UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 112-ii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Communities and Local Government Committee

The Co-operative council

Monday 21 May 2012

Professor Tony Bovaird, Catherine Staite, Mark Bramah

professor Julian Le Grand

Evidence heard in Public Questions 78-178

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Oral Evidence

Taken before the Communities and Local Government Committee

on Monday 21 May 2012

Members present:

Mr Clive Betts (Chair)

Heidi Alexander

Bob Blackman

Simon Danczuk

Bill Esterson

George Hollingbery

James Morris

Mark Pawsey

________________

Examination of Witnesses

Witnesses: Professor Tony Bovaird, Professor of Public Management and Policy, Institute of Local Government Studies, University of Birmingham, Catherine Staite, Director, Institute of Local Government Studies, University of Birmingham, and Mark Bramah, Assistant Chief Executive, Association for Public Service Excellence, gave evidence.

Q78Chair: I welcome you to the second evidence session of our inquiry into the Co-operative council. Thank you very much for the evidence you have provided us with so far, and for coming this afternoon. Could I ask you to identify yourselves and the organisation you represent for the sake of our records?

Professor Bovaird: Tony Bovaird, Institute of Local Government Studies, University of Birmingham.

Catherine Staite: Catherine Staite, Institute of Local Government Studies, University of Birmingham.

Mark Bramah: I’m Mark Bramah. I’m the Assistant Chief Executive for the Association for Public Service Excellence, a local government association.

Q79Chair: Thank you very much. To begin with, I would like to get a grip on what is a cooperative approach. What is a co-operative council, and how does that change or affect service delivery?

Catherine Staite: A co-operative council is one that looks for as many opportunities as possible to work with the people they serve, and to draw them in through engagement, supporting the making of choices and prioritisation, but also through co-production in helping deliver outcomes for themselves and for other people in the community.

Mark Bramah: It is slightly unclear what the co-operative council is; there are different versions of it. There is clearly a vision of divesting services to co-operatives and mutuals, which is one version of an approach to a co-operative council. There is another, which a number of authorities have adopted, which is more of a valuesbased approach, much more about the culture of the organisation. There are quite a lot of nuances within that.

Professor Bovaird: I would simply add that there are two fundamental strands here- one is a council that co-operates with partners in the institutional world: other organisations in the public sector, private sector and third sector. That is an inter-organisational business where they simply try to make the most of each other’s organisational resources and assets. The other strand is working closely with service users and citizens to integrate what the council does with what people want, and to make people part of the service planning and delivery process.

Q80Chair: We are all struggling a bit: people use the same word and mean different things by it, and mean the same thing with different words, which is difficult for us to grasp. At one level, we seem to be talking about something little more than asking service users what they want, participation and user involvement, which are things that have been around for some time. At the other end, we are talking about more active involvement in the production of services, and maybe some things in between. Does the co-operative model rely on having coproduction, which was used to describe Lambeth, or the use of cooperatives and mutuals? Or can you call yourself a co-operative council without having that sort of involvement?

Catherine Staite: It is unfortunate that the language is used so differently, because commissioning services from co-operatives and mutuals is something that councils might choose to do as part of their work. Certainly co-operatives and mutuals that have their roots in the community may be useful conduits for engaging with people. However, being a co-operative council in the sense of Lambeth and to some extent Southwark, which has some good practical examples of how they have worked on co-production, is more about the values of the authority. There is a more permeable division between what is delivered on behalf of the council, what is delivered through partners and what is delivered by communities. That flexibility is one of the characteristics that I would expect to see in a co-operative council.

Mark Bramah: There are two distinct strands, although I agree with you, Chair, that there is some confusion about what we mean by a co-operative council. If you look at West Sussex County Council, their view is based on the Open Public Services White Paper and about the role of local authorities as commissioners of services. Local authorities should commission and empower other organisations to deliver services.

I know you took evidence from Oldham Council and some of the others that are part of the Co-operative Councils Network. My understanding is that some of their approach is much more about looking at the international principles of co-operation and how that can be built within the organisational structure and culture of the local authority itself. Some of these ideas are developing and are not fully formed yet; there are different approaches. Lambeth is a distinctly different approach from York, which is part of the Co-operative Councils Network.

Professor Bovaird: Our argument in the evidence that we have given to you in writing, is that a key aspect of the co-operative council is user and community co-production with the council, which means using each other’s resources to maximum effect. We argue that that is something we have never really tried to do before. In doing that we are going to need social enterprises, because as an intermediary, they play an invaluable role; communities cannot, by themselves, simply grab hold of the resources in the public sector and make best use of them. The public sector, we argue, is not good at finding out what is in the community and making best use of it. So that intermediary and those social enterprises are fundamental to a coproducing world.

That is just one aspect of the co-operative council. We think it is close to the Lambeth model, because their model might better be called the co-production council, but it is such a mouthful that, quite wisely, they have not used that particular label. However, it is very close to what is at the heart of much of what they do. As you say, there are many other meanings of the word co-operative.

Q81George Hollingbery: I am just getting my head around this. I missed the last evidence session, I do apologise. The new production methods for local planning and the input of inter-neighbourhood planning, is that co-production? Is that a mutual? Is that a co-operative? Where does that sit? It seems to me that as a national Government impetus that is pretty much what you are talking about.

Catherine Staite: There are two things there. My colleagues may disagree with me, but I think some of that is around engagement. It is giving people different opportunities to influence decisions about what happens in their area. However, as soon as people make a contribution, for example, to developing a neighbourhood plan, you are moving into co-production. Think of it as part of a continuum of activity, from a local authority that is giving people information and making it easy for them to access services, through to the other end of the spectrum, where power and resources are delegated to people to run services on behalf of themselves and their local community. Across that spectrum of activity, you will see a lot of different depths of engagement. What is expected of the people who are engaged with is different, whether it is simply to nod things through, or whether they have really got to put some effort in on their own part to achieve something.

Mark Bramah: You do not need to be a co-operative council to be engaged in coproduction, though. A lot of the work we do is in waste management; any authority that is entering into any initiative on waste minimisation or recycling has to engage with citizens and service users in terms of co-production, otherwise they could not deliver those services. You don’t have to be a co-operative council to be engaged with that; lots of local authorities have historically been involved with co-producing services with end users.

Q82Simon Danczuk: You have some local authorities describing themselves as co-operative councils. Do you get a sense that the Rochdale pioneers could be spinning in their graves in terms of the fact that their concept has been hijacked for branding purposes? How fast do you think they would be spinning?

Professor Bovaird: I think they would buy this.

Q83Simon Danczuk: They would buy this?

Professor Bovaird: They would buy this. This looks like local people having a real say, not just in what should be done, but how it should be done, and being invited to be part of what should be done. That is something that we have thought of for 150 years as an interesting theory and we are only just realising it. It is happening, and it could happen more.

Mark Bramah: I fundamentally disagree with that view.

Q84Simon Danczuk: You think they are spinning?

Mark Bramah: I am from Rochdale, so I do know a bit about the origins of the cooperative pioneers. It was a consumer co-operative with the Rochdale pioneers; they tried to get into manufacturing, but that model did not work as well. It predates modern public services. It predates an awful lot of the development of modern public services. It was very much in the private sector; the co-operative movement was built around that. There are some distinctions. There are some similarities, but I do not think that the Rochdale cooperative pioneers would necessarily see the development of the kind of principles they adopted in the 1840s as being similar to the needs of modern public services in the 21st century.

Catherine Staite: If you think about the co-operative movement in the context of things like the Workers’ Educational Association, the idea of self-improvement, the idea that working people who had perhaps not had much education were able to make a contribution, some of that thinking is at the heart of co-production. It says that people have something to offer. They need not be defined by their needs; they can be just as easily defined by their capacities and the assets they bring. That is why there is a link back to some of the thinking that underpinned the co-operative movement in the first place.

Q85Simon Danczuk: I also live in Rochdale, and nobody is talking about the council being co-operative, I can assure you of that, and it is the same party. What are the notable examples then, Tony, of mutualism getting a grasp within these key local authorities?

Professor Bovaird: If you are talking about mutualism, you are talking about a particular organisational form of service delivery, not what we were talking about with co-production. It is an entirely different direction. In terms of co-production done by small groups of staff with service users, I think the most exciting examples have been peer group support. There are some in Oldham, which are now nationally famous, for example, the KeyRing support for people with mental health problems: small groups of staff work typically with 10 mental health service users who help all the other people in their ring in a range of daily living activities. KeyRing is not a mutual; it is a third sector organisation set up nationally with local branches that run these sorts of peer group support networks, bringing professional staff together with ordinary people who themselves have a condition that is such that they can give enormous help and support to others like themselves.

Whether you want to say that in future most of our mental health services should spin out into co-ops and mutuals, which is something which the health service has considered, that is an organisational question. There is very little of it around, and the examples that have been written up, particularly by the National Audit Office in their reports, are relatively thin in number. If we are honest, there is not an awful lot of evidence behind what is there. Their conclusion is: not yet worth getting over-excited about, but worth watching.

Q86Simon Danczuk: So very few notable examples of this stuff going on, on the ground-real stuff you can see?

Professor Bovaird: It is relatively thin for the moment. On the other hand, it is often said that people with longterm health conditions like diabetes or gastroenteritis, which are potentially life-threatening conditions and last 20 to 40 years if you look after them properly, spend something like 5,800 hours a year looking after their condition, and they see a public service professional for about five hours a year on average. The amount of co-production there seems a bit thin. The extent to which this is a genuine use, by each other, of each other’s assets and resources to maximise the outcomes seems thin. I would want to say that the potential for doing things differently and getting the staff to work more carefully with citizens and service users seems exciting, but it is not happening.

Mark Bramah: I will offer some examples, because there are some. There is a paucity of evidence. We produced a report called ‘Proof of delivery’ through a knowledge transfer partnership with De Montfort University, which looked at the evidence of the success of co-operatives and mutuals in the public sector. We looked at a lot of research evidence, and we found a lot of evidence about how you set these organisations up, but not a lot about the outcomes that resulted from them. But there is some good work about.

Rochdale Boroughwide Housing has been set up as a form of mutual. The jury is still out on that in the sense that it is a stock transfer, it is 12 months before the mutual governance structures come into play, and there are issues about engagement of staff and tenants, but there are other good examples. I would refer particularly to Lancaster City Council, where they have a service within their waste management called Furniture Matters. It is a local co-operative; it works with the waste management service in collaboration with the public sector. It is a community-based co-operative that recycles white goods and furniture for very deprived communities. It provides training and employment opportunities within those communities, and works very well in collaboration with the public sector.

Could I refer to one other piece of work that might be worth looking at? In 2006, the Scottish Executive, as it was before it became the Scottish Government, did a piece of work called ‘Better value: Purchasing public services from the social economy’. While as an organisation we disagreed with the conclusions of that report, there were a number of very good case studies of where the social economy-co-operatives, mutuals-could work in collaboration with the public sector. It tended to be niche service provision; recycling is a good example, or out of hours driving contracts for the NHS. There are some good examples in the public sector where it has been used in the past.

Q87James Morris: Can I ask one question about what you were saying about mental health services? If there are some examples of this co-production, where service users are engaged in design of services, is the outcome improved if those service users then feel that they have a direct stake-as in, there is an organisational structure called a co-operative in which they have some kind of mutualised stake, to use all the terms that we are throwing around here? Does that improve the outcome?

Professor Bovaird: We did a survey of five countries in 2008, including the UK, France, Germany, Denmark and the Czech Republic. We asked 1,000 citizens in each country, "How much co-production do you do?" of certain types, "and what drives it? Why do you do it?" We found that one driver was that if people are dissatisfied with public services, they are more likely to start doing more things for themselves to make things better.

Coincidentally, or at least apparently paradoxically, people were more likely to get involved if they believed they could really make a difference. Those two things were not well associated with each other. A lot of people who started to get involved did not believe they could make a difference, but in being involved for quite a long time, came to believe they could make a difference. So you get all three things moving in the same direction at some stage.

What did not come out at all from that survey-and perhaps it was because we did not set it up to do this-was people caring too much about the organisational form in which they worked, either as a community group or with a set of officers from the local health authority.

Q88James Morris: Isn’t organisational form irrelevant?

Professor Bovaird: It did not come up in our discussions as something that citizens care a great deal about. It may be that once people get more used to working with coops and mutuals, they form an attachment to them. We have not seen much evidence that people know or care much about that for the moment.

Catherine Staite: I used to run a large serviceproviding Mind organisation, and we tried very much to be user led in the sense that the committee was predominantly users, we had users running some of the services. I did that for about six years. The two things that were most striking were that people came in with low self esteem and little sense of efficacy, and went out, often into paid employment, with a much stronger sense of being able to survive; and they were also given a very strong sense that their experiences were very, very important to other people and to learning.

Again, you could say that was a traditional voluntary sector organisation, but, for those people, the organisational structure did not make the difference; it was those opportunities that were provided by that way of working that made the difference.

Q89Heidi Alexander: Can I just ask Catherine and Tony about some of the work you are doing with Walsall? I understand that it relates to work with social care users, and understanding what their capabilities are: what they can as opposed to what they cannot do. Can you tell me how you think that fits with a co-operative approach?

Professor Bovaird: We believe that the work in Walsall fits into a national picture where similar experiments are happening elsewhere. The Walsall one is crystallising it most clearly; it is perhaps most advanced. Where it fits into your inquiry is this: if it turns out that public services as we construct them currently-whether they are run by in-house providers, private firms, third sector organisations, national charities-do not understand how to mobilise people’s efforts and enthusiasm to make the most of what they could do for themselves and for others, we could be missing out on an enormous resource, and hugely underselling the outcomes that could be achieved.

Let me give you an example that we had in one of our workshops. One of the team managers said she had been talking to a member of staff who had spent an hour doing a needs assessment with a woman in Walsall who was just extraordinary. She was very musical, she was singing, there were kids coming in and out of the house playing musical instruments-piano, violin-which were just sitting around. She was informally teaching them, getting them to sing and talk together. It was an extraordinarily happy hour. Then the team manager read the report that came out of the needs assessment: this woman was utterly miserable in every dimension; you could not think of things that were not wrong with her, and that was what the local authority had to put right. It did not mention for a moment that she was in herself happy and an enormous asset to the people around her. She was underutilised; she wanted to do more, but it is hard these days to encourage kids to come into your house. You know what that involves in Britain in 2012. The team manager realised we are wasting our time: we are going to give her some services, and she needs them, but we are absolutely missing out on something that could change part of the street. Why isn’t there a box for that?

Walsall is trying to find a box to ask and to probe: who is doing things that are interesting? How can that be encouraged? Under what circumstances are people prepared to do that? Of course, many people won’t want to, or can’t. But who does want to? Who can?

After two hours, the conversation switched: people in the room began to say, "What would happen if we discovered that a lot of our service users can do interesting things for themselves and others and want to, and are now thinking that we are interested and we will be offering them something to do? Oh my God; how could we cope with a world in which people could be enormously interested in each other, have friends, more contact? That would put an enormous amount of pressure on our services." The atmosphere changed then, and the second part of our report was about how you could match up people who can do stuff with people who need stuff.

Q90Heidi Alexander: Two questions follow on from what you’ve just said. I think you said, Tony, that some people won’t want to get actively involved, and won’t be able to have some of those other things to offer. To what extent do you think that people do really want to be those active participants as opposed to just getting a good service?

Professor Bovaird: Good news/bad news, Heidi. The Danes do not want to. Our survey in Denmark showed the majority of people there take the view, "We pay for this stuff, let them get on and give it to us." We discovered in the UK survey that that is much less the case. In Walsall, we have discovered that a lot of people feel very frustrated that the things they already do are not appreciated, and the skills and the expertise they already have are not noticed by people who come in and talk to them, and are not in any way extended and made use of. That is not to say everybody; of course, there are people who won’t. We say in principle we must recognise there may be people who can’t, and we must protect that. Every time I have said that, and tried to give an example of a person who hasn’t got anything to contribute, we have been absolutely hammered by somebody in the room who says, "Funny you should mention that, but I know somebody just like that who is absolutely beautiful to be with".

Q91Heidi Alexander: Do you think harnessing those talents and capabilities costs more money?

Catherine Staite: It is more about seeing people through a different lens. It is about seeing people as whole people who have a lot of capacities and things to offer, rather than perceiving them as needs, problems and issues to be resolved. A good example is the Southwark Circle, which is a co-operative group of older people who provide support and practical assistance for each other. Another is the work that Swindon has done. Their life projects have been about-it is difficult to know what the right term is; is it troubled families? I am not sure what the right expression is currently-but families who have been given multiple interventions by a wide range of agencies, and handing back to them some control and responsibility to run their lives and their children. Those have been very successful.

If we start with the people where it looks as though it would make the most difference, to put it crudely, Swindon has saved a lot of money. Coventry has done work with parents of children with special educational needs, looked again at their transport needs, and moved them out of a council-based service into giving the parents the money to run their children to school in their own cars. They have saved about £250,000 doing that. If you start with the people who are willing, there are savings to be made and benefits for the families or individuals concerned. Then you can move to people for whom it is going to take more effort and more engagement to get them to the point where they are ready or able to become involved.

Q92James Morris: Can I talk a bit about social enterprises? Take an area I represent, in the West Midlands. I go across two local authority boundaries, Dudley and Sandwell. There are quite a lot of good social enterprises in both those local authority areas, but it is quite a fragmented picture. To what extent can social enterprises play a role in helping local authorities with some of the co-production you are talking about?

Professor Bovaird: It is extremely varied. Some of them do it naturally, but I am sure Mark will step in and say there are some people in local government and the health service who do this naturally. There are some professionals who know how to make use of the resources of users, carers, other people-neighbours and friends.

The argument in our paper is that that knowledge and skill tends to be more in social enterprises, but not all of them. Many of them are paternalist. Many of them are narrowminded in the way they do things. Many of them are essentially old spinouts from people who used to work in social care or the health sector, and want to do it their way at last. Just like any small firm, they want to do it their way: they love it, and they are not exactly listening to anybody, least of all service users or carers.

We found in the Walsall work in particular that the groups of people most likely enthusiastically to say, "I could probe, tease, bring out what people would like to do and can do, and make use of it readily", the people who latch on to that fastest, tend to be people working in housing associations, some of the local community organisations, some of the small care organisations, which have got a passionate view that we should be user led. Some of them: I do not believe that there is any categorical statement you can sensibly make in this field.

Catherine Staite: Intrinsically, I don’t think you can say that one sort of organisational model is better than another. I would look at a much broader range of criteria about effectiveness and, dare I say, value for money as well. There is a risk of getting hung up on organisational structures, and one of the problems about developing new organisational structures and approaches is that they absorb a huge amount of energy to get them up and running.

Before I joined INLOGOV, I was a director with a notforprofit social enterprise, the Office for Public Management. The challenge there is about holding the ring between the needs and demands of employees as owners. For example, to put it crudely, and this is no disrespect to them, if you were to say the interests of employees would be to work less hard and to be paid more, the interests of the company would be that they worked harder and were paid less. You have to have some mature relationships in an organisation to handle those inherent conflicts in a mutual or social enterprise like that. That, in itself, absorbs a lot of energy and it can really slow down decision-making.

If I was a commissioner of services, I would be interested to see what social enterprises had to offer in terms of what was special, different or added value, but I would not automatically say, "Social enterprise good; traditional public service bad", because the answer is much more complicated than that.

Mark Bramah: Obviously, there is some different terminology. We talked about cooperatives and mutuals; social enterprise is a different model, although there are some similarities. There are some very large social enterprises, and there are some very small local bodies. From APSE’s point of view, one of the problems about engaging more effectively with social enterprises has been that sometimes the rules around procurement can become extremely complicated. If you are a large national organisation, you have the capacity and skills to be able to compete for larger contracts; it doesn’t seem to be the case for a number of smaller local social enterprises. There is clearly a role for social enterprises working in collaboration with public organisations or local authorities, and some good examples of that.

Q93James Morris: My experience of looking at the local government landscape for several years, as well as working with local organisations, is that there is still quite a profound conservatism within local authority commissioning of social enterprises particularly. Do you think local authorities have the skillset and the aptitude to maximise the potential of social enterprises to achieve these slightly nebulous co-production ideals that we are talking about?

Catherine Staite: In some places, yes; in others, no. We run in-house executive development programmes; we run master’s courses covering issues around strategic commissioning. We often find there are pockets of excellence, but, having the whole organisation geared up to be an intelligent or strategic commissioner, you will find that there are champions and leading thinkers, but often the budgets are still in traditional service silos. That makes it quite hard to commission services focused on the holistic needs of people, because, if you look at the services that are being commissioned for individuals, the housing department has the same customers as adult social care or as the children’s directorate.

Currently, we are in a transition phase where there are some leading edge people who are really getting it and doing well; to their credit, they are sharing their expertise with other local authorities. There are other people who are just on the starting blocks. With the graph of doom of rising demand and reducing resources, doing things in the old way is not going to work anymore; the future won’t work like that.

Mark Bramah: An example of an authority that has approached this in a slightly different way is West Lindsey District Council. They have a strategic approach as an authority; they see themselves as an entrepreneurial council, but with an approach to social enterprise. They are trying to look at how they can encourage the engagement and involvement of social enterprises in terms of the work the authority does, and that is a unique approach that we have seen. The chief executive and the council leader there have adopted a different approach.

Q94James Morris: You mentioned certain services you thought were more appropriate to be delivered by social enterprise. Is there anything that couldn’t be delivered by social enterprise?

Mark Bramah: Again, it depends. There are clearly areas that are not appropriate in terms of public service delivery to be delivered by social enterprise, co-operatives or mutuals. It is a case of horses for courses. It will depend on individual local authorities, what individual local authorities see as core capacity and whether they can effectively look to develop services in partnership with social enterprises.

Professor Bovaird: That is a tough question, therefore you would expect me to evade it in some way, and here is the way I intend to evade it. I don’t think there are services as such that definitely cannot be provided by one sector or the other; we have even learned that regulation can partly be something done by private sector firms, as long as the regulation of the regulators is set up properly. Services are not just single services. They need some planning, co-planning sometimes. They need some design, sometimes co-design. They need some financing, sometimes co-financing. They need some management, sometimes co-management. They need some delivery; sometimes codelivery. They need some monitoring and evaluation; sometimes co-monitoring and evaluation.

The service as a whole needs all those things; bits of them can sensibly be done with social enterprises, users and members of the community. The whole service? Hey, that is a big ask. But bits of it? Why not?

Q95Mark Pawsey: Can I follow up on that point? Mr Bramah, you just said that some services are not appropriately delivered by co-operatives and mutuals, and we have just pushed you a bit on what services. Services I have heard about so far in the evidence are mental health, transport, and waste management. Why are some services appropriately delivered by co-ops and mutuals, and why are some not? What are the examples of what is not appropriately delivered by co-ops and mutuals?

Mark Bramah: I refer back to the example I gave of Lancaster City Council. They had a bulky household waste collection; I know it is waste, but it is a good example of how it works in practice. They realised from customer satisfaction surveys and the complaints they received from the public, that they were not very good at the bulky household waste service. So they decided to look at a way of delivering that service differently. The authority itself remains the waste collection authority; it provides the core service for the authority in terms of waste collection, but it has decided that a better approach to the bulky household waste collection service is to work more co-operatively with a community-based organisation-in that case Furniture Matters, a co-operative.

There are areas where social enterprise, co-operatives and mutuals are better able to provide some services, but that does not necessarily mean that they are better able to provide core services like, for instance in that case, a waste collection service. It is a matter of what works best in individual authorities.

Q96Mark Pawsey: What excludes the service you have just referred to?

Professor Bovaird: I will just come in and say that no single principle seems to me to work in this field all the time, but one principle is pretty strong, and that is: where you need big economies of scale, you are going to have big organisations, and for them to be co-ops and mutuals is going to be really tough. Where you need responsiveness to the needs of individuals or a local area, you don’t need scale; you need local, you need personal, and you need in-touch. You need an organisation that is flexible and adaptive. There, co-ops and mutuals might well be a very nice way of organising the people who know and care what should be done for those people in that area.

It seems to me likely that you are going to have a greater success rate there. Where you need big economies of scale I think one must be a little sceptical. It could work. Capita was essentially a mutual; let’s remember that. It was spun out of Cipfa originally, and it provided scale, but only 25 years later. Those early years are going to be tough if you are looking for scale through co-ops and mutuals.

Q97Mark Pawsey: The smaller scale services. I want to ask you about the rural and urban bit. You referred to West Lindsey. I don’t know where that is, but I am guessing that is rural.

Catherine Staite: It is Lincolnshire.

Q98Mark Pawsey: But every other local authority that we have referred to is metropolitan: Walsall, Coventry, Oldham, Rochdale, Lambeth. Why are all the names we are hearing urban? Is that because they have a particular philosophy that sits more neatly with what we are talking about, or is it because smaller, more tightly knit communities are better able to respond to this method of service delivery?

Professor Bovaird: Can I throw something into the pot here? I think in rural areas you will often be told the reason is quite simple: "We have so few public services. We have to do most things for ourselves." This is not coproduction; this is self-help and self-organising. Many of our rural communities fundamentally produce outcomes in all the areas that we care about in the public sector largely through their own activities: self-help and self-organising. They would like some public services to co-produce more with them; that is a story I hear quite a lot.

Q99Mark Pawsey: Are they not happy looking after themselves as they are? Your evidence is that they are happy, because presumably if they were not happy they would change the political colour of the authority delivering those services, wouldn’t they?

Professor Bovaird: I love optimism, and you have entered a note of extraordinary optimism, and I think we should celebrate that.

Catherine Staite: I think in rural areas people have quite realistic expectations of what can be delivered. I know some work was done recently in Shropshire around community safety and some arts and leisure services. People were not expecting that operas would be available in every village, but they were thinking that collectively they could do some things in different villages about bringing arts in.

I would not want to characterise country people as being self-reliant and turning their nose up at public services. However, there is definitely a tradition of doing more, because you cannot get the economies of scale there, and people need to do more for themselves.

Mark Bramah: There is another element in terms of the capacity of different communities and localities. There are examples of authorities that are well-parished, that have a long tradition of that kind of empowerment of localities, whereas in some urban areas you do not have that tradition; it is not the same. An example would be somewhere like Braintree in Essex, which has got very strong parish local councils; they have had a tradition over many years of the localities having a strong say in what happens within their communities.

Q100Mark Pawsey: What determines this route of service delivery or not depends a little bit on the structure of the community that exists in the first place?

Catherine Staite: Yes, but one of the other things I would go back to is to think about commissioning. If you were thinking about who you were going to commission what from, the bigger the service, the more rigorous your risk assessment would be of it. The track record of the organisation would influence how you let those contracts, and the ability of the local authority as the client to manage those risks would depend a lot on their own expertise. It could be that some commissioners in local authorities now are taking some measured risks with smaller services, and they will see how the market develops and how things go. They would be much less willing to take that with larger services, where they may already have legacy contracts that have some years to run anyway, which are therefore not up for grabs in terms of going for social enterprises.

Q101Mark Pawsey: Can we just talk about the cost of delivering the services by using co-operatives and mutuals? Again, with your Coventry evidence, there is transport for social services. You spoke about a £250,000 a year saving, but some of the evidence we were getting, particularly last week, was that this is not a way of saving money; this is a different way of service delivery, and those authorities who are looking at this route as a method of saving money are making a big mistake. Is that right?

Catherine Staite: The Coventry example is around co-production, with parents providing the service for their own children, rather than having it provided for them by the council. It was cheaper to give the parents the money for petrol than it was to send taxis to collect their disabled children and take them to school. So that is a slightly different thing. There is not any evidence as far as I know, whatever sort of alternative model of service delivery you go for, that it is necessarily going to deliver you savings. Where you can lever in a high degree of co-production, there is an argument to say that you could combine some savings with some service improvements, and that is what a lot of social enterprises are offering.

Q102Mark Pawsey: Is that a short-term higher cost for a longer-term gain, or is it spread evenly across?

Professor Bovaird: A lot of co-production costs money. That relates to a question we were asked earlier: if you take the Stockport website for adult social care, it was not well used. They spent £70,000 redesigning it from the beginning, with the service users, throwing out large parts of information that the staff thought users might like, and putting in information that users did want-a logic that was easy to follow. £70,000 is quite a lot of money to take out of actual service delivery, but they have reckoned since then they are saving something like £300,000 per year, because there is a huge increase in the understanding of what is available locally. They do not get asked so many tomfool questions by telephone; they do not have so many people coming in abortively asking for service who are never going to get it or cannot afford it, because now they know exactly what the offer is. You have got to spend some in order to get the benefits of that kind of co-production. That is one of the lessons we have seen throughout the country: that co-production is not something you get immediately for free; it needs some investment. The question is what the investment business case looks like; what is the payoff?

Mark Bramah: It is worth mentioning that there obviously is a view that the creation of co-operatives and mutuals in the public sector is a way of saving the public sector money in terms of expenditure. I don’t think there is any evidence to prove that, but obviously some authorities are approaching it on the basis that this is a way of potentially delivering some more efficient services.

Q103Chair: On scale, I don’t know whether you have picked up evidence of this so far, but with the personalisation of budgets for social care, you often get ex-employees of local authorities coming together to set up those small mutuals. They can offer very flexible arrangements, and often lower cost arrangements, to people who have now got personal budgets. Sometimes they were the people working for the local authority that used to provide services to these people. They know them and they have got that personal relationship. Have you got any evidence that that sort of thing is starting to happen?

Professor Bovaird: I know that it is happening, but I have not seen a survey that says how much it is happening. One thing that is happening is that there is enormous change in that market place. At first, people who had individual budgets were in a bad way, because they had no advice on how to use them, and there were not that many things to buy with them. It has changed enormously, and now the supply side is partly full of ex-employees of health and social care who are saying to themselves, "We can make really interesting offers to groups of users. One user at a time isn’t so interesting. We actually need to get together so that we have a portfolio of services we can offer as a group, and we need a cluster of users who will buy it from us, because otherwise we are not going to have a decent business case". There is a lot of churn in this market.

Mark Bramah: I have heard examples of where this is being considered in areas like domiciliary care where ex-employees think they can come together and offer that type of approach.

Q104George Hollingbery: I think my problem so far is that I am hearing very little in the way of hard evidence on any of these issues. I have got a particular problem with coproduction on the basis that it does seem to me to be good practice; it just seems to be what good councils already do. Perhaps I am biased by the fact I have huge numbers of parishes, but plainly that is a form co-production. There are lots of parishes that already produce services for district councils, and so on. I am really puzzled by what this is, other than good practice amongst some of the best councils. It may be there are lots of other councils there that cannot do it.

I am more interested in talking about the mutuals and cooperatives, about which, frankly, we have heard very little. The question that I wanted to ask was about the process of creating a mutual, the process of creating a co-operative, the difficulties, how you need to warn the employees, and what structures you need to set up. The first thing I have got to ask is: do you have any concrete examples out there of anything that is happening at scale? Tiny little self-help groups: we have all seen those out there in the community. Are there any major scale examples of this going on across the country?

Mark Bramah: There are examples of it. I referred previously to West Sussex County Council, which has a policy of approach to staff mutuals at the present time, and they are actively considering the setting up of staff-owned mutuals. They may be relatively small bits of the organisation, but they actively pursued that. We looked at the evidence in the public sector from across the UK and internationally. We found very, very little evidence in practice of successful public sector mutuals.

Of those that did exist, there were a number of factors that seemed to drive their success. One was some form of contract or asset lock-in; there needed to be something there that meant you could not divert those organisations away from what they were originally set up to do. The second was stakeholder buy-in: I think there is a view that you can almost force staff down this particular route, but it needs to have effective engagement, not just of the staff, but of various stakeholders, including service users. The third factor that you need to look at is around things like public sector advocacy. This is not about diverting these organisations away from the public sector; they still need support and nurturing from the public sector. They still need a strong role from the local authority to make them succeed.

Q105George Hollingbery: Sorry, I am lost here. Fine, so a mutualised public sector organisation: what is that other than outsourcing by a different name? Why should a third-party organisation then not challenge for it? I am really stuck with this.

Mark Bramah: Well, there is no reason why. In fact, inevitably, the formation of public sector mutuals and co-operatives will lead to competition, and other providers, under EU procurement, should be given the opportunity to bid for those contracts.

Q106George Hollingbery: So in other words it is just outsourcing by another name.

Mark Bramah: I think we view that as being essentially what it will come down to. They are private organisations; if you set up a staff mutual it is a private company, essentially.

Professor Bovaird: It is outsourcing by another name, but done differently, because it is believed that the people you are outsourcing to have a special expertise and a special concern. That is sort of like an interestingly different kind of outsourcing, and we should respect it as an interesting possibility.

I think it is wrong to say we should ask: what is the evidence that this works? We are in the middle of cutting 25% of local government expenditure in four years. That is going to produce an unprecedented situation in every council of this country. Asking for evidence as to how we will cope with a 25% cut and which mechanisms which be interesting during a 25% cut in spend is premature, I’m afraid. We are going to have that evidence shortly, and in the meantime we are going to have to experiment greatly with the way in which we cope with producing outcomes at lower spend. This is one of the mechanisms that you should take seriously.

Q107George Hollingbery: The terms of this inquiry are to talk about co-operatives and mutuals. I don’t really care in this particular context about the spending envelope, because that is not the brief of the Committee. We all recognise that is incredibly difficult, and there has been quite a bit of evidence produced in the last few weeks that it is leading to innovative approaches in many councils that are not only better value, but producing better outcomes. At the moment, let’s stick that on one side. We are supposed to be talking about this wonderful world of co-operatives and mutuals, and I am damned if I can see the evidence of any of it working here at all. I don’t understand the difference between that and outsourcing. If I said to you that housing departments in the local council are being pushed out into a housing association or into an arm’s length management organisation, tell me how that is different? You have got the same personnel, sitting in the same chairs, doing the same job, with a different control mechanism. I do not understand what we are doing here.

Mark Bramah: We already have examples of where this has happened in the public sector in terms of local authority leisure trusts, through a form of industrial provident societies. They are a form of community base; they are one form of a co-operative approach. There is evidence going back to earlier days; the late lamented Audit Commission produced a paper in 1990 on management buyouts, a paper called ‘Public Interest or Private Gain?’ There were a lot of employee-owned and management buyouts set up in the wake of the 1988 Local Government Act. The evidence produced there showed that 59% of those organisations ended up being subject to a trade sale; another 19% ended up being floated; 11% of them went into receivership; and only about 11% of those organisations ever continued in the original form.

Q108George Hollingbery: The reasonable conclusion is that it is not a great idea, is it?

Professor Bovaird: I think it is premature to suggest that. You are absolutely right that the evidence is very thin, but the point I would make is that we now do need to experiment to be innovative. This particular form of outsourcing-because you are absolutely right, it is a form of outsourcing-may be able to call upon levels of expertise and commitment of staff not available in other forms of outsourcing. That could be an interesting thing to do over these next four years.

Q109George Hollingbery: I absolutely take the point that you make, but I am just not sure I believe it. It does not seem to me to be materially different from what is available now. It is another mechanism by which you can stick something on one side, and you might get the benefits of an outwith management organisation and a bit more control over your destiny. If you can make a profit out of it-we can talk about Kinetic if you like-I can really see people putting a bit of effort in, but at the moment I just do not get this at all. Coproduction I absolutely do get-it is a wonderful thing-but I think most people who are running a good council are doing it anyway.

Professor Bovaird: I think from our side we are agreed that if co-ops and mutuals are to succeed it will take quite a long time, it will take quite a lot of money, it will be subject to quite a large number of failures, it will need to be a learning process, and, as an instant solution for the next few years, it does not seem a high priority.

Q110George Hollingbery: That I accept.

Mark Bramah: Maybe in terms of niche provision there may be areas where it will work.

Q111Chair: In passing, this is just outside the local authority area, but have you done any work across the GP co-operative in Sheffield to do with out-of-hours services?

Catherine Staite: Yes, I have heard something about it.

Q112Chair: Have you done any work on that?

Catherine Staite: No. I think the GP Commissioning Consortia, there are some-

Chair: No, this is a GP co-operative set up some years ago to produce out-of-hours services when the private sector firm was getting so many complaints. Basically, the complaints from constituents had gone down like that, since the GPs formed their own co-operative. It is an innovation that probably has worked. Anyway, I had to get that point in, I suppose.

Q113Bob Blackman: So far we have got some possible benefits, and maybe people have not really done a lot of this type of work. I would now like to explore what the barriers are to people doing this in the first place. Could each of you give me what you think the biggest barrier is to forming either a co-operative or a mutual?

Mark Bramah: A clear one is procurement. Even under the Community Right to Challenge under the Localism Act, it is a right to express an interest in forming one of these organisations; it is not a right to undertake the service. We have already got experience in Gloucestershire in the NHS, where they were seeking to set up a co-operative. It was challenged through judicial review, and eventually it will go out as a procurement contract under EU rules. That is a clear issue: local authorities are not in a position to give these organisations work as of right. There are others, but I will let my colleagues in, and then come back.

Catherine Staite: The one I would go for is organisational stability, because Mark’s point is absolutely right: although people may form a mutual with a sense that there is a promise that they will get a big chunk of work and they will have that for a reasonable period of time, that often will not come to fruition. Meanwhile, people are setting up a different form of organisation from that that they have been used to working with; some support is available for mutuals, but maybe not enough. So they are in a position where, in order to convince possibly a risk-averse commissioner of services that they are a safe bet, they have to be able to demonstrate some sort of organisational stability and track record. If they have not got any income to do that-people are still in their old jobs and so forth-it is very difficult. The ways in which people bid for services and the timescales involved, as well as the level of expertise needed to respond to a complex procurement process, are going to be real barriers.

Professor Bovaird: It is partly an issue of the cultural change which will be needed for the staff, for the management, and also-I hesitate to say it in this room-at the political level. The change to move to this format is going to be quite radical. The management in particular is not necessarily going to welcome finding that they have to take the big risks of becoming the managers of such a spin-off. In certain responsive services, staff feel they do a very great deal of the work, but do not necessarily get a great deal of the credit, and they could possibly see that they might be financially better off if they can hive off to some degree. Those staff have not been given that kind of encouragement in the past; they have no reason to believe the local authority will look after them in the future, and five and 10 year agreements with the funder are an important package here. To get round that barrier we ought to be trying this kind of thing in-house for the next three to five years to encourage staff to have more discretion and autonomy in our local authorities-decentralisation and devolution-and learning from that the extent to which you get better outcomes when the staff are able to make quite a large part of the decision in the service.

Mark Bramah: That is kind of good practice in a sense that you would expect that with any good service.

Q114Bob Blackman: So addressing these barriers that you put up: Mark, procurement, is there a way round it? What can be done?

Mark Bramah: Local authorities need to adopt a positive approach to procurement. The difficulty around EU procurement is that you cannot give social enterprises, co-operatives and mutuals, contracts as of right. There may be changes proposed within the new European Procurement Directive-there is consultation currently-that might make it easier to set these organisations up, but it is going to be 2014 before that comes into force.

In the meantime, we have things like Chris White’s Act about social clauses in procurement, but a lot of that is about pre-procurement; it is about your strategy and approach. When you are into a procurement exercise itself, there are limited things you can do to promote these, so there is an element of work that needs to be done before a decision is taken to procure a contract that might favour some of these types of organisations. It is very difficult in this environment.

Q115Bob Blackman: One of the routes that might be possible is if a lot of similar services are put out by particular local authorities in co-operation, and form a joint mutual, so they can then bid for the work. Given their levels of expertise, who else could get the job might be one of the challenges. Is that a route around this problem?

Mark Bramah: Sorry, in terms of larger organisations bidding?

Q116Bob Blackman: Clearly, there are large forms of service from each local authority that will have their own service. If they make agreements to mutualise services across several local authorities, and then invite them to bid for that service, there will not be much expertise around in competition.

Mark Bramah: It is in terms of having the scale across a number of local authorities?

Q117Bob Blackman: Yes.

Mark Bramah: That is an interesting idea in terms of whether that would work.

Q118Bob Blackman: It does not work if one authority does it, because there isn’t the scale; but if several did, would that solve the problem?

Mark Bramah: I think experience suggests it is extraordinarily difficult to get two authorities to work collaboratively together; to get seven authorities to have a similar approach is extraordinarily difficult politically.

Q119Bob Blackman: We live in extraordinary times. They have to suffer a 25% reduction in their spending.

Professor Bovaird: The problem with that shared service approach, and with the cooperation across authorities that Mark has mentioned, could be because senior management and politicians have never been enormously keen on losing the kind of control they have over those services. It may be that in extraordinary times groups of staff are a little more adventurous. I do think that is an extraordinarily adventurous and ambitious approach. If it were to happen anywhere in the country, Mark, I cannot imagine anywhere better than AGMA. It does not sound the sort of thing that West Midlands councils are about to engage in.

Q120Bob Blackman: About the attitude of staff, one of the problems is that we have had evidence to suggest that people join public service because they are not natural entrepreneurs, they do not want to go out and get business, be competitive and so on. They want to do a good job for local people and be in a fairly stable environment. They are not natural go-getters and entrepreneurs. Is that a challenge? Is that a problem?

Catherine Staite: I think that is a real over-simplification. If you see people empirebuilding and building budgets in the public sector, I think you see some pretty good entrepreneurial behaviour. I think there are two different things: one is about people’s behaviour and the way that they work, their flexibility, and ability to take on new things; and the other is their personal security. The traditional view of the public sector is that people’s jobs are relatively secure. That is changing rapidly now, which is one of the reasons why the mutualisation may be appealing to some people, because they may actually feel it is safer than the alternative. We teach a lot of practitioners in local government and in other parts of the public sector who do master’s degrees and PhDs with us and we see very high levels of intellectual capacity and very creative thinking and willingness to do things differently. Sometimes the organisational structures or the political thinking may constrain that, but I do not have a blanket sense that everybody who has gone into the public sector just wants a quiet life and no excitement.

Mark Bramah: I think it is down to the management and the organisational culture. There are good examples of where, if you empower staff, they will take a more entrepreneurial approach in terms of looking at different ways of delivering services, different ways of generating income. There are examples and you do not need to have a cooperative or a mutual or a different form of organisation for that. It can be done within a local authority direct service provider. It is down to the kind of organisational culture and the management culture that exists in those organisations.

Q121Bob Blackman: The final barrier that has definitely been raised in evidence to us is the problem of pensions. How big a problem is that?

Mark Bramah: It is a significant one. The question of admitted body status is problematic for some of these organisations. There are examples of where the local authority will act as a guarantor. I certainly think it is a problem for new starters. Even if the local authority acts as guarantor for these organisations, the issue of whether people who are new starters in those organisations can then join the pension scheme is difficult. If these organisations multiply, it is also unclear whether public sector bodies will be willing to continue to act as a guarantor. The pension liabilities and the strain on the pension fund are significant for small admitted bodies. It is a problem.

Q122Chair: I have a brief further point, as we are time constrained now. Just in terms of the whole democratic issue, is there a danger that we slip from using terminology about councils representing communities, to users within communities, to users helping design services, to eventually maybe users as part of a mutual? As I said to Steve Reed last time, it sounded as though these councils were switching from elected representatives to becoming community workers-sort of nursemaids as part of a coproduction process. I wondered whether there are conflicts around the council’s overall role as a democratically elected organisation to this role as councils very much handing most of the responsibility to users for doing that?

Mark Bramah: I think accountability is a very important issue. There is a potential democratic deficit there. The evidence we have seen is that these organisations are democratic in themselves. They are accountable to the service users and to their own organisations. Whether they are accountable to the wider community and to elected representatives is problematic. I give you the example of Rochdale Boroughwide Housing. It has 30,000 houses, 16,000 tenants. As an ALMO or as a local authority housing department, it is accountable to 60 elected members. It has 500 tenants and staff signed up at the present time for the new mutual organisation, so there are clearly some issues about how accountable that organisation is going to be unless it can get much wider representation from within the tenants and staff. So, from APSE’s point of view, we think there is a clear issue here about how those organisations retain accountability within local authorities’ responsibility to be stewards of their area.

Catherine Staite: The accountability of services outsourced or commissioned, whatever the model is, is through the council officers who commission back through the members. That is a strategic accountability. I know some members find it a bit frustrating if the service has been outsourced and they do not feel they can pick up the phone and shout at somebody and get something done for their particular resident. That may not necessarily be a bad thing because if you get some strategic gains from it, then members are actually looking at the bigger picture rather than worrying too much about the detail. The lines of accountability should still be clear. For members, it is sometimes difficult that people are engaged in their roles as users or carers or tenants as well as in their role as a citizen who votes, and so information about what people want or what is important to them comes to members through a number of different routes, not all directly through them. It is how the authority as a whole balances and weights that evidence about what is important that is a sign of sophistication in the organisation in a local authority. I do not think it should be impossible to trace the line of accountability back to members.

Tony Bovaird: Where we are talking about the co-operative council as one which uses co-ops and mutuals, it is quite clear that we expect just as much accountability to elected members from those organisations delivering public services with public money as private sector or other third sector providers, or indeed just as much accountability as inhouse providers of the services. The other strand, however, is on the accountability that comes through coproduction. You ought to consider here the possibility that the public sector can be much stronger in accountability terms if citizens are much more satisfied through their own activities in working with designing, planning, managing, running, evaluating public services when things are going well, and the remaining things that politicians have to be accountable for to the public may actually be less problematic because we have better outcomes from public money through the coproduction process. I would say the co-op and mutual strand has a different form of accountability from the coproduction strand of the co-operative council.

Q123Chair: Thank you all very much indeed for coming this afternoon and for giving evidence to us. Thank you.

Examination of Witness

Witness: Professor Julian Le Grand, Chair, Mutuals Taskforce, gave evidence.

Q124Chair: Good afternoon and thank you very much for coming. For the sake of our record, could you just give your name and the organisation you represent please?

Professor Le Grand: I am Julian Le Grand. I am a Professor of Social Policy at the LSE but I am here in my role as Chairman of the Mutuals Taskforce.

Q125Chair: Thank you very much. You are most welcome. This is obviously our second evidence session in our inquiry into the co-operative council. Thank you for the evidence you have given us so far and for coming this afternoon. In terms of terminology, we have been trying to grapple with the various names that people give to different things and sometimes to the same thing; it is not always exactly clear what is meant. Can you tell us what you think the principal characteristics of a mutual are? Are the words "mutual" and "co-operative" interchangeable in that respect?

Professor Le Grand: Certainly, the way the taskforce is interpreting it, we talk about public service mutuals: an organisation that is spun out of the public sector, that continues to deliver public services and has a high degree of employee control.

Q126Chair: Right, and that is employee rather than user? Is that simply a definition for your purposes rather than a general definition?

Professor Le Grand: That is our definition for our purposes, yes.

Q127Chair: Does that differ from a co-operative or would it be interchangeable?

Professor Le Grand: For a workers’ co-operative, it is pretty close, yes. There are other forms. There are other uses of the terms, indeed as you have been told. There are multiple stakeholder mutuals, where you have employeecontrolled, user community involvement/control, maybe even a joint venture partner, but on the whole the ones we are dealing with are employee controlled.

Q128Chair: Is that because that is the job you have been given rather than the job you have chosen to do?

Professor Le Grand: It is the job we have been given, yes.

Q129Chair: Right. In terms of the work you have done so far, have you identified certain public services that would be better delivered, easier to deliver, through mutuals and some that may not be?

Professor Le Grand: Yes. In terms of specific areas, health has been, I suppose, the lead department on much of this. We have identified certain other areas: social care, social work, community learning, youth services, Sure Start children’s services and so on. I suppose in answer to the second part of your question-whether there are areas that we would be a little careful about mutualising-the chief worry would be complete monopolies in the sense of handing over a service completely to a service that was not subject to any degree of contestability. Handing it completely over to employees might not be seen as the best way forward.

Q130Chair: Can you just explain a bit further about one that is not subject to contestability?

Professor Le Grand: If you have a complete monopoly and you are handing over a service completely to the employees, questions arise such as those you were asking of your previous panel about accountability to users as well as accountability to councillors, having nowhere else to go. It is not impossible but we think maybe something like a multiple stakeholder model would be more appropriate in those contexts, where you have a degree of employee control but you also have community involvement and possibly other forms of stakeholder involvement.

Q131Chair: You have identified what might work. You have identified an area that will not necessarily be suitable for a region, but something else is. Do you stop at that point and say, "That is somebody else’s responsibility. We only deal with mutuals"?

Professor Le Grand: No, we are thinking about multiple stakeholder models. There are one or two areas like probation where it might well be that we end up with rather large mutuals but, on the whole, we tend to prefer to work with mutuals perhaps at the smaller end that are operating in a contestable environment.

Q132George Hollingbery: It seems like a daft question, but what has the taskforce been doing?

Professor Le Grand: Our official aim is to engage with, to challenge and promote the activities of the agenda, which is in the Coalition Agreement, to promote public sector mutuals. One of our chief activities has been spreading the word; I have spoken at innumerable events to try to take things forward. We have talked with mutuals themselves and, indeed, tried to work out some of the problems that they have encountered. We have assembled the evidence, and that is really what we have submitted to you: the evidence that we have been able to accumulate on the performance of mutuals in various areas. We are in the process of writing our final report, which is on trying to identify the various barriers that mutuals face in setting up and in sustaining themselves, and the next steps that Government might take to try to overcome those barriers.

Q133George Hollingbery: Assuming that your remit is to work with mutuals and for mutuals and this is in the Coalition Agreement, are you in a position at all to make any judgment about whether mutuals are a good idea for public service delivery?

Professor Le Grand: I think the Mutuals Taskforce as a whole, and indeed the individuals on it, are very committed to the idea that mutuals are a good idea. Indeed, we have assembled the evidence to try and prove that.

Q134George Hollingbery: Can we just hear a little of that evidence?

Professor Le Grand: Well, the evidence tends to suggest that there are what I call in my academic fashion-and I apologise for this-intrinsic benefits and extrinsic benefits. The intrinsic benefits are the benefits to employees themselves. There is quite a lot of evidence that employees, I suppose at the basic level, are happier and are more contented in mutuals. It shows up in figures. Absenteeism is much lower in mutuals. The sickness rate is much lower in mutuals. It is easier for recruitment and staff retention. There is quite a lot of evidence across the board on that.

Q135George Hollingbery: Can I just ask quickly if that differs from the private sector in a meaningful way?

Professor Le Grand: It is mostly evidence from the private sector, yes.

Q136George Hollingbery: Okay. I was thinking more about absenteeism and so on and so forth in the public sector versus the private sector-so private business. Can you place mutual public services in that spectrum?

Professor Le Grand: We do not have at the moment a great deal of evidence on public service mutuals. We have our Pathfinders. Another part of the activities of the Mutuals Taskforce has been to buddy Pathfinders. Each one of us has a buddy or a couple of the Cabinet Office Pathfinders and we go along and talk to them and we have some evidence emerging. A patient survey conducted by City Health Care Partnership demonstrates that 85% of respondents rated the care and support as "excellent" or "very good". Sickness absence at City Health Care Partnership has dropped from 5.1% to 3.7% in the space of a year. Central Essex Community Services has found sickness absences have dropped by two days per fulltime equivalent.

Q137George Hollingbery: Can you separate that from general economic conditions? In other words, there is an incentive to stay in your job currently and be rather more diligent than there might have been three or four years ago.

Professor Le Grand: Yes. That might not necessarily affect sickness absence but these are at the moment at the level of case study examples. They are not properly controlled experiments as yet, and we have only limited evidence on that. However, that said, I see no reason to suppose that the crucial differences between the private sector and the public sector are such that they invalidate in some sense carrying over the private sector evidence to the public sector.

Q138George Hollingbery: In the private sector mutuals you are looking at, is there a profit incentive? Is there a distribution to the employees?

Professor Le Grand: There is, but our mutuals are not not-for-profits. There is no reason why they should not also have that incentive.

Q139George Hollingbery: I understand that. I am simply trying to separate out the worth of a private sector mutual if it generates profits for those who are employed in there and participate directly in them, like the John Lewis Partnership for example, against those where there is no profit incentive, where you are simply turning up for work and you are spending public money.

Professor Le Grand: Yes. As I say, with the public service mutual, as far as we are concerned, they can take the form of for-profits. In some senses, I always think the for-profit/ not-for-profit distinction is a rather odd one. Every sustainable organisation makes a surplus of some kind and the question is how it is distributed: is it distributed to shareholders, is it invested back in the business, is it distributed to employees? One of the things most of us on the Mutuals Taskforce find rather attractive about mutuals is the fact that the surpluses are either invested back in the business, invested in the community in some cases, or invested in the employees.

Q140George Hollingbery: How far in particular are you looking at the delivery of local public services through mutuals or is your remit wider than that?

Professor Le Grand: It is wider. The chief area concerns the National Health Service, and indeed, that is where a lot of the preliminary work has been done. As I say, we are concerned with local government, and I think I mentioned to begin with that there are areas particularly, like social care and social work, where we are exploring the potential for mutualisation.

Q141George Hollingbery: Finally, do you provide practical guides and help for those wishing to establish mutuals or are you simply engaged in a report activity to bring out a report to bring back to Government?

Professor Le Grand: We are chiefly engaged in the report activity. We have produced a paper on procurement in fact, but in conjunction with the Cabinet Office. Indeed the major work done on mutualisation has been done by the Cabinet Office. They have the Mutuals Information Service and the Mutuals Support Programme, about which you may have heard. This is not directly a concern of the Mutuals Taskforce.

Q142George Hollingbery: So there are Government resources available to those who wish to set up mutuals?

Professor Le Grand: Oh yes. The Mutuals Support Programme is running at the rate of about £10 million to £14 million.

Q143George Hollingbery: Have you assessed its effectiveness?

Professor Le Grand: It has only just got going in the past month or two. As I say, this is not really part of the Mutuals Taskforce work, but I know they are getting a lot of inquiries and there are quite a large number of cases coming through. It is early days.

Q144Bob Blackman: Thank you for the evidence you have given thus far both in writing and verbally. UNISON would directly contradict one of your pieces, which is the position over people who transfer, either outsourced to public or voluntary sector bodies or into mutuals. Their evidence is that staff then suffer reduced pay, reduced pension conditions, reduced conditions of service; that there is poor monitoring, poor quality control by local authorities and reduced accountability to service users. How would you answer that objection?

Professor Le Grand: Yes, I have seen their statements to that effect. You are right. It is a direct contradiction. Our best systematic reviews of all the evidence tend to be that in both private and public sector you get better wages and better conditions. We will just have to sit down and forensically go through where UNISON is getting its evidence from but, as I say, it is not the evidence that we have been able to access, looking across the national and international evidence.

Q145Bob Blackman: Is it fair to say that UNISON may be looking at services that have been subject to compulsory competitive tender, for example, where staff have been TUPE’d across to private companies versus companies that are mutuals or some other form of co-operative?

Professor Le Grand: It might well be that is the explanation: that they have looked at the private outsourcing rather than at mutualisation, but I am afraid I do not know exactly what the difference is.

Q146Bob Blackman: No, okay, but you are going to be working on evidence in what sort of timeframe?

Professor Le Grand: We have done a little more work on the evidence, yes, and the paper you have got summarises the evidence as we have been able to find it. There will be a little more on the evidence in our final report, yes.

Q147Bob Blackman: When do we expect the final report?

Professor Le Grand: In the summer. It is quite soon.

Q148Bob Blackman: Right. Okay, interesting. Any idea of when that would be published?

Professor Le Grand: I am sorry that it is very bad timing for this Committee.

Q149Bob Blackman: Obviously you do not work to the timing of our Committee, but have you any idea of when that would be published, because I think that would be quite interesting evidence to include in the work that we are doing?

Professor Le Grand: It will be June or July but I cannot really give a bigger commitment than that.

Q150Bob Blackman: All right, fine. The other challenge that we have had in our evidence in our last session is that people in the public sector are not gogetters; they are not entrepreneurial enough to set up their own organisations; they joined the public service to give service to the public, but actually they want someone else to organise them. What evidence do you have that that is true or not true?

Professor Le Grand: Yes, it’s interesting. I was listening to some of the comments that people were making on that. One of the striking things that I have felt on visiting a number of mutuals and interacting with them is how entrepreneurial they are. Of course, to some extent we are seeing a demonstration effect here. Obviously, the people who are most gogetting, the people who feel most constricted by the present forms of employment are the ones who want to get out and form a mutual, and they are probably going to be the experimenters, the ones who start it all off. Certainly, I have been struck not by the lack of inclination for entrepreneurialism, but more by the extensive inclination for it.

Now, there are problems about having the skills of being an entrepreneur because these are not picked up easily, and as you say, many of the people who entered did not enter public services with that in mind, but in some ways that is what we hope the kind of things that the taskforce, the Pathfinder programme and the Mutuals Support Programme can bring: to assist them in providing the skills. The inclination does seem to be there in my experience.

Q151Bob Blackman: I would agree. My experience is that people at the sharp end have got really good ideas about how to do things, and that it is the management that prevent them from doing it.

Professor Le Grand: That is often true.

Q152Bob Blackman: Do people need some form of organisational structure above and beyond the surface to run a mutual? Is that a barrier to people setting these up-the fear factor of, "We have got to run our own company, an organisation that we are totally unfamiliar with"? Is that something that comes into this?

Professor Le Grand: I am sure that some members of the organisation will tend to feel that. Again, I would not say that we have really identified that as a massive problem. Most of the people seem reasonably convinced they can do it. They may be fooling themselves of course, but we do not seem to encounter massive fear and insecurity. Of course, it might be that there are lots of people out there who think about mutualising and are probably turned off the idea because of the fear factor, but as I say, again, it has not been something we have really encountered.

Q153James Morris: We talked about the potential benefits to employers and, as you said, the evidence is largely in case studies and somewhat anecdotal, but in terms of actual delivery to service users, some of the evidence that we have is saying that there is little evidence that mutuals contribute to a better delivery of services more generally. Have you got clear evidence that mutuals can help in the delivery of services?

Professor Le Grand: We certainly have in terms of the general evidence I was talking about that customer satisfaction is much higher in a whole range of areas, and indeed, I think I gave you an example. We had a patient survey conducted for City Health Care Partnership that demonstrated a 7% increase in-

Q154James Morris: So why do you think that is? Is there a link between employee ownership and delivery or are there other factors at work?

Professor Le Grand: It is a good question. I think there are a number of factors. When the employees own the enterprise-and not only in a financial or physical sense, but in a metaphorical sense; they own what they are doing-they simply do a better job. They seem to be more committed to their service users. There is a metaphor that I tend to overuse in this context, but David Hume at one point said that everybody who worked in the public sector was "a knave"-essentially self-interested. I have always been struck by the people in the public sector being something closer to a knight than a knave, much more committed to public service and public service altruism, and particularly in these mutuals. The people I encounter are very dedicated to what they are doing and in many cases that has often been the driving factor, not so much to improve their own working wages or terms or conditions but to improve the quality of the service they provide.

Q155James Morris: Are they more efficient?

Professor Le Grand: Again, the evidence tends to suggest they are. Again, this is the general evidence involving the private sector and the public sector; it is not necessarily specific to our public sector. Yes, they are at least as productive and in many cases more productive.

Q156James Morris: I think you touched on it in answer to the Chair’s question earlier, but what do you see as the principal drawbacks of mutuals? They are clearly not a panacea for all our ills in public service delivery, are they?

Professor Le Grand: I do not think they are, no. I don’t want to sound too Pollyannaish about this but I am, obviously, an enthusiast. It is actually very difficult to find evidence where they do worse than the comparable organisation, whether it is a comparable public sector organisation or a comparable private sector organisation. I have indicated that in the case of a monopoly or a situation where it is not contestable I get a little more nervous about the idea of mutuals, or the kind of mutuals we are talking about. Multiple stakeholder models where you have a community involvement, for instance, are probably desirable in such a context.

Q157James Morris: Just on that point about the contestability, is that just because it could lead to behaviours that are not desirable? Is that the objection, or is it an economic one?

Professor Le Grand: I suppose I think that monopolies of any kind are undesirable. I am an economist by training and I would think that, wouldn’t I? There does seem to me a danger: if there is no possibility of either the commissioner at the local authority or the user going somewhere else if they are getting a bad service, it does not seem to me that is a recipe for a good quality service.

Q158George Hollingbery: Can I just ask a question that is slightly bothering me? Why is the world not full of mutuals? If they are more efficient, have happier employees and generally do a better job, why is the world not full of mutuals?

Professor Le Grand: That is a very good question in general terms. In the 1970s, there was a lot of interest in mutuals and economists particularly developed these; they called it the labourmanaged firm. They identified two problems with labourmanaged firms, the workers’ co-operatives, one of which has not been properly tested and one of which has been disproved. The first problem they identified, the one that has been disproved, was that they would be rather bad for employment, they would not increase employment. You can see the kind of logic: if you have got a workers’ co-operative enjoying the distribution of the surplus they do not necessarily want to bring more people in. Actually, that turned out not to be the case. The economists have not explained why that is not the case, but it is not.

What they do not seem to be as efficient at is highly capital intensive industries, particularly industries where you see fastmoving technologies. They are not as nimble in IT or those sort of areas as conventional profitmaximising firms. You are seeing mutuals in service areas, like John Lewis for instance, and so on, or you are seeing consumer cooperatives like the grocery store, The Co-operative, but you perhaps see fewer co-ops in highly capital intensive industries.

Q159George Hollingbery: What occurred to me, which I think is roughly the same, is that the reason we see few co-operatives is because they are the ones at the end of the course of attrition that survive.

Professor Le Grand: Sorry, say that again?

Q160George Hollingbery: It seems to me that there probably are or have been many co-operatives over the years that have not survived, and what we are left with is the extremely wellpositioned ones with excellent marketplace recognition and so on and so forth, which suggests to me that there is a limitation with the model. This is what worries me slightly. If it was such a wonderful way to run a business, a collection of people engaged in a common task, there would just be lots more of them.

Professor Le Grand: Of course, in some countries there are a lot of them. In Mondragón in Spain, in northern Italy and in France there are large numbers of mutuals. I suppose, if I can slightly tangentially reply to what you are saying, there are clearly challenges to both the establishment of mutuals and the sustainability of mutuals once established. I am reluctant to go into that in great detail at the moment because our thoughts on that are coalescing into the report, and the report that will be emerging is discussing quite a few of those challenges.

Q161Chair: Two particular points: in terms of efficiencies, is there hard evidence that management overhead costs are reduced when co-operatives are created, and included in that the extra client costs, which presumably are there, to supervise and oversee the co-operatives from a client side point of view?

Professor Le Grand: I believe there is some international evidence that management costs and overheads are reduced, yes, but this is comparing private sector organisations with mutuals. I don’t think we have direct evidence yet on public service results.

Q162Chair: Is that something you will be looking to monitor?

Professor Le Grand: Yes, indeed. One of the interesting things of course about the present time is that we should be able to set up-and I very much hope we are going to set up-a proper monitoring experience of, if we are developing these public service mutuals, what happens to them. How does it work and do they really deliver the benefits that we anticipate they will?

Q163Chair: If there is eventual evidence that they are more efficient and better for employees and service users, what about the wider community in the sense that the community owns the public service delivery mechanisms when they are wholly within the public sector, but as a mutual they are floated off, they are really outsourced? Is there a danger that accountability to the wider community is lost as part of this process?

Professor Le Grand: I think there is a different form of accountability. At the moment in the public services-let us say directly managed public services-the accountability is through the management structure. With mutuals, you are going to have accountability through the contracting process. I think there are advantages and disadvantages to both. I tend to feel that actually in many ways it is easier to enforce accountability through the contracting process, but there are obviously potential differences in views on that. Of course, the other thing about mutuals is that you have other mechanisms of accountability. You have certainly got accountability to employees, because of course you have employee ownership within a mutual. Multiple stakeholder models do offer some other routes of accountability to the community directly via a community stake in the mutual.

Q164Chair: So wouldn’t there be benefits in looking at that model rather than just the narrow model which you were set up to focus on?

Professor Le Grand: Yes, I think there are benefits in looking at that. I do not think it is an alternative, but we have limited time, efforts and energy and at the moment our concern is with the employee ownership model. There is a case for focusing on employee ownership. This would not be an official Mutual Taskforce area, but it is to do with commitment. The problem with consumer co-ops or other forms of co-ops in some ways is that as a consumer you actually use a particular co-op relatively rarely, and it certainly does not take up your day. It is a relatively small part of your life, in some sense. People’s work lives are a very large part of their day; a very large part of their lives, so actually the degree of commitment involved in employee co-ops is possibly rather greater than the degree of commitment you might get in the consumer co-op. That is one of the reasons again why we are particularly interested in the consumer co-op model.

Q165Heidi Alexander: Let me apologise to start off with for not being here for all of the session. I understand that you are producing a report from the Mutuals Taskforce later this summer which looks at some of the barriers in terms of setting up public service mutuals. I have a number of questions around that and it might be that you will not feel able to answer them fully, but, broadly speaking, could you just give us some ideas of the key areas where you see significant barriers ? Is the procurement process, for example, a problem in terms of public sector mutuals and setting them up?

Professor Le Grand: Clearly, there are procurement issues. There are issues surrounding culture, obviously. There are a variety of EU issues; you were talking about some of them earlier. I have to say I would prefer not to go very far down this route because I do not want to go off halfcocked and anticipate our report, which is due out fairly shortly.

Q166Heidi Alexander: Okay, but presumably in your report you might be looking at issues to do with pension liabilities, VAT, all of those sorts of technical issues?

Professor Le Grand: I rather doubt that we shall be spending a great deal of time on those, no, but as I say it is early days as yet.

Q167Heidi Alexander: So you do not think that those particular areas cause problems in terms of public service mutuals?

Professor Le Grand: I think there are technical problems and there are cultural problems, and in some ways the cultural problems are more interesting and more problematic than the technical problems.

Q168Chair: Have you any idea when your report is likely to be produced on the barriers?

Professor Le Grand: In the summer. I have already talked about June or July.

Q169Chair: Presumably we are going to have a copy of that when it is available?

Professor Le Grand: Of course. It is a top priority.

Q170Chair: Just a couple of points: one of the highest profile possibilities for a mutual was the spinoff from some work for the Audit Commission, and it was not exactly the greatest success was it? Is it something that you were involved with, you were hoping to help along, and is it one of the examples that you might be drawing some lessons from when you look at the barriers to mutuals being developed?

Professor Le Grand: No, I was not involved and I am not really familiar with the Audit Commission spinoff. I think it is probably safer if I do not comment on that.

Q171Chair: Are you not looking at that as one of the possibilities that simply did not take off, where there may be barriers that stop that from happening that could also be barriers to other mutuals?

Professor Le Grand: We are certainly interested in the experience of mutuals and we are certainly looking at that. I should say, as part of the Mutuals Taskforce, our focus is very much on the wider public sector, local government, the NHS and so on, and not so much on central Government organisations.

Q172Chair: Right. But again, you will be looking at that as part of your report.

Professor Le Grand: We are looking at local government and-

Q173Chair: So you are not looking at the Audit Commission at all?

Professor Le Grand: I don’t think we will be looking specifically at the Audit Commission experience, no.

Q174Chair: Right. Might we encourage you to do so? It is at least an interesting example where there was a lot of support from the employees. The Committee produced a report which indicated that that would be a real possibility for diversifying competition. It has not got a monopoly market. Yet it just did not happen.

Professor Le Grand: Thank you for that. Yes, I agree with you.

Q175Chair: Just finally, we have had recent legislation on the Community Right to Challenge and the Public Services (Social Value) Act. Do you think they are going to have any impact on the potential for mutuals to be created and, if so, what?

Professor Le Grand: I think the Social Value Act is very interesting. There is a potential problem, obviously, with the mutuals and spinning out of mutuals, in that they are confronted with competition immediately. We were mentioning earlier some of the problems. You have people who are not experienced in operating in a competitive world or in a commercial world of any kind. Whether the Social Value Act can offer some assistance in this respect is an interesting question. There is the Community Right to Challenge, which would offer some potential for this, I think, and it will be open to employees to be part of that. There are more general questions about whether employee ownership adds social value and hence comes under the provisions of the Social Value Act. We are looking into that and I think there is some potential there.

Q176Chair: When you say you are looking into it, does that mean you are going to produce another report on that? It would be interesting to have your thoughts about it. If you have not immediately got them I quite understand that, but it is an interesting point you are raising there. It would be helpful if you could let us have some further thoughts on it if that is possible?

Professor Le Grand: Could I take that back?

Q177Chair: Absolutely. Yes.

Professor Le Grand: We have only just begun to think about that.

Q178Chair: Okay. If you could let us have some written comments on that I think that would be a very helpful additional point to make to us. Thank you very much indeed for coming in and giving evidence this afternoon.

Professor Le Grand: Thank you very much.

Prepared 28th May 2012