Employment Protection

HC Deb 08 December 1980 vol 995 cc742-58

12.8 am

The Under-Secretary of State for Employment (Mr. Patrick Mayhew)

I beg to move,

That the draft Employment Protection (Variation of limits) Order 1980, which was laid before this House on 1 December, be approved.

The draft order has been laid in accordance with section 148 of the Employment Protection (Consolidation) Act 1978 which requires the Secretary of State to carry out each year a review of the limits relating to certain payments made under that Act.

This is the fourth review since the legislation was introduced in 1975. The relevant limits relate to the weekly earnings limit laid down for the purpose of calculating redundancy payments and the basic and additional unfair dismissal award, certain debts in relation to the insolvency provisions of the principal Act: and guarantee payments to workers on short time and temporary lay-off.

The Secretary of State for Employment has by law to take account of three factors in carrying out this review and in reaching a decision. The first is the general level of earnings obtaining in Great Britain at the time of the review; the second is the national economic situation as a whole; and the third is such other matters as he thinks relevant.

If, as a result of the review, the Secretary of State considers that any of the limits should be changed he must lay before each House the draft of an order giving effect to his decisions and, where he decides that a limit should not be varied, he must lay before each House a report giving his reasons for not varying those limits.

The upper limit of the compensatory award for unfair dismissal—which also applies to compensation for race and sex discrimination and is relevant to compensation payable in cases involving unreasonable expulsion or exclusion from a trade union—is not subject to annual review under the principal Act.

As part of the review, the Government consulted a wide range of organisations for their views of the limits, including the upper limit. In the light of these consultations, we have decided that the limits of payments for redundancy, for basic and additional awards for unfair dismissal, and payments under the insolvency provisions of the Act should be increased. The proposed changes are set out in the draft order.

If the order is approved in both Houses the changes to the limits will come into effect on 1 February 1981. This follows the established pattern. My right hon. Friend the Secretary of State also reviewed the upper limit of the compensatory award for unfair dismissal which was increased both last year and the year before, but in the light of his consultations he has decided against any increase.

As I have just mentioned, in reaching decisions on the limits one of the matters which my right hon. Friend has to take into account is the general level of earnings obtaining in Great Britain at the time of the review. The latest month for which final figures are available is August. The August figure showed an increase of 21.7 per cent. over the previous 12 months. The provisional figure for September has been set at 26 per cent.

Nevertheless, my right hon. Friend also has to take into account the national economic situation as a whole. We have to weigh the need to protect employees on the one hand against the need on the other hand to keep within tolerable bounds the burdens which the Act imposes on employers when the importance of keeping employers in business is today so vital.

Like the Labour Government before us, the Government have concluded that economic considerations prevent our increasing the weekly earnings limit to an extent that would fully restore its original purchasing power or even the purchasing power that it had at the time of the last review. We have decided that the maximum increase in these limits that can be justified in the present economic circumstances would be about 8 or 9 per cent.

Accordingly, we propose to increase the limit on weekly payments from £120 to £130 — an increase of 8.3 per cent. For redundancy payments, this means that the new maximum redundancy payment under the statutory provisions will be £3,900—that is, 30 weeks at £130 which would be the amount due to a man of 61 or over who has served 20 years and is entitled to one-and-a-half weeks pay for each year of service. The increase to £130 will also apply to certain payments under the insolvency provisions of the principal Act. The additional cost to the redundancy fund for the year 1981–82 is expected to be about £2 million.

The increase in weekly limits also applies to the basic award of compensation for unfair dismissal. I remind the House that this part of an unfair dismissal award is intended to reflect broadly the amount of redundancy payments which would have been received by an employee if he had been made redundant instead of being unfairly dismissed. This is the reason why the Act links these limits. It follows that the limit should remain in line with the redundancy payments earnings limit. The new maximum in the basic award therefore remains exactly the same as the maximum redundancy payment of £3,900. The additional award which a tribunal may award where an employer has refused to comply with an order for reinstatement or re-engagement is also currently subject to a £120 weekly earnings limit, and is proposed to be increased to £130.

We propose to increase the daily limit on guarantee pay from £8 to £8.75—an increase of 9.4 per cent. We have decided not to increase two of the limits on guarantee pay—namely, the specified number of days in any relevant period, and the length of that relevant period. The reasons for that decision are given in the report which was laid at the same time as the draft order. They are, briefly, that the maximum number of days for which payment is required to be made—that is, five days—still seems to strike a fair balance between the employer's obligations and the employees' rights.

With regard to the relevant period, the fixed period prescribed by section 15 of the 1978 Act was amended to a rolling period by section 14 of the Employment Act 1980 which came into force on 1 October. It would not, therefore, be appropriate to make any further changes at this review.

To sum up, the increases take account of the rise in average earnings, but are inevitably greatly influenced by economic and employment considerations. I commend them to the House.

12.15 am

Mr. Harold Walker (Doncaster)

As the Minister has reminded us, this is the fourth consecutive annual review of the payments that are covered by the order. However, the hon. and learned Gentleman did not say that the percentage changes contained in the order are the lowest and the most miserable since the procedure was introduced. The effect of the order is to slash the real value of the payments that are within the order's scope. The order provides for cuts in redundancy pay, cuts in compensation awards for unfair dismissal, cuts in the sums paid to protect workers whose firms may have gone bankrupt and cuts in the pay of workers on short time.

I shall recapitulate briefly on the short history of these matters and demonstrate what has happened to these monetary payments over the past four years. The most significant of the three factors that affects the review and the one touched upon by the hon. and learned Gentleman—it is the only one that is quantifiable—is the prevailing earnings level.

The first review was in 1977. The then year-on-year earnings increase was 7.2 per cent. That itself is a sad commentary on the subsequent movement of earnings and wages. In that year I, as the Minister responsible, increased the guaranteed pay limit by 10 per cent. and the other payments by 25 per cent. In 1978, against an earnings increase of 15 per cent., I increased all the limits covered by the order by only 10 per cent., but additionally increased the maximum compensatory award for unfair dismissal by 10 per cent. On that occasion the Conservative Opposition denounced me and voted against the order on the ground that the increases were at least twice as high as they thought they should be.

In 1979, against an earnings increase of 14.4 per cent., the present Government, then the incoming Government, increased the guaranteed pay limit by only 10.3 per cent. and the other payments by only 9 per cent. I said in Committee: 'the going rate for pay settlements and the continued sharp rise in the RPI means that the benefit of the proposed increases will soon wither and that this will be the second consecutive year when the adjustments in these monetary limits will fall significantly below that which might be justified by the general earnings level alone. I added: I appreciate that the Secretary of State has to take into account other factors beside the general level of earnings, such as the economic situation at the time. But we cannot continue year after year accepting that the economic difficulties of the day—there will always be economic difficulties of some kind—must be a good reason for ensuring that the continual erosion of the benefits that Parliament has seen fit to grant in respect of redundancy payments, guaranteed pay and the other amounts covered by the order."--[Official Report, Standing Committee on Statutory instruments, &c.. 11 December 1979; c. 9.] I obviously wasted my breath. This year the earnings increase is 26 per cent., and yet the guaranteed pay increase is a mere 9.4 per cent, and the others even less, at a little over 8 per cent. The retail price index, which I suppose is within the other relevant matters that the Secretary of State has to take into account, is running at over 15 per cent.

The prime criterion laid down by the Act is the level of earnings, and yet one can reach the conclusion only that the level of earnings is now seen by the Government to be an irrelevance. One could not otherwise explain the enormous discrepancy between a year-on-year earnings increase of 26 per cent. and yet an increase in these limits of between 8 and 9 per cent. I challenge any hon. Member to identify any relationship between the figures for percentage increases contained in the order and the movement of earnings which I have described and which has been conceded by the Minister.

To restore redundancy payments, which is the principal payment and to which, as the Minister fairly said, other payments are geared, by comparison with earnings to the level originally provided for by Parliament would require an increase not to £134, the figure in the order, but to over £200 in the weekly earnings limit. That applies equally to compensation for unfair dismissal and to payments in insolvency. Instead, these payments, as I have said, have been cut and cut again.

Last year—and again we heard an echo of it this year—the Minister talked of wishing to strike a fair balance between the interests of employees and the ability of employers to pay. However, I ask what can be fair about a situation where year after year employees are having their rights diminished and employers are progressively released from their obligations. None of us can be insensitive to the problems that have been created for employers by this Government, but the Government, however, seem totally indifferent to the plight of the employees to whom the order applies—those who have been made jobless, perhaps in some situations because of the deliberate action of their employer, and for whom there is no prospect of fresh employment in present circumstances.

A fair course might have been at least to seek to maintain the status quo, but that would have called for increases two to three times greater than those that are provided for in the order. Instead employers are to be cushioned at the expense of those they sack unfairly, who are losing their jobs because of redundancy or who have been put on short-time working. That burden has been shifted on to the backs of the newly unemployed.

It should not be overlooked that the Government have a direct financial interest in the matter before the House. The level of redundancy pay—the payments made to employees under the insolvency provisions of the Employment Protection Act—can have a significant effect on the size of the redundancy fund and the outflow from the fund. Employers can claim rebates from the fund amounting to 41 per cent. of the cost of redundancy payments, but the money in the fund is used to offset the public sector borrowing requirement, and that amount at present stands at more than £100 million.

When I stood at the Dispatch Box and said, as I did just now, that the fund was used to offset the public sector borrowing requirement, Members of the Conservtive Party now holding ministerial office accused me in the most intemperate language of robbing the employers. The hon. Member for Brentford and Isleworth (Mr. Hayhoe), who is now the Minister with responsibility for the Army, with the present Secretary of State for Employment egging him on, denounced me for abusing and misusing legislation. The right hon. and hon. Gentlemen went into the Lobby opposing me for doing precisely what the present Government are now doing. At that time the sum did not stand at £100 million; it stood at £60 million.

If the Government had really wanted to ease matters for employers, they could have done what they demanded of me the last time that we discussed these matters on the Floor of the House—increased the employer's rebate from the fund. What did the Conservative Party spokesman say on that occasion? The hon. Member for Brentford and. Isleworth said: It seems that Department Ministers are so craven and lily-livered in their approach that they are not able to insist that the rebate is raised from its present level of 41 per cent. to 50 per cent. without further delay."—[Official Report, 28 November 1978; Vol. 959, c. 370.] The Conservatives have been in Government for nearly 18 months, and the rebate is still 41 per cent. Who now is "craven and lily-livered"? Conservative Members are hanging their heads in shame and saying nothing.

When we last debated a variation of limits order, the Under-Secretary of State for Employment said that the raising of the level of rebate was "under active consideration". He said "I mean that sincerely". The hon. Gentleman nods in agreement. But on 27 November he said in reply to a parliamentary question from me that the Secretary of State no longer had plans to do so. That was after all the sound and fury in the House two years ago. We shall know what credence to attach to the hon. Gentleman's sincerity in the future. The House is entitled to a statement tonight about those matters.

Last year the Government made a marginal change in the employers' contributions to the fund—a drop in the flood tide of insurance contribution increases that have now hit employers. But reducing the income into the fund is no help to an employer when he has to pay substantial sums in redundancy payments. It may not be out of place to recall—as I did last year—that one of the important factors that I took into account in 1978 when the then Labour Government looked at the income and outgoings of the fund was our commitment to legislate for a new short-time working compensation scheme which would be more permanent and generous than the limited scheme that we introduced in advance of the statutory scheme, which, in modified form, has been maintained by this Government.

That more generous and permanent scheme was to have been financed, in part at least, from the redundancy payments fund. For that reason, it was necessary to have a strong balance in the fund. But on taking office the present Government almost immediately abandoned the scheme, thus denying its benefits to the scores and perhaps hundreds of thousands of workers who are suffering reduced pay packets because of short-time working. The cash that might otherwise have helped to keep them in employment and to sustain their standards of living has been pocketed by the Treasury.

We had a social objective in mind when we reduced the rebate, but the Government have prostituted that to their Friedmanite principles. I hope that the Minister will feel inclined to comment on those matters before the end of the debate.

One other matter has been drawn to my attention tonight arising from short-time working and redundancy pay on which I would welcome the Minister's comments. My hon. Friend the Member for Barking (Miss Richardson) has received a letter from the divisional organiser, division No. 6 of the foundry Section of the Amalgamated Union of Engineering Workers. I shall quote the relevant part of the letter. The divisional organiser expresses his concern about some stories coming from usually reliable sources in respect of the Redundancy Payments Act and the compensation for members arising from that. I am given to understand at the moment that where short time working is in operation at present and a redundancy situation follows, members' redundancy payments will be counted on any short time working programme for any extended period. As this Government seems to govern by decree rather than the normal amendments endorsed in the House of Commons, it is extremely difficult to get information at this time. Examples are the alteration, without any notice or consultation, to the short time working contract and a number of other items of which you are only too familiar. I do, not wish to elaborate on that because the relevant point on which I hope the Under-Secretary of State will comment is the following: I am given to understand at the moment that where short time working is in operation, and a redundancy situation follows, members' redundancy payments will be counted on any short time working programme for any extended period. I very much hope that the Minister will clarify the position and set at rest the anxieties reflected in that letter.

I shall resist the temptation to comment further on the matters before the House, and conclude by repeating my condemnation of the Government—just and deserved condemnation—for deliberately and unjustifiably worsening the circumstances surrounding the loss of employment by working people. I shall not advise my hon. Friends to vote against the order, despite the inclinations of some of them, because to do so would put us in a Catch 22 position.

Although the limited increases amount to a cut, their denial to working people would make the position even worse.

Mr. David Penhaligon (Truro)

The right hon. Gentleman has made an interesting speech, but I am not clear on one point. Is he condemning himself when he was in Government or the present Government when they were in Opposition?

Mr. Walker

The hon. Gentleman cannot have followed my point. I explained that in the first year of the review I massively increased the payments under the order. The following year, despite the fact that the then Government had a pay policy which sought to limit pay increases to 5 per cent., I provided for a 10 per cent, increase, and was denounced by the Conservatives for doing so. They voted against us because of the amount of the increases.

In the adverse circumstances of the time I was the first to acknowledge that we were in effect diminishing the value of the payments. I was prepared last year to agree to these matters being discussed in Committee instead of taking up the time of the House and dividing the House. I said then that we could not continue year after year to erode the benefit that Parliament had seen fit to provide.

This year we have the most massive cut in the benefits since they were introduced. There is a world of difference between limiting the increases to 10 per cent, in times of extreme economic adversity, compared with a year-on-year earnings increase of 15 per cent., and limiting them now to 8 per cent., compared with a year-on-year earnings increase of 26 per cent. That is a massive reduction in their value—for the third year running.

I have honestly acknowledged that I was responsible in 1978 for an order that did not match the increases with the year-on-year increase in earnings. The hon. Gentleman is entitled to say that I should hang my head in shame, but I hope that I am being absolutely frank with the House.

The position is becoming worse and worse. The link between the earnings level and the increase provided for in the order seems to have been completely abandoned now. That link was the prime criterion that we wrote into the Employment Protection Act 1975.

The Government deserve condemnation. I have said that I advise my hon. Friends not to divide the House, because we might deny working people even the limited increases provided for in the order. But I very much hope that everything that is said in the debate will be understood—warts and all, if the hon. Member for Truro (Mr. Penhaligon) wishes—by working people and that they will be aware of this further stage in the Secretary of State's step-by-step, slice-by-slice attack on their standards. I hope that it will be noted that this is an attack on people who stand most in need of the benefits that Parliament sought to confer on them by the legislation that is now being worsened by the order.

12.34 am

Mr. Douglas Hogg (Grantham)

In view of the lateness of the hour, I shall confine myself to one question and one comment.

Does my hon. Friend the Minister have it in mind to increase the upper limit of the compensatory award payable for unfair dismissal? If so, when may we expect such an increase?

My comment is on the speech of the right hon. Member for Doncaster (Mr. Walker), a curiously intemperate speech which is typical of the speeches that I have heard from the right hon. Gentleman since I have been a Member. His speech ignored one rather important aspect of the compensation payable for unfair dismissal. He talked at great length about the limited increase in the basic award. What he failed to note and failed to inform the House about was the provisions of the compensatory award for those who are unfairly dismissed. As he well knows, where an employee has been dismissed unfairly and claims compensation, he can recover as part of his compensatory award his net loss up to a very considerable figure, running into many thousands of pounds. That is not affected by the limitation of £130 per week, which is simply and solely the method for calculating the basic award, which is to be distinguished from the compensatory award.

I am sorry that the right hon. Gentleman did not dwell on these matters, for by failing to do so he has misled the House and will, I think, mislead any who have the misfortune to read his speech hereafter.

12.35 am

Mr. Stan Crowther (Rotherham)

If we honestly believe in the principle of compensating people for losing their jobs through no fault of their own, surely it is the duty of the Government and the duty of Parliament to take steps to ensure that the value of the compensation they receive is maintained. It is a very basic principle and is the kernel of what we are debating tonight.

The Government clearly do not accept that view and are quite happy to see the value of the compensation eroded year by year. If that is their policy and they are in favour of devaluing the compensation that is available for people in these unfortunate circumstances, they ought to come out clearly and say so. I heard no sentence in the Undersecretary of State's speech tonight which contained any kind of justification for cutting down the value of the compensation that should be available to people who lose their jobs in such circumstances.

Mr. Jim Craigen (Glasgow, Maryhill)

Is not the Government's embarrassment due not to the fact that redundancies are escalating at such a considerable rate these days but to the fact that the cost of redundancy is growing?

Mr. Crowther

My hon. Friend is absolutely right, and I was intending to come to that point. The Government have already reduced the scope of compensation for unfair dismissal in the Employment Protection Act. Having reduced the scope, they are going a stage further and reducing the value in relation to rising costs and rising levels of earnings.

My hon. Friend was absolutely right in his intervention. The order is yet another example of the way in which the Government are trying to make working people pay for the failure of the Government's economic policy, and especially that bit of the policy which was at the heart of the Conservatives' election campaign to reduce the public sector borrowing requirement.

The net effect of putting so many people out of work, causing so many redundancies, putting so many people on short time, and so on, has been greatly to increase the PSBR. Any way that the Government can find to whittle away a few pounds by cutting their liability for redundancy payments, for example, they eagerly grasp, even though the amount in terms of total Government expenditure must be very small. But the effect on the people individually concerned is very considerable.

The Government ought to understand that making people redundant and putting people on short time is an inevitable consequence of the policies that they are now following in cutting public expenditure on labour-intensive operations such as local government and the Health Service. This is bound to have the effect of making more people redundant and putting more people on short time, thus increasing the demand for compensation under the very type of order that we are debating tonight.

This order is another part of the long process of whittling away the protection which people have enjoyed, but are no longer to enjoy in future according to this Government. The Government ought to be honest and tell the public that their deliberate policy is to reduce the protection which working people have enjoyed. This is the Government who claim to be great supporters of the rights of the individual. All the time, at every turn, they are eroding the rights of the individual.

My right hon. Friend the Member for Doncaster (Mr. Walker) has pointed out the Government's financial interest in this matter, because of the admittedly minor contribution that they have to make to redundancy payments. They are depriving themselves of a substantial source of revenue in the form of income tax and national insurance contributions from those whom they are putting out of work by their economic policies. We go in a circle. The Government find themselves short of a substantial amount of revenue because of the number of people on the dole and at the same time they put up expenditure by paying people to be out of work. This puts them in difficulty so that they have to try to cut down, not only on unemployment and sickness benefit but on redundancy pay. It is pathetic.

I fully understand the considerations which the Secretary of State must bear in mind in fixing these variations and I understand that the retail price index is not specifically mentioned as one of those. Surely we are entitled to expect that he will take that into account. The fact is that people out of work or on short time still face precisely the same increases in prices as those who are still at work. Yet the order seems to take no account whatever of the current rate of inflation.

As my right hon. Friend pointed out, when these matters were being debated two years ago when he was responsible for introducing the corresponding order, the then Labour Government were strongly attacked by the then Tory Opposition because they were proposing to update, the limits to a level which was higher than the figure the Government had in mind for the increase in earnings. Now, the roles are reversed but the basic position is the same. Once again, it is the Conservatives who are opposing the more generous increase and it is the Labour Party, albeit this time in Opposition, which is in favour of a more generous attitude towards those who find themselves in this unfortunate position. Any civilised society must accept that social justice costs money. It is hypocritical to accept the forms of social justice and to be unwilling to meet the costs.

12.43 am

Mr. J. F. Pawsey (Rugby)

It is worth reiterating that the increase still amounts to between 8½ and 9½ per cent, and it reflects the anticipated rate of inflation in the spring of next year. I also believe that it represents the determination of Government to get to grips with what I consider to be the real problem of our time—inflation. Inflation destroys not just savings and profits, but jobs. One of the principal concerns of the House at this time must be employment. The control of inflation must be the first priority of any Government who have the serious intention of getting our nation's economy on anything resembling an even keel. Reducing the rate of inflation will in the long term clearly benefit industry and safeguard employment. It is also necessary to ensure that redundancy payments reflect the ability of industry to pay them. There is no point in seeking to impose high levels of payments if industries cannot afford to meet those payments. High levels of redundancy payments mean just another on-cost for industry, another overhead, and they are an imposition at a time when industry is least able to afford it.

I am still involved in industry, and I doubt whether industry can afford increased payments at this present time. If we regard industry as a golden goose, can we really afford to see that goose choked by being required to fund higher redundancy payments? The Employment Protection Act is already regarded by many employers as an employment restriction Act. Many employers whom I know personally will not recruit labour because of the problems that might be encountered should an order book shrink through no fault of their own.

This is just another cost that home employers must bear. It is a cost not always borne by overseas competitors. The difficulties encountered in winning and perhaps later in holding orders can mean fewer jobs, and the result of this will be less work and lower profits. I put it to Labour Members that profit is not the dirty word that they sometimes imagine it to be. The Opposition may weep crocodile tears and wax indignant, but they should remember that it was under a Labour Government that profits were first squeezed through a high public sector borrowing requirement. Profits were also squeezed artificially through the work of the Price Commission. The commission tried to tackle inflation by cosmetic measures, which represented no real attack on the basic problem of inflation.

The increase in redundancy payments makes it more difficult for companies and firms to stay in business. There is a clear choice: one can have either bigger and better redundancy payments, or fewer jobs. I do not believe that we can have the two together. There must be a clear decision in the House tonight. Either we pay more in redundancy payments or we go for more jobs. The priority in this House this evening, and for the months and perhaps years to come, must be to safeguard employment. In my book, bigger redundancy payments will equal fewer jobs.

There is a clear need to get industry back into profit, because it is from today's profits that tomorrow's jobs will spring. If we have a genuine desire to get this country back on to something like an even keel, we have to get industry back into profit.

12.48 am

Mr. Ronald W. Brown (Hackney, South and Shoreditch)

That was an extraordinary dissertation on the part of the hon. Member for Rugby (Mr. Pawsey), bearing in mind that under the Government to whom he has given his loyal support for the last 18 months unemployment has increased by 1 million in real terms, though I know that the fiddled figure is said to be 750,000. The real figure is about 1 million, and the hon. Gentleman has the effrontery to come to the House and say that he regards the redundant person as just another overhead.

The hon. Gentleman, mark you, Mr. Deputy Speaker, is still moonlighting. He still has two jobs, and this is the guy who talks about somebody being, as he put it in that rather beautiful Conservative phrase, "just another overhead" and says "You must not kill the goose that lays the eggs". The hon. Gentleman has given a few hostages to fortune tonight.

Mr. Pawsey

Would the hon. Gentleman care to comment on the fact that under his Government unemployment doubled? I wonder what hostages the hon. Gentleman gave to fortune during that period of office.

Mr. Brown

I would not press the analogy too far if I were the hon. Gentleman. We have gone from just under 1½ million to 2½ million unemployed in 18 months. If he is a betting man, he had better watch his shirt because he is likely to lose it. The hon. Gentleman referred to unemployed people almost as chequers on a chequer board. The scandalous part of his contribution was his total insensitivity. For someone who is moonlighting and is on the gravy train, he had a damn cheek to make the comments that he made.

The Under-Secretary of State said that the object of the order was to keep employers in business. Article 3(5) of order provides: The variation … shall have effect—

1. (a) as respects a lay-off or a keeping on short-time where the relevant date (as defined in section 90(2) of the 1978 Act) falls after this Order comes into operation".

My right hon. Friend the Member for Doncaster (Mr. Walker) and I were discussing whether that takes account of short-time working. I am the parliamentary adviser to the Furniture, Timber and Allied Trades Union—unpaid, I should add, in case the hon. Member for Rugby should say that I am moonlighting. The furniture industry is now on short-time working to keep firms and jobs going so that, if the economy ever turns up, they will be able to carry on. Do I understand that if a firm is unable to maintain its stability and has to declare redundancies the redundancy payments will be based on the short-time working that has been going on?

I should point out that union members are co-operating with household name firms in the furniture industry in order to maintain those businesses and their jobs. Some of those firms are efficient and effective. High technology is being utilised and every conceivable attempt is being made to be competitive in markets at home and abroad. Yet they are still going broke. As I said, the union and the employers are co-operating to keep the firms going until the economy picks up.

If my interpretation of article 3 is right, the union must advise workers not to go on short-time because it is against their interests. If they are then made redundant, they lose all the way. The value of the redundancy payment will be less than the going rate. It will be less than the basis of the earnings rate that they had and, under the order, it will be less than the going rate that they should have had. They will lose on two counts. Therefore, the advice that the union must give to workers is not to co-operate any more. If a firm looks as though it is going down, workers had better get out as quickly as they can to get the maximum redundancy payment. That is a crazy situation.

The real unemployment figure is 2.5 million, but the fiddled figure is 2.2 million. Yet we are creating circumstances in which we must advise employees not to co-operate with their employers, but to ensure that firms go out of business as quickly as possible because otherwise the Government will see that they are cheated of their just dues.

My right hon. Friend the Member for Doncaster said that we should not vote against the order. If my interpretation is right, people will be not only put on the dole, but cheated at the same time. There is no rhyme or reason in the order. Unless I am satisfied, my right hon. Friend's plea will fall on deaf ears. There is no point in frying to pretend that a gnat's whisker is being obtained out of this shabby order when a chap is being cheated and looked in such a way.

12.54 am

Mr. David Penhaligon (Truro)

I have always supported the Redundancy Payments Act 1965. It was enacted by a Labour Government. It is one of the social reforms that has proved well suited to its task. It was welcomed by industry. Indeed, I have spent most of my time in industry. It is completely justified. If anything, the House should look forwards to increasing payments. I shall explain why.

There is a better case for increasing redundancy payments in real terms now than there might have been in 1965. Today, the chances of a man finding a new job are dramatically less than they were in 1965. I cannot recall the unemployment figure for 1965, but it was of a different order to that found today. A man in his early fifties, who his always exercised a skill that he acquired in his younger days, faces a traumatic experience when he suddenly discovers—as many will—that those skills are no longer required. Many never reconcile themselves to that experience, and fail to recover from it. I have always argued that the Redundancy Payments Act represented a genuine attempt by the Labour Government to give some rational form of compensation for that dramatic change in a man's life.

It is interesting to note how we have treated ourselves in the past few months. I am not as likely to be made redundant now as I was before the last election. If hon. Members, including Conservative Members, were rational, they would consider what the future would hold if they were to lose their parliamentary seats. Let us be honest. Some hon. Members will have to lose their seats if others are to become Members of Parliament. As we know from conversations with previous colleagues, it is a traumatic experience. On the whole, hon. Members are lucky. We have the skills, knowledge and contacts that the ordinary skilled man in my constituency does not have. I should like to speak up for the principle behind the Act. I support the Act. I should like the Minister to say that he supports the principle and the moral behind it.

It is difficult to find the money for such Bills. Nevertheless, we cannot cut everybody off because the Government are in economic difficulties. Today, they appeared to raise £1,000 million by putting up the national insurance contribution. I cannot believe that the Government cannot find enough money to bring the amounts awarded level with inflation. The case in favour is overwhelming. It is socially and morally right. The House should increase compensation in real terms. Even if we move out of this crazy economic position, we shall face a series of decades in which people in their early fifties will be asked, to give up their jobs. Technology will change so rapidly that the skills learnt in a lifetime will become redundant.

The House should try to produce a humane society. In such a society, the case for compensating the unlucky fellow whose skills have become redundant is overwelming. The hon. Member who can stand up and tell us what skills will be redundant in 20 years' time is a very clever man. It is a roulette system. It is our duty to offer a satisfactory and intelligent insurance scheme for the man who draws the bullet in the Russian roulette of redundancy.

12.58 am

Mr. Ron Leighton (Newham, North-East)

Like the hon. Member for Grantham (Mr. Hogg), I shall restrict myself to one question and one comment, in view of the lateness of the hour. Does the Under-Secretary agree that this is the third consecutive year that the real value of these benefits has been reduced in relation to the average level of earnings? If that is so, is the Minister proud of that fact? Is this now the settled policy of the Government? Is it part of Conservative philosophy and something to which we shall have to look forward increasingly in the future?

I remind the Minister of his words on 11 December last year, when he said: I agree that we cannot go on holding down benefits indefinitely in the interest of the economic position."— [Official Report, Second Standing Committee on Statutory Instruments, &c., 11 December 1979; c. 17.] That was said last year, yet here we are, one year later, and the Minister revisits the scene of the crime and makes it worse. That is the only construction that I can put on the matter.

In August and September 1978, the average increase in earnings was 14 to 15 per cent., and we increased these benefits by 10 per cent. In the following year, 1979, when it appeared that the hon, and learned Gentleman was not very happy with what he was doing, the increase in earnings was between 14 and 16 per cent., and again we increased the benefits by just under 10 per cent. But this year, by August, wages had risen by just over 21 per cent, and the provisional figure for September is 26 per cent, but instead of even another 10 per cent, increase in nominal terms we are now down to an average of 8.3 per cent.

Therefore, it is the people who are hitting hard times, as the hon. Member for Truro (Mr. Penhaligon) has pointed out, whom we are hitting hard now.

When we were discussing social security contributions earlier today, the idea that was being canvassed was that those in work should be contributing towards those who are out of work. It seems to me that here we are doing the opposite, because it is those who are hitting hard times, being made redundant, being unfairly dismissed, who are having the burden put on them. Is this the sort of thing that the Government will be doing next year? Is it part of their philosophy?

1.2 am

Mr. Mayhew

The debate has been relatively short, but it has been marked by a real concern on the part of many right hon. and hon. Members for the interests of those who, to take the words of the hon. Member for Truro (Mr. Penhaligon), have to draw the bullet of becoming redundant. Dealing with his question, let me say that the Government stand by the principle of the Redundancy Payments Act, as it originally was, its provisions now being incorporated, as the hon. Gentleman knows, into the Employment Protection (Consolidation) Act. We believe that it is an important and a proper function today that those who become redundant should receive compensation. However, I believe that my hon. Friend the Member for Rugby (Mr. Pawsey) had it right when he said that in today's economic circumstances we have to choose between higher redundancy payments and more jobs.

It would be very easy for the present Government to attain short-term popularity in this quarter by saying "Yes, by all means let us restore the purchasing power that the redundancy payments originally had in 1965–£40." We could strike a great posture, in so doing, for compassion and humanity and all the other things that are urged upon us and which are very desirable qualities in themselves. But if the consequence of that were so to increase the burdens of the employment protection legislation upon employers that not more but fewer jobs resulted and not more or even the same number of employers remained in business but fewer, the end result in terms of hardship for those who depend upon employment for their livelihood would be worse. It is that which the Government have in mind.

Mr. Harold Walker

Surely the hon. and learned Gentleman will acknowledge that the issue before the House is not the increase in real terms of redundancy payments but the reduction that is provided for by the order and was provided for by the orders of last year and the year before. The hon. and learned Gentleman will recall that I said that perhaps it might have been accepted by the House if the Government had sought to maintain the status quo, which is to maintain the real value of redundancy payments and the other payments provided for by the order, without increasing them.

Mr. Mayhew

Either the right hon. Gentleman was not listening to what I said or I had not made myself clear. I expect it is the latter. I was saying that it would be very easy for the Government so to increase the levels of the limits for payment for redundancy payments and for compensation for unfair dismissal that we restored the levels to the purchasing power that £40 had in 1965. This order is increasing those limits in money terms from £120 to £130.

When I opened the debate, I acknowledged that the order was not restoring the purchasing power of the levels either to what they were a year ago or, of course, to what they were earlier. The reason we are taking this course is not based on lack of compassion or lack of humanity. It is a reason based upon our belief that our overriding duty is to ensure that we do not so add to the burdens upon employers represented by the employment protection legislation that we drive more employers out of business.

I agree that the cost to the redundancy fund of redundancies nowadays is very great. It is depleting the redundancy fund at the rate of £15 million a month. It would be idle to deny that there are many employers who are going out of business every month. We trust that this trend will shortly be reversed, but it is continuing at present.

What will it profit those who depend upon those employers who are still in business for their jobs and livelihood if we increase redundancy payments to a level that will drive further employers out of business? It is that which is at the root of the Government's policy. Everyone applauds the short-time working compensation schemes for the overriding reason that they enable employers to stay in business notwithstanding that they have hit very hard times. Once an employer goes out of business, it is trite nowadays to observe that it is very seldom that they can come back. It is important to keep them in business, and it is therefore important that they should not be driven out of business by over-heavy redundancy liabilities.

I invite the House to get into perspective what is taking place. I acknowledge that the full purchasing power is not being restored on a year ago. But only 10 per cent, of those receiving statutory redundancy payments earn more than £120 a week, and only 7 per cent, earn more than £130 a week. We are raising the limit to £130 a week. Only 7 per cent. earn more than that. So only a small minority of higher-paid employees would benefit by our raising the limit, as the right hon. Member for Doncaster (Mr. Walker) suggests, to over £200.

I take the point raised by my hon. Friend the Member for Grantham (Mr. Hogg). He reminded the right hon. Member for Doncaster that the compensatory awards take account of loss of wages, loss of benefits and expenses. They are payable in addition to the basic award and extend to a maximum of £6,250. Not only is it only a small minority of higher paid wage earners who will be affected by the failure to raise the limit to more than £130, but, in addition, there is a maximum of £6,250 that can be awarded under the compensatory award in respect of loss of wages, loss of benefits and expenses. That point is not covered by the order because of legislation passed by a Labour Government. There is a statutory obligation on my right hon. Friend the Secretary of State to review annually the basic award and the additional award, but there is no statutory obligation for him to review the compensatory award. My hon. Friend the Member for Grantham asked a question on that point.

Mr. Harold Walker

The hon. Member for Grantham (Mr. Hogg) accused me of misleading the House by not referring to the compensatory award. That award is not within the scope of the order. It would have been improper for me to raise the matter. If the hon. Member for Grantham is accusing me of misleading the House, it is a very serious charge. I hope that he will reflect on what I have said, namely, that the compensatory award is not within the scope of the order. Had I referred to it, you, Mr. Deputy Speaker, would have properly ruled me out of order. The compensatory award is the subject of discretionary powers vested in the Secretary of State. It is not being increased this year despite the increases in earnings and the retail price index. It is within the discretion of the Secretary of State. If he thought it proper to do so he could come before the House with an order. We should welcome that. However, it is not before the House and it would be wrong for me to refer to it. [Interruption.]

Mr. Mayhew

I hesitate to intrude. Last year my right hon. Friend increased the compensatory award to its present level of £6,250 from £5,750. The year before that it was increased from £5,250 to £5,750. There is no statutory obligation to increase the award, or ever to review it, every year. However, my right hon. Friend did review ii and he consulted widely about whether it should be increased. In the light of the consultations, and bearing in mind that not only the TUC but the CBI did not recommend an increase this year, he decided not to increase it. That is the answer to the question raised by my hon. Friend the Member for Grantham

The right hon. Member for Doncaster asked me a question which was asked in a more detailed form by the hon. Member for Hackney, South and Shoreditch (Mr. Brown) relating to whether employees who are ultimately made redundant following a period of short-time working lave their redundancy pay calculated on the basis of their payment an the time when they were on short-time working. I think that that is the point in a nutshell.

The position is complex. A redundancy payment is based or a week's pay, which must be calculated in accordance with schedule 14 to the 1978 Act. That schedule provides three bases for calculation, depending on whether, under the contract of employment, the employee has normal working hours. No problem is likely to arise where the contract Specifies normal working hours, where the pay is not related to the work completed, and when no change is made in the contract with the onset of short-time working. Some problems could arise with piecework or shiftwork, or where there are no normal working hours.

Short-time working is not a new phenomenon. I am not aware of any problems having arisen in that respect in the 15 years that the redundancy payment legislation has been in operation. However, if the right hon. Member for Doncaster has specific circumstances in mind and will write to me about them, I shall gladly deal with them. On the scenario raised by the hon. Member for Hackney, South and Shoreditch I am advised that my answer is correct.

Article 3(5), to which the hon. Member referred, is merely a transitional provision, Its object is to state the date from which the new rates will apply. Sub-paragraph (a) deals with the redundancy payment that the employee is entitled to claim, after a period of short time or lay-off, by virtue of section 88 of the 1978 Act. Sub-paragraph (b) deals with the more normal redundancy payment arising from a dismissal. Previous orders have had similar provisions and no problem that I am aware of has arisen.

I hope that what I have said so far has enabled the House to see in a broader perspective than the right hon. Member for Doncaster painted the consequences of what we are doing. These are lower increases in real terms than have been made in the past, but the economic situation in which we find ourselves is, for complex reasons, worse than for a long time. It is a matter of the greatest importance that we do not unnecessarily damage the prospects of employers being able to remain in business.

The hon Member for Rotherham (Mr. Crowther) said that social justice costs money. Of course it does, but if social justice is to be lasting and effective it must be justice that will survive for more than a few months. One could say that it would be social justice—if one used so loose a term—to increase the awards to last year's values. But if that meant that after a short time the employers who have to meet those payments could no longer remain in business and provide any jobs, I doubt whether justice would be seen to have been served.

I hope that I have dealt with the matters raised in the debate. The redundancy rebate was mentioned. Expenditure from the redundancy fund is counted within the public expenditure programme and income is included in the Financial Statement and Budget Report, together, with other income such as taxation. It follows, therefore, that the case for restoring rebate to 50 per cent, must be considered against other priorities is assessing demands on the public purse. Against that background, I do not" propose to attempt any forecast of when it is likely to be possible to restore the rebate to its former level.

For someone so sensitive to the charge of misleading the House, the right hon. Member for Doncaster was less than charitable to my hon. Friend the Under-Secretary who said last year that the question of raising the rebate to 50 per cent, was under consideration. So it was.

Mr. Harold Walker

"Active consideration".

Mr. Mayhew

Active consideration, if that makes any difference. I am not sure what passive consideration is. It was a little hard for someone as tender, fresh and wilting as the right hon. Gentleman to say that no one would believe my hon. Friend again. On reflection—active reflection—the right hon. Gentleman will regret those words.

I respect and understand the views of those who have regretted that we have not been able to go further, but I hope that I have been able to place the order in a broader perspective and I commend it to the House.

Resolved,

That the draft Employment Protection (Variation of Limits) Order 1980, which was laid before this House on 1 December, be approved.