A report from the government's favourite think tank, the Institute for Public Policy Research has warned that public-private partnerships are unlikely to gain public support while cost improvements are gained from "cutting of terms and conditions of low-paid public service staff rather than through genuine productivity improvements."
The issue of unequal pay in relation to public service contracts with the private sector is creating a two-tier labour market and putting the government's public sector agenda at risk, according to the report.
The issue of the two-tier workforce arises when new staff in a private company providing public services receive worse terms and conditions than existing staff who have transferred from the public sector (ex-public sector’s staff pay and conditions are protected under legislation known as TUPE).
The IPPR called on the Government to extend to Whitehall the agreement it has made for local government, which ensures that pay and conditions for new staff are overall "no less favourable" to those transferred from the public sector.
While the IPPR claims that this would end the incentive for firms to undercut rivals by cutting terms and conditions, it does not meet union demands that private sector workers should maintain exactly the same terms and conditions as public sector workers providing the same service.
"PPPs can result in high quality services and cost savings for the taxpayer," said the IPPR's Paul Maltby. "However, these cost savings should not, and need not, flow from the pockets of already low-paid workers.
"The two-year delay in resolving the two-tier workforce issue in local government has severely damaged the PPP debate," he went on.
"Any further government delays in providing a solution across central government could jeopardise private sector involvement in public services and ultimately risk the Government’s public service reform agenda."
The report comes as union attacks on public-private partnership schemes intensify during this week's Trades Union Congress. The CBI has already said that moves to extend employee protection will harm productivity.