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

6  Risks of using co-operatives and mutuals

71. This chapter examines the main risks—as put to us in evidence—that could arise when local services are delivered through a mutual.


72. Councils are democratically accountable bodies, well-placed to understand the needs of their communities. In its publication, Proof of delivery, looking at delivery through co-operatives and mutuals, Association for Public Service Excellence (APSE) raised a number of questions about their accountability:

How far are co-ops and mutuals accountable beyond their immediate membership to both wider communities and elected members? Whilst they might appear to be more accountable to their members than traditional forms of public service delivery, can the same be said for their accountability to wider communities? Might divestment to co-ops and mutuals add to the already complex landscape of political accountability and political oversight?[122]

The Local Government Association had similar worries and argued that only councillors have the "democratic legitimacy to champion the rights of service users and tax payers and hold services to account".[123]

73. Local authorities stressed their ultimate responsibility for service delivery. Oldham Council noted:

as a local authority, we are not only a statutory body, but we are also proud to be a democratically-led body, meaning that we are fully and directly accountable to local people. Where we do commission external providers to deliver services on our behalf—whether these are private-, public-, or third-sector organisations—we retain ultimate accountability and responsibility for such services.

There are potentially more risks in delivering services through third-party organisations in terms of the long-term viability and sustainability of such organisations. This poses real challenges for elected members and officers, as their ability to influence decisions and the management of risk is more remote when services are delivered through third-parties. It also presents the need for a robust system of checks and balances in awarding and monitoring contracts.[124]

Staffordshire County Council said that:

Accountability for services ultimately lies with the local authority. Responsibility and accountability for the delivery of the services, however, lies with the provider. It is really important that the provider organisations whether they are social enterprises, not-for-profit organisations, employee-owned mutual or commercial organisations are held to account for delivering what has been agreed and no allowance (except perhaps in the initial establishment phase) should be given for the nature of the organisation. The service user is entitled to expect nothing less.[125]

74. In considering the role a range of organisations can play in the co-production of services, as we have already noted, 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.[126]

75. The Minister, Don Foster, told us said that when services were delivered by external bodies the role of councillors would be "absolutely crucial". He added that in such situations the councillors' role "is somewhat different and increasingly becomes one of the procurement exercise and the monitoring of the delivery of those services".[127]

76. One issue of accountability that concerned us was the transparency of the remuneration of senior employees at mutuals and co-operatives taking on local authority services and whether that transparency would be reduced when services were transferred from the authority to external organisations. It was evident that organisations had approached the issue differently. Donna Fallows, from Evolve YP, told us salaries were made public and that Evolve YP would be funded through local authority budget for this sector.[128] In the case of Greenwich Leisure and Teme Leisure services there was no direct disclosure of salaries, but councillors considered that salaries should be made available to the council on request.[129]

77. It has to be the case that councillors are accountable for the services a local authority provides. Councils setting up co-operatives or mutuals or transferring services to an existing mutual or co-operative must ensure clear lines of accountability by requiring that services are delivered to contract (as they should with any contractor) and, when appropriate, through direct involvement in the governance structure. Moreover, it must be part of the ethos of mutuals and co-operatives to be open and transparent and that their governance structures and rules will be made publicly available. In our view this disclosure has to include information about senior managers' remuneration.

Local engagement

78. ResPublica in its 2009 report The Ownership State discusses public engagement and called for a system of local government that would give the local people, a stake in their service providers. It argued that the state must enable new associations of service users, community members, voluntary contributors and existing social organisations to take ownership of their services, as partners with direct influence over providers.[130] ResPublica recognised that staff and user engagement was difficult to achieve:

Engagement, whether of the people who use services or the frontline staff who deliver them, is a hard thing to achieve. The very structure of our public services militates against it. Trying to achieve true engagement in existing structures invariably feels like a partial fix in an otherwise hopelessly compromised system. Frontline leadership is a scare commodity in large multidisciplinary organisations with centralised cost control and management by target. User involvement often becomes not co-creation but the choreographed rubber-stamping of top-down decision making.[131]

79. Phillip Blond, from ResPublica told us that the benefits from co-operative working should come from changing the relationship between local authorities and the public, so that the public become shapers of services rather than consumers of services.[132] Lord Glasman told us that this new relationship would only emerge if the public was organised and encouraged to be engaged and interested in service issues. He said that in some cases the public would need to be "agitated" into doing this.[133]

80. Cllr Ian Parry, Deputy Leader of Staffordshire County Council, told us that, engagement was not always possible and not always what the public wanted:

Some people just want to pay their tax, go out to work, come home at the end of the day and find their dustbin has been emptied. They do not necessarily want to engage in telling you how to do it.[134]

81. While we recognise that not everyone will want to engage with those who deliver their services, mutuals and co-operatives offer greater community and service user engagement. The degree of engagement will vary according to the type of mutual or co-operative but many are capable of linking better with service users. In the case of employee-owned mutuals, while we would not go as far as recommending that they must include representatives of service users in their governance structure, we recommend that Government guidance from the Mutual Support Programme needs to promote effective monitoring of the needs of service users and develop mechanisms for users to shape the delivery of a service. Without these links the potential benefits of mutuals and co-operatives will not be fully realised.


82. The evidence we received from trades unions suggested that the protection of employment standards for those workers delivering the service was crucial to the success of public service mutuals. UNISON stated that reports from its branches:

suggest that the move to more cooperative ways of working is generally instituted by council leaders, with senior officers tasked with implementation, and with little or no involvement of the workforce or those who use services. We believe that attempting to undertake sweeping changes to the way services are designed and delivered without the input of staff and service users is a fatal error, and one that runs contrary to many of the principles of cooperative ways of working.[135]

UNISON was concerned about the impact of transferring service delivery to bodies outside the public sector, contending that they generally reduced pay, conditions and pensions for staff, that there was poor monitoring and quality control by councils and reduced accountability to service users and local council tax payers.[136] The TUC agreed and said that protecting employment standards for these workers, and engaging with the workforce was crucial to the success of public service mutuals.[137] The TUC gave the example of MyCSP, which administers civil service pensions, which had been established as a mutual despite the overwhelmingly opposition of the staff delivering the service. The majority of staff had said they did not feel that they had been empowered as a result of the mutualisation.[138]

83. On the other hand, we received evidence that engaging with local authority staff about the potential to develop mutuals and co-operatives can be difficult. Lambeth Council, acknowledged that engaging its workforce had been challenging. It explained that some staff had not fully grasped the concept, while others had been reluctant to relinquish budgetary control:

Some managers measure their relative importance by the size of their budget and the number of staff they control. They may be reluctant to give these up as the council transitions to alternative models, and may actively or passively resist transformation. Other staff find it challenging to fully understand the model we are trying to develop and there have been instances of managers writing service plans that are no different to what they have always been but are sprinkled with cooperative language with talk of coproduction and reciprocity when, in fact, none of these are being delivered.[139]

84. But there are benefits for staff. The mutuals and co-operatives models offer staff an opportunity to have a greater say in running the organisation. We heard that mutuals provided an opportunity for employees to take ownership of their organisation and release entrepreneurial skills hide-bound by current practices. The Mutuals Taskforce pointed to evidence of a number of specific benefits for staff working in employee-owned organisations. These include:

Absenteeism is lower in mutuals

Staff turnover is lower in mutuals

Retention and recruitment of high quality staff appears to be easier in mutuals

Mutuals pay higher wages on average than non-employee-owned organisations

Mutuals have better staff performance.[140]

As we have noted in chapter 3, there is some evidence for motivational benefits of mutualisation and staff engagement as stakeholders. While we do not underestimate the concerns about mutuals, we consider that these can be overcome and that with greater user engagement co-operatives and mutuals offer the opportunity to empower and motivate their workforce. Motivational benefits, and the associated improvements in services, arise from providing employees with more direct control over the way an organisation is run and fostering a more satisfied workforce. These benefits will be lost, however, if employees are not engaged in a mutualisation process from the start and are not provided with secure and fair employment as a result of the process.

Service Fragmentation

85. UNISON, APSE and the TUC took the view that transferring local service delivery to external organisations would impede the potential for joined-up services across sectors. UNISON said that "the sustainability of public sector provision could be negatively impacted by the fragmentation of services through divestment away from the sector".[141] But others said that local authorities already let thousands of contracts and this should not be a problem.[142]

86. A linked issue is the ability of local authorities to develop and change services and to foster innovation in the manner in which services are delivered. The Minister, Don Foster, made the point that there had to be a transformation in local authorities' approach to contracting for services to ensure authorities prevented fragmentation and provide flexibility and innovation. He told us that better skills and better contracts focusing on outcomes, not specifying every conceivable detail should achieve this.[143] In our view a competent local authority should be able to use the commissioning process and subsequent oversight of contracts to guard against fragmentation of services. Local Authorities should have regard to contractual obligations that, where appropriate, ensure mutual and co-operative delivery bodies engage in joint working relationships to prevent the fragmentation of services.

Asset loss

87. A number of organisations recognised that there were risks associated with handing public assets over to new mutuals or co-operatives. Lord Glasman was concerned about the lack of an 'asset lock' in the mutualisations that had occurred recently. He said that mutuals or their assets could become susceptible to buy-outs if they were allowed to be traded on the market and concluded that at endowment or trust should be used to ensure that assets were retained for the public in perpetuity.[144] The TUC stated that the key to reducing this risk was to safeguard public assets if a mutual or co-operative or its assets was taken over by a private business by contractual 'lock-ins' to protect services and assets from transfer to the private sector in the event of failure or transfer of ownership.[145]

88. Staffordshire County Council said that when considering a transfer to a mutual or co-op:

locking down property and other assets is something authorities need to deal with legally if they are planning to transfer any assets or property in their entirety as part of any arrangement. Furthermore, where property is involved and the new mutual entity with community interest purposes wants to change its objectives sometime in the future this could have implications if the local authority owned this property with restrictive covenants attached. So it is important that both parties are clear on the conditions of transfer and do not assume that property can simply be transferred to someone else.[146]

Simon Randall added that when dealing with community-oriented organisations there was much more support from people if the asset remained a public asset, though this could feasibly be provided by transferring an asset to an organisation with a public stakeholder, for example the local authority, in its governance structure.[147]

89. Phillip Blond saw locking assets as a major hindrance to mutuals and co-operatives growing and delivering more public sector services and that asset ownership needed to be flexible to so that mutuals and co-operatives could use them in the leverage of finance. He told us that asset locks were the reason why "cooperatives have not gone to scale in this country" because they prevent organisations raising capital finance.[148]

90. Francis Maude noted that there would be "anxiety" about assets disappearing from public ownership just as there would be "deep frustration" where the use of assets could not be optimised because they were no longer publicly owned. He concluded that any asset protection or transfer must be undertaken on the basis of "horses for courses" for individual cases.[149] There will be many cases where there is a strong financial case for allowing assets to transfer because they will provide a mechanism for financing new start-ups. However, there are risks in transferring assets to private sector bodies. Assets might be poorly managed and stripped or lost entirely if an organisation is bought out. On balance, we consider that the financial benefits of transferring assets in many cases outweigh the risks and there should not be a general block on such transfers. The Government must work to provide guidance, to assist those commissioning services and those starting up services, on the circumstances and conditions by which assets can be transferred and, if necessary, returned to the local authority.

91. It is possible that some mutuals or co-operatives may become uneconomic and fail. The resulting loss of assets, the loss of employment and the loss of the service for residents would be detrimental. It could damage the 'co-operative brand' and deter other authorities from adopting these models. It might also require that local authorities are ready to step in to take control of failing services. When commissioning services from mutuals and co-operatives local authorities should take care to provide that the staff, service and assets, when they were originally owned or delivered by the authority, of a failing mutual or co-operative could be brought back under their control. This should be reflected in government guidance.

122   Proof of delivery? A review of the role of co-operatives and mutuals in local public service provision, APSE, August 2011, p 11 Back

123   Ev 144, section 2 Back

124   Ev 83-84, para 3.2 Back

125   Ev 87 Back

126   Ev 79, paras 3.4-3.5 Back

127   Q 338 Back

128   Q 288 Back

129   Qq 286-289 [Peter Bundey, Cllrs Kotz and Butler] Back

130   ResPublica, The Ownership State, 2009, p 25 Back

131   ResPublica, The Ownership State, 2009, p 6 Back

132   Qq 215-16 Back

133   Qq 181, 189-94, 202-03 Back

134   Q 15 Back

135   Ev 142, para 11 Back

136   Ev 141, paras 3-4 Back

137   Ev 122, para 29 Back

138   Q 224, Ev 120, para 11; the exact figure was 94%. Back

139   Ev 80, para 3.8 Back

140   Ev 103-07; see also Q 134.  Back

141   Ev 143, para 23; see also Ev 102 [APSE], Ev 119, 123 [TUC] and Ev 141, 144 [UNISON]. Back

142   Q 88 [Mark Bramah], Q 336 [Don Foster] Back

143   Q 336 Back

144   Q 189 Back

145   Ev 121, para 21 Back

146   Ev 87 Back

147   Q 237 Back

148   Q 190 Back

149   Qq 343-44 Back

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Prepared 6 December 2012