Monday, November 7, 2011

What needs to happen to get the Mutuals show properly on the road

Last Monday evening, Stepping Out brought together for dinner a group of well-place people from Government, Finance (both social and commercial) and public service delivery, including two leaders of substantial 'spin-out' social enterprises.

The 'exam question' for the evening was 'How do we grow a new sector'? What will it take to encourage more social enterprises and mutuals to emerge and how will we encourage the ones that do to grow? The conversation centred around three themes: finance, politics and markets. All of these, of course, inter-relate but first, finance.

The general view in the room is that financial weakness - in the form of small balance sheets - is a disadvantage facing spin-outs tendering for contracts. There appears to be a truth that when tenders come up, this sector struggles to show the financial ‘leg’ necessary to get nervous public sector commissioners into bed. Instead they bee-line for safer-looking super-providers. Some would argue that social enterprises should be 'gifted' public assets in the form of property to address the balance sheet issue.

But others observe that it’s balance sheet strength, not property ownership that public service businesses need, and one of the paradoxes around finance into the spin-out sector is that there is quite a lot of interested money. The problems are, firstly, that these businesses don't yet have the relationships to bring the finance in and, secondly, that providers have, in some cases, been frozen out by plentiful 'free' money from government grants.

The second theme was politics. This centred around the question of the Coalition's real intentions around the mutualisation agenda. On the one hand, there is clear commitment to mutualisation but the ongoing story of change is mainly one of outsourcing to the usual suspects. While part of the problem is over-rigid procurement practices (which are beyond the immediate reach of government, by and large), there is also another problem, namely that there are quite starkly competing visions of public service reform across different parts of Government, which so far haven't been resolved into a single approach.

So, on the one side, you've got Academies and Free Schools, which is, effectively, guaranteeing a role for ex-public sector providers (heads) and taking a very phased approach (indeed) to the introduction of 'disruptive' players such as Free Schools and the private sector. On the other, you have a view, championed, it appears in the Treasury, of 'Black Box' public services that are simply more efficient and packaged off to the private sector, like the Work Programme and, what some fear, might have happened in the NHS under the first-read Health and Social Care Bill.

The third and final theme was markets. How to translate the narrative of a diverse base of providers of public services - large, small, private and voluntary - into a reality is a question to which there is not yet a truly clear answer. The reality may be that time may provide some answers all on its own as markets shape up. Alternatively, we might end up having to manage markets fairly proactively if diversity isn't killed off and replaced by a very powerful oligopoly which itself becomes very hard for Government to influence.

Therefore, to what extent Government should 'tilt the table' and if so how was one of the talking-points. There is a natural reluctance in many quarters of too much government intervention in markets of any sort. 'Best is best' is a common watchword in the world of public procurement. How to behave in markets is also a big question for spin-out organisations. Are they best, in the longer term, to partner up or even fold-in larger healthcare groups in order to gain efficiencies and achieve long-term stability? Or is this too much of a compromise that would water down their raison d'etre as socially focused organisations?

This one of the unresolved questions facing spin-outs in this sector, particularly as they come up head to head with organisations whose chief competencies lie not in actual service delivery but the winning and fulfilment of contracts, often with third party deliverers.

Overall, like with all discussions of this sort we didn't come up with a clear answer to how we grow this new sector. But we did have some pointers. One was ensuring that organisations seeking to bid can also show that they have access to capital if they succeed.

Another is an important message to Government around the need for a bit more help for this agenda if it's not to die an early death. This help consists of a clear message about pipeline and deal-flow. This translates into decent 'start-up' contracts to new mutuals and social enterprise - so that they can at least prepare properly for a more competitive market in the later 2010s and more proactive market-management to ensure that the public's interest in a diverse marketplace is delivered by Government.

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