Communities and Local Government Committee - Mutual and cooperative approaches to delivering local servicesWritten evidence from the London Borough of Lambeth

1. What is the difference between a co-operative council where services are supplied via not-for-profit businesses and other local authorities?
What are the advantages of and drawbacks to providing services via not-for-profit businesses?

1.1 The premise of this question makes the incorrect assumption that co-operative councils are just about delivering services through not-for-profit organisations. In fact co-operative councils aim to rebalance the power relationship between the user and provider so that it’s more equal by co-producing services with the people who use them or who live in the communities affected. That can be done whether the provider is public sector, private sector, third sector or not-for-profit. This approach, which a number of Labour-led authorities have embraced, is not about turning all services into co-operatives, and it is not intended to replace skilled professionals with volunteers. It is about giving local people choice and control over the public services they use by using local authority resources and expertise to support communities to make their own choices and use their own skills to make improvements and innovations. The proper resourcing of this way of working distinguishes it from the “Big Society” model which tends to rely too heavily on volunteers and the third sector at a time when individuals and charities are under considerable financial and time pressure themselves. The way different services work will vary, but the objective of finding new ways to hand more power, choice and control to local people remains constant. For example the Lambeth Living Well Collaborative brings together mental health (NHS and social care) service users, carers, practitioners and commissioners at monthly breakfast meetings. This provides participants with opportunities to share experience and design new systems based on what works for those on the receiving end. This has been a big success in terms of better outcomes, more integration and reduced costs because it assumes that citizens are experts on their own lives and conditions, that they are part of the solution not passive recipients of services.

1.2 Lambeth’s transition to a cooperative council is born out of a recognition that public services in the UK have reached a key moment in their evolution. The last 20 years have been marked by rising levels of investment accompanied by often centrally determined measures to improve performance. This has, in many areas, improved outcomes for citizens. However, improvements in performance have not always been matched by improvements in outcomes, substantial investment has not always led to proportionate progress in service quality, and public confidence in the state’s ability to spend effectively is at an all time low. Citizen expectations of public services are rising, but too often their experience of public services are disempowering. Socially excluded citizens, who are reliant on more public services, have been locked into dependency by a top-down model of public services that sees outside professionals take key decisions over large parts of their life. Over time, and over generations, this saps people’s self-reliance, self-confidence, and caps their aspirations. It can also lead to longer-term health issues as the stress of disempowerment leads to ill health. These people have been locked into dependency from which they see no way out. We want to change the way we run services so these people can exercise more control and discretion over their own lives and, in that way, we can give them back self-reliance and the ability to identify and work towards achieving higher aspirations for themselves, their household and their community. There is a growing body of evidence that where citizens are resourced to design and deliver the services they receive it results in better outcomes and financial savings for the taxpayer. For example health and social care organisation Turning Point’s Connected Care model involves the community in the design and delivery of integrated health and wellbeing services. Local people are trained and paid to carry out a detailed audit and with the assistance of frontline staff and commissioners, conduct a service redesign and cost-benefit analysis in order to make the business case for change. This leads to bespoke services which are inherently more efficient because the service is so closely tailored to need and the community is automatically engaged.

1.3 Prospective modelling of a Connected Care service redesign proposals in Basildon undertaken by the London School of Economics, suggests that for every £1 spent, £4.44 could be saved through reduced demand on public services, rising to £14.07 when the value of quality of life improvements are included.

1.4 These challenges have been apparent for some time, but the reduction in public spending following the Comprehensive Spending Review of 2010 has meant that local authorities can no longer continue to operate as they have. Lambeth, along with around 20 other local authorities, have established the Cooperative Councils Network. The network, and those authorities that are part of it, believe that co-operative (or co-productive) approaches offer viable and sustainable solutions to some of these challenges. It should be stressed, however, that this is not a cuts-led agenda. It can be delivered with whatever level of resources is available. Primarily, it is about empowerment.

1.5 The cooperative council, therefore, is not simply about changing the status of services from public or private to co-operative or not-for-profit. It is a means of addressing these core concerns by reshaping the relationship between the citizen and state. Citizens are valuable sources of insight and expertise, and are often best placed to identify solutions to meet their own needs or the needs of their local area. Public services currently fail to recognise this often enough. The cooperative council ambition is about putting the resources of the state at the disposal of citizens so that they can take control of both services and the places in which they live. In that sense, it is not about rolling back the state but about putting the state more directly under the control of its citizens. It is about finding new ways in which citizens can participate in the decisions that affect their lives.1

1.6 The means of achieving this will vary. In some circumstances co-production, bringing citizens together with staff and other stakeholders to find solutions or design services might be used. In others, communities might be empowered to identify the outcomes they would like to see in their area and budgets will be devolved to enable them to commission services to meet these needs. Where provision does not exist, or could be improved, new organisations may be set up, or existing organisations redesigned. This may include forming employee and user cooperatives and mutuals or social enterprises. We are not primarily interested in employee-led mutuals as our starting point is that we need to empower the user relative to the provider. Employee-led mutuals are an alternative form of provider-led services and, in that sense, rather miss the point of the reform.

1.7 We are currently transforming services to give citizens greater control over their neighbourhoods and the services they use. Lambeth is working with citizens to set up a youth services trust (the Young Lambeth Cooperative) to put citizens at the centre of procuring and designing youth services in the borough. Any resident is entitled to become a member of the trust. We intend that the trust will use a model of community-led commissioning to allow people living in individual housing estates and neighbourhoods to determine the specific pattern of services needed in their locality, harnessing local capacity and insight but bringing in external service providers where appropriate. This will create a highly tailored approach to tackling the problems of violent youth crime in communities where this is endemic. It will allow residents living in such communities and who are frustrated at their inability to effect change to use their energies to fight the problem rather than fight the system. By giving citizens including young people greater influence over such services we believe services will better meet local need, and outcomes for young people will improve. We are working on models of empowerment in other services, including social housing, adult care services, sustainable living, economic growth, financial inclusion, parking, parks management, environmental services, as well as an extensive community budgeting pilot.

1.8 The common thread running through the co-operative council will be the expectation that services will work in partnership with citizens, in a relationship characterised by reciprocity (ie people participate in order to secure outcomes that meet their direct needs). This way of working has benefits for the quality of services that will mark out cooperative councils from more traditional public service delivery organisations. To date, much of the UK’s public service design has relied on the insight and expertise of public service professionals to identify public need and design solutions, and has overlooked the value of involving citizens and service users in identifying their own needs and the ways in which services can work to support them to live the lives they choose. The consequence has been services that are not designed around the needs of the citizen or family, but rather existing organisational structures and professional interests. The Total Place pilots revealed the inefficiencies this approach can create, and the frustration it can cause.2 Moreover, opportunities for empowering families to take control of their own futures are lost as they are “done-to” rather than worked with, with consequences for eventual outcomes.3 By giving citizens greater influence in the design and delivery of services, we hope to create more effective, responsive services.

1.9 This submission has described the ways in which the different relationship between the citizen and state can transform citizens’ experiences of public services. However, as already identified, public services are also being challenged around trust and accountability. It is apparent that support for public service provision is dependent on taxpayers believing the state is capable of allocating resources effectively. Transparency is therefore increasingly important in enabling citizens to understand how and why decisions are made, and to enable them to hold commissioners and providers to account. The cooperative council model recognises that giving citizens access to a wider range of information in accessible formats can help build trust among citizens, and enable them to contribute to service improvement.

2. Where services are delivered by not-for-profit businesses what difference will the local resident and local taxpayer see?

2.1 The previous caveat applies: co-operative council services are not necessarily delivered through not-for-profit businesses but are about user-empowerment through co-production. Overall, by harnessing the insights and capacity of service users, residents will experience better performing services that are more responsive to their needs. By doing more of what residents want and becoming more effective, services will deliver better value for money.

2.2 Lambeth is clear that cooperative ways of working are not always cheaper in the short-term. Citizen involvement and engagement can be resource intensive, and substantial investment is often necessary when new organisations are formed, or existing services spun out. The cost of transition needs to be taken into account. Small providers cannot always realise the economies of scale that large private or public sector providers can, although we can help them achieve a greater economy of scale by making support services (such as IT, financial systems, HR, legal advice) available through the council as a platform onto which community-led services can be anchored. However, absolute cost is not alone a full indicator of value. 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. If we contracted everything with private sector organisation, all the value of the council (community) investment would be sucked out of the borough.

3. What arrangements need to be put in place to deliver services by not-for-profit businesses such as employee-owned mutuals? More specifically, what are the barriers to establishing not-for-profit businesses to supply services; what role does the local authority have in promoting and incubating a not-for-profit business; and where does accountability lie?

3.1 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.

3.2 Through the cooperative council, citizens will play a much bigger role in designing and, in some cases, delivering services than they have done to date. This is in recognition of the fact that they are better placed than outsiders alone to identify the needs of their communities and to identify effective solutions. However, there may not be organisations already in place to deliver the services they want. The council may then have a role in working with communities, groups of staff or the voluntary and community sector to develop capacity to deliver those services. The council will also have a role in ensuring that there are sufficient sources of advice and support within the borough to enable small organisations to participate in the council’s procurement processes which will need to be simplified.

3.3 Lambeth acknowledges there is a wide range of existing organisations who might be well placed to deliver public services co-operatively or work alongside the council to co-produce public services, including local businesses, charities, social enterprises, community and voluntary groups and other public sector organisations. The expertise, relationships and resources of these organisations could help to improve service quality and empower service users.

3.4 However, 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.

3.5 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.4 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. Community-led commissioning offers a means for communities to commission the services they need, but also to decommission those that are failing. This is an immediate form of accountability. Although increasing public access to data is not enough in itself to ensure accountability, it is an important means of improving transparency and the council is interested in open-source data about all aspects of services in order to support a more participative model of budgeting and oversight of performance. Effective accountability will not be provided by the local authority alone, but Lambeth recognises its responsibility in ensuring robust accountability across the borough.

3.6 There are some significant barriers that currently inhibit the development of the cooperative council. The first of these is the current Value Added Tax (VAT) regime. Although councils are able to reclaim the VAT they have paid on their normal activities, many other types of organisation are not afforded this benefit, apart from charities. Therefore mutuals whose turnover is above the threshold have to register for VAT, and will be required to charge for VAT on sales of goods and services. Therefore, those services that spin out from council ownership will need to charge 20% VAT to those purchasing their services, and may well face competitiveness challenges if there are other non-VAT eligible service providers operating in the market, affecting their viability.

3.7 A second set of barriers exist around the current public procurement rules, which local authorities are required to comply with when they procure a contract for works, goods and services above a certain value. This is intended to ensure that contracts are awarded fairly and encourage a competitive market. However, as outlined previously in the submission, Lambeth has stated its ambition to grow the capacity of citizens, local businesses, community and voluntary sector organisations to deliver public services, and acknowledges that it will need to support and help develop fledgling service providers while they acquire the capacity and skills to compete in the public services market. The difficulty experienced by new organisations, particularly employee mutuals, has been recognised by the current government through its recent request for a temporary exemption from the public procurement rules for contracts awarded to employee mutuals to increase diversity in the public services market. Technically, the procurement process doesn’t stop us, but it makes it hard (essentially you have to work hard to specify contracts so tightly that you can’t get any other type of provider eg you might specify that it has to be employee owned business and that x% of employees have to be local).

3.8 There are some internal barriers within the council’s organisational structure and culture. 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. The scale of the ambition is significance and is happening in an already complex environment. Organisations and the people who work for them are in general wary of change, and this is a further barrier of confidence that needs to be overcome. Some people, either deliberately or not, confuse the cooperative transformation of services with the reductions in funding. While these two things are both happening at the same time, they are independent of each other.

3.9 There are a number of principles and issues that need to be understood and incorporated in service design in order to establish the cooperative council:

(a)Capacity: we need to build the capacity of both council employees and the community to participate in co-production.

(b)Reciprocity: we need to make clear the benefits to staff and citizens that will result from new service delivery models. Primarily this is better outcomes and more responsive services, but it may also include other incentives such as rent or council-tax discounts for active participation.

(c)Quality: we must demonstrate better performing services as a result of transformation.

(d)Value: co-operative services must deliver better value in the long term, including social as well as financial value.

(e)Accessibility: delivery models must ensure that services are accessible to all who should have a right to use them, preventing capture by one section of the community that may then try to exclude others.

(f)Risk: to allow innovation to flourish, the council needs to adopt a different view of risk that allows us to learn from mistakes as well as from success rather than always trying to avoid failure by refusing to innovate.

(g)Empowerment: new service models will be expected to hand more power and control to services users relative to service providers as a means of tackling dependency and unlocking aspiration and self-reliance.

(h)Accountability: services must be more immediately accountable and therefore responsive to the people who use them.

(i)Safeguarding: the council will retain reserve powers of intervention in case of service failure.

Again, these are examples of how the whole system can benefit—done well and fully, the shift of power will result in positive impact in other agencies and ultimately costs across the whole of government.

May 2012