Bringing back Victorian municipal entrepreneurship through combining public sector finance, the financial markets and household needs could provide a solution to our present crisis, says John Tizard
There is a genuine and significant risk that, during these difficult times, poor decisions will occur because too many local authority leaders and senior managers are not adopting a strategic approach to planning to spend significantly less in real terms.Our deeply-embedded operational, organisational and financial silos will reinforce the difficulties, as will Whitehall’s deadly grip on public service finance and operations.
Meanwhile, citizens and communities are experiencing the impact of a recession about to be augmented by the negative multiplier effect which follows on from the public spending cuts.
Further job losses will lead to a slowdown in the recovery in consumer markets, and add to the costs of welfare budgets, just as they may be being targeted for reduction.
Many households lack the basic insurances they need to be able to weather such storms, owing to the structural ‘consumer deficit’, pain-stakingly uncovered in insurance markets by the Financial Services Authority over the last few years. Large numbers of homes in our communities have no income protection in place because of the complexity and absurd cost of acquiring such cover.
Cash released into the banking sector has not all made its way into loans to consumers or businesses, and the debt markets remain sluggish. Homes are slightly more affordable than they were – but, because the banks won’t lend to people without large deposits, home ownership is also less accessible than it has been for a considerable time.
Can ‘new mutualism’ help provide some of the answers? We think it can – by bringing the two worlds of public service financing and household survival in difficult times together.
We believe the time has come to go back to the principles which led Victorian local authorities to work with the financial markets and build the public infrastructure that led to decisive advances in health and education and economic growth. A new mutualism should embody these principles:
use our communities’ spending power to grow assets from which they benefit financially and in other ways
from each according to their ability and preference, to each according to their need and choice
think beyond the rigid public-private boundaries which have structured service design and operations for the last century – find ways to create new sources of income that can fund a better, more coherent, more preventive and more environmentally and socially-sustainable service architecture.
We have been exploring these ideas with colleagues from the capital markets. They believe that tried-and-tested products can be deployed in collaboration with public services to introduce new income streams for funding those services.
There is proven consumer appetite for straightforward, ethical insurance products; for affordable and predictable outgoings connected to the full range of household services; for mortgages that encourage access to home ownership; and for products and services that can legitimately make environmental claims.
Here are some examples of the sorts of new interventions we have in mind, illustrating the principles set out above, in turn. Some will sound like a return to the past. That’s because they are.
What if local authorities promoted community ownership or influence over utilities, perhaps aggregating demand and thereby, creating collective buying power, so that when people paid their fuel, telecoms and water bills they were effectively paying themselves and reducing the need for increased taxation, instead of providing profits to private shareholders? Couldn’t this also make it easier to plan for and invest in environmentally-sustainable solutions such as energy from waste?
If some public services were funded using insurance-based models – benefiting from actuaries’ expertise in pricing risk – instead of building one-size-fits-all services from tax revenues, could we provide tailored packages for consumers to choose between?
If we took a look not just at health needs or social care needs, but put both into the same analytical and planning framework, might we not be able at last to see how we could avert some of the spending on responding to the symptoms and switch it to prevention, while transferring some risks to private businesses so as to avoid all the costs falling on to taxpayers?
By the autumn of this year, we expect one English local authority to have launched an initiative to introduce into its own communities, through a partnership with the insurance industry, a new income-protection product priced for all its citizens, with no broker’s commission payable and no individual risk assessment required. In other words, an off-the-shelf product that provides guaranteed cover against loss of income, enabling households to continue to pay their rent and/or mortgages as well as other bills, and preventing them from becoming dependent on welfare benefits.
The product will improve economic and social wellbeing in its area, and also provide an income stream to the local authority – but the council will take no financial risk.
Once the lessons have been learned from this pilot, the partners plan to extend the scheme to offer carefully-structured mortgages – again, harking back to the past – so that ordinary people can once again afford to buy homes. These are small steps, but significant ones. The vision is much grander – to combine the core vision for localism and co-production with the technical skills and financial strength of mutually-based insurance arrangements.
Why? Because both have, at their core, the need to understand, forecast and price for risk. In insurance markets, risks are claim events. In public services, we call them ‘need’, although we should increasingly use the concept of ‘demand’ to avoid over-engineered, one-size-fits-all services.
Mutualism will come to local government and local services in many forms, but this is one that reminds us of the great days of municipal leadership.
John Tizard is director of the Centre for Public Service Partnerships
