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Baroness Hanham moved Amendment No. 210:

The noble Baroness said: Clause 102 and, to a lesser extent, Clause 103 are designed to give effect to the revised statutory guidance on best value and performance improvement, Annex D of which is a code of practice on workforce matters and local authority contracts. Basically, these elements of the Bill, along with the guidance, seek to require local authorities to build their standard terms and

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conditions of employment into the specification for every tender for a service contract, and to treat the contract as if TUPE applied, whether or not in reality it does so.

While Clause 102(1)(b) requires only that local authorities should have regard to the new best value guidance, Clause 102(1)(a) requires them to comply with directions given by the Secretary of State, referred to in the Bill as "the appropriate person". Presumably those directions could be designed to ensure that local authorities comply with the requirements of the code, including building in standard local authority terms and conditions of employment. Such a direction would mean in effect the end of any market-force pressure on a contract because wage rates and terms and conditions would become standardised at current local authority rates.

The question here, therefore, is what the Government intend to do if Clause 102 were accepted. Under the 1981 TUPE regulations, whether or not current terms and conditions are transferred to the successful contractor depends on a detailed analysis of the facts to determine whether the business in question retains its identity after transfer. For example: have tangible assets such as buildings, plant and equipment been transferred; have the majority of employees have been taken over; have clients been transferred; and what is the degree of similarity between activities carried out before or after transfer? Thus, under the regulations, sometimes a transfer takes place and sometimes it does not.

As presently structured, Clause 102 provides that the Secretary of State could direct that there should be a transfer—indeed, he might always do so. As a consequence there would always be a transfer when a local authority contracts out, thus undermining the rationale and reducing the benefits of competitor contracting.

The amendment would also remove the possibility of the Secretary of State directing that contractors should provide a broadly comparable pension to that provided by local authorities. It is not clear why such a direction might be needed since already there is scope for some changes to be made by amending the TUPE regulations. However, any such considerations would need to be subject to detailed consultation because the whole area of pensions has become such a minefield.

Until now there has been no need for direction on either of these matters and local authorities do not believe that there is any need for or any argument in favour of interference in the labour market. I beg to move.

Baroness Hamwee: My Amendment No. 210ZA is in this group.

Clause 102(6)(b) provides for the directions or guidance issued to be,

    "different for different cases or authorities".

We have addressed previously the extent to which it is proper for differences to be recognised.

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Authorities of different descriptions—which I understand to mean unitary, county, district or parish authorities—are one thing; but different "cases", different authorities in the same category, seems to be quite another. My amendment states that, in so far as there are differences, that will be the case only,

    "to the extent that differences are required and without distinguishing between cases or authorities in the same category.

4.15 p.m.

The Minister of State, Office of the Deputy Prime Minister (Lord Rooker): Amendment No. 210 would render Clauses 102 and 103 unworkable. The amendment appears innocuous, seeking as it does to remove the ability of the appropriate person—whether this be the Secretary of State in England, the National Assembly for Wales, or Scottish Ministers—to issue "directions" to require best value authorities, in contracting with other persons for the provision of services or in circumstances where a contracted-out service is brought back into the public sector on the termination of a contract, to deal with staff transfer matters (employment or pensions) in accordance with any directions made. In the absence of any power to issue directions—which would be the effect of the amendment—Clause 102 would be reliant on the guidance power set out at Clause 102(1)(b).

Clauses 102 and 103 have resulted from the review of best value which was established to find ways to improve the quality of local services while ensuring fair treatment for employees working on local authority contracts. As part of a package of workforce measures following the review of best value, the Government committed to legislate to make statutory within local government the provisions in the Cabinet Office Statement of Practice on Staff Transfers in the Public Sector and the annex to it, A Fair Deal for Staff Pensions. This will ensure that local government contracting exercises, including re-tendering, are conducted on the basis that "TUPE" should apply unless there are genuinely exceptional reasons for it not to.

It will also make clear that local authority transferees will be offered either ongoing access to the local government pension scheme or access to a broadly comparable scheme provided by the contractor. The direction-making power is needed to deliver the commitment that we have made.

The amendment, in taking the teeth out of the provision, would effectively mean that there would continue to be a risk of cases arising where local authorities transfer staff to the private sector without the application of TUPE or the provision of a good-quality pension scheme. It would mean that good contractors with high employment standards could be undercut by those willing to abuse the system. That has been the story of the ages. The sweatshops will always undercut the good employer. That is why fair wages and rules on fairness are necessary. The guidance, on its own, is not an effective substitute for directions and could not achieve the same effect.

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Clauses 102 and 103 as drafted will ensure that when best value authorities select private or voluntary sector partners it will be on the basis of their ability to deliver high-quality services. It will not be on the basis of contractors being able to undercut quality providers, cutting costs through driving down staff terms and conditions. It will also remove the fear of transfer for those employees affected by local authority outsourcing and provide them with the same level of protection that is currently enjoyed by those working in central government and its agencies.

Amendment No. 210ZA relates to Clause 102(6) which requires best value authorities in England and Wales, or relevant authorities in Scotland, when engaging in contracting-out exercises, to deal with staff matters in accordance with directions.

The amendment seeks to ensure that if different directions are issued for different cases or authorities, the differences are restricted to those required and should not distinguish between cases or authorities in the same category.

The aim of Clause 102(6)(b) is to allow for different directions to be issued to different types of best value authorities. Best value authorities are a heterogeneous group, covering a range of general purpose councils from the very large to the small. They also include a variety of single-purpose authorities, such as police, parks authorities and waste disposal authorities. For directions to be workable, they need to be tailored to the particular circumstances.

The use of this power will, of course, be subject to the usual requirement of administrative law that the powers conferred must be exercised reasonably and not for some improper purpose. We intend to comply with those normal constraints and certainly do not intend to use the powers in a discriminatory manner. But restricting differences to what is "required", and without any definition of that term, might potentially prevent sensible changes to take account of local circumstances. In particular, it might prevent differences being made that all are agreed are beneficial but which are not strictly necessary.

There is no ulterior motive in drafting the clause in this way. As I have stated, it carries out a commitment that the Government made following consultation on the Cabinet papers. In view of the explanations offered, I hope that the noble Baronesses will not press their respective amendments.

Baroness Hamwee: I am sure that the Minister understands that we are seeking not to challenge the good faith of current Ministers but to make the discretion as tight as it should be. I take his point about administrative law requiring reasonableness but, clearly, I cannot pursue that further today. I still have an uneasy feeling that we have a duty to pin things down as much as we can but that we have not been very successful in that regard today. I take his comments on board.

Baroness Hanham: I was fascinated by the Minister's response because he did not deal at all with one of the main points that I raised; that is, the whole

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question of how local authorities undertake competitive tendering under those circumstances. Seventy-five per cent of the costs of any business involved in local authority work are, by and large, staff related. There will be no possibility, if every contract must be tendered under local authority terms and conditions, that local authorities will be able to get any meaningful reductions in their expenditure.

The Minister also suggested that a contract that was not carried out under TUPE led to a lack of quality and service. I should be glad to see any written evidence that he has on that rather than anecdotal evidence. The experience of those of us who have had anything to do with competitive tendering is that, by and large, the service improves dramatically and the staff, by and large, also do so, even if they are transferred without TUPE conditions.

In this context, we have a sledgehammer to crack a nut. The situation has not, so far as I am aware, been badly abused. The TUPE regulations have applied since 1981 and competitive tendering in local authorities and the health service has taken place since then. It is curious at this stage that some commitments have been made that no one appears to be very clear about to alter the whole theory on TUPE—that is, that it sometimes applies under certain circumstances and sometimes does not.

Pensions is another fraught area. Before any direction was given by the Secretary of State in this regard, we should be clear that far more consultation than is envisaged in the Bill is necessary. As we all know, a pension is the one thing that people are most concerned about, apart from having a job to continue in. Their pension is of particular concern to them. There should be far more consultation on and discussion about that than appears possible under the Bill, under which the Secretary of State will simply give some directions.

We will return to this issue. The whole question of the code of practice is a concern.

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