Is the Tory plan for worker co-ops to provide public services a fresh take on an old idea or a radical new way of doing things?
The public sector is too bureaucratic and inefficient; the private sector is profit-oriented and greedy. Many centrist politicians consider both these propositions to be self-evident and the starting point for any reform of public services. Hence the recent focus on the ‘third sector’ – the portmanteau term for charities and other not-for-profit organisations.
Six or seven years ago, the third sector was a fringe interest. Now it has its own sponsoring department in the Cabinet Office (the Office for the Third Sector) and numerous initiatives have been launched to encourage third sector organisations to take over services traditionally provided by the state.
Perhaps the best example is the 2008 NHS launch of Right to Request, which allowed health service staff to request the creation of a social enterprise business to provide health care services to NHS patients.
So when Conservative leader David Cameron and shadow chancellor George Osborne announced plans to transform the public sector by allowing public servants ‘to become their own boss’, was this more of the same – or something different? Could it indeed be a ‘Fourth Way’?
Certainly, the justifications seem similar. The Conservatives want workers to ‘offer the public a better service the way you think it should be done, not the way some bureaucrat thinks it should be done’. The Right to Request gives ‘staff the opportunity to innovate and redesign services in flexible new ways’. Both policies work on the assumption that smaller organisations run by the people working in them are more likely to be responsive and efficient.
But there is a vital difference: the Conservatives see the delivery vehicle as workers’ co-operatives – organisations run on mutual principles primarily for the benefit of workers – rather than social benefit organisations, set up primarily to benefit the community. Of course, a workers’ co-operative can provide public benefits (as can a capitalist company) and social benefit organisations provide benefits for workers, but the purpose for which you are set up does matter and in practice might have many policy ramifications.
For example, for workers to find a co-operative attractive, they will need to know that it will not prejudice their job security, terms and conditions and pensions. The Transfer of Undertakings Regulations (Tupe) provide a theoretical protection for the job, but might be of limited help if the employing organisation fails. Assurances might be needed that if the venture fails, the workers can return to the public sector (or at least to a subsequent service provider) – but there is clear moral hazard in offering workers a heads-you-win-tails-you-don’t-lose kind of a bet. Also, ways will need to be found to allow these co-operatives to participate in state-backed pension schemes. Some, such as the NHS scheme, already allow this. Others will need to change.
For the authority contracting for the service, all sorts of practical and legal issues arise. What length of contract do you give the co-operative? Can you live with the loss of budgetary control? How do you specify service standards without creating the bureaucracy that this is designed to avoid? How far (and for how long) can you justify outsourcing a service without undertaking a tender competition in compliance with procurement law?
Answers to many of these questions have already been worked out to allow outsourcing to social benefit organisations. But solutions that are appropriate for an organisation set up for public benefit might need to change for organisations set up to benefit their workers. Grant funding, for example, seems more appropriate to the former than the latter.
There are many successful third sector public service providers. The worker co-operative might be equally successful. But the difference between the two types of organisation will need to be recognised. If George Osborne has not discovered a Fourth Way, he has at least found a detour in the Third Way, and the road map needs to be changed to accommodate this.
Nicholas Thompsell is a partner at law firm Field Fisher Waterhouse
