Outsource Magazine

The much anticipated and long overdue Public Services White Paper finally appeared towards the end of July. It left many people with decidedly mixed feelings.

Most interpreted the White Paper as a scaling-back of the government’s ambitions for public service reform; one senior civil servant told me he didn’t see it as a "clarion call for action". Others, however, noted that much of the philosophical underpinnings of a new approach had survived the coalition negotiations, including a general presumption in favour of decentralisation and diversity of providers.

Indeed, the White Paper argues that “public services should be open to a range of providers competing to offer a better service.” It wants a “truly level playing field between the public, private and voluntary sectors.”

One favourite option amongst ministers, however, is the public service mutual and, more generally, social enterprise. The social enterprise sector is now worth around £20bn a year in the UK, and, coincidentally, fits neatly with the Big Society rhetoric beloved of David Cameron’s team and likely to become even more prominent in the wake of August’s city riots.

The government defines social enterprises as “businesses with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners.” It is easy to see and understand the attraction – both politically and in practice.

In theory, at least, social enterprise could introduce a new dynamism into public services, improving performance because staff have a genuine sense of ownership and responsibility while also securing private investment which is channeled for the benefit of communities. It’s no wonder that the public tends to favour this option over straightforward private enterprise when asked by pollsters to list their preferences.

A closer look, however, suggests that this model could be fraught with difficulties. For example, what happens if staff who are transferred from a local authority to the social enterprise then need to be made redundant?

Current employment protection requirements can leave new providers with a hefty bill if job cuts have to be made – even if changes to the service are decided by the local authority. And, while providers may refuse to renew contracts for fear that they will have to take on redundancy payments, councils can be unwilling to take back the responsibility, leaving staff in a horrible limbo. And this is before alternative providers have addressed the issue of public sector pensions. Investors in social enterprises will want clear answers to some of these questions and a robust legal framework in which to operate.

The sector itself is still relatively young and small. That brings the advantages of flexibility and agility, but it also means that there are few examples of scale. Social enterprises tend to prefer the local and the small-scale. The John Lewis example is used so often because it is so rare.

Nor are local authorities themselves all ready to embrace this new model of delivering services. The White Paper is thin on how they will need to change so that there is genuine competition and transparency.

Management consultancies have a strong record of working with clients in the public, private and voluntary sectors to explore alternative ways of offering services. They will also bring expertise on back office functions and organisational design. Crucially, consultancies understand and have experience of the people issues that are at the core of these changes. Public services in our local communities may never be the same again. This year’s White Paper might, in retrospect, be seen as a turning-point. But there is a lot of work and thinking to be done if the idea is to become a reality.