When ‘mutualisation’ of public services is actually privatisation

Apparently we are in the middle of a mutualisation revolution. OK, those are not the actual words pronounced by Cabinet Office minister Francis Maude, but his meaning is pretty clear. Back in 2010, there were just nine mutuals delivering public services. (Those are the Government’s figures, not mine – they seem on the low side to me.) Last month, the Government celebrated the creation of the hundredth public services mutual.

Government statistics claim that the mutuals spun out of the civil service and other public bodies – as of July this year – employ 35,000 people, have generated an additional 3,000 jobs in the past three years and deliver £1.5bn of public services under contract. According to the Cabinet Office, the mutualisation of public services has been a real win-win. They raise productivity, improve staff engagement and cut service costs by winning new contracts, enabling the mutuals to spread overheads across more contracts.

Maude explained: “As part of our long-term plan for a stronger economy we are determined to drive up public sector productivity, which flat-lined from 1997 to 2010. We need innovative new ways of delivering better services for less money, so we are helping public sector workers spin out to form mutuals.”

The best known of the mutuals is MyCSP, or My Civil Service Pension, which is responsible for civil service pension administration. Its productivity is rising 15% annually, says the Government. Staffing levels at the Nudge Unit – properly called the Behavioural Insights Team – have doubled in the last six months, since mutualisation.

Mutualisation has apparently been particularly effective in the NHS. A newly published review, jointly commissioned by Maude and health minister Norman Lamb, and conducted independently by Professor Chris Ham, chief executive of the respected King’s Fund, has concluded that mutuals are better for workers and raise the quality of patient care.

The review found what Ham called “compelling evidence that NHS organisations with high levels of staff engagement – where staff are strongly committed to their work and involved in decision-making – deliver better quality care”. Improved outcomes at NHS mutualised bodies include lower mortality rates, better patient experience and lower rates of sickness absenteeism and staff turnover.

Conversely, NHS organisations marked by low levels of staff engagement are more likely to have poor quality health outcomes. An example quoted by the report is the Mid Staffordshire NHS Foundation Trust, which had high mortality rates, very poor quality of patient care and was subject to a scathing review by Robert Francis QC.

Staff should be given a stronger role in all NHS organisations, suggested the Ham review, with public-sector mutuals being effective examples of how to achieve this. Staff and senior managers in the NHS mutuals expressed a strong sense of ownership of their organisations after mutualisation. This led to a sense of empowerment and better organisational performance. The review recommended that more NHS organisations, including hospital trusts, be supported to voluntarily convert to mutuality. This should be promoted by a pathfinder scheme to learn experience and obtain further evidence of outcomes, suggested the review.

Ham explained: “The evidence that more engaged staff deliver higher quality care is compelling – a simple truth that should be acted on by all NHS organisations. Increasing staff engagement is first and foremost the responsibility of NHS leaders, from the board to the ward. But it is also time to give serious consideration to the role public service mutuals could play in increasing staff engagement and delivering benefits to patients. This should be accompanied by more proportionate regulation so that NHS organisations can look out to their patients, staff and stakeholders, rather than up to national bodies.”

However, this does not mean that converting an NHS body to a mutual is an easy route to success. In Cornwall, Peninsula Community Health, a non-profit staff operated company that runs 14 community hospitals, is seeking a rescue through merger with Cornwall Partnership Foundation Trust. Financial pressures were blamed for problems that are encouraging a merger. If the merger goes through, the new body could be either an NHS trust or a social enterprise. Peninsula was formed by NHS staff three years ago to take over community services from NHS Cornwall and the Isles of Scilly Primary Care Trust.

Given the scale of financial pressures facing the NHS at present, such problems are not a surprise. NHS England has been told by the Government to create ‘efficiency savings’ of £20bn. Such a high level of cost-cutting is far from easy – and NHS England is some way from achieving the target. Converting an NHS body into a mutual does not resolve problems of service under-funding. Some private sector bodies such as Circle Healthcare – which runs an NHS treatment centre in Nottingham – have managed to achieve cost savings. Circle is included by the Government in its list of 100 public sector mutuals because of a co-ownership structure involving consultants that operates like an accountancy or legal partnership.

There is, then, a serious issue of definitions. What, actually, is a mutual? Here there is a parallel with the debate taking place within the co-operative movement. Can the Co-operative Bank legitimately use the name ‘co-operative’ when its justification for doing so is that the Co-operative Group has a minority ownership stake and the Bank adopts a broad commitment to behaving ethically? Should Co-operative Travel stores that transferred into the Thomas Cook business still use the co-operative name, simply because the Co-operative Group retains a minority ownership stake as a joint venture partner?

Similarly, the public sector ‘mutuals’ are typically not wholly owned by the staff. For example, MyCSP is 40% owned by financial services company Equiniti, with the Government retaining a 35% ownership stake and just 25% of equity owned by the staff. It is, to my mind, no more a mutual than a Thomas Cook run Co-operative Travel store is a co-operative.

Peter Hunt, chief executive of the Mutuo think-tank and former general secretary of the Co-operative Party, says: “In my view, no organisation is mutual unless a minimum of 50% + 1 is owned by the customers, employees or a mixture of the two. Consequently, a lot of government-supported ‘mutuals’ are nothing of the sort – for example, Circle Healthcare is not a mutual as it is majority investor-owned, and My Civil Service Pension is a joint venture between government, employees and an investor.

“Often the government uses the term as ‘mutual wash’ to cover over an unpalatable privatisation and the Lib Dem enthusiasm for employee ownership has facilitated this sophistry.”

Ed Mayo, general secretary of Co-operatives UK and a member of the Government’s Mutuals Taskforce, is also concerned. He says: “Co-operatives UK has worked with the coalition Government to advise the mutuals programme. There are some excellent examples of high-quality mutual models that have emerged – such as Leading Lives in Suffolk, which is organised as a worker co-operative. We applaud the work that has been done overall.

“However, we have had a long-running disagreement with the Cabinet Office over two things. First, we argue that the term ‘mutual’ should include customer-owned and multi-stakeholder models. Second, we reject some of the loose definitions they have used, which risk turning the word ‘mutual’ into a cover for privatisation.

“A mutual business is one that is independent and is owned and controlled by its members. If investors have a majority stake, rather than members, then it is not, in our view, a mutual. The term that the government uses, of a ‘mutual joint venture’, is unhelpful because it suggests that member ownership can be diluted and member control discarded. If you are owned by investors, ultimately what happens is controlled by those investors, seeking a return on their investment.

“In consultation with our many mutual members, including those working in traditional public service fields such as health and education, we have challenged some of the models promoted by the Government as mutuals – including MyCSP, which offers no rights at all to the pension ‘members’ it serves, and the Nudge Unit, which offered employees a minority stake only.”

Personally, I am perfectly happy to accept that employee engagement makes a business a better business – indeed, I am passionately committed to the principle. Just, please, don’t call it a mutual when staff have a minority stake in the business.