Communities and Local Government Committee - Mutual and cooperative approaches to delivering local servicesWritten evidence from UNISON

The Committee invites submissions from interested parties on the setting-up and operation of not-for-profit businesses owned and controlled, in full or part, by the people who work for them to provide local services that local authorities traditionally provide.

1. UNISON welcomes the opportunity to submit evidence to the Communities and Local Government Select Committee Inquiry into cooperative councils. UNISON is the largest trade union in the UK, representing over 1.3 million public service workers employed in the public, private, voluntary and charitable sectors. It is also the largest trade union in the local government representing workers delivering public services across the wide range of local authority functions.

What is the difference between a co-operative council where services are supplied via not-for-profit businesses and other local authorities?

2. UNISON is supportive of public service reform which gives a greater voice to both the workforce and service users. However we have signalled alarm at the prospect of the fragmentation of public services heralded by the Open Public Services White Paper and provisions in the Localism Act, including the community right to challenge. It is through mechanisms such as these that we believe the risk of large private sector companies taking over large swathes of the public sector infrastructure looms large.

3. UNISON’s concern at the prospect of further privatisation is not an ideological one. We believe that in-house service delivery maximises the opportunity for making the best possible use of taxpayers’ money and providing the most efficient, high quality services which are locally accountable. Further fragmentation will impede the potential for joined-up services across sectors. More importantly, we are convinced that there is very scant evidence indeed of privatisation leading to service improvement. Indeed, there is clear evidence to the contrary in the area of social care, which is beset with problems—both in the quality of care provided and poor pay and conditions.

4. The outcomes of outsourcing to private and voluntary sector bodies are generally reduced pay, conditions and pensions for staff, poor monitoring and quality control by councils and reduced accountability to service users and local Council Tax Payers. Furthermore, there is a loss of value of public money through huge procurement costs, the shareholder premium, poorly defined contracts and large increases in salaries to senior managers and Chief Executives. The National Audit Office and the Audit Commission have both produced evidence of high-cost fraud and leakage of public money through imprecise and/or inflexible contracts and over-charging.

5. The timing of the Select Committee inquiry presumably reflects the interest in coops and mutuals within the Coalition government which was first heralded by the Cabinet Office Minister Francis Maude back in 2011, but has yet to “roll out” in earnest anywhere. Whilst there has been much rhetoric about the cooperative council, it is the view of UNISON that there are no clear examples of this as either a model or an approach on which we can draw any reliable evidence from about the benefits, or otherwise. Furthermore we are not convinced of the case for the establishment of separate service delivery models—be they employee led mutuals or local authority trading companies—to deliver services which are already delivered in-house.

6. In this context there are three clear models of local authority which should be referenced. Those which seek to roll back the local state and reduce the role of the local authority to that of a mere commissioner of services from private companies (such as LB Barnet and Selby), those councils which continue to provide their services in-house by a directly employed workforce, and then the relatively new and untested concept of the “cooperative council”.

7. UNISON’s preferred option for services to be delivered in-house by a directly employed workforce enables the council to retain full democratic control and accountability, enabling greater flexibility to ensure quality services which represent value for money for the taxpayer. Although the boundaries of this inquiry are concerned with delivery models that sit separately from the local authority, UNISON would argue that a cooperative council can—and should—apply cooperative principles to in-house services. “Cooperative council” should not be solely defined by having outsourced service provision.

8. Those local authorities which have positioned themselves as “enabling” or “commissioning” councils demonstrate to UNISON the dangers of adopting a position which effectively relegates the role of the council to that of contract monitor. When services are handed over wholesale to private companies whose primary purpose is to create profit for shareholders, democratic accountability is inevitably compromised. Even in cases where the council enters into a joint venture with a private contractor within a separate company with council seats on the board, members are required to act in the interests of the company, rather than the local authority.

9. It is unclear whether this inquiry is making explicit reference to the Cooperative Councils Network, which was established in 2011 as a Cooperative Party and Labour Party response to the Coalition government’s drive to fragment the public sector through encouraging a diversity of providers. A growing number of Labour councils and Labour groups in opposition have now signed up to the Network, whose terms of reference state its aim is to “develop and promote co-operative ways of delivering local services.”1 There are a number of high profile local authorities undertaking work under the banner of the Network, including Lambeth, which was one of the first to signal its intention to become a “cooperative council”. However in practice, we are yet to see evidence that the concept of the cooperative council is anything other than rhetoric, however well-intentioned.

10. UNISON recently convened a meeting of our branches who are in Labour-controlled local authorities who have signed up to the Network. The feedback received on progress within those authorities varied enormously and it is clear that in many cases councils are simply keeping a watching brief over many of the ideas surrounding the concept of the cooperative council, without instituting any programme of major reform. For those who have more publicly voiced their ideas on becoming a cooperative council, feedback suggests that many of the broad policy ideas have yet to translate to actual changes to ways of working, not least because of the complexities involved in establishing new models of service delivery.

11. Crucially, reports from UNISON 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. In light of this, employee-led mutuals and not-for-profit “spin outs” begin to appear more as management buy-outs than a spontaneous expression of latent entrepreneurial spirit being unleashed in the public sector.

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?

12. UNISON’s major concern is that local authorities are being hastily encouraged to look towards alternative delivery models such as employee-led mutuals on the basis that they will enable them to make cuts with a more acceptable face whilst appearing to preserve front line services. UNISON believes that alternative delivery models are not a panacea for cuts and in reality, significant savings would only be achieved through the denigration of workforce terms and conditions and/or the creation of a two-tier workforce. Moreover the costs associated with setting up an alternative delivery vehicle (such as an employee-led mutual) are not insubstantial and would need to be weighed against the alternative of continuing to provide the service in-house and instituting a programme of service reform led by the workforce and including meaningful service user involvement.

13. UNISON would wish to note here the experience of the Greater London Council under the leadership of Ken Livingstone. Co-operative Development Agencies were set up in many London boroughs, with resources and experienced staff to help local people establish co-operatives. The experience of that laudable experiment were:

Establishing genuine co-operatives takes time, commitment, technical expertise and ongoing support.

The impetus needs to come from those who are going to run the co-operative, not from external sources as the commitment required to sustain a co-operative venture is significant.

Few co-ops established during that period have survived in any form, despite significant ongoing support.

14. Much of the thrust of the inquiry into the cooperative council model is towards alternative forms of delivery with the focus solely on forms of ownership. UNISON believes that this approach misses the huge opportunities that there are for councils to explore new ways of working through greater cooperation with both staff and service users. Many claims have been made about the supposed benefits of mutuals in the drive to promote their involvement in public service provision. Francis Maude has claimed that they “reduce absenteeism, improve performance management, encourage innovation, and increase productivity”.2 However there is a paucity of evidence to support such bold claims.

15. UNISON experience of supporting branches whose local authorities are seeking to move to mutual models demonstrates that there are many barriers to establishing such service delivery vehicles. Local authorities who view “spinning out” services as a quick fix cost-cutting exercise are likely to be proven wrong. Recent research by the Association for Public Service Excellence (APSE)3 argued that three elements need to be in place to ensure that mutuals and coops have any chance of long term sustainability:

A contract length of five years or longer, which also locks in previous benefits such as adequate training provision and decent staff terms and conditions.

Buy-in from key stakeholders including staff, citizens and elected members.

Ongoing support, advocacy and expert advice from the public sector.

16. Given that public service mutuals are an unknown quantity there are many unanswered questions about just what local authorities do feel their role and responsibility towards a new model is. It is unclear whether local authorities will be permitted to simply hand over a service to a mutual or cooperative, as by their very nature they will be separate companies. If a new business is truly employee-owned there may be questions about whether TUPE will apply. If local authorities provide too much support to what is essentially an outsourced company, local authorities may be in danger of breaking EU rules on state aid. Even if a local authority does award a contract to a mutual or cooperative in the first instance, when the contract is renewed it will have to go out to the open market. If we imagine a situation where a mutual has run a service for five years and built up some capacity, it will still be a newcomer to a market dominated by large private sector companies and therefore liable to fall at the first hurdle.

17. At present EU procurement rules are not interpreted creatively enough in England by government and the Office of Government Commerce to favour social and environmental concerns, and therefore SMEs. This means the majority of contracts are awarded to large private companies who are able to demonstrate that they fulfil the most economically advantageous tender (MEAT) criteria (unlike elsewhere in Europe and to a certain degree by the Welsh Assembly and Scottish Parliament). Until procurement rules are revised to enable greater consideration of social and environmental factors, UNISON is concerned that the shift towards coops and mutuals will be a short-term one. Our concern is that when the contract for a given service is retendered in the future, the conditions will have been created to allow the private sector to effectively “clean up”. Furthermore unless robust governance arrangements are put in place there is a danger that if an alternative model runs into financial difficulties mid-contract it will be ripe for a takeover by a large private company.

18. The experience of the deregulation of the passenger transport executives in the 1980s should serve as a warning about the vulnerability of employee-owned mutuals to privatisation. By the early 1990s, only around 30% of companies remained employee-owned. This followed a period of intense competition which saw small companies have to merge with others in order to remain competitive in the face of large national bus companies. The All Party Parliamentary Group on employee ownership touched on this case in their 2011 inquiry report, stating that “from the perspective of the mutual sector, the lessons are clear. No independent employee-owned bus companies exist at present because the buyouts were debt-financed; the employee ownership was based unsustainably on individual shares which required an exit route, and the deregulated market forced smaller operators to consolidate and merge to achieve essential economies of scale”.4

What are the advantages of and drawbacks to providing services via not-for-profit businesses?

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

19. Local authorities and public bodies by their very nature exist to provide services that have social aims and objectives, meeting public need. There are many areas of public service which are simply not appropriate to seek to make a profit from, even if the aim is to reinvest that profit back into the service. Social care, refuse collection and libraries are just three examples of areas which are unlikely to make a surplus to be reinvested and which should not be subject to commercial principles.

20. Many local authorities have a history of commissioning and grant-funding small community and voluntary sector organisations to undertake functions which require a certain specialism, cultural awareness or need to sit separately from the local authority, such as independent advocacy services. Many such organisations have seen their funding cut as local authorities struggle with a much-reduced settlement from central government. There is a case to be made that such organisations should continue to be grant-funded by local authorities to deliver these services, rather than being tendered out. Procurement of services can be a lengthy process and one which requires a level of resource, expertise and funding that many community and voluntary sector organisations would struggle to fulfil.

21. It is accepted that for any kind of cooperative or mutual to be successful, the buy-in and active participation of staff is key. This is proven to be true in all types of organisation—commercial or public—through large bodies of research which demonstrate that genuine workforce engagement is central to service or product improvement. There is sadly little evidence of local authorities seeking to engage employees in a genuine partnership to improve services and make them more responsive to local need. This is also true of user engagement.

22. UNISON branches report that many proposals for alternative delivery models are in fact management-led with very little input from staff. Indeed many staff report going along with proposals because they feel there is no alternative, and they are often told that it will save jobs and terms and conditions from the cuts. UNISON is clear that alternative models are not a panacea for cuts and are perhaps even more vulnerable to them than in-house models. A recent case in Kent showed that even with a contract in place, local authorities can choose to withdraw funding at any time—“former council employees were encouraged to leave their jobs and join Project Salus on the back of Kent’s decision to provide the company with a three-year grant. But in December 2011 Kent announced that it would terminate the grant”.5

23. One of UNISON’s main concerns about the fragmentation of public services and the creation of “not for profit businesses” is the loss of democratic accountability. Local councils are elected by their constituents and accountable to them through the ballot box. There will be very little ability to influence a mutual or cooperative’s direction once established. Research by APSE, referenced earlier in the submission, posits that the sustainability of public sector provision could be negatively impacted by the fragmentation of services through divestment away from the sector. They go further in arguing that there is some evidence to suggest that “divestment exercised a downward pressure on staff terms and conditions; and there was very little evidence of accountability to elected members and/or the community”.6

24. In summary, UNISON would hope that the notion of the “co-operative council” is developed to engage employees’ and users’ knowledge and experience to maximize the use of public money and provide the best possible in-house services. We believe that there is little evidence of employees wanting to “spin off” services and run them themselves and that this would fragment service delivery further and almost certainly lead to privatisation further down the line. We do however believe that there is potential scope for improving services and our members’ pay and conditions—particularly in the area of social care—by ending contracts with large, unresponsive private companies and creating co-ops or mutuals. These could also provide a collective and positive working situation for isolated personal assistants.

May 2012

1 Cooperative Councils Network—terms of reference:

2 Francis Maude speech unveiling new support for mutuals, November 2011

3 Proof of delivery? A review of the role of cooperatives and mutuals in local public service provision (APSE, 2011).

4 Sharing ownership: The role of employee ownership in public service delivery (The All Party Parliamentary Group on employee ownership) June 2011.

5 Local Government Lawyer—Social enterprise run by ex-council staff launches JR over axing of grant after just six months

6 Ibid (APSE, 2011).

Prepared 6th December 2012