Communities and Local Government Committee - Mutual and cooperative approaches to delivering local servicesWritten evidence from UNITE the Union

This evidence is submitted by Unite the Union. Unite is the UK’s largest trade union with over 1.5 million members across the private and public sectors. The union’s members work in a range of industries including manufacturing, financial services, print, media, construction and not for profit sectors, local government, education and health services.

Introduction and Executive Summary

In local government Unite represent members working in a wide range of settings delivering services such as schools, waste and recycling, social care, repair and maintenance services.

Unite believe that the context in which this inquiry into the “Co-operative Council” is taking place needs to be set—it is a context comprised principally of the straitened financial circumstances local authorities are faced with and the Government’s overall agenda of privatisation.

The introduction of the “Right to Challenge” may lead to the creation of a competitive business market in which organisations such as co-operatives have the “right” to compete head to head with large and multi-national private companies such as Serco, Capita, Veolia and many others. As such, it is difficult to disentangle the real prospects for a “co-operative council” from the wider agenda of privatisation.

Unite has always been clear; community, voluntary and not-for-profit organisations have an important role to play in supporting the delivery of high quality public services, but as an additional resource not a replacement for high quality public services.

The competitive market model of contract and funding awards that this Government wishes to further embed in the Not-for-Profit sector has seen a race to the bottom in pay, terms and conditions for those working in the community, voluntary and not-for-profit sector.

Unite has previously argued against the outsourcing and privatisation of services on the grounds of; cost and risk, a decline in the quality of services; threats to the continuity of service; reduced accountability and reduced flexibility of service.

A low paid, overworked and poorly treated workforce cannot deliver a high-quality public service. Unite is deeply concerned that decent pay, as opposed to poverty pay, collective bargaining, fair pensions and other positive terms and conditions are painted by some as a “burden” or a “barrier” to better public services. They are not—they are a prerequisite as part of an overall investment in services and the people who work to deliver them. Unite supports the continuation of national collective pay bargaining, access to a national, decent pension scheme and good terms and conditions for the local government workforce, no matter what the model of service delivery.

1. Local government spending cuts and the privatisation agenda

1.1 Unite believe that the context in which this inquiry into the “Co-operative Council” is taking place needs to be set. That context is comprised principally of the straitened financial circumstances local authorities are faced with and the Government’s overall agenda of privatisation.

1.2 The financial settlement for local government settlement is extremely tough with councils forced to find 28% of savings at a time of high inflation. Overall in the economy there are public spending cuts that the Institute for Fiscal Studies have assessed as being unprecedented in scale, with the overwhelming majority of planned cuts still to take place. The social and economic consequences of these spending cuts lead to further burdens being placed on local government services—for example, through growing local unemployment, growing local homelessness, failing local high streets and so on.

1.3 The local government workforce are experiencing an unparalleled attack on their terms and conditions at a local level; unsocial hours payments, overtime and weekend rates, car allowances and mileage payments being withdrawn or cut. There are also experiences of cuts to sick pay and the introduction of unpaid annual leave.1

1.4 Cabinet Office Minister Francis Maude argued in February 2011 that “There are six million people who work in the public sector at the moment. It would be very ambitious, but is not inconceivable, that at the end of the Parliament, 2015, you might have as many as one million workers who would be co-owners in some form of the public service entity that they’re part of”. This was followed in July 2011 by the Government publishing their “Open Public Services” White Paper which details how they intend to implement this agenda. The default position of this Government is that public organisations will not in the future directly provide services themselves, rather they will contract others to provide public services.

2. Right to Challenge

2.1 In local government the implementation of this outsourcing and contracting agenda will fall to those councils who are ideologically minded to divest themselves of services and driven forward elsewhere by the “Right to Challenge” introduced under the Localism Act. Where a “Challenge” is accepted by a local authority it will trigger a full procurement process.

2.2 Unite believes the cumulative impact across local government in England of the “Right to Challenge” will be one of mass privatisation, and indeed that is the Government’s clear goal across public services. It is therefore with this in mind that we turn our attention to the slippery concept of the “Co-operative Council”. It appears from the terms of reference for this inquiry that the view Select Committee is that a “Co-operative Council” is a council which does not provide any services directly, and instead provides all its services through not-for-profit organisations.

3. Co-operatives or private companies as the beneficiaries?

3.1 Unite believe an attempt is being made by the Government to use the language of local, community and empowering organisations as a political tactic to disguise the real agenda—the privatisation and breaking up of our public services, and the winning of contracts by private companies. As highlighted above, the “Right to Challenge”, if accepted by a local authority, will trigger a full procurement process. In short, despite the warm words of the Government, there are no exceptions for small, local, specialist organisations—a competitive business market is being created in which such organisations have the “right” to compete head to head with large and multi-national private companies such as Serco, Capita, Veolia and many others.

3.2 The privatisation or outsourcing agenda is one that will overwhelmingly benefit the private sector. The outsourcing business market in the UK is worth approximately £80 billion and in the Unite report, “The Shrinking State”, just a few of the examples of lobbying by the private sector to increase the use of outsourcing are given. It is worth highlighting at this point the Work Programme from the Department of Work and Pensions, frequently mentioned as an early and positive example of the “Big Society”. But as the TUC noted last year, “Of the 18 preferred bidders for 40 prime contracts, the voluntary sector was awarded two. The public sector got one. Fifteen went to the private sector, including SERCO, A4E and G4S. It is worth also noting that the two voluntary sector consortia that won bids were effectively voluntary/private partnerships, with Careers Development Group bidding with multi-national employment and training provider MAXIMUS and Rehab partnering up with Interserve, described as “one of the world’s foremost support services and construction companies”.2 Obviously since then A4E have been embroiled in a series of scandals around contract payments and use of public money that led to their Chair and founder, Emma Harrison, being forced to stand down.

4. Impact upon the not-for-profit sector of Government actions

4.1 There are no “real-life” examples of a “Co-operative Council” as indicated by the terms of reference3 and as the Association of Public Service Excellence recently found through a systematic review in partnership with De Montford University, “[there is] a lack of evidence informing the claims that are being made about the benefits of co-ops and mutuals”.4 This prompts them to ask the question “Are local authorities walking into a major change in the way in which public services are delivered without any evidence to support its effectiveness?”

4.2 It is also worth revisiting the reasons why local government arose historically in the first place—because there was a need for an overall provider of local services to meet the needs of local communities; an organisation that could look across all the needs of that local community and direct resources accordingly. If a local community does not like how resources are being allocated they can vote to change the values their local council is operating to. Stepping towards a model of local government where services are contracted out—no matter who to—is stepping away from a model where services are integrated, resources can be moved between services to meet changing local demands and where all members of the local population have the right to change the direction of their local services by changing who governs those local services.

4.3 We are left therefore to draw on the experiences that Unite have had in this area, and it is necessary to point out to the Committee that Unite is not opposed to social enterprises, mutuals and co-operatives per se, and indeed the trade union movement has a history of supporting mutuals and co-operatives and Unite itself has a large membership in the Community, Voluntary and Not-for-Profit sectors. But Unite has always been clear; community, voluntary and not-for-profit organisations have an important role to play in supporting the delivery of high quality public services, but as an additional resource not a replacement for high quality public services. And we do not support the invoking of such organisations to be used as a fig leaf for the real agenda of outsourcing to create larger profits for private companies.

4.4 The competitive market model of contract and funding awards that this Government wishes to further embed in the Not-for-Profit sector has seen a race to the bottom in pay, terms and conditions for those working in the community, voluntary and not-for-profit sector. Experiences in the Community, Youth Workers and Not-for-Profit sector have raised significant concerns about the “contract culture”; where an organisation’s income becomes dependent on winning and delivering government and public sector contracts. The sector is facing significant cuts as a direct consequence of the overall public spending cuts being made by this Government.5

5. The case for outsourcing?

5.1 The economic case for outsourcing services on the grounds of efficiency has not yet been proven, nor has it been proven that an outsourced service would be of a higher quality or of a lower cost. Across the public sector the empirical evidence over many years does not show that the private sector is more efficient,6 and even the IMF admits that “the evidence is mixed”.7 There is evidence to demonstrate that in the long-run organisations which outsource have lower productivity than those which do not outsource.8

5.2 Unite has previously argued against the outsourcing and privatisation on the grounds of; cost and risk, a decline in the quality of services; threats to the continuity of service; reduced accountability and reduced flexibility of service. It is relevant to look at these arguments because not only do some of these effects of outsourcing arise because of the incentives and behaviours that a competitive contracting model create, but as highlighted above, the steps put in place to create a “co-operative council” by the Government also bring the likelihood of contracts being awarded to profiteering companies.

5.3 Firstly, there is a cost associated with “administering the market”. This could include, though is not confined to, the initial tendering process, contracting and legal fees, the cost of monitoring the contract performance, invoicing and any legal wrangling. These are costs which previously could have been invested in services. There is also the potential cost of “bailing out” a service provider that for whatever reason can no longer deliver the service, for example if an organisation goes bust. The risk remains with the contracting public authority—as recently demonstrated by the bankruptcy of Southern Cross social care and housing maintenance firms Connaught and Kinetics. The local council(s) have to step in.

5.4 Secondly, a deterioration in services. The whole system of competitive contracting is built on a foundation of separate, competing business units that do not work together, lest they give someone else a competitive advantage and lose future income as a result. This can result in best practice not being shared amongst organisations operating in the same field. Also in the case of what we may see arise in local government, as discreet service units are contracted to different organisations there is a risk of silos being deeply entrenched between services where local people would benefit from co-operation and integration between them.

5.5 As mentioned above in relation to the Unite experience in the Community and Not-for-Profit sector, the competitive contracting culture brings with it an incentive to cut costs to the bone. This can lead to cuts in staff pay, terms and conditions. A low paid, overworked and poorly treated workforce cannot deliver a high-quality public service. Unite is deeply concerned that decent pay, as opposed to poverty pay, collective bargaining, fair pensions and other positive terms and conditions are painted by some as a “burden” or a “barrier” to better public services. They are not—they are a prerequisite as part of an overall investment in services and the people who work to deliver them. Unite supports the continuation of national collective pay bargaining, access to a national, decent pension scheme and good terms and conditions for the local government workforce, no matter what the model of service delivery.

5.6 Thirdly, the risks to continuity of service when services are outsourced overlap heavily with the above points. As Unite’s report on the outsourcing of public services found, “provision of services in the private sector is associated with a greater incidence of short term job tenure, and of long-hours working practices, than either the public sector or the voluntary sector”.9 This high churn of staff represents a lack of continuity and a loss of knowledge build up for an organisation that will affect the quality of services that the public receive. Further, as each contract ends and is up for re-tender there is a risk of the chop and change of the provider themselves as well the disruption and distress that bankruptcy of a service provider can bring.

5.7 The lack of flexibility and accountability that can arise from the contracting of a service rather than provide it “in-house” has been touched on above. When a council has to respond to changing local service needs and demands, or wants to design a service to meet wider social needs it can do so a great deal easier and with less overall cost if that service is in-house rather than the council entering into contract renegotiations. For example, local services can be designed to boost local employment, provide apprenticeships, be environmentally sustainable and so on. Importantly, a local population can vote that services should be designed to meet overarching local needs, or change the future direction of local services all together and elect the people that govern those services, correct problems and address grievances.

5.8 A challenge for local councillors where services are contracted out—again no matter who to—is that local people are likely to still approach their councillors if they have a problem with a local service, and expect that councillor to be able to address their issue. Accountability for local services cannot just nominally remain with a local council, it has to be real and be able to be acted upon. There is an interesting point to be made here that although co-operatives can have vibrant, dynamic, internal democracy which is positive and should be supported, when delivering local services that internal democracy would not be open to all local citizenry as local council elections are now. An organisation’s democracy is open to members of that organisation only—it is an important distinction to be made when we are discussing accountability over local services.

6. Conclusion

6.1 Unite believes that the Government is embarking on a dangerous experiment with local services—the level of spending cuts being demanded of authorities are severe and are having detrimental consequences for local services and the people who deliver those services. At the same time, it is pushing local councils to divest themselves of these services, despite no evidence base for the value, quality or benefits of this course of action.

May 2012

1 See the NJC 2012–13 Pay Claim from Unison, Unite and GMB for more details.

2 The Big Society Market—who are the winners? 18 April 2011, http://touchstoneblog.org.uk/2011/04/the-big-society-market-who-are-the-winners/

3 CLG Committee Inquiry and Call for evidence, “a co-operative council where services are supplied via not-for-profit businesses …”
http://www.parliament.uk/business/committees/committees-a-z/commons-select/communities-and-local-government-committee/news/co-op-council---tor/

4 Proof of delivery? A review of the role of co-operatives and mutuals in local public service provision, APSE, May 2012.

5 Please see the Unite campaign website in support of organisations in the Community and Not-for-Profit sector, Unite for our Society http://www.uniteforoursociety.org/

6 Willner J and Parker D, The Performance of Public and Private Enterprise under Conditions of Active and Passive Ownership and Competition and Monopoly, Journal of Economics, Volume 90, Number 3, April 2007. See also Petersen, Ulf Hjelmar, Karsten Vranbaek and Lisa la Cour, Effects of Contracting out Public Sector Tasks – a research based review of Danish and International Studies from 2000-2011, September 2011, AKF, Copenhagen

7 IMF Public-Private Partnerships, 12 March 2004, see http://www.imf.org/external/np/fad/2004/pifp/eng/031294.htm, paragraph 25

8 Windrum, Reinstaller and Bull, The outsourcing productivity paradox: total outsourcing, organisational innovation and long run productivity growth, Journal of Evolutionary Economics, 2009.

9 The Shrinking State—why the rush to outsource threatens our public services, Howard Reed, March 2011 http://www.dontbreakbritain.org/pdf/Theshrinkingstate.pdf

Prepared 6th December 2012