End of year message, 2010

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

Farewell to 2010. It has been an odd sort of year, with a mix of good and bad news for the mutual and co-operative sector. The good news includes a continuing strong performance from the Co-operative Group, particularly from CFS, and early benefits from integration with Britannia and Somerfield. Co-operatives UK’s new chief executive, Ed Mayo, is demonstrating strong leadership.

The bad news is led by the serious problems afflicting building societies, which are in an ongoing process of rationalisation and a new form of demutualisation. Building societies have been hit by a combination of demanding credit liquidity obligations that discriminate against mutuals; some unsympathetic regulation by the Financial Services Authority; a system for deposit protection insurance that requires a higher contribution from lower risk deposit takers than from high risk speculative institutions; and some past very dodgy decisions by more adventurous society executives. A few credit unions are also struggling.

We have seen the end of what had become an exhausted government, which while disappointing many of its traditional supporters had demonstrated genuine commitment to co-operatives and other forms of mutuals. Surprisingly, its direction of travel has not merely been maintained by the incoming Con-Dem government, but has actually accelerated.

The most radical illustration of this is the Government’s new ‘Right to Provide’ initiative, which has a resonance of the Thatcherite ‘Right to Buy’ for council house tenants. The right to provide will enable state employees to form co-operatives, other forms of mutuals, or social enterprises as service providers in place of state organisations that currently provide them. This is an extension of a previous Labour government scheme that operated in the NHS.

Examples of the type of services that the Government believes could be transferred to employee control include prisons and Sure Start children’s centres. But it will be up to the staff to suggest the best form of mutual to operate a particular service – there will be no assumption as to which model is best. The programme will be backed by access via the Mutuals Information Service to specialist advisors from Co-operatives UK, the Employee Ownership Association and Local Partnerships (part of the Local Government Association, which advises on the commercialisation of council services and how to develop joint ventures with the private sector).

A Pathfinder programme is being established with £10m of central government money, to assist the first batch of mutuals to convert from the public sector. One of the first schemes to benefit is the youth service operated by the Conservative-led London borough of Kensington and Chelsea. Councillor Sir Merrick Cockell, leader of the borough, said: “Our role as the council should be to keep a watching brief and put the experts in the driving seat to work alongside young people. That is what the pathfinder programme is all about.”

Under the Pathfinder programme, the Circle Healthcare social enterprise will evolve its ownership model to enable 900 NHS staff seconded to Circle to become co-owners without losing their NHS employment rights. In a separate indication of how government policy is being implemented, Circle has just been given the right to operate what is effectively an NHS ‘franchise’ at Hinchingbrooke in Cambridgeshire.

Launching the Pathfinder programme, Cabinet Office minister Francis Maude was enthusiastic. He argued that evidence shows that when employees have a stake in their organisation absenteeism is much lower and productivity increases by up to 19%. “This is part of the Big Society approach to public service reform, devolving power to people on the front line who know how things can be done better,” said Maude. “The right to provide will challenge traditional public service structures and unleash the pent up ideas and innovation that has been stifled by bureaucracy. It will also put power at a local level so public services will be answerable to the people that use them.”

The move towards mutuality runs across much of the traditional public sector. The ‘right to provide’ will be enshrined in law for local government as part of the eagerly awaited Localism Bill. Further initiatives are expected in next year’s public service reform white paper. This may include greater opportunities for community groups with mutual ownership structures to buy underused public assets for community use. The framework for this is spelt out in a discussion paper published by the Republica think-tank, which argues for a comprehensive transfer of local state assets to local mutuals.

Meanwhile, Liberal Democrat business secretary Vince Cable has moved to turn the network of Post Offices into a mutual. Cable’s Conservative colleague, Ed Davey, the minister for postal affairs, explained: “Our long-term goal is to convert the Post Office into a mutual structure, for example like the Co-operative Group, giving employees, sub postmasters and communities a much greater say in how the company is run. Our programme means the network is on the cusp of an exciting new era.”

While this pro-mutual policy direction seems positive, it is important not to get carried away with it. Several reservations need to be recorded. In particular, there seems to be confusion within government about what a ‘mutual’ is. For example, there is reference by the Cabinet Office to social enterprises as being a form of mutual, while also defining them as businesses with a social purpose. I would suggest that a social enterprise is only a mutual if it combines a mutual ownership structure with that social purpose. We have seen several instances where social enterprises are not accountable to either service users or employees, as well as not being owned by them.

Similarly, while ministers talk of turning the Post Office network into a mutual, we still await details of how this will work. Meanwhile the programme of moving free standing Post Offices into large or medium sized local retail outlets continues. It is difficult to see how those two objectives are compatible and it seems likely – and perhaps understandable on a commercial basis – that integration of Post Office branches into larger retailing stores will take priority. However, the commitment to use Post Office branches as a means of opening up access to credit unions is to be welcomed without reservation.

I am less convinced about the use of Circle Healthcare to provide NHS services in Cambridgeshire. This takes us back to the question of how we define social enterprises. Circle Healthcare has employee involvement, but is led by a team of clinicians and former investment bankers, some from Goldman Sachs. It is backed by private equity investors.

The fact that Circle Healthcare styles itself a social enterprise and will spread some of its profits across its staff base is unlikely to stop its senior executives being well paid, or prevent private equity backers from making a killing. The concern must remain that for all the talk of mutuality and the Big Society, much of the reality is an agenda dominated by privatisation. If that privatisation is the conversion of unaccountable publicly-owned services into more responsive co-operative provision then I for one am happy with that. But I will reserve judgement until there is proof about whether the initiative is genuine, or is merely a façade for big business to take over public assets.