UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 902 v

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Public Administration Committee

Smaller Government: Bigger Society?

Tuesday 5 July 2011

Sir Stephen Bubb, Kevin Curley and Paul Nowak

Professor Julian Le Grand, Ed Mayo and Shona Nichols

Evidence heard in Public Questions 404 - 521

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Oral Evidence

Taken before the Public Administration Committee

on Tuesday 5 July 2011

Members present:

Mr Bernard Jenkin (Chair)

Charlie Elphicke

Paul Flynn

Robert Halfon

David Heyes

Kelvin Hopkins

Greg Mulholland

Lindsay Roy

________________

Examination of Witnesses

Witnesses: Sir Stephen Bubb, CEO, ACEVO, Kevin Curley, CEO, NAVCA, and Paul Nowak, Head of Organisation and Services, TUC, gave evidence.

Q404 Chair: Good morning, gentlemen, and welcome to this evidence session of the Public Administration Select Committee about the Big Society. May I invite each of you to identify yourselves for the record, please?

Kevin Curley: My name is Kevin Curley. I am from a national charity called NAVCA-the National Association for Voluntary and Community Action. We are the national body for local umbrella charities such as volunteer centres and councils for voluntary service.

Sir Stephen Bubb: I am Stephen Bubb from ACEVO.

Paul Nowak: I am Paul Nowak from the TUC. I head up the TUC’s organisation department, which looks after our work on public services, community engagement and our regional councils.

Q405 Chair: Good. Now, rumour has it that one or two of you were especially looking forward to this session, having watched previous ones, so perhaps we had better clear the air on that question to start with. In particular, Sir Stephen, on your blog you said that you were looking forward to taking us on, I think. What particularly pained you about that session?

Sir Stephen Bubb: Do you want me to start with that?

Chair: Yes, please. It was when we had Thomas Hughes-Hallett and Stuart Etherington in front of us.

Sir Stephen Bubb: Exactly. I think it was some of the discussion by some of the members on the role of large charities, and I was pleased that Robert got in touch with me, as I think that I attacked him in my blog, and we had a long discussion on that. One of the great things about our sector is its diversity. We have large national charities, large community organisations, small organisations, organisations that are small and want to remain small, and organisations that are small and want to grow significantly. Each of them brings something special, but I think there has been an unfortunate attempt over the past few years to attack, in particular, national charities for their role, and it is often because they are extraordinarily powerful in expressing their opinions-that is a good thing, in my view.

Q406 Chair: You are in favour of the tradition of campaigning charities.

Sir Stephen Bubb: Absolutely. One of the strengths, I think, of some of the larger charities is that they deliver services and campaign; that, I think, is particularly strong. Many of our big national charities began their lives as campaigning organisations. The RSPCA is very interesting. It was started, really, by a radical Tory MP and a group of friends who abhorred the way in which animals were treated at the time and were determined to do something about it. So, what they did was they formed an association to campaign for legislative change and to do something practical about animal cruelty. This being England, we started with animals, but then, 10 years later, they thought, "Actually, we are probably treating children rather cruelly as well, so we’ll do something about that," and they then set up the NSPCC.

That tradition has continued, so Shelter, which I think is one of the organisations I discussed with Robert, is another great example. A priest in Notting Hill was horrified by the fact that his neighbour had been thrown of their house by Rachman, so decided to do something about it and set up Shelter. Shelter began very much as a campaigning body, but realised that, actually, what homeless people need is not only a change in the law, but jobs and houses, so Shelter does both. Shelter can be a right pain at times-in my view, correctly-but it is also delivering services at the same time. I think that the strength of that model is that, through service delivery, organisations are very aware of the particular issues and conditions that affect homeless people, for example, and are able to bring that to the table when they are discussing with the Government homelessness policy. That, I think, is where the UK in particular is really strong-that tradition of working with Government to change laws, and also kicking the Government when they get things wrong. I think that is great and national charities do it superbly.

Q407 Chair: How do you police the boundary between charitable campaigning and political campaigning? Beauty is in the eye of the beholder, isn’t it? What might seem like a legitimate charitable campaign to people of a particular view looks, to people of another view, very political.

Sir Stephen Bubb: Yes, which is why the role of the Charity Commission is particularly important in that area, but a lot of campaigning is political with a small "p". If you are campaigning against fox hunting, for example, that is very political. People have very strong views on both sides, but you stop at the line where you would associate yourselves too particularly with one political party’s viewpoint. The big charities take a lot of care to ensure that the way they campaign is cross-party, and they actually try to draw in cross-party support for their aims.

Q408 Chair: Do either of our other witnesses wish to comment?

Kevin Curley: May I take a slightly different perspective on the relationship between large national charities and local charities? Sir Stephen knows that I hold this view. I think it is great that, in Wakefield, Barnardo’s has been supporting a group of 10 local children’s charities, working with them so that they can scale up and bid for contracts from Wakefield council. That seems to be a really good example of a big national charity working with local charities and helping them with its expertise. Now, by contrast, a couple of years ago in Leeds, the contract that was let for family support services to be provided by the voluntary sector was so big that local charities like Home-Start in Leeds, which had been delivering to a good standard and to the council’s satisfaction for several years, were unable to bid, and the contract was won by a large national charity. My complaint there would be that sometimes the way in which a local body goes about letting a contract, if it is moving away from grant and towards contract arrangements, actually prevents local charities from having a chance of continuing to deliver a good-quality local service and opens the door for unfair competition from big national charities that have well-oiled bidding and business planning departments.

Q409 Chair: Understood. I think we are going to come back to the question of contracting and providing services later. Mr Nowak?

Paul Nowak: I think that it would be useful to return to that issue because I feel it is competition from not just large national organisations, but the private sector as well. In terms of the sector overall, it is clearly very diverse. We have members working in large national charities; we have members working in small local organisations. When the sector works best, we think it complements the work carried out in our public services, whether that is giving a voice to service users, reaching out to hard-to-reach client groups, or thinking about how you deliver and provide services innovatively. The sector is diverse and one we think can complement the work of our public services more broadly.

Q410 Chair: The substance of what Thomas Hughes-Hallett was saying was that he felt that charities had become over-dependent on public funding. What is the panel’s reaction to that comment?

Paul Nowak: I would say that it partly depends on what the charity is doing. In some areas of the country, it is clear that organisations are more dependent on public funding, particularly when they are providing direct services, and that tends to be poorer parts of the country-the northern areas of the country. Clearly, the impact of the Government’s spending cuts is being felt right across the sector, and Stephen and Kevin are probably better placed than me to talk about that impact in terms of service provision and the ability of charities to do the jobs that they need to do. However, there has clearly been an impact on jobs, and certainly the reports that we get from our unions-Unite, Unison and others working in the sector-is that there has been a squeeze on pay, terms and conditions as well.

Q411 Chair: But there is a danger of some charities just becoming branches of the state. Is that what some charities are meant to be?

Sir Stephen Bubb: No, absolutely not, and I would argue that that misunderstands the history of our charities sector. Public services in this country were delivered by charities, including the church, for centuries-it was solely by charities. That was the model of public service delivery. We have centuries’ tradition of delivering public services, which many charities now continue. The question of who pays for it, of course, was one that was settled in terms of the welfare state settlement after the war, when it was absolutely agreed that it was the role of the state to provide free universal services and to pay for them, and I think that that is the correct model.

In the way in which we delivered our welfare state, we sometimes made the mistake of thinking that, by delivering free universal services, they have to be delivered by state organisations and state employees, but I think that that model is not always right. Paul is completely right: depending on where you look at the sector, many charities have remained true to their purpose of delivering services. I have a member who set up St John’s. He did not set up St John’s Hospital, because that was 1137, but St John’s Hospital in Bath has been delivering services for the elderly ever since 1137, and it is paid for by the state now, but it was paid for by charitable donations in the past. If you are contracting with the state to deliver services, does that mean that you are then an arm of the state? Absolutely not.

I think that part of the answer depends completely on the diversity of funding, and I am a very strong believer in having a diverse and sustainable funding model. I think that grants can sometimes be a much more problematic form of funding than contracts. At least with a contract you have an established relationship with duties and responsibilities on both sides. Grants, of course, are a form of patronage, but actually what you need is a diversity of funding that protects the state. I am being very wordy about this, but I think that one of the strengths of our charities sector as we have developed has been this really rather sophisticated role that we now have in delivering services, while still being able to influence Government in the way in which they develop their policies and legislation. If you are a homeless person, do you want the organisation that is supporting you both to give you support and to influence the Government on wider policy? Yes, you do, and I think that we are very good at doing that.

Kevin Curley: I would just like to comment on this notion of local charities being dependent on local government funding, in particular. It is not a term that we use in NAVCA. If we take the example of a citizens advice bureau-I happened to see the figure yesterday-Reading council supports its citizens advice bureau this year with a grant of £148,000. We know, from a lot of effort at local level, that citizens advice bureaux will find it extremely difficult to raise money from the public through fundraising. If they have a good year, they may top up their local authority grant with £5,000 or £6,000 from fundraising events, but look at the value of the volunteering they draw in. They may employ five staff, but they might have 70 volunteers working in the bureau, and you could easily attach a cash value to all that unpaid volunteering.

People in that movement and people in the NAVCA movement would not talk about dependency on local authority funding. We would talk about partnerships between local government and the local charities sector, about mutual respect, and about recognising that some charities, like a CVS or a citizens advice bureau, will never be able to attract a lot of money from public donation, traditional fundraising and local private sector support, whereas some charities will. You have to look at the other value you are getting out of them, such as the value of a lot of voluntary work within them.

Q412 Paul Flynn: May I take on my customary role of defending Mr Halfon and Mr Elphicke against unfair attacks? As I remember it-and I remember it well-Shelter was set up a long time after Rachman. It was set up as a result of "Cathy Come Home", a television programme. The criticism made is that charities continue with their work, their manning and their status even though their problems disappear or reduce. It is true that when people sleeping on the streets-homelessness-reduced in Britain by 75%, there were not fewer people working for the charities or fewer homeless strategies. They continued and their empires were running that way.

The Charity Commission has remarked on this inertia. A wonderful example is a charity somewhere in Wales with the sole function of providing petticoats for fallen women. There is not a great demand for that in our modern times. You are right to have this robust defence of charities, which we all support greatly. We all know of marvellous charities such as Mind, which exists without any support from the pharmaceutical industry. On the other hand, there are charities that are half supported by the pharmaceutical industry, and there is at least one that has been entirely created, set up and funded by the pharmaceutical industry to encourage the overuse and misuse of their drugs. While we accept your point about defending charities and the rigorous way you did so after our last discussion, I thought the points made by my colleagues were fair ones about particular charities that do not seem to react when the need for them reduces, and their solution is in search of problems.

Chair: Quite a long question, Mr Flynn.

Paul Flynn: I am afraid so, yes.

Sir Stephen Bubb: Petticoats for fallen women. One of the geniuses of our English system of charities is the 1601 Statute of Elizabeth. It is fascinating. It lists charitable uses, and they are all public services, so it is bridge-building and the reformation of prisoners. There were a lot of charities established for exactly those purposes, but the brilliance of our charity law is, actually, that they work by analogy. So, charities that started off with that purpose, but their main purpose is to support women in difficult circumstances and the charities have adapted and grown. I think that that is actually rather a good thing, but I think we do need to remember there are-Kevin, I am not sure-either 160,000 or 190,000 charities. Many of them are relatively small, and some are fairly inactive, but the majority of the ones that are active have changed with the times. I do not actually see that as much of a problem.

Kevin Curley: Chair, when I was running Hull CVS in the 1980s, I remember the leader of the council, Councillor Doyle, saying to me one day, "How many more charities are you going to bring to us looking for grants from our inner city programme? When are we going to have enough charities in Hull?" I said, "When people decide they no longer wish to associate freely and set up charities, you will have enough." I do not have much sympathy for those who say that there are too many charities, but that is not the same thing as saying that all charities in the city of Hull have the right to funding from the public purse. That is a matter for the city council to work out with its partners in the sector.

Chair: We must move on.

Q413 Robert Halfon: I just have a few questions, Chair. First, I thank Mr Flynn for defending me-that will certainly go in my memoirs. I also want to get it on record that you conceded when we met, Sir Stephen, that you had attributed the wrong comments to me, and then you subsequently corrected it in your blog.

Sir Stephen Bubb: Yes.

Q414 Robert Halfon: To go back to this question of the nature of political campaigning charities, I cannot see any difference between Shelter and the TaxPayers’ Alliance, yet one is described as a pressure group and the other is described as a charity. Shelter issues press releases in my local paper and elsewhere attacking the Government, which is its right. It is classed as a charity, but when the TaxPayers’ Alliance does that, it is classed as only a pressure group. What is the difference?

Sir Stephen Bubb: May I deal with the more general point?

Chair: You must answer the question, Sir Stephen.

Sir Stephen Bubb: I will try to answer the question, but I think it would be an extraordinarily bad thing for democracy in this country if we did not have a charitable sector that was both delivering public services, and campaigning for legislative change and taking views on society in a broader sense. It is absolutely one of the reasons why we have a civil society, and why civil society helps us in terms of democratic reform. I think that the role of charities in campaigning is crucial. I would never want to see a position where a charity was simply delivering a public service because it thought that there was a managerial case for doing so. It always has to be because they want to deliver something better for their beneficiaries, and they are doing it because they want to achieve a better life for their beneficiaries-and that means they campaign, too. On the TaxPayers’ Alliance, I suppose the answer is that I do not see Shelter as being particularly aligned to a political party, whereas I do for the TaxPayers’ Alliance.

Q415 Robert Halfon: The TaxPayers’ Alliance spends half its time criticising the Conservative party for being lily-livered, so it is independent. What I do not understand is why one is classed as a pressure group and one as a charity. It seems that certain charities get away with political campaigning and regularly slagging off the Government day after day, and yet are regarded as charities, when other so-called right-wing organisations are called pressure groups.

Sir Stephen Bubb: I think you will find that Shelter is fairly indiscriminate with its criticism of the Government, the Labour party and the Liberal Democrats.

Chair: And so is the TaxPayers’ Alliance.

Q416 Robert Halfon: So what is the difference between the two? There is no difference.

Chair: Another of our panellists?

Sir Stephen Bubb: I suppose the answer is: why doesn’t it apply for charitable status?

Paul Flynn: On a point of order, Chair? Isn’t it interesting to reflect that, like in our previous sitting, we have been going for nearly half an hour and no one has mentioned the Big Society? Doesn’t that reflect the unimportance of the Big Society?

Chair: That is not true; I mentioned it at the beginning. That is not a point of order for the Chair. Mr Curley?

Kevin Curley: I just wanted to say that, at local level, Derby Women’s Aid provides a refuge for women and their children fleeing domestic violence, but it also campaigns and criticises Derby city council if it feels that the council fails adequately to house those women after a certain period of time. However, Derby Women’s Aid will criticise whoever happens to be running the council at the time, without regard for the political control, because its charitable mission is to relieve the poverty of the women and children it is supporting.

Paul Nowak: It is worth making the case that the funding of the overwhelming majority of community and voluntary organisations-and civil society organisations more broadly, including trade unions-is a lot more transparent than the funding for the TaxPayers’ Alliance, which I think is an overtly political organisation that could never be classed as a charitable organisation by any definition.

Q417 Robert Halfon: That is not the case because you, Sir Stephen, admitted on your blog, after questioning at the last Committee meeting, that loads of big charities are not transparent about their accounts and do not make clear how much they spend on campaigning, how much they spend on public affairs and corporate affairs, and how much they spend on genuine front-line services.

Paul Flynn: I am going to withdraw my support of Mr Halfon and I look forward to your next blog.

Robert Halfon: There is no transparency at all. If you go on to their accounts, you have absolutely no idea how much most of these charities spend on campaigning-absolutely no idea. That is fine-what they want to do is up to them-but I am just trying to distinguish the difference.

Chair: I think we must move on.

Q418 Robert Halfon: May I just ask about your organisation, Sir Stephen? Could you please describe to the Committee what it does and is its raison d’être?

Sir Stephen Bubb: It was established nearly 25 years ago as, effectively, a network for chief executives of third sector organisations-very broadly charities, social enterprises and community organisations. We say that we have three aims. One is to represent chief executives on issues that affect them in running their organisations, so providing support and advice to them as chief executives. Although we are well known for certain views around funding, for example, and public service reform, quite a lot of our work is actually on supporting chief executives in the difficult job they do.

Q419 Robert Halfon: How much does the highest paid employee earn in your organisation?

Sir Stephen Bubb: The average salary of an ACEVO chief executive is just under £60,000. I think that the largest salary, although I could not be sure, is £120,000.

Q420 Robert Halfon: Company accounts suggest that the highest-paid employee earns over £140,000. I just want to get that on record.

Sir Stephen Bubb: It might be, yes.

Q421 Robert Halfon: Who is that highest paid employee?

Sir Stephen Bubb: Goodness knows-I would not know.

Q422 Robert Halfon: How much do you spend on staff costs a year?

Sir Stephen Bubb: Are you talking about the charities sector generally?

Q423 Robert Halfon: No, your particular organisation.

Sir Stephen Bubb: ACEVO?

Robert Halfon: Yes.

Sir Stephen Bubb: Sorry, can you rerun those? I was talking about charities generally. My salary in ACEVO is £100,000.

Q424 Robert Halfon: Thank you. How much do you spend on staff costs?

Sir Stephen Bubb: We have around 30 members of staff.

Q425 Robert Halfon: What are the annual staff costs?

Sir Stephen Bubb: If I had realised you were going to ask these questions, I could have given you the answers. I am very happy to give you the answers after this, but I am afraid I am one of those chief executives who are rather better at strategy than detail.

Q426 Robert Halfon: Can you just describe the £70 million fund that the Government gave you in April 2011-the Communitybuilders scheme? What is all that about?

Sir Stephen Bubb: I think we might be making a mistake. I am the non-executive chair of the Social Investment Business, which is a group owned by a charity, the Adventure Capital Fund, which organises a number of loan funds and capital funds for the Government: Futurebuilders, the Communitybuilders Fund, and the Social Enterprise Fund for the Department of Health.

Q427 Chair: You are contracted by the Government to run those funds.

Sir Stephen Bubb: Exactly, but I do not do that as an employee; I am the chair of that.

Q428 Robert Halfon: Was the Communitybuilders scheme not given to your organisation?

Sir Stephen Bubb: Yes.

Q429 Robert Halfon: What have you done with it so far? I understand that £70 million was given to you in April 2011.

Sir Stephen Bubb: Let me say that we should distinguish this from ACEVO, because I am not doing this as ACEVO. As I say, I am the non-exec chair. The Adventure Capital Fund was set up as a charity about eight years ago with a small amount of money specifically to make loans to third sector community enterprise, and we still do that. The Adventure Capital Fund then won the contract from the Government for Futurebuilders, which was a £200 million fund to provide loans to support public service delivery. That fund is now closed. Communitybuilders, which is a contract from DCLG, has now been endowed to the charity, and the sum is under £30 million.

Q430 Robert Halfon: Is it not £70 million?

Sir Stephen Bubb: I do not think it is, actually, but the loan book, I think, is around £30 million, and then the fund was endowed-

Chair: Mr Halfon, I must press you. Why is this relevant to the Committee?

Q431 Robert Halfon: Because it is a huge grant and I am trying to understand what the money is going towards.

Sir Stephen Bubb: It is a loan fund.

Q432 Robert Halfon: Yes, but why is it that this money cannot be given to charities directly? Why does it have to be done through intermediate organisations?

Sir Stephen Bubb: It is given to charities directly.

Q433 Robert Halfon: Yes, but decided by who?

Sir Stephen Bubb: It is given to charities directly. Just as we are on this, because I think it is relevant in terms of the funding of the sector-

Q434 Chair: The funds you have described are intermediaries, aren’t they?

Sir Stephen Bubb: Our organisation is, in a sense, but we loan directly to charities and third sector organisations.

Q435 Chair: Why is it necessary for the Government to go through an intermediary?

Sir Stephen Bubb: Because the Government would actually be rather bad at making loans, I suspect-

Chair: That was what I rather thought.

Sir Stephen Bubb: -and it has used an organisation. It is worth saying that there have been two independent reviews of the Adventure Capital Fund, which is essentially the Communitybuilders Fund, and then the Futurebuilders Fund, and it has been found how remarkably important loans have been to growing the sector. The importance of loans as a funding stream, which is, of course, why the Government are setting up the Big Society Bank, which we fully support, is that they help organisations grow and money then comes back into the sector to be re-loaned.

Q436 Robert Halfon: How much of it has been given out since April 2011?

Sir Stephen Bubb: In terms of Communitybuilders, nothing, because the Government put a stop to the fund while they were negotiating for the endowment, but now that that has been agreed, we will start loaning again.

Kevin Curley: I just wanted to interject to say that there is an important Big Society point here. One of the beneficiaries from the Communitybuilders Fund is Keighley voluntary services in Bradford Metropolitan. It has used £1 million from the fund to establish a big multi-purpose community centre in the centre of Keighley in an old building leased by Bradford council. The point about that is that this organisation needed a lot of help to put together the legal framework for taking on a big loan for the first time, and also for dealing with all the issues around taking the lease from the council and then being in charge of rehabilitating the building. It is not just a question of getting money out to a group. If we are going to empower community groups and give them the chance to take over assets that the local authority no longer needs, they need a lot of support, and that is a central concern within the whole Big Society concept.

Q437 Chair: Mr Curley, you said in your evidence that the cuts in public funding are affecting smaller charities disproportionately. Is this kind of funding-like that coming through this organisation or, indeed, coming from the Big Society Bank-a good substitute for public funding? Is it an effective substitute?

Kevin Curley: I do not think it is a substitute. We have calculated that, this year, local authorities are cutting £1.2 billion in grants and contracts to local voluntary organisations and charities.

Q438 Chair: But a lot of that is just plainly a reduction in service provision, isn’t it?

Kevin Curley: Yes, some of it is a reduction in advice services and so on.

Q439 Chair: It is inevitable that, if councils are reducing services, some of the contracts they have with charitable organisations will be cut, like the contracts they have with private sector organisations. That is one of the perils of being a contractor to the public sector.

Kevin Curley: The question, though, Chair, I think, is whether it is proportionate or not. We have had support from Mr Pickles in saying that local authorities should not make disproportionate cuts in local voluntary sector funding. In Liverpool, the cut this year in sector funding is 48% in one year. It is down from £37 million to £19 million. We would say that, whatever problems Liverpool council is facing-and they are very real-that is a disproportionate cut. The money that is going to flow through the Big Society Bank, through such mechanisms as social impact bonds, will be important in the future, but it is small scale compared with the public sector money being withdrawn as a consequence of local authority cuts.

Q440 Lindsay Roy: Just on that theme, Dame Elisabeth Hoodless said that local authority spending cuts were destroying the volunteer army. Is that still a notion that prevails?

Kevin Curley: May I just make a start on that? We had a look last week at what is happening to volunteer centres. Local volunteer centres are a very important way of recruiting more volunteers and making sure that they are properly placed into local charities and the local public sector, where they can do good work. As a result of the local authority cuts, they have closed in Hartlepool. They have closed in several districts in Essex, there have been big cuts to volunteer centres in Darlington and Blackpool, and youth volunteering for 16 to 25s has ended completely in Swindon, Liverpool and Bradford. There is no doubt that there is a mismatch between the very attractive rhetoric of the Big Society, in terms of getting more people involved in voluntary work, and the reality of what is happening as a result of local authorities withdrawing financial support for volunteer centres and other volunteer organisations.

Sir Stephen Bubb: I think the core point here is that the Government, councils and many people who look at volunteering assume the only issue is how we get more people to volunteer, and forget that volunteers need to be organised, supported, trained and managed. Actually, that is the bit that is being cut. Dame Elisabeth was absolutely right, and it is what many of my members will tell you: if you want to get more volunteers, you have to support the organisations that support volunteers, as well as encouraging more people to volunteer. What has plagued our organisations over the past decade is Governments’ new initiatives on volunteering, which are encouraging young people to volunteer, etc., and our organisations’ inability to organise them effectively.

Paul Nowak: What is increasingly clear is that the Government’s spending cuts are in danger of making a mockery of the aspirations behind the Big Society. If you look at those local authorities that are taking disproportionate hits-the likes of Liverpool, Manchester and Tower Hamlets-they are overwhelmingly concentrated in poorer parts of the country. There is a direct impact on local authority services and also a direct impact on volunteer community organisations. That is one problem with the Big Society, and hopefully we will get into the substance of some of these issues.

Alongside the Government’s commitment to opening up public services, introducing "any willing provider", or whatever you call it, and saying that the state is no longer the provider of services, we think, actually, that some of the warm words around the Big Society-the laudable aspirations about encouraging voluntarism and empowering local communities-are in danger of being absolutely undermined by the Government’s programme of cuts and reforms in public services.

Q441 Lindsay Roy: Somebody said recently in relation to the Big Society that "A vision without action is daydreaming. Action without vision is a nightmare." Do we have some nightmare scenarios or chaotic situations in relation to this?

Kevin Curley: I think, Chair, now that all local authority support for youth volunteering in big cities like Liverpool, Bradford and Swindon has ended, while perhaps "nightmare" is not right, it is certainly very regrettable.

Lindsay Roy: Chaotic.

Kevin Curley: When you put it alongside the money that is going into the new National Citizen Service, you do have to ask whether that new initiative justifies all the pain that has been caused in terms of the loss of support for volunteering at local level across the country, and that is what a lot of my members are saying.

Sir Stephen Bubb: I will be very clear: I support the Government’s aim to build a bigger and stronger society, and I see that reform of public services is a core part of that. I probably have a different view from Paul about this, because I see reforming public services not, as I said before, as a managerial agenda, but as an agenda that is around giving more power to citizens and communities over their services. This was a key point I made in the reports I wrote recently for Government about the health service reforms on choice and competition, because I see opening up our public services and giving citizens more rights-whether that is, as in the Localism Bill, the right to challenge and the right to provide-being extended to the health service and other parts of public services. I think that is the way we get better public services and we give citizens more power over their services.

You only have to look at one example: crime, and the money that we spend in our probation and rehabilitation services. Only 4% of that budget is delivered through third sector organisations, and yet we know the state is hopeless at rehabilitation because more than 70% of people who have been in prison are back in prison within two years. Third sector organisations that deliver those services get records as low as 50%, so why are we not commissioning them more? I think we have to open up our public services to ensure that third sector organisations really can deliver more.

Q442 Chair: You are talking about competition rather than breaking down the state monopoly. Private sector organisations also have a good record on recidivism.

Sir Stephen Bubb: Absolutely they do. If you look at public services from the point of view of the beneficiaries-from the point of view of communities and citizens-which is what we should do, and from the perspective of what is the best service for them, you cannot say that the public sector is better or that the third sector is better or that the private sector is better.

Q443 Chair: So are we saying that competition is part of the Big Society? Are the Big Society and competition synonymous?

Sir Stephen Bubb: Yes.

Paul Nowak: I think that Sir Stephen’s aspirations for public services and reforms absolutely cut across the British public’s aspirations for public services and reforms. A YouGov poll found that 73% of the British public did not agree that there should be more competition in the national health service. Actually, there is no evidence at all that opening up our public services to the private sector means that those services are delivered better or more cheaply. A recent report in the Financial Times clarified that point.

Chair: I do not want to interrupt you, but we are straying into somebody else’s questions. Before I go to Mr Hopkins, may I just take a quick one from Mr Elphicke?

Q444 Charlie Elphicke: Is it not the case that while the British public say that they do not want public services privatised, they actually like the idea of charities and social enterprises taking on these services-because first, as Sir Stephen says, they do a much better job because their heart is in it; and because, secondly, they see charities and social enterprises as being, effectively, on the side of the angels, not on the side of voracious profit? Don’t you welcome that as part of the Big Society?

Paul Nowak: We have members working in the public sector, the private sector and the voluntary, charitable and social enterprise sectors as well. What the British public do not want is a postcode lottery, for example, with the standard of the services they can expect to receive being dependent on the capacity of this or that local organisation. That is certainly what they do not want, and I think we have seen that the public reaction to the NHS reforms is that they do not want the national health service opened up to a plurality of providers-any willing provider.

Q445 Charlie Elphicke: Do you think that uniform mediocrity would be better than allowing flowers to grow and do really well?

Paul Nowak: Absolutely not, but if you look at the satisfaction ratings for the NHS prior to the Government’s introduction of reforms, they were at an all-time high. People actually believe that the NHS provides a good service.

Chair: Order. This conversation is in danger of becoming negative and political, so I think we will move on. Mr Hopkins?

Q446 Kelvin Hopkins : Thank you, Chair. I am grateful for that intervention, because I would be wanting to fire away as well-saying the opposite things to Charlie, I may say.

As a former TUC staff member, it is a pleasure to ask my first question of Paul about this support for the public wanting more providers-a range of providers. In fact, according to research, which you quoted, I think, 94% of people believe that public services should be provided by national or local government, and not by other organisations. Indeed, there is another bit of research about youth services specifically, which have been mentioned today. When people were asked who should provide youth services, they thought: No. 1, local government; No. 2, central Government; No. 3, the third sector; and No. 4, the private sector. The public seem to have a very different view from that put by the Government. Is that fair, do you think?

Paul Nowak: I think it is fair, but that is not to say that there is not a role for the community and voluntary sector, or that there is not a role for the private sector in large parts of the public sector. We already have, effectively, a mixed economy, but I think that the British public want what works best, which overwhelmingly, in their experience, is those services delivered by national and local government. I think that we have to be very clear with the Big Society rhetoric. There are some laudable aspirations about more mutuals and co-operatives, particularly when they are driven by service users and the staff delivering those services, but effectively what the Government are talking about-and we have not seen the White Paper on open public services; it has been long delayed-is opening up our public services to privatisation and marketisation.

Overwhelmingly, as you suggest, Mr Hopkins, the evidence from the public is that that is not what they want at all. They are worried about stretched public finances being lost in shareholder dividends; they are worried about accountability, because accountability to shareholders is not the same as accountability to local communities; and they are worried about service quality, because, as I said before, there is no evidence at all that the private sector delivers public services better, more effectively or more cheaply than the public sector.

Sir Stephen Bubb: There is.

Paul Nowak: Well, a comprehensive assessment of all the evidence in the Financial Times last year said that there was not that evidence.

Q447 Chair: Mr Nowak, thank you very much. Whenever I hear a narrative like that, I always wonder why we trust the capitalist system with this country’s food supply, which it seems to manage quite effectively, but I would like to bring in our other commentators. Mr Curley?

Kevin Curley: May I make a quick point about the Big Society and commissioning arrangements, which need to change if local charities and local community groups are going to thrive? A year ago, Hull city council put its advice services contract out to tender, and a very well-established, well-run and effective citizens advice bureau in Hull lost its funding-the contract was won by A4e, a private sector organisation. The essence of why A4e won the competition was that the commissioners responsible for sorting out that contracting opportunity were not able to place any value on all the aspects of the citizens advice bureau beyond the simple provision of advice from adviser to individual.

Chair: That is a very important point.

Kevin Curley: There was the value of volunteering, the value of ownership by a local body of trustees, and the value of all the work the citizens advice bureau did to influence the development of social policy in the city of Hull. I think the social value Bill that Chris White has promoted is really important, and recognition of that, and of the need for really clear guidance and firm implementation, if it is enacted, would really help in that sort of situation.

Chair: I think that that is a very useful point.

Q448 Kelvin Hopkins : Can I just make a point? There is a phrase that has not yet been mentioned: "public service ethos", which I think suffuses the public services. It is not just about earning a salary, doing your job and going home; it is about a sense of public and social commitment by people in the public service that is not driven by profit, and there is a major difference there. I do not know if you would like to comment or not.

Paul Nowak: I think that there is a particular issue around volunteers. If one of the aims of the Big Society is to increase the number of people who volunteer and to give them more opportunities to volunteer, there is real evidence to suggest that people are put off if they believe that it cuts across that ethos. If I am volunteering to give something back to my local community, the idea that somebody is making some money on the back of that disincentivises me from taking part in those volunteering opportunities. I think, genuinely, that we want to encourage volunteering, and that we want to make sure that people have the skills and confidence to volunteer and the feeling that they can play a role in their local community. The danger is that if we open our public services to the private sector, that ethos of volunteering is undermined.

Chair: I am going to alert the Committee, and indeed our panellists, that we have been going for 45 minutes now. We are going to need to go very much faster, so may I request short questions and short, crisp answers?

Q449 Greg Mulholland: A quick question-it is just a follow-on. I do not want to get involved in the ideological ping-pong because I do not think it is particularly helpful to what we are trying to establish. I do feel that there is a slight rosy view of some traditional public services. Dealing with reality, do you not accept, Mr Nowak, that the evidence in the health service-you have been, frankly, just quoting 38 Degrees and blind opposition to the health reforms; I have issues with some parts of the health Bill myself-when you look at its sectors, is that the best example is clearly the hospice movement which, by a strange quirk of history, has always been done by the voluntary sector. Indeed, if you look at the provision of wheelchairs for young people, they have been utterly failed by the way the public sector has been set up. Now, if you go to Tower Hamlets, you will see huge success by doing things differently, and that has been in partnership with a more responsive public service and the voluntary sector. Do you not welcome that? Indeed, I accept that you have-

Chair: I think that we have got the gist of your question.

Paul Nowak: Just let me make this clear up front: we have 4 million members who work in the public sector, delivering a wide range of public services. They want those services delivered as effectively and efficiently as possible. They are proud of the services they deliver and, as I said before, a number of our members will be working in the community and voluntary sector in delivering those services. I think what worries me about the Government’s direction of travel in terms of public service reform is that exactly the sort of partnerships that you have talked about, Mr Mulholland, are in danger of being undermined because, effectively, what we will see is community and voluntary organisations competing against directly delivered public services, and so the added value that those community and voluntary organisations bring at the moment is in danger of being undermined. I have no ideological problem at all. In fact, I and our members welcome and work alongside people from the community and voluntary sector, but I do not think that setting one against the other is good for the health service or any other part of our public services.

Q450 David Heyes: A crisp question, Chair.

Kevin Curley, you tried earlier to get in, so this is your opportunity to build on the statement you were making. You talked about Barnardo’s in Wakefield and how it co-operated to support smaller groups, and then the negative side in Leeds, where Home-Start was squeezed out by the big groups coming in. You talked about Hull and the advice services being squeezed by bigger organisations. I just wanted you to develop that theme, but perhaps I can start by asking: is there really an appetite amongst the small charitable groups-small organisations with, say, less than £100,000 turnover-to get involved in these kinds of contracts?

Kevin Curley: Thanks for the question. Drawing on examples I have already used, I think that Derby Women’s Aid, which provides a 12-bedded hostel, would aspire to providing a second 12-bedded hostel, but would not aspire to running all the women’s refuges across the east midlands. To take the example of the Hull citizens advice bureau, it would very much like to run a branch bureau on a deprived estate like Preston Road or Orchard Park, but it does not want to provide advice services across the whole of East Yorkshire, by and large. That is true of citizens advice bureaux; it is true of Women’s Aid organisations; and it is true of many locally rooted charities. They want to do an effective job and they would like to grow what they are doing, but they do not aspire to large-scale service delivery. What we have to ensure, I think, is that local commissioning arrangements support those organisations and do not put them out of business. We have a whole lot of suggestions here about how that can be achieved, and what the problems are at the moment with trends in commissioning towards big contracts let by competitive tender through the sorts of procedures laid down in EU regulations that are used for massive cross-border competition.

Q451 Chair: The contracting habits of local and central Government are really tiresome in your view.

Kevin Curley: It is absolutely crucial that they do not apply the same approach to buying advice services and support for women fleeing domestic violence that they apply to buying wheelie bins and computer systems.

Q452 Chair: It is a question of recognising the value added by a voluntary organisation, but it is just not recognised in the contracting process at the moment.

Kevin Curley: It is the value added in all kinds of ways through volunteering, knowledge of communities, the contribution that organisations make to thinking about local needs and so on, but it is also about the detail of how procurement is run by procurement officers.

Q453 David Heyes: To all the panel: what should the Government do differently to avoid these dangers?

Kevin Curley: I would like an opportunity, if I may, Chair, to write in with more detail about this than I could say in an answer.

Chair: I think we would appreciate that. I think it is a very important point.

Kevin Curley: Most fundamentally, it is vital that the Government take a lead and tell local authorities and the local NHS that commissioners do not have to follow European Union public contract regulations when they are letting contracts for Part B services-principally education, health and recreation services.

Q454 Chair: I think that that would be an extremely useful reform if we could implement it.

Sir Stephen Bubb: Can I also say that this is exactly one of the issues I covered in the report I wrote on choice and competition in the health service? We need to understand the difference between commissioning and procurement, and we need to understand how commissioning can drive much better service delivery by taking account of a wide range of issues in terms of value-added social impact. For example, the private Member’s Bill that, I think, Chris White and the Government are supporting would be one very solid way of improving things, but I think there are other ways in which we can tackle this, which was why I suggested, in the health service report, that competition needs to be seen not as an end in itself, but as a means to securing greater choice and citizen and community power in our health service, because the bottom line is how you secure better services for people, not obsessing on the ownership form of those services.

Q455 David Heyes: I am hearing that we need to do this differently but I am not hearing how differently.

Sir Stephen Bubb: I would do what Kevin-

Q456 David Heyes: That is one good example. Are there more?

Paul Nowak: I think you need to think about building social clauses into procurement and commissioning processes, about the impact on the local community of who wins a particular contract, and particularly about the pay, terms, conditions and pensions of staff. At the end of last year, the Government abolished the so-called two-tier code, and there is a real danger that if we see a return to the bad old days of competitive compulsory tendering, contracts get let simply on the basis of who puts in the cheapest price, and often those contracts are not sustainable, have no added value at all for the local community, and result in the pay, terms and conditions of people delivering those public services being undermined. I think it is thinking about those sorts of issues more roundly, which is very difficult in the current economic climate, where commissioners are under pressure to secure savings in the short term.

Chair: If you have a note to come for us on that, I think we would be very interested to make recommendations along these lines.

Q457 Paul Flynn: Do you think that charities and community groups have the skills and resources to increase the delivery of public services? I am thinking in terms of the suggestion that has been made that this notion of the Big Society-if it is not dead, it is in a very deep coma at the moment-is to be promoted for ideological reasons by a Prime Minister, but there is no basis for it. You suggested, Mr Bubb, that there would be some improvement in recidivism, but Oliver Letwin has rightly said there has been no improvement in recidivism in 40 years of government. How has someone got the resources or the creativeness to provide a solution because it happens to have the "Big Society" title slapped on it?

Sir Stephen Bubb: I think the capacity and infrastructure of our sector has been a concern to all of us, and it has to be a concern if you want to ramp up delivery through our organisations, so traditionally it has been extraordinarily difficult to fundraise for infrastructure support against a background where people want their pound to go to the cause, rather than for what is actually is very necessary administration.

There are a number of aspects of capacity-building. There are aspects for the third sector in terms of how we promote mergers and alliances and partnerships-that is an issue for us. There is an issue for Government in how they support the development of capacity in the sector, which, actually, the last Government and the current Government are doing through the work in OCS. In particular, the way in which the public sector and the private sector grow against the challenges of more contracting is through access to capital, and access to capital is completely important in how we develop as a sector.

Q458 Paul Flynn: The service is creaking at the moment, suffering massive cuts-£1 billion this year; £3 billion in a couple of years’ time-and being imposed on it, for political reasons, is a new reorganisation, which is likely to create chaos itself, as most reorganisations do. Isn’t this idea something that we should quietly creep away from and forget about?

Sir Stephen Bubb: No.

Paul Nowak: I think you actually have to look at what happens. I think there are some real issues about capacity and resources. I know that the Committee has discussed this in the past, but if you take the Work Programme as an example, 15 of the contracts went to the private sector and only two went to the voluntary sector. The two that went to the voluntary sector were effectively voluntary and private sector partnerships. There are issues. Large-scale outsourcers can afford to run loss-leaders. They do have economies of scale and, effectively, you have an unbalanced marketplace.

Q459 Chair: The message I am getting from all this is that in order to promote what we call the Big Society, it is not that charities need to adapt to the big contracting culture, but that the big contracting culture needs to go out the window so that that local government, in particular, adapts to the small charity sector and offers it agreements that it can cope with.

Sir Stephen Bubb: Partly, but I do think that there is a very interesting point: in the way we are organising our public services, there is much more scope for strategic alliances between the third sector, the public sector and the private sector. I also think that what you saw in the way the Future Jobs Fund was run was very interesting examples of consortia, where a lead charity got together a supply chain of a wide range of smaller charities that did not want to contract themselves, but very much wanted to provide jobs as part of that scheme. You had some very interesting developments, and the way we work against this background is actually alliances of small community organisations and larger national organisations. Some of that is happening.

Kevin Curley: Chair, I agreed with your summary but, in a sense, with the Work Programme and the whole way that Department for Work and Pensions is running its contracts, the argument has been lost. We have big prime contractors, but we have almost 300 voluntary organisations in their supply chains. These are all ambitious local charities-a lot of them-that do want to offer new opportunities to people who are out of work, and what we have to try to regulate-the relationship between the prime in the private sector and the sub-contractor in the local voluntary sector-is the Merlin standard. I would urge you and your members to take a look at this, because there is a real risk at the moment that this really good code is going to be ineffective because of a lack of adequate implementation. We think this is a really good code for the relationship between local voluntary bodies and big primes in the private sector, but it needs enforcing.

Chair: That is a very strong message.

Paul Nowak: I just make a more fundamental point, Chair, to follow on from your summary: no amount of rhetoric can replace £1 billion of funding to the sector. You cannot make those sorts of cuts and just expect the sector to pick up the slack and somehow deliver services to communities and service users with no impact on the quality of those services or the capacity right across the country.

Chair: Thank you for that point.

Q460 Charlie Elphicke: Sir Stephen, I do have a bone to pick with you-I thought that you were far too generous about me in your blog. I hope that, in future, you will be much more accurate in what you write.

Just turning to our discussion earlier with Mr Nowak on this issue of contracting out public services or passing them across to the charitable and social enterprise sector, do you agree with his position that this would just create a postcode lottery?

Sir Stephen Bubb: No, I do not, actually. One of the reasons I think that opening up public services is a good thing is because I think one of the problems with state delivery of public services is it has often been very bureaucratic, inflexible and not open to users. In fact, you will see among my membership that a whole range of those charities have come about as a result of the rejection of the way the state has dealt with their beneficiaries. That is particularly true in mental health and disabilities. Some of our biggest charities, interestingly-Mencap and Scope are great examples-came about from an individual family saying the way the state was providing services for their kids was so intolerable that they would not put up with it and they would do something about it. That is absolutely why we need to open up public services.

Q461 Charlie Elphicke: In building the Big Society-and I think this goes to the heart of the whole issue about Big Society, Chair-you are going to have ranged against you what you might call provider interest. You have recently written about the BMA: "As the doctors’ trade union, their recent conference shows how little interest they have in the rights and role of citizens and patients". Arguably-Mr Nowak might disagree-I think we have heard some of that from the TUC side of things as well. How difficult do you think it is going to be, in building Big Society public services, to defeat the provider interest in the interests of the people?

Sir Stephen Bubb: When the Government produce their White Paper shortly, I very much hope that they will accept the challenge that they are going to have to confront producer interest, because, as I have said, I think that public service reform is about giving more power to citizens and communities. One thing I felt in health, actually, was that the Government were tackling it a bit too much from the point of view of a regulator imposing competition, whereas I saw competition as being imposed by people. Giving citizens and community groups the right to challenge poor service delivery and say, "Actually, this could be done better," is a great way of ensuring public service reform. You are absolutely right that producer interest has to be challenged in the way in which many of our charities have done in health and disability.

Paul Nowak: I think it is worth making the point to Mr Elphicke that the 4 million trade union members who deliver public services are also people who use public services. They are patients, they are parents and they are people with elderly parents who are in social care, so they have an interest in how public services are delivered, not just from a provider point of view, but as people who use those services. Some of the problems and issues that Stephen talked about, I think, are functions of management, not of sector type. The reality is that you can have poor management in the public sector, in the voluntary sector and in the private sector. It is not a function of the public sector alone. I think there is a danger that what we focus and fixate on is, "We need more providers; we need to introduce the private sector and the voluntary sector," and we do not think about how we, for example, engage staff more effectively to give them a sense that the things they do day to day can affect the running of the service and help to improve the service.

Kevin Curley: I just wanted to make a comment about, in a sense, unfairness, which could be there within the Big Society around postcode lotteries. I live in a village in Derbyshire. If there was a threat to the village library, I am sure that there would be a community response-I would be part of it. Ultimately, if we lost the battle to keep the library open, people would come forward and we would do something to stop the shutters going up. Across the other side of the Derwent Valley in Derbyshire, in a community like Cotmanhay, I think that the community response could not be as strong, because the people living on that estate would not have the same sorts of resources and skills to draw on to keep their library open. Surely there has to be a role for the state in maintaining minimum standards and not allowing, as it were, Big Society unfairness to keep the library open in my well-heeled village, but to see it close on the estate.

Q462 Chair: I think that most people would agree with that sentiment, but is there not a danger that it becomes self-reinforcing? The expectation is that less-favoured communities are, by definition, leaderless and incapable, when, in fact, we have discovered that, in some communities, that is simply not the case. They can discover their own leadership.

Kevin Curley: Sorry; I did not want to characterise it in that way. I spent an early part of my career doing neighbourhood work in Byker in Newcastle upon Tyne, so I know that there are real strengths in these communities, but the community of Cotmanhay is unlikely to have living in it a solicitor, an accountant, a VAT expert and somebody who can negotiate a lease for a peppercorn rent. My village has all those skills, but if you have not got the skills to level that playing field, you have to find a way of providing that sort of support in the community.

Q463 Charlie Elphicke: I completely agree and that is an absolutely central point. I think it was recently in the Government’s Green Paper. They talked about the reform of the Green Book. The Government’s Green Book is the yardstick whereby bidding is judged for the outsourcing of services or the sale of assets. This is close to my heart, because I am trying to foster the community takeover of the Port of Dover-it has been stuck on the block by a previous Government, as it turns out, but it could be any Government in principle. In that, it is quite central that you measure social and enterprise value. We have raised Chris White’s Bill, which I strongly support, and I hope to serve on the Public Bill Committee when it gets there. Do you agree that we need to push for reform of the Green Book as well as EU procurement, and will you rally your respective organisations to press that case on the Government? It strikes me that it is central, if you want to build the Big Society, that you have to have that social value built in, understood and accounted for.

Sir Stephen Bubb: That is absolutely right.

Kevin Curley: Yes.

Chair: That was a good short, crisp answer. Thank you very much.

Q464 Charlie Elphicke: Finally, Sir Stephen writes about the YouGov poll in his exciting blog-I love to read it and it is so generous to me-and the issue about having paid time off to volunteer is, I think, really important. Can each of you say how much time you have taken off in the last year to work on voluntary projects?

Sir Stephen Bubb: I should think probably about five or six days. I worked-surprisingly, you might think-in supporting a local project where I live in Brixton to restore the windmill. It is unusual to have a windmill in Brixton, but that is one of the areas in which I do some work. I also do work in my local church.

Kevin Curley: I chair two charities: Sengwer Aid, which supports a community in Kenya; and the Pickering family centre in North Yorkshire. I cannot count up how many days I give them, but it is far more than my wife approves of.

Paul Nowak: I would have to plead the defence that I have three small children and I am also-probably one or two weekends every month-involved in meetings, events or training sessions for trade unions and trade union representatives. Just to put this on record, one interesting thing about our community is that trade union representatives-activists in their workplace-are eight times more likely to be active in their local community than Joe or Joanna Public. I think that that is because people who are active in their workplace also tend to be active as school governors or on local community or sporting associations-wherever it might be. One of the bits in the Big Society that is missing, I think, is thinking about how you can use the 200,000-odd trade union representatives who are out there and give their own time-day in, day out-to represent people they work alongside, and how you involve them in the Big Society.

Q465 Paul Flynn: If there is a transfer from the public sector to MegaGreed plc, will the standards of the public sector disappear in many ways-the accountability, equality standards and freedom of information?

Paul Nowak: I can pick up some particular concerns. We would be worried, for example, if we were talking about new mutuals or services being spun off and the absence of things like asset locks-how do we make sure that assets that have been generated in the community and that belong in the community stay in the community? We would be worried about issues around risk and what happens if, for example, a new mutual or co-operative fails. There is the presumption that the service goes straight into the private sector. There are some real concerns for our members-such as the abolition of the two-tier code that I mentioned-and we have just seen the closing of the consultation on the fair deal on pensions. We are absolutely committed to trying to ensure that, if services are outsourced, the pay, terms and conditions, and pensions of people delivering those services are not undermined as a result. If the Government are serious about encouraging a plurality of providers, they need to think about how you safeguard the livelihoods of the people who deliver these services.

Q466 Paul Flynn: Is there a real threat that provision will be inferior after five years of the Big Society?

Paul Nowak: Yes, I think there are very real concerns. If you get rid of the two-tier code and if you look at jobs in, say, contract catering or cleaning, there is a presumption that the national minimum wage almost becomes the default wage for the delivery of those services, and I think that that would be to the detriment of not only the people who deliver those services-obviously-but the wider community. The public service provides good, well-paid-by and large-well-regarded employment, and we would not want to see that lost.

Chair: Thank you. Are there any other points that our panel would like to make because we need to get our other witnesses in?

Robert Halfon: A very quick question-10 seconds.

Chair: A 10-second question from Mr Halfon.

Q467 Robert Halfon: Thank you. I agreed very much with what you said about the trade unions having an important part in the Big Society. Will you just expand on that a little bit and explain how it might work in practice?

Paul Nowak: As I say, the reality is that people who are active in workplaces are also more likely to be active in their local communities, so thinking about how we can use that resource, we train about 60,000 trade union representatives a year. How do we use that training, for example, to get them to think about not only workplace issues, but issues that might be of concern to their local community? We have undertaken a number of pilot projects around community organising and community-union engagement. I think that unions have a lot to bring there. It is important just to note, more broadly, according to figures produced by the Department for Business-I think from back in 2007-that union reps are worth £10.4 billion a year to the economy in terms of improved productivity.

Q468 Robert Halfon: And running services.

Paul Nowak: Yes. Leveraging that resource. I am not going to get into trade union reps delivering services directly, but I think that they have an important role to play in communities.

Chair: I think you have given a very full answer.

Thank you very much indeed to all three witnesses. I am most grateful to you. It has been a very helpful session.

Examination of Witnesses

Witnesses: Professor Julian Le Grand, Chairman, Cabinet Office Mutuals Taskforce, Ed Mayo, Secretary General, Co-operatives UK, and Member of the Cabinet Office Mutuals Taskforce, and Shona Nichols, Group Marketing, Communications and Sustainability Director, Capita, gave evidence.

Q469 Chair: Thank you to our second set of witnesses for joining us. I wonder if you would each identify yourselves for the record, please.

Ed Mayo: I am Ed Mayo. I am Secretary General of Co-operatives UK.

Professor Le Grand: I am Julian Le Grand. In my day job, I am Professor of Social Policy at London School of Economics, but I think that I am here in my capacity as unpaid chair of the Mutuals Taskforce set up by the Cabinet Office.

Shona Nichols: I am Shona Nichols from Capita. My responsibilities there are marketing, communications and sustainability.

Q470 Chair: I think that you will have to speak up a little bit. Thank you very much.

May I just ask at the outset, Professor Le Grand and Mr Mayo, what the reaction has been to the Government’s Mutuals Taskforce? Has there been a reaction?

Professor Le Grand: Yes. There is a lot of interest. I get invited to speak on innumerable occasions at innumerable seminars.

Q471 Chair: Who is interested?

Professor Le Grand: We are getting quite a lot of calls to our mutuals information line from potential employees who wish to think about the business of setting up a mutual.

Q472 Chair: Mr Mayo?

Ed Mayo: That seems fine.

Q473 Chair: What do you think the barriers are to public sector employees moving over to a mutual organisation and carrying on the same service?

Professor Le Grand: Where do we start?

Q474 Chair: Is this the long answer coming?

Professor Le Grand: I am afraid it is. My colleague will also be able to provide anything I leave out. Question No. 1 is procurement.

Q475 Chair: That is the same question as before.

Professor Le Grand: It is related to the discussion earlier on, and your points there that were made about commissioning. Many of the people who start mutuals have no experience of, or often indeed very little understanding about, what is involved, and the business of setting up a business, which, to some extent, is what is going on here, is very difficult. If they were to set up a mutual and then be promptly exposed to the forces of competition from larger organisations, large charities or large private sector organisations, they would clearly be at a disadvantage. One of the issues concerned is whether mutuals should have an infant protection period. At the end of the day, they are going to have to be open to competition like anybody else in providing public services, but can we devise some form of protection for a short-ish period of time to let them get going? That is one issue.

A second issue would be the transfer of working conditions, and particularly-this is related to some of the previous conversation-pensions, which is an enormous issue that comes up time and again. A third issue is VAT. It never occurred to me that VAT would be a significant problem, but there is a big issue about the application of VAT in these circumstances. A fourth issue concerns asset lock. The point was made in the previous session about whether we wish to have some mechanism by which the community assets remain within the community and the organisation is not prone to takeover by large organisations or private sector organisations of various kinds. How am I doing, Ed?

Q476 Chair: That is a very full answer. Anything to add, Mr Mayo?

Ed Mayo: I guess the encouragement is that other countries across the world have looked at these models over a long period of time and been able to make a success of them. In Italy, for example, there are models of what are described as social co-operatives. It is a distinct and clear legal model, it has an asset lock, and they operate for the public interest. They have an exemption agreed with the European Union under commissioning and contracting, which the Committee might be interested to hear, given the earlier discussion. In Sweden, there is a range of childcare co-operatives. In Spain, there are co-operatives running schools.

Other countries have successfully run programmes to see co-operatives and mutuals take up public services. They have done that over a long period of time, addressing these barriers as they come through. The first point has to be that the interest in mutuals in public services needs to be seen as a long-term programme, not a quick fix or an overnight change.

Q477 Chair: That is very important, but I am interested in the exemptions that some countries have arranged themselves for mutuals. For example, in Sweden, free schools are not covered by the public procurement directive, yet a contract to build a free school in the UK would be covered by the public procurement directive. Is that the sort of exemption that the Government should be looking for?

Ed Mayo: That is interesting. I do not know the details on the Swedish example, although co-operative schools in Sweden have been a real success story and one that is echoed here now, in England at least. In Italy, the model of social co-operatives has grown. There were 650 social co-operatives in the mid-1980s and there are now 7,000. They provide social care, employment, reintegration, reoffending support and health services. It is a little bit different to the model we have here, which is kind of anything goes as long as it is within the overall rubric of what being a mutual is: member ownership and majority member control. The social co-operatives in Italy are of a very clear distinctive form: you can kick it, in a sense. What the Italian Government have been able to agree for the type B social co-operatives, which focus on disadvantaged people, is an exemption for local authorities to be able to reach direct contracts with social co-operatives for contracts of up to €300,000.

Although I very much welcome the focus on social value, some of this gets a little bit foggy and you cannot kick it in quite the same way. The benefit of having a clear model operating in the public interest in this way is that you are able to convince the authorities to make a change of this kind. I endorse the comments on the need for further reform of the state aids over time to open up these kinds of models.

Professor Le Grand: Can I add one thing to emphasise the point? I discussed some of the more technical barriers. Ed is perfectly right to draw attention to the more fundamental cultural issues here, and often the opposition comes from cultural methods. We have a particular issue with middle managers in local authorities who are approached by a set of employees who say they would like to spin out and develop a mutual, and they are simply told, "No, it is not possible." It is not part of the culture.

Q478 Chair: There is training and attitude formation required in the commissioning bodies.

Professor Le Grand: Indeed.

Q479 Robert Halfon: As opposed to the managers themselves, how much enthusiasm have you found among public sector workers to have co-operatives, and to spin out for services into mutuals or co-operatives?

Professor Le Grand: We have not as yet been able to. We do not have the resources to engage in a very systematic survey of all public sector workers to see how many of them would like to. We are getting largish numbers of expressions of interest, and we have 21 pathfinders already set up.

Q480 Robert Halfon: Are the expressions of interest from the managers?

Professor Le Grand: From the managers?

Robert Halfon: Or the normal public sector workers. Or both.

Professor Le Grand: I would say it is mostly from the public sector workers themselves. It is the front-line staff who the interest tends to come from, more than the managers, but I would find it hard to justify that from hard evidence.

Q481 Robert Halfon: The TUC says that it is primarily led by managers. Is that the case?

Professor Le Grand: We certainly do not see that.

Q482 Charlie Elphicke: One of the key issues with the Big Society is that if you want to build it, it has to come from the grassroots. The whole ethos of it is that it is not top-down, and yet there is an issue that anything that is not invented here-here being the Cabinet Office, for example-is not then welcomed with open arms. How do you get around that problem?

Professor Le Grand: We view our role as encouraging bottom-up support for the development of mutuals. We are not trying to impose on Departments-or indeed on the services within Departments-the idea that there is some kind of mutual template that they have got to go with. Rather, we are in responsive or reactive mode to getting inputs from groups of workers, and to trying to offer them support, advice and encouragement to develop their own mutuals.

At the moment we are chiefly in responsive mode. We are considering whether we ought to be more proactive in picking out certain areas that we think are particularly suitable for mutualisation, so to speak, and at that point we will have to consider the ways in which we try to mobilise support for that, but we do not see this as a top-down enterprise.

Ed Mayo: I would just remind the Committee that the co-operative sector is a private sector movement in the main. There are 5,450 co-operatives, and the vast majority are trading in competitive markets. There are some very good examples of public service co-operatives, but we are looking at a sector, on the latest figures we have just published, that is trading happily in the market and is not reliant on state funds for what it does. If anything, those independent co-operatives look at some of the public service work and have the fear that the brand of co-operatives may be infected, or knocked, if there are top-down efforts to set up co-ops that are clearly going to fail. As you say, co-operatives are member owned; they are bottom-up in that sense.

Q483 Robert Halfon: Is there any difference between a notforprofit housing association and a co-operative?

Ed Mayo: The difference is that in a housing co-operative, the people that live in those houses have a stake in the houses themselves and a vote on the board that will oversee and run them. Housing associations provide an invaluable service, but there is quite a "get what you are given" culture of paternalism that is retained in that sector, I would argue. The great thing about examples of housing co-operatives and mutuals-smaller in this country than overseas, but in Sweden or New York-is that people have that stake. It is a very Big Society idea, coming back to the original question.

I am continually shocked, unfortunately, by the lack of understanding of co-operative and mutual models right across Whitehall. Perhaps not surprisingly, because these are business models and they are not engaged in public services, the understanding is not good. That understanding goes through from Treasury and through the Financial Services Authority, which is intended to register many of the legal models that are there. Certainly, if I had a fear, it would that some of the mutual models are those that come approved by someone in Whitehall or someone in Cabinet Office.

The encouraging sign is that we have seen the Government reach out to people who understand the models backwards, and we have been invited in. It is welcome that we have been invited into the Mutuals Taskforce, and there are members in other mutuals that are employee-owned businesses engaged in that way. The Post Office is perhaps the largest proposed mutualisation across Government, and, again, it is an example where rather than the Department for Business saying, "This is what it will look like," there has been a process of reaching out to involve different groups to see how that could work. Opening the windows and opening the door to what quality looks like is vital.

Q484 Charlie Elphicke: That is a central point that Mr Mayo raises. First, I have raised this particular issue because of my own interest in mutualism, driven by my own constituency concerns. I have had to be a complete pain in the neck to everyone, and I am thinking that if a mutual enterprise wanting to take over a service or asset did not have a Member of Parliament who was prepared to bounce up and down every five seconds in the House of Commons and brandish the case, what hope do they have? None whatsoever. That is why I underline this issue. It is really important that when ideas bubble to the surface, there is a way to encourage and support, and to take them through. Touching on housing associations, that is an absolutely central point: why is it that the great and the good sit on the boards of these organisations? Why is it that the tenants-

Chair: This is a speech. Can we have a question?

Charlie Elphicke: It is a question; I am asking why-

Chair: It sounds rhetorical.

Charlie Elphicke: Why is it that the Government do not introduce legislation to ensure that if housing association tenants, by majority, want to take over a housing association, they should be able to do so?

Ed Mayo: That option exists in terms of council housing. It does not exist in terms of social housing in quite the same way, but I endorse your point absolutely. Co-operatives were originally formed as co-operative societies, so the idea of society-as in Big Society-has a long history in that sense. I go out to visit co-operatives around the country. For example, I visited Tamworth cooperative society, the elected chair of which is a woman called Audrey, who is a lollipop lady. She is fantastic. I saw her at work getting the children safely across the road, and then I saw her at work in the boardroom marshalling the people around the table very effectively. She is not the kind of person who, with respect, would find herself in a position of authority in another British business or in many other cases, so that talent can come through in terms of trusting people in that context.

In terms of the need for an effective representative-an MP-in some ways the Mutual Taskforce and Julian have been given that role of charmingly but persuasively trying to open up Departments and take them on the learning curve. I would like to see-this is perhaps a recommendation for the Committee to consider-the major public spending Departments appointing at least a mid or senior-level representative in the Department to act as a co-operative contact. That person would be responsible for liaising with what goes on across Government in terms of the Cabinet Office, and also for ensuring that Departments build their own understanding of co-operative and mutual models.

Chair: A very useful suggestion. Thank you.

Professor Le Grand: Some sort of appeals process would also be useful. The Department of Health in its Right to Request programme has an appeals process through which if a group of employees wishes to set up some mutual or social enterprise and is blocked at a medium level, it can appeal higher up the organisation and Department to get approval.

Q485 Charlie Elphicke: What are the implications for accountability of the greater use of mutuals? Mr Le Grand-very quickly.

Professor Le Grand: When we were setting up one particular group of mutuals called the Social Work Practices, which is when social workers group together as small professional partnerships to provide social work services to looked-after children, accountability was always raised as an enormous issue. That was prior to their setting up, and for some reason it has not really subsequently emerged as a major issue. It might be because we have not had a particular crisis. I am sure that at some point there will be a major crisis, and at that point the accountability issues may become crucial.

I suppose the simple answer to your question is that there are two mechanisms for accountability. One is through the contract-the mutual will have a contract with the commissioning authority. Secondly, and most importantly-this is coming out in the experience of Social Work Practice-is the informal relationships that surround the contract. The Social Work Practices that are working most effectively are the ones that have the best informal relationship with a local authority. The answer is that there are both formal and informal methods of accountability, but so far that does not appear to be an enormous issue.

Q486 Charlie Elphicke: Finally, Shona Nichols, you have had to listen to all this sort of stuff. Is it the case that this is all just a lot of old nonsense and they should use Capita and outsource properly? If you take the example of a not-for-profit health organisation in Surrey, it has not substantially grown since it was established in 2005. Is not the market best?

Shona Nichols: I think there is a place in the market for all sorts of organisations, and particularly for those organisations to play to their strengths. There is a view that there is the private sector over on one side just doing one set of normal contracts. We deliver all sorts of different service models: concessions, franchises, JVs, JVs with some employee ownership and participation, etc. Capita itself grew out of the public service. It came from CIPFA many years ago as two people from the public sector, and now we have grown to 37,000 employees.

From what I have read in the evidence, and from listening to the session beforehand, there are challenges for some of those organisations to get involved. The role for Capita and other organisations that have spent many years in terms of taking over services, whether they are from the private sector or the public sector, is using the skills that we have to make those people more productive, to communicate with staff, and to make sure that there is the right kind of capacity, training and leadership to facilitate the change.

It is not just about what label you put on it. It is not just about taking a group of employees and changing their ownership in their organisation. It is about all those other things that you can bring to it to facilitate the change and make sure you get the outcomes. We have a changing role, as a private sector organisation, and the work we are doing at the moment with local authorities, and the way they are procuring, is showing the way to change. There are some very interesting discussions and models that are being put forward.

Lambeth is one. It was a contract that we extended and enlarged recently whereby you have a private sector organisation that is not only effecting the change in terms of bringing down the cost of some bulk services, but able to make an investment that the council cannot do. We are also setting up a community development trust, and the whole idea of that is to make sure that we can work with citizens, other organisations and voluntary organisations and help them to participate more in delivering services to the local authority by putting down seed funding and using people within our organisations as mentors. We are trying to create a better environment and structures to address some of the challenges you get in mutuals, co-operatives and the voluntary sector. We need to move with the market, as we have over many years, to address that going forward.

Q487 Robert Halfon: Is it possible to have a co-operative that is part-private so that the private sector would have a share in the co-operative? You would come along and run a particular co-operative and invest. In other words, you would have access to capital, they would have a share, but the rest of it would be run by a co-operative?

Shona Nichols: You can look at the models at the moment with some of the things coming into procurement. MyCSP is looking for investment in something that is going to become a mutual. You are looking for whatever kind of private sector organisation that can bring the investment and skills to combine and help that organisation to shape itself and go forward. That is in procurement at the moment, and how it will end up I do not know. There are interesting things, but there are barriers, and I do not know what the legal and technical barriers will be.

Professor Le Grand: Joint ventures are perfectly possible, and MyCSP is a classic case of a joint venture we are looking at. It might get problematic if the equity shareholding was much greater than 50%, but equity shareholdings of 49% or whatever seem to be perfectly consistent with the kind of model that we have in mind.

Q488 Kelvin Hopkins : Capita started as a local authority computer unit run by a consortium of London boroughs. You are now a private company in the FTSE 100. As a plc, your first duty obviously is to your shareholders, but what would you say is your vision, your aim and your objective?

Shona Nichols: Our overall objective is to ensure that we have a sustainable growth company going forward that can then deliver best value for our clients, whether they are in the private sector or the public sector. We do not just have a shareholder as a stakeholder. Our clients, employees and suppliers are all very important stakeholders to us, and we try to be very equitable about balancing what we need to do for those different communities.

Our vision is very much to continue to grow the business, to continue to have access to funds-that is an important point-and to ensure that we can go and develop or acquire companies that will give us new skills that we can then bring to bear to our contracts and the different relationships that we have. In a competitive market, you always need to be changing yourself and the way you deliver things to ensure that you are meeting the needs of your clients and that you are keeping ahead and competitive.

Q489 Kelvin Hopkins : Your website states that your strategic objective is "to stimulate the firm’s growth through acquisitions". Are you not just another aggrandising private company buying up components of local government or other companies to make money?

Shona Nichols: The basic business model we have is to grow organically through creating and sustaining the small businesses that we have and to take on contracts, including large contracts, with contractual agreement to cost savings and service improvements. We have a regime where we have KPIs and very detailed management information, and if we do not deliver on them, we have penalties as well. Acquisition is part of that model so that we can increase the scale in some areas to deliver back better productivity and lower cost, and also to buy companies. We tend to buy small to medium-sized privately owned companies that have been built up and whose management want to release value to themselves, retire or go and do different things. It is those small companies that often have the kind of niche skills that mean that we can deliver a better service back to our clients.

Q490 Kelvin Hopkins : I remember the origins of Capita. One or two Labour councillors saw an era of privatisation-contracting out-on the horizon, and saw a potential killing, which they certainly made, by effectively going private for what was a local authority consortium. Throughout almost that last two decades, this has gone on. For ideological reasons, the Government have been pushing things into the private sector, pushing local authorities to contract out. You have picked up all the profitable bits and made lots of money. Isn’t that what it is essentially about?

Shona Nichols: I do not think that we have picked up all the profitable bits and things like that. We have been asked by those local authorities to work with them to help them to transform their organisations, and we are delivering back anywhere between 15% and 30% cost savings to those organisations. We are helping them by investing so that they can actually change their services better to meet the needs of the community. We have an excellent JV with Birmingham city council, which is 65% owned by Capita and 45% owned by the council. Some 5% of the profits in that JV are managed by the employees. The employees choose where they wish that money to go, and invest in and develop community initiatives, such as a virtual college for children who have been excluded or self-excluded from school because of bullying or because of their home natures, etc, and in terms of various other community and arts things to help people.

There are different models that you can run to deliver the outcomes for that local authority, and there is some interesting thinking in local government. It has been exploring outsourcing and the different models for a lot longer than central Government. Central Government under Labour were more about engaging with outsourcers to deliver new servicing structures for new policies, such as the education maintenance allowance. We have not engaged-and there is not much more traditional outsourcing-in central Government, whereby you take over an existing service and you try to make it run better and more efficiently, and deliver better outcomes in terms of the service quality.

Q491 Kelvin Hopkins : We could debate for a long time whether it has been beneficial financially in terms of the public purse. You make money out of the public purse; largely it is taxes that ultimately pay. One more question: you put a very benign picture of Capita, but Paul Pindar, chief executive of Capita, seems to have almost a hostility to the third sector about certain large Government procurement contracts, saying, "There is absolutely no way on the planet that this is going to be left to a charity."

Shona Nichols: As probably all of you have experienced in your own life, certain comments are taken out of context. Those comments come from an interview and discussion that was for educational purposes in terms of one of the financial journalists on the FT. Basically, he was saying, "Is there a market for Capita going forward with all of this change?" I do not know in terms of that soundbite that came across, but what Paul was trying to explain, as I was earlier, was that there are different roles for different organisations as they stand at the moment.

If a small to medium-sized charity is to take over and look after-to have transferred to them on one day-3,000 people, it probably does not have the capacity, ability, investment, funds, etc, to make sure that it can run that and do so sustainably going forward. He is not anti the voluntary sector; he was just trying to explain that there are barriers for various charities and other voluntary sector organisations to take on some of the large chunks of central or local government.

Chair: This was about a £2.6 billion contract to handle travel services for Whitehall Departments. I cannot think of a charity that might be interested in that.

Q492 Kelvin Hopkins : A general question to all three of you: in the past, mutuals grew up either where there was no provision before, or as an alternative to private provision. Mutuals are now being seen as a way of pushing former public services out into another sector, and many of us see this as a stepping stone to privatisation. How much of this is just the decoration of a process of pushing public services out into the private sector?

Ed Mayo: I would argue that whether or not one was looking at a programme of the Big Society-and co-operatives tend to be interested in the ounce of practice, not the tonne of theory-there would be a very strong case for looking at the role of co-operatives and mutuals in public service delivery anyway. In my view, the market does not work as an effective market. The focus on contracting creates economies of scale, and it creates what economists would describe as a bargain and then rip-off scenario, where some firms do extraordinarily well. There is a case for looking at getting greater efficiency out of the outsourced public services at any rate.

The current rules of the game essentially encourage the Government either to keep it in or to kick it out. What is difficult is the investment in processes whereby you could see the staff come forward to take some share of ownership in it, or communities to take some share of ownership in it as well. There have been real barriers to that kind of model emerging. The Foster Care Co-operative is one example of a public service co-operative. It includes 250 foster carers. They are not particularly well paid, but they are unionised and they have got the dignity of co-owning their co-operative. They are motivated by providing an alternative to private businesses that make millions out of child care. They deliver an extraordinarily effective commercial service. They are spreading in Scotland and across the UK as well, and they see what they are doing as providing something that is businesslike, absolutely, but values-driven as well. Done well, that absolutely can have a place in public service delivery.

Professor Le Grand: We think that there are enormous positive benefits to the idea of mutuals and mutualisation that are way over and above it acting as a kind of cover for privatisation. I come back to a point that was made earlier: it is worth distinguishing between the different kinds of mutuals. There are three kinds that we think of: employee-owned organisations; user-owned organisations-the co-operative retailer is a classic example of that, or some of the financial mutuals-and community-owned organisations. We are focusing particularly at the moment on employee-owned organisations, and we think that there are-forgive the academic jargon-intrinsic and instrumental benefits to that. There are intrinsic benefits, in the sense that there are benefits to the employees themselves simply being more in control of their own lives. It raises morale, it raises happiness, and it raises productivity. There are clear benefits that are internal to the organisations concerned.

There are also instrumental benefits in the sense that the employee ownership acts as an instrument for achieving better service outcomes. There is quite a lot of evidence, again, that you get higher consumer satisfaction, higher service satisfaction, greater efficiency and greater productivity. There are benefits from the very form of organisation itself that come from employee ownership, in terms of the intrinsic benefits to the employees and the instrumental benefits to the service.

Q493 Greg Mulholland: Ms Nichols, what contracts does Capita currently have with Whitehall Departments, and where is the company seeking to expand and get more?

Shona Nichols: Currently the largest contracts that we have are the CRB, part of the CRB agency, and teachers pensions, which we have now delivered probably for about 12 years after going through two re-bids and changing quite dramatically in terms of its cost base and what its outcomes are. We also deliver some single services as well, such as recruitment services, property consultancy services and consultancy services-those kinds of things.

Where we are looking to grow in terms of central Government is very much taking our ability to make back offices and administration services much more efficient, and helping to change the channel shift so that you get to a situation where you can actively turn off other more traditional routes of doing business with Government. We would be looking to take that into different Departments with which we do not work at the moment. We are bidding into the MOD at the moment and there might be some areas of justice that could benefit from that kind of work, and we are continuing to work with local authorities obviously.

Q494 Greg Mulholland: Can you provide evidence that with some-ideally with all-of these services that you run, you have improved the public service, as opposed to achieving the other motivations that Capita obviously has, with making a profit clearly being one of them ?

Chair: You may have reduced costs for the Government, but have you improved the service?

Shona Nichols: On most of our central Government contracts-in fact all our contracts-either the client will do surveys with customer satisfaction, or we will have to undertake those and procure them from an independent source to show that we have made improvements in the outcomes of what we are delivering. We contract, and we do have KPIs, both in terms of cost savings and the quality of service that we are delivering.

Q495 Greg Mulholland: You reject the criticism that involving the private sector might lead to reduced costs, but often leads to poorer services?

Shona Nichols: I do. There are so many things that we can bring. The conversation we were having earlier about the acquisitions that we make is that we will bring new ways of using technology and dealing with customers, and we will share the best practice we have, both in the private sector and public sector, and bring that to bear to our contracts.

Q496 Chair: I do not think that Capita manages elderly persons’ homes?

Shona Nichols: No.

Q497 Chair: Southern Cross is a company that was obviously skilled in that sector and took over a very large number of homes. What has gone wrong with that? Why has the contracting model in that case not worked? What did the contractors do wrong in order to find themselves exposed in that position?

Shona Nichols: There has been a lot of learning but, in the past, some of the ways in which procurements were driven-just to cost and not to outcomes-meant that some organisations were left with contracts whereby they were having to deliver services on a cost basis that was not tenable or sustainable, and that did not allow them to deliver the benefits.

Q498 Chair: It was not just the company trying to make too much profit.

Shona Nichols: I do not believe so. They will want to keep their business going, so they are not just going to try to make as much profit, which leaves their organisation in a state where it cannot deliver those services and cannot win new business. As an organisation you have to make sure that you have got good referees in terms of your clients to get new business, and therefore you need to deliver to them a very good quality service.

Q499 Chair: Surely the essence of contracting out is that you offload these risks, but in fact the risks have come back to haunt the public sector in the case of Southern Cross, haven’t they?

Shona Nichols: They did in the case of Southern Cross. I do not know the actual details of that. I do not know what its model was and I do not know how the services were procured in the first place.

Q500 Chair: This is ultimately a contracting problem, isn’t it?

Shona Nichols: We have been asked in the past to step in and help where contractors have failed.

Q501 Chair: Do you think it would be reasonable for a contractor to set limitations on your leverage-for example on your borrowing-or to set restrictions on what assets you must own to undertake the contract?

Shona Nichols: At the moment, in terms of the way we run Capita, we have a very conservative balance sheet, because we want to ensure that we do not. We could have grown the business at a much greater rate.

Q502 Chair: You must have lost contracts to people who you felt were pirates-sharks in the ocean-who were undercutting a nice and upstanding company like yours with sharp practice?

Shona Nichols: I do not think it is sharp practice. Occasionally an organisation-sometimes for strategic reasons to get into a market-will be happy to take on one contract at a lower level, but the problem is that you cannot sustain that.

Q503 Chair: Yes I know, but how do the public contractors guard against that kind of sharp practice?

Shona Nichols: If they look at acquiring not just on cost, but on cost, value for money and outcomes. That is important, as is making sure that the organisation that they are looking at to transfer the service to has the capacity, expertise and funding if there are some difficulties-and when you take over big complicated things, there always are going to be difficulties. We take on a lot of liability, so that is what they need to do.

Q504 Chair: Thank you. Mr Mayo?

Ed Mayo: I think it is very important in this mixed economy of public service provision that is emerging to have an effective approach towards failure. Co-operatives are businesses like any other, so they will succeed and fail. I tend to think that co-operatives tend to be harder to kill, but when they do go down, there is more emotional fallout from it. One of the benefits of the co-operative model is that you get people’s input and voice. That is one of the reasons why I personally favour not just employee-owned mutuals, but models that bring in mixed stakeholders and mixed groups, such as co-operative schools. We have 136 co-operative schools with teachers, parents, and community groups. That provides a way of checking on what is going on. It is effective governance and accountability.

More widely, I see this as possibly something that may not just be a contracting and regulatory issue-for example around leverage, although that is welcome-but that could be tackled through insurance, because essentially the view is, with Southern Cross or the like, that the state will step in to bail them out. We have heard that before in other sectors, and not on the public service side either. Should we be looking at pricing that potential for failure if the state needs to step in so that if you are going to open out to different providers, arguably for the state as well, you should be looking towards some mutual insurance model, whereby some money is put aside against the risk of a failure?

Q505 Paul Flynn: Ms Nichols, the individual learning account scheme was part of the Capita empire, wasn’t it?

Shona Nichols: We had a contract to deliver it, yes.

Q506 Paul Flynn: Instead of, as you have described, a scheme being sustainable going forward, wasn’t this a scheme that was lubricated by fraud unsustainably going backwards?

Shona Nichols: It was a contract that was, again, probably not procured in the right kind of way, and it did not have the right kind of things in place to stop fraud by the deliverers-that was where the fraud was. There was no fraudulent activity in the service and IT that we were administering; it was in terms of companies that were delivering that service and that training fraudulently saying that they were delivering a package of training.

Q507 Paul Flynn: What was Capita’s responsibility?

Shona Nichols: It was to run the IT, which was the basis of the administration of that service.

Q508 Chair: You did not have a supervisory role? You did not have a fiduciary role over the overall-

Shona Nichols: No we did not. In fact, there were different suggestions at the time it was procured-

Chair: Order. Forgive me; please carry on.

Shona Nichols: I am trying to remember the exact detail, because it was quite some time ago now, but there were some changes in procurement about what kind of organisations could be a part of the scheme and which could not, and how you could check on those organisations. That was changed as the procurement went along. Where we should have put our hand up, very much on that procurement side of things, and shouted louder was about the fact that, because of the changes, you did not have so much oversight and additional checks already in place on those organisations to make sure that they were of the right kind to deliver that training.

Q509 Paul Flynn: You had involvement with Lambeth housing benefits as well?

Shona Nichols: Yes.

Q510 Paul Flynn: Are you Pontius Pilate in this case? Do you wash your hands of anything that went wrong? You were perfectly innocent; you were let down by bad people.

Shona Nichols: No. A really important point is-we were talking earlier about trying to encourage more people into this marketplace-you do learn by your experience.

Paul Flynn: But you are not responsible-

Chair: Mr Flynn, would you let her answer the question.

Paul Flynn: Well, I want to ask her other questions.

Chair: I would like you to let her answer this question, please.

Paul Flynn: I do not think you are going to get an answer, but still, go on.

Chair: Mr Flynn, please be quiet.

Shona Nichols: I will answer your question in terms of saying that when we took over the housing benefits at Lambeth, it was one of the larger benefits contracts that we had taken on. What we failed to do-and, again, we will put our hands up-was enough due diligence in terms of what the actual service and the state of it were at the time it was transferred. That is very important, in that you really need to understand what you are taking on and the risks and liabilities. What we found when we took it on was sacks of benefits applications and things that had been sitting in some rooms in the basement of the organisation. We had to work really hard with the council to try to catch up on that backlog, without getting further money to do so. We had to sort out that problem because we had contracted to do so.

We worked very hard, we worked with the organisation in Lambeth, and we decided there were some things, because of that situation, that we were good and well placed to do, and some the council was better to do. We changed the contract and how we delivered it. We went on then to run and move forward its revenues contract, and it is working with us in a different kind of partnership model-a collaborative partnership model-to help it with its challenges going forward.

Q511 Paul Flynn: Was there any loss to the public purse or to your shareholders as a result of these two schemes?

Shona Nichols: Yes, because we had to put our hands in our pockets and make sure that we funded it-funded the extra people, etc.-to make sure that the service was increased and made better. We contract to a 10-year contract where we say, "This is how much we have anticipated for running that service. This is how much savings we are going to deliver for you, and this is our overhead in terms of the cost of running our organisation and having the right kind of funding and insurance in place." As an organisation, we have to take a lot of risk and liability, and that is a very difficult thing for some of the voluntary organisations going forward. That is an important thing for us to look at so that we see how we can help them to understand that risk, and find ways to make sure that that risk is fully funded, so that if things go wrong, particularly in essential services, there is somebody who is accountable and somebody who can make sure it is supported.

Paul Flynn: I will not go forward with this. I will leave it. Mr Mayo, you gave us an impressive list of co-operatives throughout the world. I think in most of them-

Charlie Elphicke: Paul-

Chair: I am chairing this meeting. Mr Flynn?

Q512 Paul Flynn: Most of those co-operatives that have been successful in Spain, for instance, are in the Basque country and involve groups of people who are hostile to the state. Probably the most successful co-operative made in Britain was Tower Colliery, which was run by communists who really took on Heseltine because he was closing their pit, but hugely successful. Do you really think that this topdown idea of co-operatives could work? It is not the case that the Government have brought in all kinds of good people, with nice cuddly schemes-mutuals, co-operatives and all the churches-to come along to add some window dressing to a pretty cynical attempt to reduce the value of public services?

Ed Mayo: Some of the co-operatives you mention are rightly famous. FC Barcelona is the poster child for co-operatives, owned by 210,000 members.

Paul Flynn: They are Catalans.

Ed Mayo: I do not know their view on state delivery of public services.

Q513 Paul Flynn: It is because they are Catalans.

Ed Mayo: Maybe you are right. We have seen co-operatives emerge across a wide view where it is simply a successful business model. For example, two thirds of farmers in Scotland are part of agricultural co-operatives because it delivers for them on the bottom line. I do not know the view between the farmers and the state. It is a business model that can work. However, exactly as you say, the idea that you can have a top-down programme to start bottom-up enterprises is deeply problematic.

Therefore, the focus needs to be, moving forward-I welcome the interest and the engagement-in the context of a withdrawal of public services and cuts in public services, so it is a difficult time to be doing this, but the issues that Julian talked about at the outset of this session, in terms of the barriers, is where the state can play a role. Rather than the state saying, "This is what you should look like," if the state can remove the obstacles to taking forward co-operative and mutual enterprises, that can help, because then people can organise to be able to do that.

You know from the Tower Colliery example that people have got to buy into this; they have to have an emotional and a financial stake in it. If you get those things aligned, these can work very well. It is not straightforward to do at all. There are some examples of where it has been done, but the role of the state has to be to reduce the obstacles and the barriers that there are to getting these things up and running in an effective way.

Prof Julian Le Grand: It is worth announcing that John Lewis and Arup are workers’ co-operatives, in a sense, and it would be hard to describe them as hostile to the state, or as having developed in hostility to the state. I have to say that some of the examples that we have within the public sector-the Social Work Practice, for example, and Surrey nurses, again-would be hard to characterise as having arisen in some form of opposition role. I do endorse the basic message, which to some extent your interchange has just illustrated, that the role of Government in these cases should be one of removing the barriers rather than some kind of top-down imposition.

Q514 Paul Flynn: You were in Downing street in 2003 to 2005, I understand, as an advisor to the Prime Minister?

Prof Julian Le Grand: I was.

Q515 Paul Flynn: Do you think that in six years’ time the Big Society will have as much resonance as the third way has now?

Prof Julian Le Grand: I am not here as a commentator on the Big Society overall. The particular idea that I am involved with-the idea of mutualisation in the public sector-will, I think, have enormous resonance in six years’ time.

Chair: Two other very brief questions. Is it urgent Mr Flynn?

Paul Flynn: I was just going to quote the CBI leak that cited Francis Maude as saying there was a feeling among Ministers that "the Government was not prepared to run the political risk of fully transferring services to the private sector with the result that they could be accused of being naive or allowing excess profit-making by private sector firms". Are the Government getting cold feet on this?

Chair: I was going to come to that point myself, if I may, but before I do that, Mr Elphicke. Very briefly please.

Q516 Charlie Elphicke: Mr Flynn raises the matter of the Lambeth housing benefit contract. Between 1994 and 1998, I was chairman of the central services committee of Lambeth council, which was then a hung administration. Before taking on that contract, were you aware that the Lambeth county court had suspended all possession actions by the council on grounds of non-payment of housing benefit by the council prior to 1994? Were you also aware of repeated issues with housing benefit forms being stuffed behind radiators, locked in cupboards and suchlike before you took on this contract-that there were substantial issues and difficulties?

Chair: Ms Nichols, if you want to answer in detail you may, but I am not sure this is entirely relevant to the inquiry.

Charlie Elphicke: The question has been put.

Chair: The question has been put ; do you wish to answer it?

Shona Nichols: I can answer it at a certain level. Obviously I do not have all the details, but I am happy to find someone who was around and part of delivering that contract at the time to give it to you. My top-level view, in terms of having only just been in the company at that point, I think, is that, yes, we were aware that there were issues. One of the reasons why we were getting involved with Lambeth was because it did have issues with its housing benefits. It was the scale of those issues that was very surprising to us when we had got in and taken over the contract. I did spend two days a week in Lambeth with the team, working through with the communications team on the ground how we were going to handle that kind of backlog and the impact on the community that was down there.

Q517 Chair: Ms Nichols, if you want to submit a supplementary note on that, feel free to do so, but I wonder if we can move on.

Shona Nichols: I am happy to do so.

Q518 Chair: As my colleague Mr Flynn was raising, there seems to be prejudice in the Cabinet Office against private sector providers in favour of mutuals and charities. Is that, do you think, because of anxiety about the inability of mutuals and charities to be able to compete on a level playing field with the private sector?

Prof Julian Le Grand: Certainly, nothing verbally has been expressed to me about a worry about the private sector vis-à-vis-

Q519 Chair: Let me express my own worry: I am an ardent capitalist, but I should imagine that, with the best will in the world, larger private contracting companies such as Capita, for example, have an interest in aggregating large contracts and encouraging contractors to offer large contracts to squeeze out the smaller sector. Unless the smaller sector is given some extra support, do not contracts naturally migrate to the large companies and the skilled contractors and away from the smaller, less-skilled providers?

Prof Julian Le Grand: Not necessarily. An example of an area that is not exactly mutuals, but where you have professional partnerships, is GPs. Despite some drive-partly by the previous Government-to introduce the private sector and to use larger organisations, we have not seen takeovers of GPs. Again, in the idea of professional partnerships, with the idea of mutuals, you can build in mechanisms that make it quite difficult for takeover or for swamping. You can build in mechanisms, at least in the early stages of the development of a mutual-right at the beginning-to protect them from ferocious or unfair competition.

In the long run, it will only be fair and reasonable that mutuals compete on a level playing field with other organisations-the charities on the one hand; private sector on the other. I believe, for the reasons I gave earlier, that they will do very well in that competition because they can provide a better service.

Q520 Chair: Ms Nichols, would you like to comment?

Shona Nichols: I think there is a role for all organisations, and it depends on their specific uniqueness. People forget that when we take on a contract, the employees move from the public sector to the private sector, and they are continuing to deliver that service. It is just that we are helping them to deliver it better; we are fundamentally trying to give them more ownership in the organisation through share schemes and through being able to develop their skills and services for them. If you look at the contracts we have, there are an enormous number where we work a lot with community organisations and voluntary organisations. We built up a network of 11,000 smaller organisations to help with the Home Access Contract to try to get right into the communities that are hard to reach. Those organisations were much better, in terms of identifying those people, than we were in the centre. What we were much better at doing was running the grant applications service at a much lower cost for them. It is the combination-and a very good combination-of those two things.

Q521 Chair: Thank you very much. Do any of you want to add a final word? You have been very generous with your time. Mr Mayo, very briefly.

Ed Mayo: Briefly on this, the risk that you allude to-that of a cottage industry model that then gets gobbled up over time by the big players-is genuine. That is why the programme that we are seeing, including some of the pathfinders, includes some organisations at a relatively significant level of scale-that needs to happen. That needs to go alongside some of the set up for the market that means that the big players win. Capita’s relative comparative advantage is in bidding, and if you create such barriers to entry at the point of bidding, you distort the market in favour of the larger players-that is not effective. The co-operative business sector is growing-21% growth over the last three years-but it also includes some very significant, profitable and ethical businesses, which sounds like a good combination that can keep public trust over time.

Chair: Thank you very much indeed. You have been very generous with your time. We have overrun. I am grateful to my colleagues for staying the extra time as well.

Prepared 12th July 2011