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Mr. Dismore:
My right hon. Friend has now been speaking for well over half an hour. He has given us lectures on the economy, on the credit crunch and the
Government’s response, on redundancy law and procedure, on discrimination law, on redundancy statistics, and on help for the unemployed in the labour market, and he is now going back to where he started—the recession. Is he ever going to address the detail of this extremely modest Bill? None of these issues has anything to do with the Bill, which deals with a straightforward, narrow point on the weekly multiplicand.
Madam Deputy Speaker (Sylvia Heal): Order. May I remind the hon. Gentleman that the decision as to whether the content of Members’ speeches is relevant is determined by the occupant of the Chair?
Mr. McFadden: Thank you, Madam Deputy Speaker. I am afraid that I do think that these matters are relevant to the Bill, because the whole premise of my speech is that it should be seen in the light of the wider response to the recession. That is why how the redundancy system operates is relevant, as are the other measures that we have taken with regard to support to employers. Of course, I will come to the specifics of the Bill.
I was saying that we will have a very different response to this recession from the one that the Conservative Government took to recessions in the past. We do not see our role as simply to pay a benefits cheque, which may keep body and soul together but does not in itself help someone to make a new start—to seek out retraining or to build a new career. We cannot always prevent people from losing their jobs; no Government can do that, and we do not claim to be able to do so.
I gave the redundancy statistics a few moments ago. I know how painful redundancy is for those involved and for the communities in which they live. However, we will help them to get a second chance and to try to seek new opportunities when faced with the very difficult circumstances of redundancy. That is why we are providing a £129 million package of support for individuals facing redundancy or who are already redundant, and why we are making available 75,000 further education training places for Jobcentre Plus referrals at six months’ unemployment. The pre-Budget report in November also announced additional funding to ensure delivery of support for everyone who is made redundant, including a doubling of the rapid response service and an additional £1.3 billion to support Jobcentre Plus. Our package of support includes golden hellos of up to £2,500 for employers who take on and train long-term unemployed people, precisely because we recognise that those who have been out of work for six months or more will find the most difficulty in returning to the labour market.
Where redundancies take place, the Government’s rapid response service provides valuable help in trying to find a new job. We have doubled funding for the service and will double it again this year.
Mr. Denis MacShane (Rotherham) (Lab):
We appreciate many of the measures that the Government have set in train. However, one matter concerns many of us, especially those from steel industry communities. In the rest of Europe, efforts are made to keep workers at work, with part of what might be a future unemployment subsidy transferred to allow that to happen. The Government are resisting such action, and I received a most disappointing
reply on the matter this morning from the Minister’s master in another place. Will my right hon. Friend try to get officials to think a little bit out of the box—a little laterally—and perhaps even learn some German or Dutch? They speak quite good English over there. Good things are happening in Europe, so will my right hon. Friend consider applying them to our steel industry? If not, we will face much graver problems, which could be avoided with a little more flexibility and innovation from the Department.
Mr. McFadden: My right hon. Friend is a skilled linguist, fluent in several languages, and I am sure that that helps him learn what is happening in other countries. Employers and trade unions have raised his point with us, comparing the package that we are making available with that in other countries, which can include a wage subsidy scheme for several months to try to stave off redundancies. I cannot announce today that we will launch such a programme—there are several other issues to consider, for example, deadweight costs of supporting employment that may disappear in a few months—
Madam Deputy Speaker: Order. I appreciate that the Minister is responding to an intervention, but I warn him against going too far down that road and getting too far from the Bill’s contents.
Mr. McFadden: I am happy to accept your guidance, Madam Deputy Speaker.
As I said, our package of support for people who face redundancy includes extra help with mortgage payments after three months. Most people who lose their jobs manage to find another in six months, so the support is important to help people keep their home. One of the worst things that can happen when someone is made redundant is losing one’s home, too. We are keen to minimise that and to offer help so that it does not happen in any more cases than absolutely necessary through a long-term inability to keep up with the mortgage.
The Bill deals specifically with redundancy payments and a fair deal for those who face redundancy. How we ensure that those who are made redundant are properly and fairly rewarded for their service is a fair question to pose to the House and the Government. In that context, it is important to examine the history of statutory redundancy pay and how it developed.
As my hon. Friend the Member for Chorley said, the principles of the scheme that we are discussing were devised in 1965, when Harold Wilson introduced the first statutory redundancy payments. The principles were embodied in the Redundancy Payments Act 1965 and essentially formulated in the report of an interdepartmental committee on redundancy, which was appointed in January 1963 under the chairmanship of Sir James Dunnett. The committee’s terms of reference were:
“To examine how far existing provisions by Government and industry for meeting the problems of redundancy are adequate to promote the mobility of labour necessary for economic efficiency and to provide security to workers.”
The Dunnett committee based the theoretical justification for redundancy payments on two grounds, one economic and one social, of which the former was held to be overwhelmingly more important. The aim was to induce redeployment from overmanned to undermanned
undertakings rather than, as we might naturally assume, purely to assist with financial hardship. In other words, it was a labour mobility rather than purely a social welfare measure.
In the early 1960s, before the scheme was introduced, industry operated voluntary redundancy systems. Only around 15 per cent. of employees in manufacturing industry were covered by redundancy schemes, although most nationalised undertakings and the public sector had them. It was felt at the time that it was important to plug the gap in the country’s employment structure to encourage workers to be prepared to move from one industry or part of the economy to another.
Obviously, we understand that workers might have been reluctant to move from an industry, which offered redundancy protection to another, which did not. The Dunnett committee concluded that the purpose of further action on redundancy should be to encourage greater efficiency in industry and contribute to economic growth. What we now regard as the fundamental purpose of redundancy schemes—to help with hardship after workers become unemployed and reward them for length of service—was perceived as a secondary consideration at the time compared with labour mobility. The redundancy scheme was seen very much as an economic measure and a cornerstone of the Wilson Government’s attempt to harness the infamous white heat of technology.
It is important to recognise the context of the statutory redundancy payment scheme. As we know, Prime Minister Harold Wilson wanted to modernise the country and modernise industry. He wanted a scheme that would allow people to move from industries that were in decline to industries that were growing. He saw a statutory scheme as an important way of underpinning that. That is the context of the scheme, and that aim made sense when some industries had protection and some did not.
At the heart of the statutory redundancy payment scheme lie two elements. First, the calculation begins by working out the number of weeks of service that are payable. Secondly, the amount of the redundancy payment is calculated after taking into account the worker’s pay and the limit in the scheme. At the heart of the Bill before us is the issue of the statutory upper limit, so it is interesting to note how it has changed—or not changed—over the years.
As my hon. Friend the Member for Chorley said, when the scheme was first introduced, the limit was set at £40, where it remained for nine years. Only in 1974 was it raised, to £80, where it stayed for a further four years. That was at a time of significantly higher inflation than we have now. From 1979 to 1997—the 18-year period in which the Conservative party was in power—the overall payment went up from £110 to £210.
We have made far more significant increases in the statutory redundancy limit since we came into power. When we came in, the limit was £210. The current level is £350. I am sure that my hon. Friend would acknowledge that the progress made by the Labour Government in that regard has been significantly better than the Conservative party’s record of increasing the limit by £100 during 18 years in government. Later I will say a little more about the formula by which the limit is increased.
At the heart of the structure lie two elements: the number of weeks of service and the worker’s pay. Workers receive half a week’s pay for every year of service up to
the age of 21. They receive one week’s pay for every year of service between the ages of 22 and 41 and one and a half weeks’ pay for every year of service from the age of 42. A total of up to 20 years of service can be counted.
Perhaps the easiest way to understand how the system works is to take a practical example. Let us imagine a worker aged 50 who has just been made redundant and who has 20 years of service in the job. Let us say that the worker earns £500 a week—that figure has been quoted as the ceiling that we should raise the payment to, but I will leave that aside for the moment. Under the scheme that we currently operate, his statutory pay would be capped at the £350 limit that exists today. Our worker has eight years of service past the age of 42, which means he is entitled to one and a half weeks’ pay for every year of service, so he would receive 12 weeks’ pay at £350 a week. In addition, he has served for 12 years below the age of 41, for which he is entitled to a further 12 weeks’ redundancy pay—again at £350 a week. This 50-year-old’s redundancy payment, then, would reflect a total of 24 weeks’ pay, which, multiplied by £350, comes to £8,400.
However, if the same worker earns below the £350 limit, he will have his redundancy pay calculated on his actual weekly earnings rather than according to the £350 limit. If our 50-year-old were to earn not £500 as in the earlier example, but £250 a week, we would take his 24-week entitlement and multiply it by £250, which comes to £6,000. That is the difference arising from the different forms of earnings and the operation of the statutory limit.
I have talked about the change in the statutory weekly limit over the years, and I believe that Governments of both colours have probably let the real value of the limit slip, but I think that this Government’s record over the past 12 years stands in stark contrast with that of the Conservative Government who preceded us. In fact, over the six years from 1991 to 1997, the limit increased by only £5 a week, whereas in the past two years under this Government, it has increased by a total of £40 a week. Clearly, we have a very different approach to these issues. Although my hon. Friend is pushing us to do more through his Bill, I am sure he would agree that Labour’s record in the past two years of a £40 a week increase is significantly better than that of the Conservatives—even if we take inflation into account—who, over six years, confined the increase to £5 a week.
In tandem with the decline in the real value of the statutory redundancy limit, there has also been a gradual reduction in the rebate, which we have not discussed today, although it was an important aspect of the system when it was first introduced. At that time, the Government covered 77 per cent. of the costs. This rebate then fell to 50 per cent. in 1969, then to 41 per cent. in 1977 and subsequently to 35 per cent. in 1985. At that point in the mid-80s, the rebate was paid only to firms with fewer than 10 employees. In 1990, the rebate was abolished altogether. This matters to our discussion. Apart from the increase in the overall limit and reduction in respect of average earnings, what has happened over time is that the costs of the statutory redundancy scheme have in many ways shifted from the state to employers themselves, with the exception—I shall say more about it in a few moments—of where there is an insolvency and the state ensures that people do not lose out on their statutory payments by making payments out of
the national insurance fund. For redundancies that do not revolve around insolvency, however, most costs are today shouldered by the employer.
When we came into office in 1997, we were clear that the pattern whereby the upper limit had increased by only £5 a week over the previous six years, and by only £100 over the whole of the 18 years for which the Conservatives held office, could not continue. In times of trouble, employees were missing out on much-needed help. The Government were anxious to address that situation, but in a way that did not put substantial new costs on to either employer or taxpayer. We wanted to insert a greater degree of fairness into the system. Therefore, in 1999, we introduced an annual uprating formula. That increases the weekly limit each year, in line with the retail prices index.
However, the matter is not as simple as that, because an additional benefit is built into the system for employees, to which my hon. Friend the Member for Chorley did not refer, but which has an important effect on how the uprating works, and has been influential in increasing the weekly limit by £40 over the past two years. After the weekly limit is worked out, and inflation is included, the resulting number is rounded up to the nearest £10.
Mr. Hoyle: I did mention that.
Mr. McFadden: I acknowledge what my hon. Friend says from a sedentary position. I am sure that he agrees, however, that it is an important feature of the system. It might not sound significant, but it means that the weekly limit has almost tracked average earnings for the past 10 years. In fact, for the past three years, the limit has increased by 6 to 7 per cent., which is well above average earnings in the same period.
One of my concerns about the Bill is that had it been operation for the past few years, redundancy payments might be lower than they are. The Government’s current formula to increase redundancy payments by the RPI, rounded up to the nearest £10, has produced increases greater than average earnings in recent years. Therefore, one caution about the formula that my hon. Friend puts forward is that it might have the effect of reducing redundancy pay. That is not his intention, and I do not accuse him of it for a moment. He will agree that we would not want to replace the current formula with one that would cut redundancy pay.
Mr. Hoyle: In fairness, the Minister is being disingenuous. As I have said clearly, the formula is linked not only to average weekly earnings but to the RPI, so the position is covered two ways, not one as at present. He has it the wrong way round. The danger is that if inflation drops, statutory redundancy pay could drop rather than being increased. I am putting in the safeguard, and he ought to acknowledge that.
Mr. McFadden:
I hope that I am not being disingenuous. What I am trying to do is explain the possible unintended consequences of my hon. Friend’s suggested formula. Even if it reflected both average earnings and the RPI, I do not think that it would include the uprating to the nearest £10 which has proved so beneficial in the last couple of years. In fact, I would be cautious about
accepting either of the formulae that the Bill suggests. As I have said, had either been in operation in recent years there would be a lower weekly limit than exists at present, whereas the interplay of the link with the RPI and the uprating has produced increases of about 6 to 7 per cent.
Another part of the context of the Bill is what we said in our manifesto, to which both my hon. Friend and the hon. Member for Huntingdon referred. We do take that argument seriously. The hon. Member for Huntingdon suggested, erroneously—and even the hon. Member for Solihull (Lorely Burt) made similar suggestions—that our action on redundancy pay was designed to please a sectional interest group. That is not true. Statutory redundancy pay is designed to protect workers who lose their jobs, whether or not they are trade union members, and to ensure—especially in cases of insolvency—that those with long years of service do not walk away with nothing. I do not believe that that constitutes acting in support of a sectional interest. It has nothing to do with the funding of the Labour party—that is an accusation that I would completely reject—but it does provide a measure of decency and fairness in the workplace.
When we have introduced the upratings and other measures that I have mentioned, relating to paid leave, to flexible working or to other areas of the economy, we have done so because of a basic belief in fairness. Our statutory measures are not just favours to trade unions, as has been suggested; they arise from a belief in basic fairness in the workplace, which should apply in all cases.
Lorely Burt: I entirely agree with what the Minister says about fairness, but given the Government’s concession relating to pensions, which are now to be linked to average earnings, why can he not allow the same degree of fairness to operate in the area covered by the Bill?
Mr. McFadden: I can answer that in two ways. Is the hon. Lady suggesting—as I think she did when she used the word “paymasters” in her speech—that our action on pensions was intended to please trade unions, or anyone who funds the Labour party? That would be completely untrue. We took action on pensions because after a number of years it was clear to us that we had lifted about a million pensioners out of poverty by concentrating help on those with the lowest incomes. The time was right to provide a general uplift.
One of my reservations about adopting the Bill’s proposal is the one that I expressed a moment ago. The current formula increases redundancy payments in line with RPI, rounded up to the nearest £10, and, as I have said, has resulted in a higher increase than the formula in the Bill would produce. If the concern of the hon. Member for Solihull and the backers of the Bill is to increase statutory redundancy payments, I am simply pointing out that the current formula has done that with some effect in recent years.
Let me move on to what we said before the last election that we would do. I know that my hon. Friend the Member for Chorley is a right and fair man—most of the time—and he said we should increase statutory redundancy pay. In the light of that, earlier in this Parliament we introduced a provision in the Work and Families Act 2006 to make a one-off uprating to the
limit through affirmative regulations. I think that that was attacked by the hon. Member for Huntingdon, who is not in his place at present.
Bill Wiggin (Leominster) (Con): The right hon. Gentleman has suggested that the Government are wholly motivated by altruism, but a rather helpful Library note makes it clear that there was a Warwick agreement in 2004, and the trade union Unite has categorised this particular legislation as “red” under its traffic light system, which means:
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