Yesterday it was announced that the much-feted employee-owned organisation Central Surrey Health has lost out on a major NHS contract to a private company owned by Virgin Healthcare.

As Patrick Butler put it in the Guardian, “David Cameron gave staff-owned Central Surrey Health a ‘Big Society’ award. But its first attempt to win business in the NHS market has failed, triggering fears for future employee ‘spin-outs’.

Central Surrey Health, owned by the nurses and managers who work in it, was the first employee-owned spin-out from the NHS back in 2006 under the Labour Government. The Cabinet Office has confirmed that CSH has delivered substantial improvements in quality and efficiency. But quality counted for less in this tendering exercise than the ability to raise capital. The several dozen new employee-spinouts from the NHS will have to go through this tendering exercise and capital funding after only three years, despite the movement calling for longer contractual terms and assistance with capital. This means that the private sector – like Virgin Healthcare – will be able to hoover up NHS services in a short time, an outcome that was never consulted upon or part of the settlement with the NHS employees.

Patrick Butler comments:

“The danger for ministers around a faltering mutuals agenda is not just embarrassment but credibility. A common critique of spin outs is they are being set up to fail, by a government which has a secret agenda to break up the NHS and allow private corporations in through the back door. Will ministers fight for mutuals, and act to ensure that social enterprises can compete for contracts on a level playing field, or will they sit passively by – as they have in the Work Programme – and simply wring their hands as the big corporates clean up at the expense of charities, small business and social enterprises?”

The chief executive of Social Enterprises UK, Peter Holbrook, put it like this:

“If Central Surrey Health, the government’s flagship mutual social enterprise, which has demonstrated considerable success in transforming health services, reducing waiting times and increasing productivity can’t win, what does this say for the future of the mutuals agenda?…

“It is not enough for government to open up markets; it needs to create fair markets that benefit society. Some of the financial criteria used in contracts create an unequal playing field in which social enterprises are unable to compete because they may not have the same financial backing as private sector providers. Unless swift action is taken to address this we will see social enterprises and mutuals lose out to the private sector.

“Public sector workers will be understandably anxious about spinning out from the NHS and setting up a social enterprise on the back of this news. The government needs to take action to reassure them that they will not be operating in markets weighted against them.”

Michael Stephenson, General Secretary of the Co-operative Party, commented:

“The Tory/LibDem government talks about people power in public services but the reality is very different. Far from encouraging mutuals, they are encouraging entryism by private companies into the health service at their expense.

“There is a role for genuine mutual providers as part of a properly funded National Health Service but the Tories and LibDems have a different agenda. Their phony Big Society is about cuts and privatisation, not genuine mutuality.”