The public sector by another name?

John Plummer reports from Hull, where a new type of not-for-profit organisation created by the public sector has traditional charities worried.

Andrew Burnell
Andrew Burnell

Andrew Burnell is that rare creature: a likeable senior manager in the health service. Even people in the voluntary sector warm to him. But, professionally, they fear that he and other NHS managers in the UK could be about to wreak havoc on the not-for-profit landscape.

Burnell is the director of provider services and nursing at Hull Teaching Primary Care Trust, one of 26 organisations given 'pathfinder' status by the Department of Health earlier this year. Each received funding to set up social enterprises that will "lead the way in delivering innovative community services in health and social care".

Hull Teaching PCT used its £10,000 to press ahead with plans to create a community interest company called City Health Care Partnership.

With a projected budget of £37m, and 1,200 staff who will transfer from the PCT, it will be 10 times bigger than any other third sector organisation in Hull. What is more, existing voluntary organisations could find themselves bidding for contracts against the new super-body, whose former colleagues at the PCT will decide who wins.

Naturally, charities are a bit twitchy about this. When ministers called for the voluntary sector to deliver more public services, they did not expect large public sector bodies to spin off their service-providing arms and establish them as third sector organisations. But with PCTs in Milton Keynes, Surrey and the Forest of Dean also among the 26 pathfinders, a new breed of voluntary sector behemoths with their roots in the health service could soon stride across the sector.

"It's potentially very dangerous," says Kath Jones, chief officer of the Hull-based North Bank Forum, an umbrella body representing local voluntary organisations. "It flies in the face of having a meaningful public involvement in the delivery of services, because we will get the same kind of service delivery through a different mechanism. I don't think the politicians have thought it through. Up to now, there have been lots of warm words about the voluntary sector but very little clarity of thinking towards it."

Hull and East Yorkshire Mind, which employs 80 staff, is the largest of an estimated 1,000 voluntary organisations in the city. Margaret Allen, its chief executive, is equally concerned. "When you move masses of people they take the culture with them," she says. "We could lose the grass-roots focus. Whenever politicians at a high level talk about the voluntary sector delivering public services, I think they truly want the real third sector to do it. Below that level, things become distorted."

There is no shortage of senior government members in the area. Hull East MP John Prescott was, until recently, Deputy Prime Minster, while Alan Johnson, MP for Hull West and Hessle, became Health Secretary in Prime Minister Gordon Brown's reshuffle. But with the majority of Department of Health pathfinders coming from outside the voluntary sector, it seems that ministers are happy to encourage public bodies to bolt to the third sector under the guise of social enterprise.

Trade unions are leading the resistance to the plans. They scuppered City Health Care Partnership's planned launch in April next year by arguing that it contravened the Transfer of Undertakings (Protection of Employment) Regulations 2006. Tupe gives staff the right to the same terms and conditions when their jobs are transferred between sectors. Burnell, a former trade union shop steward, admits that the unions have legitimate concerns. He says: "The NHS pension is brilliant. How can the third sector find a comparable arrangement?"

He expects matters to be resolved when Parliament returns in the autumn. "We have carried out a full business case and the company is registered," he says. "We're now in negotiations with the Department of Health and the pensions agency to look at how we sort our way through things."

He insists City Health Care Partnership will not become the monolithic beast that charities fear. "I didn't realise until I talked to a charity chief executive that we are seen as some kind of monstrosity," he says. "Commissioning is changing. It's going to get more competitive, and it's about how we can work together. I'd be more worried about the private sector moving in."

Boots and Bupa, he suggests, will be the real threats as markets open up, and he says voluntary organisations would be better off collaborating with the new social enterprise on contract bids rather than regarding it as the enemy within. "If City Health Care Partnership floats in the next 12 to 18 months, it will make a profit by working in partnership with other local providers on putting together packages of services," he says.

But isn't the new organisation playing with legal forms to hide its true public sector identity? "That's misguided," he says. "We will have to do something different to meet our prime objective as a community interest company: show that we add worth. To do more of the same would be to fail. We're not like Mind; we won't be out there rattling tins. The source of our income will be contracts."

Arguments about legal forms, he says, cloud what matters: helping local people. "We have a set of principles written into our memorandum about our role to engage service users and understand their needs, and then to work with other organisations that work with these people to support more holistic care packages locally," he says.

But doubts remain. The fears within the sector have prompted chief executives' body Acevo to survey its members.

"This is a significant concern for a number of members, and it seems to be becoming more serious as a problem," says Seb Elsworth, head of policy at Acevo. "The state creating new organisations is no substitute for the genuine engagement with the local community, choice, innovation and wider wellbeing that the third sector can deliver."

'Foul play' - but no action

New social enterprises have raised concerns about unfair competition. By Robin Currie, Margaret Allen and Paul Clitheroe 

The third sector is used to change. Its very survival over the years has depended on such adaptability. But this new development, in which local authorities and primary care trusts transfer their existing direct-service-provider departments into community interest companies and other social enterprise structures, could undermine organisations, as well as the culture of the sector.

Recent speeches by ministers have underlined the benefits of moving public service delivery into the third sector. But do ministers know what is really happening on the ground?

For many years, the voluntary sector has questioned the relationship between the commissioning process and the contracts awarded to the provider arm of the same public authorities. Many have cried foul play, but no action has ever been taken.

Several years ago, the Social Service Inspectorate proposed that social service departments divest themselves of their provider arms to ensure that the commissioning process remained separate from the provision of services.

Now the Department of Health has directed PCTs to divest themselves of their provider arms to ensure that commissioning and service provision are clearly divided. This was done, in part, to reassure existing third sector organisations that the commissioning process would be fair, transparent and contestable.

Facing such threats, how does a public authority protect its interests and those of its staff? One solution is to rebrand its provider arms as social enterprises. This allows public services to carry on as before, with little change to staffing and ethos, while the real voluntary sector continues to be marginalised.

This poses a massive risk to the voluntary sector. What has been recognised as a diverse, efficient, innovative sector risks being dominated by quasi-governmental, monolithic bodies that are rife with a public sector culture.

It raises a number of worries:

  • The establishment of arms-length management organisations tends to be an opportunistic response to immediate financial or political pressures rather than deriving from a community-expressed need or business planning.
  • Start-up funding to promote social enterprise is being eaten up by arms-length management organisations that break away from local authorities and PCTs, even though services could be transferred into established voluntary sector organisations.
  • Arms-length management organisations add pressure to already overcrowded markets, particularly in health and social care.
  • Being composed of former local authority or PCT staff, arms-length management organisations hold privileged commercial information about contracts operated by the voluntary sector. This could give them unfair advantage when bidding for contracts.
  • The political and financial support provided to help arms-length management organisations become established appears to cushion them from market realities. This gives them an unfair advantage in comparison with the kind of contracts typically available to existing third sector organisations.
  • Staff transferring from the public sector are generally able to continue working on public sector terms and conditions, including pension schemes.

These new organisations can, therefore, retain all the benefits of being in-house service providers while acquiring few of the risks of independence. Once established, often as social enterprises, they can bid for any tenders that become available.

This could put them in an unfair position as they compete for contracts against truly independent sector organisations.

Ministers have encouraged the public sector to learn from the third sector's entrepreneurial spirit and its can-do attitude.

However, by transferring staff into newly created organisations rather than into existing third sector organisations, opportunities for gaining from the sector's culture and experience are lost.

In its enthusiasm to embrace the third sector, the Government should not lose sight of those attributes that make it different and sometimes more effective than the public sector in service provision.

- Robin Currie is chief executive of healthcare social enterprise PSS and senior research fellow at Liverpool Hope University. Margaret Allen is chief executive of Hull and East Yorkshire Mind. Paul Clitheroe is commercial manager at PSS.


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