REDUNDANCY FUND CONTRIBUTIONS ORDER 1966 (Hansard, 14 November 1966)

§ THE MINISTER WITHOUT PORTFOLIO (LORD CHAMPION)
My Lords, I beg to move that the Redundancy Fund Contributions Order 1966, a copy of which was laid before the House on October 25 last, be approved. The effect of the Order is to increase the the weekly Redundancy Fund contribution paid by employers from 5d. to 10d. per man, and from 2d. to 5d. per woman. In introducing the Redundancy Payments Bill in another place my right honourable friend the Minister of Labour, in referring to the cost of this scheme, said that none of the relevant factors, namely, number of redundancies, age and length of service of workers, and future changes in earnings, could be foreseen with precision and that only experience would show where any adjustments would be needed. Although two special surveys of redundancies known to employment exchanges were made at the time, firm forecasts could not be made on the basis of this information—for example, since the introduction of the scheme, it has been found that the scheme itself affects attitudes and practices in industry. With these reservations, our calculations produced a mid-point estimate of an annual payment of £19,000,000, of which £13,600,000 would be borne by the Fund. To meet this and cover contingencies, weekly contributions were fixed at 5d. for a man and 2d. for a woman, producing an estimated incomes of £18,000,000 a year.
These rates were criticised at the time as being pessimistic. The reverse has proved to be the case, and for two main reasons. First, claims on the Fund have been running at an annual rate of 125,000, compared with a mid-point estimate of 105,000. Secondly, the proportion of over-forties getting redundancy payment has been much higher than in the pre-Act surveys—more over-forties means higher total payments because of the higher scale of payments for years of service over forty-one and because on average older workers have longer service. It also increases the proportion of the total payments made by the Fund, because this increases for years of service over forty-one. As a result the average per capita payment from the Fund has been running since mid-April at £180 1067 compared with a figure of £130 based on the pre-Act surveys. The Fund has been running at a loss of £100,000 a week on average since mid-April. The balance, which was then £2,600,000, has been exhausted and our borrowing from the Consolidated Fund to date totals £350,000.
There is no question, therefore, that an increase in the contribution is needed promptly. It is needed for three purposes: first, to clear this deficit; secondly, to enable the Fund to build up an adequate reserve so that we do not find ourselves again in a situation like the present, and thirdly, to cover the future likely level of expenditure. In estimating this future level we must expect heavier claims on the Fund because of the recent increase in the level of unemployment. It is not possible to put a precise figure on future trends. Nor is it in any event possible to establish an exact correlation between redundancy payments and the unemployment figures. There is, therefore, inevitably, a considerable element of judgment in any attempt to forecast future expenditure from the Fund. In the short run we must obviously expect high expenditure, say £650,000 a week over the next six months, compared with £430,000 a week over the last six months. It may take another twelve months, with expenditure on an average of £600,000 a week, before we get near normal again, say, from the Spring of 1968.
On present trends the deficit might reach £4,500,000 by the beginning of February. The Minister's borrowing powers under Section 25 of the Act are limited to £8,000,000, though this can be raised to £20,000,000 subject to Treasury consent and Affirmative Resolution of Parliament. But any such delaying action would merely aggravate the problem and force us to make a larger increase in the end. In the Government's view, therefore, contributions must be increased promptly, and the earliest practical date is February 6, 1967. The Minister had originally intended to increase costs to one shilling for a man and 6d. for a woman. But after consulting the C.B.I., the T.U.C., and nationalised industries, who all felt that this was on the high side and that he was trying to do too much too quickly, he decided, after considerable 1068 deliberation, to fix the contribution at 10d. and 5d. This will almost certainly mean that the Fund will remain in deficit for over a year, but there should be a small credit balance by the Spring, 1968. It is of course unfortunate that we have to make this increase. But the addition to labour costs will be minimal—on average, less than one-tenth of one per cent. Finally, in commending the Order to the House may I say that the Government recognise that there is a considerable element of judgment in the provisions it is making for the future. If in the end the Fund should recover more quickly than anticipated and build up a satisfactory reserve in a comparatively short period, the Minister will, at that stage, review the contribution I am now asking the House to approve. My Lords, I beg to move.

§ LORD DRUMALBYN
My Lords, I should like to thank the noble Lord, Lord Champion, for his explanation of this Order and to congratulate him on the skill with which he has wrapped up the perfectly obvious fact that the Government have guessed very wrong. My Lords they have "thought of a number" and they have now had to double it. The real truth of the matter is that what one might call the mutual insurance premiums for redundancy payments are being doubled while the benefits remain the same. We accept, of course, that it was not possible to judge with precision (that is what the noble Lord said), what the cost would turn out to be; but there is a considerable difference between judging the matter with precision and being 100 per cent. wrong.
The noble Lord says that this Fund will remain in deficit until the beginning of 1968, and by that time he hopes that it will come once again into credit and, presumably, that a reserve fund will be built up. All I have to say to him is that the Government will have to alter their policy very considerably and pursue a consistent policy instead of, as in this case, having not only had a lack of consistent policy but a lack of any policy at all. I have only to remind your Lordships that the Prime Minister said, as 1069 recently as last March, that he did not expect any considerable increase in unemployment.
The two main factors here are the increase in unemployment and the higher incidence of redundancies among older people than was expected. Obviously we cannot oppose this Order. The Fund must be put into balance. But I hope that the noble Lord will not say, every time increases of this kind are proposed in the burdens that have to be carried by industry, that they are only "minimal" burdens. They are increasing all the time, sometimes necessarily, as, for example, in the industrial training levies, and sometimes less necessarily, when perhaps the burden could have been more wisely spread. I do not think that the noble Lord makes his case any better by claiming that this is only a little one, because they all mount up. I cannot advise your Lordships to oppose this Order, but I deplore it.

§ LORD MCCORQUODALE OF NEWTON
My Lords, this seems to me to be an unfortunate case. It is difficult, over the Table, to follow exactly the figures given by the noble Lord, although I am very grateful to him for the care with which he explained the Order. It would appear that the costs are going up from 130 to 180 units, and therefore the charges must be doubled. I fail to see why the charges should be doubled, except from the Exchequer point of view. Obviously the heavy hand of the Treasury has been in this matter.
Why should it be necessary to build up a sizeable reserve? These payments could be adjusted and paid in and out as we go along. Why do the Treasury wish to build up a reserve?—because they always want to mulct every penny piece they can out of industry and everybody else. I should have thought that at this time the Government would have taken more care of industry, and would not have wished to put on to industry, both nationalised and private, more than was absolutely necessary. Even in this last hour, I would ask the Minister to make sure that directly the Fund is in balance again these charges will be reduced, and not to hand everything over to the dead hand of the Treasury.

§ LORD CHAMPION
My Lords, I am grateful to both noble Lords, though of course they have not received this draft 1070 Order with any great cheers. Both noble Lords have pointed to the fact that it is not a good argument to say that this is "only a little one". I must admit that there is a great deal in this viewpoint. When asking for something from the taxpayer, we all tend to say, "It is only £10 million or £30 million", and when we take something out of industry, to say, "It is only one-tenth of 1 per cent." But we recognise that all this has to be taken out of industry, and I agree with the noble Lords that we must be very careful about this and not overdo it, as Governments can do—perhaps I might almost say "tend to do"; but I must not say that because then I might be in trouble elsewhere.
I think we have done the right thing in this connection, despite what the noble Lord, Lord Drumalbyn, said about our failure to forecast accurately. Clearly, it would have been impossible to forecast this, because the amount of data available to us was so limited. We are instituting something new. We thought that we had arrived at the right figures in 5d. and 2d., but this has proved not to be the case. Therefore I think it is right that we should ask industry to face this additional charge in order that we may carry on this policy—and it is the right one—of securing that there is a greater degree of mobility of labour. It is part of an economic policy designed to ensure that people are being employed in those employments where they can best serve industry and the nation. Despite the criticisms, I believe that the House will pass this sensible Order.