Policy in action: mutuals

In a pleasant but unremarkable conference room in West Bromwich, three colleagues share a buffet lunch of sandwiches and savoury tarts. It could be a business lunch almost anywhere in the country, but this headteacher, school governor and former council worker are – according to Cabinet Office minister Francis Maude – taking part in a revolution in public services. For these are the chief executive and two board members of Sandwell Inspired Partnership Services (SIPS). Two years ago, SIPS’s 430 staff were employed by the council, but the organisation is now an independent ‘mutual’ owned by the schools to which it provides – among other things – IT support, health & safety advice, catering and training.SIPS is just one of around 100 organisations which have spun out of the public sector since the coalition came to power, employing a total of 35,000 people and delivering £1.5bn of public services. These new organisations are generally referred to as public service mutuals – though not all meet the strict legal definition of the term – and they’ve been championed by the coalition government as a way to diversify and introduce competition into public service delivery. Last month, Maude hosted a reception at 10 Downing Street to celebrate the formation of the 100th public service mutual. “People will look back in five, ten, 20 years’ time and see this as the start,” he said. “You are all the vanguard of a great historic movement, a new way of delivering public services.”
The roots of the public service mutual movement can be traced back to the early 1990s, and the coalition government is not its only champion: New Labour also supported health staff to create their own social enterprises, and there’s a growing movement of ‘co-operative councils’ looking at mutuals as a way to improve services. Yet in all this time, just two organisations have spun out from central government with any form of employee ownership. In a statement issued in response to Maude’s Downing Street reception last month, PCS general secretary Mark Serwotka said: “Civil servants want to remain in the civil service. They do not want to be part of a mutual – a word that loses all its meaning when it is something being imposed on an unwilling workforce. This is clearly a desperate attempt to breathe life into a policy that no one wants, to force through more privatisation that the public has no appetite for.”
Union opposition seems to have been a common theme in many spin-outs: Fiona Williams, chief executive of York Libraries – the 100th mutual to be created – recalls that a Unison rep told her that the spin-out would never happen and has been “ideologically opposed to it, so has never been supportive.” Although Unison was included on the project team which managed the spin-out, it has not yet confirmed what relationship the new mutual – one third of which is owned by staff, and the remainder by library users – has with the union. This “saddens” Williams, a long-term union member who believes that the new mutual was the only alternative to cuts, closures and redundancies for York library staff.
It was a similar story in Sandwell: staff were broadly supportive of the move out of the council, but union representatives remained guarded throughout the consultation process proceeding the SIPS spin-out. That’s not to say that staff were always enthusiastic, remembers chief executive Tracey Pearce. “It was quite nerve-wracking – and I say that as someone who was going to TUPE transfer across, just like the other 430 members of staff,” she says.
Staff met by CSW at the SIPS offices confirmed this: Chris Hinson, head of the ‘SMIS team’ – which supports schools to run their management information systems – describes leaving the council as like having a safety net removed. But the alternative would have been worse, says administrator Suki Ajula; former colleagues in the local council were – and still are – living in fear of redundancy, while moving out has given the SIPS staff greater security: their future is at least now in their own hands.
Staff also appreciate having a nicer working environment and better IT – a benefit also raised by staff at pensions administrator MyCSP, the first mutual to spin out of central government. The organisation was criticised by the PCS union because it’s really a joint venture between government and private sector company Equiniti, with an element of staff ownership rather than full mutuality. But the investment from Equiniti enabled MyCSP to completely upgrade its IT and provide extensive training for staff. The employees CSW spoke to also praised the improved level of communication from senior management now that they’ve left the civil service, and described a sense that career and personal development opportunities have improved now that they can gain promotion without needing to move into an entirely new area of work – as might have been required in the civil service. Staff engagement scores have risen since MyCSP spun out and chief operating officer Ian Merga, who joined from the NHS, says the system of paying staff dividends plus regular internal communication gives staff a real sense of ownership: “I’ve never come across pension administration staff as motivated as those here,” he says.
As a manager, Merga also notes that it’s much easier to recruit new staff in MyCSP than it was in the NHS, and this is also a benefit for the other mutual-type organisation to spin out from central government – the Behavioural Insight Team (BIT), or ‘nudge unit’. Simon Ruda, a principal adviser and head of the home affairs, security and international team at BIT, notes that the need to expand the team was a big factor in the decision to spin out of the Cabinet Office earlier this year. “It’s much easier for us to recruit [now]” he says, thanks to a high media profile and the greater flexibility BIT enjoys outside the civil service. The team has more than doubled in size since leaving government in February; there are now 40 staff, including a small number in Australia – part of their growing international portfolio.
There have of course been challenges for staff. Nicky Hurst, CEO of MyCSP, is conscious that people have had to deal with a huge amount of change in a short period of time. “We reviewed an awful lot of the HR policies,” she notes. “Like flexi time, and things that I guess a lot of long-term civil servants would have taken for granted.” Staff might have to work harder now, “and it’s a lot more target-driven than any of them are used to”, but in return there is a twice-yearly bonus scheme, dividends if the company performs well, and the prospect of pay rises and promotions which were not possible in the civil service.
So staff are generally supportive, but what of those who receive services from the new mutuals? In MyCSP’s case, this includes civil service and private sector employers, who buy the administration service, as well as their employees who become members of the scheme. In September, when MyCSP will take a contract over from Capita, retired civil servants already receiving their pension will also join the client group.
The organisation carries out quarterly client surveys, and Hurst reports that these show improving levels of satisfaction – perhaps because the company has implemented new working processes to ensure it hits increasingly-challenging service level agreements built into its five-year contract with central government. Since spinning out at the start of 2013, it has gained 15 new private sector clients, and increased turnover by 31% year-on-year.
In Sandwell, SIPS is also winning new business – both from local schools buying more of their services, and from schools in other parts of the Midlands. The schools receiving services can see improvements, reports headteacher Les Young, who sits on the SIPS board. Although schools have always been free to buy services from any provider, moving SIPS from the council has created “a truly competitive market”. Individual service teams are now “prepared to look at themselves and say: ‘What do we need to do to be more competitive?’ And I think on an ongoing basis that is going to give a better service to schools,” he says.

 

SIPS is also able to offer more bespoke services, meeting meet schools’ needs rather than council expectations, he says, and a programme of commercial training is paying off as staff treat schools as potential clients rather than simply recipients of a standard service. “Whereas previously [service leaders] came out [to schools] and said: ‘This is what we offer’, they’re now coming out and saying: ‘This is what we can offer. Is there anything else that you would like?’” he explains.
Across the country there are concrete examples of service improvements achieved by spin-outs. The staff at the social enterprise Bromley Healthcare, for example, have reduced healing time for leg ulcers from an average of 21 weeks to an average of five. Cliff Mills, principal associate with mutuals consultancy Mutuo, says that the model of a mutualised service provider where service users, providers and possibly the local community all have a stake lends itself well to the service “co-production” (users helping to design and develop services) that can drive improvements and reform.
Yet for the spin-outs which CSW visited or spoke to, it was often the act of moving out of a larger organisation – as much as the legal structure they moved to – which led to service and organisational improvements. For MyCSP, a programme of IT investment, office relocations and training in the first year helped to create a sense of one unified organisation, which had not been achieved when the team was nominally brought under DWP control from a number of other departments in 2010.
For SIPS, it’s the move away from council culture and processes which has enabled staff to develop new services for schools, while board member Siddique Hussain – a school governor – notes that decision-making processes are much faster now, and there’s a greater appetite to take risks on new ideas: “If it doesn’t work, you learn from it and move on. That’s what business is about”. In York, Williams – just a few months into life in a mutual – notes that she’s looking forward to focusing on delivering good library services rather than worrying about the council’s corporate or political concerns. Having a five-year service and funding agreement with the council is also preferable to the annual round of budget setting and subsequent cuts, she notes.
The legal structures of these spin-out companies do matter, though – both for the organisations themselves, and for the potential for reform that they represent. SIPS chief executive Pearce says that one of the main challenges of becoming a mutual was getting the legal structure right. She advises staff considering a similar move to make sure that the rules of the new company match the way you want to operate. Once SIPS was set up, she said, “what became quite clear was that our articles, our rules, didn’t quit fit for where we wanted to be, so we have had to revisit the rules to enable us to be operating as a mutual organisation”.
This was in part, she thinks, because they relied on advice from lawyers with more experience of schools becoming trusts than of setting up a mutual. Another piece of advice she offers is to make sure you have your own specialists and advisers – rather than those provided by the parent organisation – involved as early as possible in the process of spinning out.
Mills notes that the coalition has streamlined legislation for mutuals, bringing the relevant laws around mutual companies together in a new Act – which should make the process of navigating legal structures easier. Another relevant piece of new legislation is the Localism Act, which introduced a right for citizens to challenge local authorities if they thought services could be better provided in different models. “Those I’ve talked to say that the right to challenge hasn’t given rise to lots and lots of new organisations,” says Mills, “ but [its existence] has given rise to conversations which might not have happened otherwise.”

 

The structure of the organisations branded “public service mutuals” also matters because not all of them can legitimately claim the name, says a lawyer who works in the mutuals sector and prefers to remain anonymous: “The word mutual is pretty distorted in this context. It’s been stretched, and a lot of people who come from the mutuals sector are pretty uncomfortable about the way it’s being used by the Cabinet Office, who have a broad interpretation of mutual – which is that some employees own some shares,” they say: “That’s not a mutual to us.” Why does this matter? “Mutuals provide an alternative business model to traditional investor ownership,” says the lawyer, and that’s a “precious distinctiveness” which must be preserved in order to maintain its potential benefits as an alternative to straight privatisation: “Just giving some employees a proportion of the shares and labelling it as mutual completely erodes that distinctiveness”.
Another challenge for the public service mutual model is ensuring that new organisations are sustainable in the long term. Mills notes that “sometimes [mutuals are] portrayed as if they’re some kind of magic wand, turning something that’s not a business into a business.” In reality, he says, the journey from an in-house team servicing a host organisation to a sustainable business with a range of income sources is not easy. “It involves serious business planning,” he says, and this may not come easily to teams used to simply receiving, rather than winning, work.
This challenge appears to have been particularly apparent at MyCSP, where all but one of the leadership team has changed since the company left the civil service. Before Hurst became CEO she was working for Paymaster, a similar company owned by Equiniti, and helped to create the three-year plan to transform MyCSP’s business, implemented after it spun out of government. Asked for her advice to the Cabinet Office around supporting other mutuals, she emphasises the need to give civil servants training if they are expected to become business leaders (something which did happen in Sandwell, where Pearce and other senior managers had commercial training six months before spinning out).
Hurst adds that the civil servants working on the MyCSP spin-out were “trying to do too many jobs.” While still civil servants, “they were expected to negotiate the contract on behalf of MyCSP Ltd. They didn’t really have the skills to do that.” When Equiniti looked at the resulting contract there were elements which they would have set up differently, she says, advising that if a new organisation is to have a private partner then it should be involved in negotiations as early as possible. And when a private partner is to be used, she continues, it’s worth picking one which can offer expertise and sector-specific experience, not just finance.
Even if the spin-out’s leaders have a business mindset from day one, it’s not easy to win contracts from public sector organisations: procurement processes are often lengthy and onerous, and they’re likely to be competing against large outsourcing firms with more resources and longer track records. The government has helped to negotiate changes to EU procurement law which, it claims, will make it easier for mutuals to win business. These changes have yet to take effect, however, and the lawyer working in the mutual sector notes that procurement experts are not convinced that the new directive will have the effect government hopes.
In Downing Street last month, Maude told the audience of former public servants – now leaders of social enterprises – that we shouldn’t get too caught up on structures, but focus on the aims of reform: “We shouldn’t have a perfect single model, we shouldn’t plan all this too much… We want the best competition, the most vibrant constellation of suppliers of all kinds to bring innovation in service delivery.” Legal changes introduced by the coalition may make it easier for future spin-outs to join this constellation, but two factors appear to be key in ensuring that the government’s overall aim of improving services is achieved. First, staff moving out of the public sector to build sustainable businesses will need ongoing support – Maude noted with pride that no public service mutual has yet failed, but with most just a few years old, it’s too soon to say whether this reflects long-term stability for the sector.
Second, it will be important to ensure that organisations choose the right structure, and that the diversity of options is maintained. Calling every spin-out a mutual may undermine the distinctiveness of this model. It may also make it harder for potential spin-outs to understand which organisational structure – whether a joint venture harnessing private sector expertise and funding, or a pure mutual giving customers ownership of the services they use – will help them to reform and improve services; not just in this period of funding constraint, but in the years to come.