The Public Service Mutual: A revolution in the making?

As part of a collection of essays published by ResPublica (Making it Mutual: The ownership revolution that Britain needs), Professor Julian Le Grand, from the London School of...

As part of a collection of essays published by ResPublica (Making it Mutual: The ownership revolution that Britain needs), Professor Julian Le Grand, from the London School of Economics and Chair of the Mutuals Taskforce, looks at mutuals could be a revolution in the making . . .

In the 1990s, state-funded public services in Britain underwent a revolution. The state continued to finance those services but pulled back from providing the services themselves. From prisons to refuse collection, from leisure centres to hospitals and schools, private firms, charities, trusts and other independent organisations increasingly replaced state monopoly providers, each competing for contracts from state commissioners to provide the service concerned.

In recent years another new kind of provider has emerged: the public service mutual. In many areas public sector employees have taken the initiative to 'spin out' from the sector and to form their own organisations to provide the service concerned. These new organisations are mutuals, using various mechanisms for employee engagement to embed staff voice at the heart of the organisation. Sometimes they are fully owned by their staff; sometimes they take the form of a joint venture with an equity or community stake alongside the employees' stakes; but, one way or another, all have a substantial degree of employee engagement and control over the management of the enterprise.

The development of these mutuals has had strong support from all parts of the political spectrum. Under the previous Government, the Department of Health encouraged the setting up of mutuals in community health, while the Department for Education piloted social work ‘practices’, small professional partnerships of social workers modelled on GP practices. Within the current Coalition Government, ministers from both parties have expressed strong support for the principle of employee engagement across both private and public sectors. In particular, Cabinet Office Minister Francis Maude MP set up the Mutuals Task Force, an independent body that I chair, to help drive the idea forward, and developed the Cabinet Office’s £10 million Mutuals Support Programme (MSP), which provides projects with access to professional advice, from business planning to legal and marketing support. In late January, for example, Francis Maude announced up to £100,000 of MSP support for library staff in York looking to become the country’s first mutual library and archive service.

And fledgling mutuals are taking flight. Since 2010, the number of public service mutuals in England has increased from 9 to at least 66, together delivering around £1 billion worth of public services. These organisations form part of a pipeline of over 100 established and developing public service mutuals projects that the Cabinet Office is currently tracking across the country. The range of services for which a mutual delivery model is being considered is also diversifying quickly, with the idea now being explored in thirteen different sectors ranging from further education to fire and rescue services.

The drive behind public service mutuals comes from the increasing body of evidence and experience that they can be transformative. The release of the energy and the enthusiasm of staff can increase the services' value for money, the satisfaction they give to users and their overall effectiveness; while mutualisation can also improve the staff’s sense of well-being and conditions of service.

The evidence that mutuals can indeed achieve all this has been demonstrated in two reports produced by the Mutuals Taskforce. The studies reviewed showed that mutuals had lower production costs and (generally) higher productivity than non-mutuals. Moreover, productivity was likely to be higher, the greater the extent of employee-ownership and the smaller the company. Mutuals were also demonstrated to be innovative, profitable and more resilient to changes in the economic climate. They showed higher consumer satisfaction, lower absenteeism and sickness rates, less staff turnover, and increased levels of staff commitment to, and enthusiasm for, their work. And employees tended to be better off from being an owner, both in terms of financial income and other benefits such as increased job satisfaction.

It is worth noting that the results reviewed were not specific to a particular service, technology of production or market structure. On the contrary, they seemed to apply whatever good or service was being provided, whatever production system or technology is used, and in whatever market the organisations concerned are operating. Nor were they specific to any country or culture. Instead, whatever other factors were controlled for, the degree of workers’ participation always emerged as an important driver of performance.

Similar evidence and experiences are beginning to emerge from the recently established mutuals being set up in England. In community health, service provider NAViGO’s 2011 staff survey, 79% of staff believed that care of patients/service users was their Trust’s top priority, compared to a national average of 66%. City Health Care Partnership CIC in Hull, also featured within this collection, has delivered an increase in patient satisfaction, a reduction in staff sickness and £600,000 a year of efficiency savings since spinning out. Public service mutuals have also won new contracts and are providing new services: healthy living centre Social adVentures, for instance, won the RBS SE100 Index Growth Champion award, as its annual turnover increased 262%.

But public service mutuals may be attractive for a number of reasons other than simply their proven effectiveness. First, there is the question of trust. In some public services, it can be difficult for either service users or service commissioners properly to monitor the quality of the service provided. In such cases, there is a risk that unmonitored providers can reduce their costs by lowering quality in a fashion that is unnoticed and thereby increase their profits or surpluses. Hence it is necessary for both commissioners and users to have some degree of trust in providers: trust that they will not act as ‘knaves’, exploiting their information advantage to their own benefit and to the detriment of users.

Reassuringly, the English experience indicates that public service mutuals are generally staffed by knights rather than knaves. Many are trained professionals with a professional, public service ethos: doctors, nurses, teachers, social workers, probation officers. In fact, generally the staff are dedicated public servants. That is, they are committed to helping the people who need the services they provide and to meeting the needs of their communities. Indeed, that is why they have gone into the public service in the first place – and the reason why they want to spin out from a public sector bureaucracy and form a mutual is because they feel that they can serve the public better by so doing.

In many instances, this means not just delivering their core services, but actively engaging with other organisations and projects in their locality. Anglian Community Enterprise, a healthcare service provider in north Essex, operates a Social Impact Fund which contributed over £40,000 to fourteen local initiatives in 2012, including a project delivering a series of cycle rides to improve health and wellbeing and providing a table-tennis table to a group for those with learning disabilities. Swindon-based SEQOL, a health and social care provider, is building relationships with the local VCSE sector, holding working meetings to share experiences and best practice. Students from Blackpool College have been volunteering at Spiral Health, after staff from the mutual went to speak at the College about their work.

That is not to imply that knightly motivations always provide sufficient incentives in all circumstances to provide a good service, especially in times of social and technological change. Knights can be as conservative as anyone else in the workplace, and reluctant to embrace innovation. Here competition can help: competitive markets are good at generating innovation, whether it is competition within the market, or competition for the market with a licence granted that is periodically open to competitive tendering. Alternatively, if competition is impossible and a degree of monopoly is inevitable, then more broadly based mutuals could be developed, with community and user interests also represented in management as well as employees.

A second reason for the attractiveness of mutuals as public service providers concerns the staff’s freedoms. Experts and professionals work best when they have a broad freedom of action; when they can make judgements as to how to provide a good service; when they can exercise their discretion in making decisions; when they can act entrepreneurially, and innovate independently. In contrast, they tend to respond badly to pressures that might compromise their independence: to outside direction, to strict oversight and to heavy monitoring. In circumstances where they are subject to such direction – as, for instance, if they are lower rank employees of a local authority, a health trust or a central government department – they can feel put- upon, resentful, and demoralised. This damages their personal sense of self and of well-being; and, even more importantly, it damages both their motivation and their ability to provide a good service.

Contrast this with a situation where public servants have their own organisation – one which they own and control. There they are better placed to take charge of their own work and work-lives. They can use their knowledge and expertise to better effect. They are not constrained by orders and directives from others more distant and less knowledgeable than themselves. They can take decisions – and take responsibility for those decisions. They can innovate: they can try new ways of doing things without endlessly waiting for approval from a distant, conservative hierarchy. And, as we have seen from the evidence above, they can provide a better service with less resources: one that is more productive, better value-for-money – and with more satisfied users.

So in many ways the case for public service mutuals is in part a question of motivation and in part one of freedom. Mutuals can be trusted to perform well in the delivery of public services, both because of their staff motivation, and because of the freedoms they give to staff to exercise that motivation. This case has not been fully accepted throughout the public sector, so a complete mutuals revolution is not yet upon us; but, as the virtues of public service mutualisation become increasingly apparent, it may not be far away.

• Professor Julian Le Grand is the Richard Titmuss Professor of Social Policy, London School of Economics and Chair of the Mutuals Taskforce.

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