17 December Dear Neil. Pre Consultation on Fire Mutuals

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1 Neil O Connor Director of Fire, Resilience and Emergencies Department for Communities and Local Government Eland House Bressenden Place London SW1E 5DU 17 December 2012 Dear Neil Pre Consultation on Fire Mutuals Regarding your pre-consultation letter to Chief Officers on fire mutuals The Chief Fire Officers Association (CFOA) is submitting this response of behalf of 40 Chief Officers as listed in the Annex attached. CFOA and its members are grateful for the opportunity to comment on the potential mutualisation in the fire sector. CFOA is keen to support and promote innovative approaches to service delivery, and as you are aware there has been a great deal of transformational work across the Fire and Rescue service (FRS), not least in the area of targeting resources at prevention. CFOA believes that FRSs are leading the way in this regard and other parts of the public sector are keen to follow our lead and learn from our approach. Whilst we can see why the mutual delivery model may be attractive for some public services we are concerned about its suitability for the delivery of an emergency service. Fire and Rescue Authorities (FRAs) are already able to, and do commission some aspects of service from other providers. For example, some FRAs commission elements of community safety work from not for profit organisations; many have strategic relationships with PFI partners for the provision and management of physical assets; support or corporate functions may be commissioned from third parties in the public or private sector; there is a mixed economy of training provision; and a number of FRAs have established trading companies (often community interest companies) to deliver some services as current legislation allows. However, we believe that there is a significant difference between the approaches described above, and enabling FRAs to contract out their full range of services to mutuals. Your letter clearly indicates that legislative change would be required to enable this contracting out. It is not clear from your letter what specific legislative changes might be considered, but we believe that such changes would need to be quite fundamental, since the policy and legislative basis underpinning the Fire and Rescue Service 1 contains assumptions about the duties and powers of FRAs and their staff which clearly position them as part of the State, and part of our national resilience and security arrangements, as is the case with core policing. 1 These principles are contained in the Fire and Rescue Services Act 2004, the Civil Contingencies Act 2004, the Regulatory Reform Order 2005, and the Fire and Rescue (Emergencies) Order They are confirmed in the Localism Act 2011 which precludes FRAs from profiting from the provision of statutory fire and rescue services; and very recently confirmed in the National Fire Framework Proposals for mutualisation and privatisation were discussed in the Fire Futures debate in 2011 but not enshrined in any of the subsequent legislation concerning Fire and Rescue Services.

2 Because of this, we believe that any proposals to amend legislation on the role and duties of FRAs and their staff would need to be subject to open and transparent public consultation, rather than being presented as simply being about enabling a different governance model for those who wish to pursue it. We assume that a clear and detailed business case has been prepared to support the proposals set out in your letter. To support informed discussion and any subsequent consultation, CFOA would welcome the opportunity to comment on the business case in detail. Your letter quotes benefits of mutualisation as lower sick rates, higher productivity and lower costs. Recent studies (The employee ownership effect: a review of the evidence Matrix Evidence, 2010) suggest that the evidence of these claims is not robust and recommends a more systematic monitoring and evaluation of the performance of employee owned enterprises is needed. Critically the study expresses concern that all but one available research studies on employee owned businesses focus on companies that survive rather than those that fail and in general studies use too small a sample size to draw robust conclusions. Research does conclude that good employee engagement can deliver the type of benefits you quote, but evidence of whether ownership per se drives these improvements is less convincing. CFOA would welcome a more detailed assessment of the benefits of mutualisation and an informed debate with the fire sector on the extensive examples of employee engagement across FRSs that can be further developed to deliver improvements in performance and productivity. For example, CLG s own published statistics illustrate that some FRSs have achieved sickness levels well below the public, and private sector, average within the existing governance structures. One common ingredient of good employee engagement according to most studies is effective leadership and CFOA would welcome the opportunity to discuss with CLG how the new Executive Leadership Programme championed by CFOA is supporting strong leadership in fire and rescue services. To assist CLG s deliberations on mutuals in the fire sector CFOA would wish to pose a number of questions, some of which are based on the analysis of the legislation, which we believe need to be examined when considering any change in the legislative framework. General Points 1. Should core emergency services, including Fire and Rescue services, be among those which should fundamentally be provided by the State? The Open Public Services White Paper 2011 contains partial engagement with this issue but not in relation to FRAs: We will not take a commissioning approach in national security or the judiciary, which are natural monopolies of state provision. This will include the military, core policing, intelligence services and the judges. CFOA has stated in many submissions to Government consultations that the fire and rescue service is a core civil protection service and a key contributor to national resilience and national security as evidenced in the recent responses to civil disturbance in 2011 and the terrorist attacks in London and Glasgow in Are there/should there be any distinctions between different parts of a FRA s activities in the terms of the Localism Act? The Explanatory Memorandum to the Community Right to Challenge (FRAs and Rejection of Expressions of Interest Regulations 2012) indicates that Many aspects of fire provision are functions rather than services and are therefore outside the scope of the community right to challenge. In the recent debate in the House of Commons Legislation Committee on the Community Right to Challenge (12 June 2012) Andrew Stunnel MP indicated that it was not the Government s intention to see core firefighting and extrication functions delivered by anyone other than firefighters employed by fire

3 authorities. His example of services which could be challenged was cutting the grass outside the fire station. 3. To what degree is the Fire and Rescue Service a public good? The limit on treating statutory services as a commercial activity was enshrined in the Fire and Rescue Services Act 2004 and retained in the Localism Act 2011 (section 5B(4): the Act does not authorise a relevant fire and rescue authority to do things for a commercial purpose in relation to a person if a statutory provision requires the authority to do those things in relation to the person ). How far does/should this principle extend? 4. Can an FRA fulfil its statutory duties if it functions only as a commissioner? Although statutory duties rest with the FRA, in practice an Authority needs to rely on the advice of professionally trained and experienced staff so that it can be assured that these functions are being delivered safely, effectively and efficiently. Since a contractor operating in a marketplace would not be able to advise an FRA on what services should be commissioned, how would this advice be provided without duplicating staff? 5. What would be the impact of contracting out on public confidence? Security is at the core of what people value in public services, and people are unwilling to trade this off against other considerations. There is certainly a desire for services to be high quality, rather than just a basic standard, and to be more flexible and responsive to our individual needs. However, the safety net that public services provide is seen as the core value of having such services, and trumps other considerations when people are asked to trade off different aspects; they want greater flexibility, but not at the expense of the safety net 2. There are many published research studies that evidence the trust and respect afforded to the fire and rescue service by the public. CFOA would suggest that, through direct public consultation, the premise that this trust and respect can be directly transferred to another non state owned body is tested. 6. A mutual assumes that there is a majority of employees in support of an employee owned model. Is there evidence to support this? Research studies suggest (MacLeod Review: Engaging for Success) that any benefits to be derived from a mutual ownership model can only be achieved if there is strong employee support for this model of delivery from the outset. The study also concludes that extending employee engagement is not an issue for legislation or regulation. CFOA would suggest that an extensive survey is necessary to determine the appetite for the mutual model of delivery across fire and rescue service staff which will also provide an indication of the likely cost/benefit ratio of carrying out the extensive legislative changes required. National Resilience 7. Can a contractor be a Category 1 Responder? The duties on FRAs under the Civil Contingencies Act are framed as delivery of practical on-the-ground intervention, decision making and leadership; this is implicit in the term Responder (as the Regulations have it, the duty is to take action to prevent the emergency, to reduce, control or mitigate its effects, 24.2(a)). This encompasses warning and informing (issues of public confidence) and dealing with information and situations where national and local security is at risk. 8. How would national resilience be assured in a mixed delivery model? The new National Framework sets out a number of requirements of FRAs in relation to intraoperability (s1.15), interoperability (s1.17) and national resilience (s3.4). FRSs that 2 Ipsos MORI/2020 Public Services Trust. (2010) Citizen Engagement: testing policy ideas for public service reform, p4. Funded by CLG Empowerment Fund

4 host New Dimensions assets also commit to mutual aid agreements in relation to deployment of these assets. It would be helpful to understand how the delivery of intra and inter-operability and national resilience can be assured in a mixed delivery model. It would be difficult to see how the contract for a commissioned service could be cast so wide, without excessive cost to the public purse, to ensure its contribution to national resilience. The Government would also need to clearly communicate its risk appetite and risk tolerance in relation to the provision of national resilience to inform contractual negotiations between an FRA and the mutual. Similarly FRSs remaining within the existing FRA governance would need to be sighted on any contracts that a mutual has entered into with owners of high risk sites or sites operating within the Critical National Infrastructure (CNI) to determine the extent of the mutual s responsibility to that site owner in the event of a major incident. 9. What legislative changes will required in the devolved administrations to enable cross border arrangements across the UK to continue? An analysis of the legislation governing the delivery of the fire and rescue service in the devolved administrations will be needed to determine the impact on any cross border arrangements between English fire authorities that commission the service delivery through mutuals or other non-authority controlled organisations and are located on the borders of Scotland and Wales. 10. Will FRS assets be locked in the mutual? National resilience is defined in the new National Framework as the capacity and capability of fire and rescue authorities to work together and with other Category 1 and 2 responders to deliver a sustained, effective response to major incidents, emergencies and disruptive challenges, such as (but not limited to) those identified in the National Risk Assessment. It refers to risks that need to be planned for on a strategic, national basis because their impacts and consequences would be of such scale and/or complexity that local resources would be insufficient, even when taking into account mutual aid arrangements, pooling and reconfiguration of resources and collective action. The Government has previously funded the provision of extensive assets and resources, known as New Dimensions, following the terrorist attacks in the United States in These assets have since been transferred to the ownership of fire authorities. There may be considerable difficulties in mobilising these resources if they are locked in the ownership of the mutual should the mutual fail. How will Government ensure the on-going availability of these assets in the event of a major emergency or will they be excluded from national planning assumptions. 11. How will the police share sensitive information in relation to national threats Employees of fire authorities are security cleared at various levels in order that sensitive information relating to national threats can be released to fire and rescue services to assist risk assessment, mitigation and emergency response. It would helpful to understand if employees of mutuals will be afforded the same security clearance and if not how this will affect cross border and mutual aid operations in the event of a major national threat. 12. What would be the impact on International Search And Rescue (ISAR) deployment for those FRAs with USAR capability UK USAR and UK ISAR arrangements are now well established under the auspices of the Department for International Development, and thereby through CLG, and the European Union Civil Protection Mechanism. These arrangements have been tested over recent years in response to disasters in Haiti and Japan. Would those FRAs with USAR capability commission this service through a mutual and if so what would be the contingency arrangements should a mutual be unable to deliver this capability in the event of corporate or financial failure.

5 Community Risk 13. Will the Fire Authority retain the liability in relation to risks to communities? Fire and rescue services plan their resources according to local risks identified through their Integrated Risk Management Plans (IRMP). In responding to these risks, firefighters take, at times, life or death decisions based on dynamic risk assessment and professional judgement. If an emergency incident response should result in serious injury or death to an employee of a mutual, as a body corporate this risk will be borne by the mutual. However, if as a result of a decision by a firefighter employed by a mutual, a member of the public suffers serious injury or death fire authorities would need to be clear where this liability then rests with the mutual or with the fire authority. 14. To what extent can employees of mutuals be required to operate according to national guidance/national qualifications in order to ensure safety of the public? Over many years CLG, CFRA, CFOA, the Fire Service College and FRSs, amongst others, have developed a wealth of national guidance and qualifications in order to support the safety, welfare and operational functions of firefighters. These frameworks provide well researched and well-practised procedures, informed by notable events and thorough evaluation, that FRSs value and follow. They also serve to support intraoperability and the future development of occupational standards. Clarity would be needed on the extent to which an employee owned mutual or any other commissioned organisation would be required to operate according to these frameworks. 15. How inefficient is the current model of governance? Successive Fire Ministers have applauded the achievements of fire and rescue services in driving down the incidents of fire and the statistics over the last decade have seen a year on year reduction in those killed or injured in fires, along with many other sustained performance improvements. A mutual model assumes that there are inherent inefficiencies which, when removed, release profit from wasteful cost. It would be useful to understand the evidence upon which the FRS inefficiency argument has been formed. Costs, the profit model and sustainability 16. What core functions would an FRA need to have in-house in order to commission services from a mutual and how would these be funded as austerity measures are implemented? As a commissioner an FRA would require a number of corporate support personnel to deal with procurement, contract management, financial management, legal advice and performance monitoring as a minimum. Similarly the mutual organisation would require these corporate resources as a contracted body. This effectively duplicates the current corporate resources required by FRAs. At a time when FRAs are seeking to reduce back office staff in order to maintain frontline capacity it is difficult to understand how these duplicate resources can be justified. Even if they are not directly employed by the FRA they would need to be sourced and paid for through another route. 17. Will a mutual be liable for VAT? If the mutual is to operate as a commissioned service there is likely to be a VAT liability for the FRA. This would add up to 20% onto the cost of service delivery. With existing and future reductions in grant funding to local government announced in line with the austerity measures this would appear to increase the cost of service delivery. It would be helpful to understand how these additional costs would be met and/or whether a mutual can directly receive a passported grant from Government via an FRA. 18. Will the FRA be required to follow EU procurement regulations? Depending upon the specific model of employee owned company established the FRA would need to comply with the EU procurement regulations and open up the

6 procurement to any company that meets the specification unless Teckal exemptions apply. Further information on the procurement implications of a mutual model would be useful to help authorities to fully consider the risks and benefits of an English fire and rescue service delivered by a non UK based company. If EU procurement regulations are not followed private enterprises could argue that a mutual, with patronage from a fire authority, is creating unfair competition in the marketplace. 19. What would assurance and intervention look like if all a FRA s services were provided by a contractor? The recent consultation on the Intervention Protocol sets out the powers of the Secretary of State to secure that fire and rescue authorities are acting in accordance with the Fire and Rescue National Framework for England (the Framework). Intervention is by order, and subject to the negative Parliamentary procedure as stated in the Fire and Rescue Services Act 2004 (s22). The Protocol goes on to identify the circumstances in which such intervention could be instigated and the form that the intervention could take. The levers of intervention in a public body are different to those in place with a contractor. If all the FRA functions are contracted out this could reduce the ability of the FRA to improve or rectify financial or operational failure in an expedient way or limit the availability of sector support given the relationship between the mutual and the FRA would be subject to contract law. 20. What happens if a contractor fails? As already noted there is little available research on the implications of the failure of mutuals although there are many references in the literature to the difficulties faced by mutuals in securing adequate financing and working capital. Given the risk critical nature of the fire and rescue service work the FRA would need to be assured that robust business continuity arrangements or fall back facilities are in place should the mutual fail. These will undoubtedly represent an additional cost burden to the Authority if they are to be procured on the open market. 21. Will mutuals introduce unnecessary or costly competition? The Audit Commissions report Rising to the Challenge (2008) suggested that further efficiencies could be achieved across fire and rescue services if there was more collaboration on procurement, training and back office services. Mutuals are more driven to increase profit, and thereby financial return to employees, and therefore operate in a competitive business model. An analysis of whether mutuals increase or restrict collaboration either across non-employee owned organisations or between employee owned and non-employee owned organisations would be useful to inform this debate. 22. Does a profit motive divert resources from community wellbeing. The principle operating model of a mutual is that employees benefit financially from the profit or surplus generated. It would seem therefore that the full surplus would not be recycled into communities to improve community wellbeing. It is difficult to see therefore how a mutual model helps an Authority to fulfil its statutory obligations in times of financial constraint. 23. Will Government provide certainty of funding to underpin investment and contract length Recent research (Proof of Delivery: APSE and de Montfort University Aug 2011) suggests that there are three key conditions that must always be in place for mutuals to contribute positively to effective public service delivery, one of which is a contract length of five years or longer. Financial institutions are unlikely to provide requisite funds for investment if there is significant uncertainty over the scale of future funding. Recent announcements in the Autumn Statement suggest that austerity measures need to

7 continue at least to 2018 if the public deficit is to be managed effectively. It is therefore very unlikely that fire authorities could enter into a contractual arrangement with a mutual for more than a year at a time. 24. What will be the costs to the FPS and NFPS? Both the firefighter pension schemes make provision for pension payments to regular firefighters who are members of a brigade (section A3 of the FPS 1992 scheme) or a person who takes up employment with an authority as a firefighter (Part 2 Section 1 of the NFPS 2006 scheme). Given that employees of mutuals are not employees of the fire authority will these staff retain the option to be members of either scheme and if so will this set further precedent for firefighters not currently employed by fire authorities to join the new scheme. Given the current pressures on public service pensions any potential additional burdens on the scheme would need to be clearly communicated to existing scheme members and to all UK fire authorities. I hope these questions are useful in framing your approach to this work. Given the significant financial challenges that FRS s are dealing with now and for the foreseeable future, Chief Officers and their teams are focusing on implementing new ways of working and leading service transformation. The Association believes that a change in governance structure alone will not ameliorate these financial challenges. As Government has stated many times, if fire authorities are not delivering an efficient, effective and continually improving service within the resources available they will be held to account locally by their communities - a core tenet of localism. CFOA remains committed to supporting its members as the national policy for fire and rescue continues to evolve and would be happy to provide further views on this topic if that would be helpful. Yours sincerely Vij Randeniya President Chief Fire Officers Association

8 Annex A Fire and Rescue Services supporting the CFOA submission into the pre-consultation on fire mutuals Avon Bedfordshire Buckinghamshire Cheshire Cornwall County Durham and Darlington Cumbria Derbyshire Dorset East Sussex Essex Greater Manchester Gloucestershire Hampshire Hereford and Worcester Hertfordshire Humberside Kent Lancashire Leicestershire Lincolnshire Merseyside Norfolk North Yorkshire Northamptonshire Northumberland Nottinghamshire Oxfordshire Royal Berkshire Shropshire South Yorkshire Staffordshire Suffolk Tyne and Wear Warwickshire West Midlands West Sussex West Yorkshire Wiltshire CFO Kevin Pearson CFO Paul Fuller CFO Mark Jones CFO Paul Hancock CFO Des Tidbury CE Susan Johnson CFO Dominic Harrison CFO Sean Frayne CFO Darran Gunter CFO Des Prichard CFO David Johnson CFO Steve McGuirk CFO Jon Hall CFO John Bonney CFO Mark Yates CFO Roy Wilsher CFO Richard Hannigan CE Ann Millington CFO Chris Kenny CFO Dave Webb CFO Dave Ramscar CFO Dan Stevens CFO Nigel Williams CFO Nigel Hutchinson CFO Martyn Emberson CFO Alex Bennett CFO Frank Swann CFO Dave Etheridge CFO Iain Cox CFO Paul Raymond CFO James Courtney CFO Peter Dartford CFO Andy Fry CFO Tom Capeling CFO Graeme Smith CFO Vij Randeniya CFO Max Hood CFO Simon Pilling CFO Simon Routh-Jones