Secret memo reveals block on NHS deals

THE DRIVE to bring private contractors into the National Health Service has been halted by the Government because of concerns over the implications of a European directive, according to a confidential internal minute.

A group of senior lawyers, chaired by the deputy Treasury solicitor, has been told that the Department of Health ordered a general moratorium on the process of 'market testing'. The policy is part of the Government's attempt to ensure that private companies supply as many public services as possible.

Ministers have insisted that European law would make little difference to 'contractorisation', but the minute betrays concern. Ministers have set up a group of legal experts to monitor and advise on developments. It is known as the Tupe group, from the law in question - Transfer of Undertakings (Protection of Employment).

Government critics argue that recent interpretations of the 1977 Acquired Rights Directive and belated provisions in the Trade Union Reform and Employment Rights Bill, currently in committee stage at the Commons, will prevent contractors imposing lower pay and inferior conditions on former public sector workers they employ. This would limit the contractors' ability to undercut 'in-house' services, it is believed.

The Government is concerned over two cases that could lead to judicial reviews. One concerns a contract awarded to Gardner Merchant, which undercut an in-house bid by pounds 65,000, to supply meals at the University of Wales hospital in Cardiff and two smaller institutions. The second concerns Fyfe council's cleaning service in Scotland.

Roger Poole, assistant general secretary of the public employees' union Nupe, said the moratorium meant that private contractors bidding to run services would have to compete on quality, not on cost. 'Although we don't agree with competitive tendering or market testing, the new circumstances will mean that in-house bids will win in the vast majority of cases.'