Public sector mutuals taskforce calls for more measures to support them

Public sector employees wishing to opt out of state control to set up mutuals in order to run government services should be given the right to do so - and preferential treatment in bidding for contracts from Whitehall, a report commissioned by the Cabinet Office says.

The Mutuals Taskforce says that although the number of public sector mutuals has increased six-fold since 2010, there is some way to go if the government is to meet its target of a million public sector workers owning their own firms by 2015. So far less than 50,000 have done so - with 40% of them in community health settings.

The report shows that since 2010, the number of public service mutuals has increased from nine to at least 58 with some 40 projects in the pipeline. The services in which mutuals are developing has diversified from four - health, social work, education and leisure - to 12 including fire services, housing and libraries.

Julien Le Grand, professor of social policy at the London School of Economics and chair of the taskforce, said however that there were real barriers preventing enterprising public sector employees from forming mutuals.

"There's this granite layer of middle management which can just veto proposals and that is why giving employees a right to form a mutual is important. Then once you have formed a mutual and spun it out of the public sector then you need to exempt them from competing with Serco or Capita for the first few years. For example they can't raise cash for a bond that some government contracts require. It's nothing for a corporate".

Francis Maude, the Cabinet Office minister, said he was aware of the problems caused by "EU procurement regulations and will push for reform".

The taskforce quotes work by the economist Virginie Perotin who, having studied mutuals in the developed world since the 1950s, says that "the performance of worker co-operatives, across countries, systems and time periods compares well with conventional firms, and that the features that make them special – worker participation and unusual arrangements for the ownership of capital – are part of their strength … The more participatory co-operatives are, the more productive they tend to be".

Labour shadow ministers say that the government is not really promoting true co-operatives. Rather, it is redefining co-ops to include entities that are majority-owned by private shareholders but where there is a minority stake held by workers.

The report analyses some of the emerging evidence from mutuals and finds improvements to the conditions and wellbeing of staff, as well as improvements to service quality, efficiency and effectiveness. It claims that reduced rates of absenteeism are already being recorded in some cases.

The government's biggest success story so far has been MyCSP, an organisation responsible for the administration of the civil service pension. Launched in April 2012, it became the first Whitehall spin-off, with employees holding a 25% ownership stake, including representation at board level and a share in profits.

Unions, however, say this is simply a backdoor sell-off. The Public and Commercial Services union warned "this so-called 'mutualisation' is in fact a privatisation as MyCSP Ltd is in no sense a real mutual or workers co-op. It is a mutual joint venture with a private sector partner, which will compete in the market place".

Le Grand said he was well aware of the pitfalls and argued that 25% employee ownership should be a minimum. "I would like a substantial degree of employee ownership with governemnt or users also having a stake."

He said that no single shareholder - other than employees - should be able to build up 75% stake in a public sector mutual, because at such levels of ownership one could "amend the articles of association" and turn co-ops into companies.

 

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