Labour plans to offer government contracts to smaller organisations

Labour will mount an assault on big outsourcing companies if it wins the election, reducing their role in delivering the government’s back-to-work programme and exploring a plan to force them to pay all workers more than the minimum wage in exchange for Whitehall contracts.

The proposals are the latest plank in the party’s drive to end “business as usual” in the corporate world, and follow pledges to introduce an energy price freeze, rent controls, a mansion tax and a tighter cap on pension charges.

The role of big providers such as Serco and G4S in delivering services for central and local government has grown under the coalition . Margaret Hodge, chair of the public accounts committee, estimates that half of all public spending on goods and services goes to private providers.

Public confidence in the sector has taken a hit in recent years after G4S and Serco were forced to pay back hundreds of millions of pounds to the government because they inflated bills for the electronic tagging of criminals. G4S also failed to recruit enough security guards for the London Olympics in 2012, forcing the army to step in.

In an interview with the Financial Times, Rachel Reeves, Labour’s shadow work and pensions secretary, said the Work Programme – which pays providers based on how many people they get off benefits and into jobs – had failed to help the most disadvantaged.

She revealed the Labour party would do away with the current system of big centrally commissioned contracts when the current tranche expired in 2015-16. Instead services would be bought at a more local level, perhaps by local authorities or local enterprise partnerships. She said that they would understand the specific barriers to work that people in their areas face and would already have strong links with local businesses.

Asked if big corporate providers should be worried by the changes, she said: “Well, yes. I think we are going to challenge the status quo.”

The structure of the Work Programme favours big companies able to provide the upfront investment necessary for a scheme which pays only on the basis of results. By splitting the programme into smaller contracts, Labour would get around this problem, Ms Reeves said.

She added: “I would expect smaller charities and businesses to be able to get these contracts.”

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