The rise of the shadow state: What can we do about it?

If the money doesn't go to giants like Serco and G4S, where can it go? Alan White explores the ability of social enterprises to commission services instead.

Yesterday I catalogued the problems with the way Government outsourcing is conducted: the placing of profits before people, the siphoning away of money intended for communities that need it, the unaccountability; the rewards for failure.

Peter Holbrook, CEO of Social Enterprise UK says: “The Government has to act as more than a legislator. It can shape markets and it doesn’t do so. These markets have to be part of the solution. It’s not left wing to call for more transparency and accountability. There seems to be a contradiction - everyone knows localism makes sense, but as soon as various parts of local and national Government are given the chance to commission, they buy in bulk.”

The question is what we’re going to do about it. And the first question is obvious - if we don’t give the money to the giants like Serco and G4S, to whom can it go?

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The Paddington Development Trust (PDT) is what’s known as a social enterprise. What’s a social enterprise? There’s no legal basis for such a thing, so it can take many forms: it could be a charity, or a limited or commercial company, for example. This masks the fact the central idea is quite simple: the profits do not go to shareholders, instead being reinvested in the “social mission” the company is carrying out. A PLC is legally required to maximise shareholder value, while a social enterprise, of which there are 68,000, acts like a company but instead tries to maximise its social value. Well-known examples are things like the Big Issue and Jamie Oliver’s Fifteen.

The PDT was founded in 1997, one of the first community-owned social enterprises in the country. On paper, its goals perhaps sound wishy-washy and vague: to “increase social, cultural and economic opportunities by forming strong partnerships across the community and public sectors.” The projects it has delivered have been anything but.

The money the PDT receives is focussed on a specific local area: north Westminster - and is then broken down between even smaller areas. I first came across it in the process of researching a local housing estate. The community forum whose incredible actions ended up forming the core of the resulting long form piece I wrote is a PDT offshoot.

Its chief executive, the admirably straight-talking Neil Johnston, tells me more: “When the residents set up the PDT, the area of north Westminster was a colossal failure. You could see it through so many indices: housing, unemployment, mortality rates.” In 1998, the PDT won £13.5m of funding, through the government's Single Regeneration Budget programme, which ran from 1994 to 2001.

Johnston says: “The money went to other organisations in order to deliver services. We formed an interface between the public and the private sector – since then we’ve distributed £40m over fifteen years and have been influential in the spending of another £120m. The money’s come from various sources - the Great and Good, local government authorities, the Department for Work and Pensions (DWP), and others.”

The PDT now runs youth services, health centres, academies, has refurbished community centres, and has been involved in many more projects, most of which are designed to create employment and business opportunities for residents. One of the PDT’s most successful enterprises was Westbourne Studios, into which it invested £500,000 - it didn’t own the building, but paid a peppercorn rent to guarantee the assets were distributed through the local economy. Today it’s one of Britain's most imaginative office and studio complexes, home to over 100 small businesses. On top of that, the PDT even has a small grant through which it can fund start-ups.

 

One thing that struck me about the people I wrote about was how happy they were in their work. Despite the fact that pay for its staff has gone down in recent years, the PDT has a remarkably low rate of employee turnover, which in turn saves money and helps it pay acceptable wages.

Social enterprises are often limited in size, partly because their purpose is often built around the needs of a particular area, and partly because they don’t have the same will to grow as a purely profit-driven operation. It means they’re finding themselves squeezed in a market that increasingly favours the largest contract-size.

“Interestingly, we have been commissioned by the DWP for the Work Programme,” says Johnston. “We’re a small partner with Maximus, which is a huge company. Fortunately, Maximus are a commercial business, but they know what they’re doing - their vice president came over to visit, for a start. We actually lost money through doing it, but managed to supplement it through doing other projects.”

A belief has grown that commissioners can’t afford to outsource differently. In fact, the opposite might be true: they can’t afford not to. As Johnston says:  “The question for Government is - do you let the money out through companies, or inject it into local organisations? There seems to be a belief that you can economise through upscaling and contracting to the big organisations. But Maximus know what they’re doing on that side too - they won’t give away any more profit than they have to. The Government’s either aware of that, or it doesn’t understand profit in business.”

The way the Work Programme works is that once people have been unemployed for six months, their details are fed into a big databases. ”Prime” contractors then spit out names to the smaller charities. Johnston wasn’t surprised when the initial figures showed it to be a failure.

 

He says: “Prior to the Work Programme, we managed to get 500 people in work over the course of two years. But it was bloody hard work. We had to work in partnership with a lot of community enterprises. We had neighbourhood-based advisors, who were going around knocking on doors. With the Work Programme there’s a disconnect - I recently heard a story about one women being interviewed and asked why she hadn’t found a job sooner, even though she was blind.”

One could say that the very fact something like the PDT exists demonstrates the fact that it’s needed. Johnston says: “You have Whitehall, you have local authorities - and they’re always fighting a war over budgets and power - then you have nothing official, but there’s a whole plethora of stuff going on. If communities weren’t crying out for power, they wouldn’t set up things like the PDT. So the challenge for the Government - and it’s something all governments want to do, is how far they can drive down the democratisation of budgets.”

I point out to him that during the riots London called out for the return of Boris Johnson and David Cameron from their holidays. If that highlighted anything, it was a distinct lack of local leadership. He replies: “In New York you can see the leadership flowing down from the Mayor, the key officers - and that socioeconomic strategy makes the city sing. In our major cities the leadership appears to be less accountable than rhetorical.”
 

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Despite the gloomy history of commissioning described thus far, the future for social enterprises is looking up. In January 2013 the Public Services (Social Value) Act becomes law. It’ll require all public bodies in England and Wales to consider the wider social or economic benefit to an area of any contract they award, over the value of £113,000 for central government and £173,000 for other bodies. According to Social Enterprise UK’s report: “Commissioners have told us that the Act finally gives them the justification to commission in ways that they have previously wanted to, but could not.” The organisation has made a number of recommendations with regard to the law, including an independent body to scrutinise contracting, and previous performance being weighed up as part of the process.

There’s evidence of a growing appetite for more thoughtful commissioning. In October 2012 the Cabinet Office awarded contracts for the National Citizen Service. Management fees were capped at 5 per cent and payment was made in advance, so that smaller charities and community groups without large capital reserves could afford to bid. Ninety per cent of organisations involved were locally based.

There are small steps being made at a local level too: in Lambeth, the commissioning process is being stripped down to its first principles. This doesn’t necessarily mean that global companies are excluded, but the locally devised solutions are unlikely to include too many. Moreover, by the beginning of November 2012, 93 organisations, including nine local authorities, had become accredited Living Wage Employers.

Nick Hurd MP is quoted in Social Enterprise UK’s report: “You could do really smart stuff. In my area, Hillingdon Council, BlueSky do the landscaping. Their motto is, ‘we’re the only company in the country where you have to have a criminal record to work’. It’s the first chance to prove yourself, to prove that you can be trusted. From Hillingdon’s perspective, they get a good service at a good price. But they also reduce reoffending. For me, that’s smart commissioning.”

And as Neil Johnston tells me: “Part of the reason for the upscaling has been the assumption among commissioners that everyone will try to rip you off. But we’ve seen things like A4E recently - you will always get people who cheat, but is it the prevalent part of the community?”

Charities and social enterprises delivering public services was a much-repeated promise in the argument for the big society vision: the title may have fallen by the wayside, but is the idea dead?  As Social Enterprise UK’s report concludes: “Public debate in the wake of the financial crisis has centred on whether public spending cuts must be made or avoided. But who benefits and who loses because of the way that public spending is done, is a much bigger question.”

The huge Aylesbury council estate in Southwark, home to 7,500 people. Photograph: Getty Images

Alan White's work has appeared in the Observer, Times, Private Eye, The National and the TLS. As John Heale, he is the author of One Blood: Inside Britain's Gang Culture.

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Who will win in Copeland? The Labour heartland hangs in the balance

The knife-edge by-election could end 82 years of Labour rule on the West Cumbrian coast.

Fine, relentless drizzle shrouds Whitehaven, a harbour town exposed on the outer edge of Copeland, West Cumbria. It is the most populous part of the coastal north-western constituency, which takes in everything from this old fishing port to Sellafield nuclear power station to England’s tallest mountain Scafell Pike. Sprawling and remote, it protrudes from the heart of the Lake District out into the Irish Sea.

Billy, a 72-year-old Whitehaven resident, is out for a morning walk along the marina with two friends, his woolly-hatted head held high against the whipping rain. He worked down the pit at the Haig Colliery for 27 years until it closed, and now works at Sellafield on contract, where he’s been since the age of 42.

“Whatever happens, a change has got to happen,” he says, hands stuffed into the pockets of his thick fleece. “If I do vote, the Bootle lass talks well for the Tories. They’re the favourites. If me mam heard me saying this now, she’d have battered us!” he laughs. “We were a big Labour family. But their vote has gone. Jeremy Corbyn – what is he?”

The Conservatives have their sights on traditional Labour voters like Billy, who have been returning Labour MPs for 82 years, to make the first government gain in a by-election since 1982.

Copeland has become increasingly marginal, held with just 2,564 votes by former frontbencher Jamie Reed, who resigned from Parliament last December to take a job at the nuclear plant. He triggered a by-election now regarded by all sides as too close to call. “I wouldn’t put a penny on it,” is how one local activist sums up the mood.

There are 10,000 people employed at the Sellafield site, and 21,000 jobs are promised for nearby Moorside – a project to build Europe’s largest nuclear power station now thrown into doubt, with Japanese company Toshiba likely to pull out.

Tories believe Jeremy Corbyn’s stance on nuclear power (he limply conceded it could be part of the “energy mix” recently, but his long prevarication betrayed his scepticism) and opposition to Trident, which is hosted in the neighbouring constituency of Barrow-in-Furness, could put off local employees who usually stick to Labour.

But it’s not that simple. The constituency may rely on nuclear for jobs, but I found a notable lack of affection for the industry. While most see the employment benefits, there is less enthusiasm for Sellafield being part of their home’s identity – particularly in Whitehaven, which houses the majority of employees in the constituency. Also, unions representing Sellafield workers have been in a dispute for months with ministers over pension cut plans.

“I worked at Sellafield for 30 years, and I’m against it,” growls Fred, Billy’s friend, a retiree of the same age who also used to work at the colliery. “Can you see nuclear power as safer than coal?” he asks, wild wiry eyebrows raised. “I’m a pit man; there was just nowhere else to work [when the colliery closed]. The pension scheme used to be second-to-none, now they’re trying to cut it, changing the terms.”

Derek Bone, a 51-year-old who has been a storeman at the plant for 15 years, is equally unconvinced. I meet him walking his dog along the seafront. “This county, Cumbria, Copeland, has always been a nuclear area – whether we like it or don’t,” he says, over the impatient barks of his Yorkshire terrier Milo. “But people say it’s only to do with Copeland. It ain’t. It employs a lot of people in the UK, outside the county – then they’re spending the money back where they’re from, not here.”

Such views might be just enough of a buffer against the damage caused by Corbyn’s nuclear reluctance. But the problem for Labour is that neither Fred nor Derek are particularly bothered about the result. While awareness of the by-election is high, many tell me that they won’t be voting this time. “Jeremy Corbyn says he’s against it [nuclear], now he’s not, and he could change his mind – I don’t believe any of them,” says Malcolm Campbell, a 55-year-old lorry driver who is part of the nuclear supply chain.

Also worrying for Labour is the deprivation in Copeland. Everyone I speak to complains about poor infrastructure, shoddy roads, derelict buildings, and lack of investment. This could punish the party that has been in power locally for so long.

The Tory candidate Trudy Harrison, who grew up in the coastal village of Seascale and now lives in Bootle, at the southern end of the constituency, claims local Labour rule has been ineffective. “We’re isolated, we’re remote, we’ve been forgotten and ignored by Labour for far too long,” she says.

I meet her in the town of Millom, at the southern tip of the constituency – the opposite end to Whitehaven. It centres on a small market square dominated by a smart 19th-century town hall with a mint-green domed clock tower. This is good Tory door-knocking territory; Millom has a Conservative-led town council.

While Harrison’s Labour opponents are relying on their legacy vote to turn out, Harrison is hoping that the same people think it’s time for a change, and can be combined with the existing Tory vote in places like Millom. “After 82 years of Labour rule, this is a huge ask,” she admits.

Another challenge for Harrison is the threat to services at Whitehaven’s West Cumberland Hospital. It has been proposed for a downgrade, which would mean those seeking urgent care – including children, stroke sufferers, and those in need of major trauma treatment and maternity care beyond midwifery – would have to travel the 40-mile journey to Carlisle on the notoriously bad A595 road.

Labour is blaming this on Conservative cuts to health spending, and indeed, Theresa May dodged calls to rescue the hospital in her campaign visit last week. “The Lady’s Not For Talking,” was one local paper front page. It also helps that Labour’s candidate, Gillian Troughton, is a St John Ambulance driver, who has driven the dangerous journey on a blue light.

“Seeing the health service having services taken away in the name of centralisation and saving money is just heart-breaking,” she tells me. “People are genuinely frightened . . . If we have a Tory MP, that essentially gives them the green light to say ‘this is OK’.”

But Harrison believes she would be best-placed to reverse the hospital downgrade. “[I] will have the ear of government,” she insists. “I stand the very best chance of making sure we save those essential services.”

Voters are concerned about the hospital, but divided on the idea that a Tory MP would have more power to save it.

“What the Conservatives are doing with the hospitals is disgusting,” a 44-year-old carer from Copeland’s second most-populated town of Egremont tells me. Her partner, Shaun Grant, who works as a labourer, agrees. “You have to travel to Carlisle – it could take one hour 40 minutes; the road is unpredictable.” They will both vote Labour.

Ken, a Conservative voter, counters: “People will lose their lives over it – we need someone in the circle, who can influence the government, to change it. I think the government would reward us for voting Tory.”

Fog engulfs the jagged coastline and rolling hills of Copeland as the sun begins to set on Sunday evening. But for most voters and campaigners here, the dense grey horizon is far clearer than what the result will be after going to the polls on Thursday.

Anoosh Chakelian is senior writer at the New Statesman.