This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
The Minister for Cabinet Office spoke on the benefits of employee ownership and public service mutuals.
It’s a pleasure to be here in Solihull for the Inspire Employee Ownership Conference.
I recently visited a skate park in Corby where, much to the horror of my office, I agreed to be photographed sitting on a BMX bike. So to be here at the in the National Motorcycle Museum seems a natural progression.
It’s great to be back in the West Midlands, as for 9 happy years I was Member of Parliament for North Warwickshire. I still feel a strong affinity for the region, even if back in 1992 the local electorate didn’t feel the same affinity for me.
But I think it’s a fitting place to talk about employee ownership and the role it can play as part of our long term economic plan for the country.
The West Midlands was a cradle of industry during the industrial revolution, but through the likes of John Bright, Thomas Attwood and Joseph Chamberlain, it was also at the very centre of the great English radical tradition. The mix of those different qualities – of enterprise and ambition, but also innovation and reform – gave this region one of the most dynamic economies in the country.
That remains very much the case today. Last month Birmingham was named as the most entrepreneurial city in the UK outside London, with over 18,000 new businesses registered here in 2014.
So one of the reasons this conference is being held in the West Midlands is precisely because of the number of small businesses in the locality that might be ripe for converting to the employee ownership model.
Employee ownership in the economy
When the coalition government came to power our priority was to reduce the deficit so the country could pay its way in the world again.
Central to this was creating a diverse, responsible and sustainable economy for the future. Employee ownership can make a valuable contribution to this aim, because employee-owned firms demonstrate consistently strong business performance, through the good times and the bad. They have the kind of grit and resilience that our economy needs.
During the recession, employee-owned businesses in the UK grew by over 11%, compared to just 0.6% for other businesses. Now they’re also contributing to the recovery. Last year the operating profits of the top 50 employee owned firms in 2013 increased by over 25%.
So what’s the secret? It’s about engagement. The best employee owned firms achieve their success precisely because their staff have a stake in the business.
This can help bring about greater levels of responsibility and employee wellbeing, which reduces absenteeism and helps motivate staff.
This in turn can lead to increased productivity, better business performance and a higher standard of customer service.
So it’s not just about profit and growth, important as that is. It’s also about a properly strong economy, which increases the happiness and productivity of the people working there.
The good news is that new employee owned firms are appearing all the time. The number of employee-owned businesses is growing at an annual rate of just under 10% and the Employee Ownership Association has gone from having 60 members in early 2012 to over 250 today.
They can be found in a diverse range of sectors from manufacturing to retail, engineering to healthcare and consultancy to publishing.
But we’re only scratching the surface of what can be achieved. We want to see employee ownership grow from the current 3% of GDP to become 10% of our GDP.
So the government announced last April that we would increase proposed tax reliefs to encourage employee ownership by 50%, from £50 million to £75 million a year.
These measures include a capital gains tax relief for people who sell a controlling stake in a company to their employees – and for the same reason, we’ve abolished inheritance tax on the transfer of shares to employee ownership trusts.
We’ve also introduced tax free status for up to £3,600 of bonuses earned by staff at employee owned firms – something that I hope many people from employee-owned firms in the audience today will be able to benefit from.
Public service context
So if employee ownership is good for business, good for staff, good for the economy and good for Britain, then it begs the question – could the same approach work for public services?
Certainly public services need new solutions. Back in 2010 public spending was hit by the full-force a perfect storm that had been brewing over many years.
First there was the deficit, which meant we couldn’t carry on simply splashing money about because there was none. We had to rein in spending, but in a way that protected the front line services people rely upon.
Then there are the added challenges of rising public expectations, coupled with an ageing population, which will present increasing demands on the public purse. We sometimes talk about people living longer as if it’s a bad thing… but the older I get, the more I think it’s actually a very good thing. However, what it does mean is that there will always be pressure on the public sector to do more, do it better and do it for less.
In addition to all of this, was the underlying issue of public sector productivity. This had remained static from 1997 to 2010, even though it had risen significantly in the private sector.
Public service entrepreneurship
So how do we improve productivity in the public services, at the same time as reducing their cost and improving quality? Well, the solution comes in part from public servants themselves.
There are loads of latent entrepreneurs in the public sector. They may not think of themselves as entrepreneurs but they have all of that spirit of enterprise – the creativity, the knowledge, the experience, the drive.
The problem was that for too long they’ve been shackled by a top-down, Whitehall-knows-best attitude. It meant that good people, brimming with ideas and bursting with enthusiasm, were ground down by a culture that was overly bureaucratic and risk adverse.
And that’s where the mutual can work.
Mutuals set them free, by giving public service staff a greater say in the running the services that they’re responsible for.
Staff can see how things can be done better and are empowered to go ahead and do it, without getting bogged down in bureaucratic treacle. They can see the results of their actions directly, taking pride in successes and responsibility for failures.
The first 100 mutuals
This was our rationale for encouraging public sector workers to form mutuals and take control of services.
But we didn’t start with the theory and move on to the practice. We did it the other way around, forsaking the usual drawn out legislative process in favour of finding ways to build on existing success and expand it on a greater scale – what I call the JFDI school of government…
The first thing was to identify groups of workers who wanted to spin out from the public sector. As Pathfinders, we gave intensive support to these organisations, who in return shared their experiences with us and with others.
Next, we made £10 million available through our Mutuals Support Programme. This modest funding wasn’t allocated directly, but was used to build the capability of these new ventures through professional expertise and advice. It meant that over time, we’ve built up a valuable set of tools and templates which upcoming spinouts can access and draw upon for free.
And it worked. Five years on there are now more than 100 mutuals, up from just 9 in 2010.
Between them they employ over 35,000 people, delivering around £1.5 billion worth of services. They’re in 14 sectors ranging from libraries and elderly social care to mental health services and school support.
The results have been dramatic. On average waste and costs are down, while staff satisfaction is up. Staff absenteeism – a quick barometer of morale and productivity – is falling.
Many have gone on to win further work, giving rise to growth and to new jobs. People typically say they are working harder than they were but are enjoying it more and it’s more rewarding and fulfilling.
When I ask people in these public service mutuals whether they would go back to working for the council, health authority or other authority, the answer has always been a resounding “no”. “Now we can actually do things” I get told.
Mutuals in healthcare
Recently there was much commentary about the decision by the employee co-owned private sector firm Circle to withdraw from their contract to run Hinchingbrooke Hospital in Huntingdon.
Circle took on a hugely loss-making contract. They tried to tackle the root causes of hospital’s problems but they ultimately decided to withdraw. The contractual relationship has actually highlighted the problems, where as in the public sector they would have remained hidden.
Some have sought to condemn the role of mutuals in the public sector.
Between 2009 and 2014, 42 new mutuals spun-out to provide health services. With the exception of Circle, every 1 of those a not-for-profit and all of them operate as social enterprises, reinvesting surpluses into their communities. Almost all of them have active community involvement in their operations as well.
The need to succeed as independent businesses is crucial, because it brings greater commercial discipline. But it is perfectly possible to adopt a business mentality without diluting the public sector ethos which I know runs deeply through these mutuals.
Commenting on Hinchingbrooke last month, former Labour MP Tom Levitt wrote that:
While it may be wrong to run a public service exactly like a business, it is also wrong to believe that public services can neither learn from nor utilise businesses and business techniques to make them better.
He’s right. It’s the financial hard-headedness that helps drive efficiency and innovation while improving outcomes.
A few years ago I visited SEQOL in Swindon, a groundbreaking mutual formed by integrating in one entity intermediate healthcare activities from the PCT with some social care activity from the council.
During the tour, I was shown inside the stockroom, where a nurse had painstakingly attached stickers with the unit price of each item.
“Why did you do that?” I asked the nurse showing me round. “To make us more aware of the cost so we could save money”, was the response. “But why?” I persisted. “You’re a not for profit organisation and none of you will benefit financially from the savings you make”.“No. But every pound we save makes us more competitive. And it’s a pound we can put straight back into better patient care”.
But the case for the public service mutuals needn’t rely on anecdote. There’s a huge body of evidence that mutuals work.
Chris Ham’s recent report showed how engaged and motivated staff can make a huge difference to their communities and improve service quality. They report fantastic improvements in the quality of care – City Healthcare reports 90% of staff feel trusted in their job, up from 67% before spinning out. 87% would recommend them to family and friends, up from 65%.
The Ham Review also found that many of the mutuals set up within the NHS were beginning to put in place innovative approaches to patient care which are needed now more than ever before.
Staff at Bromley Healthcare, empowered to act on their own judgement, have brought down the healing time for leg ulcers from an average of 21 weeks to an average of just 5.
In Essex, speech and language therapists from the mutual Provide decided to start using iPads to deliver their service remotely, increasing flexibility and contact time with patients. Under the old arrangement, the lag between idea and implementation could have been months if not years.
And today – hot off the press – comes the announcement that the Care Quality Commission has found the quality of care provided by Inclusion Healthcare Social Enterprise CIC in Leicester to be Outstanding following an inspection carried out in November last year.
So the evidence to support mutuals in healthcare hasn’t disappeared and it would be a shame to lose the cross-party support for this approach.
This is precisely the kind of innovation that the NHS needs if it’s to continue delivering the first class services that people expect and deserve.
A new ecosystem
For too long, the delivery of public services has been seen across the political spectrum as a binary choice between dogmatic, inflexible state provision and full-blooded, commercial outsourcing.
But we need the broadest possible ecosystem of providers. That means looking beyond the traditional solutions to draw on a wider constellation of suppliers, from joint ventures and charities through to SMEs and start-ups and, of course, public service mutuals.
Because there’s strength in diversity. It offers more choice for government, more opportunities for business and for civil society, and better services for the public. And that, really, is what matters most of all.
So we will continue down the path of opening up the delivery of public services in the next Parliament. I see no reason in the longer term why we shouldn’t see a million people working in public service mutuals, delivering higher quality public services at reduced costs.
While the Mutuals Support Programme has been successful and helped large numbers of mutuals, we want to make sure that we have the right support help bring about a surge in the numbers of people and organisations who want to join the revolution. We’re currently running a trial, being very open to new ideas, about how we could do this.
Meanwhile the Mutuals in Health Pathfinder Programme is supporting 9 NHS Trusts and Foundation Trusts to explore the potential benefits of mutualisation.
A joint Cabinet Office and Department of Health initiative, these 9 Trusts will consider how the mutual model could help improve service quality, and will identify implementation challenges and potential risks – information which will help inform next steps.
We had twice as many applicants as there are places for this programme, suggesting there is a strong desire within the NHS to explore the benefits that becoming a mutual can bring, both for the staff working there and to the quality of care that patients receive.
So, in conclusion, the economy is growing again, but the challenges we face as a country aren’t going to disappear any time soon. We need different solutions.
Employee-owned businesses have a track record of contributing growth and innovation and resilience into the economy and this is unquestionably a good thing.
Now the time has come for a similar revolution in public services.
The public service mutual is one of the most exciting and encouraging developments I’ve seen in over 30 in politics and government. It makes possible a powerful combination between commercial discipline and public service ethos; setting dedicated staff free to deliver services as they know best.
Our work in the current Parliament has begun a historic transformation to how government goes about delivering public services – one that puts the quality of service people receive above all other considerations, including how the service is delivered.
People talk about innovation all the time, both in business and in government. But this it, this is where it’s actually happening. We’ve broken the mould and shown a completely different alternative is possible.
The more mutuals I visit, and the more I learn about their work, the more I’m convinced they have a major role to play in the future of this country.
So this is just the start – there is so much more to come.