Firms making no effort to close the pay chasm between top execs and staff would be banned from bidding for public contracts under Labour.
Businesses who fail to comply with tax law or recognise trade unions would also be barred from public tenders by a Government led by Jeremy Corbyn.
The party’s new policy, set out in the wake of the collapse of Carillion, would also give ministers power to wrest control of any future public contract from firms engaging in “risky behaviour”. The Government could then retender the work or bring it back in-house.
The definition of “risky behaviour” would be massively expanded. While most of the current triggers relate to performance, profits warnings, credit ratings and accounting conduct, Labour would demand businesses have a clean sheet on:
Equal opportunities best practice
Paying suppliers within 30 days
Staff training and offering apprenticeships
Trade union recognition and complying with collective bargaining
Environmental standards on waste and low-carbon
Tax compliance
Taking steps towards a 20:1 ratio between the lowest and highest paid.
The Government, however, said existing legislation called the Social Value Act already factored in measures Labour were asking for.
Jon Trickett MP, Labour’s Shadow Minister for the Cabinet Office, announced the new policy during a speech on Monday.
He said: “The Tories have handed over multi-million pound contracts to large companies, regardless of how unstable those firms are.
“The Government is overseeing a race to the bottom in these firms’ standards, turning a blind eye to blacklisting, tax avoidance and a whole host of other questionable behaviours.
“Theresa May has said she is a customer of these huge companies, but she’s actually the Prime Minister and should act accordingly.
“Labour would act decisively, in contrast with the weakness of the current Government, and if outsourcing firms cannot guarantee their business standards, we will take back control of contracts as soon as possible.”
Oliver Dowden, Cabinet Office Minister, said: “What matters to us is what works for the public. That means having the right mix of public, voluntary and private sector involvement delivering excellent public services and value for money for taxpayers.
“The Social Value Act requires wider social, economic and environmental benefits to be taken into account when awarding contracts.
“Labour’s plan puts politics first and would increase costs – and ordinary working people would pay the price through higher taxes, meaning less money going to our frontline services.”
It comes as the left-wing think tank The Smith Institute sounded a warning on contracting with private firms.
Its report urged the Government to end its “love in” with outsourcing work to private firms amid claims of “deep flaws” in many deals.
Director Paul Hackett said contracts were poor value for money, carried huge social costs and often benefited overseas shareholders of multinational companies.
Public sector outsourcing contracts are currently valued at £100bn a year, with a further £95bn of liabilities, the think tank said.
Construction giant Carillion - which employs 43,000 people - was left mired in £1.3bn of debt and saddled with a £600m pensions deficit after going into liquidation this week.
The Official Receiver has been urged to fast-track its investigation into how the firm’s finances deteriorated and what role directors played.
Writing in the Observer on Sunday, the Prime Minister promised to crackdown on “unscrupulous” company bosses by imposing billion-pound fines.
She also pledged action on top executives had too often reaped “big bonuses for recklessly putting short-term profit ahead of long-term success”.
She said: “In the spring, we will set out new tough new rules for executives who try to line their own pockets by putting their workers’ pensions at risk - an unacceptable abuse that we will end.
“By this time next year, all listed companies will have to reveal the pay between bosses and workers.
“Companies will also have to explain how they take into account their employees’ interests at board level, giving unscrupulous employers nowhere to hide.”