Public service mutuals must become less reliant on grants

Public service mutuals have been given too much “soft finance” – non-repayable grants – as they spin out of local and central government, which has “lowered the bar” and allowed “some mutuals to spin out without developing the right capabilities and plans,” according to a report published by the Cabinet Office today.


By Suzannah.Brecknell

22 Jul 2013

The report, written by Boston Consulting Group, says government must “ensure that the provision of 'soft finance' doesn’t crowd out other, more commercial forms of finance”.

There are currently 71 public-service mutuals in operation, with 12 more due to launch over the next year. These organisations employ 35,000 staff and have combined annual revenues of £1.2bn.

Nick Hurd, Minister for Civil Society (pictured above), said the mutuals movement is “reaching a critical mass” and “rapidly taking on a life of its own”.

He continued: “Already we’ve focused government support for mutuals on business development. I hope this report will help mutuals build closer relationships with external investors.”

The report argues that the provision of external finance from social and commercial lenders would not only help mutuals to grow but “it imposes demands and disciplines on them, and thereby motivates them to enhance the capabilities necessary for survival in the long run – particularly commercial and financial skills”.

Most recent government funding streams for mutuals have adopted a more commercial approach, notes the report, but it adds that all government lenders must monitor the way they support mutuals and “ensure they strike the right balance between incubating mutuals and allowing them to fail”.

The report encourages mutual organisations to bring in external expertise – for example by appointing a private-sector expert to their boards – and to look for ways to diversify income streams beyond the original contract from their parent organisation.

The authors also found that social investors are “strikingly uninvolved in financing mutuals,” which it described as “surprising, given the obvious fit: mutuals have a clear social purpose, and most operate at a small scale more suited to social finance products than commercial ones”. They recommended that Big Society Capital – the government-supported fund for developing a social finance market – should encourage more social lenders to work with mutuals.

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