Should local services be run like co-operatives?

25 Feb 10
Although mutuals and co-operatives have been providing services for hundreds of years, they are suddenly being touted as the saviour of the public sector. Lucy Phillips reports
By Lucy Phillips

25 February 2010

Although mutuals and co-operatives have
been providing services for hundreds of years, they are suddenly being touted as the saviour of the public sector. Lucy Phillips reports


Co-ops have come a long way since the Rochdale pioneers opened shop in 1844 and founded the Co-operative Movement. Historically a staple of tight-knit, working-class communities, co-ops have more recently emerged as the hip choice for the ethically minded consumer. Now they’re a new electoral battleground as politicians from both Left and Right see in them possible salvation for the public sector.

Last week, Conservative leader David Cameron announced plans for public sector organisations to be run as employee-owned, not-for-profit co-operatives, with teachers operating schools and nurses managing clinics. The enterprises would continue to be state-funded as long as they met national standards but would be largely free from Whitehall control, and any surplus income would go to the staff.

Labour retaliated by rebranding one of its local authorities, the London Borough of Lambeth, as Britain’s first ‘John Lewis council’. The iconic department store operates as a partnership, giving its 70,000 workers a say in the running of the business and the opportunity to take home a share of the firm’s profits. This model is being championed by Cabinet Office Minister Tessa Jowell as Labour’s vision for how local government can work and, moreover, save money. It is being contrasted to the ‘Easyjet’ model favoured by some Tory councils. Jowell also recently set up an independent commission on community ownership in public services, chaired by economist Will Hutton.

So why are mutuals and co-operatives flavour of the month? James Hulme, head of communications at the New Local Government Network, puts the trend down to public scorn for the ‘casino capitalism’ that drove the financial crisis.

‘Given we are coming out of a situation where we have seen some of the worst excesses of free market capitalism, mutualism and co-operatives offer a safer and more progressive form of market,’ he tells Public Finance.

He adds: ‘What’s interesting is that the Conservatives under David Cameron have sought to reclaim the co-operative movement as not being an exclusively Labour movement but one that is very compatible with Tory ideals of small businesses and trading. Both political parties [now] feel very comfortable shrouding themselves in these values.’

Social values aside, attempting to preserve public services in the face of big funding cuts is undoubtedly the biggest motivation behind the drive. Writing for the PF blog, Jonathan Carr-West, head of the centre for local democracy at the Local Government Information Unit, discusses the difference between ‘red and blue versions of mutualism’.

He says: ‘What all have in common is a reduction in size and cost of the local state by shifting responsibility for services away from the council.’ 

Ceri Jones, head of policy at the Social Enterprise Coalition, which promotes ethical business in the UK, says one of the biggest barriers to the extension of co-operatives is lack of awareness and understanding of the model. ‘What both parties are proposing is quite a big change. [Social enterprise models] have been used in public service delivery for some time in leisure services, housing associations and adult social care but there is not a general understanding... If they [politicians] are proposing staff can request to move into these models it will be hard to generate demand if you don’t have wide support,’ she tells PF.  

Despite these caveats, Jones says the approach is well worth pursuing, leading to ‘better-designed services, more satisfied customers and a more accountable model’. She agrees that while the co-operative model ‘makes sense’ for Labour, it also fits with Tory ideology. ‘For the Conservatives it offers more empowerment to communities and frontline staff, and less state [involvement]. It’s an area that sits comfortably across the party spectrum.’

Lambeth has been using a partnership approach in various ways since 2007, which has helped it save about £30m in the past three years. Now London’s second largest inner borough – with a population of 272,000 – faces a 20% reduction in spending over the next three years, equivalent to another £30m. In response, the council intends to expand its John Lewis-style services.      

Leader Steve Reed tells PF: ‘We have got funding reductions coming. Community involvement will free money for those services that are more complex and that only councils can deliver.’ He says the scale of local interest in community-led enterprises is ‘massive’, citing the formation of community trusts to run sports facilities and vegetable patches.

Perhaps most significantly, residents, and the council established a ‘parent promoter’ school to address a need for more secondary school places three years ago. Parents formed a trust to successfully campaign for money to build the school and then went on to set its ethos, appoint a head teacher and form a parental majority governing board. Even before Elmgreen opened, ‘it became the second most applied for school in the borough’, says Reed. ‘The involvement of the community gave it a real impetus and a fantastic start to its life.

‘This is not pushing a burden on to [residents], it’s letting the community take control, which is what they want,’ he says. While ‘you get more bang for your buck’, communities also benefit from better services at the end of the day, he adds.

The next step in Lambeth will be to set up a ‘citizens commission’ to establish further neighbourhood co-operatives to run public facilities such as youth centres, children’s centres and even post offices. Additional housing co-ops are also in the pipeline, but the most radical idea is to give council tax rebates to residents who take part in the schemes.

‘People are familiar with the co-operative model where you get a divvy now and then. If you have citizens getting involved in a parent promoter foundation or a community trust should we not recognise the work they are putting in to delivering the service?’ says Reed.  

The main opposition to both parties’ proposals for co-operatives has come from public sector unions, with fears over jobs and collective agreements. The Tory plans have also been attacked as a ploy for breaking up public services.

Gail Cartmail, Unite assistant general secretary for the public sector, says: ‘David Cameron is using the language of socialism to mask a break-up of public services. He is mangling the English language to advance his anti-state ideology.’ She adds that the Tory leader has ‘not spelt out’ the impact on public sector employees.  

But Jones says unions need not be so alarmed. Social enterprises are often better employers than councils, with lower rates of staff absenteeism and turnover and higher rates of employee satisfaction, she adds. ‘With any expansion on this scale it’s right to want to make sure there are the right protections in place for staff, but social enterprises are by their very nature incredibly good employers. Often they provide better terms and conditions and reward staff in other important ways such as through decision making.’

Whatever form, and colour, the future of mutuals takes, the squeeze in budgets facing councils across the country over the coming years will not go away. As Carr-West notes: ‘One wonders if this approach will deliver the sort of deep spending cuts that local government needs to make.’

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