Council trading companies have led to the creation of a two-tier workforce as their employees are paid less and receive inferior pensions than town hall staff, according to UNISON.

A new study by the trade union found that 62% of UK councils own at least one local authority trading company (LATC) with over 850 operating throughout the country.

Collectively, LATCs employ 4.6% of the local government workforce. Over half of the LATCs are property holding or investment vehicles and so don’t employ people.

UNISON’s report, titled Trading Places: Local authority trading companies and their impact on staff, found that nearly 90% – just short of 80,000 – of these workers are employed by 105 large LATC employers, defined as companies that employ more than 200 workers.

Of the 42 LATCs that responded to freedom of information requests from the trade union with information on pay, more than half reported they do not follow standard council pay scales.

Over half of the 77 LATC employers that responded with information on pensions also do not use the Local Government Pension Scheme (LGPS) or just have it for TUPE’d workers.

UNISON head of local government Mike Short said: ‘During the austerity era, it was no surprise to see councils establishing trading companies to provide vital local services or generate income.

‘But with central government now placing greater emphasis on social value in procurement and making work pay, councils shouldn’t be using trading companies to slash staffing costs.

‘The Government should review the scale and usage of local authority trading companies so the benefits to councils are not at the expense of workers and their communities.’