Civil service mutualisation marches forward

Posted on October 2, 2011 · Posted in Co-operative News

It is becoming clearer how the mutualisation of public services is to work. The first major public sector conversion has now been announced, with the civil service administration service being turned into a mutual – of sorts.

My Civil Service Pension (MyCSP) will be ‘spun-out’ of the civil service, into a stand-alone mutual. However, it is a peculiar type of mutual and cannot really be called a co-operative. I would describe it more as a partnership vehicle in which there are strong elements of employee ownership. While it is not what us purists would call a co-op, it brings in the outside finance and expertise that could enable such conversions take off.

The Government has not yet announced who the outside partner – or partners – will be. This disclosure, when it is made, will tell us a lot about how the mutualisation programme will roll-out and indicate the type of mutuality that will emerge at the end. According to the Cabinet Office, its partnership model will deliver both the productivity improvements associated with employee ownership, as well as the entrepreneurial expertise and capital investment required to make it work.

Consideration is currently being given to the idea that the 1.5 million pension fund members could also be given a stake in the business. The Cabinet Office says that finalization of details will follow, with the shape of the partnership to be determined according to what offers the best value for money for taxpayers. The mutualisation will lead to about 400 staff ceasing to be government employee, with the formation of the new enterprise supported by dedicated resources within the Cabinet Office.

Cabinet Office minister Francis Maude, explained: “Too often there’s been a binary choice between the Government providing a service itself, or outsourcing it to the private sector. These choices have historically been driven by a belief that services have to be controlled centrally – with a one size fits all approach that has left little room for innovation.

“We are looking for more innovative ways to structure services. We know that employees who have a stake in their business, or take ownership of it completely, have more power and motivation to improve the service they run. They can also benefit from partnerships with private or voluntary sector organisations which can bring in capital and expertise.

“For the private sector, which can no longer expect the generous margins of the past, tapping the talent of frontline staff to improve efficiency will be a priority. The state too can keep a stake so that taxpayers benefit from the rising value of an improved service.”

Maude added that progress had been made because of the supportive approach from senior staff at MyCSP. “They are pioneering the mutual joint venture model and the Government is committed to ensuring they have they right support to succeed,” he said.

Chief executive of the service, Phil Bartlett, responded: “At MyCSP we are proud to be the first pension administration service to pioneer an innovative mutual joint venture between the Government, employees and a new private sector partner. By taking the opportunity to mutualise we can better acknowledge our people and their expertise – and access valuable additional resources and expertise in the private sector.

“This new and innovative structure will give us the agility to exploit opportunities in the changing pension landscape and grow our business, and the taxpayer will benefit from the increased value of an improved and more efficient service.”

The Government is clearly confident that this announcement sets in train a process that will roll-out more widely across the public sector. A few months ago the Cabinet Office appointed a team of experts – led by Professor Julian Le Grand, a former senior public sector reform advisor to Tony Blair, and also containing Co-ops UK’s Ed Mayo – to support the mutualisation programme, under the tag of the Right to Provide.

Further impetus has been given to the programme by the appointment of Stephen Kelly the former head of FTSE 250 company Micro Focus – as what is termed ‘the Crown Commercial Representative’ to promote the creation of mutuals from within central government departments. He will be backed by a team of staff and an incubator fund to provide initial finance.

Meanwhile, it seems that the auditor of local public bodies, the Audit Commission, may yet become a mutual. There had been doubts about the Government’s commitment to this and might instead prioritise abolition of the Commission, or its takeover by one of the existing large audit firms. While no final decisions have yet been taken, senior managers at the Commission are making progress with planning for its conversion into a mutual, supported by expert outside advisors.

One option being considered is for senior staff to become members of the mutual, while less senior staff might have a type of ‘lower tier’ membership. This would have a similarity the structure of audit firms, which are owned by the partners, while less senior staff are merely employees.

I recently had the opportunity to interview David Walker – the just departed director of communications at the Commission, as well as a respected former Guardian and Independent journalist – on this for Accounting & Business magazine. David expressed scepticism about the mutuality option.

It’s a red herring,” he said. “As far as I can gather, it’s something the Government thought about after the decision to abolish was taken. The decision was taken by people who seem to have been completely uninformed about the structure of the audit market. Mutualisation could only work if the auditors who currently work for the Commission were guaranteed future work, which would be incompatible with a competitive market and is contrary to the reasons given for the abolition of the Commission. Mutualisation is a term that has been used, but I wait to see any evidence that anyone thought through what this might mean.”

David’s concerns are shared by the recent report into the audit profession, conducted by the House of Lords and chaired by former Conservative cabinet minister Lord McGregor (Lord Lawson was another member). It worried that any sale of the Commission to existing private sector audit firms, or its simple abolition, would dangerously dilute an audit market, that was already insufficiently competitive.

Yet despite the scepticism about the commitment of ministers – particularly communities secretary Eric Pickles – the mutualisation of the Audit Commission may now have an unstoppable momentum. The question for the co-operative sector, though, is whether what emerges from the Commission and elsewhere is a form of mutuality that it recognises. Somehow I doubt it.