Unions: Tiers and Fears

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Union leaders have hailed as a major victory the government's recent announcement of measures aimed at ending the two-tier workforce in privatised services.

Under the new arrangements, an existing code of practice covering local authority contracts will be extended to the rest of the public sector.

Unions are hopeful that the move signals the end of the current situation, whereby pay and conditions for existing employees are protected when a service is privatised, but any new employees subsequently taken on are hired under much worse terms.

Business figures have presented the move as a pre-election concession to the unions. There's a similar flavour to comments from the union leaders, with many of them citing it as proof that the government is finally holding up its side of the deal struck at Labour's Policy Forum in Warwick last year.

There's an element of truth in these views. The latest move came at almost the same time as the government headed off certain industrial action by announcing that planned changes to the local government pension scheme would be postponed, pending negotiations over the proposals. And both moves are a welcome corrective to the notion that unions, and the organised workers they represent, don't matter any more. But you can bet also that cabinet figures are breathing a sigh of relief that they've avoided opening up a second front with the unions, especially after the 19 March protests showed that many people are far from prepared to 'move on' over Iraq.

And the employers' reaction is interesting too. They've given the deal a 'grudging acceptance'. This is because under the arrangements, pay and conditions for new staff must be 'overall, no less favourable' than those of their former public sector colleagues, and pensions merely 'broadly comparable'. This gives bosses the chance to introduce schemes linking pay to performance, allowing them to re-design jobs and increase profits by driving up productivity. And pension plans are likely to be inferior money purchase arrangements rather than final salary schemes. In other words, while the concession wipes out some of the financial gains of privatisation, the principle will remain. As a result, while the large private contractors like Capita and Sodexho, who are in this game for the long haul, won't be wild about the deal, they're unlikely to lose much sleep over it.