The existence of a so-called “two-tier” workforce in the public sector has been high on the agenda of the trade unions and the Labour Party. This issue was highlighted in the 1997 and 2001 Election Manifestos.

Since then, three deals have been struck that affect employees of private sector service providers working in the NHS. First was the Retention of Employment Model (RoE), under which most operational staff in “soft” services have the right to remain in NHS employment (or to return to it if they have been outsourced to a new PFI contract previously) and would be seconded to work for the private sector contractor during the life of the contract. This arrangement was a political fix to draw the fire of Unison during the 2001 election. While it has major faults that will only be tested in operational contracts, private sector service providers have implemented the policy in a number of contracts and are working with the Department of Health and NHS Trusts to ensure that it operates smoothly. The application of RoE, however, is limited to PFI contracts. Other outsourced single- and multi-activity contracts still operate under the TUPE regime, with staff transferring to the private sector service provider.

The second deal was the Scottish Workforce Protocol. This covers all relevant public sector contracts in Scotland and provides for new employees to be engaged on terms which are “not less favourable overall” than those of transferred public sector employees. This affects NHS employees in Scotland where the Protocol replaces Retention of Employment and has become the blueprint for subsequent policies. 

Third is Agenda for Change (A4C), which is a collective agreement between the Department of Health and the public sector trade unions and which supersedes the Whitley Agreement. The terms of this agreement are well known and have been well publicised. It comes into force in December, backdated to October 1 effectively.

Let us be clear at the outset: private sector employers involved in the NHS recognise the major step forward for NHS staff achieved by A4C. They also accept that they will be expected to implement it in all new contracts and with respect to all new starters in existing contracts, but the implications must be clearly recognised.

Agenda for Change does not relate only to salary scales. Other terms and conditions enjoyed by public sector workers are also included in the deal, such as paid holiday and sick leave. For example, under A4C, all staff in the NHS are entitled to 27 days annual leave plus eight public holidays and sick leave of up to six months at full pay. What private sector employer can afford such generosity?
The major driver in public sector pay and conditions, however, is the agreement on two-tier workforce issues across the public sector, which was confirmed within the Warwick Agreement in July. It is now only a matter of time before the proposals to address this concern are in place in the NHS. Rumour has it that they will be introduced early in 2005. Indications are that they will be based on the 2002 local government agreement and that they will only apply to new contracts. This leaves open the question of whether a rebid of a contract will be deemed to be a new contract under the eventual proposals for the NHS.

A number of other key issues also remain to be resolved.
Our main concern is the myth of a single tier of employment in the NHS. As in any major organisation or bureaucracy, there are numerous pay scales and individual deals both within Whitley and Trust terms and conditions. Thus it can be very difficult to determine against which post and which pay level new staff should be graded. Some of these issues may be eliminated under A4C, but not all.

Another issue is why staff taken on by private companies to work in public sector contracts should need to be paid at a rate which exceeds the local market rate, particularly in areas of high unemployment. In all other contracts, the company pays at the rate at which it can attract new employees, but in relation to public sector contracts it is not allowed to do so for purely political reasons.
In addition, pensions have been and will be included in any deal. TUPE does not address pensions, but the Treasury Fair Deal paper of July 1999 confirmed the reality that in public sector outsourcing, broadly comparable pensions would be paid. The trade unions have insisted that pensions be part of the package for new employees. Three options are given: a GAD “passport” scheme, a company pension or a stakeholder pension. In reality, only the first two will be acceptable to the trade unions and, in most cases, a GAD scheme will be demanded. Indeed, some ITTs already include this as a condition of contract. Employers are clearly in favour of helping and encouraging staff to save for retirement, but why should private company staff working on public sector contracts be entitled to substantially better pension arrangements than their colleagues employed elsewhere?

Cost is fundamental. Agenda for Change is expensive. Clearly, these benefits need to be paid for. This is particularly important in existing contracts where there is trade union pressure to implement A4C. The Department of Health has recognised this and has set aside a substantial sum for its implementation, but has stated that this does not cover private sector service providers because the collective agreement is between the NHS and its trades unions on behalf of directly employed staff. Private sector employers cannot be expected to pick up the tab for implementation. There must be a greater degree of funding from the Trust. This, in turn, will come from central government, otherwise bidders cannot be expected to accept additional wage costs without passing them on to the client.
While there will be increased cost under these proposals, they can also lead to greater improvements in service delivery as bidders concentrate on innovation, flexibility, performance and efficiencies to deliver the winning bid for a contract. This will involve the cooperation of staff and trades unions to improve the standard of delivered services to patients. It may involve employing fewer staff or implementing new ways of service delivery, but if it results in better service provision, it should be welcomed.

There are two aspects which are frequently overlooked.
The first is that it is not yet clear which staff will be covered by these new arrangements. The local government arrangements apply only to ex-public sector staff transferring to a private sector service provider (already covered by TUPE) and new staff brought in to fill vacancies. These “deals” fail to address the position of employees in second and subsequent generation contracts who have been taken on by a private sector service provider and have transferred with TUPE rights to the incoming contractor. They will not receive parity with those who have transferred from the public sector under these arrangements. Their terms and conditions will remain as they are, unless action is taken by the trade unions to remedy their position. Such action has already been taken by Unison in a number of NHS contracts over the past year where strikes have been called to achieve this goal. This is an unhelpful and unwelcome development.

A second aspect concerns those contracts where, because of prevailing market forces, wages paid to private sector blue-collar employees exceed those under NJC or Whitley scales for the job, or the fact that many technical and professional pay rates are less in the public sector than in the private. It would be perversely ironic if the trades unions tried to have other rates upgraded because of this.