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

4  The Government's role

39. Promotion of mutuals and co-operatives across the entire public sector was a key policy of the Coalition's Programme for Government:

We will support the creation and expansion of mutuals, co-operatives, charities and social enterprises, and enable these groups to have much greater involvement in the running of public services[...]

We will give public sector workers a new right to form employee-owned co-operatives and bid to take over the services they deliver. This will empower millions of public sector workers to become their own boss and help them to deliver better services.[61]

The mechanisms to do this have been developed by the Cabinet Office and were set out in the Open Public Services White Paper in July 2011.[62] Some parts of the public services are further advanced than others. The Department for Health has the greatest experience delivering health services through mutuals which have become a significant part of this sector.[63] The Department for Communities and Local Government (DCLG) has the lead on mechanisms for delivering local authority services through mutuals and co-operatives, the key example of which is the Right to Challenge in the Localism Act 2011.

The Right to Challenge

40. The Right to Challenge came into operation on 27 June 2012.[64] It provides both public sector employees and the public with a right to form organisations which can bid to deliver a local authority service and is a mechanism by which new mutuals and co-operatives will be able to access and take on local authority services.[65] DCLG, which has launched a community rights website to provide guidance and support for those interested in making a challenge, explains that the right:

enables voluntary and community bodies, employees of the authority that wish to form a mutual organisation to deliver the service, and parish councils to express an interest in running a local authority service. The authority must consider expressions of interest and, where they accept them, run a procurement exercise for the service. The Right will hand the initiative to groups with good ideas about how services can be run differently or better, ensure their ideas get a fair hearing, and that they get the time they need to prepare effective bids for services.[66]

A successful Right to Challenge will initiate a procurement exercise which invites other interested parties to compete for the service contract.


41. A local authority procurement exercise is usually subject to European procurement procedures and will soon be subject to rules under the Public Services (Social Value) Act 2012, which are expected to be implemented through secondary legislation in early 2013. The Act requires that procurement exercises over a certain threshold examine how the economic, social and environmental well-being of the relevant area will be affected by any proposals.[67]

Mutuals Information Service and Support Programme

42. As well as statutory rights the Government is providing advice and support. In 2011 the Cabinet Office established the Mutuals Information Service to "provide ready access to information" to those people interested in setting up employee-owned mutuals to deliver public sector services.[68] It is being run alongside a Mutuals Support Programme, which takes referrals from the Information Service and is designed to help "promising" mutuals develop. It aims to provide professional expertise and advice focussing on the "pre-spin-out" phase of mutualisation. The Programme is also designed to gather and share knowledge and build "a strong evidence base of what works in this innovative area of service delivery".[69] The Government has also committed to invest at least £10 million to support some of the most promising and innovative mutuals to investment readiness through the Programme by procuring suppliers to deliver the support needed for organisations interested in spinning out into a mutual.[70]


43. The Cabinet Office also established the Mutuals Taskforce to "engage with, challenge and promote the work of Government to support the creation and development of Public Service Mutuals"[71] as part of the open public services policy. The Taskforce published its final report Public Service Mutuals: Next Steps, in June 2012.[72] The report sets out recommendations to the Government to increase the size and scope of the Government's work in encouraging and supporting mutuals. We will pick up on some of the recommendations of the Taskforce and the work of the Mutuals Support Programme and the Mutuals Information Service later in our Report.

Cross-departmental working

44. When we asked Francis Maude how the two departments' work had been joined up to avoid duplication and conflict and develop common goals. He told us:

Some of the projects we support are local government ones, and CLG feeds into that so we consult them along the way, but we are at pains to ensure that we are not constantly paying the same advisers to produce the same advice to different bits of the public sector. Doing it centrally is essential.[73]

45. The Local Government Association (LGA) is supporting councils to help them to develop 'bottom up' services through a "confident and in-depth knowledge of local community priorities and potential local providers".[74] We wanted to know how the Cabinet Office might learn from or assist the work we had seen in local authorities, and this work of the LGA, some of which went beyond the scope of the Mutuals Support Programme. When we questioned Francis Maude why work in the Cabinet Office had been restricted to employee-owned mutuals although we had heard evidence on the benefits of a range of mutual and co-operative models, he explained:

that was what we thought was the thing that would deliver it most quickly. That was what we had in mind, as mutuals were employee-owned/led co operatives. All the evidence is that when those organisations become employee-owned/led you get a dramatic improvement in productivity. Often, with conventional outsourcing to a commercial provider there will be productivity improvements but they have to be ground out, and it takes time. With employee ownership, you can see a dramatic transformation almost literally overnight.[75]

Professor Le Grand, Chair of the Mutuals Taskforce, said that the Taskforce was "thinking about multiple stakeholder models"[76] but that "on the whole the ones we are dealing with are employee controlled".[77] He did recognise that:

If you have a complete monopoly and you are handing over a service completely to the employees, questions arise [...] about accountability to users as well as accountability to councillors, having nowhere else to go. It is not impossible but we think maybe something like a multiple stakeholder model would be more appropriate in those contexts, where you have a degree of employee control but you also have community involvement and possibly other forms of stakeholder involvement.[78]

46. We share the Government's ambition of encouraging the setting up of more mutuals but we have a number of concerns. First, the Cabinet Office's work so far has been limited to employee-owned mutuals when we have detected interest within local authorities in setting up a wider range of mutuals and co-operatives. Second, we are not convinced that the Cabinet Office and the Department for Communities and Local Government have been operating in step. The links between the Cabinet Office and the Department need to be strengthened so that the Cabinet Office takes full account of the potential for mutuals and co-operatives to deliver services in local government and to ensure that guidance and support is made available to all those interested in taking on local services. We see a role for the Local Government Association in providing the link between this work and local authorities. We welcome the Government's plan to create 15 Mutual Ambassadors and we hope that this will contribute to joined up working.[79]

47. The Mutuals Support Programme is collating information that could be equally valuable to people considering setting up mutuals and co-operatives beyond the scope of the employee-owned mutuals it currently assists. We noted earlier that the evidence for the success or otherwise of mutuals and co-operatives in delivering local authority services is limited. In our view, the absence of evidence is likely to be holding some authorities back from investigating mutual and co-operative options. We see scope for greater co-ordination between the Mutuals Support Programme, Department for Communities and Local Government and the Local Government Association in gathering evidence on the operation of mutuals and co-operatives in delivering local authority services and making that available to other authorities.


48. Finally, there is one issue where we see a role for Government: although not addressed explicitly in much of the evidence we received, it was an implicit concern throughout. It is the extent to which local authorities may have conflicts of interests and how they should manage them. Local authorities will need to take on a number of roles including incubating mutuals and co-operatives, setting up contracts with mutuals and co-operatives and being the local regulators of services. It will require expertise and skill to manage these roles and avoid conflicts of interest arising. We see the need for guidance, particularly in safeguarding their regulatory roles, to ensure that local authorities avoid conflicts of interest, perceived or real, in setting up and supporting mutuals and co-operatives and in subsequently entering and enforcing contracts with these bodies. In our view local government itself led by the Local Government Association should take the lead in preparing this guidance.

61   Cabinet Office, The Coalition: our programme for government, May 2010, para 27 Back

62   Cabinet Office, Open Public Services White Paper, July 2011 Back

63   Mutuals Taskforce, Our Mutual Friends, December 2011 Back

64   "Community Right to Challenge", Department for Communities and Local Government website, 2012, Back

65   Department for Communities and Local Government, Community Right to Challenge, September 2011, p 4 Back

66   Community right to challenge, Department for Communities and Local Government website, June 2012 and Department for Communities and Local Government, Community Right to Challenge, September 2011, p 4 Back

67   Public Services (Social Value) Act 2012, Explanatory Notes, Back

68   HC Deb. 19 June 2012, col 758  Back

69   Further Information on Mutuals Support Programme", Cabinet Office website, 2012, Back

70   Mutuals Support Programme", Cabinet Office website, 2012, and HC Deb, 24 May 2012 , col 823W Back

71   "About the Mutuals Support Programme", Cabinet Office website, 2012, Back

72   Mutuals Taskforce, Public Service Mutuals: Next Steps, June 2012 Back

73   Q 333 Back

74   Ev 145, section 2 Back

75   Q 315 Back

76   Q 131 Back

77   Q 127 Back

78   Q 130 Back

79   "Francis Maude: fledgling #mutuals to get help from 15 inspiring individuals under new Mutuals Ambassadors Programme", 7.32 am 18 October 2012,  Back

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Prepared 6 December 2012