REDUNDANCY FUND (Hansard, 20 January 1969)

§ 29 and 30. Mr. KENNETH LEWIS
To ask the Secretary of State for Employment and Productivity (1) what is the present financial position of the Redundancy Fund;

§ 38. Mr. BARNETT
To ask the Secretary of State for Employment and Productivity if she is satisfied with the present working of the Redundancy Payments Scheme; and if she will make a statement.

§ The Under-Secretary of State for Employment and Productivity (Mr. Roy Hattersley)
With permission, Mr. Speaker, I will now answer Questions Nos. 29, 30 and 38.
The Government have been considering the position of the Redundancy Fund set up under the Redundancy Payments Act, 1965, from which rebates are paid to employers making payments under the Act to workers dismissed by reason of redundancy.
The House approved last July an Order increasing the rates of contribution to the Fund paid by all employers, which came into operation in September. By the time the Fund received its full income at the new level its deficit had risen to £17 million, and it has since remained at about this level, outgoings and income being roughly in balance.
During the last two years there has been a marked rise in the size of average payments to redundant workers, which reflects changes in rates of pay, 36 age and length of service, and it is prudent to assume that this trend will continue. In the absence of corrective action expenditure could be expected shortly to begin to exceed income, thus endangering the position of the Fund, whose borrowing from the National Loans Fund is limited by the Act to £20 million.
In reaching a decision on what action should be taken the Government have three objectives in mind:

l. To remedy the prospective difficulty faced by the Fund;

2. To reduce the amount of the Fund's indebtedness. The Fund was intended to be self-financing, but it has been increasingly in deficit for most of its existence. The Government consider that measures should now be taken which will reduce substantially the amount of the debt.

3. To reverse the tendency for more workers to be made redundant over 40 than was the case before the scheme was introduced.
The Government consider that these objects should be secured by a reduction in the rebates paid to employers from the Fund and not in the payments received by individual redundant workers. They propose that the present rebate of two-thirds in respect of service under 41 should be reduced to one half, and that this rate of rebate should apply also to payments in respect of service at the age 41 and over.
This uniform rebate would end the present system whereby the Fund carries the entire cost of the extra payment made in respect of service from the age of 41 and would provide an encouragement to employers to re-examine the ages at which employees are selected for redundancy, in those cases where selection is possible. It is estimated that the change will save the Fund rather more than £17 million a year, about half of which should go to offset the expected increase in expenditure and the remainder towards reducing the Fund's deficit.
The Government will shortly bring before the House a Bill to introduce this change.

§ Mr. Lewis
Is the Minister aware that it has been the view of a great many people that industry is having to pay out 37 again for the Government having been, first of all, over-optimistic; secondly, involved in maladministration with this Fund; and, thirdly, because they have not heeded, the warnings which have been given more than once from this side of the House and, I think, the other side of the House also, when we have debated this problem? Can he assure the House that this will be the last change which will be made in the administration of this Fund?

§ Mr. Hattersley
The hon. Gentleman's question is based on a misunderstanding of the Fund. It is, and always was, intended to be, and surely always will be, financed by industry itself; and the only decision facing the Government was the way in which industry should finance the Fund. For the hon. Member now to represent this as some sort of miscalculation, so that industry has been forced to pay more than would otherwise be the case, is to misunderstand the nature of the Fund.
As to future adjustments, I can only remind him that there are built-in changes of the amount of payment which must be made out of the Fund, in that redundancy payment is calculated on the final earnings of the redundant man, which increases from year to year, yet no accelerator is built into the contribution.
Therefore, at a future date—I hope a date not in the near future—some adjustment will have to be made.

§ Mr. Barnett
While congratulating the Minister in not acceding to the recommendation of the C.B.I., may I ask him at what level of unemployment he has based his estimate of future deficits? It is not clear that the Redundancy Payments Act is in many instances not working as it was originally intended to do and would it not be as well if the House had an opportunity to debate both the major issues involved and also the way in which the Act is now working?

§ Mr. Hattersley
To answer my hon. Friend's second question first, there are certain anomalies which certainly apply to the operation of the Act, but our evidence and information is that those anomalies are certainly not sufficient in any way to contribute materially to the deficit of the Fund. While they need to be remedied in terms of equity they do 38 not need to be remedied in terms of the Fund's solvency.
In his first question my hon. Friend asked me what are the estimates of unemployment which prompted our calculations. I must remind him that it is not simply the level of unemployment which determines the outgoings from the Fund. If that were the case some of the difficulties of estimating which we have had over the last four years would not have occurred. It is the type of people involved—their wages, length of service, and their age. Therefore, the calculations are based on other things than the one criterion my hon. Friend has specified.

§ Mr. Lubbock
Is it not a fact that the hon. Gentleman has been warned time and time again that the Fund was running into serious deficit? Whatever he says to the hon. Member for Rutland and Stamford (Mr. Kenneth Lewis), is it not clear that serious miscalculations have been made in his Department? Would he, therefore, say whether the proposed changes have been agreed with the Trades Union Congress and the C.B.I., and would he not now, instead of making the Fund self-financing, consider making it part of a general social security tax which would avoid for the future these violent fluctuations?

§ Mr. Hattersley
The proposals have been discussed with both the C.B.I, and the T.U.C. I must make it quite clear to the hon. Gentleman that the C.B.I. is opposed to the proposals in the belief that the Fund should be made solvent by reducing payments to the individual redundant worker affected—a view which the Government totally reject.
As far as our previous miscalculations are concerned, I confess to the hon. Gentleman that we hoped that our calculations in previous years were more accurate than they turned out to be. I explain that hope in two ways. First, it is almost impossible to look for any evidence on which to base one's calculations, in that precedents are few and experience limited. Secondly, both sides of industry, and particularly the C.B.I., urged the Government to estimate on the minimum basis, urged the Government to take no more out of industry than is absolutely essential. That is why, for 39 instance, in 1957, we told the House that we would put up the contributions to 10d. and 5d., although our first thoughts were to put them up to 1s. and 6d. We reduced the contributions after pressure from both sides of industry.
If we made miscalculations it was because we tried to be as reasonable in our demands as possible, and to think in the knowledge that, since the Fund was totally financed by industry, in a general sense it would equalise itself out in the end.

§ Mr. Speaker
Order. We have a mass of business before us and it would help if hon. Members' questions and answers were reasonably brief.

§ Mr. Scott
Will the hon. Gentleman acknowledge that the problems of this Fund have been to a large part, if not the major part, attributable to a much higher level of unemployment under this Government than under their predecessors? He has acknowledged that the Fund was meant to be industry's fund. Why, then, is he proceeding with this reform against the wishes of at least one side of industry? Is it not time for a review of the principles on which redundancy payments are based? Has the hon. Gentleman, or has his right hon. Friend, looked carefully at the widespread allegations of collusion and abuse? To what extent are those responsible for the present difficulties?

§ Mr. Hattersley
As to collusion and abuse, I hope that I told the House in a previous Answer that, in that it exists, it accounts for a very small amount of the outgoings from the Fund. As to consultation with industry, the hon. Gentleman was right to correct himself and to remind the House that the employers are only one side of industry. We consulted both sides of industry, and took the view that the suggestions of neither were entirely acceptable, but certainly the contention that the Fund should be pushed back into solvency by reducing payments was totally unacceptable to the Government.
To turn to the hoary subject of the miscalculation of unemployment, I concede in part the hon. Gentleman's question. 40 Levels of unemployment are a contributory factor, but they are only one, and, had they been the only index of outgoings of the Fund, we would not be in the position in which we are today. The real factor is the level of individual payments out of the Fund to individually unemployed men.

§ Mr. Roebuck
Will my hon. Friend assist the House by telling us about the payments which have been made to redundant directors? Has the C.B.I, expressed a view about the vast amounts which have been paid to them? Will he accept that if we are to have industrial changes so that we can pay our way properly, the way must be made easy for those workers who will lose their jobs as a result of them?

§ Mr. Hattersley
I accept the second part of the question. I imagine that the payments to redundant directors are made in excess of the Fund. My hope is that many progressive employers will also make payments in excess of the Fund to other redundant workers.

§ Mr. Longden
Even though the rebate has been reduced from two-thirds to one-half, is the hon. Gentleman satisfied that the interests of the taxpayer are being looked after by his Department? How many times has his Department intervened before the Tribunal in redundancy cases to ascertain that there is no abuse?

§ Mr. Hattersley
Had the hon. Gentleman's question on that subject been reached, I would have told him on about 10 per cent. of the occasions, but it is not a matter of the taxpayers' interest being upheld. I remind the House and the hon. Gentleman that this is industry's Fund and not the Government's.