Government could go to war with unions over outsourcing worker benefits

A rule that guarantees private sector workers on public sector contracts “no less favourable terms” as their colleagues who were in-house staff before being outsourced, could be scrapped.

According to an article in the Financial Times the government is “minded” to scrap what is described as an “informal code.”

The code was introduced to prevent the emergence of a two tier workforce with workers transferred to suppliers from the public sector enjoying far better T&Cs than private sector colleagues.

Another law known as TUPE guarantees workers that are transferred to a supplier from a customer company.

The current system makes it difficult for many service providers to take on government contracts. Francis Maude wants to introduce more competition to government contracts, which are currently dominated by a small number of firms.

After George Osborne said Indian companies are welcome to help the UK government cut IT costs, the removal of rules such as this could trigger a spree of offshoring in government.

Although a different issue, outsourcers also struggle to inherit workers from the public sector with their T&Cs, which are protected by TUPE as mentioned above,  often better than the private companies would normally offer. 

I blogged back in May about how outsourcing could cut the budget deficit but suppliers will be put off by the fact that they have to take on certain liabilities, when public sector workers transfer to them, such as public sector pay and pensions benefits.

Mark Lewis, partner and head of outsourcing at law firm Berwin Leighton Paisner, put it concisely in my previous blog.

“Outsourcing from the public to the private sector is not straight forward because there are a number of agreements with unions in the public sector about how members will be treated if transferred to a supplier.”

“These agreements will force private sector outsourcers not to sack staff for a period after transfer and will also require those outsourcers to make pension arrangements for ex public sector workers and enhance redundancy payments.

“All of that means the cost of outsourcing from the public sector is significantly higher than outsourcing from the private sector.”

He told me that unless the government is brave enough to tackle “platinum plated pension schemes” for public sector workers the outsourcing agenda could fail.