The Cabinet Office has abolished regulations that say charities taking over public service delivery from councils should give new staff equivalent employment conditions to staff that have transferred from a local authority.
The "two tier code" was set up to prevent charities and other organisations that deliver public services from hiring new staff whose working conditions, including pay, working hours and pensions, would be worse than those of their colleagues who had previously worked for the council.
But in a statement released yesterday, Francis Maude, Minister for the Cabinet Office, said: "The code did little to protect staff, while deterring responsible employers from delivering public service contracts.
"We should not be making it more difficult for small businesses and voluntary organisations to succeed in the public service market."
A Cabinet Office spokesman said the code had been withdrawn with immediate effect. He said the change would not affect the Transfer of Undertakings (Protection of Employment) Regulations, which apply to staff transferred from councils.
Peter Kyle, deputy head of the chief executives body Acevo, said he hoped the announcement was a step towards removing other pensions burdens on the sector, such as the Treasury’s "fair deal" guidance. This says any public sector staff taken on as part of a contract must continue to receive the same level of pension provision as before.
"Pension costs are a clear challenge to the third sector extending its areas of business, yet people in the sector don’t seem to grasp the extent of the issue," said Kyle.