By Joshua.Chambers

13 Jun 2012

The Cabinet Office wants civil servants to leave the public sector as employee-owned contractors to government, but a CSW survey reveals that few are interested – and explains why. Joshua Chambers digs into the results.

A ship can only go in one direction at a time. But what if some of the passengers require a different route to the one proposed? A huge vessel isn’t always ideal: sure, it’s got power and reliability, but it can’t always provide the personalised service that many passengers prefer.

That’s why the coalition is pursuing an agenda of mutualisation, allowing public workers to set up a flotilla of independent, employee-owned organisations that are nimble and responsive enough to meet their passengers’ needs. Unkind wags might say that, as spending cuts hit home, it gives people the option to head for the lifeboats; but the coalition believes that allowing civil servants to leave the protection (and restrictions) of the public sector to commandeer their own craft and plot their own course provides greater benefits to the public than a single ship of state.

Last month, CSW ran an online survey to understand civil servants’ opinions of public service reform. As a part of this, civil servants were surveyed on the mutualisation agenda (see box below). The poll was open for two weeks, and received 1395 responses. Over a third of respondents (478) were senior civil servants (SCS) or grades 6 & 7.

With the results in, CSW has examined exactly what civil servants think of the government’s plans for public sector mutuals, including what they find most appealing – and also what puts them off.

Is there an appetite?
Cabinet Office minister Francis Maude is wedded to the mutualisation agenda. As he said in a speech last year at Civil Service Live: “I deeply believe that public service mutuals, employee-led and owned, can be a big part of the future. This isn’t a cloak for privatisation.  It’s the idea that public-sector staff should be able to spin themselves off from their parent bodies by turning themselves into enterprises with an ownership stake for their employees.”

To kick off, the survey asked civil servants: “Would you be interested in exploring the idea of your organisation or team becoming a mutual, and leaving the civil service to become a social enterprise or business?”

In response, only 16 per cent of civil servants answered ‘yes’, while 69 per cent said ‘no’ and 15 per cent ‘don’t know’. Across the civil service, there was no difference in appetite between senior and junior grades: both expressed similarly low levels of enthusiasm.

Ed Welsh is executive director of commercial models in the Cabinet Office; he was recruited from Rothschild investment bank to oversee the mutualisation agenda. He says he is “quite encouraged” by these figures: “It’s a relatively new programme [and] it’s not a programme that will suit every part of government. We assess that there’s maybe 15 to 20 per cent of government that’s suitable to be mutualised.”

Others don’t think that Welsh should be so optimistic, however. “It’s very telling that only 16 per cent say that they are even interested in exploring the idea of becoming a mutual,” says Mark Serwotka, the general secretary of the PCS trade union. “There’s very little appetite for even looking at it, let along actively pushing for it. This blows a hole right through the government’s claims that civil servants are champing at the bit and [the agenda is] employee-led.”

Serwotka’s union actively opposes the mutualisation process– but what do independent supporters of the programme think of the result? Carole Leslie, policy director of the Employee Ownership Association, says the high proportion saying they’re not interested is “a really strong message coming from public sector workers that the message hasn’t got through… We don’t see it as a model that’s going to affect every part of the public sector – I wouldn’t expect to get 100 per cent – but I’m disappointed that there’s not a more positive view.”

Who can order from the mutuals menu?
As Welsh admits, not all parts of government are suitable for mutualisation. “Mutuals are great where the benefits of empowering people improve the delivery of service, and that’s not everywhere,” he says. “There needs to be a customer, [and] I think it is better where there is an opportunity for that customer base to develop. I wouldn’t say it’s impossible for a mutual to serve just its existing customer better, but I think there is a greater chance of all of the benefits of mutualisation [being realised] if employees see the benefit of being able to expand their marketplace.”

The survey can be split by department, to see which parts of government are the most enthusiastic. The Ministry of Justice (MoJ) is the most supportive, with a quarter of its civil servants stating that they would be interested in mutualisation. The MoJ is going through a strategic review of its justice policies, Welsh notes, and “what we’re finding is that when departments have had a larger transformation [in how they deliver services], inevitably they see the benefits of mutuals.” The department’s probation trusts have been encouraged to consider employee ownership, so more of them are likely to have mutualisation in the backs of their minds, notes Steve Jary, national secretary of the Prospect trade union.

The least supportive departments are the Department for Communities and Local Government (DCLG) and HMRC: 78 per cent of DCLG’s civil servants and 73 per cent of HMRC’s said they’re not interested in mutualisation. HMRC staff may not think that tax collection is an appropriate private sector activity, particularly given that all private companies have to pay taxes. However, DCLG civil servants will have worked with local government, which has been pursuing the model for some time, so many will have seen the model in action.

In central government, the department that has most vigorously pursued the mutualisation model is the Department for Work and Pensions: it set up the first civil service mutual, MyCSP, in April. Nonetheless, only 18 per cent of respondents in DWP said they’re interested – barely higher than the overall level.

What do they find appealing?
What most appeals to the civil servants who did express an interest? CSW asked them to name the three greatest attractions of mutualisation from a list of seven potential benefits. The greatest attraction, with 55 per cent naming it, was “the opportunity to focus on public benefit rather than institutional interests”, while 54 per cent (and 58 per cent of civil servants in senior grades) cited “greater operational freedom”.

Philip Copestake is head of strategy at the Office for Public Management, a social enterprise that works with many employee-owned businesses. He agrees that people are most often interested in the model “because they’re keen to have more control and influence over improving services and outcomes, taking forward innovation without so much of the bureaucracy that comes with being a public sector employee.” These top two responses are closely tied together, adds Leslie.

Meanwhile, 46 per cent of civil servants cite “the opportunity to reap financial rewards if the business is successful”. And in the MoJ – the most enthusiastic about mutualisation – 56 per cent gave that answer, making it the argument they find most persuasive.

The profit motive “is a mechanism to drive better delivery,” Welsh says. “I’m always hugely impressed by the ethos that runs through just about every public servant that you meet, but they don’t always have the focus to understand what actions lead to [the best] results. Allowing them to see the impact on the bottom line makes them think about what they’re doing, and that ethos drives a change in activity.”

Only 26 per cent of all civil servants cited “the opportunity to learn new skills,” as a factor of interest – although 50 per cent of people in the Ministry of Justice did so. The point cited the least was the opportunity to work in the voluntary sector, chosen by only 10 per cent of those curious about mutualisation.

What puts people off?
If only 16 per cent of civil servants are interested in mutualisation, what’s deterring the rest? Welsh admits that the number of civil service organisations actively working to establish a mutual is only “in the order of ten”, although he refuses to give an exact number.

CSW therefore asked the 16 per cent who are interested to select from a list of seven possible concerns the three factors that most worry them about the prospect of setting up a mutual. The most popular answer, given by over half of respondents – 55 per cent – was “a lack of trust in the government’s ability to support and protect new mutuals”.

Leslie suggests that people are worried that brand new organisations will struggle to retain contracts when bidding against larger and wealthier organisations. New mutuals may not be “able to compete on criteria such as having a number of year’s accounts and a certain amount of money in the bank,” she says, arguing that procurement systems should be adjusted to give more weight to quality of service. “If someone’s doing a very good job of delivering a service, they should be able to pitch for it on quality criteria,” she says.

The second greatest concern, chosen by 46 per cent of civil servants – and 52 per cent of senior officials – was “a lack of knowledge and understanding about the mutual model”. Welsh responds that “the message is not completely and consistently understood, so we need to do more on that.”

Tom Gash, director of the Institute for Government’s public service reform programme, goes further. “The government has yet to make the case for what the benefits are going to be, both to the public and to the people working in the institutions,” he says.

However, Rannia Leontaridi, the head of the government’s mutuals programme, says there are programmes in place to tackle these problems. She cites the Cabinet Office’s £10m mutuals support fund – which made its first grants earlier this month – as one way of providing some protection. This money will be used to buy advisory and legal services for nascent mutuals. Meanwhile, the Cabinet Office has launched the Mutuals Information Service website, “which is a very detailed site exploring every aspect of mutualisation,” she says.

The third greatest concern was “the prospect of losing your public sector pensions, terms & conditions”, chosen by 44 per cent of all civil servants – and half per cent of those in the MoJ. This barrier is tackled in some detail below.

The fourth was “a concern that people within the civil service would try to block any bid for mutualisation”, chosen by 28 per cent of all civil servants, and 35 per cent of those in the DWP – the department which saw strikes over its MyCSP mutualisation (see box, left). In fact, there’s some evidence that this is already happening in the Ministry of Defence. A group of employees there recently expressed an interest in mutualisation, but claim their proposal was overlooked by the department’s management. “Members came to us and said: ‘We might be interested in mutualisation in the Defence Infrastructure Organisation’,” Jary says. Prospect supported the idea, he adds – but after one meeting in the Cabinet Office, the idea was taken no further. Instead, the DIO has decided to pursue a programme of outsourcing (see interview, p13, CSW 25 April).

However, Walsh points out that not all bids for mutualisation can be given a positive response. “If a mutualisation is not going to deliver benefits, it’s not going to receive support,” he says. “It’s back to the point that not every activity is suitable for mutualisation.”

What puts even more people off?
Having asked those well-disposed to mutualisation to name their concerns, CSW put the same question to the 69 per cent of respondents who say they aren’t interested. What’s making the concept so unpopular?

They too picked their top three factors, and the first – named by 56 per cent – was “a belief that the public sector is the best place in which to protect the best elements of your current organisation or team’s ethos, culture and attitudes”. Welsh responds that “it’s a point of education. We want to ensure that the best elements of the ethos of the civil service are translated into mutuals; we believe that a mutual structure allows that”.

Serwotka has a somewhat different take, however. “Civil and public servants are rightly proud of the work they do and they recognise the huge value that public service brings to our society as a whole, not just in the necessary provision of service but also in the kind of society that it fosters,” he says. “There is no appetite to unpick this and run our country’s services on the basis of profit, instead of need.” He adds that “the fact that senior civil servants are expressing these concerns as well underlines that this is a political project aimed at ushering further privatisation in through the back door.”

Copestake, who backs mutualisation, admits the survey “reflects the fact that becoming a mutual does involve a big culture change, and new ways of working. Whilst not every employee-owner has to become the next Richard Branson, mutuals do need to be viable business, and that can feel like a big leap for staff.”

The pensions problem
The second greatest deterrent cited by those opposed to mutualisation was “concern about the prospect of losing your public sector pensions, terms & conditions”, chosen by 41 percent of all civil servants and 32 per cent of senior staff. It’s interesting to note how much more resonance is attached to concerns about ethos, which gathered far more responses than fears over losing pay – particularly among civil servants.

Walsh says that the potential benefits of mutualisation often outweigh the risks, but admits that unless that’s communicated, remuneration will remain a concern. “There are always going to be some negatives [for civil servants] in terms of making a change. On the pension, there is clearly a requirement [for a mutual] to provide a comparable pension. I think there’s more an issue of perception than reality, but people are naturally sceptical until they see the detail of what a move means,” she says.

Further, Leslie notes that “it’s only natural that people would be concerned about terms and conditions.” But the Employee Ownership Association’s member-organisations are managing to recruit from the public sector despite the lower pensions on offer, she says: “What’s more important to people is the ethos of the organisation they’re joining.” It’s interesting, though, that Leslie accepts that pensions may be lower, while Welsh suggests that they will stay broadly similar.

Hostile to hostile takeovers
The third most cited deterrent among sceptical respondents was “concern that a mutual might be taken over by a private business, or that a private partner might become too powerful”; it was chosen by 36 per cent of civil servants (and 44 per cent in DWP.)

Francis Maude told CSW last year that mutuals could be taken over by larger private companies. “One reason I was very keen that in MyCSP the staff should have a 25 per cent stake is because that gives them a blocking minority as shareholders, so the employee benefit trust can prevent [a private sector takeover] from happening,” he said, adding that: “You wouldn’t want the staff to be excluded from the ability to benefit from the sale of the entity. In the mutuals which are for-profit, rather than not-for-profit, you want people to feel that there’s a possibility at the end of it that they may be able to cash out, which is fine.”

Welsh certainly doesn’t think that mutuals will be taken over – at least not in the first few years of their new contracts. “The reason their structure will have been chosen is because it provides benefits,” he argues. “If a model has seen the light of day, it’s because it gets the best balance between improved delivery, the potential [for] growth, and all the benefits to individual employees. So unless there is some big sea-change in the market, or the way that their competitors are acting, I don’t see why that [model] would change.”

While “a lack of knowledge and understanding about the mutual model” was cited as a deterrent by 46 per cent of those interested in mutualisation, only 24 per cent of those not interested named it. Clearly, they feel that they know enough about the model and don’t want to use it. And with only 16 per cent of all civil servants expressing an interest, it appears that currently the feeling is not mutual. Welsh is bullish, however, stating that “if we can convert those who are uncertain [and replied ‘don’t know’], we can get it to a third, which seems like a very good number [of people interested].”

Doing that will require renewed effort; and many of the commentators CSW spoke to called for more case studies and concrete examples of the model in action. This presents a problem: a vicious circle could arise where civil servants are waiting for evidence – but as a consequence of their reticence, little emerges. The Cabinet Office’s pilots will have to bear fruit, fast.

Before they set sail on their own crafts, civil servants want clearer charts with which to navigate the way, and some protection against the corporate shark-infested waters and the reefs that may threaten their efforts. Otherwise, the programme risks being pulled into a tidal eddy from which it struggles to break free.



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