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Public service mutuals: new approaches to finance

A new report recommends new approaches to financing public service mutuals.

Public servants who form ‘John Lewis style’ mutuals to take control of their services need better access to external finance if they are to transform public services, a report published yesterday argued.

The Boston Consulting Group report, Soft Finance, Hard Choices, analysed the performance of 71 mutuals, which currently deliver £1.2 billion of public services, as well as 15 mutual projects in development. It found clear evidence that mutuals are improving service quality and driving innovation. It also showed that they are performing well as businesses with the 62 mutuals launched since 2010 generating substantial growth and creating as many as 3,000 new jobs.

The report warned that as the number of new mutuals increased, greater consideration must be given to attracting social and private capital investment to ensure long-term sustainability. It recommends that:

  • mutuals seek out board members with private sector experience
  • government should ensure that ‘soft finance’ such as grant funding does not crowd out commercial finance
  • parent organisations (from which the mutual spins-out) provide more support for long-term strategic planning
  • Big Society Capital takes a lead in the social finance sector
  • commercial investors attach greater weight to the track record of the service before it became a mutual when making investment decisions

Public servants interested in forming a mutual can access information and support from the Mutuals Information Service.

Nick Hurd, Minister for Civil Society, said:

Public service mutuals are coming out of the incubator and into the mainstream. The early pioneers have shown that giving frontline staff more power to make decisions can lead to better more efficient public services.

Many new mutuals are now in development. We are reaching a critical mass and the movement is rapidly taking on a life of its own. We need to prepare now to ensure that the market is ready to support thousands of mutuals working across a diverse range of services in the future. Already we’ve focused government support for mutuals on business development. I hope this report will help mutuals build closer relationships with external investors.

Nick O’Donohoe, Chief Executive of Big Society Capital, said:

The potential of public service mutuals to drive innovation and deliver better outcomes for society is significant. We recognise the role that we have to play in ensuring that finance is available to enable their continued growth and development. We will look to deliver this, both through our own funds, and through leveraging investments from other sources.

Adrian Brown of The Boston Consulting Group said:

Mutuals are now looking to maximise their potential to improve service quality and drive innovation in their sectors, the leading mutuals are already developing stronger business and commercial capabilities to secure their long-term success and the others will need to follow. The provision of external finance from social and commercial lenders, will not only help mutuals innovate and grow, it will also drive more discipline and focus to business plans and sharpen their business acumen.

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