Select Committee on Members Estimate Committee Third Report

8  Redundancy

The current system

235.  The current arrangements provide funding for someone who ceases to be a Member to wind up their office and prepare to find another job. The resettlement grant is payable when an MP leaves the House after a general election. It is based on length of service and age. The maximum 100% of salary is payable to MPs with 15 or more years' service and who are aged between 55 and 64. A Member who loses his or her seat while still under the age of 50 will receive half a year's salary; the same applies to a Member who leaves the House at the age of 70 with less than ten years of service.

236.  The winding up allowance is available to MPs for four months after leaving the House at a general election to meet staff, office and travel costs necessarily incurred on parliamentary duties which remain outstanding. The main items are terminating staff contracts, office leases etc.

237.  Following the 2001 general election, 99 Members left the House, receiving an average grant of 62% of final annual salary at a cost of about £3.2 million. 21 of these Members were defeated, with an average length of service of 8.5 years and were eligible for a grant of about 48% of final salary. 136 Members left the House after the 2005 general election, receiving an average grant of 64% of final annual salary at a cost of £5.3 million. Of these, 50 were defeated, with an average length of service of 8.6 years and eligibility for a grant of 60% of final salary.

238.  The grant has operated in its current form since 1991 following a Top Salaries Review Body recommendation. The SSRB was asked to look at the calculation of the Resettlement Grant in its review that commenced in October 2000. It considered evidence arguing that the calculation should not be based on full years' service, as small differences in length of service could result in significant variations between Members. It concluded, however, that no change was warranted.

SSRB proposals

239.  The SSRB looked at the resettlement grant again in 2007 in the light of age discrimination legislation. They found that, although MPs are office holders rather than employees, the grant is similar to a redundancy payment. As such it would not be paid to people who retire or resign voluntarily. The SSRB therefore recommended that the grant be based on one month for each year of service up to a maximum of nine months and that it should only be paid to those who leave the House involuntarily—through losing a seat at a General election or whose constituencies disappeared in boundary changes. They recommended that changes to the resettlement grant should come into effect after the next general election because some Members will have made plans based on the existing provision.

240.  The SSRB made no recommendations for substantive change to the Winding Up Allowance, other than to rename it and link its amount to proportions of the other allowances for staff and office costs to which it relates.

What happens in other organisations

241.  The need to pay off staff and close an office would not arise in other organisations on redundancy. Redundancy pay would only be given if termination of the contract was involuntary. Some private and public sector employers, however, do have schemes for scaled down working towards retirement or training to prepare for further employment.

The Scottish Parliament

242.  MSPs who do not stand, or are not returned at a subsequent general election are eligible for a grant calculated as a percentage of MSPs' annual salary, by reference to age and complete years of service. The recent review distinguished between winding up costs relating to staff and other office costs. It recommended separate provision for staff and a central fund to meet these costs, with the cost still identified against the respective Member.

Views expressed by Members

243.  The only views expressed by Members related to the proposed changes to the resettlement grant. These suggested some unintended consequences. First, it might encourage Members who have chosen to retire or been deselected by their parties to stand again in hopeless seats in order to become eligible for the grant—a situation reputed to have occurred in the past. Secondly, it would act as a disincentive to retire gracefully for a Member of working age who has decided for personal reasons to leave politics. Since the timing of a general election is always uncertain, it is hard for such a Member to arrange subsequent employment until it is called.

Advice from the Department of Resources

244.  The Committee has sought advice on whether the level of the grant should be linked to eligibility to draw a pension—so the grant would only be available to Members who need to seek further employment. The Department has produced tables showing how the current scales for calculating the resettlement grant could be tuned more sensitively to the parliamentary cycle and the turnover of Members. It is also suggested that, adapting the SSRB recommendation, Members who leave the House voluntarily could receive a flat rate of 50% of final salary irrespective of age.

245.  The Resettlement Grant assists Members in 'adjusting to non-parliamentary life' when they leave the House at a General Election. It is akin to a redundancy payment. The grant is a varying proportion of final salary of between 50% and 100%, based on age and length of service (see Table A after para 252). As with any redundancy payment the first £30,000 is tax free.

246.  According to a survey of the Association of Former Members of Parliament[48], almost half of defeated and deselected ex-Members take more than three months to find alternative employment. When a large number of seats change hands, as in 1997, the average time taken to find new employment increases.

247.  A recent survey of Members by the Hay Group has shown concern by Members about the future composition of the House: that it might effectively exclude middle income earners and be drawn too strongly from those of independent means. If the House wishes to continue to attract Members from all parts of society, care must be taken to ensure that at the end of their service there is not a financial penalty (i.e. the risk of a significant period without work and without income).

248.  The SSRB recommended that Resettlement Grant eligibility be restricted to Members defeated at a General Election and those whose seats are abolished by boundary changes. The grant would be paid at the rate of one month's salary for each year of service to a maximum of nine months' salary. The SSRB recommendation could be expected to reduce eligibility significantly.

Opinion of the Committee

249.  The SSRB's rationale appears to be that if an MP has made a choice to leave, this is not a redundancy and consideration of any post-election re-adjustment does not arise. Arguably, however, the SSRB fails to recognise that Members often do not know when the next General Election will be held. Even if they decide to leave the House at that time, plans and preparations are necessarily affected by uncertainty.

250.  Their recommendation would also:

• prevent Members who have been deselected from receiving the grant. Denial of the chance to defend their seat is arguably as much a redundancy as defeat at an election
• encourage 'paper' candidates in unwinnable seats who would thereby receive the payment and
• possibly, slow the natural process of renewal in the House by encouraging Members to continue standing until death or defeat instead of departing gracefully.

251.  We are not convinced that limiting eligibility as suggested by the SSRB is right for the House. Instead we propose that the following factors should be the basis of a new Resettlement Grant:

i.  Reducing the Resettlement Grant for those approaching pension age: Members are generally able to draw their parliamentary pension and any lump sum from 65, or from 55 with an actuarially neutral reduction.

ii.  Recognising the difficulty in re-entering the labour market: Anecdotal evidence suggests that two or more Parliaments away from their profession in mid career puts Members returning to the job market at a disadvantage.

iii.  Electoral cycle: Calculation of the Resettlement Grant should relate such payments to the rhythm of what are usually four-year Parliaments.

252.  The above argues for re-ordering the current calculation table (Table A) to reflect better contemporary conditions. A new table, Table B, is offered to the House for consideration. No two elections are the same but Table B, when applied to the 2001 and 2005 elections, was shown to be broadly cost neutral. Like the SSRB, we do not envisage such a revised scheme being put into effect until the next Parliament.

TABLE A: current system

Percentage of Yearly Salary Payable as Resettlement Grant
	Number of completed years of service
Age	Less than 10	10	11	12	13	14	15 or over
Under 50	50	50	50	50	50	50	50
50	50	50	52	54	56	58	60
51	50	52	55	58	62	65	68
52	50	54	58	63	67	72	76
53	50	56	62	67	73	78	84
54	50	58	65	72	78	85	92
55 to 64	50	60	68	76	84	92	100
65	50	58	65	72	78	85	92
66	50	56	62	67	73	78	84
68	50	52	55	58	62	65	68
69	50	50	52	54	56	58	60
Over 70	50	50	50	50	50	50	50

TABLE B: suggested system

Percentage of Yearly Salary Payable as Resettlement Grant
Age	Number of completed years of service
	Up to	5 to	9 to	13 to	17
	4	8	12	16	or more
Up to 34	50	50	50	n/a	n/a
35-39	50	50	60	70	70
40-44	50	60	70	80	90
45-49	50	60	70	80	90
50-54	50	70	80	90	100
55-59	50	70	80	90	90
60-64	50	60	70	80	80
65-69	50	50	60	70	70
70-74	50	50	50	60	60
75 or over	50	50	50	50	50

253.  We recommend that, in the next Parliament, the basis of calculation of the Resettlement Grant should be shifted towards Members leaving the House in their early fifties.

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48   Life After Losing Or Leaving, a report for the Association of Former Members of Parliament. School of Politics and International Studies, University of Leeds October 2007. Back

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Prepared 25 June 2008