Ministers have scrapped pension and pay protection for employees of outsourced public services ahead of a wider review of the rules regulating contractors.
The Cabinet Office withdrew the protection, known as the ‘two-tier code’, with immediate effect and replaced it with a voluntary ‘Principles of Good Employment Practice’.
The two-tier code was created to make sure contractors supplying a public service employed new recruits on comparable terms and conditions as existing staff, including a “reasonable” pension.
While the code does not apply to local authorities, who are covered by a separate code and the Best Value outsourcing rules, GMB pensions officer Naomi Cooke described the announcement as “a warning shot” ahead of a wider review of protections for outsourced workers.
The government is due to consult on changes to other rules such as ‘Fair Deal’, which assures outsourced workers of receiving a comparable pension to their public service pension, after public pensions commissioner Lord Hutton suggested that such protections could be limiting public service reform.
Cabinet Office minister Francis Maude, left, said the two-tier code had done “little to protect staff while deterring responsible employers from delivering public service contracts”, particularly small businesses and voluntary organisations.
The new principles “set clear standards and give employers freedom to provide terms for staff which are motivating and affordable”, he said.
Ms Cooke said the voluntary nature of the new rules would mean that contractors could employ people “working side by side, doing the very same job, on vastly different pay”.
The move has been welcomed by the CBI’s director-general designate, John Cridland, who said the two-tier code had “long been a major stumbling block for independent providers”.
He added: “The next step for the government must be to introduce a level-playing field on pension provision between private and public sector providers.”