THOUSANDS of workers at council-owned firms are part of a two-tier system as they receive lower pay and less favourable pensions compared to town hall staff, Unison warned yesterday.

Research by the union found that 62 per cent of councils own at least one local authority trading company, which provide services such as waste management, social care and investment projects like commercial property rentals.

Councils have established more than 850 of these firms, which employ about one in 20 of those in the local government workforce.

But Unison warns that staff employed by the trading companies are not guaranteed pay deals in line with nationally negotiated agreements.

It said that more than half of large local authority trading companies that responded to freedom of information requests do not follow standard council pay scales.

In one example, Independence Matters, a service owed by Norfolk County Council  that provides support for adults with learning disabilities and complex needs, failed to give a full local government pay rise awarded elsewhere, leaving staff £500 short.

Unison’s research also found that firms often offer poorer pension packages than the standard Local Government Pension Scheme. 

Mike Short, Unison head of local government, 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.”

The Local Government Association has been contacted for comment.