Is spinning-out a local authority service into a  staff-owned 'Public Service Mutual'  the best way available to local authorities to address the efficiency and effectiveness challenges facing local government in the coming year?

The answer is neither a straight yes or no – it depends on the particular circumstances.

There are many examples of when a spinout it is probably the right thing to do.  Not least of these is when public service markets are under-served in some way.  Here, a newly-created provider will very quickly be able to fill a gap or create some much-needed competition.  Sadly, many public service markets are still immature, stifled either by years of monopoly or a dearth of suitable providers.

Independence Matters, a £12m social care spinout from Norfolk County Council is one example.  Commissioners and staff told us they wanted a new provider in the local mix that stood clearly for quality, value and could operate county-wide as a strategic partner to the council as it seeks to build an integrated social care offer with CCGs.   A spinout social enterprise ticked all boxes. 

A mutual also makes sense when you need the community on-side.   Mutuals tend to be good at knitting together public money with other resources in a community that would otherwise not be marshalled into the public realm.  

So when Wycombe Council wanted to see its woodland management service move out of the council the answer was neither a traditional outsource or council-owned company but a new business,  Chiltern Rangers which alongside a small contract from the council also works with local businesses, community organisations and schools to maintain public space in the borough. 

Finally, a mutual may well be the answer if you have politically sensitive services that cannot really be privatized but urgently need a new approach if they are not to closed down for reasons of cost.   In 2012, Suffolk County Council created a new co-operative, Suffolk Libraries, into which the council's library staff was moved.   The new venture quickly used its new commercial freedom to create a new, cheaper operating model and so far no library has been closed in Suffolk, despite a vastly reduced budget.  

Conversely  are times when a spin-out is not the answer.  If there is a high-quality , truly competitive provider landscape already in place, the public interest isn't necessarily best served by a new, Council-created provider with all the attendant advantages it might have in terms of contacts and positioning.   It is simply not a good use of time and energy for a Council to intervene in an already well-functioning market, however attractive a mutual might be to certain people on the inside.  

For this reason, we tend not to see too many mutuals in areas such as back-office support, facilities management, regulatory services, street-scene and IT – areas of council activity that can easily and cheaply be moved into a buoyant, well-developed private sector.

Another reason that a spin-out might not be the answer is when the task of transforming a Council service is so profound that it might be better to go back to the drawing board with a newly commissioned type of provision and actually close the current Council service completely.  Not everything councils do should be continued.   And mutualisation will not turn a bad or un-needed service into a good or necessary one. 

A final reason why a spin out might not be a good idea is when huge capital investment is required to redevelop public provision.   The resources and experience involved a major re-tooling or rebuilding job is seldom found in what is effectively a start-up business with nothing on its balance sheet.

While a joint-venture mutual, such as 3BM set up by Prospects alongside staff in Hammersmith and Fulham to provide school support services, can provide an answer in such cases, you have to be sure that the added complexity and higher origination costs created by a  joint-venture mutual, rather than a straight-outsource are easily outweighed by the benefits.

It is important that those of us who champion public service mutuals do not get so caught up in our enthusiasm for our model that these wider factors fail to register and we end up promoting mutuals where actually they are not the right answer.    Occasionally we see mutuals being championed before a proper check has been done on whether it's the right option.

Equally it is healthy for all local authorities to ask seriously about the potential of mutuals before adopting one of the more traditional options.   Mutuals in most English Councils are still a minority sport and although more Councils are building mutuals into their option-appraisals when looking at what to do with services, many overlook it when it could, like in Wycombe, Norfolk and many other places, actually be the thing they are looking for.  

Craig Dearden-Phillips is Managing Director of Stepping Out  craig@stepping-out.biz