Chapter 7 - Economic and industry issues

Chapter 7

Economic and industrial issues

7.1 Introduction

This chapter sets out the work of the General Council on economic and industrial issues. Over the past year the TUC has been an active participant in the economic debate, intervening in particular on labour market developments and on interest rate decisions. The General Council have drawn attention to the two-speed economy and the particular difficulties faced by manufacturing industry because of the high value of the pound. Public sector issues have also been an important area of work and close contact has been maintained with unions on issues such as best value, public spending and pay. This section also contains a statement from the General Council on the Public Finance Initiative.

7.2 1999 Budget

The TUC's Budget campaign focused on making further progress towards full employment while strengthening the industrial base, taking into account Resolution 30 of the 1998 Congress.

The Submission argued that while recession would be avoided in 1999, Britain had a two-speed, two-nation economy. The manufacturing sector was in recession and would suffer further major job cuts, while growth would continue in much of the service sector. Moreover, although much of Southern England was close to full employment, unemployment remained very high in the major cities, including London, and in older industrial areas of the Midlands and Northern Britain.

The TUC's Budget priorities for 1999 were a £3 billion regional and labour market investment programme. This would be targeted on housing, urban regeneration, transport and regional development projects, and also used to strengthen and expand the New Deal in areas of high unemployment.

The programme would be paid for by bringing forward some of the Government's planned increases in public investment, including the newly established Capital Modernisation Fund.

The Submission argued that strong public finances allowed all public servants to receive a fair pay settlement, including meeting all Review Body awards in full. The Submission called on the Government to convene discussions with trade unions and employers to put in place a longer-term framework to secure fair pay and high quality public services. Developments on public sector pay and collective bargaining issues are described in more detail below.

The Submission set out a framework for longer-term measures, including developing an active industrial strategy and developing employee share ownership as part of a genuine commitment to participation and partnership in the workplace (see 7.7).

The Submission was published on 4 February and discussed with the Chancellor on 2 March. The TUC also accepted the Chancellor's offer of regular informal briefings from senior Treasury officials on the economy, and a number of meetings have been held.

In addition, also on 2 March, the TUC Pre-Budget Conference was held to discuss the economic and industrial situation and the TUC's Budget priorities. The conference was addressed by economists from the TUC and the CBI, trade union representatives and employers from sectors such as textiles and engineering, and academic and independent experts on the labour market.

The Budget was held on 9 March and, as in previous years, the TUC published an overnight analysis. Overall, the Budget was a skilful balancing act between keeping the door open for interest rate cuts by stressing overall fiscal prudence; maintaining confidence by pointing to the Government's planned increases in spending and future tax cuts; and pursuing the Government's wider welfare to work agenda.

The Budget was billed as a Budget for families, and included improvements for poorer pensioners, improved maternity benefits and improvements to benefits for families with children, including a further increase in real terms for child benefit. The increase in child benefit in particular has been a consistent TUC priority.

The Chancellor also made some welcome reforms to national insurance, in effect increasing the net income of low-paid workers and reducing employer incentives to keep pay low. In particular, there was a first step towards addressing the problem highlighted by the TUC of the 2.5 million, mainly women, workers whose pay is so low that they miss out on national insurance-linked benefits. However, the present proposals still stop well short of the full extension of national insurance coverage to all those in paid work.

The TUC also welcomed the announcement of an extension of New Deal, including the new Employment Credit, to the over 50s and improvements in support for lone parents moving from benefits to work - both are in line with TUC recommendations.

7.3 Economic policy statements

The TUC has campaigned throughout the year for cuts in interest rates to help the manufacturing sector and for additional measures targeted on the regions most likely to be hit by the downturn.

The Budget Submission analysis of the two-speed, two-nation economy has informed much of the work on the TUC's economic and labour market priorities in 1999. In April the TUC published a report which identified those localities most highly dependent on manufacturing employment, pointing out that these were also often already high unemployment areas and areas where the New Deal client groups were highly concentrated. Also in April the TUC published a report highlighting the impact of the downturn on black workers.

In January, May and June the TUC published reports on the state of the economy and the labour market arguing that the Bank of England's Monetary Policy Committee could safely cut interest rates and bring the exchange rate down to a morecompetitive rate. The TUC's consistent view that there were no significant inflationary pressures in the labour market has been proved correct.

In February the TUC's Submission to the House of Lords Treasury Committee on the Bank's Monetary Policy Committee gave an assessment of the new framework for monetary policy. The Submission concluded that overall this had so far been successful: long-term interest rates had fallen and the MPC had started to show that it was prepared to treat an undershoot on the inflation target as seriously as an overshoot.

Against this, however, the TUC expressed concern that the Bank's interest rate decisions had not given sufficient weight to the impact on the export industries. The memorandum suggested that developing the existing contacts between the Bank and the social partners would better inform monetary policy in the future.

In November the General Council endorsed the TUC's response to the report on UK competitiveness prepared by the McKinsey Global Institute. The McKinsey Report argued that the greatest barriers to improving the UK's productivity performance were restrictive land use planning regulations and over regulated product markets. They argued that the superior performance of the US economy was entirely because of the absence of regulation.

This diagnosis was rejected by the General Council. The TUC's report made clear that the USA was no longer the world productivity leader and that much could be learned from the experience of other countries in the EU which enjoyed higher productivity that the UK and the USA. Specific issues addressed in the document included: the nature of the UK's productivity problem; the causes of low productivity (principally the levels of investment, of training and skills and the quality of management); and, why partnership between unions and employers was essential if the UK's overall performance was to be improved. The report also argued that there was no demonstrable link between de-regulated and flexible labour markets and high performance.

In June and July the TUC issued briefings and reports to counter the myths about European labour markets being publicised by `eurosceptic' employers and organisations. These showed that in many respects labour market performance in the social partner economies of Northern and Western Europe was at least as good and in many instances better than the much more de-regulated US and UK labour markets.

7.4 New Deal

The past year has seen the New Deals for young unemployed people, older long-term unemployed people, lone parents and disabled people settled in, and new programmes announced for the partners of unemployed people and unemployed and economically inactive people aged over 50. The New Deal for Communities has begun, and plans to establish Employment Zones have progress towards implementation.

The General Council have continued to support the New Deal, the most significant commitment of resources to unemployed people made in any governmentprogramme in British history. A comparison of the trends in unemployment levels for groups covered by the New Deal for young people and the New Deal for people over 25 with those for groups of unemployed people not eligible for New Deal support shows that the New Deal is having a significant effect, as made clear by the TUC's April report, Measuring the Impact of the New Deal. The latest official New Deal results available as this report was being written show that, up to the end of April, 284,300 young people had entered the New Deal for young people, and 44 per cent of those leaving had gone into sustained unsubsidised jobs. 128,300 had joined the New Deal for people aged 25 plus, of whom 12,520 had gone into sustained subsidised and unsubsidised jobs.

In support of the New Deal, the TUC has produced leaflets for young people obtaining jobs through the programme, encouraging them to join a union, and for existing workers, explaining why unions support the New Deal. After lengthy negotiations, the Employment Service has agreed that these leaflets can be displayed in Jobcentres and supplies are now being distributed to ES managers. The TUC's guide to the New Deal for union officers - Negotiating the New Deal - has been revised, and a new series of regional briefings is being organised to coincide with its re-launch. The Employment Service video for trade unionists, about the advantages of the New Deal, first shown at last year's Congress, has been distributed to every union, and every Jobcentre in the country also has a copy.

In March the TUC published Reinforcing the New Deal, a briefing timed to coincide with this year's Budget, which argued that the New Deal should be supplemented with a regionally focused and time-limited job creation programme. In the past year, special issues of the Welfare Reform series of briefings have covered Employment Zones, the New Deal for communities, the New Deal for disabled people, and the New Deal for people aged over 50. Last year's Congress agreed a resolution on the New Deal and ex-offenders, which called on the General Council to inform employers and unions of the value of offering work opportunities to ex-offenders, and to develop employment opportunities for ex-offenders under the New Deal. In furtherance of these objectives the TUC is supporting `Going Straight to Work', a project by the National Association for the Care and Resettlement of Offenders which seeks to develop good employment practice by major employers. A meeting with Home Office officials to discuss this issue was arranged and a TUC briefing is in preparation.

The TUC has also produced a `New Deal' series of briefings, distributed by fax and e-mail, presenting the latest news about the programme to a union audience. Thirty of these briefings have now been published, and they are also available on the TUC website. In March the TUC collaborated with Training for Life, a voluntary organisation operating in the south-east of England, to encourage active trade unionists to volunteer to act as mentors for New Deal participants. The TUC has also co-ordinated a group of unions representing workers in voluntary organisations to negotiate, with the National Council of Voluntary Organisations, an agreement on New Deal best practice in the voluntary sector; negotiations are continuing, and it is hoped that agreement will be reached before the end of the year.

In April, the TUC responded to the Government's proposed establishment of `Employment Zones'. Employment Zones are areas with persistently high levels of unemployment, where innovative approaches to helping long-term unemployedpeople will be tested. The TUC argued that the proposals have welcome elements, but that they will have less impact than the decision to make participation compulsory. The General Council are opposed to this aspect of Employment Zones, and to the decision that Employment Zones should be delivered by private sector organisations. The TUC has also responded to a consultation on the proposed New Deal 50 plus, arguing for broad criteria for eligibility.

Union influence on the New Deal and other welfare-to-work programmes has increased over the past year. There are now union representatives on nearly all the 144 partnerships responsible for the New Deal at a local level. Bill Morris and Rodney Bickerstaffe have continued to press union concerns as members of the national New Deal Task Force, Richard Exell of the Economic and Social Affairs Department represented the TUC on the Employment Service's national partnership network, and Bill Callaghan served on a working group of the Task Force looking at problems around the retention of New Deal recruits.

7.5 Trade, Labour Standards and Investment

The TUC closely followed the negotiations on the Organisation for Economic Co-operation and Development's failed Multilateral Agreement on Investment and worked with the Trade Union Advisory Council to the OECD (TUAC) to try to ensure that trade union interests, and in particular labour standards, were included as part of the draft treaty.

Following the failure of these negotiations the TUC has worked to inform the UK Government's position on international investment and trade issues. The third Ministerial Meeting of the WTO is to be held in Seattle in December 1999 which is likely to open the way for a new full round of negotiations. These negotiations are likely to include new areas such as Government Procurement, Competition Policy and Investment as well as continuing negotiations on a variety of areas such as the implementation of Trade Related Intellectual Property Rights (TRIPS), services and the Trade Policy Review Mechanism.

In April, the Executive Committee agreed a paper which sets out the main issues for the TUC. A key issue which the TUC is working to address is that of the inclusion of core labour standards. The TUC considers it vital that a new round should look comprehensively at how it will affect developing countries and that adequate assistance is given to help them to prepare for the new round. The environment is also a key issue with the relationship between the WTO agreements and Multi Lateral Environmental Agreements (MEAs) of particular concern. Whilst an agreement on investment could help to simplify the current system (there were 1,513 bilateral treaties in place by the end of 1997) it is vital that an agreement in this area enhances and protect core labour standards and human rights as well as helping to improve the position of developing countries.

The TUC is also arguing for greater openness and access at the WTO for trade unions and other representative civil groups. All UN Agencies, and in particular the ILO, should be given observer status in the WTO before the 3rd Ministerial Meeting in Seattle so that they can attend the meeting and address it on their particular concerns.

The General Secretary has written to the Prime Minister, the Secretary of State for Trade and Industry and the Foreign Secretary highlighting concerns about the Government's position on the link between trade and labour standards and the forthcoming WTO round. A TUC delegation met the Minister for Trade, Brian Wilson, to discuss the Government's position on a range of issues and trade union involvement in the WTO meetings.

The Minister welcomed the TUC input and the DTI is working to set up a system for ensure that the TUC is kept fully informed of progress and issues of concern at Seattle. The link between labour standards and trade was discussed. The Minister emphasised the outcome of the Cologne Summit of the European Council which was signed by the UK Government and stated that:

"Negotiations covering a broad spectrum of topics, including labour standards, environment, development and transparency, are the most appropriate approach for achieving substantial and balanced results for the benefit of all WTO members."

The need to maintain the current audio-visual opt-out from the General Agreement on Trade in Services to protect the cultural sector was discussed (see 7.16). The TUC also discussed the Government's position on issues such as the need for a multilateral framework for investment which avoids repeating the mistakes that were inherent in the failed Multilateral Agreement on Investment.

Bill Brett , of the General Council and Chair of the ILO Workers Group, and Bill Jordan ICFTU General Secretary have, during the year, met several heads of governments of WTO member states including, Prime Ministers Jospin and Rasmussen, Chancellor Schroeder, President Ben Ali of Tunisia, the Managing Director of the IMF, the President of the World Bank and the Director General of the WTO, to press the international trade union position on trade and about standards.

7.6 Millennium bug

Following last year's joint letter from John Monks and the Chief Executive of the Government body, Action 2000, to all 1998 Congress delegates the TUC has continued to work to highlight the importance of this issue for all trade union members. Information was distributed via TUC MAIL, both last year and this year, about areas where problems may arise and what trade unionists can do to address the bug.

The President of the Council, Margaret Beckett, who is the Cabinet minister responsible for action on the millennium bug, met the General Council in May to discuss progress in tackling the bug and the work that trades unions can do to ensure that both unions and employers are ready for the date change at the start of the year 2000. She emphasised the fact that the bug is a potential employment issue as there is the possibility that companies could fail if they have not implemented adequate provisions for dealing with the bug.

A link has been established from the TUC's website to that of the Government body Action 2000 for any union member looking for further information on the Millennium Bug. Information, including information from Action 2000 and draft letters for union officials to send to employers, was sent out in TUC MAIL to assist union members inapproaching employers about this issue.

7.7 Employee share ownership

Work continued in this area following the conference held last year by the TUC which looked at experiences of employee share ownership in the UK and in the US. The General Council then decided to look at this area in more detail and in particular to examine trade unions' experiences of ESOPs and the impact of employee share ownership on productivity.

The TUC issued a questionnaire to trade unions to inform its work in this area. The responses which were received formed the basis of the TUC response to the Treasury Consultation on Employee Share Ownership which was published in December 1998.

The TUC published a report, Share Ownership, Productivity and Company Performance, in February which examined the link between employee share ownership and company performance. The report concluded that on its own share ownership will not improve company performance. Companies which have implemented successful schemes have done so as part of a package which improves employee involvement in the decision-making processes of a company and is part of an improved partnership approach to working.

General Council member Jeannie Drake, represents the TUC on a Government Advisory Group looking at the details of how the introduction of a new scheme, reported in the Budget, could be implemented in practice. This group is looking at two main schemes: an all employee share ownership scheme and an Enterprise Incentive Management Plan. It is expected to report by the end of the summer.

The TUC wrote to the Financial Secretary to the Treasury, Barbara Roche, who is responsible for employee share ownership, to emphasise the importance that the TUC places on a new scheme being fundamentally an all-employee scheme which is genuinely open to all employees in the workplace.

7.8 Corporate governance and stakeholding

Executive pay

The TUC report You scratch my back published in November 1998 revealed that a close knit, highly paid, élite in Britain's top companies are awarding each other massive pay rises. The report analysed more than 300 non-executive director positions, held by some 260 people who sit on remuneration committees in Britain's top 50 companies. The study found that the average non-executive director of an FT top 50 company was a male aged 59. You scratch my back called for the report of the remuneration committee to be put to a vote by shareholders to increase openness and accountability in the area of executive pay.

The TUC has continued to monitor executive pay trends and to engage in dialogue with Government and interested parties on the issue. Following considerable press speculation, in July the Government announced a consultation exercise onexecutive pay which concentrated on proposals to increase shareholder control of directors' remuneration. The TUC welcomed the proposals on shareholder involvement as a first step but said that it would not put an end to excessive executive pay settlements.

The process of setting directors' remuneration will also be discussed as part of the Company Law Review.

Company Law Review

As reported to Congress 1998, in March 1998 the DTI launched a fundamental review of company law. A Steering Group was appointed to manage the process and a Consultative Committee to comment on draft proposals was established. Bill Callaghan, TUC Chief Economist, sits on the Consultative Committee. In January 1999 a number of Working Groups were set up to develop detailed proposals on different aspects of company law. Janet Williamson of the Economic and Social Affairs Department is a member of a Working Group looking at corporate governance issues.

The Review's terms of reference clearly include addressing the needs of stakeholders. The terms are:

"To consider how core company law can be modernised in order to provide a simple, efficient and cost effective framework for carrying out business activity which... protects, through regulation where necessary, the interests of those involved in the enterprise, including shareholders, creditors and employees...".

While other expected reforms such as the European Company Statute will provide further avenues into debate, this review provides the best opportunity for some time to implement far-reaching corporate governance reforms. The General Council are therefore committed to engaging fully in the consultative process set in train by the Review.

In February 1999 the DTI published Modern Company Law for a Competitive Economy - the Strategic Framework, A Consultation Document from the Company Law Review Steering Group. This document analyses a number of key substantive issues, setting out questions on each area for consultation. The areas covered include the purpose of company law and the interests it should serve - or, as it has become known, the `stakeholder question'. It also examines issues relating to the legislative form of implementation and institutional arrangements for ongoing reform. This document was circulated in full at the March Executive meeting.

A meeting of union research and legal officers discussed the TUC draft response in detail in May. The revised document was approved by the June Executive meeting and submitted to the DTI.

The TUC response argued that there was a strong economic and social case for reforming company law to ensure that it operated to protect the interests of key stakeholders in companies, especially employees and suppliers. Under the current system, priority is given to shareholder interests, and this encourages short-termist decision making, weakening economic performance. This is reflected in theallocation of company profits: between 1987 and 1997, dividend growth outstripped investment growth by a ration of nearly 3:1.

The response also argued that far from it being shareholders who bear the greatest risk in companies, it is employees who bear the greatest exposure to risk. This is illustrated by research into the impact of the early 1990s recession oncompanies, which shows that while the effect on employment was considerable, relatively few firms reduced dividend payments.

The response included the following proposals for company law reform:

· a duty should be conferred on directors to have regard to the interests of groups who have a key relationship with a company, including employees

· directors should be required to prioritise the interests of other groups,particular those of employees and suppliers, over those of shareholders where a comparison of the relative costs and benefits to each justifies such a decisions. Weight should be given to the extent of the impact on each group and the closeness of the relationship between the group and the company

· the Steering Committee should commission research into the different options for implementing such an approach

· an option to appoint representative directors should be created

· companies should be required to report regularly on stakeholder relationships and environmental performance. This will require meaningful consultation with employees and stakeholder groups

· directors should be required to protect the interests of employees and suppliers in merger and takeover cases.

The Steering Committee will make recommendations on the stakeholder question in July. The Working Groups will develop proposals for public consultation by the end of the year; these will be drafted to reflect the Steering Committee's decision on stakeholder interests. There will then be a further round of consultation during 2000 culminating in a final report in Spring 2001.

OECD principles on corporate governance

Following the crisis in international financial markets last autumn, the OECD was asked by the G7 to draft a set of international standards and guidelines on corporate governance. The OECD set up a Task Force to take this work forward on which the Trade Union Advisory Committee to the OECD (TUAC) was represented. TUAC asked its affiliates to use their influence with national governments to ensure the final document reflected stakeholder interests rather than focusing narrowly on shareholder interests.

In January 1999, TUC staff held a meeting with DTI officials to discuss the draft OECD Principles. Also in January, the TUC participated in an OECD consultation meeting convened to canvass views of interested in parties in member states on the Principles. The TUC's aim in both these meetings was to strengthen the stakeholder content of the Principles and to ensure that they promoted best practice rather than minimum standards. Agreement was subsequently reached at the Task Group to reflect stakeholder interests in the Principles.

The Principles have now been endorsed at the May 1999 meeting of the Council of Ministers.

7.9 Regulation

The Government's response to the consultation on the Green Paper A Fair Deal for Consumers Modernising the Framework for Utility Regulation referred in Resolution 53 carried by the 1998 Congress set out a progressive set of reforms for industry regulation. Many elements of the reform will require legislation and a bill will be set out, when parliamentary time permits, which will implement the Government's proposals. The TUC will follow the progress of this legislation. As part of the reform process OFFER and OFGAS were merged during the year to form the new Office of Gas and Electricity Markets.

The TUC response to the government consultation on the Small Business Service(SBS) drew attention to the need for the SBS to help small businesses to get access to information and to help them with Government regulations. Improving the quality and coherence of government support for small businesses is necessary to help them to improve their performance and improve the competitiveness of the economy as a whole. Helping small businesses to understand government regulations and how to apply them will also be a key issue for the SBS. The SBS should be a vehicle for promoting excellence and high standards of compliance rather than working to lower standards and promote deregulation.

The TUC responded to a consultation on proposed amendments to the Deregulation and Contracting Out Act 1994. This act enables Ministers to make orders removing or reducing `burdens on business' contained in primary legislation. The TUC response stated that the Act has not proved to be a useful or workable piece of legislation and that amending it should not be a legislative priority for the Government. The emphasis should be on ensuring that primary legislation does not need to be amended to remove or reduce regulatory burdens. Further action from the Government is awaited and will be acted on by the TUC.

7.10 The Post Office

The White Paper on the Post Office was published in July and the key proposal of this is that the Post Office should become a public limited company (plc). Shares will therefore be created but cannot be sold without further primary legislation. This is intended to provide stability for the Post Office.

The Post Office's monopoly on letters will be reduced from £1 to 50p which is a cause of concern as this could result in the Post Office losing revenue. The trade unions with members in the Post Office will continue to lobby on these particular concerns and will be supported by the General Council.

7.11 Private Finance Initiative

In line with the guidance given by the General Council Statement on the Private Finance Initiative (1999) and by Composite 10 and Resolution 54 from the 1998 Congress, the TUC has worked to ensure that those trade unions who want to be engaged in shaping PFI and those who want to oppose PFI deals are all properly heard.

The TUC's principal aim has been to ensure that PFI should not lead to pressure on staff terms and conditions. Work on the reform of TUPE, referred to in Chapter 2 will underpin this goal.

The TUC's second goal has been to ensure that employees and trade unions are fully involved in evaluating tenders and potential contractors. In many cases this access helps unions to build a good relationship with the PFI partner. The 1998 General Council Statement reported that these arrangements were in place in the NHS. In the autumn of 1998, the TUC met Treasury officials on a number of occasions to discuss how similar arrangements could be introduced in the CivilService. These discussions culminated in the publication of Treasury Taskforce Private Finance initiative Policy statement No. 4: Disclosure of Information and Consultation with Staff and Other Interested Parties.

The TUC again consulted unions on the state of play in PFI in the spring of 1999. The responses received formed the basis for a submission to Treasury Committee inquiry on PFI, which was endorsed by the Executive Committee at their June meeting.

Also in June, the Treasury announced that public sector staff who transferred to PFI contractors would have their pensions protected, and that some PFI projects might be approved which did not involve transferring the staff to the PFI contractor.

In July, the General Council adopted the following statement on the Private Finance Initiative.

The General Council Statement on the Private Finance Initiative

1 Introduction

Last year's Congress passed the General Council Statement on the Private Finance Initiative, which called on members to adopt a twin-track approach by opposing PFI deals which were bad public policy or bad for staff, whilst negotiating the best deal possible for trade union members in all cases. Congress also passed motion 54 which called for opposition to PFI.

This statement reviews trade union experience since last year. It notes that we have made considerable advances since the 1998 Congress. The year has seen a number of beneficial changes in public policy which have stemmed from the expression of trade union concerns through campaigns and lobbying.

There is no question but that the public services and infrastructure of our nation continue to suffer from severe underfunding. The community demands more and better public services, as well as major investment in infrastructure projects. A yawning gap remains between the resources currently available and the demand for public services.

The Private Finance Initiative (PFI) has been a key part of the Government's efforts to bridge this gap. The Government intends that PFI should attract more than £13 billion into the public services by 2001/2002 (HMT Budget 1999, Table B16).

Employees and their trade unions continue to have a range of concerns about PFI. There is the responsible concern which is widely felt about the public policy implications of PFI by employees as consumers of public services. There is also the very real concern of those employees who are directly involved in PFI deals that PFI may lead to redundancies, to the reduction of pay and conditions of service, or both. Some of these concerns have been eased by Government actions, others remain.

2 Progress for employees and their trade unions involved in PFI deals

Staff involvement in PFI deals has improved. The first major change after Congresswas the publication of the Treasury PFI Taskforce Policy Statement No. 4, which extendedto government departments the rights for employees and their trade unions to be involved and consulted as part of the PFI process which already existed in the NHS. Many trade unions and their members have readily accepted the deals which have been struck after this consultation process, despite their continuing scepticism about the public policy issues.

Second, the recent proposal by the Chief Secretary to the Treasury, Alan Milburn, that PFI projects might be built using a design, finance and build only (DFB) variant of PFI, without transferring the staff to the PFI contractor, may help to address key trade union concerns about PFI. These concerns are that public services should not be undermined by establishing an artificial split between `front line' staff, such as teachers, clinical and community care staff, and support staff, and that no staff should be transferred to a PFI scheme if the staff involved oppose the transfer. The General Council suggest that all future PFI deals make use of this provision, and that the option to use this form of PFI will be chosen if PFI continues to be used to fund the public services.

Furthermore, the Treasury Guidance Staff Transfers from Central Government: A Fair Deal for Pensions, announced in June, is to be welcomed. These guidelines require PFI contracts to be conditional upon staff being offered `broadly comparable' pension packages by the new employers in a way which should guarantee that employees who transfer to PFI projects are no worse off in terms of their pensions. The assessment of comparability will be guided by a Statement of Practice by the Government Actuary's Department. This protection is also extended to employees who are involved in second generation transfers.

Although trade unions have always negotiated deals with public service contractors, including PFI partners, the negotiations for some early PFI deals were blighted by excessive secrecy. The changes in public policy have made the process more open, leading to greater staff consultation and to more effective scrutiny of potential PFI partners.

The new climate of openness extends to PFI deals which do not involve any transfer of staff. This is beneficial because many of these projects will actually have other forms of direct impact on staff. An example would be a PFI project for the provision of information technology.

In the early stages of consultation, employees and their trade unions can often use their experience to contribute factual information which can be used by the procuring body in preparing the shortlist of PFI partners.

Discussions between trade unions and shortlisted private sector partners have also played a crucial role in fostering longer-term dialogue between trade unions and PFI employers. Consultation has made it easier for trade unions to negotiate the protection of jobs, terms and conditions. Many contractors have become aware that this sort of protection pays real dividends by calming the fears of the workforce about the transfer. Greater certainty about the future of the employees involved in PFI deals leads to greater efficiency in the delivery of public services.

3 Problems outstanding for employees and their trade unions involved in PFI deals

There is an urgent need to ensure that the clear application of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) to PFI deals is achieved. The TUC has called for the revised TUPE regulations also to cover future pension entitlements and all transfers in or out of the public sector, including second round transfers, and new regulations are expected shortly.

Employee protection must be sufficient to ensure that the public sector is only procuring from the best providers. Fair competition needs to be supported by a level playing field. This principle has been clearly acknowledged by the Government and is reflected in the National Minimum Wage, the Treasury Policy Statement on the Private Finance Initiative and the discussions on the local government contract compliance regime, yet there is still a significant gap in the employee protection regime. Up to 1983, contractors were required to meet certain employment conditions by the Fair Wages Resolution. There needs to be a new instrument to ensure that the Government's objective of high quality public services is met by ensuring that employees who are not covered by TUPE are also properly protected.

In any case, the Government should review the operation of staff protection measures in out sourcing, contracting out, Public Private Partnerships and Private Finance Initiative deals early in the next Parliament to ensure that they are sufficiently rigorous.

In terms of employee/ trade union involvement, consultation in local government is effectively blocked by Part II of the 1988 Local Government Act. Although it is unlikely that Part II legally applies to PFI projects, local authorities believe that it does apply, and act accordingly. This effective prohibition is seen to be deeply unfair by local government employees. This is one reason among many why there is an urgent need for a new contract compliance regime in local government.

Unions can often get round the unwillingness of local authorities to play an active part by negotiating directly with the PFI contractor on terms and conditions, where this is possible. However, the exclusion of local authorities from these discussions cannot be considered best public policy practice or best employment practice.

The social partners have reached agreement on their preferred replacement for part II of the 1988 Local Government Act. It is to be hoped that these proposals will be enacted as soon as possible to bring the treatment of local government staff into line with the rest of the public services.

While central government, the NHS, and local government are clearly different bodies, it is important that employees and their trade unions who are involved in PFI deals enjoy the same high-quality consultation and involvement across the public services.

The General Council therefore recommend that the framework recommended by Treasury PFI Taskforce Policy Statement no. 4 should be extended to all PPPs. The Treasury policy statement is not simply best practice for PFI deals but is bestemployment practice. It would not make sense for other forms of PPPs and contracting out to settle for a lower standard. It is clear that public-private partnerships work best where there is a dialogue between the unions and the contractors.

The Government is developing a framework of best employment practice through Better Quality Services and central guidance on TUPE transfers. It would make sense for the Cabinet Office guidance and the Treasury Policy statement to be cross-referenced so that a common set of rules applies to all contracting situations.

4 Public policy concerns

The General Council have noted that the PFI gives rise to a number of public policy concerns. The issues concern value-for-money, the quality of services, strategic planning, risk transferral and democratic accountability, the effect on staff, and the establishment of proper audit conventions for PFI.

The General Council echo the concerns which have been expressed about existing PFI projects by the National Audit Office, the House of Commons Public Accounts Committee, the House of Commons Select Committee on Health, the Chantrey Vellacott DFK Economics Report The Private Finance Initiative - Is It Financially Flawed?, and the UNISON report, Downsizing for the 21st Century, amongst others

We recognise that some of these reports make positive points as well as criticisms of PFI, and that they deal with early examples of PFI, which may be improved upon in future endeavours. However, these early reports certainly do not dispel our public policy concerns.

Indeed, the latest report on the Dartford and Gravesham PFI hospital by the National Audit Office has echoed many of the concerns reported by earlier studies. These concerns are about the difficulty in making real savings through PFI, the length of time that it takes to close projects, and about rising costs and lack of competition in procurement.

5 Alternatives to the Private Finance Initiative

PFI is now delivering a much-needed programme of new hospitals and schools. However, there is no reason to believe that PFI is the only or best way that such facilities can be delivered.

In the light of the doubts raised by the continuing public policy debate, the General Council would make the following proposals:

· the Government should adopt the General Government Financial Deficit (GGFD), which is the accepted European standard for measuring public sector borrowing. The GGFD is fairer to the public sector than the current arrangements because it excludes net borrowing by self-financed public corporations from public sector debt, and treats borrowing for public sector investment on an accruals basis

· the restrictions imposed on public authorities trading commercially should be relaxed. The Treasury Policy and Guidance Note Selling Government Servicesinto Wider Markets already allows Ministry of Defence establishments, for example, to use spare capacity to undertake commercial or civil work. Clause 14 of the Local Government Bill must permit councils to form trading companies and joint ventures

· the General Council believe that the Government should explore the merits of other innovative ways of funding public services besides PFI. The simplest measure would be to allow all public authorities to use a broader range of partnership arrangements to bring in outside expertise and capital without transferring employment to the private sector partner

· a fundamental reform of the local government finance system is needed, including measures to return the business rate to local control.

6 Conclusions

Despite the advances of the past year, there is still considerable scepticism amongst the TUC unions about PFI. The General Council therefore suggest that the Government should:

· continue to fund as much of the public services as possible from government spending

· adopt the GGFD, to allow public institutions to borrow for investment against future revenue

· continuously evaluate PFI in the light of the analysis of reputable commentators, including trade unions

· prefer to use the DFB form of PFI, which does not transfer of staff to the PFI contractor; and

· explore alternative ways of funding public services.

The consultation arrangements for employees and their trade unions which apply to PFI deals made by central government and the NHS are welcome. They need to be extended to cover all PFI deals, and it is particularly urgent that they should be applied to local government.

These rights need to be more firmly supported by better protection for staff in order to ensure that PFI is not undermined by the perverse effects of competition. This protection must include the reform of TUPE and the extension of protection to new staff.

7.12 Modernising government

The Cabinet Office has published the White Paper Modernising Government.

The three aims of the paper are to:

· ensure that policy making is more `joined-up' and strategic

· make sure that public service users, not providers, are the focus of public services; and

· deliver efficient, high-quality public services.

The public sector unions are concerned to ensure that the aims of Modernising Government are realised, but will also need to be sure that the process will be accompanied by rising employment standards in the public services. Unions are also concerned to ensure that the dual role of public sector employees as both providers and consumers of public services is properly recognised.

A meeting is being arranged between senior public sector trade unionists and, the Chief Secretary to the Treasury, to discuss the Modernising Government agenda.

7.13 public sector pay

The awards of the Public Sector Pay Review Bodies for 1999 ranged from 2.8 per cent for top civil servants to 12 per cent for newly qualified nurses, and were paid without staging for the first time in a number of years. Given that inflation is likely to be 2 per cent for 1999/2,000, these awards are likely to prove to be real increases for PRB groups.

However, there was still concern that the growth of public sector earnings was lagging behind the private sector. The Office of National Statistics New Earnings Survey reported that public sector earnings grew by an average of 3.6 per cent between April 1997 and April 1998, whilst average private sector earnings grew by 5.1 per cent.

A report by the Institute of Fiscal Studies, Public Pay in Britain in the 1990s, was widely quoted as evidence that this public sector pay gap did not exist. However, this report only examined data up to 1994.

After the pay review body awards were announced, representatives of the public sector unions met under TUC auspices to discuss public sector pay in general. Affiliates were concerned that the pay rates for public sector occupations had diverged considerably over the previous 20 years. In particular, the remuneration of non-Pay Review Body staff was falling behind, creating a two-tier public sector. Secondly, there is a large group of staff who are employed by private companies which provide public services under CCT and other contractual arrangements. Such staff provide public services but do not appear in statistics on public sector earnings. These groups are disproportionately likely to be in the lower pay tier. The public sector unions' meeting identified a number of issues where the TUC could undertake further work, and a report on public sector pay was endorsed by the February meeting of the Executive Committee.

The public sector unions are concerned about the use of performance-related pay (PRP) and competency-based pay. The Prime Minister has suggested that PRP should be more widely used in the public sector. The proposals for PRP in the teachers' pay scheme were particularly contentious and would lead to organisational problems in schools. It was also feared that the use of PRP wouldbreach equal opportunities legislation and that it would lead to more localised bargaining and the depression of overall pay rates. However, the trade union experience of PRP was quite varied, and in some circumstances it could be popular with members. The TUC is compiling a report on pay systems.

A meeting is being arranged with the Chief Secretary to the Treasury to discuss fair pay, job security and the delivery of high quality public services.

7.14 local government

Best Value

The General Council have continued to be assisted in their work on local government issues during the year by the Best Value Working Party (BVWP). The work undertaken in local government has been in support of resolution 58 of the 1998 Congress.

Open box

Best Value Working Party

(new members during the year are indicated by *, retiring members by ~)

Bill Callaghan, TUC (Chair)

Rob Cathcart, UCATT

David Coats, TUC

Jack Dromey, T&G

Mick Graham, GMB

James Grudgeon, AEEU ~

Martin McGrath, MPO

Paul Sellers, TUC

Keith Sonnet, UNISON ~

Heather Wakefield, UNISON *

Malcolm Wing, UNISON *

Geoff Whitlow, AEEU *

end box

As reported in the 1998 Report, the Government has made a commitment to replace the discredited Compulsory Competitive Tendering (CCT) regime with a duty to obtain Best Value in the provision of local authority services. The TUC has welcomed the passage of the Local Government Bill, which received royal assent in July 1999. However, the TUC recognises that the Bill is largely an enabling measure. For trade unions, the key details of the Best Value system will be in the regulations which support the Bill. These regulations must:

· protect employees and ensure fair competition

· promote successful direct services

· ensure workplace involvement

· support the raising of employment standards whoever employs

· not be overly prescriptive - this was the fatal flaw for CCT

· give local government new financial freedoms.

The Government has said that councils should show no favour towards either direct or contracted service provision in the pursuit of Best Value. Rather, local authorities must take both cost and quality into account in judging the best service provider. The competition element in Best Value needs to be matched by the development of a New Employment Agenda. This new agenda must ensure that competition is fairly applied, and does not act to undermine the jobs, terms and conditions of local authority staff. Second, forBest Value to lead to the best local authority services possible, the new agenda must ensure that local authority staff can make their proper contribution by being fully involved in the process and consulted about service delivery.

Work towards these goals is advancing on a number of fronts. The reform of TUPE will be crucial in protecting staff who transfer between different service providers as a result of Best Value. Second, the reform of the unfair contract compliance regime established by the 1988 Local Government Act, which prohibits local authorities considering `noncommercial matters' when discussing tenders, is also imminent. An extended dialogue has taken place during the year between representatives of the private sector, the Local Government Association and the TUC unions, led by Jack Dromey of the T&G. This has resulted in agreement on the appropriate questions for local authorities to ask potential contractors in the future. The use of these questions will help to ensure that competition is fair. The new questions probe the potential contractor's reputation and intentions in the following areas:

· quality

· training

· health and safety

· gender equality

· equal pay

· race equality

· disability

It will be vital that the outcome of the social partners' discussions is reflected in the Best Value regulations. To that end, the TUC and unions have met local Government Minister Hilary Armstrong and DETR officials on a number of occasions.

Third, the TUC also continued to argue that staff protection would be best ensured by the adoption of a new Fair Wages Resolution which was consistent with EU procurement guidelines.

Protection of local authority staff is the minimum condition for Best Value to work. For Best Value to reach its full potential and achieve the best results, employers must form the kind of high-quality partnership relationship with employees and their trade unions which are reported in the best employers in both public and private sectors (see Chapter 6). In such a relationship, employers gain by having a highly trained, flexible, highly-motivated workforce which is willing to share their valuable ideas on improving services. In return, employees will be fairly paid, highly trained, and have more intrinsic interest in their jobs, as they will be consulted on changes in work methods and will have more control in scheduling their own work.

The Government is running a substantial pilot scheme for best value. The pilots are being monitored by the University of Warwick Business school. Keith Sonnet of UNISON and Mick Graham of the GMB represent the TUC on the Pilot Studies Monitoring Panel.