Government code to tackle 'two-tier workforce' in local government services

In February 2003, the UK government announced details of a new code of practice governing the terms and conditions of the employees of contractors providing services to local authorities. This specifies that new recruits working alongside transferred, former local authority employees must be offered an employment package which is no less favourable in overall terms. The move is in response to a long-running campaign by trade unions for an end to the 'two-tier workforce' in the area of local government services.

On 13 February 2003, the Office of the Deputy Prime Minister published the terms of a new code of practice to apply where local authorities transfer employees to a contractor providing local public services. Among other matters, the code provides that new employees of service providers must be offered terms and conditions which are, overall, 'no less favourable' than those of transferred employees (whose previous, local authority terms and conditions must be protected).

The decision to include such a provision in the code was announced following a meeting between the minister for local government, Nick Raynsford, and representatives from the main local government unions and the Trades Union Congress (TUC). Unions have been pressing for measures to counter the emergence of a 'two-tier workforce' where public services are outsourced (UK0111107F). The Prime Minister undertook to act on the issue in his speech to the Labour Party conference in October 2002.

The code will form an annex to revised statutory guidance, due in early March 2003, on the 'best value' performance management regime that has applied to local authorities since April 2000 under the Local Government Act 1999. Similar arrangements are intended to apply to other 'best value' authorities, including police, fire, waste disposal and passenger transport authorities.

Key points of the code

The code states that: 'Contractors who intend to cut costs by driving down the terms and conditions for staff, whether for transferees or for new joiners taken on to work beside them, will not provide best value and will not be selected to provide services for the council. However, nothing in this code should discourage local authorities or contractors from addressing productivity issues by working with their workforces in a positive manner to achieve continuous improvement in the services they deliver.'

In line with existing government policy, the code spells out that contractors must protect the terms and conditions of transferring local government employees, and that in circumstances where the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) do not apply in strict legal terms, the principles of TUPE should be followed and the staff involved should be treated no less favourably than had the Regulations applied. This includes the right to ongoing access to the Local Government Pension Scheme (LGPS) or to an alternative good-quality occupational pension scheme. Provisions in a Local Government Bill will require local authorities to ensure this protection for transferring staff.

Where new recruits join an outsourced workforce providing services to a local authority, the contractor must 'offer employment on fair and reasonable terms and conditions which are, overall, no less favourable than those of transferred employees'. There is some flexibility: the code will not prevent service providers from offering new recruits non-pension terms and conditions which differ from those of transferred staff, so long as this does not result in a less favourable package in overall terms.

The code requires that service providers must consult representatives of a trade union where one is recognised, or other elected representatives of the employees where there is no recognised trade union, on the terms and conditions to be offered to new recruits. This is to involve 'a genuine dialogue'. The intention is that contractors and recognised trade unions should be able to agree on a particular package of terms and conditions, in keeping with the terms of the code, to be offered to new joiners.

These provisions do not apply to pensions, but under the code new joiners must be offered one of the following pension arrangements:

  • membership of the LGPS;
  • membership of a good-quality employer pension scheme; or
  • membership of a stakeholder pension scheme with an employer contribution.

Local authorities will be required to monitor compliance with the code by service providers. The final version of the code will incorporate new measures to ensure that contracts make provision for a rapid and cost-effective procedure to resolve differences about the code’s requirements in particular cases, as an alternative to litigation. Talks on this are due to take place between the Confederation of British Industry (CBI), the TUC and the Employers’ Organisation for local government.

Reaction from unions and employers

A joint statement issued by the general secretaries of the GMB general union, the Transport and General Workers’ Union and Unison (representing public service workers) said that the code represented 'a major advance for thousands of today’s, and tomorrow’s, public service workers ... This makes good the prime minister’s pledge to end the two-tier workforce. It will stop companies making a profit from cutting pay, terms and conditions of staff.' TUC general secretary-elect Brendan Barber commented that the code '[removed] an obstacle in government-union relations'.

The CBI, however, attacked what it saw as a 'climb-down' by the government. It said that the move would '[prevent] employers from making changes to achieve best value for the customer', and that 'inflexible pay structures' would make it harder for the government to achieve its own objectives on public service reform. The CBI also complained that 'employers had been sidelined during the crucial final talks, despite playing a full and constructive part in initial negotiations last year, to address trade union concerns'.


Unions argue that the TUPE Regulations do not provide guarantees that the transfer of employees from the public to the private sector will not be followed by the progressive erosion of conditions of employment. Nor is there any guarantee of equal treatment for employees recruited after private service providers have taken over. This can lead to a 'two-tier workforce', where colleagues doing the same job in the same organisation have differing conditions of employment. The TUC has advocated the introduction of a new 'fair wages resolution' applicable to local government and other public sector authorities, aimed at ending the two-tier workforce and preventing exploitative wages and competition based purely on worsening pay and conditions, and the Labour government has been under sustained pressure from the unions to act on this issue for some time.

The strong employer criticism of the deal reflects the fact that the text of the code released by the government incorporates a rather tougher formula governing the terms and conditions of new employees recruited by service providers than originally appeared in a draft of the code circulated in July 2002. The draft code specified that these should be 'broadly comparable' with those of transferred employees, and would also have allowed recruitment and retention and local labour market conditions to be taken into account. The new, more specific requirement for 'no less favourable' terms and conditions for new employees derives from the wording of the fair wages resolution s that applied to public contracts from 1891 to 1983. The government’s decision was widely interpreted by press commentators as a politically motivated concession to appease trade unions on the eve of the Labour Party’s spring conference where the government faced clashes with critics within the party, including union leaders, on a range of key issues.

The new code has potentially far-reaching implications for the government’s push to improve and modernise public services through private sector involvement. It will force private contractors to compete against public sector provision primarily on the basis of quality rather than price, and could push up the costs of local authority service provision. The government, however, says it has always maintained that the involvement of the private sector in the delivery of public services should not be at the expense of lower terms and conditions for key public service workers. (Mark Hall, IRRU)

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