Hovis workers on the picket line during their successful strike to stop their jobs being outsourced
Hovis workers on the picket line during their successful strike to stop their jobs being outsourced

THE John Smith Institute have produced a series of damaging case studies on the impact of outsourcing on employees’ terms and conditions.

Outsourcing leads to:

• deterioration in manual workers’ pay following outsourcing;

• increase in work intensification;

• transferred low-wage workers have fewer bridges to more extended internal labour markets in public-sector organisations;

• specialist private-sector firms’. . . narrow range of skills required in jobs and strengthened monitoring of work effort;

• multiple layers of control and authority, caused by involvement of multiple contracting partners, with reduced worker empowerment;

• reduced job security as a result of redundancies, and lower perception of job security caused by recurrent changes of employer.

Unison General Secretary Dave Prentis said: ‘This research is a wake-up call that shows once and for all that outsourcing is not the way to improve public services or save public money.

‘Contracting-out can be little more than a way of slashing the wages of already low paid workers. This leads to low morale, higher turnover of staff and lower quality public services. The true legacy of outsourcing is often a two tier work-force, zero-hours contracts, removal of sick leave and poverty wages.’

The Smith Institute case studies contribute up-to-date evidence on what is happening now, given recent changes in the types of services and jobs being outsourced and the changed employment rights framework.

In the public sector, published national collective bargaining agreements, mean that pay rates and terms and conditions of service are transparent in most areas. It is possible to find out what pay and benefits employees receive.

In the private sector with a stronger culture of secrecy it is possible to gain information about pay rates and conditions such as sick pay or annual leave, by using the Labour Research Department Incomes Data Services.

Outcomes vary for different groups of workers, but there are consistent messages about lower levels of pay, less employee voice, increased insecurity and work intensification resulting from outsourcing.

The research suggests a negative impact on pay outcomes for manual employees.

Much of this research is on the compulsory competitive tendering (CCT) regime, and dates from the 1980s or 1990s, so does not completely reflect the range of roles for public sector workers now being outsourced, such as children’s home managers or custody officers. The vast majority are still low-paid employees.

The Office for National Statistics explains the effect of outsourcing on the job profiles of the public and private sectors:

Over time many low skilled jobs that would have been carried out in the public sector have been transferred to the private sector. Much of it in lower-skilled jobs, like cleaning. Pay and benefits have been pushed down for manual workers.

A study of the CCT regime in Australia found significant cuts to working-time premiums and supplementary allowances. Four other studies found evidence of reductions in pay and benefits when employees were outsourced.

A study of terms and conditions for prison officers in prisons run via the Private Finance Initiative found that they included lower basic pay, longer hours, less favourable overtime and less annual leave.

The findings on health benefits mirrored those on wages. Outsourcing ‘tilts’ the pay-benefits ratio towards pay, with a small decrease in the contribution of benefits to total remuneration.

The adult social care sector provides the most whole- scale example of outsourcing in pushing pay rates down further for low-paid workers.

There was widespread non-compliance with the minimum wage, with 48 per cent of providers non-compliant, and poor levels of training and development, widespread use of zero-hours contracts and rushed visits for homecare workers.

The Department of Health found in 2011 a strong link between the profit status of the residential or domiciliary care provider and the quality of employment conditions.

• Pay rates were much lower for private-sector providers and clustered around the level of the minimum wage, with the pay rate for care workers in local authority domiciliary care providers one-third higher than in the private sector.

• Paying a premium for overtime was largely confined to the public sector, with fewer than one in four independent providers.

• The bulk of independent domiciliary care providers used zero-hours contracts for all their workers.

• While all local authority providers in the study recognised unions, only 8 per cent of independent domiciliary care providers did so.

• Half of local authority home care providers had 70 per cent of care workers qualified to NVQ level 2

• Severe recruitment and retention difficulties were starkly related to pay in the private rather than the public sector, with 40 per cent of independent domiciliary care providers listing pay as a ‘main reason’ for recruitment difficulties.

Even where funding is more generous, independent social care providers fail to improve employment practices.

The problems of poor working conditions and low professional standards are exacerbated by a weak regulatory environment, and commissioning practices that fragment service provision.

Caring roles performed predominantly by part-time, female employees attract lower market rates in the private sector. But private-sector providers are prepared to pay a premium for technical skills in a way that they are not for caring skills, despite evidence of skills and staff shortages in these occupations.

Progression for the low-paid may also suffer when the employees delivering a public service move from the public to the private sector. The outsourcing of the social care workforce highlighted the lack of progression paths for low-paid workers as ‘a serious problem which led to people being lost to the service’.

Progression opportunities may be closed off for transferred low-wage workers when they move away from a public-sector organisation. An NAO (National Audit Office) study found that rates for transferred employees gradually went down.

The differential between the lowest-paid staff on outsourcing contracts and the remuneration packages received by the most senior directors of the same firm have been well documented.

The Hutton review of fair pay in the public sector found that the pay multiple of top to bottom earners in the public sector was typically around 10:1 in 2009. In the private sector, FTSE chief executive officers achieved a pay ratio of 88 times the median.

Hutton recommended that outsourcing firms should be required to report on fair pay in the same way as are public authorities, but this was not implemented by government. There is sparce data on senior managers’ pay on outsourced contracts.

Compulsory competitive tendering identifies worse outcomes for female part-time workers with nine out of 10 experiencing pay cuts following outsourcing to the private sector, and there are legal barriers placed in the way of women seeking equal pay once transferred outside the public sector.

Business organisations centre on the alleged productivity improvements when an external organisation takes over a public service.

The CBI’s gives the example of Interserve’s microfibre cleaning at University College London Hospital, which claims a saving of 10-30 per cent by enabling cleaners to complete multiple tasks per shift.

Intense pressure to meet key performance indicators increases work intensity for staff while decreasing the level of autonomy and control they have over their work.

ACAS say outsourcing has the ‘propensity to manage workers by results’ with lower levels of job satisfaction, higher stress and higher turnover this creates.

The targets to be met are ultimately determined by the contracting authority, not the worker’s direct employer.

The proliferation of different terms and conditions within workforces – as twice-contracted-out workers work alongside those who have been contracted in from another organisation and those who are newly appointed – has led to the fragmentation of 45 organisations, complex supply chains and complex employment relationships.

Those involved in delivering the services of the average local authority worked for between 40 and 50 employers, compared with one in 1994.

Fragmentation makes this environment a deeply challenging one for trade unions in representing their members.