A Nudge in the Wrong Direction?

Posted on June 4, 2013 · Posted in Co-operative News

It is rather strange that an arm of government called the Behavioural Insights Team, staffed by worthy academics, should attract major national headlines, but in recent days it has.  If you missed this, it is probably because the team is widely called the ‘Nudge Unit’ – its research considers how the Government can persuade, or ‘nudge’, citizens into doing what is good for them, without directing them in ways that leads to talk of a ‘nanny state’.

 

But what serves public policy could perhaps equally serve the private sector.  So the Nudge Unit is the latest candidate for the Government’s programme of so-called ‘mutualisation’.  It is not the first – others have involved staff in parts of the health service, school support services in West London and the administration of civil service pensions, which was spun-out as MyCSP in a deal involving financial services business Equiniti.

 

This is just the start.  There is now informed speculation that one in six civil servants could move employer through these ‘mutualisations’.  That could involve as many as 75,000 civil servants.  Other candidates for the transfers include the Land Registry and the Office for National Statistics.

 

The Cabinet Office is very bullish about what will happen now to both the Nudge Unit and other parts of the public service than might be spun-off.  The unit has apparently achieved tens of millions of pounds of savings in public spending, through greater understanding of how public services can work with the grain of citizen behaviour.

 

The next stage for the spin-off is to find an equity partner to enable this policy unit to become a free standing, commercially viable, business.  Staff will continue to run the organisation, says the Government.  “As a joint venture, the new business will be a collaboration between the Government, the employees and a third party partner, which will bring additional commercial capability and investment,” explains a Cabinet Office statement. “The Government, and ultimately the taxpayer, will benefit from growth in the business.”

 

It is not merely the fact of the spin-off that has hit the headlines, but the nature of it and whether this should be called ‘mutualisation’.  Staff will hold a 25% stake in the new business, assuming the same model is used as with MyCSP.  But is it right for a business in which employees have a minority stake to be called a mutual?

 

Ed Mayo, secretary general of Co-ops UK, is definite that is wrong and he has been making a fuss about this in the Guardian.  “It’s not primarily about language, but about brand and quality,” he explains.

 

“We knew when government started the mutualisation programme that there is a history of unhappy experience of government acting in a top down way to set-up what had to be bottom up businesses.  The Bennite co-ops and employee-owned bus companies that were sold off some years later were all examples that rebounded on the wider co-operative and mutual sector because it associated co-ops and mutuals with government action and business failure.”

 

Ed was a member of the Mutuals Taskforce advising the current government on its mutualisation programme, in part to ensure this did not happen.  His role, on behalf of Co-ops UK, was specifically to encourage government to adopt the right approach in supporting the development of mutuals in the delivery of public services.

 

“Our concern is around the strategy of using the term of ‘mutuals’ to cover what are essentially investor-led models, with only small stakes held by the genuine members,” he adds.

 

Peter Hunt, chief executive of the Mutuo think-tank, shares Ed’s unhappiness.  “If they [the Cabinet Office] are going to use the term ‘mutual’ it must involve mutual control,” he argues.  “It’s not really a mutual unless members have a controlling stake in it, which means 50% plus one.  This [the Nudge Unit spin-out] is a joint venture.  What the Cabinet Office are talking very much about are joint ventures, so then they should call them joint ventures.

 

“I don’t have any particular opinion about joint ventures one way or another.  But don’t say this is a mutual if it’s not.”

 

Mayo is further frustrated that there is no role for users in the model being used by government.  “There is an additional concern with the way government is fixated only on one model, which is the employee-owned model and for many services employees can represent producer interests and when combined with investor interests this could be detrimental to user accountability,” he explains.  “Some of the best models are those that also represent users.”

 

The mutual provider Benenden Health has also stepped into the debate to argue for service user engagement in public service mutuals.  Lawrence Christensen, its marketing director, says: “Whilst we’re pleased to see the Government considering how mutual models can help provide public services, it is important to note that a true mutual gives members a proper voice in the governance of the organisation.

 

“There are many different models within the mutual sector and we shouldn’t just think about employee ownership. At Benenden Health we have a branch system where members can belong to a local or employer-based branch – from which delegates are elected to represent the branch at an annual conference. This gives members the chance to influence the direction of our organisation at a grassroots level and builds their sense of ownership.”

 

But there is not a single view on how to define a mutual – there are pragmatists who are far more flexible about the term.  These are led by Professor Julian Le Grand, an influential advisor to Tony Blair as prime minister, who chairs the Mutuals Taskforce.  Professor Le Grand is unconcerned that the programme of what some call ‘spin-outs’ is being called ‘mutualisation’ by the Cabinet Office.

 

“My view is that there are various kinds of mutuals,” says Le Grand.  “They range from 100% employee ownership to multi-stakeholder mutuals with a variety of stakeholders, including employees, the community and the Government.  They all qualify as mutuals, as far as I am concerned.”

 

He adds: “I respect Ed’s concern, but I think it’s an unnecessary hostage to fortune to raise that spectre.”  The two will meet in the next few days and their discussion will include whether using the term ‘mutualisations’ for spin-outs of businesses with a minority employee stake is, or is not, a problem.

 

But Professor Le Grand recognises there are legitimate concerns about the use of mutuals to externalise public services.  These include both the perception that mutuality is being used to privatise services and also that staff may lose contracts when they come up for re-tender.  Le Grand believes that the right structures can be used to prevent employee stakes in the business being transferred to investors, as is used in the John Lewis Partnership.

 

He agrees that there is a more substantive issue that the private sector could make cross-subsidised bids to win tenders to drive mutuals out of a market and then subsequently raise prices.   “That is a danger,” he concedes.  “I think in general mutuals do pretty well.  On the Mutuals Taskforce we saw all the evidence we could find across the world: in just about every sector in every country around the world, mutuals do perform better.  If there is a level playing field, I think mutuals will win tenders to keep work.

 

“I think there is a point there.  As we develop the policy our advice to government is that it has to make sure that the contracting playing field is not discriminating against mutuals, or small firms, or social enterprises.”

 

The view from the Cabinet Office seems to be that the use of the word ‘mutual’ is a fuss about nothing.  A spokesman says:  “This Government is determined to unlock entrepreneurs from within the public sector to help Britain get ahead in the global race.  Where employees share ownership and have a minimum 25% stake we are clear that is a mutual joint venture.

 

“We don’t have a fixed view about the level of employee ownership in a mutual joint venture. But we do think, for their voice to be heard effectively, that employees should have at least a 25% stake – a blocking minority.

 

“We support a variety of commercial models including those which are employee owned and social enterprise organisations. All these options give employees who want to work hard and get on more say in how they do their jobs.”

 

We have probably not heard the last of the debate on what a mutual is – just as we have not seen the last of the spin-outs of public services, whatever they are to be called.