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Making cooperatives happen

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The coalition government’s programme included two key proposals: to “support the creation and expansion of … co-operatives and social enterprises and enable these groups to have much greater involvement in the running of public services” and to “give public sector workers a new right to form employee-owned co-operatives and bid to take over the services they deliver. This will empower millions of public sector workers to become their own boss and help them to deliver better services”.

But what are the mechanisms for achieving these aims? And what are the implications for local government in the light of the recently published Localism Bill?

Co-operatives are not an unkown. They have all party support and they already operate in many areas of everyday life and, as highlighted by a forthcoming publication of the Conservative Co-operative Movement, they own and manage a wide range of enterprises.

The Localism Bill provides a powerful new “Right to Challenge” for public sector employees, similar to the “Right to Request” operated within the NHS where a growing number of staff are setting up their own co-operatives or social enterprises.

The Bill also provides a more general “Community Right to Challenge” in favour of both employees and range of other persons such as charities, social enterprises and parish councils.

A Conservative Party paper published prior to the general election set out six key advantages of the co-operative approach.

First, they enable share ownership so that staff are genuine owners of the enterprise, benefit from its financial success and vote on how the operation is run.

Second, they encourage innovation as the new co-operative works with its local authority to deliver desired outcomes without the bureaucracy inevitably associated with local government decision-making.

Third, staff co-operatives can bring in the best expertise and enter into joint ventures with outside organisations. This is reflected in one of the principles outlined by Lambeth LBC in its plans for creating its “Co-operative council” by encouraging communities to design and deliver services. Any partners in such a joint venture could be offered a share of the revenues in exchange for management and operational expertise.

Fourth, cooperatives give staff the freedom to grow and trade through bidding for other areas of local government activity. 

Fifth, There would be no profiteering as co-operatives would not operate as “management buy outs” to sell off any assets.

And last, they would be expected to make big efficiencies and improvements to services and contribute to the economic well-being in the area.

However, for all the benefits, any local authority team embarking on this path will need to think about how they take the idea forward - and it may be worth them looking at the attached flow chart based on the NHS model.

There will be some essential issues for any team, such as ensuring the proposed “business” area is financially viable and has the ability to grow.

They will need to get support from employees, as well as approval from the local authority - which could provide “seed corn” funding - and perhaps accessing the £10m fund created by the government.

After preparing a robust business plan, the team should review its skills and consider harnessing additional skills on the board or pursuing joint venture arrangements.

One issue will be public procurement rules and the need to compete for contracts, and is flagged up in the Localism Bill. However, many frontline public services do not require the full advertising regime, for example the NHS, and instead staff can transfer with their existing terms and conditions under the TUPE Regulations and the cooperative could be an “admitted body” within the Local Government Pension Scheme.

David Cameron has suggested that the formation of co-operatives to run local government services could be described as “one of the most significant shifts in power since the right to buy legislation”. Cooperatives will not be imposed by government, and should be locally-led, but the opportunity is there for employees to create a new model that could immeasurably enhance the public services managed by them.

Simon Randall is a lawyer and consultant with Winckworth Sherwood and vice-chairman of the Conservative Co-operative Movement

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