Writing in The Guardian, the Smith Institute’s director Paul Hackett writes about how spending cuts are dictating outsourcing deals and the impact this is having on low paid workers, bases on the Institute’s report Outsourcing the cuts.
The debate about outsourcing public services often generates more heat than light. Arguments rage between those who see it offering more bang for the public buck and the sceptics who say public money is wastefully (and needlessly) being spent enriching shareholders and chief executives. Yet there is a dearth of definitive evidence either way, and even less information and focus on what it means for employees.
Research by the Smith Institute has tried to bridge that gap. We found that spending cuts determine the objectives, nature and outcomes of the latest outsourcing deals – including reductions in pay and staff benefits. It is not always the case for all workers. However, for the low paid in particular, outsourcing in an age of austerity can mean lower pay, poorer pension provision, a two-tier workforce, fewer opportunities for progression, and questions about equal-pay obligations.
This is perhaps not surprising given the scale of the cuts. But, it is hardly transparent and hardly fair. And it is unlikely to be sustainable. Paying workers who are already low paid less and less not only undermines the quality of public services, but also increases in-work poverty and adds to the benefits bill. Our research suggests commissioners and employers aren’t listening. As a result, we are seeing new workers in outsourced firms appointed on lower rates of pay for doing a similarly skilled job as their colleagues.
Although commissioners can’t determine central government funding, they do have influence over individual contracts. They can choose to insert labour clauses to ensure a decent wage floor and prevent the emergence of a two-tier workforce. They can demand greater transparency from tenders about pay and conditions for all workers – not just those who are transferred under the Tupe (transfer of undertakings) regulations, but new workers as well. The government, meanwhile, could reintroduce the so-called two-tier code (which sets a level playing field on pay and conditions, and still operates in Wales). It won’t be cost free, but the outsourcing race to the bottom carries a high social cost.
The most striking example of a two-tier workforce we came across was in a council which had introduced the living wage for council workers, but not for contracted-out staff, who were on the minimum wage. This immediately created a 15% pay differential and raises concerns about equal-pay obligations. In other cases, low-paid workers in outsourced firms have seen their workloads increase and their terms and conditions and pensions worsen. Contracts are effectively being won on the basis of driving down labour costs, rather than value for money and the provision of high-productivity services. Outsourcing is looking more and more like Thatcher-style compulsory competitive tendering.
Commissioners can do more to end the worst practices, but they can only do so much. Ensuring decent wages and terms through contract clauses requires funding, as do high-quality public services. We need to know more about how outsourcing contracts work and to what extent public money is being ploughed into company profits and directors’ pay. The government should establish an independent commission into the way in which outsourcing impacts not only on staff pay and conditions, but also on the quality of services and value for money.
If the government believes that outsourced, low-paid workers should be paid less and work more on worse terms and conditions than in-house staff providing the same public service, then it should say so loudly and clearly, and put it on the face of the tender document. If not, then it should come clean and work with commissioners. The evidence that public bodies and councils, at the behest of central government, are outsourcing the cuts is mounting. It is time to draw a line in the sand and ensure that the lowest paid stop paying the highest price.
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