Understanding the Public Services Industy

Public Services Industry Review
Its survey covers 15,400 staff who transferred from the public to the private sector as
a result of 43 PFI contracts signed between 1992 and 2004 (i.e., before recent changes
that broaden TUPE protections). The study showed that total employment levels in
the sample increased by 20 per cent between the beginning of the contracts and late
2004 when the data were collected. The turnover rates of staff who had originally
transferred averaged 7 per cent a year, compared with the average staff turnover in the
public sector as a whole of 12.4 per cent. Thus the short term effect of contracting out
on employment was positive in this study, although it was limited to PFI projects rather
than all PSI contracting out.
3.25 With respect to pay differentials, the NAO study found that the rates of pay received by
transferred staff were not uniformly higher than those received by other staff and over
time the two tended to converge. At the time of transfer, senior managers and manual
workers from the public sector had higher wages than their counterparts in the private
sector provider (by 9 per cent and 3 per cent, respectively), while the wages of middle
management, supervisors and clerical staff were marginally lower in the public sector
than the private (by 1 per cent, 2 per cent and 3 per cent). By 2004 the transferred
senior managers had retained their 9 per cent premium, the transferred manual
workers had increased their premium to 4 per cent, transferred supervisors and clerical
workers had caught up with and overtaken their private sector counterparts (by 1 per
cent and 4 per cent) and transferred middle managers retained a 1 per cent discount to
their counterparts. Finer breakdowns of staff show more variation for some categories,
but the overall conclusion is that transferred staff have generally benefited in terms of
pay from the shift to a private employer. Much union concern centres on conditions
of employment, such as pension, sick pay, and holiday entitlements. The NAO study
did not consider the latter two items but it did record the percentage of staff who took
up the employer offered pension scheme. Under The Fair Deal for Staff Pensions, any
transferring staff must be offered access to a ‘broadly comparable’ pension scheme.
By October 2004 60 per cent of the transferred staff had taken up the offer to join the
private pension scheme compared with 27 per cent of other staff in these companies.
3.26 Despite the NAO study, strong concerns remain about pay and conditions differentials
and what has been described as the ‘two tier workforce’ (Unison, 2008). Additional
safeguards have been put in place through the “Two Tier Agreement” which embraces
six sub-agreements, including the Retention of Employment model, pioneered by the
Department of Health, and the Best Value Code of Practice on Workforce Matters for
Local Authorities which was supported as part of the Warwick agreement to ensure
that “no less favourable” terms and conditions are offered to new employees on
local authority contracts than their public sector counterparts. The unions welcomed
the Two Tier Agreement as a major step forward but they remain concerned over its
implementation.
3.27 There is no systematic evidence to suggest that contracting leads to an increase in
long-term unemployment. Economic theory would suggest that this is more heavily
influenced by economy-wide policies on education, retraining and labour market
flexibility. Domberger and Jensen (1997) highlighted a move by some large UK firms
to assist staff made redundant with career transition thereby taking on some of the
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