REDUNDANCY FUND (ADVANCES OUT OF THE CONSOLIDATED FUND) ORDER 1967 (Hansard, 24 July 1967)

§ THE JOINT PARLIAMENTARY UNDER-SECRETARY OF STATE FOR SCOTLAND (LORD HUGHES)

My Lords, I beg to move that this Order be approved. The effect of the Order is to increase the borrowing powers of the Redundancy Fund under Section 35 of the Redundancy Payments Act from the present limit of £8 million to £12 mllion for a period of twelve months beginning on August 15, 1967.

I would remind your Lordships that the Redundancy Payments Act 1965 provides for lump sum compensation to workers who lose their jobs through redundancy. The compensation is related to earnings, age and length of service, and is designed to make adequate financial provision for the loss of security which redundancy entails, by way, for example, of loss of seniority and promotion prospects, expenses of moving to a new job, and so on. The Redundancy Fund set up under the Act is financed by contributions from employers, the contributions being collected weekly by the Ministry of Social Security as part of employers' social security payments. Thus, in effect, the Fund consists of employers' money and is administered on their behalf by the Minister of Labour. When employment is terminated through redundancy the employer pays to the worker the amount due to him according to the provisions of the Act, and claims what is called a "rebate" from the Redundancy Fund. The amount of this rebate, which is paid to the employer by the Ministry of Labour, is, on average, about three-quarters of the total paid by the employer to the redundant worker. Such, my Lords, in very brief outline, is the redundancy payments scheme.

Since December 6, 1965, when the Act came into force, about £40 million has 672 been paid out of the Redundancy Fund—and, in addition, employers themselves have paid out about £14 million, representing the 25 per cent. of the redundancy payments which they cannot reclaim from the Fund. The Fund's income from employers' contributions has been about £35 million. The deficit has been met, as is provided by the Act, by temporary loans from the Consolidated Fund. I should say, my Lords, that it was deliberately decided when the Fund was set up, in full consultation with industry, that the contributions to be paid by employers should be fixed so as to meet the expected outgoings from the Fund and not to build up a large credit balance.

Because during the second half of 1966 the money in the Fund was becoming exhausted, it was decided, again in full consultation with industry, to increase the employers' contribution from the original figure of 5d. per week for men, and 2d. per week for women. Your Lordships will recall that last November the House was asked to approve an increase to 10d. per week for men, and 5d. per week for women. These higher rates came into operation on February 6 this year.

The Government had originally intended to increase contributions to 1s. for men and 6d. for women, but in the light of views expressed by both sides of industry they decided in favour of the rates of 10d. and 5d., to which I have referred and which were expected to bring in £690,000 per week. It was expected also at that time that outgoings would average £650,000 a week until March of this year, and then decline gradually over the next twelve months during which an average weekly expenditure of £600,000 was expected. Since the new rates were introduced in February, average weekly outgoings have, in fact, reached £740,000, and borrowings from the Consolidated Fund have reached the figure of £5,300,000.

It will be appreciated that we are still in the early stages of a pioneer scheme which has had to operate in a period of abnormal economic conditions. It is therefore not surprising that it is proving difficult to forecast the expenditure of the Fund with any degree of accuracy. The fluctuation of expenditure from week to week is substantial and largely unpredictable.

673 The present Order has two purposes. Because borrowings from the Consolidated Fund are now within £2,700,000 of the total for which the Act at present provides, it is necessary to provide for any unforeseen contingencies which may arise during the next few months. Section 35 of the Act provides that the borrowing limit of £8 million may, with Parliamentary approval, be increased to a maximum of £20 million. While the Government do not expect the £8 million limit to be reached during the Recess, they must in all prudence provide some insurance against the unexpected. The second purpose of this Order is to allow time for the Government to gain more experience of the scheme and to assess more accurately the level of contributions required to meet the Fund's expenditure in the longer term.

It is, of course, by no means certain that an increase in contributions will prove to be necessary, but the money already borrowed has to be paid back within a reasonable period, for, apart from anything else, interest payments on money borrowed are themselves a charge on the Fund, and increase as the deficit increases. With these two considerations in mind, the Government are not asking for the maximum borrowing powers of £20 million permitted under the Act, but instead are limiting their request to £12 million for a period of 12 months only. I must nevertheless make it clear that in order to maintain payments on the scale and of the kind provided for under the scheme, some further increase in contributions may be unavoidable during 1968. It is the Government's intention to review the position with representatives of both sides of industry during the autumn. My Lords, this Order will provide the necessary time for the review of the finances of the Redundancy Fund to be carried out objectively, and in consultation with industry, and I therefore ask your Lordships' House to approve it.