One simple answer to create real social value

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The Social Value Act is a commendable achievement. But if the government is really serious about creating a public service market that delivers genuine value for the public, far more needs to be done. James Perry suggests one simple change to the law that could have transformational repercussions.

As I write this there is a siege underway at the University of Sussex. Staff and students have been protesting at the university’s plans to … wait for it … outsource some of the university’s support services. Some 30 protestors remain barricaded in, like some latter-day Miserables.

On the face of it, this is somewhat less stirring than Valjean’s struggle. But whilst Bramber House at the University of Sussex may lack the romance of nineteenth century Paris, the struggle of these students has similarities.

Just a few days before this protest broke out, Chris White MP’s Social Value Act passed into law. This is a significant milestone on a journey started in the 1990's with the introduction of Compulsory Competitive Tendering regulations by the Conservative government of John Major. The perception at the time was of closed shop state monopolies providing public services with no value-for-money imperative. Forcing commissioners to operate a competitive tender would keep the providers honest, or so it was believed. 

Reacting to concerns that this was leading to a ‘race to the bottom’ as providers cut costs with little regard to quality, in 2000 New Labour introduced its Best Value initiative to focus commissioners on quality as well as price. 

Both Compulsory Competitive Tendering and Best Value set out to address the dis-alignment of interests between the taxpayer, represented by commissioners, and the provider of services, either a private company or a public sector provider. This dis-alignment lies in the fact that the taxpayer wants social value, whilst the provider either wants shareholder value (private company) or worker-value (public sector provider). 

Both are based on a common, disastrous flaw – the idea that these dis-alignments can be managed through commissioning practice. So Compulsory Competitive Tendering led to the destruction of social value as costs were savaged in the quest for ‘value-for-money’ and ‘efficiency’. This was then compounded by Best Value, a complex set of regulations that theoretically would lead to a perfect balance: Frameworks allowing for consultations; new streamlined processes; open reviews; statutory performance indicators; performance plans; and all the other New Labour buzzwords you can think of. In practice, it created a theoretical nirvana which was complex and onerous to put into practice, impenetrable to all but large teams of bid-writing experts and their lawyers and dependent on the conceit that quality and outcomes would be robustly measured. Ultimately it is a Byzantium where these dis-aligned interests have plenty of dark corners to make their hay. If you don’t believe me, just ask the team responsible for rail franchising at the Department for Transport.

The reason why Chris White’s Social Value Act is so significant is that it shines a light on this madness, by introducing the requirement for commissioners to consider how their services can benefit people living in the local community. For the first time in law, the dis-alignments that lie at the heart of public service provision must be considered. As such, it is a major milestone to be welcomed. 

However, Byzantium lives on and in many ways the Social Value Act makes the job of a commissioner even more complex, not simpler.

What the Compulsory Competitive Tendering process started and Best Value continued was, in effect, a massive privatisation of public services. This is well documented in Social Enterprise UK’s recent report “The Shadow State”. 

New Labour did talk about a ‘third way’ to join the polarised bedfellows of private and public sector provision. But they were unable to articulate what it was. In searching for it, though, they set some hares running which are now leading thinking around the future of public service provision - NESTA, the Commission for Unclaimed Assets (which led to the establishment of Big Society Capital), Academies, further development of an internal NHS market.

Whilst public sector monopolies have demonstrated a tendency to be wasteful, private providers have demonstrated that they are ruthless in extracting the maximum possible value to return to their shareholders, regardless of the implications for social value. It is wholly proper for them to do this as they exercise their fiduciary duty to maximise profits for shareholders.

Right now, we have some sincere efforts to transform public service delivery through the establishment of a social investment market – with Big Society Capital cracking along, and a veritable tsunami of forthcoming Social Impact Bonds and payment-by-results contracts. Just look at the scale of the forthcoming Ministry of Justice outsourcing. Looking ahead, we have the coming implementation of the NHS reforms, more academies and so on. In the absence of a social investment market, this will inevitably lead to the privatisation of public services. 

The previous Labour government, and the current coalition government, have both done a superb job at seeking to grow a functioning social investment marketplace in the UK. We are now widely seen as global leaders in this field.

But given the speed and scale of change in the world, we need bigger and bolder moves than the Social Value Act – no small achievement though it is.

If this government is serious about, to quote the Minister for Civil Society, ‘opening up public service markets to a broader diversity of suppliers’ then it needs to do more.

In November 2010, Nick Hurd MP posed a number of questions over which he said he would consult:

  • On which public service areas could the Government create new opportunities for civil society organisations to deliver, and why? 
  • How can the Government make existing public service markets more accessible? 
  • How can commissioners use assessments of full social, environmental and economic value to inform their commissioning decisions? 
  • How can civil society organisations support greater citizen and community involvement in all stages of commissioning? 
  • And how we can reduce the amount of bureaucracy, form-filling and regulation that gets in the way of and infuriates and frustrates civil society organisations?

Here’s a simple answer for the Minister that will achieve all this and far, far more:

Make it a legal requirement that public services are commissioned from a social business. Only permit commissioners to buy from a business whose fiduciary responsibility is to the public good as well as to other stakeholders, such as investors and employees. 

Call it ‘democratisation’.  A real ‘third way’, a coherent ownership structure for public service providers as an alternative to public or private ownership. It could even have its own tax regime. Immediately the dis-alignment between the tax-payer and the private providers or public sector monopolies is overcome. The commissioners’ life is made easier, not more complex – the best value tests are built into the enterprises delivering the service. And with a staged introduction process, one needn’t frighten the horses with investors of FTSE 100 companies based on public service provision - regardless of what they may try to argue. 

Bold moves are required if we are to take the opportunity of the big change that is underway to transform public services for the better - and if the noble cause of those poor students in Brighton is to avoid dying on the barricades.