The Guardian has reported on those questioning the wisdom of contracting religious groups to deliver key public services. The government's "big society" initiative – it still seems too unfocused to call it policy – has, as one of its aims, the transfer of the delivery of some public services to voluntary sector providers on a greater scale than is currently the case.

It was envisaged by both this and the previous government that faith groups would be some of the new providers. It seems unjustified to argue against religious organisations providing public services, as it is discriminatory to single out those with a religious ethos for a prohibition on service provision. However, some religious organisations present extra challenges when being considered for the delivery of public services and it would be naive, foolish or perverse to ignore these.

First, they have a special exemption in equality law to discriminate against their employees narrowly on grounds of gender and sexual orientation (for priesthood and leadership roles) and more widely on the basis of religious belief. These exemptions are provided for in the European directive that underpins our anti-discrimination laws in this area. The problem is that the exemptions given in UK law by the last Labour government in the 2003 regulations and then in the 2010 Equality Act are far wider than provided for in the directive.

One of these exemptions is found in schedule 9, paragraph 3 of the 2010 Equality Act, allowing religious organisations to discriminate on the basis of religion in employment, in certain jobs and contexts. The last government faced infraction proceedings from the European Union for failing, unlike all the Catholic Mediterranean states, to properly limit these exemptions. The coalition needs to think more carefully about whether it wants to continue to fight the last government's battles. The concern is not only that workers are being required to sign up to a religious pledge when their job (say, secretary or caretaker) has no real religious element.

What is even more worrying is that staff of an existing secular provider – who make the beds in a hostel, or assist people with benefit claims – will face a faith test when the service and their employment contracts are transferred to a new provider that has a religious ethos. During the passage of the Equality Act, Liberal Democrats (that's me and Lynne Featherstone, now the equality minister) proposed an amendment that specified that religious tests were not to be permitted when delivering public services. This was vigorously opposed by religious leaders and the government. It was silently opposed by the Tories.

Second, our equality laws quite rightly prohibit the discrimination against users of public services on the ground of sexual orientation but the last government failed to extend this to religion.

When Featherstone and I proposed our amendment to prevent this, the then Labour minister Vera Baird argued that this was needed to allow Jewish care homes to function (as an example). Jewish-run care homes will appeal to the Jewish community, will cater to their needs and will fill their places – but they do not require to declare "no Muslims need apply" in order to do this.

Finally, it's not acceptable for a religious (or political) organisation to actively proselytise having been commissioned to deliver a public service, regardless of whether or not it is publicly funded. If religious organisations want to provide, for example, a hostel for the homeless, they must allow users in without needing to attend prayers, say grace or hear a sermon. Many religious organisations will not seek to discriminate or proselytise in this way but the organised lobby is fiercely protective of the latitude it has currently got.

The Liberal Democrats are not prepared to sit back and do nothing in the face of Labour and Conservative failure to protect public service workers and users from the risk of religious persecution. Grassroots members passed a motion at their last conference reiterating our call for narrower religious exemptions in the equality law and that in the meantime contracts with religious providers of public services need to have clear non-discrimination and non-proselytising clauses.