When state-funded public services were opened up to private sector competition in the 1990s with the introduction of Public Sector Mutuals, many wondered whether this would herald the death knell for the ‘traditional’ government-funded workforce that had held its monopoly for so long. Though many had to rethink their career paths or change their attitude towards work, in the grand scheme of things, how much really changed as a result? Today, the Public Sector Mutual is the big news vehicle for change to reduce overheads, increase efficiencies and lower head counts in an economy that demands this from all areas of government spending. But, is this the opportunity that it’s cracked up to be? Are you being TUPEd or are you being duped?

What is a Public Sector Mutual?

Back in 2010, Cabinet Office Minister Francis Maude MP championed the newly conceived Public Sector Mutuals, claiming that by 2015 there should be a million former public sector workers owning and running their own businesses, providing their services back to the local authorities they used to work for. The idea sounds perfectly logical on the face of it. If you are a government body and you need to find ways to reduce your costs, then the idea of being able to ‘spin out’ whole departments should certainly be worthy of consideration.

Some organisations started to speak to their teams and departments, asking whether they wished to TUPE across to their own businesses, to have the freedom to run it how they wanted, to have the freedom to seek out new business to increase profit opportunities, and to be supported by government-funded training. Essentially, the pitch was that you too could be more than you are today, that you could set loose your entrepreneurial spirit and create a business with masses of potential and a ready-made client – your former employer.

The Public Sector Mutuals Sales Pitch

Talk to Public Sector Mutuals advocates and they will point to the £10m that has been set aside by the Cabinet Office for the Mutuals Support Programme that provides a whole raft of advice from business planning to marketing strategy to support new and growing Public Sector Mutuals. They will talk about the success of high-profile Public Sector Mutuals (PSMs) such as Buckinghamshire Learning Trust with its 300 staff and £15m year-one turnover. And, they will talk about Mutuals Taskforce reports that show that employee ownership leads to higher motivation, innovation, profitability and customer satisfaction. But is this painting a rosier picture than many will experience?

The Risks of Starting a Public Sector Mutual They Mightn’t Tell You About

• Take-up has been slow, far slower than the Government first hoped, with less than 100 Public Sector Mutuals (PSMs) in existence so the goals for next year cited by Maude back in 2011 have had to be revised downwards.
• Even though it’s claimed that £1bn worth of public services are being delivered by PSMs, in reality just 0.14% of public spending goes through them.
• Most PSMs are small organisations offering a narrow area of services, typically providing specialist health or community services at a local level. Scaling has proven difficult and the idea of mutualising larger or core departments is considered to be very complex indeed.

Why You Should Look Before You Leap…

Despite the enthusiastic pitch that you are likely to get from those in charge, or those who have become advocates of the move because they have been convinced of its benefits, it is important that you review the pros and cons thoroughly before deciding whether such a move is right for you. Each situation is going to be different and needs to be considered on its own merits, but here are the four primary issues that need to be addressed before you decide one way or the other:

• 1. Skills gap

• PSMs are primarily formed with the employees from a public sector department or team, a workforce that is no doubt excellent at what they do; however, often unprepared for the enterprising roles they are signing up for. The skillset required to succeed in the private sector is very different from that needed by the public sector: an entrepreneurial mindset – sales and marketing being at the forefront of all decisions – commercial financial planning, and so forth. No matter the zeal with which you enter the private sector, without the right mix of skills in your business you are destined to struggle. Do you have both the desire and the skills to enter the private sector?

• 2. Where will the work be coming from?

• Mutuals are formed due to the promise of work guaranteed from your former employer. However, when the numbers are crunched and the sums are done it may be that this simply is not enough to keep your fledgling business afloat or to meet the financial expectations of all concerned. Also, there will come a point when your exclusive arrangements will run out and you will have to seek new clients to service. Whatever the reason, at some point in the not too distant future you may need to pitch your new business against far larger and more seasoned competitors… can you compete?

• 3. Financial responsibilities

• These are often underestimated. Even seasoned entrepreneurs can underestimate the funds they will need to start a business, and as this new venture is to be staffed from a limited skills pool of the public sector department someone decided could be formed into a PSM, often the financial skills to get this right will not exist. Offices, payroll, software, processes, financial planning, sales and marketing staff and more, will need to be bought into the organisation – and don’t forget that you’ll probably be taxed as a private sector business, so this needs to be accounted for as well. Do not become a victim of optimistic accounting; do the boring maths thoroughly, and repeatedly, before you even consider this as an option.

• 4. Mutualisation can be risky

• We’ve all heard the statistics about how many new businesses fail in their first 1-5 years of business, and despite having a contractual agreement with your former employers, your Public Sector Mutual is not immune to the scythe – the road to success is littered with the hollowed out shells of businesses that thought themselves indestructible at the outset. Any new business is risky, and the more competitive the marketplace the harder you will have to fight to stay afloat. Mutualising larger public sector departments can be very complex and often requires a significant period of due diligence and market testing to determine viability, so do take the time you need to check all the facts.

Do Not Rush into Anything, No Matter How Tempting it Sounds

So, the essence of our advice is do not rush into anything, no matter how tempting the opportunity may sound at first. Do your finances, look deep into your soul to determine whether your team has what it takes to survive in the dog-eat-dog world of the private sector, and remember, there is no safety net, so you only have one chance to get it right.

For more information we’d advise that you take a look on the Cabinet Office website at https://www.gov.uk/government/groups/mutuals-information-service, or you could of course call us and we’ll be more than happy to talk you through how BPG can help you succeed if you do decide to go for it and set up your own mutual.

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