Welfare.qxp 13/09/2006 16:35 Page A

Third Sector Leaders acevo acevo briefing

The Case for Change:

Third Sector Provision of Employment Services

Supported by Welfare.qxp 13/09/2006 16:35 Page ii

FOREWORD by Ian Charlesworth

Within the , charities have a proud tradition of delivering public services, one which pre-dates, by several hundred years, any government involvement in this field. The establishment of the Welfare State in the mid-1940s was government’s recognition that it too had a role to play in the commissioning and provision of public services.

However, there has never been a clear line between the role of charities, or the Third Sector as we are increasingly known, and the role of the state. Since the dawn of the NHS we have lived in a world where NHS-run hospitals and charity-run hospices not only co-exist but complement one another; both an important part of our health service, both free at the point of service delivery.

At , we have been delivering employment services on behalf of government since 1982. We are proud of our charitable purpose, and equally proud of the quality and professionalism of our services.

All the evidence is that the demand for high-quality public services will grow. We know that public services must be valued by the people who use them and they must be provided at a price which the tax-payer is prepared to pay.

We do need a mature debate about how we all, public, private and third sectors, respond to this challenge and we need to keep our focus on working out the best way to deliver great public services. However, it is important that we conduct this debate in a well informed way and acevo, in this report, has corrected some misinformation about Third Sector provision of employment related services.

It is even more important that we move this debate forward and I thank acevo for the active role they have played in challenging us all and contributing to this process.

Ian Charlesworth Chief Executive Shaw Trust The Case for Change: Third Sector Provision of Employment Services Sector Provision The Case for Change: Third

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CONTENTS

Foreword, by Ian Charlesworth ii

1Introduction 3 About the PCS report 3 About acevo 3 About the Shaw Trust 3 About this response 3

2 Executive Summary 4

3 Moving the debate forwards 5 The case for third sector service delivery 5 Case Study 1: Shaw Trust 6 Case Study 2: CfBT Education Trust 6 Case Study 3: Addaction Cumbria 7 The need for better evidence 7 A complex debate 8 Contestability, Accountability and the Welfare State 9 Independence of the sector 10 Towards a new debate 11

4 Arguments of the PCS Report 13 The “third sector” includes private companies 13 Third sector organisations are either too large, or too small, to provide public services 14

Third sector boards and executives are too close to business 15 The Case for Change: Third Sector Provision of Employment Services Third sector CEOs are too highly paid 15 Third sector organisations pay insufficient attention to diversity 16 Third sector organisations do not involve their users in service design 17 Third sector involvement in public services will lead to “privatisation” 18

5References 19

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1 INTRODUCTION

About the PCS report ■ Well-governed and accountable, with robust and In July 2006 the Public and Commercial Services fit-for purpose systems to protect independence Union (PCS) published a report entitled, “Third and enable effective decision-making, and Sector Provision of Employment Related Services”. ■ Enterprising and innovative, taking a businesslike The report’s expressed aim was to “mark the approach to funding issues and striving for beginning of a real debate within the trade union continuous improvement and sustainable movement with service users and with government development about how stable and effective services are provided without jeopardising the security of staff or quality of service”.1 About the Shaw Trust Shaw Trust is a national charity that provides The PCS has used the report, which it commissioned training and work opportunities for people who are from Steve Davies, Senior Research Fellow at the disadvantaged in the labour market due to disability, Cardiff School of Social Sciences, as the basis for ill health or other social circumstances. We are the more general criticism of third sector organisations, largest UK provider of employment services for and particularly of their role in the delivery of disabled people. publicly funded services.

The report fits within the more general aim of PCS’s About this response Protect Public Services Unit, to: “provide a clear and acevo welcomes the PCS report’s aim of catalysing a consistent approach in response to attacks on our real debate on the role of third sector organisations members jobs and services...[and] other job cuts in public service delivery and reform. We have initiatives including shared services, and argued that organisations run by our members can privatisations.”2 offer particular strengths in public service delivery, to

the benefit of service users and taxpayers. The Case for Change: Third Sector Provision of Employment Services

About acevo Communities in Control, a report drafted by an acevo acevo is the professional body for the third sector’s executive and published in 2005 by the Social Market chief executives, with over 2000 members. Our Foundation, has prompted discussions within the mission is to connect, develop and represent the sector and government about the specific areas of sector’s leaders, with a view to increasing the sector’s public service delivery that might benefit from impact and efficiency. We are a Company Limited by greater third sector involvement, and the barriers Guarantee (351 4635) with charitable status that currently prevent such involvement. (1114591). While the PCS report is welcome as a contribution to We promote a modern, enterprising third sector, and this debate, many of the arguments on which it relies call on third sector organisations to be: are misleading, the views attributed to acevo and others misrepresent our position, and the facts ■ Professional and passionate in achieving change referenced as evidence are frequently incomplete or and delivering results, inaccurate. ■ Well led, with a commitment to professional development, training and diversity, This response summarises and responds to some of the main arguments of the PCS report, while pointing the way to a more informed debate on its subject matter. 1 PCS 2006, p.3 2 www.pcs.org.uk, accessed 1st August 2006

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2 EXECUTIVE SUMMARY

This report consists of two sections: “Moving the Debate Forwards”,and “Arguments of the PCS Report”.

The first section of the report seeks to shape a new debate on public services. Revisiting the case for greater third sector involvement in public service delivery, it acknowledges the current paucity of evidence in determining the relative overall effectiveness of service providers, and calls for a debate grounded in the needs and interests of service users, and how best to meet them.

The section closes by noting that mainstream unions, such as Amicus and Unison, have already entered this new debate, and calls on the PCS to join it.

The second section discusses seven of the generalised claims about the third sector made in the PCS Report, “Third Sector Provision of Employment Related Services”,published in July 2006.

These claims are that:

1. The “third sector” includes private companies, 2. Third sector organisations are either too large, or too small, to provide public services, 3. Third sector boards and executives are too close to business, 4. Third sector CEOs are too highly paid, 5. Third sector organisations pay insufficient attention to diversity, 6. Third sector organisations do not involve their users in governance, and 7. Third sector involvement in public services will lead to “privatisation”.

The report seeks to demonstrate that each claim is founded on incomplete evidence and misleading arguments. It shows that even the briefest additional research yields a far fuller, more complex, and more positive picture than the PCS report suggests. The Case for Change: Third Sector Provision of Employment Services Sector Provision The Case for Change: Third

4 The Case for Change: Third Sector Provision of Employment Services 5 7 6 the costs and risks inherent in developing new in developing and risks inherent the costs services groups.” that focus on the hardest-to-help “poor procurement practices, procurement “poor in result which not fit for purpose, that are contracts insecurity and instability in the funding environment, sector making it difficult for third in the capital and invest access organisations to ofdevelopment services and staff, of nature the bureaucratic collaborative and arrangements sector third between government, discouraging organisations from role, taking on a greater lack ofthe sector’s capacity and expertise, in historic underinvestment from resulting infrastructure and organisational development, to approach the risk that the sector’s and best practice in governance accountability will fall short of public sector by that expected partners, involving local people to build community local people to involving ‘ownership’, of experience building the skills and – volunteers especially young, the and trustincreasing within communities, and across social capital. building thereby ■ ■ ■ ■ ■ ■ ■ ■ ■ service sector case for third intuitive The strong case studies illustrative is well-supporteddelivery by (overleaf) such results demonstrating impressive the organisations can achieve. These services target often and demanding needs,individuals with complex who form the labour market. usually a long way are these successes,Despite representative sector third out that their members’ pointed bodies have in role service barriers, several is held back by delivery each of impact on the third has a disproportionate which ability deliver. to sector’s Chief among these barriers are: Collateral benefits to the community may also accrue may the community benefits to Collateral or usually governed organisations sector are as third least guided, communities, by thus The 4 5 The Conservative 3

MOVING THE DEBATE FORWARDS DEBATE THE MOVING

a strong focus on the needs ofa strong service users; and expertise meet complex to knowledge personal needs and tackle difficult social issues; and offer joined-up an ability be flexible to service delivery; the capacity build users’ to trust; and innovate. to and independence the experience Liberal Democrats 2002, p.10 2004, p.3 HM Treasury Social Market Foundation 2005, p.12 Labour Party 2005, p.105 Conservative Party 2003, p.3 5 6 7 ■ ■ ■ 3 4 ■ ■ This potential resides in some characteristics of resides This potential third to service lend themselves sector which providers and efficient delivery.effective sector Third public to a commitment organisations combine benefit with status and independence non-profit government,from encouraging focus on them to meeting the needs of service users without some of that hamper the public sector. the constraints specific third has summarized more The Treasury benefit service that may characteristics users. sector The case for third sector service delivery The case for third and recognised political parties major All three have in the potential sector’s the third championed ofdelivery public services. The 2005 Labour Party “has shown sector argued that the third Manifesto itself be innovative, to and effective,” efficient and for service“its potential should be delivery that on equal terms”. considered This section of the report questions the framework sector third on PCS for the debate by proposed service delivery, a more to the way and points informed dialogue. and better constructive 3 Party’s Green Paper on the sector, Paper Green Party’s Sixty Million Citizens, as a major “potential highlighted its ofprovider high-quality services.” public Liberal Democrats have also said they wish to “Allow also said they wish Liberal to Democrats have run to freedom greater local people and professionals public services encouraging the growth by of as an attractive furthermutual/voluntary providers option for public service provision”. Welfare.qxp 13/09/2006 16:35 Page 5 Page 16:35 13/09/2006 Welfare.qxp Welfare.qxp 13/09/200616:35Page6

6 The Case for Change: Third Sector Provision of Employment Services By IanCharlesworth,CEO,ShawTrust Case Study1:ShawTrust “Shaw Trust dealswithpeople,notstatistics.” because weknowtheincredible difference wecanmakebyhelpingpeopleturntheirlivesaround. this notbecausewehaveto,nortochasesomeprofit motive,butbecausewewantto,and flexibility tohelp105percentoftheclientnumberswe’re allowedbyJobCentre Plus.Andwedo from thecostofhavingtobuyandmaintainexpensiveoffices. Andthatinturnmeanswehavethe benefits iftheydon’thitsometarget. Butthatwayofworkingalsomeansthetaxpayerisfreed more abletoopenup:theyknowAndy’s afriend,andisn’ttheonewho’s goingtocutoff their meets themonneutralground orintheirhomes.Thatmeansthattheyfeelmore comfortableand “When Andymeetshisclients,theydon’thavetocomesomemonolithic,intimidatingoffice. He understanding thechallengestheyfaceandworkingwiththemtocreate tailor-made solutions. standing thatShawTrust bringstobear:aquarterofcenturyspentlisteningpeople’s problems, the chance,andhowhard they’llfighttogetthatchance.That’s thekindofknowledgeandunder- experience whatit’s liketobeexcluded.Buthealsoknowshowwellpeoplerespond whentheyget to talkhisclients,becauseheknows.Andyhimselfhascerebral palsy. Heknowsfrom personal find workortrainingwasrecently recognised withaHomeOffice award. We don’ttellAndyhow make adifference. PeoplelikeAndyWright, whoseworkinWiltshire tohelpformerdrugmisusers “Our staff are dedicated,motivatedpeoplewhodowhattheybecausebelievecan jobs intheirhomeareas.” Teams andG4Sstaff, toplace80%oftheyoung peopleleavingOakhillintoschools,collegesand made byCfBT’s specialistteamofEducation LinkWorkers whoworkcloselywithYouth Offending Trainees –over4000accredited unitsinthe last12months.Theyalsorecognised thecontribution the highqualityofteachingandlearningimpressive rangeofqualificationsachievedby In theirlastvisittothecentre, OfstedcommendedCfBT’s work,particularlytheleadershipprovided, that theG4SteamdeliveroutsideofLearningCentre. avoidance coursedevelopedbyCfBTcomplementsthemainstream curriculumandtheprogramme teaching aswellvocationalsubjectsincludingICTandfood technology. Aspecialistcrime backgrounds ofmosttraineesandtheirlimitedachievements, there isastrong focusonbasicskills of staff includingG4Scare staff intheclassrooms. Inviewofthefragmented educational programme for25hoursaweekinlinewiththeNationalCurriculum.ACfBTteacherleadsteam Trainees are educatedingroups of8according totheirability, andreceive atailormadelearning Health Care Trust are partoftheG4SSeniorManagementteaminOakhill. girls havesofarreceived ahighqualityeducationfrom CfBT’s staff team.CfBT, alongwiththelocal Secure Training Centre, managedbyG4S.TheCentre openedinAugust2004and500boys “CfBT EducationTrust runstheLearningCentre forupto80youngpeopleaged12-17atOakhill by NeilMcIntosh,CEO,CfBTEducationTrust Case Study2:CfBTEducationTrust Welfare.qxp 13/09/2006 16:35 Page 7

Case Study 3: Addaction Cumbria by Deborah Cameron, CEO, Addaction

“Many people requiring drugs treatment in remote rural locations are unwilling to come forward for specialist help because of a fear of stigma. Addaction Cumbria has therefore developed outreach services, using community venues and forging links with local groups and communities to break down barriers in relation to substance misuse, so that clients are more able to come forward for help.

“The team takes drug treatment services and other therapeutic help to clients in their own communities and has been able to negotiate for some people to access prescribing services, where appropriate, via GP surgeries. This type of service is not provided by any of the statutory services to the extent that Addaction is able to offer.

“The statutory Community Drug Teams across Cumbria have extensive waiting lists for prescribing services (38 weeks in South Cumbria) and Addaction has had to respond to significant numbers of chaotic clients, by:

■ Advocacy on behalf of clients, in an attempt to push them up the CDT waiting list, where this seems essential; ■ One to one key work for chaotic clients, waiting for statutory services. ■ Undertaking comprehensive assessments with clients even when they are referred from CDTs (Under ‘Models of Care’ the comprehensive assessment should travel with the client – but they are often not forwarded to us as they are ‘out of date’ or (even more often) not done.) ■ Identifying clients who are likely to offend, to get them fast tracked by CDTs. ■ Offering appointments within 5 working days of receipt of a referral.” The Case for Change: Third Sector Provision of Employment Services

acevo, NCVO and others have campaigned The most substantial section of the PCS report vigorously for the government to address those concerns data on “Third sector performance in barriers within its control. Specific recommendations employment services”9. It questions several pieces of in the Gershon Review, and proposals for an evidence advanced by ERSA and acevo concerning enhanced “Compact Plus”,form the government’s the effectiveness of independent provision of response to date. A forthcoming action plan is employment-related services. As PCS points out expected to include more extensive measures for repeatedly, evidence on the comparative performance tackling these oft-acknowledged barriers. of any providers is at best illustrative.

Contrary to the report’s suggestions, this lack of The need for better evidence evidence has been publicly recognised by acevo and Although politicians have championed the third ERSA in a joint submission to the Work and sector’s role in service delivery for nearly a decade, Pensions Select Committee: data on the quantity – let alone the impact – of third sector service provision remains inadequate. A “It is worth noting the paucity of comparative data government commitment to put in place “a unified on the outcomes of services provided by and those provided by voluntary and private information system for data collection and analysis sector organisations. Research of this kind would on government funding for the [third sector]” has be extremely useful in informing the work of a not yet been fulfilled.8 Task Force and the direction and pace of future reform.” 8 HM Treasury 2002, p.40 9 PCS 2006, pp.42–50

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Three facts help to explain this paucity of robust expressed aim in marshalling these attacks is to raise evidence. As the PCS notes, some programmes, such general “questions about the expansion of the state’s as Employment Zones, are delivered exclusively by use of the third sector”.11 contractors, while others are delivered mainly, or exclusively, by Jobcentre Plus. It is therefore difficult Regardless of any methodological flaws in the report, to ascertain whether the providers, or the programmes, its approach is unlikely to generate a constructive explain comparative levels of success. debate about the third sector’s role in public service delivery. As the report sometimes appears to Secondly, many independent providers complain that recognise, the huge number and diversity of third the terms of their contracts with Jobcentre Plus sector organisations preclude wide generalisations unnecessarily limit their effectiveness. Providers about organisational structure or performance: criticise delays in procurement rounds, excessively short-term contracts, the disproportionate effort “Although 190,000 charities are registered, the involved in meeting monitoring requirements, and Treasury (2002) estimates that there are half a million voluntary and community organisations the failure of contracts to allocate risk efficiently. (VCOs) in the UK. These come in all shapes and Again, it is difficult to separate the effectiveness of sizes – from small, local community groups with commissioning and procurement procedures from no income and run completely by volunteers to the effectiveness of providers. large, established, national and international organisations with large budgets and a full time 12 Most crucially, however, no robust comparative study professional staff.” has been undertaken to measure the overall effectiveness of services provided by Jobcentre Plus The converse argument to that of the PCS would and its contractors. This is why acevo and ERSA’s involve a generalised claim that the universal strengths first recommendation to the committee was that: of third sector organisations make all of them ideally suited to public service delivery. This argument “The Department for Work and Pensions should would prove as unconvincing and simplistic as that commission an independent study to assess both of the PCS. To its credit, the third sector has to date the outcomes and cost-effectiveness of services resisted making any such argument, with commen- provided by Jobcentre Plus and those provided by voluntary and private sector organisations.” 10 tators cautiously proposing some potential sources of added value, and acknowledging that these strengths may not be universal: A complex debate In the absence of robust comparative evidence “It is difficult to make blanket claims about voluntary concerning the performance of providers, a danger sector added value. In most instances the question whether particular voluntary organisations add value arises that the debate will become simplistic and or not will be subject to a series of contingent uninformed. questions. The best voluntary organisations will add considerable value. The worst may subtract it.”13 Pages 24 through 41 of the PCS report are devoted to more generalised attacks on attributes of third sector Even “Communities in Control”,a more radical organisations. Many of these attacks, as report on third sector service delivery published by demonstrated in Section 4 below, are based on the Social Market Foundation, notes merely that: incomplete or unrepresentative evidence. The PCS’ “studies have suggested that the third sector’s 10 ERSA/acevo 2005 11 PCS 2006, p.2 advantages may result in providers delivering a 12 PCS 2006, p.11 higher quality of service, at a better price, than 13 Stuart Etherington, CEO of NCVO, in NCVO 2003 their counterparts from the other sectors.”14 The Case for Change: Third Sector Provision of Employment Services Sector Provision The Case for Change: Third 14 Aldridge N., (SMF 2005), p.19

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Rather than calling for public services to be “out- capital” hereby generated forms one of the sector’s sourced” to the sector as they stand, commentators great strengths in service delivery. have generally limited themselves to calling for a fair chance to compete. They have stressed that third Secondly, by clarifying the framework in which third sector involvement can lead to “transformation” of sector service delivery takes place, this response aims services, rather than mere “transfer”,and that such to show that a return to a pre-war model of service transformation can only be delivered through flexible provision is impossible. The state, as commissioner, and imaginative procurement.15 contractor, guarantor and regulator of employment- related services, will always retain ultimate control Peculiarly, those few third sector commentators that and ownership of these services. Providers from the have embraced a more simplistic style of argument third sector, and the private sector, only wish for a have tended to argue against third sector service fair chance to compete to become a delivery partner delivery. For example, the Directory of Social of the state. Change, a third sector information provider with no formal membership structure, has suggested that This model represents an evolution of the welfare public service delivery by charities is “rather state, rather than a retrograde step. A large and sordid”.16 In a similar vein, Barry Knight, director of growing majority of policymakers from all political the think tank Centris, has warned that third sector backgrounds accept that monolithic models of service delivery may eventually give the state “a service delivery may prove ineffective in meeting the monopoly on thought and action.”17 varied and often complex needs of service users.

There is little evidence to suggest that the founders of Contestability, Accountability and the the welfare state would have disagreed. The 1942 Welfare State Beveridge Report made it clear that, “Unification of

In a passionately-worded foreword to the PCS report, social insurance and assistance does not mean that The Case for Change: Third Sector Provision of Employment Services Mark Serwotka expresses a fear that increased third the citizen must obtain all benefits in the same way sector involvement may mark a “return to Victorian or from the same place… Unification does not mean Poor Law… a pre-war model when the ‘deserving ruling out differences where differences are poor’ were expected to show gratitude to their appropriate and in the interest of the consumer.”19 charitable benefactors”.18 Further paragraphs support the view that Beveridge Section 4 of this response aims to dispel these fears favoured cooperation between state and independent in two ways. Firstly, it illustrates how modern third organisations in meeting citizens’ needs. The report sector organisations have evolved dramatically since envisaged support for blind people through “the the reign of Queen Victoria. The best third sector framing of a new scheme for maintenance and organisations, including those involved in service welfare by co-operation between the Ministry [of delivery, have developed cutting-edge methods of Social Security], Local Authorities and voluntary involving service users in governance, as well as the agencies.”20 He urged as “of outstanding importance” design, and delivery of their programmes. The “social that the administrative model should enable, “Decentralisation and close contact with local agencies of all kinds in dealing with the varied needs 21 15 NCVO 2006; JRF 2005 of insured persons”. 16 Graham Leigh in Times Public Agenda 2006 17 Third Sector 2006 18 PCS 2006, p1,3 Arguments based on practical experience as well as 19 Beveridge 1942, p.22 political principle support a more complex model of 20 ib., p.68 21 ib., p.146 service delivery. Although not conclusive,

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considerable evidence suggests that implementing a The PCS report expresses concern that: “an extension commissioning and procurement model can reap of the contracting out regime has the potential to benefits in public service delivery. A recent Strategy damage those voluntary organisations that rely on an Unit pamphlet cites independent evidence that independence from the state.”25 competition has benefited a wide variety of public services, ranging from prison and employment Meanwhile, a report from the Centre for Policy services through to broadcasting. Audit Commission Studies, a right-leaning think tank, worries that “As research on the contestability operates a “basic the voluntary sector does more for the state, so its presumption that competition and contestability in independence and its voluntary nature are local public services produce benefits to taxpayers undermined.”26 and users, if managed correctly.” 22 This generalised and high-minded concern for the The reason for this is clear. Through increased clarity overall independence of the voluntary sector must be of roles, and clear incentives for providers to improve distinguished from the more practical and specific performance, a split between purchasing and approaches encouraged by the sector’s representative procurement functions is likely to drive up bodies. acevo, NCVO and others insist that standards. However, the Audit Commission’s caveat is independence is complex, depending on the all-important. The success of any model involving objectives and actions of individual organisations. contestability depends on a clear, robust and effective relationship between commissioners and providers. Third sector service providers should, as a minimum, only deliver services that contribute towards their Most crucially, commissioners must be able to hold missions, resist any attempts by funders and other providers to account for the quality of the services agencies to compromise the independence of their they deliver. The modes of third sector accountability governance, and insist on recovering the full costs of highlighted in the PCS report – public accountability the statutory services they deliver. Ann Blackmore, grounded in independence from the state,23 and NCVO’s Head of Policy, has argued that: inclusion within the scope of the Freedom of Information Act24 – are not the most relevant for this “many VCOs can play a crucial role in delivering purpose. Clear performance measures rooted in out- public services that better meet the needs of indivi- duals and communities. But, if they are to do so, it comes for service users may prove more fundamental. must be on their own terms…it must be under- Providers would certainly welcome the views of PCS taken in ways that respect the independence of the members on how to ensure appropriate channels of organisation and the expertise and knowledge that accountability between provider and commissioner. they contribute, and the services they provide must be properly costed and paid for”.27

Independence of the sector It is clear that many third sector organisations Policy makers from all parts of the political spectrum successfully strike this balance in their many and have recently drawn attention to supposed risks complex dealings with government. In recent years presented by service delivery to the independence of RNID ran a vigorous campaign to improve the the sector. quality of hearing aids, while taking on an active role in improving the procurement of audiology within the NHS. NACRO, the crime reduction charity, 22 Audit Commission 2006, p.5 campaigns to shape policies on crime while working 23 PCS 2006, pp34–36 24 ib., p40–41 directly with 60,000 ex-offenders every year. 25 PCS 2006, p.6 26 Smith and Whittington 2006, p.19

The Case for Change: Third Sector Provision of Employment Services Sector Provision The Case for Change: Third 27 Blackmore 2006, p.1

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While the majority of government funding for the Towards a new debate third sector is provided by local bodies, central In place of generalised, abstract arguments for or government determines key policies nationally. This against third sector service delivery, unions should situation supports charities that wish to deliver embrace a better informed and more constructive services as well as campaign. Thus Leonard Cheshire, debate on the potential role of the third sector. The which receives over £100m each year in fees and needs of the service user, not the organisational form grants from local authorities, is able to campaign for of the service provider, should be the starting point disabled people’s rights at a national level without for this debate. causing a conflict of interest. This starting point has already formed the common Even at local level, many organisations successfully ground for the Future Services Network, a cross- combine service delivery with campaigning, using sector alliance led by acevo, the CBI and the National knowledge gained from work with service users to Consumer Council. The Network “is for inform their advocacy. The Surrey Alcohol and Drug organisations and individuals who want to see public Advisory Service, which runs services for 1500 services which are genuinely driven by citizens and people each year, now also hosts the Surrey User consumers.”29 Group, which aims to represent the drug and alcohol user’s voice at a policy and service level. The presumption that public services should be provided exclusively by any single sector risks selling Whether to bid for public service contracts must the service user short. Instead, all those with an remain a decision for individual organisations. interest in public service reform should call for Organisations run by some acevo members have systems of commissioning and procurement that delivered public services for centuries, and will con- prioritise and promote effectiveness in public service tinue to do so. The Hospital of God at Greatham, for delivery.

instance, has delivered services to the public for almost The Case for Change: Third Sector Provision of Employment Services 750 years. Others – whether Amnesty International The key characteristics of such systems may include: UK or the Lesbian and Gay Christian Movement – will focus on campaigning to achieve their objectives. 1. A clear separation between service procurement and service provision functions within Trustees have primary responsibility for protecting government, promoting clarity, accountability the independence of the organisations they oversee, and transparency, whatever their field of activity, and a legal 2. The removal of unnecessary barriers that unfairly responsibility to ensure that charities remain true to disadvantage organisations from any sector in their objects.28 Those genuinely concerned about the bidding for public service contracts; independence of third sector organisations would 3. Robust performance measurement of all serve them better by stressing the need for high- contractors, focusing on the most crucial calibre trustees and robust governance processes, so outcomes for service users, that organisations make sensible decisions about 4. Procurement practices and contracts that their strategies. promote effectiveness, efficiency, and innovation by all contractors.

Mainstream unions have begun to discuss such a system, and some are already campaigning for improvements to procurement practices. They 28 Charity Commission 2005 recognise, for example, that reforms to the insecure, 29 http://www.futureservicesnetwork.org/, accessed 1st August 2006 short-term, undervalued contracts under which

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many third sector organisations deliver public services will dramatically increase these organisations’ efficiency, and provide greater job security for union members. As Amicus has noted:

“The key issue is the short-termism of funding leading to short term contracts, job insecurity, the lack of opportunities to develop skills and a career in the sector; as well as the frustration of seeing so much resource channelled into re-bidding for funds, when it should be directed at front line services and improvements in pay and conditions. Short-termism also hinders recruitment into posts.”30

Meanwhile, Unison has begun to carry out academic research into the problems caused by short-term funding in the third sector, under the working title: “False Economy? The costs of contracting and workforce insecurity in the voluntary sector.”

A focus on the interests of service users, not providers, forms the common ground of a new debate on public service reform. PCS should join it.

The Case for Change: Third Sector Provision of Employment Services Sector Provision The Case for Change: Third 30 http://www.amicustheunion.org/, accessed 1st August 2006

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4 ARGUMENTS OF THE PCS REPORT

This section summarises some of the key arguments Response used within the PCS report, and provides a brief In fact, the “third sector”,as defined by HM Treasury, response to each of those arguments. acevo, and NCVO, does not include profit-making companies.

The “third sector” includes private “The Government regards the third sector as a key companies partner in a mixed economy of public service provision, alongside the public and private sectors. PCS claim The sector comprises organisations that: The PCS report repeatedly claims that the third sector, as defined by acevo and others, includes ■ are non-governmental; private, or “for profit” organisations. This claim, ■ are ‘value-driven’ – that is, that are primarily taken up by the PCS and sympathetic journalists, motivated by the desire to further social, frequently forms the basis of arguments that third environmental or cultural objectives rather than sector organisations are profit-making, and that third to make a profit per se; and sector service delivery represents a form of ■ principally reinvest surpluses to further their “privatisation”. social, environmental or cultural objectives.”34

“The definition of the third sector has been The private companies within ERSA membership are stretched to breaking point to include private, not, and are not considered by anyone to be, part of profit oriented companies as well as charitable the third sector. ERSA membership is open to any organisations.”31 organisations that “provide services delivered as part “The government is creating a new generation of of publicly funded programmes designed to assist multimillionaires and turning charities into with employability or the creation or sustaining of

multimillion-pound businesses by contracting out employment”.35 ERSA membership therefore The Case for Change: Third Sector Provision of Employment Services services provided by the state, a report includes organisations from both the private sector commissioned by the Whitehall trade union the and the third sector. Public and Commercial Services union, reveals today.”32 The association campaigns to represent the shared The only evidence for this assertion is provided by interests of all independent employment providers, reference to the membership of ERSA, the regardless of the sector to which they belong. Employment Related Services Association. According Reflecting this, the association is chaired by Debbie to the PCS, ERSA is “dominated by private Scott, CEO of Tomorrow’s People, a third sector companies”.33 organisation. The Deputy Chair is Chris Melvin, CEO of Reed in Partnership, a private company. The report further clouds the issue by referring variously to the “voluntary sector” (pages 1, 2, 6, 9, Although the PCS refers to ERSA as “dominated” by 10 etc.), and to the “third sector” (pages 1, 2, 3, 4, 5, 6 the private sector, in a later section, it recognises that etc.). the majority of ERSA members (currently 19 of 32), including the Chair, Debbie Scott, in fact represent third sector organisations.

31 PCS 2006, p.6 32 Guardian 2006 33 PCS 2006, p.6 34 HM Treasury 2004, p.7 35 http://www.ersa.org.uk/, accessed on 1st August 2006

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Third sector organisations are either too Job Centre Plus employed 71,000 staff, making it large, or too small, to provide public roughly 64 times larger than Shaw Trust, and services 15 times larger than Mencap, the largest third sector organisation mentioned in the PCS report. PCS claim The PCS report criticises third sector organisations Moreover, many of the largest third sector for being either too large, or too small, to deliver organisations are not as monolithic as they may public services. seem. They operate as a federation of smaller local organisations. Thus Mencap consists of a local The report suggests that “large multi-million pound network of more than 1,000 affiliated groups, Age charities” will not have a “relationship with the local Concern is a federation of about 400 local community or closeness to their client group”.36 It independent charities, and Mind has a network of also expresses concern that “87% of general charities over 200 local associations. have annual incomes of less than £100,000”.This is taken to illustrate the sector’s “fragmentation”, If the PCS is concerned that the smallest third sector making it an impractical vehicle for public service organisations might prove impractical vehicles for delivery. public service delivery, it need not worry excessively. As the PCS notes, 56% of third sector organisations “There are serious questions about the capacity of have an annual income of less than £10,000. These the third sector to cope with a large scale increase organisations are unlikely to employ any staff, very in contracting out”.37 unlikely to deliver public services, and extremely unlikely to bid successfully for Job Centre Plus Response contracts. Organisations in the third sector indeed vary widely in size and capacity. This derives from the sector’s In fact, even medium-sized organisations currently broad definition. Just as “the private sector” includes delivering public services have expressed concern both multinational corporations and sole traders, the that initiatives such as the “Prime Contractor” “third sector” includes very large and very small model, through which Jobcentre Plus has grouped its organisations. contracts into larger, more commercially viable packages, will provide a challenge for their service This variation is not usually seen as a weakness, but delivery aspirations. as a strength. The largest third sector organisations, such as the Shaw Trust, which employs more than The PCS report recognises this fact in a later section, 1000 people, have the capacity and resource base to using it to argue the obverse point: that “membership deliver services on a large scale. Smaller based organisations rooted in their local organisations, such as Pecan, with fewer than 100 communities….are not the organisations bidding for staff, may offer more specialised or individual employment service contracts”38. services. The report therefore sets impossible hurdles for any If the PCS genuinely believes that large organisations third sector service provider. Any organisation large are incapable of delivering locally focused, responsive enough to provide public services will be, by public services, it should campaign more directly for definition, too large, bureaucratic, and unresponsive Job Centre Plus to be restructured. In March 2006, to provide them effectively.

36 PCS 2006, p.6 37 PCS 2006, p.6

The Case for Change: Third Sector Provision of Employment Services Sector Provision The Case for Change: Third 38 PCS 2006, p.27

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Third sector boards and executives are This sectoral cross-over extends to executives, as well too close to business as trustees, within the third sector. 31% of chief executives within acevo’s membership joined the PCS claim third sector from a private sector organisation, while The PCS report criticises charities’ “very close links 47% joined from the public sector. with the business lobby with their own interests in opening up public sector markets”39. Regardless of their careers, backgrounds and other interests, according to charitable law trustees must In support of this claim, the report cites only one take ultimate and collective responsibility for charity, Tomorrow’s People. It reports that among ensuring that a charity stays true to its purpose: the trustees of Tomorrow’s People are two executives “Trustees have and must accept ultimate from Diageo, a multinational drinks business, a com- responsibility for directing the affairs of a charity, munications director from Cazenove, an investment and ensuring that it is solvent, well-run, and bank, and the CBI’s National Accounts Director. delivering the charitable outcomes for which it has been set up.”41 Response Tomorrow’s People was established by some of the Joining the board of a charity can provide a directors of Grand Metropolitan PLC (which professional development opportunity for business subsequently merged with Guinness to become executives, broadening their experience and expertise Diageo). while enabling them to contribute to public benefit.

“They identified chronic unemployment as the Any well-grounded suggestion that trustees are acting root cause of much of the inner-city unrest of the against the interests of their charity would imply a 1980s. Their ‘direct action’ response was to help overcome the problem by providing jobseekers breach of their fiduciary duty and would be treated with the skills and qualifications that local seriously by the Charity Commission. The PCS report The Case for Change: Third Sector Provision of Employment Services employers needed.”40 falls short of making any such allegation about the trustees of Tomorrow’s People, or any other charity. The trustees of Tomorrow’s People, who take ultimate responsibility for its governance, have usually also held high-ranking jobs in business. Third sector CEOs are too highly paid

Although Tomorrow’s People is in some respects a PCS claim special case, charities have always benefited from the The PCS report criticises the salaries of third sector expertise of senior business executives. For example, chief executives as “a long way from the traditional James Strachan, Chair of RNID, was managing image of the voluntary sector as being run by highly director at Merrill Lynch for three years, as well as motivated but relatively modestly paid people”. being a former chair of the Audit Commission. Sir Fred Goodwin, Chairman of the Prince’s Trust, is In support of this claim, the report marshals the Group Chief Executive of the Royal Bank of Scotland following evidence: Group plc. ■ The mean salary of an acevo member is £54,000, with some of the larger organisations paying significantly higher;

39 PCS 2006, p.6 ■ Only two of the third sector organisations within 40 http://www.tomorrows-people.org.uk/company.htm, accessed ERSA membership pay their chief executives less 1st August 2006. 41 Charity Commission 2005 than £50,000;

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■ Only one, Pecan, caps the pay of its highest paid Between 2002 and 2004 the salaries of the highest employee at 200% that of the lowest paid paid senior civil servants increased by 3.7% per employee. 42 year.46

Response In summary, if anyone believes that lower paid chief Unlike the PCS, acevo has never argued nor implied executives are more effective at running delivery that low salaries for chief executives in any way organisations, they should favour far greater third correlate with performance in public service delivery. sector involvement in public services.

However, any who accept this premise should note However, acevo has argued unapologetically that “we that the salaries of third sector chief executives have need to offer professional pay for professional jobs”.47 risen only very slowly in recent years, and remain The very largest charities now have a turnover far very modest. exceeding £100,000,000, and employ thousands of staff. The skills and experience required to thrive at The 2005 median salary of an acevo member, usually the top of these large and complex organisations a more reliable guide than the mean, stands as cannot always be secured on a shoe-string. £49,500. This compares with a 1999 figure of £42,000, a total increase of less than 18% over 6 years. This represents an annual equivalent increase Third sector organisations pay insufficient of just 2.8%. Furthermore, third sector chief attention to diversity executives are clearly not motivated primarily by their salaries: 47% of acevo members took a cut in PCS claim pay in order to move into the sector. The PCS report claims that the third sector lags behind the public sector in its record on diversity: By way of comparison, the average basic salary for local authority chief executives is significantly “Great efforts have been made within the public greater. In 2004 chief executives of the smallest sector over the last two decades to improve its record on diversity in terms of employment unitary authorities earn an average of £86,000; those practices and service impacts. Most of this has who run the smallest shire district authorities earn been driven by the public sector trade unions and £72,400 on average.43 Between 2002 and 2004 the some progressive local authorities. There is much salaries of the highest paid local authority chief that remains to be done but there has been some executives increased by 11.7% per year.44 obvious improvement. The voluntary sector in contrast appears to be lagging behind.” The remuneration of third sector chief executives also compares unfavourably with that of senior In support of this argument, the report makes executives in Job Centre Plus, the organisation reference to selected quotes and statistics from promoted by PCS as best placed to deliver employ- officials and third sector leaders. The two main ment-related services. The Permanent Secretary of statistics cited are as follows: the Department for Work and Pensions is paid between £155,000 and £159,999, and the chief ■ Only one chief executive among the top 50 executive of Jobcentre Plus receives £130,000–£134,999.45 [charities] is not white and only one has a disability, and 42 PCS 2006, p.28ff ■ Black and minority ethnic (BME) representation 43 Source: Croner Reward, quoted in acevo 2005/6 44 Senior Salaries Review Body 2005, p.40 among voluntary sector staff in general is 9.6%, 45 ib., pp.59–60 while almost 29% of the population in London is 46 ib., p.40

The Case for Change: Third Sector Provision of Employment Services Sector Provision The Case for Change: Third 47 Stephen Bubb in acevo 2005/6 from ethnic minorities.

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The report does not provide any public sector Third sector organisations do not involve statistics for the purpose of comparison. their users in service design

Response PCS claim acevo takes the issue of diversity at the top of the As the PCS report states, “We might expect the third sector very seriously. It is true that people from voluntary sector to use innovative ways of involving ethnic minorities remain underrepresented in the service users in the design of services”51.However,it largest charities. The organisation is now concludes after a brief survey that “Few appeared to undertaking specific work on the issue, with a view have made a serious effort to create a mechanism to improving the situation. that could engage with users”.

However, it is worth noting that the sector’s record Response on diversity is currently more impressive than that of The evidence cited by the PCS report in support of the public sector, applauded by the PCS without its claim is strikingly scant and inadequate. The only reference to any supporting evidence. According to research methodology mentioned is a review of the 2006 NCVO Almanac, 18% of employees in the charities’ Summary Information Returns (SIR). sector are classed as long-term disabled. This These heavily abbreviated documents are provided compares with 13% in the public and private sectors. by charities with an income of more than £1 million The sector also employees more black staff (2.9%) to the Charity Commission, as “A summary of the than the other sectors. Few would claim there is no key information in the Annual Trustees’ Report and room for improvement, however, and the sector’s Accounts and in other documents.” It would ethnic diversity continues to increase. therefore be surprising if these documents provided any detailed information about user involvement in Within acevo’s membership, which may be taken as a service design and delivery.

representative selection of the chief executives of the The Case for Change: Third Sector Provision of Employment Services top few thousand charities, 4.7% are BME and 45% In fact, the report quotes from the SIR of ten are female. Within the senior civil service, 2.9% are charities. Noting the absence of detailed information BME and 29% are female. The 2008 civil service about user involvement in governance from these targets, of 4% and 37% respectively, remain lower SIR, it concludes that three charities, YMCA than third sector equivalents.48 Training, the Salvation Army, and the Shaw Trust do not seriously attempt to “engage with users”.The The PCS cites indirectly a quote from Victor report admits that, even based on the brief informa- Adebowale, CEO of Turning Point, that there are tion provided in the SIR, seven charities from its probably more black people working in the City than sample of ten all show clear evidence of strong user in the charity sector.49 At the most senior level, involvement in governance, service review and however, only 1.5% of all FTSE 100 executive improvement. No further numerical or statistical evi- directors are BME and 9.7% are female. There are no dence is provided by the PCS in support of its claim. black executive directors in the FTSE 100. 50 Thus, even on the basis of a carefully selected sample of abbreviated information, 70% of the charities surveyed in the PCS report were able to cite concrete steps they have taken in involving users. In fact, the challenge for most charities is to translate their clear 48 (Source: http://www.civilservice.gov.uk/diversity/facts/index.asp), accessed July 2006 commitment to user involvement into practical 49 PCS 2006, p.40 structures and processes that improve the quality of 50 Cranfield 2004 FTSE 100 index 51 PCS 2006, p.37 their governance and management. acevo has

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published guidance for chief executives on this definition of the word. However, a key paragraph in subject.52 the report suggests a very broad working definition of the concept: Even a slightly more thorough research methodology would suggest that the three organisations criticised “Stephen Bubb, Chief Executive of acevo has in the PCS report in fact have a strong commitment described opposition to the current reform agenda as based on ‘producer interest’. Bubb asks ‘Why do to user involvement. For example, last year the Shaw opponents of change insist on arguing that this is Trust enlisted the University of Nottingham to ‘privatisation’?’ The answer is that if services are undertake an evaluation of worker cooperatives that contracted out to Reed in Partnership or A4e, then employ people with enduring mental health it is privatisation.”55 problems. The researchers interviewed ten members from the three co-operatives, three project support This broad working definition is also used within workers and eight care co-ordinators.53 other PCS literature. For example, the launch flyer for the “Joint Union Privatisation Campaign” uses a The Shaw Trust also runs a disability action centre in definition of privatisation that embraces all forms of Neath, South Wales. Users were significantly involved private sector involvement in public services: in the design of the building, and of the services provided within it. Further, in its development of “Since 1997, New Labour has continued the Tories’ drive to privatise our public services. Outsourcing, New Deal for Disabled People programmes, the Shaw Private Finance Initiative (PFI), and other forms of Trust has run focus groups to help involve users in private sector involvement are threatened in the developing the service. A number of these service justice system, education, health… Jobcentre Plus users have subsequently become full staff members and other parts of the civil service.”56 and are now helping to deliver the service. Overall, 17.95% of Shaw Trust staff members are disabled. This working definition conflicts with more widely understood definitions of privatisation, which refer explicitly to transfers of ownership from the public Third sector involvement in public sector to the private sector. Thus the Compact services will lead to “privatisation” Oxford English Dictionary defines “privatisation” as “to transfer (a business or industry) from public to PCS claim private ownership”,while Wikepedia presents “sub- The PCS report refers thirteen times to “privatisation”. contracting” as one of the “alternatives to The report uses the term repeatedly in warnings that privatisation”.57 third sector service delivery may pave the way for greater private sector involvement in public services. Greater third sector involvement in public services is likely to occur through formal commissioning “In part, it seems that this [third sector service processes, in which bids from a variety of delivery] is “soft” privatisation, with the voluntary organisations are sought and assessed by public sector opening up services for contests which can sector commissioners. Thus, through contractual subsequently be won by the private sector.”54 arrangements and regulation, the public sector will Response retain the ultimate control and ownership of those Despite frequent references to forms of services. This model only involves “privatisation” as “privatisation”,the PCS report provides no formal defined by PCS, viz. some form of independent

52 acevo 1999 involvement in public service delivery. It does not 53 Shaw Trust and University of Nottingham 2005 imply any privatisation in the more widely 54 PCS 2006, p.2 55 PCS 2006, p.25 (emphasis is PCS’s). understood sense. 56 PCS et alia 2006

The Case for Change: Third Sector Provision of Employment Services Sector Provision The Case for Change: Third 57 http://en.wikipedia.org/wiki/Privatize, accessed 1st August 2006

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5 REFERENCES

acevo 2005/6, Making a Difference Labour Party 2005, Britain Forward Not Back: The Labour Election Manifesto acevo 1999, “Preparing for the future: Involving users in the running of voluntary organisations” Liberal Democrats 2002, Quality, Innovation, Choice: The Report of the Public Services Policy Aldridge N., “Communities in Control” (SMF 2005), Commission p.19 Leigh G., “Public opinion” ( Public Audit Commission 2006, Competition and Agenda, July 11, 2006) contestability in local public services – Research Proposal NCVO 2006, From transfer to transformation

Beveridge 1942, Social Insurance and Allied Services PCS 2006, Third Sector Provision of Employment Related Services Blackmore A., How voluntary and community organisations can help transform public services PCS et alia 2006, Public Services NOT Private Profit (NCVO 2005, republished 2006) Senior Salaries Review Body 2005, SCS Pay Market Bolton M., Voluntary Sector Added Value (NCVO Comparability Study – Report 2003) Shaw Trust and University of Nottingham 2005, Charity Commission 2005, CC3 – The Essential An Evaluation of three co-operative employment Trustee: What you need to know programmes for people with enduring mental health problems and their impact on the use of

Conservative Party 2003, “Sixty million citizens: mental health services The Case for Change: Third Sector Provision of Employment Services Unlocking Britain’s social capital” Smith R. and Whittington P., Charity: The spectre of ERSA/acevo 2005, Joint Submission to the Work and over-regulation and state dependency (Centre for Pensions Select Committee inquiry into the Policy Studies (CPS) 2006) efficiency savings programme in Jobcentre Plus Third Sector 2006, “Charities and the state: Drawing Guardian 2006: “Government turns charities into a line”,Published 8th February 2006 multimillion-pound businesses”,July 3rd 2006

HM Treasury 2002, The Role of the Voluntary and Community Sector in Service Delivery: A Cross Cutting Review

HM Treasury 2004, Exploring the role of the third sector in public service delivery and reform – A discussion document

Joseph Rowntree Foundation 2005, The voluntary sector delivering public services: Transfer or transformation?

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Third Sector Leaders acevo

acevo is the professional body for the third sector’s chief executives, with 2000 members. Our mission is to connect, develop and represent the sector’s leaders, with a view to increasing the sector’s impact and efficiency. The UK’s broad not-for-profit sector now employs the full-time equivalent of 1.5m staff, with a collective annual turnover of £46bn.

We promote a modern, enterprising third sector, and call on third sector organisations to be:

• Professional and passionate in achieving change and delivering results • Well-led, with a commitment to professional development, training and diversity • Well-governed and accountable, with robust and fit-for- purpose systems to protect independence and enable effective decision-making • Enterprising and innovative, taking a businesslike approach to funding issues and striving for continuous improvement and sustainable development

For more information about joining, our events or purchasing a publication please visit our website, www.acevo.org.uk

£7.50 ISBN: 1-900685-33-7