Resource 2
Contracting-out in the UK and the Acquired Rights Directive (TUPE)

This chapter looks at how contracting out has affected the workforce in three stages:

• before the application of TUPE
• how TUPE came to be applied
• after TUPE

" Most of the savings from contracting out arise because contractors offer poorer conditons of employement ... they eliminate costly bonus schemes and overtime working, provide little or no sick pay, and avoid national insurance payments by means of more part time working. The difference in total labour costs may typically be of the order of 25 per cent. pensions are the main single element in it." ( 1986 HM Treasury Report: Using Private Enterprise in Government )

Pay and conditions.

In the run up to privatising services, central and local government were restructured in such a way as to break the links with national pay bargaining.

Central and local government and the health service have been reorganised into smaller, arms length units with more local management control. This has helped to undermine trade unions and to pave the way for cutting pay and conditions.

" The most practical advantage I see is that by creating accounts, boards of directors and saleable assets, future privatisation might prove less difficult."

(Nigel Lawson on agencies, The View From No 11- Memoirs of a Tory Radical, 1992)

The PSPRU database shows that cuts in pay and conditions took place in three quarters of contracts won in-house, cut pay and conditions. A study on the impact of Compulsory Competitive Tendering in 40 authorities for the Department of the Environment produced evidence which supports the PSPRU information. The findings are that : " The large majority of authorities have made significant changes to staff pay, conditions or numbers in introducing competition, and many have continued to make changes after winning tenders". (Competition and Service: The Impact of the Local Government Act 1988 , Department of the Environment, HMSO 1993)

Typical cuts have been:

and the evidence also shows that women are worse affected than men.

PSPRU information shows that part-timers’ hours have been cut significantly. Pre CCT, cleaners in local government worked an average of 17 hours per week. Now cleaners typically work 8-15 hours. Women are more affected than men, and the DOE study found women in school and welfare catering had their hours cut by 77% compared to men in refuse collection whose hours were cut 6%. Also, part time hours have been cut to under the threshold of 16 hours where employees qualify for employment rights such as unfair dismissal, redundancy etc

Services subject to competitive tendering are more likely to have broken away from national pay and conditions, and to have moved to local bargaining, where employees on each contract might be subject to a different set of pay and conditions, which will be put under pressure each time the contract is up for retendering.

The same study for the DOE found that take home pay of staff working on in-house contracts was adversely affected particularly as a result of changes to bonus schemes, where 32% were changed and 15% abolished. Also shift patterns were altered.

Women providing cleaning and catering in schools and colleges have mostly had their retainer for school holidays cut.

Before TUPE contractors rarely offered any pension scheme, especially for manual workers. Where schemes were available, they were inferior to

the excellent schemes provided by public authorities. This alone afforded huge savings to contractors.

The Acquired Rights Directive came into force in 1977, saying that when an undertaking was transferred the employees concerned were also transferred to the new employer with full continuity of service, pay and conditions. Collective agreements and union recognition also transferred.

Because of the way Britain interpreted the directive, however, it did not start to affect UK privatisation processes until 1991. The UK government implemented the directive in 1981, by enacting the Transfer of Undertakings Protection of Employment Regulations (TUPE). But TUPE said that these rights only applied to commercial undertakings, and so all parties assumed that this excluded the contracting-out of public service work.

During the 1980s this exclusion proved crucial, as much public service work, especially cleaning and catering, was put out to tender. Private contractors repeatedly undercut the cost of direct labour by the simple method of cutting pay rates and other conditions of work. Tens of thousands of workers were made redundant, and the new contractors chose who and how many of them to employ.

From 1991, however, the potential relevance of the Acquired Rights Directive came to be realised, for a number of reasons:

• Firstly, the European Commission started infringement proceedings against the UK for defective implementation of the directive, citing in particular the restriction to "commercial" undertakings as contrary to the directive.

• Secondly, especially where companies were "buying" in-house functions without competition, government and employer's lawyers became increasingly aware that the application of TUPE could crucially affect the economic value of a contract or purchase.

• Thirdly, decisions of the ECJ, especially the case of Sophie Redmond in May 1992, started making clear that the directive had a much wider scope than British lawyers had imagined possible.

The public sector trade unions campaigned against the government’s narrow interpretation of the directive and by the end of 1992, most lawyers agreed that the directive did in principle cover contracting-out of public services. The UK government itself conceded a crucial point of principle, when it repealed the clause in TUPE which had restricted it to "commercial" ventures.

This has transformed the basis on which tenders are prepared and considered. Cuts in pay and conditions are no longer paramount and may often be unlawful. EC social legislation is now a key part of the ground rules of competition.

(extract from "Private Corruption of Public Services", 1994)