Public Interest Companies are a new concept
for delivering public services, currently being promoted
by various individuals / organisations.
A Public Interest Company (PIC) exists to provide
a specific public benefit. This cannot be changed without
direct agreement from the appropriate publicly accountable body,
protecting the public's interest in the services provided, and
distinguishing PICs from public limited companies and the voluntary
PICs can raise finance on the money markets
but cannot pay variable dividends to shareholders. This
differentiates PICs from Public Limited
Companies (which can raise and pay dividends) and
from the public sector (which cannot raise finances on the capital
markets). This means a PIC can raise money when it needs to for
things like new buildings, but it does not run the risk of conflict
of interest between shareholders and the public interest.
Models of PICs:
There are a range of different forms of PICs currently
being discussed, but as yet there is no existing legal form:
US Public Benefit Corporations
The standard charity structure in the US - and used
for public service delivery - has many features of the PIC.
This PIC model requires money to be raised through
bonds rather than payment of variable dividend. This removes the
tension between working for the public interest and the need to
pay dividends to shareholders. (eg Railtrack)
A PIC could have charitable tax advantages but with
much more freedom about the way it finances investment than existing
charities. The National Council for Voluntary Organisations
welcomes the idea of PICs but believes it is likely to have less
of an impact on traditional charities than on trading organisations
such as social enterprises
Primary Care Trusts & Foundation Hospitals:
In the NHS plan for England Health Minister Alan Milburn proposes
hospital trusts that become independent, non-profit organisations.
Foundation hospitals will have the "freedom and flexibility to reward
staff appropriately", full control over all assets and retention
of land sales. It is claimed that this will give greater control
to those using them, and mean greater community accountability.
The UK Government promises to explore options to increase freedoms
to access finance for capital investment. The first NHS Foundation
hospitals in England are to be identified later this year. The Scottish
Executive has said it won't introduce them north of the border.
Mutuals: arguably a form of PIC, however there
is a danger that mutualisation becomes a stepping stone to privatisation,
as the wave of financial sector demutualisations has shown.
The NPDO: Non-Profit Distributing Organisation
An NPDO is a form of "Special Purpose Vehicle" (SPV)
– a body set up to deliver a specific service. The NPDO is independent
- not controlled by local authorities (could be a company limited
by guarantee), and is responsible for mobilising the finance required
for the public investment programme. Unlike a standard SPV the NPDO
does not have share capital and does not need to generate a return
for shareholders. It does need to generate a surplus to pay off
any loans incurred to help fund the capital programme, in the same
way as housing associations do.
The Welsh Water body Glas Cymru is a form of
NPDO. It has no share capital, its risk capital comprises bond finance
and its accumulated reserves. Any financial surpluses generated
by Glas Cymru once all other obligations have been met are reinvested
for the customers' benefit rather than paid as dividends. However,
Glas Cymru is not an operator, it contracts the operation functions
of water provision separately following competitive tender, and
outsources customer billing and contract management.
The JVC: Joint Venture Company
A JVC is similar to a standard PFI structure, except
the Local Authority takes a minority equity stake in the SPV. Through
the Articles of Association of the JVC and a Shareholder Agreement,
the Council as a shareholder is automatically entitled to a share
of any profits. The Shareholders Agreement also deals with issues
such as exchange of information between the private sector partner
and the Council, the involvement of the Council in the decision
making of the SPV and if appropriate, Council representation on
the JVC board. The nature of a JVC means that if the Council shares
in profit it also shares in the risk.
A number of Scottish local authorities have
been looking at the NPDO model as a form of PFI for schools, along
with the JVC model. However, UNISON has concerns on how the PIC
is able to raise funds if it takes on the risk element of delivering
the service. Presumably the PIC has to contract out the delivery
of services to transfer the risk to be able to raise capital for
the service in the first place. This then raises the usual concerns
on contracting out of services.
T&G's Jack Dromey, speaking from a personal
capacity, believes PICs are a model for delivering good quality
services putting the interests of the public first. He cites the
social economy in Bristol where public services like leisure services
have successfully transferred from local authority to community
control, without making excessive demands on the taxpayer, nor exploiting
the workforce, but vastly improving the local service.
The IPPR think tank considers that there is
a role for Community Trusts in regeneration projects, to
actively involve local people and make best use of local private
and voluntary sector expertise. The IPPR sees Community Trusts
as having control of a broad range of assets and the ability to
procure new PPPs, incorporated as not-for-profit companies limited
by guarantee, controlled by local stakeholders, such as member of
the council, residents and local businesses.
Difficulties with Community Trusts are :
local authorities/public bodies may be reluctant
to transfer assets out of their control.
Ensuring local stakeholders are representative
and accountable to the communities they are from.
PICs could sell their assets to a for-profit
company at any point – how can we protect the not-for-profit
status in law?
The PICs Debate - issues for UNISON:
Can PICs truly mix the private funding / money
raising element with serving the public interest or is this
just a fudge?
How do PICs successfully balance the need to
raise funds to provide a service, whilst managing
the risk of delivering a service?
Are there sufficient safeguards to prevent
PICs running off with the cash, diversifying their business
or awarding "stakeholders" profits? New Economics Foundation
believes that there is a gap in the legal forms for PICs.
Will trade unions be able to become stakeholders
in PICs? Do we want to be?
How do we ensure that PICs do not cut pay and
conditions for workers?
Are PICs merely the least worst option to PFI/PPPs?