Treasure – incentivising practice change and capacity building

Lever 5: Expanding conditionality or linkage

Evidence

Governments can use market power through their purchases of goods and services to pursue social policy objectives.[53] This can include labour clauses – that is, what government sees as good practice in relation to workers. Through public procurement and contracting, businesses are provided with an economic incentive (the desire to win public contracts) to comply with labour clauses.[54]

Different terms are used for this particular use of governments’ market power. Conditionality – the awarding of a contract subject to meeting qualifying conditions – is most commonly used, though McCrudden[55] argues that ‘linkage’ is a better term to signal a broader approach that might include things like qualification/eligibility of contractors. One advantage of the term ‘linkage’ is that it highlights not just the economic incentive of conditionality but also how contracting can more widely signal what is valued across workplace practice.

Labour clauses are not new. The ILO adopted Convention 94 in 1949 to encourage the extension of collectively agreed pay rates or otherwise regulated pay rates for workers hired in contracting companies. Some have argued that public procurement has recently been re-discovered as a lever for promoting higher labour standards[56] and there is some evidence of greater responsiveness to labour clauses in many countries.[57]

Conditionality is a common approach of governments in other policy areas.

The rights of individuals to many social benefits (eg unemployment benefits) are often conditional on either category (for example, being a citizen of a certain age), circumstance (such as being unemployed) or conduct (as in actively seeking work).[58] The overarching rationale for conditionality is that public money should be spent for the common good.[59]

Yet there are tensions between the different roles of government - supporting labour standards but also delivering value for money as the custodian of public finances - that impact on the adoption and operation of conditionality in public contracting. The European Trade Union Confederation (ETUC)[60] has argued recently that a consequence of the EU’s financial rules on public procurement is that – on the EU’s own data - half of all public contracts to private companies are awarded solely on the criteria of price,[61] incentivising companies to avoid high labour standards and generating ‘social dumping’ to the detriment of workers and responsible employers.

In 2021, labour clauses were for the first time included in the regulation of the EU’s Common Agricultural Policy subsidies.[62] Farmers who fail to adhere to basic labour standards will risk a reduction in their CAP subsidies. While Member States are to define precise rules, establish labour inspections and enforcement mechanisms, this focus on transparent employment conditions, providing contracts and ensuring health and safety of workers is considered the most innovative aspect of the new regulatory framework.

Noting the development above, the ETUC argue that the same approach should apply to the entire EU budget. Public funds (at EU or national level) deployed in support of European industry around net zero and just transition should also be conditional on respecting workers’ rights and collective agreements (consistent with the EU’s commitment to 80% collective bargaining coverage) as well as investing in better working conditions, reskilling and high-quality apprenticeships. Contracting rules, they argue, should also be underpinned by effective oversight by social partners and effective sanctions.

Understanding how conditionality/linkage acts (or might act) as a lever to effect change is hampered by the lack of research on its operation or effects.[63] The limited research base does, however, contain some useful insights, and three useful examples are outlined below.

Australian state-level governments require all businesses who supply government to comply with employment-related legislative obligations and adherence to industry-specific codes of best practice. Yet this still leaves scope for labour protections to be de-prioritised or ignored by administrators driven more by securing best value for money.[64]

To address this risk, a more innovative approach has been adopted in the Victorian Government Schools Contract Cleaning Program.[65] First, a wide range of stakeholders are involved in the design and administration of the system. Second, businesses are subjected to a pre-qualification process administered by a tripartite committee of stakeholders to become eligible contractors. Third, labour standards are the core criterion against which eligible contractors are assessed. While there have been no comprehensive evaluations of the Program’s outcomes and effectiveness, it offers useful insights as to the direct engagement of a wider range of stakeholders in procurement conditionality.

Our second example is a cross-national study of socially responsible procurement to address low wages and precarious work by local government in Denmark, Germany and the UK.[66] Core to all three examples is the importance of pragmatic alliances of progressive politicians, unions and employers to drive socially responsible procurement. The researchers found that labour clauses can compensate for weak labour market regulation (such as in the UK) by setting higher standards for outsourced workers and can complement more regulated labour markets by bringing a wider group of workers under the umbrella of collectively agreed standards. This research identified key challenges for conditionality in procurement:

Notwithstanding these challenges, the research shows the significance of deliberate political choices to support labour standards, and the importance of examples like the three cases in encouraging other public authorities to adopt labour clause conditionality. The research concludes that “… all three initiatives make a difference compared to the status quo ante”[68] in terms of improving pay and working conditions for workers at risk of precarity.

The third example highlights the approach of Nantes Metropole[69] (an intercommunal administrative structure in France) to improve job quality and inclusion through a mix of procurement conditionality and corporate social responsibility (CSR). The Metropole works with a CSR network of employers, trade unions and third sector organisations facilitated by the local Chambers of Commerce to inform members of the value of CSR and good quality jobs and the relationship between CSR and productivity. The particular focus on the responsibility of business to provide good quality jobs has led to local banks providing specific loans for entrepreneurs with social strategies, an intervention that has had an influence on the lending criteria used by the French national banks.

Procurement conditionality is applied to sectors that work regularly with the Metropole, but crucially insights from the implementation of conditionality are shared more broadly. The Metropole technical support team develop social clauses for procurement and provide training and support to other local employers not engaged in the procurement process. The conditionality factors in the procurement process are not static and the Metropole has pushed the boundaries of conditionality to include qualitative aspects of work.

Potential to improve fair work adoption

There has been limited evaluation of conditionality in Scotland, and initiatives like Fair Work First are too recent to have been robustly evaluated, though such evaluation is planned. Yet

looking across the research evidence, there is potential for greater linkage of public contracting and public spending more widely to fair work practices. As the ETUC[70] argue implicitly, not linking public spending to higher labour standards means in practice sustaining poorer labour standards. This has implications for how the Scottish Government might approach all spending.

Public spending in Scotland in 2022-23 is estimated at £106.6 billion, providing a powerful lever to shape the behaviour of those businesses in receipt of public funding or contracting with the public sector. The Scottish Government’s Fair Work First policy is an example of conditionality currently in operation in public procurement and applies to public contracts and government grants to support seven key fair work practices.

The current research cannot address all Scottish Government spending. However, there are policy areas in which further conditionality might be applied. One example is the Small Business Bonus Scheme (SBBS). There is currently no conditionality attached to the SBBS, only eligibility criteria. The Scheme offers non-domestic rates relief where the combined rateable value of all business premises is £35,000 or less, the rateable values of individual premises are £20,000 or less and the property is actively occupied. A sliding scale of rates relief is offered with a maximum relief of up to £12,000.[71]

It is not clear what the significant investment in the SBBS (£279m in 2020) delivers in terms of outcomes. Evaluation[72] found no empirical evidence that the Scheme delivers improved business outcomes (though businesses themselves believe that it does) and highlighted limitations with the data collected on businesses in SBBS that make it difficult to identify any employment-related benefits that arise from the scheme. Further, the evaluation found significant differences in size and other attributes like turnover between businesses with similar rateable values, suggesting different levels of need for business support and that the SBBS is not well targeted. The evaluation found that receipt of the Bonus had only a marginal impact on payment of the rLW.

While the SBBS is a significant government spend, it is eclipsed by total public spending in Scotland, and there is no reason why – given the commitment of the Scottish Government – all public spending should not be oriented towards fair work. Without a clear understanding of whether every pound public spending embeds fair work, there remains a risk that public spending contributes to the embedding of poor work. Beyond conditionality, therefore, there is merit in auditing all public spending for its fair work impact.

Dependencies and constraints

There is a need for further analysis of the composition of businesses (rather than business properties) to explore whether there is potential to make the SBBS conditional on delivering some aspects of fair work, for example, payment of the rLW, avoidance of zero hours contracts and access to living hours. At present, it is difficult on the available data to understand what the payment of the Small Business Bonus delivers for government and society, or indeed what might be the impact of attaching conditionality to the scheme.

Locus and reach

Attaching conditionality to the SBBS focusses only on small businesses. Fair work proofing all Scottish Government spending by attaching fair work conditionality addresses a much wider range of businesses and organisations and has extensive reach.

Lever 5 Insight: There is potential value in Scottish Government exploring specifically the acceptability, legality and potential costs and benefits associated with a range of additional conditionality/linkage approaches that might link the allocation of Scottish Government spending/funding to specified action(s) on fair work, beyond the current practice.

Lever 6: Strategic jointly funded investments in fair work capacity and capability in employers’ organisations, trade unions and key third sector organisations

Evidence

Joint capacity investments (JCI) can enhance the competency and resource of organisations involved in collaborative activities that contribute to the achievement of social policy goals, such as employers’ organisations, third sector organisations and trade unions. Sharing these investment (between the Scottish Government and the relevant stakeholders) not only improves the capacity available to these organisations but binds them more closely to the purpose of the investment.

There are examples of such investment in Scotland. Scottish Government has provided financial support to the STUC for union-led learning (since 2000 from the then Scottish Executive) as a route to supporting skills policy objectives, particularly in engaging non-traditional learners in the workplace. The initial purpose of the funding was to support unions to identify and address the skills needs of their members, now delivered through a Learning Fund. In addition, a Development Fund is used to develop the capacity within unions to facilitate learning, engage with employers and other partners and leverage further investment in skills and innovation in the workplace. Capacity investment in union learning has been further enhanced in 2023/24 with investment to focus on developing leadership and promoting equalities in trade unions.[73] Evaluations of the Scottish Union Learning Fund,[74] and of previous union learning funds in England and Wales,

Similarly, the Scottish Government supports employers’ organisations financially to develop new initiatives, including funding for SCDI’s productivity clubs and for Chambers of Commerce to deliver programmes like Developing the Young Workforce. Successive Programmes for Government signal the investments made by the Scottish Government in both capacity for and delivery by employers’ organisations.

Potential to improve fair work adoption and practice

The Scottish Government recognises the importance of collaboration with economic stakeholders and civil society in achieving its policy objectives. Yet many such organisations struggle to find the resources and time to engage with policymakers.[75] To create an optimal and sustainable model of collaboration on fair work, however, there needs to be targeted investment in the capacity and capability of these stakeholders. Joint investment - by the Scottish Government and the recipient organisation – could both signal and embed a commitment to driving fair work.

Capacity investment in key organisations in Scotland could support key employers, unions and third sector organisations in sharing, using and developing their expertise to support the delivery of fair work. All three types of stakeholder face challenges in their overall capacity. The difficulties this brings is highlighted in recent research into fair work in Scotland’s third sector. [76] While there is strong evidence of some fair work practices in third sector workplaces, there is also evidence of a lack of systematic understanding of some fair work issues, for example, around individual and collective voice mechanisms, that might be addressed through the development of greater fair work capacity and capability in the sector.

The research referred to above identified a high level of willingness within third sector organisations to engage more deeply with fair work, and steps have already been taken to begin the development of an open-access evidence base produced by SCVO that may provide a useful platform through which data and insights on fair work in the third sector can be shared. The Civil Society Commission (2023) made a similar recommendation for a Civil Society Evidence Organisation (CSEVO) in Scotland. Any investment in capacity to develop a fair work evidence infrastructure is likely to expand the adoption of fair work policies and practices in third sector organisations.

Other capacity investments have focused on specific dimensions of fair work and/or sectors, including support for the role of a Fair Work Apprentice Co-ordinator (FWAC) for the construction sector from 2018. The FWAC visits apprentices in colleges and workplaces across Scotland to promote fair work and union membership while also addressing any issues raised in collaboration with the Scottish Government. The Co-ordinator has reported that working directly with apprentices addresses a gap where young workers’ voices are absent in Scottish workplaces and identifies issues that could otherwise have long-lasting negative impacts (e.g., the difficulties faced by apprentices in completing final skills tests during and beyond the Covid19 pandemic).[77]

The Scottish Government has invested in capacity in employers’ organisations in a variety of different ways, for example, funding for SCDI’s productivity clubs and for Chambers of Commerce to develop programmes to support young workforces.

Ownership of lever

Given the need for financial investment to build and support capacity, and the argument for joint investment to build commitment to fair work, this lever is owned primarily by the Scottish Government but also by organisations who will jointly invest in fair work capacity and capability.

Dependencies and constraints

Across a range of economic and social policy processes in Scotland, employers’ organisations, trade unions and third sector organisations are regularly invited but not resourced to participate. A key dependency in targeted capacity investment is the availability of funding, alongside the indirect costs within Scottish Government of managing, monitoring and evaluating capacity investment. Another crucial dependency is the availability of joint funding within these key stakeholder organisations.

Locus and reach

Given constraints on public and other funding, this lever will require strategic targeting on recipient organisations with reach across the private and third sector and across trade unions. This is likely to focus on key anchor or membership organisations with significant reach across their membership, for example, the larger employers’ organisations, trade federations, STUC and organisations such as SCVO. Building capacity in these key organisations has the potential to further embed fair work and to create an important ripple effect across Scotland’s workplaces.

Lever 6 Insight: Developing fair work capability and capacity requires upfront investment in key organisations to drive change. Given current financial constraints affecting the Scottish Government and beyond, there is significant potential to design, develop and evaluate a programme of strategic investment to support the development of specialist capability in fair work delivery.