Local authority trading companies provide a model to deliver services under tight financial circumstances, says Paul Bell, UNISON’s national officer for local government. But at what cost to workers and local economies?
UNISON recently launched a major report into local authority trading companies (LATCs) which showed that, while some have delivered much-needed revenues for hard-up councils, major risks to the workforce have also emerged.
The Trading Places study shows that more than half of large LATCs do not adhere to standard council pay scales, resulting in significant disparities between their employees and staff directly employed by councils. This practice has created a two-tier workforce, with LATC employees now often receiving lower pay and inferior pensions.
So, it is no surprise to report that the rising use of LATCs across local government also raises potentially complex legal issues regarding equal pay.
We all know that local government is underfunded. As one approach to addressing this, many councils have set up LATCs to reduce costs and to trade using the ‘Teckal’ exemption, which allows council-owned firms to be exempt from strict public procurement rules.
But reducing costs at LATCs has often meant reducing employees' pay, pensions and terms and conditions. This is a major concern for our members, but it should also worry a local authority sector facing recruitment and retention problems.
UNISON’s research, undertaken by the Labour Research Department, also touched upon equal pay: an issue that has returned to haunt local government in recent years. One case of interest was that of Glasgow City Council and Cordia Services LLP, a wholly owned LATC providing catering, facilities management and care services.
The Glasgow case rested on whether the company was an associated employer under the Equality Act 2010. UNISON won the case on appeal at the employment tribunal and then had to defend it at the Court of Session. The higher court agreed that the word ‘company’ in the 2010 Act could include Limited Liability Partnerships. It noted that the Companies Act 2006 allows for different types of company structures and that Cordia Services LLP was considered an associated employer with Glasgow City Council.
In practice, the ruling meant that women working for Cordia were entitled to compare their pay with male employees at Glasgow City Council – and had a legal right to be paid the same as males in equivalent roles at the local authority.
In February 2024, Doug Mullen, a partner at solicitors Anthony Collins, warned that local authorities and their advisers sometimes assume they can easily adopt a different set of terms at a LATC to those applied by the local authority. But Mullen added: ‘Whilst it may sometimes be permissible to have different terms in the LATC and the local authority, this will need careful consideration and justification.’
In response, CIPFA has issued new guidance to councils on LATC governance arrangements. This is designed to ensure councils maintain robust governance practices and uphold equal pay standards within their trading companies.
CIPFA’s analysis states: ‘In recent years, the potential risk associated with local authority trading companies and joint ventures has increased. Nothing is risk-free, but it is important to learn lessons from others and access support.’
Many LATCs have eschewed council-negotiated pay scales and collective agreements such as the National Joint Council for England, Wales and Northern Ireland or the Scottish Joint Council. This has also led to a two-tier workforce within LATCs, because new staff can be – and often are – employed on less favourable terms than those transferred under TUPE regulations.
In other words, employees doing the same job for the same trading company are not receiving the same pay or benefits. For instance, less than half of large LATCs surveyed by UNISON provide all their employees with access to the Local Government Pension Scheme (LGPS). Disappointingly, the majority restrict LGPS access to TUPE workers.
Pensions represent a significant area of disparity. A common alternative to the LGPS, defined contribution schemes, offer lower long-term benefits but are becoming increasingly prevalent. This shift creates significant long-term financial insecurity for workers at a time when local government must confront staffing crises.
UNISON understands the tough financial situation facing UK councils. Trading companies provide authorities with a model to deliver services under tight financial circumstances – but at what cost to workers and local economies? The fragmentation of pay and conditions, reduced access to the LGPS, and introduction of two-tier workforces have all contributed to significant inequities.
Understanding the positives and negatives involved in using LATCs is crucial for local decision-makers and elected representatives. UNISON believes that reversing the trend of all outsourcing (including LATCs) and reintegrating services under direct council control offers the most sustainable solution for protecting services, communities and the workers who serve them.