UK: Charity Bites: Public Service Reform In Scotland - Increasing Opportunities For The Third Sector

Last Updated: 15 June 2011
Article by Kirstie Penman

On 19 November 2010, First Minister Alex Salmond launched a new Commission on the future of public services in Scotland.  The Commission aims to respond to the £1.3 billion cut in public spending - described by Mr Salmond as "the biggest reduction in public spending imposed on Scotland by any UK government"- by developing recommendations to improve quality and ensure the sustainability of Scotland's public services - recommendations which could prove to be very interesting for the third sector.

A key component of the Commission's remit is to find ways to provide services that "are delivered in partnership, involving local communities, their democratic representatives, and the third sector."  The importance of third sector involvement is further reinforced by its representation on the Commission panel, including Dr Alison Elliot, OBE, Convener of SCVO and Kaliani Lyle, Scottish Commissioner of the Equality and Human Rights Commission, former Chief Executive of Citizens Advice Scotland and former Chief Executive of the Scottish Refugee Council.

South of the border, various new policies have already been introduced by the UK Government as part of the 'Big Society' concept, with a similar set of aims.  In David Cameron's launch speech, he announced plans to encourage volunteers, charities and community groups to take charge of public services and described the Big Society plan as "the biggest, most dramatic redistribution of power from elites in Whitehall to the man and woman on the street".  

Despite attracting criticism for failing to ensure adequate accountability, queries over funding and concerns that this could leave the door open for privatisation in the future if suitable safeguards are not put in place, the plans present clear opportunities for the third sector in the provision of public services.  

Whilst Alex Salmond took care to distance developments in Scotland from the Tories' Big Society agenda - saying that he was "more concerned by the Fair Society" - the launch of the Commission nevertheless provides further evidence of the growing pressure across the UK to explore new ideas around public service delivery.

Burness has already been involved in developing innovative alternative delivery models across a range of public services. In this article, we aim to give a broad overview of these alternatives and begin to explore the most relevant developments for charities and the third sector - but look out for further articles to come in our next issue, which will examine the models in greater detail.

Arm's length social enterprises and co-operatives

Francis Maude, the Minister for the Cabinet Office, gave a keynote speech in London on 17 November urging public sector workers to form co-operatives to take over the running of public services.  Maude stated that the so-called 'John Lewis model" where staff run their services as mutual organisations, could transform the public sector.  

Burness is involved in a number of such projects in Scotland which are now starting to take shape; in one instance, senior officers employed by a Council are in the process of forming their own social enterprise to take over a service strand - which has been under threat from public spending cuts - from the local authority.  In another example, other Council workers involved in a different service strand are also currently looking to form a social enterprise, this time prompted by a desire for greater autonomy and the belief that this will enable them to better manage costs and achieve improved outcomes.  One local authority is itself investigating taking a proactive role and looking to hand over the running of certain services, currently threatened by spending cuts, to an independent arm's length social enterprise.

It is worth pointing out that, at the moment, terminology in this area remains very fluid and the expressions "social enterprise"; "co-operative" and "mutual" are used interchangeably.  We would suggest, though, that the nomenclature is very much a secondary concern; it is far more important when setting up such an organisation that the right model is chosen and that the fundamentals are all in place for the organisation to function and achieve its objectives.

Independent social enterprises/co-operatives have a range of benefits, including a greater clarity of purpose and more integrated service, which focuses on service users and reduces bureaucracy.  There is also enhanced opportunity for greater creativity, innovation and an altogether more entrepreneurial approach.  Co-operatives can also build on officers' first-hand experience of delivering the service whilst retaining a public service ethos; and crucially, under the current climate, they can also access new sources of funding and new markets.  It could also be said that accountability is increased by enhanced stakeholder engagement.

On the flip side, it might be argued that there is actually less accountability, since the services are being distanced from publicly-elected representatives; and that there is the potential for a focus on financial performance, which could distort the pattern of service delivery.  There are also heavy consequences of failure – in relation to staff, as well as service users.  The removal of local authority control over pay, terms & conditions and pension entitlements could also mean a worse deal for staff, but again, it could be argued that whilst such cuts are unpalatable, they are necessary if certain service strands are to survive at all in the current climate.

There is also limited access to investment finance (as compared with private sector providers) and, at the same time - even if the organisation is set up by staff previously employed by the local authority - if they are not wholly-owned or controlled by the local authority then procurement procedures for the delivery of the service will usually come into force.  This would then open up the market to private sector providers, against whom an independent social enterprise or co-operative may struggle to compete in a tender process.  

Public-Social Partnership (PSP)

A further option is the Public-social Partnership model, which usually involves third sector consortium-working, i.e. a number of existing social enterprises forming a joint offering (potentially via a jointly-controlled company) to deliver a contract.  The social enterprise company that delivers the service still remains wholly independent of the public sector authority (the authority is not represented on the board of the social enterprise company).  However, in this case, the public sector body works jointly with the social enterprise company to establish a framework for future delivery of services, including defining the specification for the services.  There is also a parallel process of capacity-building in relation to social enterprises, and following that initial stage, the public sector body runs a procurement exercise in relation to the services; but the ability of the social enterprise to compete on a level playing-field with other potential service providers has been significantly enhanced.

Wholly-owned public sector offshoots

Another increasingly popular model is a body formed by a local authority as a separate legal entity, but which remains wholly-owned or controlled by the authority.  Such organisations do not face the same procurement issues as independent social enterprises/co-operatives or consortia, but still retain many of the benefits.  There is again a sense of a clearer mission, less bureaucratic clutter, a greater sense of empowerment among staff and an increased scope for innovation - all benefits which can contribute to higher quality service delivery without additional cost to the authority.  

The move towards the offshoot model reflects wider shifts in the general local government environment, and the fact that traditional reservations and barriers have been weakened.  The Scottish Government is now generally supportive, and there is an increased availability of specialist technical support - all factors which are driving the process forward.  There are also a variety of legal entities - or even combinations of legal entities - that can be employed, each tailored to the needs of the particular project and again, this is an area in which Burness have had a major role in development of new models.  An increasing number of local authorities are choosing to set up such offshoots as charitable trusts (technically, companies limited by guarantee with charitable status), indicating a further blurring of boundaries between the public and third sector.  We will be looking at the implications of this in our next issue.  

We will also be examining all of the different alternative delivery models in greater detail, taking you through the different structures and legal entities available, and looking at the pros and cons of different approaches. We will also look at case studies to demonstrate how these models are already working in practice, and explaining what this might mean for your organisation.

We will also be keeping a close eye on the Commission on public service reform and will give you a full update and analysis when findings are published later in the year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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