The government is saying people who work for the public sector should establish coops to provide these services — whether they be probation, tax collection or local authority run activity.
I am a big fan of coops — and worker ownership, but this idea is, to be very polite, bonkers unless some serious conditions are attached.
First, and most important, running any business requires capital. The vast majority of people in this country have very little or no capital, and have never presumed they would need to put it aside to undertake their work when they always (wholly reasonably and justifiably) presumed that they would undertake it in the public sector. In that case the number of such coops that will be created will be very limited unless there is someone who is going to provide that source of capital. Logically that will have to be the government itself. But will they? And if they don't, will other potential providers of capital, such as banks, believe that they will pay on time, and so provide the security of income stream that is necessary for anyone to borrow? Candidly, I doubt it. In that case, this model is in considerable trouble from the outset.
Second, we are already seeing one model of so-called mutualisation of public services up and running, even though as yet absolutely no guidelines have been issued on how the the system will work and no legislation to enact it is yet published. This is NHS reform where GPs are being told they have to put shadow budgets in place for their areas fro January 2011 even though as yet they have no idea what this means and who is actually going to do the work or fund it. One thing they do know though: the cost of running services will be cut from £30 a patient to £10 a patient. In other words, the cost of coordinating services will be cut dramatically. The impact on patient care will be considerable because the burden of management will be shifted to GPs. But GHPs, contrary to the idea the government has, tend to work 11 hour days already, and aren’t able to do more. So front line services by GPs will have to be cut to make up the difference. Or they’ll have to outsource — as the government no doubt wants. But then have no mistake, that will also mean a cut in front line services. That not only takes out £20 a patient but a profit margin too, and someone is going to pay for that.
I suspect the same will be true in other services: the contract fro supply will be so tight that a co-op could not run it. So privatisation will follow — unless there are clauses which forbid this. But I can’t see that happening, somehow.
Then a long term contract will be issued (look for 15 years, I suspect — maybe longer if PFI is a precedent) that will seek to tie government services to private suppliers for the life of several parliaments. And that is the end of the exercise of choice by parliament.
That, I think, is exactly what Osborne is planning.
And those who oppose these ideas have to say now that a future government will not be bound by such contracts and make clear it means it. Unless they do the right of the people of this country to choose by electing a new government with the power to effect change will be emaciated. Of course the ConDems want that. But democrats believe in the power of choice — something the ConDems want to deny to us. And that means opposition to this process is essential.
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I agree with you 100% on this Richard. The co-operative concept is a good one and has its main antecedents on the left of the political spectrum (e.g. Tony Benn at the Department of Industry in the mid-1970s). But I think most of these public service co-ops will fall into the hands of Serco, Capita et al. It’s just back-door privatisation.
Much better would be if the govt changed the policy in 2 crucial ways:
(1) if they allowed co-ops to access capital from a national investment bank (which could be a radically reformed RBS);
(2) if the policy were extended to the private sector – so that, e.g. people working for Serco (to give one pertinent example) could spin themselves off as a co-op.
Without those two modifications, this initiative is basically back door privatisation. The ConDems know the voters wouldn’t put up with ‘front door’ privatisation of services en masse so they do it by stealth instead.
It’s sickening, and again Labour needs to be opposing this MUCH harder. At the moment the most successful opposition to right-wing policies is extra-parliamentary – because there seem to be few MPs (which the exception of Caroline Lucas and a few Labour backbenchers like John McDonnell) with the wherewithal to stand up to this ransacking of the nation.
21st century problems cannot be solved with 20th century solutions or come to that – in the case of legal and financial structures – 19th century and earlier solutions.
The conventional wisdom is that the Joint Stock Limited Liability Company form – or genetically modified versions of it such as the IPS; CIC; BenCom and so on – must necessarily be one of the two conflicting forms of finance capital, the other being interest-bearing secured loans created by credit institutions aka banks.
However, in Canada, and Australia before that, businesses became accustomed to putting part of their gross revenues into trust and selling Units in these ‘Income Trusts’ and ‘Royalty Trusts’ to pension investors, who really liked the idea of getting their hands on the revenues before the management did. The tax-man put a stop to them, and indeed the tax-man is the sticking point in the UK too, as I recall was a key problem for Richard’s excellent trust-based ‘People’s Pension’ proposal a while ago.
In recent years Partnership-based entities have been emerging as vehicles for enterprise and investment eg Master Limited Partnerships. I have been working for some time – with a little seed funding from innovation Norway – on simple but radical new mechanisms using partnership frameworks for investment, having observed the simple and infinitely flexible UK Limited Liability Partnership (LLP) form being put to very interesting uses in recent years.
For instance, we have seen a > £1bn revenue-sharing ‘capital partnership’ in the hotel industry whereby GROSS revenues were shared proportionally as between ‘capital user’ and ‘capital partner’. More recently, the City of Glasgow has so far implemented five municipal LLPs – one with Serco actually, Howard – but these are all funded conventionally.
Our innovation is to bring investors INSIDE the LLP framework agreement (as opposed to contracting with an LLP organisation), and to ‘unitise’ use value or production through the simple expedient of creating undated Units redeemable in payment for value received.
These Units may then be sold to investors in return for money, or even ‘money’s worth’ eg land, goods, services and so on. The outcome is not similar to a Unit Trust but where the Unit is redeemable in payment for the underlying value stream.
We are receiving – post credit Crunch – immense interest internationally in these concepts, and indeed I gave evidence in person to the Scottish parliament’s Economy, Energy and Tourism Committee in respect of energy financing. (I used to be a director of a global energy exchange)
This presentation covered property funding
http://www.slideshare.net/secret/nayLe43necA05q
and was made recently to the top 20 UK housing associations.
It illustrates how a ‘debt/equity swap’ may dramatically cut long term funding costs of completed/existing mortgaged properties and thereby release equity for development finance for new building…..which when completed creates new rentals for ‘unitisation’…rinse and repeat.
In my view, it is possible to create an optimal ‘co-operatives of co-operatives’ enterprise model within an LLP framework agreement where the necessary funding will come from stakeholders rather than from unproductive financial investors.
This structure enables staff from BOTH public and private sector enterprises to essentially cut out the State and the Shareholder as intermediaries from what becomes a direct – and inherently mutual and cooperative – relationship with the public.
@Chris Cook
And none of this works until you solve the tax issues
@Richard Murphy
Which innovative use of a custodian entity will achieve. It also addresses the regulatory issues.
There’s a lot of work and thought has gone into this, Richard, and a glib response like that does you no favours.
@Chris Cook
It wasn’t glib
it was fundamental
UK LLps are tax transparent and taxed on the income attributed to members
Large LLps will be a nightmare for tax
How have you overcome that?
Please don’t give a glib answer – please answer the point I made. we have engaged on this before and you never have. If you now have something new please share it
Indeed we did, and there has been a lot of water under the bridge since then 🙂
The key is the creation and use of Units redeemable in payment for production or entitlement, rather than the ‘Equity Shares’ which determine the allocation of the flows.
‘Units’ are undated credits redeemable in ‘money’s worth’, and are not dissimilar to a redeemable preference share, but not income-bearing. Anyone familiar with Air Miles or having a Tesco Club Card should understand Units.
The providers of investment of financial capital – eg money, or ‘money’s worth’ of land; materials; knowledge/IP – share in the flow of value from the relevant asset eg a building, by being allocated Units as consensually agreed.
The ‘capital partnership’ agreement sets out the relationship between four ‘stakeholder’ groups: custodian; occupier/user; investor; manager, and each stakeholder group will have a sub-agreement determining matters specific to that group. ie who does what in exchange for what.
The ‘custodian’ of the ‘Pool’ will in the UK be a CLG – probably a CIC for the ‘asset lock’.
It acts as the custodian of the asset (eg a freehold) and of the use of the asset by the members in accordance with the purpose of the community partnership agreement eg ‘use in accordance with permaculture principles’. It is also the custodian of any £ bank accounts, and more to the point, also of the registries/accounts of member entitlements to flows and Unit obligations.
All of the stakeholders are represented within the governance of the custodian.
The outcome is that there are two parallel agreements governing the same stakeholder groups/clubs.
Firstly, the Master ‘capital partnership’ framework agreement, which governs the allocation of value flows as between the participants individually/severally; and secondly the custodian CLG agreement – which I term a ‘Guarantee Society’ agreement which governs exchanges of value between the members jointly/collectively.
These agreements need be neither complex nor prescriptive, since they are consensually negotiated.
There is no conventional profit and loss – since virtually all (with the exception of fees such as the Companies House fee) transactions are internal to the CLG and LLP and therefore membership of the LLP would have nil effect as far as tax in £ is concerned. The LLP doesn’t ‘own’ anything or do anything itself but rather serves as a framework for a flow of value of £’s worth.
The custodian CLG is essentially a framework for barter exchange of £’s worth and the outcome is not dissimilar to a barter system, with embedded credit, such as the Swiss WIR. Goods and services will be exchanged for Units redeemable in payment for the use of capital/money’s worth invested in land/location.
No £ sterling need change hands, and in a similar relationship to the WIR with the Swiss Franc, “£’s worth” would be exchanged BY REFERENCE TO the £ purely as a Unit of account. There is no invoicing, and no VAT either, in what is a dis-intermediated ‘peer to peer’ enterprise model.
HMRC points out re Mutuality that:
“The mutuality doctrine is one that has been developed by the courts over a long period. Its origin has been ascribed to the principle that one cannot make a taxable profit out of oneself.”
The CLG Guarantee Society structure used here carries that principle to a logical conclusion: a Community cannot make a profit out of itself.
Where does this leave tax? In my view anyone with an entitlement to £’s worth received in exchange through membership of the CLG would report it as income in the same way as he would report income received via (say) Bartercard membership. There is also the possibility of a value transfer charge on Unit transfers analogous to stamp duty on share transfers.
In regulatory terms, we are essentially contracting out of most FSA regulation, since membership of the CLG takes participants out of the public domain and into a semi-private ‘walled garden’ open to anyone who consents to the rules. The renewable energy investment club took a similar approach.
There is a paradigm shift involved in the use of consensual partnership protocols: indeed, it is by no means clear to me now – as the model has evolved in working on practical situations – that an LLP is strictly necessary.
@Chris Cook
Sorry Chris
What’s the answer to my question?
That’s gobbledygook and this is a blog
Can you try plain English or you’ve not a hope of selling the idea
I want to be persuaded
Can you sell it to me and others without the small print
And deal with the tax issue?
Richard
A Community cannot make a profit out of itself: and a Community can be defined by a consensual agreement.
End of tax issue.
@Chris Cook
So this amazingly complex structure is reserved solely for activities that create no value?
Amazing
Come on – of course communities can make value
And of course tax is an issue
Get real – and face the issue – please
If you’re going to be taken seriously you have to
Richard
Of course communities create ‘Value’ – which as you memorably and lyrically said maybe 10 years ago – I still plagiarise your definitions! – may take many forms including the spiritual and emotional.
The Community is defined by the CLG custodian agreement’s ‘common bond’, and the value generated by the community’s economic interaction – or money’s worth if you will – is exchanged within the CLG agreement. There are no externalities: all Value is exchanged internally.
What the LLP agreement does is allocate the flows, while the CLG agreement governs the exchange of Value.
We deal with the scaling issue by creating stakeholder groups using whatever legal protocol works: so the LLP and CLG each have only four stakeholder members – each defined by its own ‘club rules’.
The LLP generates no conventional profit and loss. It is just a corporate framework: it doesn’t own anything; do anything; employ anyone; or contract with anyone.
Hopefully that isn’t gobblydegook?