If mutuals are the solution, what's the problem?

The title is my response to Ed Miliband's speech to Labour's National Policy conference at the end of last year:

What are the solutions for the future that I am interested in? I am interested in mutual solutions to some of the issues we face in our public services. To community ownership of our public services. To public services where people don’t feel, both users and those working in them, like cogs in the machine which to often they do. And also we have to be the people who stand up for local democracy and local control over public services as well.

First, before you come up with a solution, please examine the problem. Don't put the cart before the horse. Second, what the hell does "community ownership of our public services" mean? If they are public services then we, the public, the community, already own them!

In September I attended one of the Labour leadership events where Ed Miliband came to my area and gave a talk and then took questions. I asked:

If you become leader will you pledge to take back into public ownership those NHS hospitals and community health services that Lansley has taken out of public ownership as Social Enterprises?

Ed Miliband merely heard NHS and not the rest of the question and although the meeting was run under the execrable "we will take three questions and then answer them all in one go" system (a system designed to stop the questioner intervening) he did not understand the question and so asked me to clarify:

Are you talking about GP Commissioning...?

I wasn't and told him so, explaining:

Lansley has said that he wants all our hospitals and community health services to be run by Social Enterprises, which are not publicly owned. Will you pledge that the next Labour government will take these back into public ownership?

His answer was surprising:

I don't know about that policy.

At the time I didn't realise the significance of this reply. A few days later when I was researching his career in government I discovered that Ed Miliband was the first Minister of the Third Sector in 2006. Ed Miliband created the "Third sector" as we know it, where social enterprises and charities take over public services. The NHS Confederation's NHS Handbook 2010/11 says:

DH research into the third sector's potential contribution in 2007 found 35,000 third sector organisations provided health or social care, and another 1,600 planned to do so. Total funding for these services amounted to £12bn a year, with just over half of that from the public sector - 36% of which was for healthcare and 62% for social care.

That is, currently about £2bn of NHS care is provided by the Third Sector. This is a huge contribution, surely Ed Miliband knew that? And surely Ed Miliband had been advised that Lansley wanted to expand this much, much further?

Well, after the NHS White Paper consultation the Department of Health dropped the idea of entire NHS hospitals becoming social enterprises. It may have been because of a bit of clear thinking from the Treasury: there just isn't enough money. Social enterprises are private companies, they are not public entities. They differ from the private sector because they ensure that all surpluses are re-invested into the service. These are not-for-profit organisations. (For comparison, half of US hospitals are nonprofit, that is, they are social enterprises.) If a hospital becomes a social enterprise it has to purchase the asset (you seriously did not think that they would have been given the hospital for free, do you? Seriously?) and that would mean a lot of organisations, making very small surpluses (if at all) taking out loans and having to service those loans.

The Department of Health estimates that our hospital trusts are worth £24bn. Can you imagine what it would do to the money markets if all the hospital trusts tried to get that amount of money in the run up to April 2014 (the dropdown dead date for NHS Trusts)? With such competition for money, the government would find it just that little bit more expensive to re-finance gilts. Not a great idea.

So the idea now is Any Qualified Provider under a programme called Right to Provide. The idea is that groups of NHS workers should get together as a mutual (profit share) or social enterprise (profit re-invested in the service) and they request that they provide that service for the hospital or community health service. If the service is an NHS Trust (ie does not have FT status) then it must consider the request.There are several issues.

Fragmentation is mentioned by Dr Mark Porter chair of the BMA's consultants committee:

"Doctors and other healthcare professionals are qualified to provide excellent care, but we believe the NHS should remain in the hands of the public. It is hard to see how the NHS can operate effectively if lots of bits of it are in private hands – even if they are those of former employees. New mutuals could quickly find themselves in conflict with each other, and at risk of being out-competed by private healthcare giants. The consequence could be financial and operational chaos."

Under the scheme an NHS hospital will be like a department store. When you walk through a House of Fraser store you walk past departments franchised to many different suppliers. Each department sell just their own branded goods. Imagine your local hospital run like that: different wards run by different organisations. Think of the paperwork when you are passed from one to another! This is in stark contrast to Marks and Spenser where every square inch of the shop is run by M&S and every item is an M&S branded goods. At the moment we have a (more or less) M&S model, but Lansley wants a House of Fraser model.

The problem with the franchised system is that it could get unwieldy. Rather than one bloc of employees to negotiate with, to lead and empower, a hospital chief executive would have to work with many disparate groups. Instead of the top management being able to intervene and address any employee, under the franchise system the employees of the mutuals/soc ents will be employed by a separate organisation and so there will always be a layer of management between the chief executive and any employee, possibly an impenetrable layer.

For the employees, forming a mutual may appear attractive initially, especially since the assets they will use will largely be leased from the NHS provider so there will not be large investments required. And the government may encourage such mutuals initially by awarding them sweetheart deals. (We already know that such mutuals will be handed the contract without tendering since this is a Right to Provide.) But the attraction rapidly wears off. Such employees will initially have TUPEd NHS terms and conditions, but new employee would have non-NHS T&C. And when an employee gets promoted, they will leave their NHS T&C behind when they sign their new employment contract. Further, the hospital will have no responsibilities over the employees of such organisations: if the mutual goes bankrupt the hospital will be under no obligation to employee the staff. Indeed, after the initial contract has expired, the hospital could choose another provider since the mutual is one of many possible providers: Any Qualified Provider.

Finally, it is worth pointing out that all hospital trusts have to become Foundation Trusts by April 2014. The Department of Health is quite clear about this. In its policy document on Right to Provide it says:

If you work in a Foundation Trust, you will have to talk through your proposals with your manager and decide on the best approach to take. As Foundation Trusts are independent organisations, their boards are not obliged to support proposals to develop staff led enterprises. However, Foundation Trusts may well be interested in innovative proposals that will improve patient care.

In other words, this says that FTs are exempt from Right to Provide. As more and more NHS Trusts become FTs there will be fewer possibilities for the cosseted-mutuals explained above to be created.

But I return back to the initial question, and as Labour formulate their policies for the next election I need Ed Miliband to answer it: if mutuals are the solution, what is the problem? I think that if we find out what the problem is, we may well conclude that there are other, less disruptive, ways to fix it, other than breaking up the workforce into many disparate mutuals.