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Session 2008 - 09
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Public Bill Committee Debates

The Committee consisted of the following Members:

Chairman: Mr. Eric Martlew
Bottomley, Peter (Worthing, West) (Con)
Burt, Lorely (Solihull) (LD)
Clwyd, Ann (Cynon Valley) (Lab)
Djanogly, Mr. Jonathan (Huntingdon) (Con)
Dowd, Jim (Lewisham, West) (Lab)
Heppell, Mr. John (Nottingham, East) (Lab)
Hollobone, Mr. Philip (Kettering) (Con)
Hoyle, Mr. Lindsay (Chorley) (Lab)
Jones, Lynne (Birmingham, Selly Oak) (Lab)
Lucas, Ian (Parliamentary Under-Secretary of State for Business, Innovation and Skills)
McCafferty, Chris (Calder Valley) (Lab)
Mates, Mr. Michael (East Hampshire) (Con)
Riordan, Mrs. Linda (Halifax) (Lab/Co-op)
Thurso, John (Caithness, Sutherland and Easter Ross) (LD)
Truswell, Mr. Paul (Pudsey) (Lab)
Wright, Jeremy (Rugby and Kenilworth) (Con)
Adrian Jenner, Committee Clerk
† attended the Committee

Second Delegated Legislation Committee

Tuesday 16 June 2009

[Mr. Eric Martlew in the Chair]

Draft Work and Families (Increase of Maximum Amount) Order 2009
4.30 pm
The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Ian Lucas): I beg to move,
That the Committee has considered the draft Work and Families (Increase of Maximum Amount) Order 2009.
It is a pleasure serve under your chairmanship, Mr. Martlew, and to appear for the first time opposite my counterparts.
The order provides for a one-off uprating to the statutory redundancy limit under the Work and Families Act 2006. It will increase the weekly redundancy limit from £350 to £380 on 1 October 2009. The same limit is also used to calculate, among other things, unfair dismissal awards and payments made to employees whose employer has become insolvent.
We have all heard stories of constituents suddenly faced with redundancy after been brought low by the recession, and their numbers are growing. From October to December 2008, the number of redundancies increased more sharply than at any time in the past 16 years. Fortunately, they have not reached the levels seen in the recessions of the early ’80s and ’90s, but memories of the financial devastation that they caused to the communities that we represent are still fresh. The Government are therefore determined to do all they can to help hard-working men and women. We have done plenty of things to make a difference. We have improved the training and support that are offered to those who are out of work and provided help to strengthen business and prevent the need for job cuts. However, we always know that we need to do more.
The evidence might show that many people find work more quickly after being made redundant in the current downturn, but that period between jobs can be tough, especially for those with families to support. It is therefore important that we do all that we can to improve the situation for hard-working men and women, which is why we are introducing the order.
Let me explain the complex statutory redundancy pay calculation in a little more detail. Essentially, there are two basic elements. First, it is necessary to work out the number of weeks’ service payable to the individual who has been made redundant. That figure depends on the individual’s age and length of service. Up to the last 20 years of service can be counted. Once that is done, the figure is multiplied by the weekly limit or actual pay, whichever is the lesser, which is where the second part of the calculation kicks in. The limit is currently capped at £350. In other words, anyone earning that amount or more will have their number of weeks’ service multiplied by £350.
My hon. Friend the Member for Chorley has introduced a proposal to link redundancy pay to average earnings. Average full-time and part-time earnings are currently about £470 per week. My hon. Friend’s Bill would increase the limit from £350 to £470 per week. Although the Government understand the motivation behind the Bill, we do not think that it is a good solution at this time, for particular reasons: first, because the Bill would not help individuals who are struggling now, because it would take up to two years to bring any increase into effect; and, secondly, because the measure would place a disproportionate addition burden on business and cost from £221 million to £288 million a year. We certainly would not want to worsen the present situation, which would perhaps lead to further job losses. The Bill would also impose a further financial burden on the Government, because the Exchequer would have to pay an addition £44 million to £86 million a year.
Thirdly, although the issue was raised on Second Reading, my hon. Friend’s Bill would not at this stage prevent the limit from falling next spring in the event that the deflation that we are experiencing continued. Finally, the Bill would remove the link between redundancy pay and other payments—notably those made to employees when their companies become insolvent. The Bill would therefore not help employees in such circumstances.
The Government’s order has none of those disadvantages. Our proposals put an extra £30 per week into the redundancy calculation. Instead of waiting until the next annual uprating, in February 2010, we want to implement the increase on 1 October 2009. That follows three successive annual increases to the limit of 6 to 7 per cent., demonstrating the Government’s commitment and determination to move quickly to help employees who have been made redundant, particularly in the current downturn.
Our proposals would cost the Government and business substantially less than the plan put forward by my hon. Friend the Member for Chorley. The Exchequer would have to pay out £15 to £29 million per year, while the cost to business is estimated at £51 to £77 million. Although an additional burden will be imposed on both the Government and business, we think that this is the right thing to do, in the present economic circumstances, to facilitate help for individuals who are put in difficult situations. These are still substantial increases, but we are determined to help redundant employees, and I believe our proposals strike the right balance.
Furthermore, our measure also addresses the problem of deflation to which I have already alluded. As things stand under the annual uprating formula, the limit could fall by £10 a week in February 2010, if deflation continues until the autumn. The order rectifies that problem by suspending the annual uprating round for the redundancy limit in spring 2010, thus ensuring that the limit will not fall.
Mr. Lindsay Hoyle (Chorley) (Lab): I welcome what the Minister says because the limit could have fallen without these special measures. Does he agree, however, that we ought to ensure we rectify the situation by amending my Bill at a future date? For now, I welcome his proposals, but they are only a temporary measure—the system needs to be fixed. We can carry on rowing the boat for the moment, but we do not want it to sink in the long term.
The Chairman: Order. Before the Minister answers, may I remind Members that we are debating the uprating? I know that the hon. Gentleman has introduced a Bill, but it is not before the Committee.
Mr. Hoyle: I welcome your advice, Mr. Martlew. I was referring to the Minister’s statement that he wants to ensure that there is not a deflationary package, which is why he is introducing the order.
Ian Lucas: I will limit my observations to the order itself, Mr. Martlew. However, I say to my hon. Friend that, as he knows, the Government are introducing this uplift at a time when his Bill is before the House. He is a wise enough man to understand that, in the present circumstances, these steps are the right ones to take, but they are taken in the context of his Bill.
It is important to emphasise that the regulations have wider benefits. A range of payments can be made to employees where their employers have become insolvent, including arrears of pay, holiday pay and notice pay. Those payments are traditionally linked to the weekly redundancy limit. Although my hon. Friend’s Bill would remove that link, our order will retain it. It will also increase the limit for those payments. Such assistance is worth about an additional £15 million a year from the Exchequer directly to support redundant employees.
It is also important to consider the order in the light of changes we have made to redundancy pay in the past 10 years. When the Government first came to office, the weekly limit had increased by only £5 a week over the previous six years. The annual uprating formula that we introduced in 1999 has meant that the weekly limit has almost tracked average earnings for the past 10 years. It has increased from 6 to 7 per cent. over the last three years—well above average earnings in that period. That is a far better record than that of Governments of any colour, going right back to the introduction of the redundancy scheme in 1965.
In the long term, the best way to avoid redundancies is to ensure that businesses are strong and able to take advantage of opportunities offered by new technology and, increasingly, to deal with competition from abroad. However, those are issues for another day. Today it is vital that we provide an adequate safety net in what is a difficult set of circumstances and ensure that those made redundant are properly and fairly rewarded for their service. For that reason, I urge hon. Members to accept the motion.
4.40 pm
Mr. Jonathan Djanogly (Huntingdon) (Con): Good afternoon, Mr. Martlew. I congratulate the Minister on his appointment. I had an excellent relationship with his predecessor, the Minister for Business, Innovation and Skills, and I hope to have the same relationship with him. I think that he is the fourth, fifth, or perhaps even sixth Minister that I have faced over the past few years—
Peter Bottomley (Worthing, West) (Con): Seen off.
Mr. Djanogly: Or seen off. Perhaps the Minister will be the last, but we shall see.
The problem with the order is that it will reduce numbers of jobs at a time when unemployment is soaring. I mentioned our concerns when the Minister for Business, Innovation and Skills and I recently debated redundancy pay—I will not go into the details. The Government’s proposals are admittedly more limited than proposals to link statutory redundancy pay to average weekly earnings, but we still have our concerns.
Since 1999, the weekly limit for statutory redundancy and unfair dismissal payments has been increased in line with the RPI, rounded up to the nearest £10. In 1998 the sum was £220; in 2004 it went up to £270; in 2007 it was raised to £310; in 2008 it was increased to £330; and on 1 February 2009, only four months ago, it went up to £350. The weekly limit has already been increased by 6 per cent. this year, and now the Government want to increase it again by more than 8 per cent. to £380 at a time when we are experiencing negative RPI inflation. They also wish to bring the increase five months forward, even though we have already had an inflation-busting increase this year. I think that we need the Minister to put on record why he thinks that such a large increase in the weekly limit will be acceptable to companies and why now is the right time to do this rather than the statutory time, which would be five months ahead.
Mr. Hoyle: Does the hon. Gentleman agree that years of neglect and never providing the right increase has led—rightly—to a more significant increase now? Does he agree that it is right that those at the lowest end should see the increase, rather than those who receive enhanced payments, which we see in most businesses? Surely it must be correct to put right the wrongs of many decades.
Mr. Djanogly: I think not, but I remind the hon. Gentleman that in 1999 his own Government set the formula that now applies: the RPI increase rounded to the nearest £10. In effect, he is saying that his Government’s policy for the past 10 years has been wrong.
Of course redundancies are a last resort for employers. Employers do not want to lose the investment that they have made in their employees and they will try to retain their staff for as long as possible. Employers generally make redundancies only when they are forced to reduce their labour costs.
Mr. Hoyle: That is just not the case. I have the greatest respect for the hon. Gentleman, but he ought not to put his case in such a way. There are many occasions when we have seen European companies choose to sack workers in the UK as it is easier and cheaper to get rid of people in this country than it is in France. Does he support the actions of foreign companies?
Mr. Djanogly: I dispute what the hon. Gentleman says. There is no statistical evidence to show that that is the case. Many multinational companies come and invest in this country because we have a low-cost, efficient economy.
Mr. Hoyle: Will the hon. Gentleman give way?
Mr. Djanogly: No, I will not.
Mr. Hoyle rose—
Mr. Djanogly: I will move on; perhaps the hon. Gentleman can come back on that later.
The Minister will realise that he is making it more expensive for employers to make redundancies. Employers will now have to make more redundancies to reduce their labour costs by the same amount. The effect of providing more money to those who have been made redundant could be to put more people out of work or discourage businesses from taking on more staff in the first place. The Conservative party does not want to see more people out of work and struggling for survival because of the Government’s ill-thought policies.
The order is reflective of a Government who have lost touch with reality. I would appreciate hearing how the Minister consulted on the measure. I have been speaking to businesses—big and small—and they are against the Government’s proposals. The CBI, the Federation of Small Businesses and the British Chambers of Commerce are all opposed to the measure. Businesses are having an extremely tough time at the moment, and many cannot afford to pay for such a large increase in statutory redundancy pay, especially when RPI inflation is negative.
Employers have to be increasingly tight with their budgets during the turbulent times in which we find ourselves. They had already budgeted for an increase to £350 this year and a very modest rise next year—if any—because inflation is negative. Instead, they are faced with a significant and costly rise five months ahead of schedule. This is an additional burden for businesses when they can least afford it. The Government’s impact assessment shows that the measure will exert extra costs of up to £121.2 million on business, and £53.9 million on the Government. We should be helping businesses, especially during this low point in the economic cycle, not making it even harder for them to help us get the economy out of recession.
We recognise that many employers offer enhanced redundancy schemes, many of which are based on a multiple of statutory redundancy pay. The Government’s changes will have an even greater impact on those employers, who are, in effect, being penalised for providing enhanced terms for their employees. For example, employers who offer a redundancy pay scheme with a multiple of two times the statutory limit will have to pay an additional £60 for every year of service.
Since the Minister’s predecessor and I last debated statutory redundancy pay, the economic situation has not changed, and has even worsened in many ways. Britain still faces extremely serious and difficult economic circumstances. I remind the Minister that unemployment continues to rise and more companies continue to become insolvent. The Government have so far failed to lead us out of this almost unprecedented recession and have let the economy drift. How does the Minister think that the order will help?
The Government have continued to pile the pressure on businesses. According to the British Chambers of Commerce, in 2008 alone, the annual cost of regulation jumped by £10 billion to £76.81 billion. Over the last two quarters, gross domestic product fell by 1.5 per cent. and 1.9 per cent. A recent report by Sir David Arculus stated that the annual cost of regulation to the UK economy could be as high as 10 or 12 per cent. of GDP. The Government cannot continue with its poorly considered approach. The increase in the weekly limit on statutory redundancy pay is a further unnecessary cost to business. The Government do not seem to realise that we need to support businesses through this low point of the economic cycle to keep people in work.
Will the Minister tell us what representations he has had from the trade unions and others on increasing the weekly limit for statutory redundancy pay? Is the proposed increase connected with the Warwick II negotiations that have been taking place between Labour and the trade unions? Does he think that he has now done all that is necessary to appease the trade unions on redundancy measures? Has he come to an arrangement that the unions’ private Member’s Bill—the Statutory Redundancy Pay (Amendment) Bill, which was brought before the House by the hon. Member for Chorley—will be quietly dropped from parliamentary business? Was that the deal, or do Labour Members intend businesses to face another significant increase in the weekly limit on statutory redundancy pay? If that is the case, many more businesses will be under increased pressure, and that could lead to further business failures and even more people out of work. I note that the Minister has at least confirmed the Government’s intention to continue opposing the redundancy Bill for the moment, if it is not dropped.
We are against increasing the weekly limit on statutory redundancy pay when businesses are struggling to survive in this economic climate, when unemployment is rising and we are experiencing negative inflation. It is clear that such an increase will damage many businesses and could lead to a further increase in unemployment. The Conservative party supports business and employment and does not want to see any more decent and hard-working people losing their jobs through ill-considered measures such as the order. We will therefore oppose the Minister’s proposal.
4.49 pm
Lorely Burt (Solihull) (LD): I welcome you to the Chair, Mr. Martlew, and hope that I will not try your patience too much this afternoon. I extend a very warm welcome to our new Minister.
The statutory instrument that we are considering is not the Statutory Redundancy Pay (Amendment) Bill, which was introduced by the hon. Member for Chorley. On Friday 13 March, the House voted for that Bill to go into Committee. I supported that, only to very recently get a card saying that the Bill will go straight into Committee tomorrow.
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