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

Conclusions and recommendations

Mutuals and co-operatives delivering services in the public sector

1.  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. (Paragraph 15)

Variation in mutual and co-operative models

2.  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. 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. (Paragraph 30)

Evidence of benefits

3.  The evidence for the benefits of mutuals and co-operatives operating in a local government is limited. However, the benefits that have been observed from mutuals operating in the public sector and the health sector suggest that these approaches have the potential to offer improvements in delivering local authority services. In particular, the motivational benefits provided by employee ownership, the response to users' needs provided by enhanced user engagement and the success of established organisations such as Greenwich Leisure persuade us that more local authorities should be considering these options. (Paragraph 38)

Cross-departmental working and support

4.  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. (Paragraph 46)

5.  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. (Paragraph 47)

Guidance for local authorities

6.  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. (Paragraph 48)


7.  Finance for starting up mutuals and co-operatives is in short supply. Encouragement, advice and guidance will come to nothing without finance. The Government has a responsibility to inform and educate financial institutions, including Big Society Capital, about lending to mutuals and co-operatives and we recommend that it establish a programme to this purpose. (Paragraph 54)

Tax incentives

8.  In our view tax incentives have an important role to play in helping mutuals and co-operatives to get established. Mutuals and co-operatives experience difficulties in establishing start-up finance, and any greater access to finance must assist their viability. In its review of employee ownership we would expect the Treasury to examine support not just for entirely employee-owned mutuals but also other broader co-operative models which include user and local authority stakeholder groups. We look forward to the findings of the Treasury's review of employee ownership. (Paragraph 55)

9.  We conclude that, while the absence of legal definitions of co-operatives may deter establishment of mutuals and co-operatives, the answer is not a new corporate entity defined in law. That would not only add a layer of complexity but also introduce a rigidity that could stifle innovation. Instead, we endorse the Nuttall Review's findings and we recommend that the Government produce a set of 'off the shelf' models, with supporting guidance to be made available to those interested in establishing a mutual or co-operative. We envisage that these would provide an easy route to understanding the tax and administrative burdens that starting up a business might present. We also recommend that these models encompass mutuals and co-operatives beyond the employee-owned mutual and take account of those considering the delivery of local services. (Paragraph 58)

Application of procurement rules to mutuals and co-operatives

10.  The Government needs to clarify how EU procurement rules apply to mutuals and co-operatives to ensure that they have the maximum flexibility. In its response to our Report we ask the Government to explain how the Italian derogation we cite might be applied to the procurement process in the UK, particularly for mutuals and co-operatives competing for contracts for local authority services, and what changes to EU procurement rules it is pressing for. (Paragraph 63)

Guidance on social value

11.  We consider that not only employee ownership, but the other benefits of co-operative approaches, including greater user and community involvement in local service delivery, offer social value which needs to be considered in procurement exercises. The Government should amend its Statutory Guidance on the Community Right to Challenge and its guidance on local authority procurement to reflect this. (Paragraph 64)

Training and skills

12.  We do not consider it evident that local authority staff lack the entrepreneurial inclination to establish mutuals and co-operatives, rather we see that staff lack the skills and understanding required to embark on the process of setting up mutuals. Establishing an organisation to take over the delivery of a local authority service which might be heavily regulated or carry statutory obligations can be a daunting prospect. We welcome the Cabinet Office's objective to use the Commissioning Academy to address the skills gap in procurement and we agree with the Mutuals Taskforce report that the Cabinet Office through the Mutual Support Programme should target the broader development of commercial and other skills for public sector employees necessary to allow them to develop mutuals and co-operatives. We recommend that the Government outline in its response how many local authority officers it expects to train through the Academy. A better understanding of procurement might allay the fears of those in management positions who are unwilling to encourage staff to think about these options. (Paragraph 70)


13.  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. (Paragraph 77)

Local engagement

14.  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. (Paragraph 81)

Employee engagement

15.  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. (Paragraph 84)

Service fragmentation

16.  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. (Paragraph 86)


17.  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. (Paragraph 90)

18.  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. (Paragraph 91)


19.  Mutuals and co-operatives providing local services are not being set up in significant numbers. From the small number of mutuals and co-operatives in the local government sector the evidence is encouraging but it not sufficient either to demonstrate conclusive improvements in service or that savings can be made or that benefits in engagement and accountability will follow. The necessary critical mass will be slow to build up without more and better support. The Government has a choice, if it wants more mutuals and co-operatives to develop: it must take action to provide support. Without additional assistance it seems likely little will happen. Our recommendations aim to encourage a joined-up strategy for the collection of evidence and dissemination of best practice and tested models and to break down the barriers currently holding authorities back. The Government needs to implement these urgently if it wishes to encourage more authorities to take an interest in mutual and co-operative working. (Paragraph 94)

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© Parliamentary copyright 2012
Prepared 6 December 2012