C.Co Director, Nicky Waters, reflects on the application of co-operative principles when adopting ‘commercial’ approaches in local government.

In cash strapped councils up and down the country, precious time and resources are being committed to the commercial agenda; typically, by introducing or reviewing fees and charges, investing in new services, and setting up spin-out organisations. Commercialism is often regarded as the ‘golden goose’ but it’s a tough market out there, particularly as more and more councils are competing on a commercial basis.

Whilst we work across many service areas, our recent research into school’s traded services has highlighted the complexity, risk, and opportunity presented by a group of customers who spend £10 billion each year on a whole host of services from catering to back office support. The research that we, at C.Co, conducted has shown that around £20m of income from this customer base alone was lost across just fifty local authorities in one year. This illustrates the pressure of not only trying to attract new customers but also trying to retain existing customers as markets open to new providers.

Our research shows two clear trends in this particular area that will affect councils: the customer base is diversifying which may mean that new services and approaches are required, and; despite budget pressures, schools are still spending money, however, they are increasingly spending it elsewhere. Our experience of working with a wide range of services day-to-day gives us the sense that these trends are not restricted to school services but can be found across council services from leisure provision to social care.

Despite the market context and increasing pressures, councils should not feel pressured into throwing away their tradition and history for delivering public good in an attempt to emulate private sector organisations. Taking the best from across sectors, services, and geographies is necessary for designing future thinking, tailored approaches to local delivery, and many councils are already leading the way.

How can councils respond?

There are broadly four main ways to respond to the challenge, not only with school’s traded services but in any area of service delivery:

Do nothing; leave things to evolve and only make a decision when forced to do so, for example, if income reduces to the point that you can no longer deliver within budget. We would not recommend this option. Taking our schools research as an example, the scale of services provided to schools can often be surprising when you start to look at the areas involved; catering, cleaning, health and safety, legal, finance, HR, education specific services such as outdoor education, data and analytical support and many more. If you do nothing, you could suddenly find that services need to be significantly reduced as customers leave and the provision is no longer viable. This could result in a lack of affordable provision for the remaining customers and potentially unplanned job losses or restructures within the council.

Take a managed decline; your organisation may decide that it doesn’t want to provide these services anymore. It could be an opportunity to reduce the size of services and focus on internal delivery rather than acting as a provider to other organisations or individuals. This is effectively outsourcing. Although, in the example of schools, it would be up to each school to procure its services directly from the market. The buoyancy of the local market will therefore affect the risk profile for this approach. If there are many quality providers at the right price point, then this can work well. However, if there are not then service users/customers may be unable to get the services that they need or see increased costs. It also means that the council is less able to influence and contribute to strategically important areas such as local schools.

Design and adopt new ways of working through internal mechanisms: this can be achieved in a whole host of ways from bringing services together under a single banner, to increasing customer focus and sales targets. Small changes can make a big difference; understanding the true cost of delivering services and updating prices accordingly, introducing account management, moving away from a traditional catalogue/off-the-shelf approach to a more customer-centric approach, attracting sales outside of borough etc. There will be limits to what can be achieved within the confines of a wider organisation, but services can remain successful and viable. It can also be a soft and low risk way to test the market.

Design and adopt new ways of working through a commercial vehicle: shifting services into a new delivery model, such as a spin-out can be gradual or big bang. While the risks are higher, if properly considered, designed, and implemented it can be a success. There are a whole range of options in terms of ownership arrangement and legal models, which services to include and exclude, and whether to include brokerage arrangements for wider services. The size and scale can therefore vary significantly but there are some good examples of where it’s working well for the council, the company and the customers. In some areas, such as school’s traded services, scale can matter in the market place; shared trading vehicles are therefore also potentially attractive.

 How can co-operative principles help?

If councils do take the decision to develop a commercial vehicle, it takes a significant amount of research, exploration and preparation to get the right and model for your local context. Working collaboratively with staff and the public from the beginning of the process will pay dividends by having honest conversation upfront and benefiting from a wide range of experience, knowledge and insights that can inform the design process.

But developing a commercial vehicle can face fundamental challenges as it can be perceived as incompatible with public sector values. While commercial approaches and public value are not necessarily incompatible, we often hear the same valid concerns from staff, elected members, trade unions, and the public when exploring commercial delivery models:

  • Will it be a race to the bottom?
  • Will service quality, availability or accessibility be reduced?
  • Will costs go up for service users?
  • Will staff be subject to low wages and poor conditions?
  • Is it an excuse to cut or close down services?
  • Will assets be sold off at the expense of those who use them?
  • Will services lose accountability?
  • Will the service be run for the shareholders/owners to the detriment of those accessing services?

Of course there are many ways to address the above concerns but exploring co-operative principles as part of the collaborative design process can help to alleviate some of the tension between commercial practices and public good. It can provide a positive framework for exploring and designing a new organisation that works for service users and staff, while bringing in evidence and local factors to inform the optimum model. These principles feel familiar in a local government context:

  • Voluntary and open membership
  • Democratic member control
  • Member economic participation
  • Autonomy and independence
  • Education, training and information
  • Co-operation among co-operatives
  • Concern for the community

While setting up a co-operative might not be right or appropriate in all circumstances, considering the principles during the design remains valuable, perhaps moving towards more of a mutual approach. There is certainly an appetite to do this; we have worked with several councils to design and implement spin-out companies based around mutual principles. These are succeeding in a competitive market place, partly because of their values, workforce, and culture which differentiate them from their private sector competitors.

As with most decisions of this kind, there’s no right and wrong, it’s entirely dependent on your organisation’s overarching strategy, priorities, and context. But two things are certain; if you do consider setting up a commercial organisation, make sure you explore a wide range of potential delivery models, and; make sure adopting co-operative principles is one of them.

For more information on developing commercial models and good governance visit.

For our full report on trends in school traded services visit.

To pick up the conversation, speaktous@wearec.co

Visit the Co-operative Councils’ Innovation Network website for peer support and additional resources.