UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 112-iv

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Communities and Local Government Committee

THE CO-OPERATIVE COUNCIL

MONDAY 18 JUNE 2012

ED MAYO, PAUL NOWAK and SIMON RANDALL CBE

COUNCILLOR PETER KOTZ, PETER BUNDEY, DONNA FALLOWS

and COUNCILLOR GWILYM BUTLER

Evidence heard in Public Questions 217 - 310

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Oral Evidence

Taken before the Communities and Local Government Committee

on Monday 18 June 2012

Members present:

Mr Clive Betts (Chair)

Heidi Alexander

Bob Blackman

Simon Danczuk

Bill Esterson

Stephen Gilbert

David Heyes

George Hollingbery

James Morris

Mark Pawsey

Heather Wheeler

________________

Examination of Witnesses

Witnesses: Ed Mayo, Secretary General, Co-operatives UK, Paul Nowak, Head of Organisation and Services, TUC, and Simon Randall CBE, Consultant, Winckworth Sherwood LLP, gave evidence.

Q217 Chair: May I welcome you all to the fourth evidence session in our inquiry into the cooperative council? Thank you very much for coming and for the evidence you have given us so far. For the sake of our records, could you say who you are and the organisation you represent?

Paul Nowak: I am Paul Nowak, head of organisation at the TUC.

Ed Mayo: I am Ed Mayo, secretary general of Co-operatives UK.

Simon Randall: I am Simon Randall, a consultant with Winckworth Sherwood.

Q218 Chair: You are all welcome. If you agree with what someone said, just saying that you agree with it is probably sufficient, so we can get through as many of the issues as possible in the allocated time. This is our fourth evidence session. We have had quite a few witnesses so far. One thing we have been trying to grapple with is the whole issue of cooperatives and mutuals and what a co-operative council entails. Looking from a distance, do you think the Government themselves have a coherent policy on what role cooperatives and mutuals could play in service delivery in the public sector?

Simon Randall: The Government’s policy is set out in the coalition agreement, which was that co-ops, mutuals and local organisations should be encouraged to take over public services. The particular area on which they are perhaps homing in at the moment is local government with the Right to Challenge under the Localism Act, which comes into force on 27 June. I think that is the area in which the Government are most interested. This is probably another question. More work needs to be done to inform people as to the opportunity for coops, particularly poly-cooperatives, to take over public services, and clearly there are a number of things the Government will have to do to encourage staff co-ops and local organisations that are mutuals to take over public services.

Ed Mayo: I start with an apology, but I did not hear the middle bit of your question.

Q219 Chair: To what extent do the Government have a strategy about the role that mutuals and cooperatives can play in the delivery of public services?

Ed Mayo: Thank you very much. I did not want to answer the wrong question. I think the Government have a plan for developing a strategy in public services to a greater extent than in the private sector. The coalition agreement did also include a commitment to encouraging diversity of organisational form in financial services, which is another area. What we have seen is the identification of the key barriers to, particularly with spin-outs, encouraging existing public services to be run as mutuals. The Committee had evidence from Julian Le Grand at a past meeting. I think that much of the work that the Mutuals Taskforce in the Cabinet Office has been identifying some of the barriers to taking this forward. Evidence to date is quite smallscale in terms of practice, with the exception of one or two areas; education is a key one. We have some of the building blocks in place. We do not have a comprehensive strategy, because I do not believe we have yet got a credible set of targets in terms of what rolling this out might look like.

Paul Nowak: From the TUC’s point of view, we are very clear that the Government have got a strategy, or certainly a direction of travel, in terms of public service reform, which is to open up our public services to a wider variety of providers. Cooperatives and mutuals are supposed to play a large part in that. Our fear is that that marketisation will open up more opportunities for the private sector. The evidence to date is limited, but some of the initiatives that we have seen taken forward under the banner of mutuals and cooperatives suggest that that is the case.

Q220 Chair: Mention has been made of the Mutuals Taskforce. We had evidence from Julian Le Grand at a previous hearing. Do you think the taskforce’s remit-this is a point we put to him-is quite narrowly focused and it is really just about spinning off from existing public services an element that then can be turned into a worker’s cooperative, and it is almost that and that alone with which the taskforce is charged?

Ed Mayo: I declare an interest as a member of the Mutuals Taskforce. I think you got an indication from Julian as to the timing of the next report of the taskforce following the evidence work that has taken place. To agree with the essence of your comment, the Government have focused on an employee-owned model and the spin-off of existing services. In some of the evidence and discussions the Committee may have had you are looking at other models as well. The idea of coproduction, which is an ugly word, is about a partnership between the people who provide services and those who use them, so at the moment the focus is relatively narrow.

There is a long history of different models of public services, as Paul was saying, and a number of those have gone under the title of mutuals. Foundation trusts have described themselves as mutuals. MUTUO, which is a think tank in the field-with that kind of name, it would have to be-describes foundation trusts as mutuals, but that is a long way either from the more direct ownership and democracy of bona fide cooperatives or from the kind of employeeownership model of spin-outs that the Government are currently looking at. Therefore, there is a wider public service mutuals agenda that is the focus of government at the moment, even if you can see a good deal of sense in exploring the productivity gains that could come from an employee-owned model.

Paul Nowak: I would echo the comment about the focus being more on the spin-off of existing public services than, for example, cooperative ways of working and how government staff deliver public services and communities work together to improve services and their delivery.

I should make one other point about the Mutuals Taskforce. The TUC and its affiliated unions did make the point to Francis Maude at the public services forum that it was unfortunate that, particularly with the focus on employee ownership, the one group excluded from the taskforce in a meaningful way were representatives of employees. We represent 4 million people who deliver public services. Some of those work directly in the public sector; some work for private sector companies; and some work for mutuals and social enterprises. We thought the voice of the workforce needed to be heard a bit louder in that taskforce.

Simon Randall: I think the emphasis could have been more on community benefit organisations. The area that particularly excites me is the way the community can be involved in running public services. There are numerous examples that have been going for years: housing and health cooperatives. I have been involved in a slightly unusual one: Dover People’s Port. That has been set up by the community, hopefully to take over Dover port. It has just had its 1,000th member. That kind of operation, which involves very much a mutual, with all the assets being held by the community and all the surpluses being reinvested back in the business, could perhaps have been incorporated in the Mutuals Taskforce as well.

Q221 Simon Danczuk: Paul, are the unions unwilling to embrace any change towards greater use of mutuals or cooperatives?

Paul Nowak: That is not the case at all. We do represent people already working for cooperatives and mutual organisations, in both the public and private sectors. I think it is fair to say that the preference of our unions is for public services to be delivered directly by the public sector, but we are engaged in supporting members and initiatives where the workforce are on board, engaged and supportive of those moves and proposals. One of our frustrations is that, where something is supposed to be a focus on employee engagement and ownership, quite often mutualisation is being done to staff, rather than actively engaging them. If the Government are serious about extending that cooperative model, they need to think about ways of positively engaging staff and listening to their views and concerns. We do not think that the Government are doing that at the moment.

Q222 Simon Danczuk: To all three panellists, is there any evidence about the impact on staff transferring into mutuals and cooperatives?

Ed Mayo: I think, as the evidence you had from Julian Le Grand at a previous session suggested, the majority of evidence came from the private sector. Cooperatives are independent businesses. We are of the private sector in that sense. We are a social ownership; we are cooperatively owned; but that is where the evidence base is. The spin-outs that we have seen that are high performers, as may have been mentioned before, are those that have emerged and survived. They have a good story to tell, but they are relatively small in number and therefore the evidence may be relatively anecdotal.

What we do know, which is the flip side of it, is the shockingly low levels of staff engagement across current public services. We have now had almost three years of the consistent people survey across different Government Departments and the like. While those results are subject to intelligent statistical presentation, what emerges for me is that there is a very significant problem in terms of low levels of staff engagement. It is a tough time for anybody working in public services with the limits and cuts we are seeing. That does not make it easy to pursue a mutuals agenda; indeed, some people would see the mutuals agenda as a way of delivering those cuts, which does not make it any easier to achieve, but while the evidence on the positive is relatively weak, the idea that there is something to be done is, I think, a strong one.

Paul Nowak: Our union has real concerns about the impact on employment and jobs, quality of employment and pay, terms and conditions. The Committee will have seen that from the evidence of UNISON and Unite in particular. A lot of that evidence is driven by their experience of outsourcing more broadly, partly because, as Ed says, there are limited numbers of examples to draw from in the public sector at the moment. What is particularly worrying for staff is that this is being done in an area where budgets are already under pressure. There is a danger that these initiatives are seen as part of a broader cost-cutting exercise. Clearly, staff are not confident that this is being done in a way that their voices are being listened to and they have been properly engaged. One example is the Audit Commission and DA Partnership. There is a sense that staff feel, "Where’s the security in the longer term?" You set up a mutual organisation, you lose contracts, and effectively that organisation has now been folded into the private sector.

Simon Randall: About two years a report was produced by Professor Lampel on behalf of the Employee Ownership Association. It reported that employee-owned organisations created jobs faster, were more resilient and had similar other advantages. I have done a survey of quite a number of charitable leisure trusts where there is a large involvement of staff in the running and management of the service and in decisionmaking, and that reflected some of those particular issues. I think there is some evidence that employee-owned bodies are more resilient and create more jobs. However, I accept both of the comments made by the two previous speakers that we are in a time of austerity, so perhaps if that 2010 survey was being done now it might not be quite so rosy.

Q223 Simon Danczuk: UNISON, in its submission, made a point about mutuals and cooperatives causing the potential for fragmentation of local service delivery. The impression I am getting is that there is very little evidence for any of this; they are just guessing at what might happen. Am I right in saying that?

Paul Nowak: To take that example and maybe talk about sustainability, one of the experiences of unions is the deregulation of passenger transport executives back in the 1980s, when large numbers of employee-owned organisations were set up. None of those exists any longer; they have all been subsumed within the private sector. You had that initial fragmentation and consolidation, but it was consolidation of private sector organisations, rather than the longer-term sustainability of employee-owned organisations.

Ed Mayo: I think this is a real issue. I alluded earlier to a history of experimentation in different models of delivering public services. You might trace that back to Sir Robin Ibbs in the 1980s. He developed a model of public services being delivered through agencies. The idea was that these agencies would have a focus on operational delivery and would be able to get on with that, aside from everything else that was going on. It is probably a consistent tussle between large and small, focused and integrated, and many of the changes that we see from time to time over public service, in the NHS or elsewhere, reflect that kind of underlying tussle. There is unquestionably an issue about how public services and those agencies that are there to deliver them deal with complex issues that have multiple dimensions and causes. Do they collaborate in order to be able to see change? We know that can happen positively and negatively. Some of the frameworks for it around integrated budgeting, local authorities and the like are important in making that more or less likely, but there are probably different ways to skin a cat. In Wales, there is, I believe, still a duty to cooperate, which applies essentially to statutory services. Wales has not gone down this kind of route, with the exception of some very positive mutual examples in housing.

I will come back, if I have an opportunity, Chair, to brief the Committee on the success of the cooperative trust schools and academies in England. One of the things we see is that the cooperative element brings a culture that is very open to co-operation with other parts of the education sector. In a sector that is probably very concerned about issues around marketisation and competing when dealing with outcomes for children, cooperative schools are collaborating to be able to build in an integrated way, while at the same time operating on an individual agency basis.

Q224 James Morris: I am getting slightly confused by terms. Mr Nowak, you said you were concerned that when mutuals were set up there was a low level of employee engagement. How can a mutual be set up and a cooperative created without there being high levels of employee engagement? Who is making that decision?

Paul Nowak: There is a very clear example in the civil service. MyCSP, which is Ministers and civil service pensions, is a mutual joint venture between the Government, a degree of employee ownership and a private sector organisation. Staff delivering that service were overwhelmingly opposed to the mutualisation. The exact figure was 94%. They said they did not feel they were empowered as a result of the mutualisation of MyCSP. They have got very real concerns about the transfer, but that mutualisation was effectively done to staff without the active involvement and support of staff.

Q225 David Heyes: This is more on the issue of language. Ed, you used the phrase confidently "bona fide cooperatives". By inference, you have a clear idea in your mind of what a cooperative is. From what your colleagues on the panel have said and from other evidence we have had, I doubt that your view would be shared by the Government or local authorities separately. How damaging is the failure to have a shared view of what this terminology means?

Ed Mayo: How damaging that loose terminology is is a very good question. I am not sure I have got a full answer. Certainly, there is an international definition of what is a cooperative enterprise. There are clear quality standards. Those principles include independence, which includes independence from the state. Over the history of the cooperative sector, there have been examples of state-sponsored enterprises, and they have always been rejected by the International Cooperative Alliance, which oversees those principles. We have a very clear way of identifying what is and is not a cooperative, and we are seen as a guardian of that within the UK.

"Mutuality" is a more ambiguous term, but even with that I find myself at odds with the approach of the Government, which stretches the boundaries of mutuality to include minority employee ownership. My view is not that everything has to be run as a cooperative. I think that everything can benefit by being run more cooperatively, but the cooperative sector certainly would have concerns about the misuse of some of the terms. I think the lack of clarity referred to earlier does not make this easier.

If that was not enough, we then have the wonderful world of wider social enterprise, which is an entirely inclusive term. If you want to be a social entrepreneur you can be; no doubt, you have three social entrepreneurs on the bench in front of you, but it is a feelgood term that you can opt into. This does not necessarily make it easier for those who are working within public services and who, if they are going to look at something like this, want it to be simple and straightforward. In answer to your question, there are significant issues around definitions, but it is not that one is pure and another is not, and from the cooperative business sector, we do have concerns about some of the potential abuses and uses of the term "cooperative".

Simon Randall: I think people assume that the word "cooperative" is a staff-owned organisation, but a lot of cooperatives operating in the UK are not necessarily owned by the staff. They may well have staff involvement, like all the cooperative shops around. There is a co-op shop that I helped set up in the middle of Gloucestershire, and here is my membership card. The staff are members of that, but so are all the community. We have been told, "You use it or you lose it." But the local pub is also owned by a co-op, by the people living in that area. You have got a telephone co-op; it is one that is based in the Prime Minister’s constituency. There are also wind farm co-ops. So co-ops cover virtually every aspect of society today, and they are not necessarily all staffowned. The way I look at cooperatives is that people form an organisation for the benefit of the community and abide by the seven Rochdale principles. I think that is quite possible. The staff will be involved but may not necessarily own the organisation by virtue of the shareholding.

Paul Nowak: I would echo that point. The only other additional point I would make is that, to be successful and to be good at doing what they are supposed to do, any form of organisation-cooperative and mutual organisations in particular-needs effective employee engagement, whether or not it is wholly staff-owned. It is very hard to engage staff if they have not even been supportive of the initial decision to form the cooperative organisation. I think this flags up the need for staff to be better informed and engaged and for there to be a sense that they are genuinely proud of, and want to be involved in, these new forms of organisation, rather than it being done to them.

Ed Mayo: While we are talking about terminology, I cannot think of a single example of a cooperative that has not been formed with that form of staff engagement. Is it cooperatives or the wider mutual sphere?

Paul Nowak: I was raising a concern in particular about mutuals and mutual joint ventures.

Q226 David Heyes: A way through the problem of the inexactitude of the terminology would be to have a new legalised form of company model that would encompass all these ideas. That was the suggestion made to us last week by Phillip Blond.

Simon Randall: I believe that the whole legislation for cooperatives needs to be looked at. It is out of date, old-fashioned and very difficult to operate. Let me give you just one example. If you set up an industrial provident society as a cooperative, you could change the rules today. They are not valid until they are registered in five or six weeks’ time. If you set up a cooperative as a company and change the memorandum and articles today, they are valid today. That is one simple change. There are numerous other changes. Therefore, if this Committee were able to say that we need not only a cooperatives Bill to consolidate, but one to update cooperatives, in the same way that companies legislation has been updated, and if you can find a new name-I have been wracking my brains for a name-your Committee’s deliberations will go down for posterity.

Q227 Chair: There’s a challenge. We can probably come up with several names, if that helps.

Ed Mayo: I agree with part of that and disagree with part of that. I agree there has been a neglect of some of the legal models that are open to cooperatives, which has meant you get some of the anomalies that Simon has talked about. The commitment made by the coalition Government in January to bring forward consolidated legislation for cooperatives and societies is a very welcome step. It has taken 17 different bits of legislation and brought them down, through the Law Commission, into one modern form. But I believe there has been a persistent mistake over time by successive Governments in thinking that the whole field of different forms of business is very complicated and they should introduce another corporate form that will make it simple. The answer is the opposite: it makes it more complicated.

You can form cooperatives of limited liability partnerships; you can form them as share companies, guarantee companies and societies, which is the most traditional one because it has the cooperative elements baked into it, but you also have community interest companies. Community interest companies, introduced by the last Government, are widely seen as a success, but the numbers are still quite low. The dissolution rate of community interest companies is pretty high, if you look at the regulator’s figures. Would it help if we had a ResPublica company, to call it that? I will tease Phillip Blond about this. Will it necessarily make a difference? I would rather look at the existing corporate forms we have and introduce the flexibilities that would be needed, rather than assume that a partnership company, mutual company or the like is necessarily the answer. I agree with the need for a spring clean and for consistent reform. I do not personally go for the magic bullet of a new company form being the answer.

Paul Nowak: I have less expertise than my colleagues. In terms of whether or not you should have a new legal form, I think the Government should have very clear guidance and guidelines in place, so that, for example, if you are setting up any form of employee mutual, there needs to be clear and explicit evidence that the workforce are engaged in and supportive of that process, and that you have things like asset locks to make sure that assets that have been built up in communities over decades are not lost to the private sector, particularly if a mutual or cooperative fails. Colleagues have referred to adherence to the seven principles of cooperation. That is a practical guidance that is absent at the moment and would be good for all concerned: public bodies, staff, communities and service users.

Q228 David Heyes: Would that be a route to addressing your concern about tokenism and the fact there is not genuine employee involvement or power within these new structures? Could that not be incorporated into a new legal structure?

Paul Nowak: Yes, absolutely; I think it has that potential.

Q229 George Hollingbery: Ed, you were asking for an opportunity to give evidence of successes in the public sector. Let’s hear them.

Ed Mayo: Thank you very much. The model of cooperative schools has emerged over the last five or 10 years and is growing very rapidly. On evidence and data I have got from the Cooperative College over the last few days, we believe there are more cooperative schools in England than there are wider mutual spin-offs. There were due to be about 300 cooperative trusts, academies and one free school as well to emerge by the end of July. This is a different model from the one that the Mutuals Taskforce is looking at. I am not arguing that it is better; I think this is about horses for courses, but with schools the cooperative model allows them to have the freedoms that come with, for example, trust or academy status, but the governance model of cooperatives enfranchises the different groups involved in and around the school, so teachers, parents, children and community groups can be members within the cooperative and have a role through the trust school in overseeing the work of the school itself.

The cooperative values are very much welcomed by the teaching profession, because they have a very close ethical fit with why they went into teaching in the first place, and cooperative schools have all come through with an explicit process that has been endorsed by the relevant trade unions. It is one area that shows that the users and providers of public services can work together. Ultimately, the biggest question for the employee-owned model is: does it mean that public services are run in the interests of staff rather than users? That is a legitimate question, particularly where you do not have a competitive market, but in many cases you can do it in partnership.

Q230 George Hollingbery: It is probably a little early yet, but are they more successful than your bogstandard school?

Ed Mayo: It is too early, I am sorry to say, but we have very positive evidence from Ofsted inspections, for example, that talk about the changes in culture and the positive changes that can come with schools going down this kind of road. I have been into cooperative schools and ones where you feel that kind of ethos when you walk in. It is a success story. Funnily enough, it does not quite fit the Government’s stated objectives, but I think it fits the spirit of what the Government are trying to do extraordinarily well.

Q231 George Hollingbery: You said that the evidence is thin elsewhere in the public sector, with lots of examples in the private sector, which is more your bailiwick, but is there something in that model that is particularly applicable to schools that local authorities should be looking at and learning from that could allow them to use it elsewhere in public services to create the same sort of effect?

Ed Mayo: I do believe there is. I think it is down to what Paul has been talking about in terms of engagement, but it is engagement of not just staff, as important as that is, but also parents and children. The idea of using that cooperative model is that the whole community is involved when you are talking about children’s education and development. It is a model that brings that to bear and gives a permission slip for it to work in that kind of way. I think the best schools are learning, for example, that it makes sense to listen to children and for children to have a voice in terms of the school, but also to have limits. We are not talking about child-owned schools, but giving them a voice and participation is good for children’s interests and involvement. The heart of the model is that it gives a permission slip for those who are in and around the school to take part in it.

Q232 George Hollingbery: Can you describe for me what you would see as an acceptable and welcome sort of mutualisation and cooperative type working in local government? Are there any examples out there where you can show that the benefits have really accrued?

Paul Nowak: There are no practical on-the-ground examples I can point to where benefits have really accrued. We feel there are lots of examples where some of the limitations of the model have been exposed. If you look at what has happened in Central Surrey Health, for example-a mutual joint venture-it has lost its contracts to Virgin Care. There are some real issues there about sustainability, length of contracts and those sorts of issues. I am all in favour of a cooperative way of working and thinking about how you better engage staff, but also how you better make the link between people who use our public services and those who deliver them. I am just not so convinced that that is a direct outcome of a particular ownership model. There is a danger that we could spend a lot of time restructuring, reorganising and spinning off public services for a particular ownership model and missing the real opportunity, which is reconfiguring the way staff, service users and those who commission services work together. When an authority goes down the road of mutualisation or a cooperative, some of the key safeguards I talked about in terms of evidence of staff engagement, asset locks, clear governance principles and accountability to the local community are important. I have no positive examples to bring to the Committee at the moment.

Q233 George Hollingbery: Simon, can I ask the same question about evidence of success in a local authority but add: is there any reason to believe that cost savings are a reasonable expectation from mutualisation or a cooperative delivery of local services?

Simon Randall: To deal with the first point, in relation to co-op schools, the Conservative Cooperative Movement published a pamphlet about various co-ops. We had a particular page on cooperative schools. We found some evidence-this was an article from the Cooperative College-that co-op schools did perform well. One of the main reasons they perform well is that parents can become members of the co-op. They have a share in the organisation, as indeed the pupils do. I suppose they have to be 16 or 18 to do that. That therefore gives them very much a say in how the school runs, directly as a shareholder.

I think the same is true in housing cooperatives. There are now large numbers of housing cooperatives that are supported by specialist organisations. They are also successful in taking over housing and helping local authorities provide housing in their area. Certainly, the experience my firm and team have gained in terms of leisure trusts and heritage trusts is that, while they may not be staff-owned, they have huge staff involvement by virtue of the fact that the transfer took place with their support, consent and wholehearted enthusiasm. There is evidence that they are able to run a tight ship, employ more people, have lower sickness levels and perform well. I appreciate that that may not be so in 100% of cases, but there is that evidence.

Cooperative schools and housing co-ops should, I think, be provided as evidence for the Government in putting forward a programme when the Right to Challenge comes into force on 27 June, because at the moment there is very little paperwork around as to how employees, for example, exercise that right. There is very little information as to how parish councils could exercise that right, and very little information for all other local organisations. That is where I see the cooperative mutual venture working so well on the community level as far as concerns the localism agenda. There is some evidence of that, and it is something the Government need to provide by way of assistance to those who want to exercise those rights.

Ed Mayo: I just want to add to something Paul said about Central Surrey Health. Central Surrey Health are going through a commissioning process at the moment, and that runs through to the end of this year. I think Paul was not implying they were losing their contract for central Surrey but there has been competition for other parts of Surrey.

Paul Nowak: Perhaps can I pick up the second part of your question about whether one can deliver these new forms in a way that effectively allows you to cut cost? I think the evidence provided by APSE and by Cooperatives UK is that, if you want to make this work, you need to invest upfront, and that may mean more costs in the short term in building the capacity of staff and of the organisation to work in a new way. This goes back to some of the reasons why staff may be nervous about these developments. If you see this through the prism of a way to cut costs in the short term, that is entirely the wrong way to look at it. It is not a sustainable way forward if you are serious about developing successful mutuals and cooperatives.

Ed Mayo: Briefly, a key aspect of public services at a time of changing finances of public services is: where does the boundary stop? As a citizen, where do my rights stop and my responsibilities start? Cooperative mutual models are all about taking on responsibility, but the question is: what should the state be doing and what should individuals be doing? Often, it is not clear where that boundary is, or somebody else decides it, or it is decided in a committee room further away. One matter that is absent in the current work around public services is an open, participative process that says, "Well, the state will do this, but communities need to do that." We are in a time of cuts, so any public service transformation will be in that context, but the fear is that there is a passing over of responsibility when in other ways that is exactly what you want. For me, it is a question of where the boundaries of public services lie. In a number of areas, health being a classic example, it has been seen as a Pandora’s box; nobody has really ever wanted to say what your rights are or are not under the NHS, because it seems to open too difficult a conversation.

Q234 Chair: Let me pick up the issue about who are the users and whether some services are more amenable to the model you have outlined, where employees, users and community are involved. For the school it is fairly obvious who the users are; for a planning service it may not be, because people probably use it once every so often. For a hospital, it may be that people want to cease to be users as soon as possible; that is their objective, so they are not going to get engaged in the same way. In terms of the community, are there not real problems about defining who the community is and proper accountability? The council have a role there somewhere at local level, but if they have a role, does that disqualify the organisation from being a cooperative in the true sense of the word?

Ed Mayo: It works best where you have relationships that can be longterm. There is another old saying that mutuality grows where money flows. If there is money changing hands, the mutual model may work well. Simon talked about leisure trusts pioneered by Greenwich Leisure. In a cooperative, mutual or social enterprise money changes hands there. Simon talked about housing. Cooperative and mutual housing is now a minority arena, but it has the advantage that tenants are in control. They are not housing associations that are accountable in a slightly opaque way. Cooperative and mutual housing has tenants directly involved, so where you have a long-term service relationship the services need to be consumed individually, not collectively. You could not mutualise environmental health, because, as in your example of planning, it is a more intermittent service. I think that, on the user’s side, those are the kinds of areas that work best. Often, we are talking about local services, which is where the local authority agenda comes in in a very interesting way.

In terms of accountability, the democratic model of cooperatives and open membership is seen as one of its strengths. There is an issue about accountability with privatisation and different agencies running around delivering services. How accountability works is very important. Local authorities have to have a backstop role, but often that is implemented through quite a complex set of contracts that can be quite difficult to unravel. Cooperatives are essentially a community or club approach, but they should not, in my view, be playing the same role as a local authority, which has the ultimate democratic legitimacy and mandate as a backstop for these kinds of services.

Simon Randall: Of course, the local authority in the Right to Challenge approach will be the client, effectively, commissioning the service from the staff co-op that comes out of the local authority’s aegis. The local authority will have its stake in ensuring that the service is being provided in accordance with whatever KPIs or performance it expects. That is how the local authority would be involved.

Paul Nowak: I would have some concerns about how the Right to Challenge is going to play out practically. I would not rule out the private sector seizing on this opportunity as well. All they require are two employees, plus an external agency, and they can also challenge. We have real concerns about the whole agenda being an opportunity that effectively opens the door for the private sector, rather than for the development of genuine mutuals or cooperative organisations.

Q235 Mark Pawsey: Can I follow up with some points about engagement of the public. You have these three groups of people: employees, users and the community. It is clearly easy to engage users, because they are recipients of the service on a regular basis. How does a mutual or cooperative approach make it easier to engage the community more broadly, not just the users?

Ed Mayo: To give an example of cooperative schools, the community groups, which are often important organisations at community level, have their own membership category in many cooperative schools. You have a service relationship with users, and often with ex-users as well, but, if you are reaching out to the wider community, it may be faith groups, local boy scouts or the like that are able to bring that wider perspective. You are always looking for the kinds of organisations that can be reflective of the diversity of local communities.

Q236 Mark Pawsey: But everybody benefits if the schools are better. Those attending the school and the parents are the most directly involved, so they are going to become engaged. Does a mutual approach make it is easier to engage those people who have a much broader benefit, rather than a specific one?

Ed Mayo: I can report only on the experience of cooperative schools over the last few years, which is that the community side has been seen as a real strength, because it seemed to embed the school within a wider set of local relationships. There is good will there. Increasingly, schools are also being seen as assets for outofhours community use and the like. The experience has been that it is possible to tap into that wider community, but you need to do it in some ways through organisations and people that are representative of that wider community, rather than in some quasi-democratic way.

Q237 Mark Pawsey: Is that the view of the other witnesses? Does it make it easier to engage if the body supplying the service has a cooperative approach, or does it not make any difference? Are there still people who will be indifferent to the nature of the organisation that is delivering the service?

Simon Randall: I can give a classic example. I mention Dover again. Dover People’s Port has bid for Dover port. We believe that a community-owned organisation, which is charitable, with an asset lock, will get much more enthusiasm from the people of Dover for the regeneration and improvement of the area than if Dover port were sold to a private sector-owned organisation on the other side of the channel.

Q238 Mark Pawsey: That might engage people, but will it give an overall better result?

Simon Randall: I think it will give an overall better result because it is owned, and can only be owned, by the people who live and work in the area. That therefore dictates the policy, the aspirations and enthusiasm of people, so that the port will be run for the benefit not only of those using it, who will be stakeholders, too, but the people who see it being used and live in the area. We believe that engaging the public is a positive advantage in that area.

Paul Nowak: It is very hard to generalise. You can have local authorities that are really good at engaging their communities, local electorates and people who use those services, and you can have local authorities that are very poor at doing that. I am not sure that this is a function of the ownership type. If I have a problem with my refuse collection, which is organised by my local authority at the moment, I can speak to my local ward councillor and he or she, if they are a good local councillor, can resolve that issue. If they are not a good local councillor, the odds are that they will not resolve that issue, or be interested in resolving it.

As to those who more likely to be enthusiastic about these initiatives-this has come from different pieces of evidence that the Committee has seen-senior staff on the whole tend to be more enthusiastic about these approaches than staff in lower grades. You can see a service being run effectively for the benefit of a group of senior staff. That does not mean that they are necessarily better run or better engaged than the local communities. I am not sure this is purely a function of ownership type.

Q239 Mark Pawsey: To take the specific example you gave, are most people bothered? Is it not the case that the vast majority of people simply want their local services delivered and they have no regard for the structure of the organisation?

Paul Nowak: I would flip that round slightly. The Fabian Society is conducting some research for us. It has done some extensive polling with YouGov and found that the British public wants to see the majority of the services delivered either directly by government, however you define it, or in partnership with the third sector. What they do not have a preference for is delivery by the private sector, or charities alone.

Q240 Heather Wheeler: Lots of evidence has been given to us so far. What stands out particularly is the evidence from Oldham Council. Where service has been transferred to a cooperative or mutual, they are subject to the requirement for a competitive procurement process. Do you see this as a problem, or is it a sensible test that will stress the efficiency and viability of a prospective cooperative?

Simon Randall: It is one of the issues on which I think all three of us agree. The TUC in their evidence said that public procurement is the biggest single problem in getting small communities and co-ops involved in running public services. The Government have put forward proposals, as you know, to have an exemption for co-ops in the field of public service tendering. As you may also know, the European Commission have recently put forward a directive, which is being reviewed by the European Parliament at this very moment, and hopefully there might be an amendment accepted whereby local authorities could negotiate direct with community bodies and co-ops in dealing with public services for short-term contracts of three years. One hopes that will be agreed, because this is the International Year of Cooperatives. If, for that reason alone, we can get that incorporated in the EC directive, that would be a huge benefit. There is a fear that this would be, if you like, a Trojan horse for others to become involved. The Secretary of State said that if he finds evidence that other bodies are behind small co-ops, he will try to stamp it out. I am not quite sure how, but he has said that, and if he has said it, let us hope he does it.

Procurement is an issue. If I am a small local authority staff team wanting and being encouraged by my local authority-it is important to have encouragement from the local authority-to take over a service, and I am told that I have to go through the full procurement, my heart will probably sink, unless I have huge enthusiasm for filling in enormous forms which, sadly, some local authorities use by way of gold plating. It is very difficult. If, hopefully, we can get an amendment to the directive and the Committee is able to put forward a proposal to support it, that will only help achieve that amendment in the European Parliament.

Paul Nowak: I would echo Simon’s concerns. There are real issues particularly for small, nascent local cooperative organisations about how to compete against national or multinational large outsourcers who have economies of scale, the ability to run loss leaders and access finance potentially much more cheaply. It is very difficult. If you are serious about levelling the playing field, you need to find some way of supporting those new organisations.

Q241 Heather Wheeler: I am sure Ed will agree with all of that. That brings me beautifully to my next point, which is about accessing funds. Do you think that the Government need to change arrangements for how mutuals or cooperatives ought to be able to access funds? Paul, you have alluded to the fact that private sector companies can access these funds, but maybe mutuals and co-ops cannot.

Simon Randall: That is undoubtedly an issue. The Government have put aside a fund to help new co-ops and mutuals setting themselves up, but that money will run out quite quickly. As Paul has said, finance set-up costs are a huge hurdle; there are others, such as skills. Some cooperative teams will not necessarily have all the skills required to run a new quasi-commercial body, plus the general issue about capacity. There is a lot more that I think needs to be done to try to get some means by which there is easier access to capital. The banks we are told have been given more funds. That might be a source, but there needs to be education about the importance of cooperatives or staffowned organisations so more money can be freed up for them to take over these new roles.

Ed Mayo: Simon is right. Obviously, there are upfront costs if you are trying to transform a service from the outset. Longer-term contracts, which is a link to your earlier question, also make you more bankable. If you have a longer-term contract, it is easier to raise finance in that form. By and large, we do not have financiers and investors who understand the cooperative and mutual models very well. We find it can be difficult for people to go through the hurdles in terms of the understanding, but as the field grows, if it does, that may well change. All businesses will say that access to finance is absolutely key to growth, and cooperatives are no exception in that regard.

Paul Nowak: For our members the key is about protection of employment standards, pay, terms and conditions and access to pensions. Thought needs to be given to how you support cooperatives that want to do the right thing and maintain decent pay, terms and conditions for staff, and how they do compete against companies that might not have those same obligations or commitment to respect the pay and conditions of staff.

Q242 Chair: If cooperatives are going to get some favourable treatment in the ways you have described-that may be quite reasonable-should there be a lock on their ability to demutualise and release the value of the assets for the private benefit of the members of the co-op?

Ed Mayo: At the moment, I would characterise the UK approach-predominantly, England-as, let a thousand flowers bloom and 900 of those will be called mutuals. I think that can be good if you learn what works and focus on what works. I have some concerns that some of the models we are seeing-the early social work practices, for example-really do not have some of the business skills that would be required. There is some waste in relearning some of those lessons.

Other countries that have a very strong record on public service cooperatives in areas like schools, child care and disability services-like Spain, Italy or Sweden-have gone down a different route, which is to focus on cooperatives with exactly the characteristics you have described so they cannot be de-mutualised. In Italy, there is an exemption under the procurement arrangements for lower-level contracts for involving what are called social cooperatives, which Italy has negotiated with the European Commission. Social cooperatives, of which there are about 7,000 in Italy, are focused on the delivery of public services, or services alongside public services. They come in two types. One of those types, subject to this beneficial treatment, has to involve people with disabilities, because essentially those are services are for them. It is a multi-stakeholder cooperative model. They can form long-term partnerships with local authorities because of this exemption.

One of the issues that emerges for me is the risk-dare one say?-of lawyers taking over and trying to capture complex public services in contract form that can be subject to market testing. I think that is a game that larger companies have learnt to play to the cost of the taxpayer. Much of the public service agenda that the current Government are pursuing is to try to get better value for the taxpayer, rather than pursue quite complex legal routes. In some areas it is right to build partnerships that are based on trust, where you are dealing with complex outcomes. It seems to me that where cooperatives have the right values and a democratic element built in and involve additional costs, such as involving users with special needs, it is not unreasonable to see that as something to privilege within a procurement process, whereas everywhere else you would say, "We want a level playing field. We are enterprises like any other, and we will compete as any other."

Q243 Heidi Alexander: I apologise that I was not here for the start of the session. Can I press you on the discussion we just had about procurement? While I appreciate that we have been talking specifically about enterprises set up within the public service itself and peel off, if you like, I wonder whether we have just had quite a bleak discussion about how difficult it is. Do you think there are any ways round it at the moment? The reason I ask that question is that in my own local authority, Lewisham, there has been an exercise in using a social enterprise to run free libraries. A process was gone through in terms of expressions of interest being sought. The buildings were then subject to an asset transfer, and a social enterprise is running free libraries. That was not a particularly burdensome or difficult process; it happened in the space of a year and it was quite innovative. I just wonder whether there are some ways around this issue at the moment. I am not familiar with all the detail, but I just wonder whether we have been a bit bleak in the debate so far.

Simon Randall: We are probably the most Eurosceptic nation in the EU and yet we do like playing by the rules. As Ed says, the Italians have found their way round the rules by getting exemptions. I did not know that, so I think we must try to get an exemption. Because of that, lawyers-I am afraid I therefore apologise for that breed-say you need to go through the procurement rules. Because of that rather odd European case, it does not matter how large the contract is, you have to have some form of procurement or market testing. I think that is the problem.

If you get a local authority that takes the view it is worth taking the risk and there are ways to seek exemptions-because a French company will have no conceivable interest in wanting to run these libraries with a cooperative in Lewisham-you could perhaps take the view you are going to negotiate direct. If local authorities were prepared to take a little more risk they could perhaps negotiate direct. It depends on whether you have got a lawyer who is more flexible, or one who will give a red card and say you have to go down that route. But you are quite right. Unfortunately, local authorities are incredibly riskaverse, and that is why they will always go down the safest route, namely procure in any event.

Heidi Alexander: I am married to a lawyer, so perhaps I should not say anything else.

Chair: So, you agree with that, do you?

Q244 Heidi Alexander: Simon, you raised a really interesting question. I think you used the word, "riskaverse" and perhaps local authorities tend to exhibit that tendency. Do you think this is a cultural barrier in terms of local authorities setting up cooperatives and looking at new models of service provision, not just being riskaverse in terms of decision making? I put it to you-I welcome comments from all of you-that perhaps some people who go to work for a local authority like the security that the job brings; they like the fact that perhaps there is a decisionmaking structure where the buck stops with somebody else. Do you think there are other cultural barriers within local authorities about setting up cooperatives and moving to other forms of provision?

Simon Randall: I think the answer is that cooperatives are a new area for local government. There is no doubt about that. However, transferring local authority services to outside bodies is not unusual. In housing, large-scale voluntary transfer has been widely used. We have heard about education. Academy schools are done in a different way. We have heard-you will hear more-about leisure trusts, all of which involve an inclusive approach where local authorities have been prepared to go down that route. I think cooperatives are slightly new, and, understandably, local authority staff, as has been said already, might be nervous about going down that route. However, if the local authority team wants to go down that route and exercise the Right to Challenge, I would hope the local authority concerned would encourage it where it looks to be a viable business. I think that is the approach. We then have procurement, which I have already talked about.

Q245 Heidi Alexander: Do either of you have anything you wish to add?

Paul Nowak: If you characterise local authorities as riskaverse, another way of looking at it is that local authorities and councillors are custodians of public resources. One reason why they are very keen to make sure they get procurement processes right is that, if they do not, they could be subject to legal challenge; they could be accused of misusing local council taxpayers’ money. I am always wary when there is a simplistic distinction drawn between the public and private sectors. I speak as someone who has worked in both the public and private sectors, and has represented members in both. I would not think that our members working, for example, in British Telecom are any more entrepreneurial or risktaking or innovative than the people we represent in local hospitals or local authorities. A lot of this comes down to management and the culture of an organisation. This goes back to a point I made before. You can encourage people to work in certain ways, and a cooperative way of working is not directly related to the ownership model or legal form of the organisation they work for. I think that ultimately comes down to management capacity.

Ed Mayo: I would find it difficult to make a sweeping generalisation about risk taking and culture within local authorities, but there are different frames brought to bear that might explain some of this. As to the framing of expenditure in a localauthority context, most local authorities provide over 450 local services, so there is an incredible complexity, but the framing tends to be more projectoriented. There is a limited timeframe, and all the money must be spent within that timeframe and finished. If you are running a business as a cooperative or wider social enterprise, you are doing almost the opposite, which is to try to build a long-term institution. You are thinking about the long term, not the short term, and you are thinking about using the assets to be able to build an institution over time, so costs cannot equal price, because you have to make sure that you have the capitalisation to be able to move forward.

I think it is a different model if you are running something as a traditional expenditure, as opposed to a business orientation. Some of what we see as risk aversion may be being responsive to some of the accountability demands that go with that kind of project model, as opposed to what I think is a reasonable way of looking at it, which is: how do you create systems and markets, where appropriate, that deliver high-quality outcomes for the long term?

You would be upset if the social enterprise you talked about in Lewisham fell over in six months’ time, because my guess is that part of the interest in that model is that this could be a sustainable long-term model to engage communities. But very often you get tripped up by the short-term project accounting model, as opposed to a long-term relationship. The Committee may hear from Greenwich Leisure. I think Greenwich Leisure is a fabulous example of a long-term partnership and relationship that cannot be quite bottled into a contract or commissioning process. There is clearly something deep there in terms of trust, values and shared outcomes that also underpin it.

Chair: Thank you all very much indeed for coming to give evidence this afternoon.

Examination of Witnesses

Witnesses: Cllr Peter Kotz, Greenwich Council, Peter Bundey, Deputy Managing Director, Greenwich Leisure Limited, Donna Fallows, Practice Lead and Senior Practitioner, Evolve YP, and Cllr Gwilym Butler, Shropshire Council, gave evidence.

Q246 Chair: Thank you and welcome to the fourth evidence session in our inquiry into the cooperative council. Thank you for the evidence you have given us in writing and for coming along this afternoon. To begin with, could you just say who you are and the organisation you represent?

Cllr Butler: I am Councillor Gwilym Butler, a cabinet member for Flourishing Shropshire Communities. That includes the voluntary community sector, town and parish councils and the localism agenda, and I am the lead for changing our council into a commissioning council.

Donna Fallows: I am Donna Fallows, the practice lead for Evolve YP, the social work pilot in Staffordshire.

Peter Bundey: I am Peter Bundey, deputy managing director of Greenwich Leisure Limited.

Cllr Kotz: I am Councillor Peter Kotz, and I am the Royal Borough’s cabinet member for culture and creative industries.

Q247 Chair: As I said to our other witnesses, if something is said that you agree with, just say you agree and then we can move on to try to cover as much ground as we can. To begin, Donna Fallows, how did you manage to sell the idea to councillors who must have been a bit sceptical to begin with about your ideas for establishing Evolve YP? Did you produce a list of possible benefits that would come out of it and persuade them that was the way forward because of that?

Donna Fallows: We did not have to sell anything; it was the local authority who brought this idea to us. I have been a practitioner for 12 years on the lookedafter children and throughcare team. It came from a briefing where the heads of service talked about the new deliverance of social work practice, which was a gift to us because there are times when you are caught up in bureaucracy and politics.

Chair: I am sorry, but we will have to go to vote, which we are required to do occasionally. Assuming there is one vote, we will suspend for 15 minutes and get back as soon as we can.

Sitting suspended for a Division in the House.

On resuming-

Q248 Chair: I am sorry for that interruption, which seems to happen from time to time. I think you were in full flow.

Donna Fallows: To go back to what I said, we did not feel we had to sell it to the local authority. They came to us. There was a briefing one day where they talked about the new deliverance of social work. We were a really well-established team from the lookedafter children and throughcare team. To us, this was an absolute gift to deliver these services in a different way and provide better outcomes for young people and lookedafter children.

Q249 Chair: Clearly, the staff are very much involved in this.

Donna Fallows: Absolutely, yes.

Q250 Chair: Do you have a different relationship with service users from that which you had before? Is there a real knock-on benefit to them at all?

Donna Fallows: Not at all. When we started this, the majority of the service users came with us. I think only about three or four chose not to come into Evolve YP, but for the social workers who chose not to come into the practice it was about being familiar. I think that was the only reason they did not come with us, but the majority did.

Q251 Chair: But what about the actual service users? Are you getting a different reaction from them?

Donna Fallows: Not at all.

Q252 Chair: Do they think you are more responsive to their needs?

Donna Fallows: Yes. I think it is more positive because we are more responsive. We have a flat management structure, so I am not a manager but a practice leader. That just means I am the liaison with the local authority. We have no managers as such. We are all very accountable and responsible for what we do; we all have full caseloads. We have cut out a lot of bureaucracy and red tape, so we have more time with young people. We get out there and do the work with young people and families; we do more working groups with young people. We spend more time with the young people, and that is what it is all about.

Q253 Chair: Moving on to Greenwich, clearly you are a different scale of organisation, but what was the rationale for setting you up in the first place? It is way back now; you have been going for nearly 20 years, haven’t you?

Peter Bundey: The time was 1993, which was not dissimilar to now in economic terms, with compulsory competitive tendering being introduced in local authorities. There were severe council cuts. There was a service covering seven leisure centres, and at the time there was a threat to close two. We could see that going on year after year, because there was no money in the system. We had about 350 employees at the time and anticipated losing 20% of them. Together with the council, we entered a period in which we looked at alternative options for service delivery. The cooperative movement had a strong history in Greenwich, so it was always one of the things that we had discussed. Together, we came up with a solution that the staff were happy with. We voted on it and had 85% support to go ahead with it; 85% of people took shares in the company. They are non-dividend-paying shares. It is cooperatively structured based on one person, one share, one vote. The council took their appropriate decisions and did desk-based exercises on best value, and off we went. Those two centres and the jobs were saved. In Greenwich, we have now opened three other centres and increased the jobs, so it has been a turnaround from very much a negative situation to a positive one.

Q254 Heather Wheeler: I am interested in whether and how achievements are being measured. As part of the matrix of you as the commissioning council and supplier, as long as you are not breaking commercial confidentiality, how are you going to measure people? What sort of targets are you looking for, and how do you feel you are achieving those targets?

Cllr Butler: I think that is one of the $20 million questions. Under localism, as we turn to payment on performance, it will make things a lot easier for a commissioning council. However, payment on performance does bring a risk, if you are dealing with other sectors such as Donna’s, which obviously needs some funding upfront. In the pilot, we have been running under People to People, about which I think you had some information. We are seeing greater community and customer satisfaction. Everything cannot be measured just in money; it needs to be measured in achievements in the community. We are also seeing the prospect of reducing demand on the public sector, which is key, because a lot of the signposting is going to other sectors, such as the voluntary and community sector, which is crucial. In anything we do to try to save money-because that is one of the key measures-we could be guided through it by becoming balanced and well maintained councils and reduce demand. If we are reducing the demand and keeping up our reputation, that is a key performance outcome.

Q255 Heather Wheeler: That is very interesting.

Donna Fallows: From our point of view, we are monitoring performance indicators throughout the local authority. We are compared with the other lookedafter children’s teams, but in terms of families, foster carers and young people, we send over our own questionnaires to see whether or not we can improve. We also have lookedafter children and young people groups where they have their say. We also have a steering group on which young people sit, along with different agencies, so they can say what they feel and if we can improve in any way, but the majority of it is about performance indicators in the local authority.

We are also a pilot; next year will be the evaluation year by UCLan, which has been a vigorous process. They have been coming in to see whether or not we are achieving. From our statistics, we are exceeding the local authority, so it is working. It really, really is working.

Peter Bundey: One of the common fallacies is that in setting up our organisation the council has abdicated control of the service and we are up and running and doing what we are doing. There is a contract and lease in place; there are detailed performance indicators. We are measured by resident surveys, satisfaction surveys and user numbers. We are just piloting some return on social investment, along with the sector, so there is a whole raft of crosscutting indicators not just in financial terms but in our triple-bottom line, as we say, which is about social impact, what we are reinvesting back into the community and what the measurable outcomes are.

Q256 Heather Wheeler: You have answered by next question as well. I will come back to you. Councillor Kotz, if these mutuals are achieving all of these great things-it is a little difficult to ask you because you are part of the Greenwich team that has put it out and let the baby grow-do you think there are other elements of council business that ought to be able to mirror what these mutuals are achieving?

Cllr Kotz: I think there are, and we have begun to look at some other areas where we may wish to progress some of the good work that GLL has already done in terms of leisure. In addition to running our leisure centres, since the beginning of April, they have been running our library service under contract, so we have developed that as well. We are looking to other areas and other parts. In our submission, we referred to other areas that we were looking at. We have some quite in-depth information about the areas we are looking at, as well as the work we have already done with Greenwich Leisure.

The other thing about GLL is that, given the work we have done, we are now in a position to give them a longterm contract. We have entered into a 25year contract, which gives stability over a long period of time and also allows us to attract inward investment so that we can invest more into the longterm future of our leisure centres and other facilities.

Q257 Heather Wheeler: Councillor Butler, did you want to come back?

Cllr Butler: We cannot underestimate with performance and outcomes what the voluntary and community sector does already, because a lot of that sector is very strong and historically has had to do it by getting funding from the Big Lottery Fund and other government funding. We must not reinvent the wheel. That sector already knows how to monitor the performance, and we should learn from them.

Q258 Chair: Greenwich is an interesting case, isn’t it? You faced a situation where you would be closing centres, and suddenly you become a cooperative and everything is all right. Everything falls into place; there is no problem with funding; and you keep them open. What is the magic of the solution?

Peter Bundey: We firmly put our success down to staff ownership and democratic governance.

Q259 Chair: Did everyone take a cut in wages to make it work?

Peter Bundey: It is interesting. Our staff voted on having a percentage that could go towards helping the business if it was in trouble, so the idea that we are kids in charge of a sweet shop and are not capable of making executive decisions is a complete fallacy. As a staff-owned organisation, you are empowered, invigorated and freed entrepreneurially to look at options and new options, and that is taken very seriously. We are now the largest operator in the UK; we are bigger than all the private sector guys in our field. We operate 26 different contracts across the UK. Our turnover was about £5 million when we left Greenwich; it is about £110 million now, with 5,000 staff, but we put that down to having a cooperatively structured, staff-led organisation to give it that Xfactor.

Q260 Chair: Did you cut out some management structures? Did you flatten management to enable that to happen?

Peter Bundey: We have still got strong professional management. It is not a syndicate collective where we decide who is going to be MD for the day. We have a very strong management team, but our board is made up of lifeguards, receptionists, duty managers and managers. We have a college voting system to make sure we get representation across the organisation. It is not easy; it is hard work to manage it democratically, and when you first get into it as a manager it is slightly alien, because you are used to very topdown driven management, but if you put in that hard work, it has potential.

Q261 Mark Pawsey: I wonder whether I could stick with Greenwich and pick up the issue of people who criticise the setting up of mutuals. They say that it will impede the potential for joinedup services across sectors, and we are being told there is downward pressure on staff terms and conditions, and little evidence of accountability to elected members. The people who are saying that most strongly are the trade unions. Peter Kotz, you are a member of the Labour Party; you work closely with the trade unions. Are you saying that in this case UNISON are completely wrong?

Cllr Kotz: I would not directly in terms of UNISON’s view, but in terms of Greenwich Leisure Limited the model works. Within Greenwich Leisure the trade unions are involved on the board because they are also members of that mutual.

Q262 Mark Pawsey: But by opposing this move, would you say the unions are scaremongering?

Cllr Kotz: I do not think it is about scaremongering. I think the issue really is about people working together to make sure there is an agreed shared vision for the services you wish to deliver. I think that is why Greenwich Leisure Limited has been the success it is. There has always been a need to have a clear and robust business case that is transparent and achievable. I think that Greenwich as a borough, working with Greenwich Leisure, has developed that over a period of time.

Q263 Mark Pawsey: You are proud to be a member of the council that has this body doing these great things, running a £110 million organisation with 5,000 staff.

Cllr Kotz: I am happy to be a member of a council that sees improved leisure facilities throughout the borough and increased and brand new facilities being developed in partnership with the GLL.

Q264 Mark Pawsey: Are those facilities that would not otherwise have come about? Has the formation of Greenwich Leisure in its current structure enabled that to happen? Otherwise would the facilities in Greenwich be far worse?

Cllr Kotz: If we go back to the original concept of setting up the company, in those days that may well have been the case. The issue is that a long-term partnership has been developed with GLL and, because of the way that company has been set up, we have been able to get the investment to deliver the new facilities we have got. At the moment, we have got a new swimming pool; we have a lido in Charlton Park, which will be opened in a couple of weeks. We have been able to reinvest in that alongside Greenwich Leisure. We have a centre in Eltham, which has brand new leisure facilities shared with council facilities in that same complex.

Q265 Mark Pawsey: To go back to my point, do you think that would not have happened in the absence of the present structure of Greenwich Leisure?

Cllr Kotz: I am not saying that, because it is hard to tell over a period whether or not that would be the case.

Q266 Mark Pawsey: But you are saying lots of good things about it.

Cllr Kotz: I agree with you; there are good things. I think it would have been more difficult to have those things had the company not been set up. I am not saying we would not have those centres now. It may have been a bit more difficult to deliver them without setting up the provident mutual company that was set up.

Q267 Mark Pawsey: Perhaps I may now turn to Evolve YP and Councillor Butler. You have hived off, effectively, one of the areas that people expect you as a council to do. How is your council accountable for the services that Evolve YP provide? How do you justify to the people you represent that they are getting as good a service, because effectively it is done outside rather than in-house?

Cllr Butler: I understand what you are saying. The first important thing, which I have not heard enough about this afternoon, is that it is about end users; it is about people and communities. It is not about protecting jobs and councils. It is about reducing demand and making services more sustainable for communities and people more responsible for their own actions. We in Shropshire have the People to People pilot, which is slightly similar to Donna’s. We have learnt from that and put together a strong, transparent gateway process. If any staff mutual wants to look at spinning out, that is transparent and can be seen by the public, irrespective of what the service is. Through that process, we also consult with the voluntary and community sector, which is very strong in Shropshire. What we do not want to do is reinvent the wheel when the sector is doing it anyway, because in staff spin-outs you can end up reducing sustainable social capacity in communities.

Q268 Mark Pawsey: But the key issue I am talking about is accountability to the electorate. How can you argue that by devolving responsibility to a body that has nothing to do with the town council anymore is effectively responding to the electorate?

Cllr Butler: Obviously, I am a member elected by the people. On the People to People management board, there are only two of the original local authority officers. The rest of the board is made up of users and people from SMEs and the voluntary and community sector, so it can be seen to be totally transparent within the communities. The spin-off is led more by the communities of interest and local users than when it was in-house at the council.

Q269 Mark Pawsey: There is more public engagement than there was previously.

Cllr Butler: I would say so, yes, much more.

Q270 Bob Blackman: I want to touch upon a couple of areas of risk because I think they are rather important. There are many areas where you can think of mutuals or spin-offs, but putting vulnerable children in a spun-off organisation would seem to me quite a risk, if the people are not doing the job properly. Indeed, in some of the evidence we have seen there are lots of comments about how bureaucracy has been reduced, and so on. What safeguarding mechanism does the authority have to make sure that the spun-off organisation-in this particular case, Evolve-is doing everything it should be doing?

Donna Fallows: I suppose that when we were first set up there was massive risk within the local authority. The biggest one was about them not having as much control over what they did. The key is that we had formed a really good relationship with the local authority. I was with the local authority for 12 years, and we still maintain a fantastic relationship with the local authority. We have regular contract meetings every three months. We get together and discuss spending and safeguarding practice. Quite a lot of indepth things are on the agenda. For me, that is the biggest key to the risk implication. Another way of monitoring that is by performance indicators, measuring ours and other lookedafter children services. We do really well.

Q271 Bob Blackman: What is the attitude of mind of the lookedafter children? One of the problems, as you will appreciate, in that field is that often the last people to be asked about anything are the children being looked after.

Donna Fallows: We have really good relationships with lookedafter children and fostercarers. We have regular groups, which I have already talked about, in Evolve where lookedafter children tell us what they want; they shape our service.

Q272 Bob Blackman: Evolve is part of the structure, but there are other lookedafter children groups that are still part of the council, as I understand it.

Cllr Butler: We are different councils.

Q273 Bob Blackman: But, as I understand it, are you there solely for one council, or do you do work for anyone else?

Donna Fallows: Solely for the council, but we have created these lookedafter children groups that meet every fortnight on a Tuesday evening, to which lookedafter children are invited. We do all sorts of activities with the young people. They can voice their opinion. We also have a steering group on which a lookedafter young person sits alongside different agencies: health and education. Again, they shape and can voice that opinion of how they want it to go.

Q274 Bob Blackman: Peter, can I ask one question about the transfer of your libraries? Was that a full public procurement exercise? How did Greenwich Leisure get to take on that role?

Cllr Kotz: There was a tender exercise that ran for the leisure centres and libraries. Then it was decided to run the leisure centres on their own, so the libraries were separate. We then went through a process with the council to assess the service demands moving forward. There were desk-based exercises on best value and how to move forward, and then we moved into the library transfer.

Q275 Bob Blackman: Because you were not doing libraries originally, were you?

Cllr Kotz: That is right.

Q276 Bob Blackman: It was a brand new exercise. How could you demonstrate your capability to run libraries-you clearly could do it with leisure facilities-in competition with other people? It seems that you did not have a background and expertise in that area.

Cllr Kotz: That is right, and it is the competition with other people, how strong the competition is and whether it is right for Greenwich. Our particular approach was to hire in advance the best team we could get hold of in the sector. The person who leads it got an MBE for services to library services and was highly recommended and highly regarded within the library sector, and built a team capable of handling the library division within Greenwich. We were able to demonstrate that we were competent to do that job. I am pleased to say that, although the transfer is still quite young, the signs in the early stages are good.

Q277 Heidi Alexander: Councillor Butler, can I come back to the situation in Shropshire at the moment? In your written evidence you highlight a number of teething problems, if you like, in your experience of spinning out of local government services, or setting them up as cooperatives, mutuals or whatever. How confident are you that these types of cooperatives are the solution? I am trying to get behind what your evidence is really saying.

Cllr Butler: I am fairly confident that we will come out with an end product, but I, and I think the council, do not believe that staff spin-outs on their own is the way forward. This comes down to the work we have been doing over the last two years under the Localism Act and the Right to Challenge and Right to Buy, working very much with our voluntary and community sector. We have created the Shropshire Providers Consortium, so the sector itself is in a position to bid for our new commissioning ways of working.

We then have the Right to Provide come out, which means we have to offer the facilities to the staff if they want to initiate coming out. That has created friction-these are some of the points we have mentioned-with the sector. This goes back to the way we have created our pathway. If staff want to come out and try to do something, we have a threemonth gateway or pathway where the other sectors are involved to try to overcome those teething problems.

On the one side, if you have a staff spin-out, as mentioned earlier, there is a risk element to the individuals. They have been used to working for the public sector. You have TUPE and pension responsibilities and the job satisfaction and contracts that come with it. They are also not in a commercial world. If you are going to a staff spin-out, they should not rely on just our future commissioning arrangements because what we are doing is changing. Just because we have already done it since year dot does not mean we are going to do it in the future, so they need to be aware that they are going to have to get into a commercial environment and change. Our belief is that, if you have a staff spin-out, it should be done in conjunction with the sector, because the sector has a lot of responsibilities and knowledge of the commercial elements, and the performance elements we have heard about that could be brought in with it, and also SMEs.

Q278 Heidi Alexander: Is this causing some friction with your staff at the moment? Reading your written evidence, you do not have a particularly high opinion of them. It says that "most staff don’t know the true cost of their service"; they have a "poor understanding of the local market within which they will be operating"; they have "little or no awareness of the contract and procurement restrictions"; and staff are interested in proportion to the size of their salary in terms of setting it up. Is this causing problems in the local authority with staff at the moment?

Cllr Butler: Not at all. The history of local government has been delivering for central Government and what the state wants. The whole point about localism now is delivering what the individual wants and what communities want, whereas before it was all delivered on the basis of national government policy. Shropshire is very different from Greenwich. We have an urban corridor; we have a deprived north and one of the most rural parts of the county in the south. We cannot deliver a one-size-fits-all policy, but the majority of our excellent staff in Shirehall would not understand the differences, because they are there to deliver a strategy on a policy. They need to get into a completely different world.

Q279 David Heyes: I remember that maybe 20 years ago in Greater Manchester we had an excellent, efficient and well-regarded bus fleet. As a result of legislation, it was required to be open to competition, and the method devised for doing that at the time was to hand it over to employee ownership, and all the bus drivers and everybody else who worked for public transport had several thousand pounds’ worth of shares. Within two years, all of those shares and ownership of the bus fleet was in the hands of the private sector: First Bus, Stagecoach and outfits like that. Very soon after that, the very shiny brand new buses we were so proud of in Greater Manchester were dispersed all across the country and replaced basically with a clapped-out fleet of third-world standard vehicles. It took us years to recover from that disastrous decision to go for employee ownership. Is that still a significant risk in the situation we are in today?

Peter Bundey: Manchester is still held up as what not to do on the transport side; it is absolutely not what to do. It is the cautionary tale. We have a fiercely public service ethos; we are not for profit; we have locked-in assets; and there are no dividends on shares. This is not a get-rich-quick philosophy. We are setting up an organisation that is locked into delivering public services for the long term. You are absolutely right about the bus service. It was a disaster. It was unpicked, similar to the way that some of the mutual building societies were unpicked, from which we need to learn. It is interesting that, when we look at the banking crisis, public confidence is more in mutuals than in profit-making banks. We take heart from that. I often raise my eyebrows when people say that our model is a new one, because we have been going for a while. There is a path there. We are not talking about share ownership and profit-driven companies; we are talking very much about nonprofit, distributing organisations that deliver public services for public authorities.

I take exception to the idea that generally a local authority officer-I was one-is in the job because they want a cushy life and are not capable of operating outside it. I am always proud every time we beat the private sector in the tender. We are now the biggest in the country. We can prove handsdown that there are some tremendous staff in public services, and they are in public services largely because they have a social chip and ethos to want to deliver public services, and we come from that. Your question is a very probing one. The question is: are we going down the wrong line again? Those foundation building blocks need to be in place before we start building on top, and then we do have, despite what was said earlier, some fantastic examples of spin-outs.

Q280 David Heyes: For the rest of the panel, is asset lock-in the answer to avoiding that danger?

Donna Fallows: From my point of view as a working practitioner, since we had the opportunity to do this, the morale of the team has been absolutely massive. It was ownership; it was ours. Because it is ours, we work that little bit harder. There is the dedication of the staff, and morale is absolutely fantastic. We have lost no staff since we have been operational. We have been more creative and accountable and, I suppose, more conscious of spending. When have you ever known a local authority be out of the red? We are operating in the black because we have been more creative. It has really worked for us.

Cllr Butler: There are two sides to it. Coming from the Shropshire view, we are looking at setting up private business for the council and creating public profit. When we are working in partnership with the private sector it is key that the council maintains 51% of the equity, so it has overall control. That is one thing from which we are learning.

The other side of the coin is how we commission in the future and the role of the elected members who are responsible for their communities, and the influence they have on those commissioning contracts, to make sure that the issues that happened in Manchester do not happen.

Cllr Kotz: In the early years, it is very important that you get that financial lock down to get security, so people have some confidence about continuing to believe in the services you have changed. That company can become confident and develop itself over a period of time, so that not only can it continue to deliver the services it has just taken over, but it can develop better services for local people.

Q281 David Heyes: How was the question of the future ownership and safeguarding of assets in the public sector addressed in the case of Greenwich Leisure, and maybe separately in the Evolve YP situation?

Peter Bundey: If I may go first, in our mem and arts, it is very clear that assets can transfer only to similar non-profit-distributing organisation or a local authority. In the contracts we have, if there is any default we do not own the assets; we literally have a lease on the assets in a lock-in. If there is any issue within the contract with Greenwich, it defaults automatically back to them; it is their asset, not ours.

Donna Fallows: In terms of Evolve YP, we do not have any assets at the minute. It is a bit like an umbilical cord with the local authority. They have not yet cut it as such.

Q282 David Heyes: Notionally, you pay rent to the local authority.

Donna Fallows: Yes.

Q283 David Heyes: Are you saying they have not charged you yet?

Donna Fallows: We pay rent for our building, but again that is only for the fouryear contract. At this moment, it is uncertain whether or not we are going to be rolled out. We are waiting for the DfE to devise legislation as to whether or not we will be rolled out. In terms of assets, we rent the property. ICT belongs to the council. We have just a few desks and staff; that is it. We have nothing more.

Cllr Butler: Under the Localism Act, one has the community register of assets. We are encouraging all our communities to put on to the register any assets, whether they are in the council, private sector or in trust, so if at any time they come up for availability, the community has the opportunity to take them over. That is done very much through our town and parish planning.

Q284 David Heyes: Doesn’t the community own them already?

Cllr Butler: Yes, but included in that could be the local pub, post office and playing fields. There could be all sorts of things.

Q285 Simon Danczuk: I want to ask about engagement and transparency. You touched on it very briefly in terms of governance. As to transparency, I read a quote from UNISON who were talking about the move to social enterprises, mutuals etc. They refer to reduced accountability to service users and local council taxpayers. Let me give you an example in terms of Rochdale. Rochdale went down the path of spinning out a social enterprise, a leisure trust, a few years ago. There was a furore a couple of months ago about the salary levels of the MD and deputy MD. I received an anonymous letter detailing what those salaries allegedly are. The MD was on £69,500 in 2006, and it had increased to £120,000 in 2010. The deputy MD started on £73,000 and that had gone up to £96,000 in three years. I wrote to the MD asking whether it was right or wrong, and he said he was not prepared to tell me the answer. I wrote to the chairman of the board of this social enterprise four weeks ago and have not had an answer. The local paper, the Rochdale Observer, has asked the same questions and not got an answer. In terms of transparency of a social enterprise, which is similar to your own organisation, what do you guys make of that?

Peter Bundey: Transparency is interesting, because I do not know of any UK plc that has councillors sitting on their board scrutinising every paper, which is what we do. That is the first point. The second point is that we do national benchmarking on salaries for all our staff. We know we are significantly under the private sector and equivalent organisations and are broadly on track with the public sector, based on the size and scale of operations. That we tend to track. There is always an issue of freedom of information in any organisation that they are entitled to fall behind, but in our organisation, for example, Peter will know every one of our salaries. Indeed, we are still an admitted body for the local government pension scheme. My personal salary is administered by the Greenwich scheme, so they have got full access to my salary.

Q286 Simon Danczuk: But not the board members. I am asking the public. I am a member of the public. It is an issue in the constituency, isn’t it? Would I be able to find out your salary level and that of your deputy?

Peter Bundey: Our MD has just gone public on his salary, not because he had to, but because he felt there was a lot of hot air and wasted discussion with people trying to dig up his salary. The reality is that when he put it out there, everybody kept quiet because it was significantly less than they thought. I do not know how many private companies they write to say, "I want to know how much you earn." It is a question of how transparent you are and how open you want to be.

Q287 Simon Danczuk: It sounds like it has not been particularly transparent in terms of Greenwich as well. It sounds to me that it would be easy for me to find out the salary levels of Serco or Capita than it would be for some of these leisure trusts. Peter, you are a board member. What is your view on this?

Cllr Kotz: I am not a board member, but there are three councillors who are and they play their full part. I am sure that if they were to ask for that information they would get it as part of the board process, and it would be reported back to us if there were any specific issues around that. As far as I understand, there have been no issues around that.

Q288 Simon Danczuk: Donna, is your salary made public to everybody?

Donna Fallows: Absolutely. When we took this we were exactly the same as all the other LAC and throughcare services. We did not take any pay rise or anything like that. It is exactly the same. It is not a golden service. We operate with the same budget as all the other LAC and throughcare teams.

Q289 Simon Danczuk: Gwilym, do you want to add anything?

Cllr Butler: One of our leisure trusts in Shropshire is Teme Leisure. To start with, elected council members sit on the board. I assume that is the same in Rochdale. They are part of the board. I am assuming the local council is still funding them.

Q290 Simon Danczuk: Yes.

Cllr Butler: That being the case, the council could find out that information for you, as could the locally elected members. I would be very disappointed if they had not got a local users group who also sit on that board, who would also have the right to the information. There is plenty of accountability in what we spin out on large levels in Shropshire through the democratic mandate of locally elected members.

Q291 Simon Danczuk: In terms of engaging the public, how do you find out about services? Peter, you talked about doing some satisfaction surveys. How do you engage the public in terms of knowing what services to provide?

Peter Bundey: We have a range of issues. We have local consultative panels; we have manager and user forums. For quite a while we had customers on our board, which was quite interesting. They were co-opted on. It is direct feedback. There is a welter of feedback directly from the customers.

Q292 Simon Danczuk: Donna, how do you involve service users?

Donna Fallows: We have a steering group on which young people are represented. We also have local agencies. We invite local agencies to attend our team meetings, so again we can share experience of what we and they are doing. We have working protocols with different agencies as well. We send out questionnaires to young people, foster carers and to the agencies.

Cllr Butler: This is now a huge role for the elected member. Under the Localism Act, we have town and parish planning, which is coming more into the front row, and the new neighbourhood planning. That is not just about building houses and motorways; it is about identifying the needs and aspirations of the community. The future development of my role as an elected member is to become a local commissioner within my community and to understand what is needed in that community and lobby the council to make sure those needs are identified.

Q293 Bob Blackman: It is said that a huge barrier to going for cooperatives, mutuals-call them what you will-is finance and the ability of an organisation to obtain finance. You have gone from a relatively small organisation to quite a large one in a reasonable period of time. Have you encountered any particular problems in obtaining finance? If so, how have you dealt with it?

Peter Bundey: It is a good question. We are rather fortunate that we are a cashupfront business. Our cash flow is very good-people pay us upfront over the tills-so we have been able, with sound financial management, to reinvest using some of our cashflow and bring back the returns. Our gearing is very low.

Q294 Bob Blackman: But you have taken over contracts for different local authorities.

Peter Bundey: Yes.

Q295 Bob Blackman: There are startup costs-are there not?-in getting the body ready.

Peter Bundey: It is £6 million in, or something like that.

Q296 Bob Blackman: Where have you got the money to do that from?

Peter Bundey: From our bank reserves and bank accounts.

Q297 Bob Blackman: Have the banks helped you and said that you are a good bet?

Peter Bundey: Yes. We have had good relations with banks. It is about trading record. Those early years were difficult. When we are talking about spin-outs generally, it is difficult; for the first three or four years, it is head down, like any new business, trying to make it work. This is where the council comes in. They have got full transparency on every penny you are making, but they do not take back every time you make a surplus, because some of it is to reinvest back into service.

Q298 Bob Blackman: Clearly, Greenwich cannot finance you to run a service somewhere else.

Peter Bundey: That is correct.

Q299 Bob Blackman: You cannot fall back on the council; you are a commercial organisation.

Peter Bundey: We go to the bank. There is a range of borrowing we are able to put in place based on longterm contracts. We are constantly talking to financiers on financing options. Our gearing currently is exceptionally low, and our liquidity rating is very positive. We are a Dun & Bradstreet fivestarrated company, so our financial track record is very strong, but it takes time to build that, as you rightly say, so it is difficult in the early years.

Q300 Bob Blackman: Donna, have you had to seek finance from anyone?

Donna Fallows: No, not at all; we have never had to secure any kind of bank loan. Having a very good relationship with the local authority, we paid a month in advance.

Q301 Bob Blackman: How was that financed? Did your colleagues come together and say, "We’ll stump up cash from our assets," or did the local authority just say, "Pay us when you can."?

Donna Fallows: At the procurement stage, that was what the arrangement was going to be. They would give us a month in advance. The money is always upfront, so we never have to get into arrears. I suppose it is about our good budgeting as well. We could overspend but we never have done. I think that is about accountability.

Q302 Bob Blackman: Obviously, you are looking not just at one or two organisations but quite a largescale effort here. Are you going to offer finance to these organisations, or facilitate them to get money from the banks?

Cllr Butler: I think it goes back to what I have been saying previously. It is the risk element. If you get a small spin-out and staff, who historically have been in a secure job, may have to put their house on the line to get working capital to start something up, it will take them out of their comfort zone. If, when you do a spin-out, it is done collaboratively with the VCS and/or SMEs, who can bring to the table other traits, experience and sources of funding, you will end up with a larger end result. What we are doing in Shropshire is looking at different ways of working. We are looking at transferring large non-risk areas over to a new private company. When they have their service delivery or commissioning contracts, we are hopeful that they will be able to raise funds within the market and trade normally, because they will have those contracts.

Q303 Bob Blackman: One of the other barriers is procurement processes and procedures. What changes are you proposing in those to enable start-ups to take place in this way?

Cllr Butler: When you talk about procurement and/or commissioning, a lot of people think they are exactly the same things. Commissioning now needs to be bottomup; it needs to be about outcomes to people, and it also needs to be outcomes to communities. We have our own inhouse design team looking at what we want to deliver. Just because we have done something historically does not mean we should spin it out in its current form. With the use of modern technology the world is constantly changing. We have to look at new ways of doing things. We have got a lot of staff who are very keen and have a lot of bright ideas to go out along that line.

Q304 Bob Blackman: Peter, are there any changes that you want to see to procurement processes and procedures, or the commissioning arrangements?

Cllr Kotz: Some of those areas around procurement procedures are very difficult for small organisations to access, because they may not have the builtin capacity to be able to access or compete in those procurement procedures. That may be an area where some work needs to be done to make it easier for smaller organisations to be part of this.

Q305 Bob Blackman: Is there anything specific you would like to see changed?

Cllr Kotz: I cannot think of one off the top of my head, but I can always provide that at a later date.

Q306 Bob Blackman: No doubt, Peter and Donna have something to comment on.

Peter Bundey: I have loads to say on procurement. A school of procurement officers would do. It is a big issue. It was raised in the previous evidence, and I echo a lot of what they say. One of things about the social impact bill is to make sure that is driven through and people take into account not just price but social impact into the assessment in the evaluation. If we get that right, we have to get them on to the shortlist in the first place. Time after time, we are now supporting other social enterprises by partnering up with them and bidding to get them through the shortlist process, because if they have not got a turnover of £20 million, they do not even get short-listed. At that point, you will get no local trust, local cooperatives or anything; it is just giving it straight to the big organisations and going back to a Manchestertype environment where that was not the idea of what the thing was about. We have now set up a cooperative venture with only with bona fide charitable organisations. We help them through that process. We then get involved with the contract, and subcontract to that organisation to allow them to build up their portfolio so they can tender themselves. One is around the whole procurement process and getting evaluation on to social return. If they are as good at that as they are at measuring pounds and pence, we would be better off. The social impact bill is a very good one, but we need to make sure it is driven through with best guidance and examples. There are some issues about EU procurement, which were mentioned to you quite eloquently in the previous submission, to do with simple things like tendering, short-listing and that sort of stuff.

Q307 Bob Blackman: Donna, you are in a relatively new field. Are there any experiences where you would say it would be good if you could change these procedures?

Donna Fallows: In terms of procurement, it was all quite plain sailing. We did not have any issues with that. The local authority was very supportive; everything was there. I think the biggest thing for us at the minute is that we are in an uncertain stage as to whether or not we are going to be rolled out. We are now waiting for legislation from the DfE to come back to say that, yes, the existing pilots can be rolled out. We are now getting to the stage where we need to rebid and do the tender. That is where we are at the minute, so it is all quite uncertain.

Cllr Butler: It is very interesting to hear the issues from fellow members on the board. It is one of the reasons why, in Shropshire, we have enabled the Voluntary and Community Sector Assembly, which is very strong, to create the Shropshire Providers Consortium, which effectively acts as an infrastructure body. All the sector can sit underneath it, but then can go into our commissioning or procurement process at the same level as the big boys. This consortium does the work. We have helped to fund this, but the sector has done it itself, so it provides an opportunity to get into those contracts. I can let the Committee have, by e-mail, the questions and answers about the consortium, if it is of interest.

Q308 Chair: Thank you very much. Finally, what happens if it all goes wrong?

Donna Fallows: It won’t.

Q309 Chair: Who is left holding the problem? If leisure centres shut down, they shut down, and people are upset about it, but libraries are a statutory service; the council has to provide a library service; for lookedafter children, absolutely there has to be a service. If your organisation fails, or loses money, does the council simply have to step in and take responsibility?

Peter Bundey: It is a question I have been asked since 1993: what happens if it all fails? We have not failed yet. Nevertheless, the question is legitimate. The interesting thing is that within the service TUPE applies to the staff, as you probably know. If a new economic entity comes in, a transfer of undertaking happens so the staff’s terms and conditions are protected. People like myself are the ones who usually do not get a job because we are not delivering the front-end services.

The other side of it is that the assets and service are the council’s anyway. It is their statutory duty to deliver those library services. Therefore, they would seek to find another provider or service operator. They could choose to take it back inhouse if they wanted to, and take on the staff, or they could re-tender it out. Often, there will be things like performance bonds in place. The council’s retendering costs are covered if the operator fails; it is not out of pocket. Effectively, if we had a problem the library service would default back to the council and they would look for an alternative supplier, if they wanted to go externally, and transfer the staff to them, and on they go; if not, they could take it back inhouse.

Q310 Chair: If you had any debts, it would just be hard luck for the people who work with you.

Peter Bundey: If we went into liquidation, the debts obviously are not the council’s; they belong to us as an organisation, so it is protected.

Donna Fallows: When we first did this, we took a four-year work break, so we have lost nothing. If this does not work and it is not rolled out, we just go back to the local authority. We also had a six-month probationary period. If, having chosen to do this, we decided it was not something we wanted to do, we could still go back to the local authority; we maintain our superannuation and pensions. To make us leave a secure job, we have nothing to lose, because if it does not work we can go back. In terms of any debts, it would be the local authority who would pay them.

Peter Bundey: That is a very important point, because there is sometimes scaremongering about what would happen. We are an admitted body for pensions and continuous service, so if it was passed back to the local authority the service continues. The idea that everything is lost the minute you start on day one is not strictly true.

Cllr Butler: Part of the strategy of the transformation in Shropshire is risk management. Obviously, there is a much greater risk with safeguarding than with other things we might transfer across, and we fully take that on board. The other thing I mention is: how many local authorities have failed and gone into special measures? Touché.

Chair: Perhaps on that point of optimism, we will conclude our hearing this afternoon. Thank you all very much for coming here to give evidence.

Prepared 25th June 2012