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Small businesses, social enterprises and charities running public services for local authorities will have to lobby with individual advice if they want to hire staff on wages which differ from their colleagues earned in the public sector.

The Cabinet Office yesterday scrapped a code which determines revenues and benefits of staff join companies supplying the central Government and agency services under contract. Existing staff is generally transferred by virtue of TUPE rules what is called the public service and retain their salaries, pensions and existing benefits.

However, local authorities, including police and fire services are free to continue the practice of forcing entrepreneurs to hire new employees to conditions that are coded "on the whole, not less favourable than those transferred employees" private.

Francis Maude, the Minister of the Cabinet Office, said at the national level code "have done little to protect personnel just to deter employers responsible for providing public service contracts."

"Small organizations were particularly hard hit", he said. "We should not be made more difficult for small and medium-sized enterprises and voluntary organizations to succeed on the market of the public service."

The code is replaced by a "principle of the use of good practice" that the Cabinet Office said "freedom of employers to provide terms for staff that are motivating and affordable".

Contracts are also exempt agreed between the NHS and the trade unions in the Department of health to change action plan.

New contracts will not contain the code, but officials will have to negotiate with unions if they want to change the terms of any existing contract.

A spokesman for the Cabinet Office said: "this Government is committed to localism, including local authorities should be able to pursue policies that they deem appropriate to the workforce engaged in the delivery of public services.

"Ministers are considering the implications for the future of the 'Best Value local code" and consult with employers and local trade unions if necessary.

Employers ' organizations welcomed the decision to remove the code, but Union leaders stated that it would begin a "race to the bottom" in the wages and conditions.

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