The Cabinet Office is going full steam ahead on its plans to allow chunks of the public sector to spin off as mutual organisations. Ben Willis gets the advice of managers who’ve handled similar transitions within the NHS

Ever since Cabinet Office minister Francis Maude announced his plans to allow parts of the public sector to reinvent themselves as employee-led mutual organisations, he’s kept up the momentum on this radical reform. Sitting comfortably within a policy framework built around the ‘Big Society’, greater outsourcing and better value for money, the mutuals agenda took another step forward last month when Maude launched a ‘right to provide’ to encourage bids to become mutuals.

Each department must now put in place a ‘right’ covering its public services, under which employers will be obliged to accept and act on proposals fulfilling the necessary criteria (yet to be decided) put forward by groups of frontline public sector workers who want to peel away as mutual organisations. The government is not being prescriptive about what these organisations will look like or what services they’ll run, but probation has been mooted as one suitable area for mutualisation.

The big challenge for managers now will be what to do when proposals start coming forward. According to Ed Mayo, the secretary general of mutuals trade body Co-operatives UK – which is advising Maude on his mutuals plans – the mindset required when considering proposals is one that focuses on opportunities, not obstacles. “It’s about letting go,” he says. “It’ll need senior civil servants to walk the walk and talk the talk by being open to, and encouraging staff to come forward with, their ideas.”

Fortunately for managers facing the prospect of evaluating proposals from staff, while Maude’s proposals are radical, they are not unprecedented. The last government introduced a ‘right to request’ for NHS staff keen to hive off their own units as social enterprises supplying services to the NHS. Although the right to provide will go further by creating an expectation that proposals will be approved if they fulfil certain criteria, the right to request does give frontline staff the opportunity to put forward proposals to primary care trusts (PCTs) to run specific health services. Currently, 61 right-to-request proposals are in the system or have produced functioning social enterprises, and those that have proved successful offer potentially valuable lessons to civil service managers facing similar requests.

One primary care trust that’s completed the right to request process is Kingston, in South-West London. In August this year, Your Healthcare, a community interest company – a form of not-for-profit social enterprise – run by former PCT employees became the official provider of community healthcare services in Kingston. With the PCT remaining as commissioner, Your Healthcare runs services such as district nursing and disability care.

“We should be commissioning services, not directly providing them,” says Kingston PCT chief executive David Smith. “We were looking for services that were local, flexible and responsive. And we felt putting these services into a social enterprise, focused on Kingston, gave us the best chance of delivering that.”

But while PCT managers were keen to set up a social enterprise, the endeavour was not without its risks. One key issue was whether the business model for the proposed organisation was sound. “The main question we had to ask was: is this is a business that’s going to survive financially?” says Smith. “We did a lot of work on the business plan, the balance sheet forecast, income and expenditure and so on. It was rigorously tested.”

So in this case, the PCT adopted a very proactive approach to planning its new social enterprise – even recruiting to ensure that the governance would be right. Smith brought in senior managers who, he felt, would be able to manage the transition into a social enterprise. But their capabilities still had to be put to the test.

“We got in another social enterprise to do an assessment of the management,” Smith says. “We wanted the aspirant managers to be tested by people already running a social enterprise. What do we in the NHS know about running social enterprises?” The advice of social entrepreneurs, he says, was “critical.”

The transition process threw up a number of other challenges for the PCT management. One was the pensions of staff transferring into the new body. As NHS employees, staff were on attractive pensions that, Smith says, they wouldn’t have given up to move into the new body. In the end the matter was resolved by awarding the new body “employer status”: both transferred and new staff have access to a full NHS pension. This leaves the public sector with significant pension liabilities – but Smith is clear that, without the concession, the transition would have foundered.

Pensions are an obstacle that, Smith says, other PCTs have encountered when setting up similar social enterprises. Indeed, according to Lance Gardner, director of care at North East Lincolnshire Care Trust Plus – another PCT that has gone down the social enterprise route – the uncertainty over whether public sector workers will keep their pensions in new bodies risks derailing the government’s drive for mutuals. “It’s something I’ve raised with Francis Maude: you’re going to have to sort this pensions business out, or it’s just going to un-stick all this,” he says.

Gardner, who now mentors other NHS bodies considering becoming social enterprises – and has been advising Francis Maude on the mutuals programme – warns that in the health sector fearsome obstacles have been raised, slowing the transitions process. “Because councils and civil servants are going to be giving public money to essentially unknown businesses, they tend to over-bureaucratise and micro-manage the process. For example, the insurance requirements are prohibitive; massive,” he says. Due to the need to assuage the concerns of public sector managers, he adds, his latest right to request business plan reaches 147 pages. The work involved in putting such detailed plans together will be a further deterrent: “If you still have to do your day job, giving the necessary assurance that your idea will work is going to take up a lot of extra time.”

But despite the obvious practical difficulties associated with setting up mutuals, managers should not be scared to give them a go where the case is strong, Gardner adds. “Be brave,” he says. “We’re not going to solve fiscal problems by being risk-averse. If we just keep retrenching back to the same old positions, we’re not going to get out of this mess.”

Given the vast amounts of management time, resources, research and staff enthusiasm required to produce a successful transition to mutual status, Gardner believes that comparatively few proposals are likely to come forward under the right to provide. But where they do, he says, they should be embraced.

“Francis Maude is hoping for lots and lots, and I’d be surprised if he gets that many,” he says. “But the ones he does get, though not great in number, will be great in value and in quality, and we have to support them.”

Written by Ben Willis