I must have been looking the other way. An article in today’s Observer (which appears online under a different title here) mentions that back in December the Government withdrew the so-called Two-tier code for public service employment (as notified here).  The code is designed to stop the emergence of a two-tier workforce. It regulates the benefits that employers providing outsourced public services should offer their employees. Basically it says that they should offer employees terms and conditions, including pension provision, similar to those available to employees in the public sector. It has been replaced by a more flexible voluntary guide called Principles of Good Employment Practice. The logic is that the Government wants to have a more diverse landscape of provision and the two-tier code is considered a barrier to small or mutual or charitable providers entering the market.

Is this a good or a bad thing?

It seems reasonably clear that these requirements do represent a barrier to smaller organisations participating in the provision of ‘public’ services. So in that respect one might see it as a positive development. The change therefore appears to have been received quite positively in the charitable sector.

But, at another level, the new voluntary guidance is only going to deliver ‘flexibiliy’ if it opens up the possibility of service providers offering their employees less favourable terms and condition. That is the point. And while the rhetoric is about the encouragement of small and mutual organisations the guidance applies to large and small providers alike. As I argued here, the speed with which the Government is seeking to slash budgets and restructure means that it is the large commercial, rather than the small not-for-profit, private provider that is going to benefit most.

Trade unions are concerns that the switch from the Code to Guidance will just result in cash-strapped local authorities off-loading activities to providers offering poor quality services staffed by poorly-paid workers. The Cabinet Office press release sees the new Guidance as giving employers “the power to build a more motivated workforce”. On the assumption that employers are not going to use this new flexibility to offer more generous packages – as they were, of course, always able to do under the previous regime – this can only mean that they believe there is a lot of feather-bedding going on in the public sector. What frontline workers really need to motivate them better is more poorly paid and insecure employment without fringe benefits. It’s that cliche again: the poor can be motivated by reducing rewards to make them work harder, while the rich, needless to say, can only be motivated effectively by making sure their rewards are sufficiently generous.

One of the reasons for having regulations like the two-tier code and TUPE is because there was an aspiration that changing the structure of the ‘public’ sector should not undermine its reputation as a good – indeed in some respects exemplary – employer. But equally importantly these regulations meant that alternative providers could not undercut public provision simply by being more economical – that is, by reducing wages and benefits and reducing quality. There was a backlash against the early privatisations of the 1980s where private providers secured contracts and promptly dramatically reduced employees’ terms and conditions, including sacking unionised workers or seeking to derecognise unions.

The Code and TUPE weren’t just about seeking to insulate the sector from the chill winds of competition. Quite the opposite. It is saying that competing contractors are going to have to compete on a level playing field. Rather than being simply cheaper through paying less they are going to have to demonstrate that they are genuinely more technically efficient: they are going to have to be able to deliver the same outputs with fewer inputs or get more output for a given level of input. It gives providers an incentive to pursue technical innovation and seek out new ways to organise and deliver services, rather than going for the easy option of paying everyone less. The argument is analogous to the case for a minimum wage.

In-work poverty is a significant problem that the Government has not really engaged with (as I discussed here). Its approach to ‘stimulating’ more plural service provision seems to me to be expressly designed to exacerbate the problem. For the yellow component of the Coalition that should be a challenge. While the Liberal Democrats would generally be supportive of pluralism and competition, they are also committed to a fairer and less unequal society. The direction policy is heading may deliver the former, but at the cost of an increase in the latter. So it is a question of priorities.

We can argue that the country “can’t afford” to be paying public sector workers “overly generous” wages. But that neglects the multiplier effects of those wages. It neglects the fact that those jobs will return more tax to the Treasury than lower paying equivalents. It ignores the impact on the family life of those households who will be forced to rely on less secure jobs. If the private sector approach here is similar to its job generation elsewhere, many of the jobs replacing those in the public sector will be part-time and highly flexible. It ignores the impact that paying workers in the private sector lower wages will have on the Department for Work and Pensions budget for In-Work benefits. Superficial savings in the cost of service provision will have significant ramifications elsewhere.

The policy change back in December does not change the TUPE requirements that affect workers transferring out of the public sector. But informed observers note that Communities and Local Government, who have oversight of this aspect of policy, are going to come under pressure to follow the Cabinet Office’s lead. They’ll be pushed to relax the requirements on commercial and not-for-profit organisations seeking to take over local public services. Let’s be honest, it’s not likely that Mr Pickles is going to be too averse to doing so, now is it?

Two-tier service? Here we come.