Last week, Geof Cox answered some of your questions emerging from our provocative recent conference that asked “Can Social Enterprise Save Public Services?”. This week, he builds on his earlier blog with answers to questions relating to the actual process of spinning out a public service to social enterprise.
What about my pension?
If I had £1 for every time I’ve been asked this question – I wouldn’t need a pension!
First – you need to start discussing and researching pension issues EARLY in the process of service transformation to social enterprise, because sorting it out can take some time. SECOND – don ‘t assume that all staff will see pension provision in the same way. Trade unions often assume that everybody wants to keep something like their current public service pension – but in fact many young staff would prefer to make lower contributions and keep more cash – and indeed this might be wise, if, for example, they are saving hard for a deposit on a house.
If ALL of the staff to be transferred agree to a change in their pension provision, a number of options can be followed up – such as introducing entirely new personal or stakeholder pension arrangements. In general, however, it will be necessary to put in place at least a ‘comparable’ pension scheme.
In most cases, therefore, the most important early decision will be between the alternatives of ‘admitted body’ status (enabling transferred staff to stay within the LGPS) or a ‘comparable scheme’ (that is not the LGPS but does provide broadly similar pension benefits). (The NHS Pension Scheme is broadly similar to the LGPS in this respect.)
Admitted body status is superficially attractive, but can present high risks because of the unpredictability of possible future contributions to the Scheme.
A further consideration is that in many areas there is likely to be a future need for a comparable pension scheme anyway; this is because:
- any social enterprise providing a public service is likely to want to grow and take on more services, possibly for neighbouring areas, and
- in fields such as social care it is likely – given the trend towards joint services with the NHS – that a need will arise for a pension scheme that meets the ‘comparable’ criteria for both the LGPS and the NHS pension scheme.
Therefore, the starting assumption for any staff team or external organisation looking at taking on a service transformation involving staff transfers should be that a new ‘comparable scheme’ will have to be set up, and the costs of this factored into the transformation and subsequent social enterprise costs.
These costs can be problematic for a small service – this was one of the reasons that in the Royal Borough of Kingston (where the LGPS was in deficit) the Balance team linked up with the much larger and financially stronger Pure Innovations to complete the spin-out.
Within the ‘comparable scheme’ option there will still be a number of further important choices, first whether to provide your own pension scheme certified as broadly comparable by the Government Actuary’s Department, or use an ‘off the shelf’ GAD-certified pension scheme such as Prudential Platinum or Citrus.
What is the Council’s view? Is there a contract/incubation period?
There are many areas where it is very advantageous to get a ‘whole council’ view on service transformation to social enterprise – this is why the ‘framework document’ approach I outlined at the conference is so powerful – it lets staff involved in a service transformation know right from the start if the Council is going to be supportive, and what its expectations are in return.
There is no better example than this than procurement policy – if, of course, the spun-out service is indeed intended to undertake services on contract to the Council.
Under the old NHS ‘right to request’ procedure it was possible to grant a contract for a limited period to the spun-out organisation. This is not possible for large local authority contracts. However, local authorities do in fact have considerable flexibility to tailor procurements if not to specifically to the spun-out organisation, then to local organisations that are very similar indeed!
For example, it is often thought that PQQ requirements must include trading history and past accounts – but in fact this is a matter of the Council’s own policy and practice, rather than any obligation. The direction of national policy is indeed just the opposite:
Potential providers such as public service mutuals may have been recently formed and unable to provide accounts… Authorities are therefore urged to exercise flexibility towards all potential providers when specifying financial information requirements. (Cabinet Office Procurement Policy Note 02/13)
Many service transformations to social enterprise will fall within the old ‘Part B’ service areas (such as health and social care, education and culture) which are now allowed flexibility under the ‘Light Touch Regime’. For example, this allows Councils to reserve contracts for social enterprises (ie. organisations that have a public service mission, reinvest surpluses to forward this purpose, and are employee-owned or organised on participatory principles).
Under other regulations, contracts can also be reserved for organisations that employ disabled or disadvantaged people.
Then there are the ‘social value’ possibilities.
Where a service has previously been delivered directly by the Council, it is unlikely that there will be other local social enterprises that will meet all such criteria, so in effect, given the will, a Council can tailor a contract to the spun-out service.
I was once involved in the development of a social enterprise with a schools pyramid (a high school with about 10 feeder first and middle schools). Our efforts were blocked every which way by Legal, HR and other Departments – until the Head of the High School had a conversation with the Council Chief Executive, during which he threatened that the whole pyramid would go grant-maintained. Next day, all the supposedly insoluble technical barriers just seemed to disappear!
To what extent do the specific push/pull factors have an effect on the process itself?
They’re vitally important. As I mentioned at the conference, the first thing we did when taking the Newcastle instrumental music teaching service out of the Council was to negotiate a postponement of the the implementation of the decision to cut the budget, from April to September. Those 5 months planning were vital – without them we would not have been able to do anything at all – let alone set something up that would last at least 20 years!
In my experience both push and pull factors must be there. I’ve advised many social services – typically day centres for disabled people that are already trading with the public to some extent – eg. running a garden centre or craft activities – where the staff and users involved want to spin out, to trade more freely, but there was no push factor like a Council budget cut or policy. In nearly every such circumstance, the spin-out foundered on the indecision or empire-protecting mindset of some senior officer.
A number of questions that relate to specific business planning issues:
How many staff could this business take?
What size/shape if any?
What is a realistic budget, if any?
What are the risks on both sides?
And some really big questions:
How can you manage the practicalities of culture change?
What does leadership mean in a social enterprise?
— Geof Cox | http://geofcox.info