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“Funding Squeeze could be time of innovation for Social Enterprise” said Mark Johnson addressing delegates at a conference in Liverpool on 15 April

Ladies and gentlemen good evening. I am very grateful to for this opportunity to share my thoughts with you and commend Hope Street Centre on organising a timely and lively debate at this critical time for health and social care services.

I am the managing director of TPP Law. I have practised as a solicitor for 17 years in the field of public services contracts and partnerships – helping clients in the public, private and third sectors put together contracts and partnerships to deliver services in innovative ways. I have been privileged to work with both commissioners, service providers and also many passionate social entrepreneurs in launching new social businesses in health and social care. Recently these have included: a social enterprise which set out to transform prison healthcare, tacking drug addiction and mental health issues, the UK’s first mobile dentistry service Dental Xpress, taking services out on the road to where they are needed, practice based commissioning collectives, such as Stockport Managed Care, a very successful industrial and provident society model launched by Dr Ranjit Gill and his colleagues in Stockport to transform patient pathways, as well as several new specialist providers in primary and secondary care services, such as maternity and opthalmology.

In my 17 years in practice I have seen quite a few initiatives come and go and heard before many tales of woe and impending gloom, but this time I really do think it is different and very real.

I have chosen to address 2 of the 3 key strands tonight.

Firstly, issues for Social Enterprise and 3rd sector in winning new business from health and social care commissioners.

Secondly, how social enterprises can bring added value to the public sector.

I would like to start with some statistics.

This chart shows current spending on health and social care running at £122bn and £33bn respectively, a total of £155bn out of an overall budget of £700bn – a 22% share of total govt expenditure.

We have a public sector deficit of around £170bn. The current Government has announced plans to reduce this over 4 years to 2014 by a combination of £20bn of extra taxes and £40bn of “efficiency savings” – £20bn of those savings will come out of the NHS. That represents nearly a 20% cut in the current budget. But that still leaves a deficit of £115bn – so no one should be fooled that the cutbacks end there.

So I think it is safe to say that, whoever wins the election, it is definitely NOT business as usual. This is not going to blow over. This is a seismic shift that will probably be irreversible. It is going to be extremely painful and will require managers to think the unthinkable.

Against this background I strongly believe that the most effective tool we have at our disposal to reduce costs, drive innovation and quality is competition. Competition is the force that drives out bad practice, allocates scarce resources in the most efficient way, sparks and rewards the innovators. We should not fear competition in health and social care markets, but rather embrace it.

It is interesting to look at the public utilities markets and the effect that competition has had there.

Since domestic electricity supply was opened up to competition in 1999, consumers have seen their electricity bills reduce by 13% in real terms. 19 million consumers have switched suppliers during that period, voting with their feet.

Telecoms costs have fallen on average by more than 20% over the ten year period since 1999 when markets were opened up to competition. Now more than 12 million households use a telephone provider other than BT.

Let’s now look at the role of the third sector and social enterprise in this new competitive landscape...

In 2009 the Economist Deanne Julius calculated that the total market for all outsourced public services delivered to Government, the NHS and local authorities was worth £79bn. At the same time, the NCVO calculated that the value of contracted services delivered by third sector organisations was around £7.8bn. So third sector currently has a market share of less than 10% - so you can see that there is all to play for.

What are the practical challenges that third sector organisations face in winning new business/ Well our own research conducted earlier this year gives us some very clear pointers:

Awareness of the skills, capacity and track record of social enterprise and third sector

For social enterprise and third sector, this means looking at your marketing strategy. It may not be a skill that comes naturally to many provider teams stepping out of the NHS or local authorities, but it is something you have to invest in. Don’t be afraid to blow your own trumpet, shout your success from the rooftops – demonstrate your public benefit – both in qualitative and in quantitative terms. The Treasury, the Dept of Health, Finance directors in NHS and local authorities are increasingly looking at social accounting measures. If you can demonstrate that your interventions save the tax payer more money in the long run – that is going to be a powerful argument to commission your services. At recent Social enterprise Coalition conference, we had a presentation from a social enterprise in Hull. They were able to demonstrate that for every pound spent on services, they could save the taxpayer £5 in avoiding hospital admissions, costs to the criminal justice system and so on.

But in terms of general awareness – I would like to see regional and sub-regional bodies doing much more to foster a dynamic market. I would call for SHAs, RDAs, universities, LIFT Companies to work together to devise a powerful demonstrator programme – they would incubate and launch new provider organisations which can provide services in new ways. There is ample scope to achieve efficiency savings, whilst protecting the quality of care if we can find ways to harness IT, re-engineer processes and pathways, and harness the power of social media which empowers the patient and encourages co-ownership of the service. We can all think of examples of inefficiency in healthcare.

Procurement processes – they are still too complicated and cumbersome

Contracts that are too one-sided, and try to transfer too much risk, processes that are unfair which stack the odds against the providers and ensure that the invitations to tender end up in the ‘too difficult pile’. Commissioners, for goodness sake get a grip on your procurement departments and get this sorted. You will not get a better deal by creating an endless paper chase and writing contracts which end up with an almighty bun-fight which hands money to lawyers like me to sort out the problems. Why can’t we have a set of simple user friendly contracts that are easy to put together and understand?

Access to working capital and scaleability

Again I would call upon regional and sub-regional bodies to be bold – put in some early equity investment on a commercial basis and share in the rewards later on.

On scalability, I would like to see a national franchise model developed. If there are any enterprises in the audience tonight who believe they have a winning formula that could be replicated elsewhere to bring in additional revenue streams for you, whilst at the same time allowing others to replicate your success and achieve greater social impact, then please let’s talk. I think the franchising model could work well for those enterprises which have bedded down and are running at steady state.

So those are the three main practical challenges I see and some suggestions on how together we can tackle them.

But a word of warning... there are much bigger issues brewing which none of the main parties has yet put forward a credible plan to tackle.

That is the scenario of the perfect storm...

Three factors which are coming together to create a devastating impact if they are not addressed.

1.	Demographic trends – we have a rapidly ageing population – in 1982, 30% of the population was over 50, 2009 34% of the population is over 50, by 2026, it will have increased to 40%. Currently there are four workers for every retired person. By 2026 years the ratio sinks to two workers per retired person.
	By that time the Dept estimates there will be 1.7 million more people in need of care and support. The Audit Commission has calculated that currently dementia costs the UK economy £17 billion a year. In the next 30 years, the number of people with dementia in the UK will double to 1.4 million, while costs could treble to over £50 billion a year – that would be 1/3 of the current total health and social care budget.
	Tackling the needs of the burgeoning number of older people will require joined up solutions – preventative measures could reduce demand for services. Usually there is a complex interaction between housing needs, exercise and lifestyle, mobility and social isolation, which can be combated by activity programmes. This is a space where innovative social enterprises, with their ability to “just do it” could positively thrive.

The second area is public sector pay bill, in particular the costs of pensions. As I am sure you will know, unlike most commercial pensions schemes which have a pot of assets in them, the value of which can go up or down, the NHS schemes is funded entirely from current year taxation and receipts. It comes directly off the bottom line. The current bill for public sector pensions is £25bn, in 1999 it was £19.3bn, and the NAO has estimated that by the time we get to 2060 it will be £80bn – that would be more than 50% of the current total budget for health and social care.

The current situation is unsustainable. Again, I think third sector and social enterprise could play a role in tackling this problem. When the housing association movement took off in the late 1980s, with the creation of more stock transfer associations, the associations created their own portable pension fund for those who transferred out of Councils. I think the time has come to look at something innovative for the new range of providers which will emerge in the NHS and social care.

3.	Third factor is rising public and patient expectations about how and when they are cared for. The emergence of a rights and entitlement based culture (reinforced by introduction of patient’s rights in the NHS Constitution and ministerial statements) e.g. personalisation of social care. The emergence of new and more expensive drugs and therapies. This will increase demand for services and will cost society more.
	One of the ways to tackle this and which has been enthusiastically taken up by the Commission on 2020 Public Services, is the notion of the citizen as a “co-producer” of services. The citizen will be engaged in a kind of contract where they will have to agree to share the responsibility for their care. For example, the diabetes sufferer may agree to a diet and exercise plan, and use remote diagnostics and telemedicine to monitor and control their condition.
	Again I think this is an area where social enterprises could really rise to the challenge. Finding ways to cut across traditional silos, having the courage, drive and technology to re-engineer services.

This perfect storm is coming, the major political parties cannot afford to bury their heads in the sand any more. It must be tackled. I think these phenomena can be a threat to services, but also a tremendous engine for innovation and rethinking the impossible…

I am a great fan of Sherlock Holmes and I am reminded of the words of Holmes in His Last Bow. Having captured the villain, Holmes dramatically turns to Watson and says with great gravitas...

“There's an East wind coming Watson, such a wind as never blew on England yet. It will be cold and bitter, Watson, and a good many of us may wither before its icy blast. But it's God's own wind none the less, and a cleaner, better, stronger land will lie in the sunshine when the storm has passed”.

Thank you.

For More Information Contact:

Mark Johnson
TPP Law Limited
53 Great Suffolk Street
London SE1 ODB

t 020 7620 0888
f 020 7620 0778
e info@tpplaw.co.uk

Email: Mark

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