It is hard to underestimate the challenge faced by our public services. Not only must they contend with ever increasing public expectations and societal challenges such as an ageing population, but they must do this in the face of the biggest shock to public finances in living memory.

Our current model of public sector reform is not up to this challenge. Over the last ten years, our public services have experienced a real terms funding increase of 55 per cent, financed by an increase of 5 per cent of GDP in public expenditure since 2000. Yet public sector productivity has continued to fall: by 3.4 per cent over the last ten years, compared to the private sector’s 27.9 per cent productivity gain over the same period.

A new approach is needed. This report argues that real improvement depends on harnessing two powerful forces: the insight and dedication of frontline workers, and the engagement and involvement of citizens and communities.

Too often these forces have been underexploited or set in opposition to one another. What is required is a new model that binds their interests together so that provision most effectively meets need.

Unless we allow nurses to ensure that hospital wards are clean, unless someone takes responsibility for abused children, unless the single mother can obtain her benefits quickly when she loses her part time job, then UK citizens will carry on dying unnecessarily from MRSA, scandals like Baby P will continue to occur and vulnerable members of society won’t seek the part-time paths out of welfare they so desperately need for fear of losing all income and security.

Likewise, without active and vocal engagement from citizens, making clear what they want from the public sector and taking an active role in its delivery, services will be unresponsive to users’ needs, and the burden of care will increase as problems like obesity and inactivity multiply. Engaging providers and recipients multiplies the effect of individual action and changes group behaviour and social outcome.

It enables ordinary people to make a difference by giving government the tools to realise the actions and concerns of its citizens, it takes out the costs and burdens of ineffective management and promotes self-organisation and social transformation. It is the future of public services.

Not only do engaged workers and citizens promote better public services, they also make them cheaper. The experience of private sector businesses from Toyota to John Lewis is that empowered staff are better at cutting costs and correcting failure than those managed by command-and-control methods. Wasteful middle management can be reduced. Examples of this approach applied in the public sector suggest that empowering frontline staff to drive service improvement can result in very significant savings: in the order of 20-40 per cent. At the same time, citizens who take an active interest in their health and welfare initiate behaviour change and cost the state less than those who are passive and demotivated recipients of government largesse.

But engagement, whether of the people who use services or frontline staff who deliver them, is a hard thing to achieve.

The very structure of our public services militates against it. Trying to achieve true engagement in existing structures invariably feels like a partial fix in an otherwise hopelessly compromised system. Frontline leadership is a scarce commodity in large multidisciplinary organisations with centralised cost control and management by target. User involvement often becomes not cocreation but the choreographed rubberstamping of top-down decision making.

We argue that the way to unleash the energies of frontline staff and citizens and scale up their impact is through the power of shared ownership. We propose a new model of public sector delivery, in which services are provided by social enterprises led by frontline workers and owned by them and the communities they serve. These new social businesses would exchange economies of scale (which are all too often illusory) with the real economies that derive from empowered workers and an engaged public.

The involvement of both the public and frontline workers provides a vital safeguard for the interests of the vulnerable: a powerful public stake prevents organisations from becoming producer interest groups, while the role of public sector experts helps ensure fair and high quality provision.

To deliver this, we recommend that a new power of civil association be granted to all frontline service providers in the public sector. This power would allow the formation, under specific conditions, of new employee and community-owned ‘civil companies’ that would deliver the services previously monopolised by the state. Central to this power would be the obligation to ensure that full budgetary delegation of all the supporting services goes along with new responsibility. The new civil company would be structured as a social enterprise, with the scope and flexibility to allow a number of different governance structures in the light of local conditions. Such structures include community interest companies with an asset lock that prevents external transfer of the resources of the new organisation, or alternatively a similar level of social reassurance could be provided by a partnership trust along the lines of the John Lewis model.

Governed neither by the public state or the private market, this new civil association would localise responsibility, direct agency and promote ethos. It would do this by spreading the ownership of publicly funded provision, revolutionising public service delivery for the benefit of all.