovative way of providing services to look after children. They sought greater autonomy, so they could be truly responsive to the needs of the young people they served; they looked for renewed professional motivation; and they wanted real ownership over their work, combined with greater responsibility and accountability. Having worked for many years as part of the local authority, they decided to 'spin out' and set up a new employee-led mutual—a 'social work practice' that they called Evolve YP.

Over the past 24 months Evolve YP has gone from strength to strength. Currently 15 staff work in the Practice, consisting of 5 social workers, 4 personal advisers, 2 project workers and 2 office staff. The mutual is a social enterprise operating on a not-for-profit basis under contract to Staffordshire County Council. The organisation supports more than 170 children and young people aged between 12 and 25 years old.

Leaving the local authority to become a mutual has led to significant changes in the way the social workers approach their work, including innovations in the service provided. For example: Decisions being made closer to the young people reduces the time spent chasing authorisation from management. This approach encourages creativity and promotes good practice. Evolve YP is now sharing their experience and expertise by participating in the Mutuals Taskforce.[22]

With this example in mind we took oral evidence from Cllr Ian Parry, Deputy Leader of Staffordshire County Council. Cllr Parry confirmed this positive assessment and that the staff had developed a number of beneficial innovative processes.[23] He told us that Evolve YP had been set up as a three year pilot and at the end of the pilot, the staff could return to the council's employment.[24]

TWO-WAY AND MULTIPLE STAKEHOLDER MODELS

18. In its 2009 report, The Ownership State ResPublica proposed a model of public service delivery, in which services are provided by enterprises led by frontline workers and owned by them and the communities they served.[25] In its evidence ResPublica explained:

For a true mutualisation of public services, local councils should facilitate the setting up of co-operatives co-owned and co-governed by the 'producers' and 'consumers'—the employees and users of the service. Without some sort of stake (financial or not) for service users, public service mutuals risk further empowering professionals who will always take the lead in deciding what is best for the communities. Service users would also become like the early co-operative 'traders' who believe that "the more you trade, the more you earn", so that long term users of a public service could generate a stake for themselves. Such an evolved relationship between the state and the citizens would truly empower the communities in planning and running services. There are some successful cases of public service mutuals operating like this overseas, including Spain, Italy and Sweden.

A genuine co-operative model would draw together both the 'consumers' and 'producers' of public services, and enable the users of services to participate in service production and delivery. The reciprocity a public service co-operative offers to its consumers could generate tangible economic advantages at local level when the profits could be distributed amongst members as dividends and/or recycled back to the communities to support further public services, resulting in a sustainable accumulation of social and pecuniary capitals and substantially reduced reliance of citizens on state-funded models.[26]

19. Lambeth Council has declared an ambition to become "the country's first cooperative council".[27] It also favoured this 'multi-stakeholder' model and argued that employee-owned mutuals were "an alternative form of provider-led services and, in that sense, rather miss the point of the reform".[28] It suggested that a more appropriate approach should involve both staff and users and it argued for a multiple stakeholder model where the employees and service users had a say in how an organisation was run. Lambeth gave the example of the Lambeth Resource Centre which provided service users a design service:

In some circumstances we recognise that certain organisational models, such as employee mutuals, or user co-operatives or mutuals, can offer advantages by empowering users and staff to design or improve services, increase efficiency and enhance innovation. Primarily our approach is based on empowering users, not staff, on the understanding that the disempowerment of users relative to providers has created dependency and inefficiency. In this sense we disagree with the Big Society model which tends to emphasise employee mutuals, missing the point about empowering users. Two-way mutuals (empowering users and staff together) can meet this objective. The Lambeth Resource Centre, a day centre for learning disabled adults, brings together staff and service users in a mutual organisation to collaborate to commission and design services. The benefits are the greater involvement of citizens in the services they use, and a clearer incentive for collaboration between staff and citizens.[29]

The Lambeth model will be covered in more detail from paragraph 25.

20. A predominantly two-way model has also been used to create Rochdale Boroughwide Housing, which is now the country's largest housing mutual. This is a membership based provider of social housing which took over the ownership of the homes formerly owned by Rochdale Council in March 2012, following a vote of support from tenants. It owns and manages around 13,750 homes. The ownership and governance arrangements were developed through discussion with tenants, employees and the council.[30]

MULTI-WAY MODELS

21. Shropshire Council has been promoting a new social work practice, People 2 People, which will provide social work services for older people, people with physical disabilities, people with learning disabilities and their family carers. The scheme aims to help reduce people's long term reliance on social care, by giving people more choice and control over their support and support to maximise their independence.[31] The scheme is being set up by a group of social workers under a not-for-profit social enterprise, independent of the council control with a governing board made up of council representation and users and people from small and medium-sized enterprises and the voluntary and community sector.[32] Councillor Butler, the Cabinet Member for Flourishing Shropshire Communities, explained the impetus driving the change and that new service was aimed at:

reducing demand and making services more sustainable for communities and people more responsible for their own actions. [...] We have learnt from [Evolve YP] and put together a strong, transparent gateway process. If any staff mutual wants to look at spinning out, that is transparent and can be seen by the public, irrespective of what the service is. Through that process, we also consult with the voluntary and community sector, which is very strong in Shropshire. What we do not want to do is reinvent the wheel when the sector is doing it anyway, because in staff spin-outs you can end up reducing sustainable social capacity in communities.[33]

22. Others called for a variation of this model where the authority was a significant stakeholder in addition to service users and employees. Lord Glasman, an academic with an interest in social institutions, writing last year in Public Finance, proposed a 'three-way' model, with representation from the workforce, users and the local authority:

The Big Society offers two ideas of corporate governance for the public and private sectors. In terms of the state, it prefers a form of mutualisation, developed by Julian Le Grand, in which public services are provided by worker-owned enterprises. There is no balance of interest in the governance of the service provider, and users and funders are excluded. State-funded services have no representation on the board. This is in contrast to the Big Society view of private sector corporate governance, in which the worker has no status at all and managerial sovereignty prevails. […]

Instead, a third of the mutual boards should be elected by the workforce. Another third should be represented by users (the involvement of users is an important part of community organising that needs to be undertaken to strengthen society and give voice to disorganised people). The final third of the board should be the local authority or the state, which has a legitimate interest in procedure, wider social goals and its integration into government policy.[34]

Lord Glasman told us in evidence that there needed to be "a balance of interest" in the governance of organisation between users, the employees and the funders and that local authorities and the state did have interests and a participatory role.[35] In particular, he regarded the influence of the authority in organising and facilitating discussion between the other groups as key.[36]

23. One concern we had was that the increased number of stakeholder groups could make it more difficult to reach a consensus resulting in paralysis in decision making. In response Lord Glasman cited the example of institutional change at Volkswagen and Rover in the 1990s where the lack of engagement of the workforce and users led to culture in which there was not enough leadership, reciprocity or responsibility in the relationship between core groups. He argued that a position of negotiation between stakeholders was far more effective as a strategy than imposition by a single stakeholder because it was binding on all and effective in sustaining a course of action.[37]

24. Greenwich Leisure is a staff-led 'Leisure Trust', which follows the multiple stakeholder model structured as an Industrial and Provident Society for the benefit of the community. The members of this co-operative, and therefore owners of the company, are the employees of Greenwich Leisure, and the trust's board includes representation of other stakeholders, including the local communities, borough councils and trade unions alongside democratically elected members of staff. Greenwich Council's memorandum explained:

Elected Members [...] made the decision in 1993 to transfer the operation of the Council's Leisure Centres into an Industrial and Provident Society in 1993, Greenwich Leisure Limited (GLL).

In the near 20 years since, GLL has since expanded beyond the Royal Borough's boundaries and currently delivers leisure and sports development services to 17 local authorities. It has become the operator of the Crystal Palace sports complex and recently proved successful in open competition in being selected to operate the Olympic Aquatics Centre and Handball Arena after the London Olympics.

GLL is now probably the most successful social enterprise in the country. It has a Board which encompasses service users, staff and trade union representation as well as local councillor membership.

In April 2012, GLL took on the responsibility for managing the Royal Borough's Library and Information Service which is an innovative approach which will further develop experience of this model of service delivery. GLL retains close organisational links with the Borough and three Members sit on its Board as co-opted members. The Borough also commissions a wider variety of services from the voluntary and social sector.[38]

THE LAMBETH MODEL—CO-PRODUCTION

25. Lambeth Council's approach goes beyond the example cited and that of other local authorities. It has looked not only at delivering services through co-operative bodies but reforming the way the authority operates along co-operative principles. Lambeth describes the 'cooperative council' as its "big idea for local government" and "giving people more involvement and control of the services they use and the places where they live by putting council resources in their hands".[39] Lambeth's evidence to us described the advantages of its 'co-operative council' approach:

Over the medium-term improved service design, enhanced commissioning practice, better collaboration with partners, and a clearer focus on citizen priorities has the potential to deliver improved value for money for citizens and taxpayers and greater social returns on investment. By working with communities to build their capacity and resilience they will be better placed to work with one another to meet their own needs and withstand the turbulence of the current economic downturn. The whole system can benefit from this approach and there are those benefits that are realised as a direct result of the type or nature of the provider. A good example of this is if a parent gets involved in the Young Lambeth Trust, the skills they would acquire as part of that experience may enable them to improve their personal employability and achieve their wider aspirations in life, keeping the value in the community.[40]

The concept was explained during our visit to the Blenheim Gardens Estate in Lambeth and by the Council Leader Steve Reed who, when he gave oral evidence, summarised the approach:

closer co-operation requires a rebalancing of the power relationship, so that you can move from an adult or a parent/child relationship between the provider and the user to a more adult/adult relationship. Rebalancing the power relationship in that way will quite often mean delivering services in different ways and creating different structures to deliver them than we have had currently. That may involve co-operatives, but it may not.[41]

26. In considering the role a range of organisations can play in providing services, Lambeth emphasised the importance of democratic accountability and the protection of the public interest:

although this diversity of provision can bring benefits, Lambeth recognises its unique position as the democratically elected body in the borough, and its responsibility to ensure that the public interest is protected throughout the commissioning process. Regardless of the status of the provider, the council will need to ensure that public services remain accessible to all, and that providers support the philosophy and principles of the co-operative council and act in the public interest.

Effective accountability is therefore a pre-requisite for public confidence in the cooperative council. As others have recognised, accountability is increasingly complex in today's public service provision. Local councillors have a crucial role to play through scrutiny mechanisms, and as community-led commissioning activity increases, councillors are also likely to have a role in ensuring accountability at the ward level. Regulation, inspection, contracts and elections will all continue to provide mechanisms for accountability.[42]

27. This vision of a changed role for the local authority and councillors chimes with the Government's ambition as set out in its memorandum to us:

Over a number of years, the perception of the role of councils has moved towards that of a service provider as they have been required to deliver an increasing number of 'one size fits all' services and to shoulder a growing burden of compliance. By returning autonomy to local government, we are giving them the freedom to focus on representing the wishes of their communities and providing leadership in their area. [...]

Progressive councils across the country are already revolutionising the way they operate, by giving councillors and communities more control over budgets and commissioning or encouraging small businesses, charities and social enterprises to bid for contracts.[43]

28. The Institute of Local Government Studies (INLOGOV) suggested that

Lambeth might be described much more accurately as the 'Co-production Council', since that principle has driven its overall strategy more than a commitment to any particular form of service delivery, such as co-ops or mutuals as providing organisations.[44]

INLOGOV defined 'co-production' as "professionals and citizens making better use of each other's assets, resources and contributions to achieve better outcomes or improved efficiency".[45] INLOGOV called for the "promotion of user and community co-production of public services" and argued that co-production was closely linked to the use of co-operatives and mutuals in public services:

in practice there is a very strong link between the principle of co-production and the strategy of using co-operatives and mutuals to deliver services. This is because successful co-production does not usually arise and grow spontaneously—it needs a set of intermediary organisations which can capture the interest of users and other citizens in the co-production approach and then match the offers which these potential co-producers are prepared to make to what other service providers actually need—whether those service providers are in the public, private or third sectors.[46]

29. The co-production model does not require services to be delegated outside the authority but is more concerned with service design so that the principles of co-operatives—that is engagement with a broad section of stakeholders—are adopted in not only commissioning and designing services but ultimately in running the authority.

30. We observed a range of approaches being adopted by a number of local authorities. Although the models we have seen do not always fit with the traditional model of a co-operative, there is a common thread to the models authorities are adopting for mutual and co-operative delivering their services: an objective to switch service procurement to a process that helps users define their needs and provides those delivering services with a flexibility to respond to these needs. Some authorities, for example Lambeth Council, have taken the concept and applied it generally to commissioning and shaping services. We are not sure that all the arrangements put in place in Lambeth, an inner London borough, will fit authorities outside the capital. Nor were we clear why the GLL model, which was cited as a clear success, has not been replicated. It may be that each will show the path ahead without becoming the model for others. It will be important to avoid an overly prescriptive definition of mutuals and co-operatives. There is no one size fits all approach. The ethos underlying the approach is not exclusive to a particular model. As we consider later in this Report, different models might lend themselves better to the delivery of specific types of services and some models might be appropriate to particular local authority services and sit better with authorities across the political spectrum.

7 Mutuo, What is a mutual?, January 2009, quoted in Proof of delivery? A review of the role of co-operatives and mutuals in local public service provision, Association for Public Service Excellence (APSE), August 2011, p 12 Back

8 "Co-operative identity, values and principle", International Co-operative Alliance, 2012, http://2012.coop/en/what-co-op/co-operative-identity-values-principles Back

9 The full statement of co-operative identity is available on the International Co-operative Alliance website: http://2012.coop/en/what-co-op/co-operative-identity-values-principles. Back

10 An exception is People 2 People, described below at para 21. Back

11 "History of the co-operative movement", International Co-operative Alliance, 2012, http://2012.coop/en/what-co-op/history-co-operative-movement Back

12 "Rochdale pioneers", International Co-operative Alliance, 2012, http://2012.coop/en/co-op-movement/rochdale-pioneers Back

13 "Friedrich Raiffeisen", International Co-operative Alliance, 2012, http://2012.coop/en/history-co-op-movement/friedrich-wilhelm-raiffeisen Back

14 For example, Q 158 [Professor Le Grand], Q 182 [Phillip Blond], Q 199 [Lord Glasman], Q 328 [Francis Maude] Ev 102-07 [Mutuals Taskforce], Ev 127 [Winckworth Sherwood] and "Nick Clegg calls for 'John Lewis economy'", BBC News website, 16 January 2012, www.bbc.co.uk/news/business-16574558 Back

15 "Our Principles", John Lewis Partnership website, 2012, www.johnlewispartnership.co.uk/about/our-principles.html Back

16 Public Service Mutuals: The Next Steps, Mutuals Taskforce, June 2012 Back

17 Public Service Mutuals: The Next Steps, Mutuals Taskforce, June 2012, p 22, and see also para 43. Back

18 Q 312 Back