§ 1.51 a.m.
§ The Joint Parliamentary Secretary to the Ministry of Labour (Mr. Roy Hattersley)
I beg to move,That the Redundancy Fund (Advances out of the Consolidated Fund) Order 1967, a draft of which was laid before this House on 13th July, be approved.The purpose of the Order is simple and specific. I am sure that it would be the wish of the House at this stage if I did no more than simply outline the intention of the Order and the reasons for placing it before the House.
If the House approves the Order, and if it is approved in another place, the result will be that my right hon Friend, after consultation with the Treasury, will be empowered to obtain loans out of the Consolidated Fund for the Redundancy Fund up to a new ceiling limit of £12 million. I would emphasise that there is no reason for the House to assume that if this permission is granted the new ceiling limit would be reached. What I am asking the House to approve is a contingency plan. We are making plans for a situation which may not come about. I am sure the House will understand that the Government are obliged to make sure that in any conceivable circumstance—and it is no more than a conceivable circumstance—the solvency of the Redundancy Fund is preserved.
I am sure the House will also understand that what I am asking the House to do is in accordance with the provisions of Section 35 of the Redundancy Payments Act. This section enables my right hon. Friend at any time to borrow from the Consolidated Fund up to a maximum figure of £8 million and also enables him, with Parliamentary approval, to increase the borrowing powers to a maximum of £20 million.
I am therefore asking the House to approve something which is in accordance with one of the original provisions in the Act, but which does not go as far as the Act will allow my right hon. Friend were he to regard it as necessary. We are not asking for permission to borrow up to the limit of £20 million as specified in the Act, but only to borrow, should 274 it prove necessary, up to a limit of £12 million. This is a modest increase on the original figure of £8 million and I hope I can explain why it is prudent and necessary.
When the Redundancy Payments Act came into operation and the weekly contribution to the Fund from industry was 5d. and 2d. for men and women respectively, the average weekly income was about £330,000. By the autumn of 1966 the outgoings were greater than the income and the Fund was in deficit. In February 1967, when new weekly rates of 10d. and 5d. came into force, weekly income rose to about £686,000. Estimates which resulted in my right hon. Friend asking the House for, and obtaining its approval to, these increased contributions were based initially on average weekly outgoings between October 1966 and March 1967 of about £650,000. My right hon. Friend then estimated that the deficit in the Fund would reach a peak of £4½ million in February 1967, that outgoings would be reduced to £600,000 per week by March 1967, that in the same month the accrued deficit would fall to £4 million, and that the deficit would be eliminated altogether by March 1968.
The first part of my right hon. Friend's estimate proved to be right. The February deficit reached a peak at £4½ million, but since that time weekly outgoings have averaged something in excess of £700,000. In consequence, the Fund has had increasingly to rely on borrowing, and the total sum now on loan is £5,300,000.
It is always difficult to estimate the outgoings from the Fund, partly because it is not dependent simply on the number of unemployed. There may be a statistical correlation between outgoings from the Fund and the number of unemployed. It is not, however, a direct correlation, because there is no direct connection which it is easy to quantify and assess.
It is not even dependent strictly on the number of men made redundant at any one time. It is dependent on that factor, on the age of the men made redundant and on their length of service in the job which they occupied before being made redundant. Therefore, at any time it is difficult to estimate the actual outgoings from the Fund and 275 what income is necessary to match those outgoings.
However, I should remind the House that my right hon. Friend asked for permission to increase the contributions last year to 10d. and 5d. Initially he believed, and told the House so, that the Fund would best be served if contributions were increased not to 10d. and 5d. but to 1s. and 6d. However, before he brought the Order to the House, he rightly and properly consulted both the Confederation of British Industry and the Trades Union Congress about what contributions they regarded as appropriate.
The Redundancy Fund is in no small measure the property of industry, whose concern it should be to see that the Fund is properly managed and supervised. It was altogether right for my right hon. Friend to take that advice, which was that the increase in contributions should be scaled down to 10d. and 5d. Of course, the eventual decision was his and the Government's and their decision alone, but I ought to tell the House that had the original figures of 1s. and 6d. been presented to the House and accepted, this request for additional borrowing powers would not now be necessary.
I re-emphasise that in my opinion and in the opinion of my right hon. Friend it was right for us to consult industry and, having consulted it, right for us to take note of its views and expressed opinions. Not least was it right for us to do that because we knew very well that if its estimate of what was necessary to keep the Fund solvent and in balance proved to be rather less than accurate, we had the power to present an Order such as this to give us additional borrowing powers to tide us over any temporary difficulties.
I emphasise again that any problems of tiding over difficulties are in a sense hypothetical. Certainly they are hypothetical in terms of a £12 million ceiling. My right hon. Friend believes that that £12 million ceiling will never be reached. It is certainly possible that the existing ceiling of £8 million may prove adequate, but I am sure that the House will agree that prudent management of the Fund requires us to make sure that sums are available to bolster and buttress the Fund to keep it out of deficit.
We know very well the disadvantages of financing the Fund out of increased 276 borrowing. Not the least of these disadvantages is the necessity to finance the interest payments which will be charged on the Fund if borrowing is increased. The Fund must and should be self-financing. Clearly it may occasionally wish to finance its peaks and troughs by off-setting one against the other, but the basic principle of the Fund is and must be one in which the contributions finance the outgoings. I emphasise to the House that it is our intention to examine the nature of the Fund, the nature of the contributions, and to report to the House where the contribution level stands and what are the best long term interests of the Fund and how its solvency can and should be preserved.
What I am asking for tonight is permission to provide for a contingency, the permission to make sure that my right hon. Friend can authorise borrowing up to that limit if it should prove necessary. There is no reason to assume that that will automatically be the case, but there is every reason to believe that it is right and prudent for the Government to make provision in case that situation develops. I hope therefore that the House will agree that the Order which I have placed before it is one which any Government concerned with the solvency of the Fund would present at this stage.
§ 2.2 p.m.
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
We certainly have no objection on this side of the House to the Government letting the Fund borrow from the Consolidated Fund in view of what has happened. In the light of what the Minister has said about the need for the contributions, perhaps to have been fixed a little higher last November, than the rate of 1s. 6d. originally suggested by the Minister, I am bound to ask whether it is his intention, at a later stage, to raise the contributions still further.
This obviously is something of the greatest importance to the industry and all concerned. When we had the increase in contributions last November the right hon. Gentleman gave us some very concise estimates of how the contributions and the payments in and out of the Fund would go in the period ahead. From that I have been able to work out exactly what he expected the deficit to be now.
277 Doing this, I have reached a deficit of £2.15m., £2,150,000. The hon. Gentleman has told us that the deficit is now £5.3m., and this shows how remarkably erratic the Government's forecast has been as to the effect of redundancy payment on the Fund. The original estimate proved wrong, being too low by half. Now, instead of having a deficit of £2m. which the right hon. Gentleman forecast, we have a deficit of £5m.
Why is there such great difficulty in forecasting the effects on the Fund? This has nothing to do with the fact that the Government, quite rightly, reduced the increase in contributions, at the request of the C.B.I. These estimates were made by the right hon. Gentleman after he had taken the decision to adopt 10d. and 5d. It is worth probing a little more about these forecasts before agreeing to the Order.
The right hon. Gentleman said that by now the Fund would definitely be on account, going back into the black, because by now the contributions would be exceeding payments out. From the hon. Gentleman's figures the reverse is happening, and the contributions are running at about £600,000 a week, whereas the payments out of the Fund are at about £700,000, making a weekly loss of £100,000. I would be grateful if the Minister could tell us, if this is so, what the effect is. Clearly the deficit will worsen. When does he calculate that the Fund will turn and begin moving towards profitability and away from further deficits? At what figures is the annual cost of redundancy pay running now? If the estimate in November had been accurate, it would have been costing industry £48 million—£36 million for contributions into the Fund and a further £12 million direct from employers' pockets to make up the quarter. That is a large sum of money, and I take it from what we have heard this morning that the total rate at which the project is running is well over £48 million.
I have tried to understand the possible causes for the Fund to have taken so much greater a down-turn than had been expected. It is several times worse than expected when the legislation was passed, and even after six months' experience of the Fund it is clear that we were not able to estimate how much it would cost. One gets little information from studying 278 the unemployment figures. Between November and now there is very little difference in the total number unemployed or in the total number being declared unemployed month by month. One cannot assume that the change in the pattern of employment has much to do with it.
The other possible variant would be the fact that more older workers were being made redundant, but we have no information about that and I shall be interested to hear whether the Minister has. The right hon. Gentleman told us last November that it was running at £180 per claim, and if that figure has been exceeded recently it indicates that there has been a shift towards discharging older workers rather than younger workers, which is not very satisfactory. We ought to be aware of these trends so that we better understand what is happening to the labour force.
I suggest that by far the greatest cause of the increase in drawings from the Fund has been the greater awareness by people that it exists. We have had more and more cases coming to our notice in which people have been deliberately getting their entitlement to redundancy pay by means which, to say the least, are rather dubious. The Rootes case was subject to Questions in the House. The hon. Member for Jarrow (Mr. Fernyhough) admitted that of 99 workers re-engaged by Rootes, 80 had received redundancy payments—at a cost of £18,000 to the Redundancy Fund—who had previously been employed by Rootes, and the suggestion in that case was that people had even volunteered to be made redundant knowing that they would be able to get back to their jobs quickly and that they could collect their redundancy pay in the process. I have heard of people who, sometimes with the agreement of their employers, have left their employment for a few days or a week in order to claim redundancy benefit and have then somehow managed to get back into the same employment. There were a series of cases not long ago in which it was exposed that employees had been transferred from one subsidiary company of a parent company to another subsidiary thereby technically changing their employer and collecting redundancy payments, although doing exactly the same work and in no sense being truly redundant.
279 These anomalies have recently come to notice, but there are more well-known cases of people who have made arrangements to be made redundant for a few months or a year or two before reaching retirement age. I have every sympathy with them. I think that the difference between the man who collects redundancy pay and retires and the man who retires at, say, 64 without collecting redundancy pay is one which the House should not tolerate. I have heard of cases in which people who have left of their own free will have persuaded their employers to describe them as sacked so that they could get redundancy pay and be refunded the quarter which comes direct from the employer's pocket. People are getting up to obvious tricks. I am not being moral. I do not object to people extracting the lawful maximum, but— —
§ Mr. Deputy Speaker (Mr. Sydney Irving)
Order. The hon. Gentleman knows that the Order is concerned only with the increase from the Consolidated Fund and he must relate his remarks in this respect to the purpose of the increase.
§ Mr. Ridley
I am doing so, Mr. Deputy Speaker. It would not have been necessary without these circumstances. The reason that we must advance £12 million to the Redundancy Fund is that the Fund is being abused in these ways, which destroy the potency of benefits as a weapon to those who have already benefited on previous occasions and are effectively debarred from receiving them again for a number of years before the pay has any worth-while effect.
Has the hon. Gentleman studied what his right hon. Friend called the anomalies under the Act? I would not begrudge the Order if the money were going entirely on redundancy, but there is a general suspicion that the Act is being abused, and before we agree that more and more money should be lent from the Consolidated Fund, we are entitled to ask how the Government will revise some of the arrangements under the Act, which now cost industry £50 million or £60 million a year, whereas only £4 million a year is spent on retraining and mobility grants. This may be distorted, which is why I ask the hon. Gentleman—
§ Mr. Deputy Speaker
Order. The hon. Gentleman is getting into a wider debate about the whole Act. He must speak about the increase, which is only £4 million.
§ Mr. Ridley
That is why I ask the hon. Gentleman, Mr. Deputy Speaker, to answer some of these questions before we can be satisfied that he should have this extra £4 million without some revisions of the Scheme.
§ 2.13 a.m.
§ Mr. Hattersley
The crucial question of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) was whether the Order is a prelude to a decision to increase the contributions to the Fund. I can only say that the Order is intended to ensure that the Fund remains solvent while the entire position of the Fund is examined. It is axiomatic that, if the present position of outgoings exceeding income continues, contributions will have to be fundamentally revised. Since I cannot predict whether this position will continue, or what the state or nature of the unemployed in the immediate future will be, which is crucial. I cannot answer in these precise terms. I can only reiterate that the Order is intended to safeguard the Fund while this further and more intensive examination of the position is made and while, if any alteration proves necessary, the appropriate and essential consultations are carried out.
Perhaps predictably, the hon. Gentleman said that one of the contributory factors to the Order was the "remarkably erratic" forecasting of the outgoings. I will explain why it is difficult to forecast with precision what those outgoings will be. The forecast is, first, dependent on the number of men made redundant during any one week or month. That is, in itself, a difficult prognosis to make. Not only is it dependent on that figure, it is dependent on the age of the men made redundant in any one week and on their length of service. The House will understand the difficulties involved in making that sort of estimate.
Had our estimate not been based on the figures adopted when my right hon. Friend made the Order in November 1966—had we based our estimate on the sort of statistics apparently used by the hon. Gentleman—the Fund would now 281 be in a very bad state, for the hon. Gentleman's estimate led him to suggest that there was no need at that time to increase the contributions at all. If, therefore, we are playing a game of whose estimate is the worst, his would come out bottom in the league.
We made our estimate on the best information and advice at our disposal. I reiterate that our original estimate—of the need to increase contributions to 1s. and 6d. respectively—has been remarkably accurate, considering all the difficulties involved in making this sort of calculation. Whatever the hon. Gentleman says about our forecasting, he must agree that we achieved a high degree of accuracy.
The hon. Gentleman asked me to specify the present difference between the outgoings of the Fund and the present rate of income. He will recall that I said that income at the new figure of contributions was running at about £690,000 a week. In the three weeks ending 21st July, the average weekly outgoings were £725,000, giving a weekly deficit of about £35,000. Were it to continue to run at that figure some sort of additional provision would have to be made.
He asked about the total cost of the scheme as it now affects industry and he forecast that this was between £50 million and £60 million a year. His first figure is more accurate. We estimate—and I admit it is a rough one—that it is about £51 million. That seems to be about the total cost of the scheme to industry.
The hon. Gentleman then asked whether the increased outgoings from the Fund were in part the result of payments obtained by what he described as "dubious means". I agree that it is not difficult for any hon. Member to provide individual examples of men who have obtained from the Redundancy Fund payments which might be regarded as dubious. While such examples can be found, I do not believe that they are at all characteristic of the vast majority of the payments that are made from the Fund to legitimately, realistically and practically redundant men.
The case of Rootes has been quoted. That case represents only a tiny fraction of the number of men who, in the Midlands alone, have legitimately received redundancy payments. On reflection, the hon. Gentleman will agree that 282 the number of people who might be said to be abusing the scheme could not possibly have contributed towards the increased deficit. They represent only a very small fraction of the number of people who receive redundancy payments legitimately. In any case, many of the instances he quoted are of people who are obtaining payments legitimately. The fact that a man is declared redundant and is then re-employed three weeks, three months or even three years afterwards, does not disqualify him from his redundancy payments.
The redundancy payment is intended to compensate a man for losing a job, not for being unemployed. I very much regret the great deal of misinformed and unenlightened criticism of the scheme, which stems from a misunderstanding that the payment goes to a man because he is unemployed. It does not. It goes to him because he loses his job. It has important humanitarian and economic functions—functions which, I believe, have been carried out well and practically over the last year. It is, therefore, essential that we should preserve the solvency of the Fund by approving this Order.
That the Redundancy Fund (Advances out of the Consolidated Fund) Order 1967, a draft of which was laid before this House on 13th July, be approved.