Draft Statutory Sick Pay Percentage Threshold (Revocations, Transitional and Saving Provisions) (Great Britain and Northern Ireland) Order 2014

The Committee consisted of the following Members:

Chair: Hywel Williams 

Bacon, Mr Richard (South Norfolk) (Con) 

Blenkinsop, Tom (Middlesbrough South and East Cleveland) (Lab) 

Brine, Steve (Winchester) (Con) 

Browne, Mr Jeremy (Taunton Deane) (LD) 

Corbyn, Jeremy (Islington North) (Lab) 

Fuller, Richard (Bedford) (Con) 

Green, Kate (Stretford and Urmston) (Lab) 

Hemming, John (Birmingham, Yardley) (LD) 

Kane, Mike (Wythenshawe and Sale East) (Lab) 

Kirby, Simon (Brighton, Kemptown) (Con) 

McDonnell, John (Hayes and Harlington) (Lab) 

Meacher, Mr Michael (Oldham West and Royton) (Lab) 

Morris, David (Morecambe and Lunesdale) (Con) 

Nokes, Caroline (Romsey and Southampton North) (Con) 

Paisley, Ian (North Antrim) (DUP) 

Penning, Mike (Minister of State, Department for Work and Pensions)  

Perry, Claire (Devizes) (Con) 

Qureshi, Yasmin (Bolton South East) (Lab) 

Sarah Coe, Gosia McBride, Committee Clerks

† attended the Committee

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Seventh Delegated Legislation Committee 

Wednesday 26 March 2014  

[Hywel Williams in the Chair] 

Draft Statutory Sick Pay Percentage Threshold (Revocations, Transitional and Saving Provisions) (Great Britain and Northern Ireland) Order 2014 

2.30 pm 

The Minister of State, Department for Work and Pensions (Mike Penning):  I beg to move, 

That the Committee has considered the draft Statutory Sick Pay Percentage Threshold (Revocations, Transitional and Saving Provisions) (Great Britain and Northern Ireland) Order 2014. 

It is a pleasure to serve under your chairmanship, Mr Williams. I apologise if I struggle somewhat with my voice. I have been stretching it to its limits in the last few days. That may have something to do with the Saracens game against Harlequins on Saturday, but I have had the problem a bit longer than that, so it may be due to something else. 

The draft order was placed before the House on 15 January and was debated in the other House on 10 February. In my view, the order complies with the European convention on human rights. 

We know that, in general, being in work improves well-being. There is a strong correlation between remaining in work and positive health and well-being. However, every year, more than 130 million working days are lost through sickness absence, with huge associated costs to employers, employees and the wider economy. Sickness absence costs the economy an estimated £15 billion a year. Employers face an annual bill of £9 billion for sick pay and associated costs, and individuals miss out on £4 billion of income a year through lost earnings. The state spends £13 billion a year on health-related benefits; £2 billion a year on health care, sick pay, reimbursements and foregoing of taxes. 

The review that was carried out by Dame Carol Black and David Frost of the percentage threshold scheme came to the conclusion that there was a better way of giving employers the opportunity to keep their workers in the workplace. Evidence shows that if someone is off sick for more than four weeks, the likelihood of their coming back to work with the same employer decreases. If they get to six months, the ability to go back into work at all is irrevocably damaged. 

We accept that removing this payment will mean a cost to businesses. At the moment, they get £86.70 a week, rising to £87.55 a week, in compensation for their lost employees and the costs that they incur due to sickness. We will introduce a new scheme, which will, we hope, help small businesses in particular. Many of the larger businesses have occupational health experts; they are there to help the larger companies. However, small and medium-sized enterprises, which employ the vast majority of people in this country, often cannot afford that. That also applies to micro-companies. In the autumn,

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we will therefore introduce a scheme that will help to get people back into work. If employers employ people in their companies, those people are obviously valued, so enabling them to get them back to work as easily and quickly as possible and to look carefully at the reasons why people are not back at work after four weeks is very important. The scheme will allow individuals to refer themselves, their employers to refer them—that is on a voluntary basis at the moment—and of course their GPs to refer them as well. 

Given the financial situation, we only have a certain amount of money—we are debating the welfare cap in the Chamber today—and it is important that we live within our means. Although we will be stopping this benefit, we think that bringing through the health and well-being schemes will balance that off. I hope that the Committee will support the measures that we are taking through. 

2.34 pm 

Kate Green (Stretford and Urmston) (Lab):  It is a pleasure to serve under your chairmanship, Mr Williams. I am grateful to the Minister for the explanation that he has given of the new health and work service. The Opposition certainly welcome initiatives to prevent people from falling out of work after a period of illness and to enable them to return to work as quickly as possible after their recovery. We look forward to hearing more details of the scheme and of how its progress will be monitored. Today, however, we are discussing not that scheme but the impact of removing the percentage threshold scheme, which compensates employers in part for the cost of statutory sick pay, and which will be used to fund the health and work service. I understand that the Government expect that the benefits that business will receive as a result of being able to access the new health and work service will more than outweigh the loss of the percentage threshold scheme. As the Minister acknowledged, there will also be benefits for the state. 

In support of this view, it is claimed that relatively few employers make a claim under the PTS, and I understand that that is possibly because employers think that it is quite complex. First, will the Minister confirm that access to the new health and work service will not suffer as a result of the same disadvantage of complexity? Secondly, will he say a little about what consultation and information have been provided to business about these proposals about the PTS? The Federation of Small Businesses has said that a number of employers have only recently become aware of the planned changes. That suggests that there may have been a lack of adequate communication to those businesses. 

As for the relative costs and benefits, I want to press the Minister on the distributional impact of withdrawing the PTS on businesses of different sizes. In a survey of FSB members in 2011, 9% said that their statutory sick pay bill had been greater than £5,000 over the previous 12 months, while a further 17% incurred costs of between £1,000 and £5,000. For these businesses, the ability to recover part of their SSP bill is significant. The Government’s impact assessment shows that the typical payout for an employer making a claim is £500 per annum, and micro-businesses account for 70% of claims. Presumably, that is because larger companies do not consider it worth their while to claim for a relatively

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small sum. However, for a micro-business, perhaps with only one or two employees, £500 is a not insubstantial sum. 

Micro-businesses account for 82% of all employers, so even if only 10% make a claim under the PTS, as I understand is the case, that is still a lot of employers. If micro-businesses have disproportionately taken advantage of the PTS, will the Minister say how the benefit of the new health and work service is expected to operate? Does he expect that 70% of the benefit of the new service will go to the same micro-employers who currently benefit from the PTS? Is the position the same for micro-businesses and small businesses which are not quite so micro? When I look at the impact assessment, it seems that the Government have made some assessment of the effect on small businesses, but perhaps not on the very smallest. 

Will the Minister tell the Committee what discussions he has had with businesses to understand their concerns, and what the Government intend to do to mitigate any adverse effects? We know from a written answer on 20 March at column 674W to my hon. Friend the Member for Chesterfield (Toby Perkins), that he has ruled out a reimbursement scheme for micro-businesses, which means businesses with fewer than five employees, apparently because of the cost to the state and the additional burden that that would put on business. What were these additional costs and burdens assessed to be? If a reimbursement scheme is not possible, what other mitigation can the Minister offer to those very small businesses? 

Will the Minister say a little more about the impact he expects the measure to have on sickness absence rates? He said this afternoon that he expects the health and work service will mean more active sickness management, which will lead to reduced levels of sickness absence. In some cases, especially for repeated patterns of sickness absence of short duration, that may well be the case. However, in general, sickness absences are lower in small businesses, but there is little an employer—or, for that matter, an employee—can do when a member of staff suffers one episode of prolonged and serious illness, or for those with recurring and debilitating conditions. The fact that under the PTS not all SSP can be recovered even today acts as an incentive for firms to keep sickness absence to a minimum. 

I understand that the Government expect that the health and work service will improve the employment prospects of employees, as employers will be more willing to take on, for example, older workers and disabled workers, knowing that they will have access to good sickness management support, but I wonder if that is really the case. Is the Minister concerned that we may see exactly the opposite effect? What discussion has he had with representatives of disability organisations and others about how that threat could be mitigated? The first of Carol Black’s reports suggested that Ministers should review the reasons why some people go straight on to sickness benefits without receiving sick pay. Can the Minister tell us if that review has been carried out and what was learned as a result?

Finally, can the Minister explain how the impact of these changes will be kept under review? What action will he be able to take if it transpires that micro-businesses in particular are suffering a disproportionate penalty or if there is an adverse effect on hiring patterns? These are important questions for employers and employees alike and I look forward to the Minister’s response. 

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2.41 pm 

Mike Penning:  I thank the shadow Minister for her comments. It is right and proper that she presses the issue, but I notice that she welcomed our reforms. Like any Minister, I have to make sure that we live within our means. Some of the proposals to which the hon. Lady alluded would take us beyond the costs that we have put into the scheme. Later this afternoon in the Chamber, there will be a vote on the benefit cap. The one thing I was determined about when we looked at these proposals was that we lived within the funding regimes. 

The hon. Lady is right to raise the issue of micro-businesses. Having run micro-businesses myself—we used to call them family businesses—I know that the biggest problem for any really small business is one of the employees being off. Whatever we can do to get them back into the workplace, because they are such a key part of the business, is what these proposals are all about. The hon. Lady is right that the average payout is £500 and the average cost to that business from April onwards would be the £87.55, should they claim. As the hon. Lady alluded to, an awful lot of businesses will not be claiming. 

Dame Carol Black and David Frost did extensive work and conducted a huge amount of consultation, as we have done. The hon. Lady asked what contact we have had. Clearly we have not been able to contact with every micro or small business in the country. I announced that we were going to do this some months ago, following the report by Carol Black and David Frost. The £87.55 that businesses will lose is a small amount compared with what it would cost if they were trying to employ occupational health experts to help deal with the problem. 

This will not get everybody back into work. The hon. Lady quite rightly said that there were some conditions that entailed people being off work for considerable periods of time and they would not be able to return. Quite rightly, there are other schemes and benefits out there to help those people. 

I do not think the measure will have the negative impact to which the hon. Lady alluded with regard to age or disability. The impact assessment has shown that the opposite will be the case, because the measure will give confidence to employers that they have the support mechanisms in place should they need to use the scheme. 

There is always a balance when any measure is stopped and a new one is introduced. It is really important that we get it right. The Department continues to review the issue. We are about to let the contract for the work. It is really important to make sure that it is fit for purpose, and that if we need to tweak it while it is in place, it will not cost the taxpayer a huge amount of extra money. 

These regulations are hugely important and are a step forward in occupational health in the workplace. Small businesses and micro-businesses have never had the opportunity to take up such a measure. It is not complicated. I am determined that it will be a user-friendly benefit to businesses, which is why I hope the Committee will support the measure before us. 

Question put and agreed to.  

2.45 pm 

Committee rose.  

Prepared 27th March 2014