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|©Parliamentary copyright||Prepared 15th September 2010|
Publications on the internet
The Committee consisted of the following Members:
Chris Stanton, Committee Clerk
† attended the CommitteeDusty Amroliwala, Director, Civil Service Workforce, Cabinet Office Peter Boreham, Director of Executive Reward, Hay Group Keith Bradford, HR Director, Amec, and member, CBI Employment Policy Committee Charles Cotton, Member, Vice President’s Reward Panel, Chartered Institute of Personnel and Development David Wreford, Principal, Mercer
The Chair: Before we begin, I would like to make some preliminary announcements. Members may, if they wish, remove their jackets during Committee sittings. Will all hon. Members ensure that mobile phones, pagers and so on are either turned off or switched to silent mode? As a general rule, my fellow Chair and I do not intend to call starred amendments that have not been tabled with adequate notice.
Not everyone is familiar with taking oral evidence in Public Bill Committees, so it might help if I briefly explain how we will proceed. The Committee will first be asked to consider the programme motion on the amendment paper, for which debate is limited to half an hour. We will then proceed to a motion to report written evidence, followed by a motion to permit the Committee to deliberate in private in advance of the oral evidence sittings. I hope that we will be able to deal with that formally. Assuming that the motion is agreed to, the Committee will move into private session. Once the Committee has deliberated, the witnesses and members of the public will be invited back into the room and our oral evidence sitting will begin. If the Committee agrees to the programme motion, it will hear oral evidence this morning and this afternoon. I hope that that is clear.
Q 1 The Chair: We will now hear oral evidence from witnesses from the Cabinet Office and the Hay Group. Welcome, and thank you for coming. For the record, please introduce yourselves to the Committee.
Dusty Amroliwala: I am Dusty Amroliwala, the director of the civil service work force in the Cabinet Office. I have responsibility for human resources policies across the civil service, including severance compensation, pay and pensions.
Q 2 Harriett Baldwin (West Worcestershire) (Con): May I ask Mr Amroliwala about clause 2? As a new MP, it strikes me that it is quite unusual to have a sunset clause in primary legislation. Is it usual for expired primary legislation to be revived by means of a statutory instrument? Can you explain why it is considered necessary in this case?
Dusty Amroliwala: Thank you for that. I cannot explain whether it is usual, because I do not have that level of experience. I may be able to help the Committee by explaining why, in this instance, the measure is being introduced and proposed.
It is conceivable that we will reach an agreement with all the trade unions in the current negotiations. At every step in the process, the Government have made it clear that they intend, if possible, to reach a negotiated outcome on the long-term sustainable compensation scheme that we need in the future. If such an agreement were to be reached, it would be open to Ministers to exercise the sunset provision in clause 2 and lay the new scheme before Parliament in the normal way, and it would have immediate effect.
The possibility remains that, even if we had a scheme that was adopted by the Council of Civil Service Unions and agreed with the Government, individual or groups of civil servants may still wish to challenge the terms of that scheme on the basis that it might contain provisions that are less generous than those of the former scheme, which was subject to judicial review earlier this year. It remains the case that were such a challenge to be mounted, either individually or collectively, a court might hear such a challenge and might grant interim relief while it was being processed through the judicial system. If such relief were to be granted, it would be for Ministers to decide whether it was necessary to revive the terms of the legislation, so that we do not find ourselves in a position where we are moving from one scheme to another scheme to another at a time when the Government simply cannot operate and plan to operate in terms of their work force in such a way.
Those circumstances may perhaps be remote, but none the less they remain a possibility—we have a significant work force—and an agreement with the unions in itself does not completely close the door to that type of challenge.
Q 3 Harriett Baldwin: If the negotiations were unsuccessful, the sunset provision took effect a year after Royal Assent and Ministers thought that it was necessary to revive the legislation using clause 2, would there not be a risk that the Government were effectively
Dusty Amroliwala: There were a number of ifs in that question, and the first is the most important, because I cannot for the moment see circumstances in which, if we were not to reach an agreement with the unions on a long-term deal, we would recommend to Ministers that they should exercise the provisions of the sunset clause. As it stands, the Bill is designed to cover circumstances where a deal has not been reached with the trade unions. If that were to happen, the Bill and its provisions would then take effect. I cannot see any circumstance in which the sunset provision would then be applied by Ministers, which renders the question of why you might revive it in the future more difficult to answer. My understanding is that under clause 2, revival would need to be under the affirmative procedure in the House. It would therefore be subject to scrutiny by the House, if those circumstances, however remote, were to come about.
Q 4 Tessa Jowell (Dulwich and West Norwood) (Lab): I welcome Mr Amroliwala to the Committee. He was the lead official on this issue when it was my ministerial responsibility in government. We have heard from the new Government that there are many civil servants sitting around doing nothing, because it is too expensive to make them redundant. Will you tell the Committee what advice you have provided to the Government on that issue? How many civil servants have you indicated are sitting around doing nothing?
Dusty Amroliwala: I have not indicated that in such terms. I recognise the situation that you describe and I am happy to give you a response, but I have not used the term “civil servants are doing nothing”. The reality is that people may have lost their roles because of reorganisation that is in the pipeline, or they may be subject to reorganisation in the future when their roles would go. The reality is that in the vast majority of cases those people are not doing nothing—they are being gainfully employed.
If we go beyond that definition to address what I think you are asking, which is about the advice that we are giving. We are giving advice on a daily basis. Before 10 o’clock—when I left to come here this morning—I gave advice to three Departments on the redundancy programmes and severance schemes that they wanted to run. The advice we are giving is that all Departments have to take due account of the work we are doing, the possible provisions of the Bill and the landscape in which we are trying to negotiate a settlement. In each case, there will be a different set of outcomes for the business case, as to whether it should be offering terms and what those terms might be. With very few exceptions, we are agreeing terms with Departments for them to offer the work force voluntary—and, in some cases, compulsory—severance. Yesterday, I approved a case for the compulsory severance of nine people in a particular area of work.
Dusty Amroliwala: They are not known, which is the point that I need to come to. We all have a working assumption that, as a result of the current spending review settlements, individual Departments will have reduced budgets. In some cases, the headline news already is that they will be much reduced. That will have an effect on the number of people within those Departments, but those settlements have not yet been reached. As a result, Departments are not in a position today to say how many people they expect to lose, how many people they expect to retain and the skills that need to be considered alongside that. We are weeks away from the date in October when the settlements will be announced and made public. Once those announcements have been made, Departments will talk to the Cabinet Office about their respective draw-down plans, to ensure that those plans are coherent across Government.
Dusty Amroliwala: As far as I am concerned, the existing terms—this is the only way that I can put it—will remain available until such time as they are changed by the provisions of the Bill, as and when it passes through the parliamentary process. I know that at one stage we anticipated that the work might be completed by 22 October, but that was some weeks ago and this is an evolving and dynamic process. I would no longer attach overmuch significance to 22 October.
Q 10 Tessa Jowell: I have two further quick points. The equality statement, which the Government are required to prepare alongside the Bill, seemed rather scant. Will you tell us about the methodology and the work that was done to answer the questions in the equality statement, or was it principally a desk exercise?
Dusty Amroliwala: I do not have sufficient depth of knowledge to talk about the methodology applied by individual Departments. From the perspective of the Cabinet Office, I accept that, in the majority of cases, our assessments of departmental positions were conducted as a desk exercise. It was conducted with the same degree of rigour and the same depth of analysis as in February.
Dusty Amroliwala: Because before February, we were negotiating a settlement with the CCSU in the hope and expectation that we would arrive at a settlement. It was not until those hopes were thwarted and dashed by our inability to reach a settlement with all six of the unions that we arrived at the position where there was no prospect of negotiating an agreement. That Rubicon was crossed when we faced the outcome of the judicial review, which was announced at the time of the general election—if my memory serves me right, the outcome of the judicial review was after the general election—so it would not have been appropriate to have been talking in terms of the policy and the processes behind the Bill when we were negotiating in good faith and hoping to reach agreement with six unions.
Q 12 Tessa Jowell: Perhaps the reason why you did not discuss the terms with the unions was that you knew that there would be absolutely no chance whatsoever of getting even one of the unions to agree to the terms in the Bill. The February 2010 proposals were agreed by five out of the six unions. As I am sure you accept, the point about the judicial review being an obstacle is easily met. The judicial review succeeded only because the proposals had not been reached by agreement. You can fix the 2010 package and meet the terms of the judicial review without dispensing with the whole package. Would you agree?
Dusty Amroliwala: I’m not sure I can agree with the last part of your question, because the outcome of the judicial review was to strike down the terms of the February agreement almost in their entirety. The provisions Mr Justice Sales left us with were very small.
The Chair: Order. I know that a lot of people want to ask questions, and you will have to leave it to my discretion. This topic is relevant and should be pursued, but I ask the right hon. Lady to bear in mind that other people want to come in, and we only have until 12 o’clock.
Q 13 Tessa Jowell: Certainly, Mr Benton. It is important to be clear about this point: the proposals in the February agreement could still stand and meet the grounds that they were struck down by judicial review, because the objection that was upheld in the judicial review was that they had not been concluded by agreement.
Dusty Amroliwala: I am sorry, I am losing myself in your question. I think that is a self-evident fact; if we had reached agreement, we would not have been challenged
Q 14 Tessa Jowell: I am separating two things—the objection that was upheld in the judicial review and the intrinsic elements of the 2010 package. I take you to be saying that there is no objection to the intrinsic elements of the 2010 package, but that the objection that the court upheld was the failure to reach agreement on the terms with the unions at the time.
Dusty Amroliwala: Yes, with respect to the five unions, but the sixth union did object to the terms in the package. You are absolutely right. But the Public and Commercial Services Union did not agree to the terms in the February package, and so it cannot be said that those terms were universally adopted by the CCSU.
You also talk about objection, and I think it is important to add that this is a negotiation on both sides. By May, when this matter was being challenged, we had come through a general election campaign when a range of manifesto pronouncements had been made on compensation by the various parties. I do not think it right to rest on the fact that the Government formed after the general election would necessarily have adopted the terms of the February agreement. In February, the then Opposition stated quite clearly that they would review again the terms of the compensation scheme if they were elected. I need to leave open the question that on both sides of the negotiating table it was open for us to return to that discussion.
Q 15 John Hemming (Birmingham, Yardley) (LD): In a sense, I want to continue the points made by the right hon. Member for Dulwich and West Norwood. In essence, the law as it stands allows any one of the trade unions to veto a change to the agreement. One of the unions decided to use that veto to change the agreement, and the High Court—the administrative court—struck that down when it was taken to judicial review. Would I be right to assume, therefore, that you would advise any Government faced with this situation to use a legislative approach to open up the logjam?
Q 16 John Hemming: In that sense, this is a negotiating position, and we do not expect the proposals in the Bill to be final. You would not therefore advise the Government about savings on the basis of the figures in the Bill, because we do not expect that to be the final outcome.
Q 17 John McDonnell (Hayes and Harlington) (Lab): I have three points, but I will be as brief as possible. They follow on from the point about the legal challenge. Mr Amroliwala, you have accepted in your introductory statement that this is open to challenge. Indeed, the
How robust is your legal advice, and how confident are you that the Government would defend their position successfully this time? Is it a 50:50, 60:40, or 70:30 chance of success? I ask the question because in previous meetings you were extremely confident in advising the Minister that the Government’s previous position was robust. In fact, you were virtually certain of victory in the courts, and then the Government lost. Last time round, the High Court ruled that redundancy rates are accrued rights. Therefore, that seems to be the basis of the challenge under European laws that the PCS will use. How confident are you? What have your lawyers advised is the percentage chance of victory?
In the Public Administration Committee’s discussion, the Chair said—as you have said—that if the courts rule against the Government, they could provide interim relief or, in the longer term, full redress. What calculation has been made for the potential provision of interim relief? Have you recommended that the Government have a contingency fund for such cases? I would also welcome an answer—if not today, by a note—about the cost so far to the Government of the legal actions that they have lost.
Secondly, very briefly, time and again in the debate we have discussed the number of staff who were on terms of five or six years’ redundancy payment calculations. The figures on the number of such staff and the overall cost of that are still to be disclosed. It would be helpful for us to have that information in advance of the final debate on the legislation.
John McDonnell: Thank you, Mr Benton. I thought there was heckling for a minute. I will be very brief. I know of no example where legislation has been introduced in this form during past negotiations or at their commencement. Will you tell us whether this sets a precedent? Are there other examples? In the previous discussions that took place under the last scheme, there was extensive consultation with staff. I compliment you on your role in that, Mr Amroliwala, and I hope that it does not affect your career in the future. Will you explain what consultation there has been, particularly on the implications for equality in individual Departments?
Dusty Amroliwala: I will take the questions in the order that you asked them. I did say what I said about the Government being open to challenge. Frankly, it would be impossible and rather arrogant to say at any time that the Government are not open to challenge in such matters. It will always be open to parties to challenge, and it is for them to make those decisions. There is always a theoretical chance at the very least that a challenge is capable of being mounted successfully.
Dusty Amroliwala: Well, you go on to ask that, but we both know, I think, that legal advice in such cases—particularly that given to the Government—is privileged. The Committee will be aware, I think, that the Minister for the Cabinet Office has certified the Bill as being compatible with the Human Rights Act 1998. If it helps the Committee—but I am sure that Members will already know—the analysis of that is given in paragraph 18 of the explanatory notes to the Bill. Now, I am not a lawyer and, frankly, I do not think I can reasonably add more than that to what I have said, so far as legal advice is concerned.
You asked about the costs, I think, of legal challenge thus far. I will happily, Mr Chairman—if it is appropriate—go away and see if I can provide a note to the Committee that covers that question. Indeed, it may be possible also to provide a note that covers your third question, which was to do with the numbers of staff who may possibly attract terms which are, perhaps, levels of multiples in the order of five or six years’ salaries. That question was asked.
There are two very clear classes or groups that we are considering here. There is the population—those staff who may be entitled, by virtue of their age and of their length of service, as matters of fact. That is not impossible to deduce, because we have that level of data. What is far more difficult, and frankly close to impossible to provide for anybody with a degree of accuracy, are those who actually have applied over the course of a period of time and who might have been entitled to that level of compensation had their application been accepted and progressed. Of course, when you are doing a calculation about those people you are going to let go in any scheme, and one feature of the scheme is affordability, there is always a reasonable chance that somebody, whose calculation of salary on departure is five or six times, is not going to be successful in applying for that scheme. So it is just not possible to say how many people that would amount to. But the population of those who might be eligible to apply—it is a matter of public record that the Office for National Statistics produces the figures—as I say, I am happy to do a distillation of that if it helps the Committee to understand those numbers.
I don’t, I’m afraid—it’s my own personal experience and that is why I don’t know—have sufficient experience and expertise to tell you whether legislation in the past has preceded negotiations in this way or not. I simply have nothing in my own experience to rely upon to help me there, so I can’t answer you or help you further on that point, I’m afraid.
There was a fifth question, about consultation. The short answer is this: your very kind words about consulting staff I hope are true, at least in part, but that consultation did not happen until after we had left the domain of having private negotiations with the trade unions and we actually had something that was in some way settled. I acknowledge that it was only settled with five out of six unions, but it was a settled position the Government had reached with five out of six unions and, at a moment in time, it was agreed between all the parties that that could become public. Only at that point, when it was agreed that it could become public, did the efforts to engage the staff take place. Indeed, the parallel work was then done by the trade unions to engage their
Q 19 John Hemming: Further to the legal points made by the hon. Member for Hayes and Harlington, would I be right in saying that the reason why you haven’t recommended that a contingency fund is established, or why you would have recommended any Government to go down this form of route, is that whereas a statutory instrument is secondary legislation and is subject to judicial review—either on human rights grounds, or on the fact that in the previous instance it was not in accordance with statute law—primary legislation, which this is, cannot be struck down through judicial review?
Dusty Amroliwala: My understanding, and I am going to stretch in one sentence the limits of my knowledge on this, is that primary legislation is capable of being challenged on the basis of its incompatibility with European law. But in the event that such a challenge were mounted, and even in the event that a court were successfully to accede to that challenge, it still would not have the effect of striking it down. It would create the effect of the Government being obliged to respond and indicate how they intended to remedy the defect that the court had agreed. It would create the effect of the Government being obliged to respond and indicate how they intended to remedy the defect that the court had agreed. However, it would not be capable, as I understand it, of being struck down in such circumstances. Therefore, it would not be appropriate to have that sort of remedy and fund.
Q 20 Richard Graham (Gloucester) (Con): May I return to the point mentioned by the hon. Member for Hayes and Harlington on redundancy rates? Is it really the case that the judge ruled that the redundancy rates in practice at the time of employment should be regarded as accrued rights? Is that the EU position as well? In which case that would presumably be a potential issue if primary legislation was challenged. My understanding as an employee in both the public and private sectors over the years has been that while pension rights are certainly accrued rights, redundancy payments are what are in practice by the employer at the time when anyone is made redundant. Could you clarify your views on the matter?
Dusty Amroliwala: Certainly. My view, and the position that the Government took in defending the action, was exactly as you describe it: the rates that would be paid to a member of staff who required to be compensated for leaving early would be the rate that was in force at the time they fell into the scope of its being applicable to them as an individual. The simple truth is that Mr Justice Sales took a different view. That is where the matter rests.
You asked whether that would be the view of the European Court. I would say in response that it has not been tested there, therefore it would be entirely wrong to give you any sort of view on that. Your position, as I understand the question, was indeed the position Government took in defending the action.
Q 21 Richard Graham: I have a supplementary question on protecting lower paid civil servants, which is something that I think all of us, on both sides of the House, are keen to try to do as far as possible. I know that is one of the Government’s primary objectives in negotiating with the trade unions a settlement that will be different from that proposed in the Bill. Could you clarify whether you believe that the only way to protect the lower paid is through negotiation rather than primary legislation? If, by chance, one of the unions decided not to agree a negotiated settlement, would you consider amending clause 1 of the Bill to achieve greater protection of lower paid workers?
Your starting point was to ask whether the intent was to recognise the position found by the low-paid in our negotiated settlement. Ministers and the Government could not have been clearer from the day that the Bill was first introduced. It is very much the case that one of the fundamental pillars of our negotiations is around the low-paid. But I have to say—you would expect me to say this—that the negotiations with the trade unions and the CCSU have been conducted entirely in private. I think the Minister said in the House on Tuesday that to share with anyone at the moment where the negotiations stand would be seen as an act of bad faith, and you would not want me to do that in front of you today. I am sure that my colleagues who are on the other side of the negotiating table would take the same position. All I would say to you is that it is of fundamental importance to the construction of the scheme, on both sides of the negotiating table, that we find ways of both defining and protecting, because they are two separate issues.
I do not believe, fundamentally, given the variety of variables and the introduction of the many different facets of protection, however you do it mathematically—whether it is tapered by formulae or by any other meaningful long-term way, by which I mean one that is indexed and therefore keeps its value as the scheme moves forward—that protecting the low-paid is the stuff of primary legislation. It would require a level of complexity that this Bill simply could not accommodate.
Q 22 Richard Graham: But if by any chance the negotiations broke down, rather than going ahead with the Bill as currently proposed, would it be possible and practical to amend clause 1 to reflect the goal of trying to protect the lower paid?
Dusty Amroliwala: In a sense, I think that I have just answered that. I am sure that it is possible, theoretically, to amend the clause and to adjust the figure in it, but I do not believe that it is practical, and I do not believe, on balance, that it is what we would advise. Ultimately, it is a decision for Ministers to take.
Dusty Amroliwala: If I may widen the scope of your question, I think that what I read from it is whether we could do so in an affordable way. The current compensation terms allow for staff to exit the civil service early, whether by voluntary or compulsory means, and there is a process that accompanies that. Could that process be used going forward? Yes.
Dusty Amroliwala: Yes. The short answer to that is that it is the judgment of Ministers and this Government that the terms of the current compensation scheme are simply too expensive and are unaffordable, given the future economic situation and the size of the potential restructuring across the civil service.
Peter Boreham: The situation varies in local government, but we are increasingly seeing local government schemes based on statutory provision, albeit without the £380 per week cap, and sometimes with a top-up for voluntary redundancy, certainly significantly less than the month per year for the CS scheme. In the private sector, for larger employers, median provision is about three weeks per year, and it is reducing. Last year, a number of private sector businesses took the opportunity to reduce their redundancy terms simply to make them more affordable, given the financial situation that they were facing.
Q 26 Claire Perry (Devizes) (Con): Related to that question, a lot of myths are circulating about compensation, by which I mean weekly pay, pension arrangements and redundancy pay. It would be helpful to understand the true situation as you understand it as to whether there has been a gap widely in favour of the public sector versus the private sector, both in terms of redundancy pay, which this Bill tries to address, and weekly earnings and pension provisions. Crucially, we need to keep our talent flowing into the civil service and we need a strong and healthy public sector. Does this risk alter the compact that has been built and deter good quality candidates from entering the system at a time when we need fresh entrants, fresh ideas and fresh thinking?
Peter Boreham: Yes, the situation has changed. Historically, the public sector tended to pay lower weekly or monthly salaries, and to have slightly better pensions and redundancy terms. In the private sector, the pension terms have been scaled back for new entrants. Typically, new private sector workers enter a defined contribution scheme, in which they will not have guarantees and will bear the investment risk, and for which employers’ contributions will be much lower than in an historical private sector or current public sector final salary plan.
The private sector is also pulling down redundancy terms on the grounds of affordability. So, there is a significant gap between public and private sector redundancy in financial terms. In large parts of the public sector over the past 10 years or so, salaries have grown significantly. For people earning up to about £40,000 or £50,000, on average—the average covers a vast variation—the public sector now pays more than the private sector. That is probably less true in the civil service, but it is more true in local government, which has to pay market rates, and in all parts of the NHS, in which there has been significant salary growth following “Agenda for Change”.
The deal has changed, and the public service is now more competitive. That is less true at the top end, although obviously in absolute terms, those individuals are paid more. You ask, “Does it stop the public sector, particularly the civil service, from hiring the right talent?” No, I do not think it does, because I do not think that bright people entering the work force think about what will happen when they are fired, and if they are, one would not want to hire them.
Q 27 John Hemming: Going back to the issue of the low-paid, I have a question for both of you. If we cannot get an agreement from the trade unions to have a better deal for the low-paid, it would be possible for the Government unilaterally to make a better deal for them under the terms of the Bill. I presume that that is true.
Q 28 John Hemming: Either by just agreeing that they will pay extra money or by having a statutory instrument to amend the measure to pay extra money to the low-paid. There does not have to be an agreement to make a better deal for the low-paid; that can be done unilaterally.
Q 29 John Hemming: I am just making that point. To protect the low-paid, the best thing is for them not to be made redundant. The Bill has the advantage that the cheapest people are not necessarily chosen for redundancy, and things can be structured so as to protect the low-paid that way. People talk about the low-paid and the high-paid, but it may be better to analyse by more bands. How would you each distinguish the various thresholds for the low-paid, medium-paid and high-paid? What would you suggest?
Dusty Amroliwala: I am sorry—I do not want to give the impression of ducking the question—but the last part of what you are asking enters squarely the territory
I want to make it clear—it is not that disagreement is breaking out on the table here—that I am not certain that we can accept the notion that employers can simply pay what they want to pay in redundancy or compensation payments. The statutory instrument limits the vires on what the Government can pay to their staff, so after placing a limitation one could not expect to be able to take powers arbitrarily to pay more.
Q 31 John Hemming: Okay, but coming to Peter, I probably cannot ask what form protection should take, because that will be part of the negotiations as well. However, if you were advising the Government, how would you distinguish between the low-paid and the high-paid, and how should people be protected, apart from by aiming not to have redundancies in the first place?
Peter Boreham: Some of my private sector clients put in place a minimum number of years for compensation. I am concerned not only about the low-paid, but about the recent joiners, because redundancy pay is typically linked to tenure. Somebody who has been working for 20 years was paid for those 20 years, but somebody who loses their job after one year is in no better a position than the person who has been around for 20 years. In terms of designing something from scratch, having a minimum figure is helpful in making it possible and survivable for people with lower service to leave their employer.
Peter Boreham: It is to do with setting a minimum level of compensation, and that is one way to achieve that. What is low pay? We are into subjectivity here. A new graduate might be hired on a salary in the mid-20s, but what salary do you give to a new graduate who is on a fast track in the civil service? As a starting point, I might be looking at something below that figure.
Dusty Amroliwala: As a matter of fact, some 50% of the civil service median salaries are below £21,000. One has to be careful in redefining what “median” is, as it can suddenly become “low paid”. The fact that you are paid £1 below the median does not mean that you are low paid, and the fact that you are paid £1 above the median does not mean that you are high paid.
Q 34 The Parliamentary Secretary, Cabinet Office (Mr Nick Hurd): I have two questions for Mr Boreham in the context of comparisons with the private sector. You will have heard from the debate in the House that a lot of importance was attached to protection for the lower-paid. In your written submission you stated that, in the private sector, the
I wonder whether I could draw you out on making distinctions between treatment of people at the lower end of the pay spectrum and of people at the higher end, in terms of redundancy practice. My second question relates to your description in the written submission of
Peter Boreham: On the first point, typically, in the private sector, redundancy pay would be directly proportional to service and salary. There would be no differentiation between levels in the organisation, except at the very top, where executives would be in a different, independent arrangement. They would not, however, normally be entitled to redundancy pay. So, it would be directly proportional.
A minority of private sector employers would have a minimum payment in place. Obviously, we have data from our databases, but I have talked to a number of my clients over the past couple of weeks about what they do. A couple of them said that they pay a minimum amount to people—typically, a minimum number of weeks, rather than a minimum figure in pounds. There was recognition that if somebody joins an organisation and they are turfed out a year later, it is incumbent on the organisation to pay reasonable compensation.
On the disconnect, somebody who has been in the civil service for a limited period might leave with one or two months’ redundancy pay, plus their notice period. By comparison, somebody who has been in the civil service for a long time would perhaps leave with several years’ pay. In terms of fairness, I struggle to see why they would get so much more. We have redundancy pay to allow people the breathing space to find another job, so I am not sure whether people who have been with the organisation for 20 years need to be getting 20 times as much as somebody who has been with the organisation for one year.
Peter Boreham: That is the concern, is it not? It distorts the decision-making process, because somebody who has been here a long time and who might be the
Q 36 Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab): Can Mr Boreham reflect on the influence on the private sector of the distortions from extravagant packages at the top end? It seems to me that we are talking about fairness and norms. How is that affecting the view of the work force in the private sector and, more broadly, employees’ views of what is fair?
Q 37 Gregg McClymont: We are trying to talk about what constitutes fairness in redundancy packages in the public and private sector. I understand that you have been called because you have expertise in the private sector. Perhaps the overlap between the two—and, in particular, the way that the top end of the private sector seems to have steamed ahead—affects perceptions and norms in the market.
Peter Boreham: I am not sure it has a direct effect on redundancy terms. I think it is going to have an effect on senior executive pay over the next few years. In the period in the early noughties, in the boom times, we were in an environment where general staff salaries were growing in real terms, inflation was quite low and living standards were improving, so, to an extent, the work force lived with the fact that chief executives’ pay was shooting up, because they were feeling better off. I think we are going through an environment now where, our research suggests, private sector salaries are going to be growing no faster than inflation for the general population. We are expecting to see some tax increases; we are expecting to see public expenditure coming down. Living standards are, at best, going to stagnate for most workers.
In that environment, it is going to be difficult for remuneration committees to give large salary increases to top executives, certainly in terms of base salaries. In the last year, we have seen salaries for private sector chief executives going up 2% or 3%, in line with the work force.
Q 38 Gregg McClymont: I take your point that remuneration committees, although in the past not particularly effective as far as I can see, may not want to pay above-inflation increases, but do you think there is any possibility they will go for decreases?
Peter Boreham: I think that that is unlikely. We did see some in 2009. I did have a few clients who cut back top executive pay or who reduced the potential bonus quantum. A number of clients reduced the level of the share scheme awards. What we have seen more of is salary freezes—I have one client that has frozen chief executive salaries for the last three years—but cuts, on the whole, have not happened. It would not normally happen unless a business was in quite severe problems.
Peter Boreham: I think that that is the justification for having some proportionality towards longer service. The concern I would have with the historical scheme is that it puts too much weight on longer service, therefore making it unfair and distorting decision making.
Peter Boreham: Yes. I would not recommend, necessarily, an equal number of months irrespective of service, for the reasons that you have described. Obviously, we have to pick our way around age discrimination legislation when we are doing these sorts of things.
Q 41 John McDonnell: Just for the record, you were asked a question about the comparability between the current civil service arrangements—redundancy and compensation—and the most recent agreed arrangements for local government and health. Although it is true to say that the existing compensation arrangements for the civil service are better than the most recent local government and health conditions, the Government’s proposals in this Bill—that is all we have because we know nothing more about the negotiations—are significantly worse, are they not?
Q 45 John McDonnell: The ability to obtain the maximum, then—is there not a considerable distance between the Government’s proposals and what is extant within comparable services in local government and health?
Q 47 John McDonnell: Let me assure you that it is not. The other issue you raise, and it is a valuable point, is the one around the significant variation because of length of service. Have you read any of the statements that we have had in from other witnesses?
Q 48 John McDonnell: Let me just explain. What is interesting here—apart from some of the fairly worrying concerns that people have about the implications of the new scheme for their future lives—is the view that people who have been in the service for a long time have been in it for a whole range of reasons. They have accepted lower rates of pay because they have the security of other forms of payments, such as redundancies and pensions, and that comes across in a few of the statements. I can understand your concern about the differentiation over long service, but the reason why that has built up is that people have entered this service accepting, for a period of time, lower rates of pay because they have these other benefits. So they have taken a view in the round when they have chosen their career. I understand your view that that should not be such an overriding factor now. That is why in the private sector, where there have been changes, they have taken into account the historical decisions of their staff and they have applied new systems to new joiners.
Q 49 John McDonnell: On a large number of redundancies as well; many redundancies are in contracts of employment, so they have had to negotiate those. On many occasions, if you look across the field, they have applied the mechanism to the negotiations with new joiners. That is to ease the implementation of the mechanism itself. Has the consequences or financial implications been considered—perhaps Mr Amroliwala should respond to this—of applying this mechanism to new joiners only?
Peter Boreham: If I can answer the private sector question first, and then we can revert to the question of whether it has it been considered. In the private sector, there are some businesses that have redundancies in their employment contracts. That is generally seen as an unwise way of doing things. The best practice would be to have the terms in, for example, the staff handbook, and to make it very clear that they can be varied from time to time. Clearly, if you hard-wire your redundancy terms, and the organisation’s survival is under threat, you could potentially end up with the situation in which the whole organisation is dragged under by the redundancy terms, which is clearly in nobody’s interests. Although that happens from time to time, it would be unusual, and we would not see that as being good practice. What you describe is very true for pension terms. That tends to happen for new entrants.
Dusty Amroliwala: In response to your last point, that is exactly the case of the civil service. In 2007, pension terms were changed for new entrants, and when the new pension scheme for the civil service was introduced, no change was made to the existing work force. New entrants after 1 July came in on a new career average pension scheme. We stopped new entrants joining on
Peter Boreham: Can I just answer one other point, which I thought was quite interesting—does this change the deal of joining the civil service? Obviously, we need to look at what may come out from the negotiations, but if this ends up as the answer, it changes the deal in the longer term. I am sure that that has been looked at within the civil service, because it raises questions about the whole deal of quite inflexible and quite fixed pay—the high pensions and high termination that we have in the public sector, which differs from the deal in the private sector.
John McDonnell: You have put your finger on it. It does change the deal and it changes unilaterally, because historically the people who will now be applying for redundancy came into the service on one deal—slightly lower pay in return for more secure and better provision on redundancy, pensions and so on—and now the Government are tearing up that deal. You have put your finger on it.
Q 50 Mr Nigel Dodds (Belfast North) (DUP): You mentioned in your written comments to the Committee the fact that the population affected by the Bill is relatively small. There has been some discussion about comparisons with the private sector and local government, but across the public sector as a whole, can you elaborate on the current position as far as redundancy schemes are concerned? Many people will be talking about the public sector compared with the civil service.
Q 51 Mr Dodds: You talked about local government and the way things are moving, but right across the public sector as a whole, what is the position on redundancy compared with the civil service? What is the outlook?
Peter Boreham: Heroically simplified—a very rich position—one month per year of service is as good as, or better than, what you would see in other parts of the public service, for the most part. The one-year cap would be at the aggressive end of current practice, but as the rest of the public service cuts costs, it is inevitable that it will have to go through a similar process.
Q 52 Harriett Baldwin: I have a question for Mr Boreham about evidence that he might have from the private sector about the impact on mobility for the lower paid—the more junior staff—in organisations where the total compensation for senior staff being made redundant is reduced. Is there any evidence from the private sector on how that impacts on junior staff and their mobility?
Peter Boreham: I do not have specific evidence. What we would observe is that low-paid staff tend to be less mobile generally. If you are talking about a chief executive,
Peter Boreham: In the private sector, most of the organisations I have worked with have tried really hard to hang on to as much labour as possible. Last year, we saw people put on to part-time contracts and people being redeployed where possible. The redeployment generally is harder to achieve for the lower-paid than for the higher-paid. That would be the experience.
Peter Boreham: It would be pretty typical in the private sector to have a cap. Historically, it might have been as high as two years. Increasingly, it is coming down. For example, one of my clients—quite a large high-profile employer—last year brought down its terms to a cap of one year because the redundancy costs were just too high.
Q 55 Gavin Williamson: I have picked up from your comments that under the current system, effectively the civil service is operating almost on a system of last in, first out. Is that really good for an organisation over the long term?
Peter Boreham: Last in, first out is a problematic way of doing it. You tend to assume that people you hired recently you hired for good reasons. In the private sector, you would normally be looking at a much higher amount of manpower planning. One of our concerns about the whole cost agenda is a lot of talk about natural wastage, a lot of talk about voluntary redundancy. In terms of reducing pain, that is entirely good, but there needs to be some kind of overlay decision of manpower planning. My private sector clients would be saying, “Well, who do we need in finance? How many people? How many people do we need in IT? How many people do we need in the north-east of England?”, and also looking at the performance of individuals in selecting people for redundancy.
Peter Boreham: There is always a danger with any voluntary scheme that it is your most talented people who sign up because they are most confident about finding another job. Clearly, that is a huge over-simplification.
Q 57 Lindsay Roy (Glenrothes) (Lab): My question is to Peter. The Government say that they intend to bring practice into line with best practice in the private sector. What criteria have we used to determine best practice?
Peter Boreham: If I was working with a private sector client—I am not advising the Government—I would be looking at affordability. I would be looking at fairness
Peter Boreham: What we have is a very simple solution and, in terms of a simple solution, I think that it is quite elegant. I suspect that something better could be devised in negotiation, and I am sure that is what they are hoping for.
Q 61 Gregg McClymont: This question is more for Mr Amroliwala. Have you in your own position—as well as the civil service more generally and the Government—reflected on how what seems to be agreed as a unilateral change in conditions will affect the productivity of many civil servants, particularly the lower paid? Has that been inputted into calculations?
Dusty Amroliwala: When changing anything significant around terms and conditions, we naturally have to give some thought to how that will affect individuals and their productivity, and particularly the element of discretionary effort that they might apply otherwise. The overriding concern is to make the change for all the reasons the changes are necessary, so having been cognisant of those issues, we still would need to move forward with what we are doing here.
I think that where you address those issues is actually in the parallel work, which is to make sure that, as soon as is practically possible, we can say to the work force that we have negotiated a successor scheme that will endure and be sustainable, and that will be affordable for the long term. That takes care of those issues that they would otherwise be concerned about and affords protection to the groups of people whom we would seek to protect. It would help to ensure that that level of discretionary effort was maintained going forward. As things stand at the moment, that is exactly the intent of our negotiations. They are proceeding productively on that basis.
Q 62 Gregg McClymont: Thank you. My worry about that comes from having one of the biggest HMRC centres in my constituency, in Cumbernauld, where many of the workers fit into the category that is designated as low paid. When I speak to them, they say, “Look at all these people up at the top making millions of pounds, with their bonuses, severance packages and share options.” That problem is not created by you or the civil service, but it will be difficult to convince these civil servants
Peter Boreham: May I make an observation on the private sector pay-offs? I do not think that anyone involved in private sector remuneration likes the way it operates—it turns the stomach if someone has not done a particularly good job but gets a huge pay-off. No one likes that. Organisations do it because they do a cost-benefit analysis, which says that if we pay this person a lot of money to go away, they will go away, they will not take us to court, there will not be a fuss and we will move on. If they try to play hard ball, however, you end up in court, your dirty linen is washed in public and your senior executives are tied up in legal action. So, although it is unpalatable in many ways, it is a simple cost-benefit decision by those organisations.
Q 63 John Hemming: It is in the register of interests, although it is not an interest for here, that I am a private sector employer and have been for 25 years. I currently have more than 150 staff. The best practice in the private sector is not to make redundancies, and to plan in such a way.
Mr Boreham, do you agree that the best practice in the public sector would have been not to overspend? As Lord Turnbull said recently, as did Tony Blair, the Government lost control of the finances. We should not have overspent and should not be in the situation of having to make redundancies.
Q 64 John McDonnell: Peter, I do not want you in a position in which you in any way mislead the Committee—you were not an advisor to the Government in the past in terms of redundancies and all the rest of it. I just want to say to Dusty that I know of no scheme in the public sector, and certainly in the civil service, that is based on “last in, first out”. In fact, every redundancy that has taken place in recent years has, in law, required the Government and Departments to identify the reasons for redundancy, to look at the restructuring, to go through a consultation process and to judge people on the basis of their ability to perform their duties in that redundancy situation. It is true, is it not, that there is no “last in, first out”?
I want to follow on with something because it relates to past practice. Let me go back to the individual representations that have been made to us, which are distressing at times. One person said that they did not have any redundancy mortgage protection insurance—they were worried about losing their home. When people entered the service, they saw the redundancy arrangements that would apply almost as their redundancy mortgage protection. They were not given the option of redundancy protection insurance because they thought that the terms and conditions on which they were employed would provide them with that protection. If you are in the private sector, you know that if the conditions are not particularly good, you can take out your own redundancy mortgage protection insurance. However, these people have not done that, on the basis of the
Peter Boreham: I think that what you are describing has happened in the private sector as well. Private sector organisations have brought down their redundancy provisions. There is no doubt that redundancy is a miserable situation that leads people into financial hardship. The problem is that if we are in a situation in which we are cutting the work force because we are short of money—this goes back to the point made earlier—while we want to help those people to stay on their feet, there are limits to how much we can give them, because the reason we are cutting heads is to reduce costs. If the pay-back period for cutting those heads is two or three years, it does not make sense any more. However, there are no winners in such a situation—except, perhaps, some of the top executives you referred to.
Q 65 John McDonnell: No, but there are greater losers, and they have admitted the personal implications here. If they thought that this would happen some years ago, they would have entered into other forms of protection. We have denied them that opportunity by this unilateral action.
Dusty Amroliwala: Your analysis of the way in which we approach redundancy is broadly right. People selected for redundancy are never selected on the basis of a single feature. There is a broad menu of choices, of which the need to retain certain skills and competencies in the organisation is certainly one.
The phrase “last in, first out” was used not to characterise the overall way in which we would approach redundancy, but simply to say that, in the context of the question of affordability, the longer you have been in, the more expensive you are. I understood that the phrase was used to characterise the consideration of affordability, not the overall way you choose to treat redundancy schemes. Either I have missed the point, or Mr Boreham might have characterised that in a different way, but that is my understanding.
Q 66 Claire Perry: I want to ask about potential plans to extend this. We have talked about why it is not necessarily applicable across the wider public sector, but what about non-departmental public bodies, of which we have an enormous and proliferating number? Many of those are subject either directly or in shadow terms to similar pay, pensions and redundancy payments as under the civil service scheme.
Dusty Amroliwala: My understanding of the Bill’s provisions is that they will provide caps for all those people who draw compensation as a result of the calculation provided in the Superannuation Act 1972. As you have
Q 67 Claire Perry: I know that it is difficult to keep track of the NDPB estate, particularly given that we often get the proliferation of sons of quangos, but is your office confident that you would be able to say what number of people employed in the wider public sector would be subject to the caps?
Dusty Amroliwala: If anyone were to leave their employment today and were subject to the provisions of the 1972 Act, we would know who they are, and therefore we would know who would and would not fall into scope.
Q 68 John Hemming: When you are going through these processes, how do you minimise the effect on people? It is possible to bring in things at no cost that actually protect people, such as trying to ensure that there are never two redundancies in the same household, trying to ensure that redundancies are voluntary rather than compulsory, or offering sabbaticals so that staffing costs can be reduced gradually. Do you have any comments on those sort of ideas?
Dusty Amroliwala: All those ideas are valid, and there will be many more that we would and should consider. For many years, the civil service has maintained—there have been successive statements by Ministers in both this Government and the previous one—that compulsory redundancies are a last resort. What lies behind that sentiment is the fact that there is a long-standing process that has been agreed through negotiation with the trade unions not only on the terms on compensation, but the process by which someone is selected for redundancy. That process has an exhaustive number of stages where considerations of other types of employment, including inter and intra-departmental transfers, are all explored. It is only when you reach the end of that process, in agreement with the trade unions around the discussion table, that you jointly agree that an individual or a group will be made redundant. There is a long process—
The Chair: Order. I am sorry, but that brings us to the end of this particular section. On behalf of the Committee, I would like to thank the two witnesses. Thank you very much for your attendance this morning and the helpful way in which you responded to questions.
Charles Cotton: My name is Charles Cotton. I am from the Chartered Institute of Personnel and Development, which is the professional body that represents the interests of people who work in human resources.
Keith Bradford: My name is Keith Bradford. I have been nominated by the CBI’s employment policy committee, of which I am a member, but I am not here to represent the CBI or its views. I am group head of human resources for a FTSE 100 company and my background is very much in employee relations and change management situations in the private sector.
Q 70 Claire Perry: I want to take forward a conversation we have been having with other witnesses about the compact—the whole bringing together of compensation levels, redundancy pay and pensions. One of the concerns it would be interesting to hear your views on is whether the specific changes in the Bill radically change the civil service compact or are they redressing a balance that has perhaps got out of line in the last years, particularly with reference to the private sector?
Charles Cotton: I suppose it depends on the motives of people who want to go into the public sector or the civil service. Perhaps 15 or 10 years ago, the widespread belief was that your pay wasn’t as high as that of the private sector, but there were compensating factors, such as pension and other benefits. Over time, that has changed. The public sector has had to catch up with the private sector in terms of pay to recruit people and expertise. Again, you could say that it might be time to look at the total package and see whether things like that need to be rebalanced again. I would hope that nobody goes into the civil service because it has a great redundancy package.
David Wreford: Undoubtedly it does—it will change. Is that a bad thing? I don’t know, although that is possibly another question. If you look at the private sector, the deal or the contract—however broadly you choose to define it—between employees and employers is changing and evolving all the time. You need to look at it from a number of different perspectives, one being the employees’ perspective. What are the perceptions of this change likely to mean for those employees? The employer always has a perspective on these things. What is the kind of relationship that they are trying to create with their employees and is this change supportive of that? There is always an affordability question, which no doubt we will come on to. There is also a competitive question. Is this deal likely to be consistent with the practices that apply elsewhere and, understanding that that is probably going to be the focus of other questions, I will hold it at that point.
Keith Bradford: I would answer it in this way. The financial imperatives in private industries are more immediate than they are in a Government scenario. So over the last decade or so private sector companies have had to adjust over time to these new financial imperatives. If you look at the overall package there are all sorts of statistics that compare the private sector with the public sector, but generally speaking public sector severance pay and pensions, although perhaps it is more difficult to make that assessment with pay, would be better now than those in the private sector.
Keith Bradford: Yes, it depends on how one looks at out of whack. There are two definitions of that. There is what can be afforded and what is comparable. That is how I would answer that. Part of the problem is that, whereas the private sector has been adjusting over a period of years, although in a particular company it could be quite a quick adjustment, perhaps everything will come in quite a short time potentially. That causes a particular dynamic and not a good one.
David Wreford: The affordability question is paramount within the private sector. Clearly the time that you are making redundancies is the time when you can least afford to do it unless it is part of some other restructuring arrangement.
I wanted to pursue a bit further this point about the public and private sector comparison and hear from each of you the extent to which you think that retaining differential rates in redundancy—compulsory or voluntary—between the public and the private sectors is fair and reasonable in the light of the other different employment circumstances of people working in the public sector versus the private sector.
Keith Bradford: There are lots of different elements that make up an employment package but if one just takes severance terms as an example, the severance terms of the civil service are much greater than those in the private sector. There is no doubt about that. It is not just a question of the cap action that seems to be talked about, but the accrual rate and how quickly you get to the cap. That is a very important factor that we could come back to if you wanted to. That is a factor and although pensions are not the subject today, we are moving towards a situation where defined benefit pension plans are no longer in place in the private sector, compared with the public sector, where they are. I am not saying that that is right or wrong; I am just saying that it is creating different employment packages between the public and private sectors, in quite a substantial way. It may not be the end of the world, but I do think that that is a good thing, because those in the private sector are
David Wreford: There are a number of different factors that an organisation uses to define its redundancy policies and payment levels. We have touched on some of them, such as affordability and competitiveness. The culture of the organisation is often very important. Historically, has it been paternalistic, or has it been run on a more commercial footing? Other factors include the history of collective bargaining within the organisation. There are a lot of factors around issues such as brand—how strong is the brand? Can it get away with being cheap, or will that impact not only on its public persona, but on the morale of the remaining people? Organisations are often clear that they want to be fair and treat people fairly. Those factors are the ones that we see coming to the fore. As an institution, it would have to decide how those factors would influence it differently from how they might influence other private sector organisations. I suspect that factors such as culture would be strong in that.
Charles Cotton: What is important for any organisation is to review why it exists and why it produces goods or services. We need a debate on what the public sector should be like in the 21st century. Flowing from that, we will get a better idea of what skills, values, behaviours and attitudes we need from our public servants, and how we are going to recruit and retain them. At the moment, there is a danger of focusing solely on the pay element without looking at the broader context. In the private sector, you would see more of those discussions—you would look at questions such as, why are we here, what is success, and what do we need to do? Currently, the discussion seems to be about how much we can afford, which is important, but it will only get you so far.
David Wreford: I want to make one supplementary comment to the last one. One needs to be clear about what one is paying for when someone is made redundant. It is not like any other form of dismissal, where the individual will leave with the terms of the notice, and they will have a degree of build-up to knowing that they are on their way. There is always a question with redundancy payments of what you are paying for. Is it a golden payment to an individual, to acknowledge contribution and service, or is it to acknowledge the difficulties in the labour market that the person will face? Typically, if one organisation is going through redundancies, others will be doing the same. Often it is somewhat linked to the skills that individuals have, and the availability of those skills or otherwise within the market.
Q 76 John Hemming: Given the current situation, with the previous Government losing control of the finances and the courts having vetoed changes to the superannuation scheme, do you think that the Government are right to be doing what they are doing? Are the Government missing a trick? Are there things that could be done to protect some of the people being made redundant, or to assist them in getting future employment? What suggestions do you have for the Government?
Keith Bradford: I have been trying to think how you would handle this in private industry. If there is an economic imperative in a company, you have to do
The Government’s dilemma is that the previous Government, the previous employer, negotiated a deal that was blocked by law. I think that a tactic potentially is to unblock that to reopen negotiations, but you have to allow time for that to take place. I do not know how the tactics will play out were the legislation to go through, but it would be pretty difficult to say to your staff, who might be on, say, a three-year cap, that the minute the legislation is enacted on 1 October, or whenever—I am not sure of the date—negotiations will start from a position of reducing the cap to one year. That would be difficult, because it is a big cliff and probably does not allow sufficient room for negotiation.
David Wreford: If I have understood the question, it also links to the practices of businesses and organisations when faced with a need for downsizing and their activities prior to making people redundant. Based on my experience of the past two recessions and the periods of growth that followed—I have heard accounts from organisations and observed the pain that they went through and their subsequent need to attract and retain people—I think that lessons have been learned from the previous recession.
During the previous recession, organisations started to build in practices such as offering sabbaticals, part-time work and so on, but such practices did not last long and the organisations quickly reverted to redundancy activities; this time round we have seen more sincere interest in some of those non-redundancy practices. My perspective on the answer is that we need to look at activities that might be implemented to protect employment, because such activities are beginning to mature.
Charles Cotton: The CIPD predicted at the start of the recession that there would be more unemployment than there has been so far, and I believe that in part that has been a reflection of the willingness of employers, employees and their representatives to discuss what they can do to avoid redundancies, which has led, as has been mentioned, to pay freezes, pay cuts and sabbaticals.
The only thing that I would add is that when organisations look at redundancy payments, they should consider, rather than paying the maximum amount available, paying a little less, but using the extra money for an out-placement service, or a scheme such as that, to help those who have been made redundant to find work. Organisations might also consider providing access to financial advice, because those affected will be leaving
Q 77 Harriett Baldwin: I do not know whether the panel has had a chance to read through the witness statements that were sent to the Committee by individuals across the country who are affected by the Bill, but copies are available. As I read those statements, I was struck by the personal circumstances. On the point to which you were just alluding, there are examples of people who are, for example, in the redeployment pool of the Ministry of Defence or are on what is known as the surplus list of the Department for Work and Pensions. As HR professionals, what advice would you give to your employers on best practice, given the current economic conditions? Do you see such schemes as being practical alternatives to redundancy? What impact do they have on mobility and the attraction and retention of staff?
Keith Bradford: Generally speaking, in any redundancy situation, one looks to redeploy staff within the organisation if you possibly can. That is the first thing we do, and if it can possibly be done, that is great and staff can be retrained internally. The second thing one looks to do—my colleague referred to this—is retrain and help people when they go out, if they have to leave the organisation. One has to do that and that would be best practice, if that is the question.
David Wreford: I agree with those things if they are possible. In a lot of organisations, it is not possible to carry people if they continue to be paid. My employment before Mercer was in a privatised utility organisation. It inherited many of the civil services terms that applied. In relation to the particular example you gave, there was a practice that meant that people could not be given work because they were redundant. There were no compulsory redundancies, so people were at home receiving full salaries for doing nothing. That is not in anyone’s interest because people’s skills begin to deteriorate and they become less and less commercial in the market. If measures such as retraining are possible, it is worth doing them, but if there is going to be bad news at the end of the process it is better not to wait on those things and to allow people the opportunity to go and pursue their careers.
Keith Bradford: In my experience, in the private sector it is normal to have a set of redundancy terms. They have probably been used two or three times in the past in the company in question, and there does not tend to be a distinction between voluntary and compulsory terms—the terms tend to be what they are. I know that there are situations where that is not the case, but in my experience, it does tend to be the case. One looks for volunteers, and if you can get the right group of volunteers that is great. If you cannot, you have to move to compulsory redundancies. There is retraining where possible, but obviously it will often not be sufficient to prevent compulsory redundancies.
You commented specifically on the civil service scheme. Have you looked at other public sector schemes for comparators, such as health, teachers, the fire service and the police? Do you have views about their schemes? The concern is that the Government proposals in the legislation—we do not know what is happening in the negotiation, as it is not for us to be told at this point in time—would mean that the scheme in the Bill is considerably worse than the comparators found in local government, health and elsewhere. What are your views on those other schemes? Do you see them as open to challenge, or do you see some form of comparability? You mentioned distortions between the private and public sector. If the proposals in the Bill are imposed, there would be a distortion within the public sector as well.
Keith Bradford: Yes. Basically, what I gleaned—my colleagues will probably say that I have a different perspective—was that in the private sector about half the companies operate on the statutory scheme, but they tend to be the smaller companies. If you look at significant companies, not the best or the worst, but sizeable companies, they may have something like three weeks’ pay per year of service. The best companies would tend to have something like four weeks’ pay per year of service. Of course, with those multipliers, the cap is not the big issue, because at three years’ pay, it is 34 years before you hit two years. My understanding is that the NHS, which I did look at, is about a month’s pay per year of service with a two-year cap, which would equate to bestish practice in the private sector—not way out of whack, but a top company. The current civil service scheme is way beyond that. There is a guy called Colin in the example, which I am sure you read, who has 12 years’ service and 29 months’ pay. That is an accrual rate of about 10 weeks’ pay per year of service.
The statements we have from the individuals reflect what the unions have told us. The issue of the compact was raised, and it was clear that a number of civil
David Wreford: In terms of redundancy, there are organisations that have it on a contractual basis, which I think are the minority, and there are organisations that have it on a negotiated basis. Whether that is contractual and what flexibilities that allows is another matter, but the majority of organisations will not have an ongoing obligation to offer the terms that may have previously existed. It is not uncommon to find that organisations evolve their redundancy policies, and they do not consider that to be reneging in any way on previous commitments.
Charles Cotton: It would be difficult for organisations to have private sector policies that were set in stone. They often reflect the economic environment, and there are different reasons for redundancy; for instance, some redundancies may be a response to technological change. A type of job no longer exists and the organisation might have sufficient funds to be generous, but other situations can relate to the wider economy. Companies have to make more widespread reductions in jobs, so it is not usual for private sector organisations to have many benefits, other than pensions, that give accrued rights.
Q 83 John McDonnell: But where they are defined in law as accrued rights, which these were in the previous judgment, in the normal run of things compensation would be paid if accrued rights were withdrawn, because otherwise the company would be open to legal challenge, would it not?
Q 84 Gregg McClymont: I want to go back to the question of whether the Bill is a basis for negotiation or an imposition. How could the employer, in this case the Government, go about convincing employees at this stage that they were prepared to negotiate in good faith? Is this kind of measure likely to be a successful way of building the trust that I assume is necessary for subsequent negotiations?
Keith Bradford: It’s a tricky one, particularly as a previous negotiation agreed some different terms, and they are sitting there—“In the last 12 months, we negotiated those terms and then there is the imposition of these terms.” For me, there would need to be some space and time to negotiate. There are a couple of ways you could potentially do that. I do not know whether this is practical or not, but assuming the Bill was passed, one way would be to ask when that imposition would take place. If it took place at a period of time in the future,
Q 85 Gregg McClymont: As this goes on, is there a productivity cost? You are all HR guys. The work force are understandably suspicious about what will happen to their redundancy packages in a context in which the Government are clear that they want to get rid of a lot of these people’s jobs. Is the productivity cost precisely quantifiable? Would it be fair to assume that there is a productivity cost?
Charles Cotton: There has been research looking at the impact of employee engagement. Individuals who have low levels of employee engagement are less likely to stay with the organisation and to be good performers and more likely to be absent through illness. So there have been links showing that the more engaged a work force are, the more productive and high performing they are likely to be. The issue, though, is that many factors impact on employee engagement, and it is a case of being able to realise that and not focusing on any specific one.
David Wreford: In my experience, it is uncertainty among employees that has the greatest impact, and that is often the case with redundancies because of the degree of process that you have to, and choose to, go through to ensure that you implement a fair and consistent programme. In that period of time, there is an impact on the productivity of employees.
Q 86 Gregg McClymont: Can I just ask a final supplementary? In the context of your comment about brand, Mr Wreford, the work force in the public sector perceive the brand in a slightly different way, so that might increase the notional sense of unfairness and contribute to the uncertainty and lack of productivity.
David Wreford: It is entirely possible that it will impact on the internal brand or the compact that you have with your employees. I cannot comment on whether that would ultimately result in productivity issues.
Q 87 Tessa Jowell: I wonder if you could comment on one of the apparent effects of the way in which the legislation would apply. Basically, the longer you work, the more you lose in the event that you are made redundant. In your experience, could that be described as age discriminatory?
David Wreford: You are more likely to hit the cap and suffer greater detriment. That clearly is the case. In a way, it depends on how the formula works up to the point when the cap hits. If the majority of your employees who are likely to be affected are affected by the cap, it will clearly be an issue, yes, because a large percentage of people will be above it. If the formula works up to a position where very few people are affected by the cap, it will arguably not be an issue.
Keith Bradford: I am not a lawyer, but I suppose that the other way to look at that is that if it is based on years of service anyway, older people are likely to have offered more service, so is that discriminatory in itself? That is the other way of looking at the question.
Charles Cotton: The concern is how that could impact on the make-up of the organisation. If it is correct that the more expensive employees are not being made redundant because they are older, you might end up making younger people and those lower down the pay scale redundant instead. So in effect, you are distorting the make-up of the civil service work force if you are encouraged to make only the cheapest ones, who are usually younger, female and from other disadvantaged groups, redundant.
Q 88 Tessa Jowell: May I ask a second question? On the differential rate for voluntary and compulsory redundancy, does voluntary redundancy under the current proposals attract a higher rate of severance? Is that conventional in the wider labour market beyond the public sector?
Keith Bradford: I would say it is variable. The good thing about voluntary terms is that they are less likely to become an accrued right, because you are playing them in and out. Also, you want to encourage volunteers wherever possible. Of course, the dilemma with that approach is that if someone is made redundant voluntarily versus compulsorily, the compulsory person feels, in many ways, more put upon. You can look at that either way, and I know of situations that do it both ways.
David Wreford: In my experience, some organisations try to do it only on a voluntary basis and their terms tend to be more generous. As part of the process, businesses will seek volunteers before enacting compulsory redundancies. On the whole, however, looking at the redundancy policies of organisations, I do not typically see a differentiation between payments that apply on a voluntary and compulsory basis.
David Wreford: If at all possible. It is often counter-productive, sadly. People who volunteer tend to be most attractive to the market and to you, so you typically find that—this is a generalisation—those who step forward for voluntary terms are not the ones you would have otherwise chosen as part of the selection process.
Keith Bradford: The way we typically work is that people can volunteer, but you do not necessarily accept the volunteers. You only accept the volunteers if they have the skills you need to downsize. You might look to retrain and move people around to accommodate them,
David Wreford: This is just an anecdote, but it comes from a quasi public body. I am aware of instances in which employees have raised grievances in the redundancy process because they have not been selected in situations where volunteers are called for and very generous terms apply.
Q 90 John McDonnell: While we have you here, we might as well use your expertise. I have my own view on this, but I would welcome yours—it is a subjective judgment. You have put forward factors about the need for time and for avoiding a position that will impact upon morale, but if they are not taken into account and things go wrong, how long does it take an organisation to recover in your experience?
David Wreford: Historically, there have been some disastrous practices in financial services when redundancies have literally been called out over intercoms and so on. People have also been called into two rooms and it is a bit like a television quiz show: “You’ve lost, so go.” I think that impacts quite badly on the brand of a business, and such things enter the public domain very quickly. I do not think that in those kind of environments the impact is very long—a year or two.
Keith Bradford: I am not trying to avoid the question. I have been in lots of situations, with the possible exception of actual factory closures where the whole factory closes and it is very bitter. Usually, one can avoid that by negotiating properly and having deadlines that are not open-ended.
Charles Cotton: The only thing I would add is that even though they may not necessarily agree with or accept the outcome, the more the employees feel involved, they will know that the process has been gone through and that they have genuinely been involved in the consultation. It is important that they feel that they have some kind of ownership over the process.
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