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

The Borough’s response to the Committee’s request for evidence is in two parts; the first provides the context in which the Borough’s views have been formulated; the second provides our specific response to the Committee’s lines of enquiry.

The Committee will be aware that Royal Borough has a long history of Cooperation. It is this historical experience of the public value that can be created by cooperatives, mutuals and related “social businesses” which informs the Borough’s current understanding of this area of public policy and its innovative approach to contracting with such organisations.

Woolwich was the centre of Cooperation in London and the South East in the 19th and 20th centuries. A local tradition of working class self-help grew up during the Victorian era supported by the industry, trade end employment associated with the Royal Arsenal munitions factory. This spirit of mutual aid was given institutional form through the establishment of the Royal Arsenal Cooperative Society (RACS) in 1868. The Society was established as an Industrial and Provident Society and operated a system for the distribution dividends based on individual member’s purchases of the Society’s goods and services.

Over the course of the late 19th and early 20th Century the Society developed into a general retailer, with retail stores and subsidiary enterprises throughout London and the South East. This general retail model was built on the back of the spending power of its working class subscribers and, while initially the health of the Society was linked to the munitions industry and the fortunes of the Royal Arsenal from which it drew a majority of its subscribers, expansion across London allowed the Society to become a self-sustaining entity.

As the Society grew, so did its ability to fulfil a social mission of progress and self-help. In the first decade of the 20th Century, the Society acquired 170 acres of land at Bostall Hill and Suffolk Place Estate in Abbey Wood and built over 1,000 leasehold homes with generous mortgage terms for poorer members. Once known as “Tin Check Island” after the Society’s dividend system, and known locally as “The Co-op Estate”, the estate has streets are named after Cooperative themes and key individuals in the movement including Alexander McLeod, first secretary of the RACS. Others such as Owenite Road and Commonwealth Way similarly betray their Cooperative heritage.

In 1925 the Society purchased a 90 acre Government estate at Well Hall for £375,000 renaming it the “Progress Estate” and making home ownership a realistic prospect for its members. In addition to using its surpluses to address demand for housing, the Society was also active in education and provided the London County Council (LCC) with 26 acres at Bostall Wood to establish the first open-air school in the country, designed on a German-model to educate children with respiratory conditions. These interventions showed the Society coupled a sound business model with a strong sense of social purpose, acting as middle way between the state and the market.

The Royal Borough’s historic link to Cooperation is pertinent to the inquiry because the tradition inculcated by the RACS has enabled us to view the development and contraction of cooperative models of service provision and delivery across the timeline of a century.

While the cooperative housing referred to above has moved into private ownership in one case and to a Housing Association in the other, last September saw the Royal Borough witness one of the country’s first Academy Schools to be sponsored by the Coop.

Elected Members, with direct experience of Cooperation through the RACS and its role in the Borough’s economic and social life, 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.

Full details of these have been provided in the Borough’s original submission to the Committee. In broad terms, the Borough’s approach has been to create vehicles for delivering community services which combine the innovation and rigour of the private sector, a strong role in governance and decision-making for the community, and the accountability and progressive employment practices of the public sector.

The lessons to be drawn from over a century of Cooperation within the Royal Borough is that the sector’s ability to intervene and engage in the development and delivery of services is not diminished. In some areas, its ability to operate in these areas, arguably lasts as long as there is need which is not fulfilled elsewhere by the state or the private sector.

Our experience suggests that when these needs are met, then attention may turn to other areas where such cooperation can fill a gap. In this regard, there is a very clear distinction between the development of services and their management.

The general retail model pioneered by the RACS, which created additional social value by investing its surplus in community, is probably not replicable in a modern context.

However, there is a possibility of developing cooperative models of service delivery which can transcend the essential ethos of the public sector, where service is not compromised by profit but which also releases an entrepreneurial approach to the nature of that provision.

In our view these principles cannot be matched where an overriding objective is to reduce pay or conditions of service of employees. Rather, there needs to be the sense of opportunity for greater personal input and for the enterprise to grow.

Our successful transitions in this area have sought to protect those issues but also require two further essential requirements.

The transfer of a service into such a new arrangement must contain a contract to continue to provide the existing service for a two to three year period as a minimum in order for the enterprise to become established. Further, it must have at its core the leadership which can transcend the twin objectives of public service ethos and an entrepreneurial approach to that service.

As such, while some services can be potentially identified as being candidates for a cooperative model of service delivery in a 21st century climate, our experience suggests this cannot be delivered by rote.

Public service is fundamentally about people. Unless the leaders exist to transcend the public service and entrepreneurial ethos, no such enterprise can succeed. Similarly, the enterprise must be given a minimum of two and preferably three years to continue to provide the existing service in order to establish itself, make the psychological transition and have the space and time to release the energy and enterprise of its workforce.

It is the Royal Borough’s view that a number of significant legislative, structural and cultural barriers remain which prevents the social sector from taking a greater role in the delivery of public services. There are also a number of elements to the policy debate which the Borough urges the Committee to give consideration to in its deliberations. These points are set out below:

1.The Borough is not convinced that the term “Cooperative Council” is helpful and that Committee should be mindful that some local authorities will use this term to position themselves in relation to Central Government policy, while the reality is that there may be little real innovation, member oversight, or managerial rigour to such plans.

2.The Borough’s view is that the Committee should consider a broader definition within its terms of reference in order to explore this issue fully. Such a definition could encompass not just employee-ownership, but also social enterprise, mutuals, charities and trading companies.

3.In the Borough’s view, it is absolutely essential that local authorities have robust clienting arrangements in place to ensure that commissioned services are appropriately managed, that performance and value for money issues are transparent, and that there is appropriate Member oversight. In our view, this should include a partnership board with LA Members represented on it, within the receiving organisation.

4.The constraints of procurement legislation and the costs involved in complex tendering processes can be a major barrier to new and small social enterprises developing their business base and operating in the market.

5.The Borough’s view is that the ability of social enterprises and the charitable sector to access working capital is a major barrier, preventing local authorities procuring services from organisations which cannot demonstrate a sufficiently strong balance sheet. Small, innovative and often locally based providers are, in effect, squeezed out of public sector markets by outsourcing companies with large asset bases. A general policy presumption in favour of payment by results has, to some extent, exacerbated this problem. The difficulty which the charities and social businesses have had in winning tenders for the Work Programme is a case in point.

6.There are a number of policy directions the Committee could consider. These include, exploring ways in which social impact bonds can become a core mechanism for the funding of public services, particularly in preventative services and public health functions for which local Government is now responsible. Social impact bonds provide a mechanism for transferring risk, with appropriate rewards, to investors who can provide the working capital social enterprises need to deliver those services which they are uniquely placed to provide.

7.Government could engage with the local Government sector and social sector to develop a standard methodology for measuring and attributing a monetary value to the additional social value generated by contractors. Such a methodology would need to have a broad acceptance across the public and commercial sectors but also avoid being so complex or expensive to evidence that social enterprises are excluded by an accounting tool designed to level the playing field.

8.The Borough’s view is that the transition of local authority-run services into employee and community management can improve services, allowing innovation and increasing productivity by empowering staff and management. The Borough has extensive experience of “spinning out” business units into social enterprises and this innovative approach has preserved jobs, the terms and conditions of staff, and improved outcomes for residents. However, transition needs to be carefully considered and a strong business case must exist for the authority before proceeding.

9.The process of “spinning out” needs to be carefully managed and the Borough would like to draw the Committee’s attention to the following considerations:

Successful transition requires individuals and management teams with the capacity to lead organisations through a complex process of transition and into a difficult initial period of operation. While this capacity may be latent within the existing local authority business unit, this cannot be assumed. Where such capacity does not exist it will need to be developed in existing staff or for individuals to be recruited from outside to lead the transition and sustain the organisation in the first years of independent operation.

Any new enterprise will need a robust business model, a clear understanding of current and future markets and an ability to generate additional sources of income—this will involve adjusting the new provider’s service offer as necessary. Central to this is an understanding that delivering on the social mission is dependent on running a resilient business.

The quality of the transition process itself, from an initial options appraisal to financial forecasting and staff consultation, is an important factor in future success. The resources and time the parent organisation is prepared to devote is getting this right is a key indicator of future success.

Ensuring the right mix of skills and disciplines to support a business is fundamental and it can’t be assumed that existing staff groups will have the necessary aptitude or motivations. The transition will liberate talented and highly motivated staff but the enterprise will need to support poor performers to develop.

May 2012

Prepared 6th December 2012