My piece on public sector spin-outs in the Guardian 2.3.11

Where are public services going, after the prime minister's announcement last week that almost all are to be opened up to competition?

In February, the government announced a second wave of new "right to provide" initiatives, in which public sector staff step out of the public sector, often in large new ventures, in order to sell their services back in. These people will join some 60 new staff-led healthcare organisations that, by 2013, will employ 10% of the non-hospital-based NHS workforce.

But will this model of divestment to socially motivated ventures take hold? Or, as many suspect, is "right to provide" a warm-up act for the government's real long-term aim: outright privatisation of the public sector?

The question of whether the model will work depends on the unions, the government and the law. All three pose challenges for new ventures.

First, the unions. At present, most remain hostile to social enterprise. They see it as a slow-train to privatisation – and the erosion of hard-won gains for staff. Little distinction is made between socially inspired ventures and those that are profit maximising. A new social worker co-op and the big global outsourcers are all, for now, in the same bucket. Every new stepped-out venture I speak to has struggled to get the unions to see social enterprise as different, despite the protection of assets and guaranteed representation for staff on the board. This has to change if the floodgates are ever to open.

Second, the government. Up until now, most new social enterprises or co-ops have been offered a three- to five-year contract. This, in effect, gives the new venture time to reshape itself for the competitive market. They need this. A business emerging, say, from the NHS or a council is freighted with costs, practices and cultures that require a period of non-competition to sort out. They also tend, understandably, to lack commercial skills and early access to capital.

Here's the rub. If, under the new doctrine of Any Willing Provider, emergent ventures have to immediately go head-to-head with experienced private operators, they will struggle. With no trading history or funds to invest, they have little to bring to the table. The government, then, needs to give breathing space to emerging ventures and, for a short time, keep competition at bay if they are to stand a chance.

Which brings us to the law. European procurement rules states that if a public body commissions a service, rather than provides it, competition needs to be fair and open. While this hasn't yet stopped Right to Request in the NHS, and while certain courageous councils, such as my own in Suffolk, are finding ways to commission new staff-led ventures, the truth is that there will be legal challenges from the private sector which will claim to be "frozen out".

Should these new ventures be helped? Yes – studies indicate that they raise productivity and innovation. Arguably, they also generate social capital in a way the private sector finds difficult to emulate. So how do we remove the barriers?

Help is needed from the unions. Co-operatives and staff-led ventures resonate positively with politics of many union members and activists, but it's a conversation that isn't really happening as defence lines are being marked around state-run services.

Assistance is also needed from the government. Its £10m in support is useful, but the test of the government's sincerity is whether or not it acts to ensure that new co-ops and social businesses get the space and support at the start in order to be ready to play seriously in an open market two or three years down the line. This means continued short-term protection and a robust defence of the policy when it comes under challenge from other sectors.