Maude scraps two-tier code "with immediate effect"

The two-tier code – which regulates the employment benefits of new staff recruited to work alongside former public sector workers in outsourced services – has been withdrawn with immediate effect in relation to central government, Cabinet Office Minister Francis Maude has announced.

A set of Principles of Good Employment Practice will take the code’s place. The government said the principles would act as a more flexible guide and give employers the power to build a motivated workforce. They cover: government as a good client; training and skills; a commitment to fair and reasonable terms and conditions; equality; dispute resolution; and employee engagement.

The minister claimed the move would get rid of a barrier to smaller organisations – such as SMEs, charities, social enterprises, voluntary groups and staff owned mutuals – from delivering public service contracts.

The change has no impact on the TUPE terms under which public service staff transfer to new organisations. The Cabinet Office added that it also does not reduce or remove the statutory duties on public authorities to have due regard to the need to eliminate unlawful discrimination and promote equality of opportunity.

The government also outlined other effects of the code's withdrawal, namely:

• "where contracts are renegotiated and any provisions giving effect to the code are removed as part of the renegotiation, the changes will apply only to future new entrants. The terms and conditions of existing employees will be unchanged
• "where contracts that have previously applied the code are being recompeted (resulting in a new contract), the code will not be invoked upon award of the contract
• "when existing contracts which have invoked the code are being extended, the code will continue to apply where adherence to the code is included in the terms and conditions of the original contract, unless both parties agree otherwise."

The changes only apply to central government. A spokeswoman for the Cabinet Office said: "The local government code is different and not affected by the announcement. At the moment Department for Communities and Local Government ministers are considering the implications for the local government best value code and are going to be consulting on that in due course. But it has not been withdrawn."

Maude said: “The two-tier code was a voluntary regulation that did little to protect staff while deterring responsible employers from delivering public service contracts. Small organisations have been particularly hard hit by this two-tier code. We should not be making it more difficult for SMEs and voluntary organisations to succeed in the public service market.

“The new Principles of Good Employment Practice set clear standards and give employers freedom to provide terms for staff which are motivating and affordable."

The move was welcomed by business leaders, with CBI Director-General Designate John Cridland saying it was good news for taxpayers.

He added: “The two-tier code has long been a major stumbling block for independent providers wanting to deliver public services. Its abolition will encourage new providers to enter the market, including smaller companies and social enterprises. That in turn will spur innovation and drive service improvements.

“It will also give employers the flexibility to decide how best to reward staff. For example, by allowing companies to make pension contributions related to length of service, or introduce improved performance-related pay systems.”

Cridland urged the government as a next step to introduce a level-playing field on pension provision between private and public sector providers.

Unions reacted angrily to the announcement, however.

Dave Prentis, general secretary of Unison, said: "This is another attack on mainly low-paid women workers. The two-tier code is essential to stop companies that are in the process of bidding for public sector contracts, competing on how low they can pay their staff.

"Even companies that bid for these contracts are privately worried that this will result in a race to the bottom in pay and conditions."

Prentis also argued that without an enforcement mechanism, the Principles would remain just “wishful thinking”.

The Cabinet Office has been at the forefront of a number of coalition government initiatives to open up government procurement. These include an aspiration to award 25% of government contracts to SMEs and the publication last week of a Green Paper on modernising commissioning.