HL Deb 04 March 1969 vol 300 cc69-78

6.6 p.m.


My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Lord Brown.)

On Question, Motion agreed to.

House in Committee accordingly.

[The LORD JESSEL in the Chair.]

Clause 1 [Reduction of rebates]:

LORD DRUMALBYN moved Amendment No. 1: Page 1, line 10, leave out ("three quarters of").

The noble Lord said: In moving this Amendment, with your Lordships' permission I should like to discuss Amendment No. 2 at the same time. It might be for the convenience of the Committee if I go into a little of the background of this matter, because all that the Bill is really concerned with is rebates. The Redundancy Payments Act provides that where employees are made redundant payments are made related to weekly basic wages up to £40 a week, calculated on the basis of half a week for every year of service under 22 years of age, one week for every year of service under 41 years of age, and 1½ weeks for every year of service over 41 up to 64. In all cases the maximum period of service counting for redundancy payment is 20 years, and payments are made by the employer, who receives rebates out of the Redundancy Payments Fund.

This Fund is financed by weekly payments levied from all employers at a rate of 1s. 3d. for men and 7d. for women: it was originally, in 1965, 5d. for men and 2d. for women. But despite the increase in the levy, the fund is in deficit. The Minister has power under the Act to make advances up to a limit of £20 million, and that limit will be reached very soon. That is the background of the matter. The Government decided to put a stop to this drawing on advances.


For the sake of the record, may I point out that the noble Lord has quoted the wrong contribution rates: they are now 1s. 3d. for a man and 7d. for a woman.


I think the noble Lord must have misheard me. That is what I said. I said that they were originally 5d. and 2d., but they are now at the rate of 1s. 3d. for a man and 7d. for a woman. Four courses were open to deal with this situation. One was to increase the limit of the advances and allow more to be drawn; the second was to increase the levy; the third was to reduce the redundancy payments; and the fourth was to reduce the rebates, thereby increasing the proportion of payments falling on employers where employees are paid off as redundant. The Government decided on this last course. It is not open to your Lordships, even if you were so minded, to make any Amendment to vary that, so as to increase the levy or to reduce the redundancy payments.

The rebates are reduced under the Bill from two-thirds to one-half in the case of service under the age of 41; and from severs-ninths to one-half in the case of service over 41. The effect of this is that, whereas at present employers make the same net payment in respect of service under or over 41 and the Fund pays the difference, in future the Fund will pay the same rebate irrespective of the age—whether it is over 41 or under 41—at which the service is given and the employer will pay the difference. By this change, which is estimated to increase the burden on employers by £17 million a year, the Government hope to be able to pay back the advances received from the Exchequer, as I understand it, at the rate of about £8½ million per year; and, at the same time, to accumulate enough to cover anticipated rises in the cost of redundancy payments due to increases that are expected in weekly wages on which the redundancy payments are based.

Again, if I understood the noble Lord correctly, this is essentially an interim scheme, since the Government expect to change the basis of the levy from a fixed weekly payment per employee to one based on a proportion of the total payroll, under the White Paper which they have already laid before the House, and this would be a proportion of the total payment. It may be thought that this would have been better in the first place, because in that case it would have enabled the Fund to rise along with wages, whereas at present, as it is a kind of poll tax per employee, it does not do so unless and until the levy is increased.

What this Amendment proposes is a compromise between the present level of rebates and the level proposed in the Bill. The Amendment leaves unchanged the reduction in rebate in respect of service under 41—the change that is proposed in the Bill is left unchanged; as I said, the Bill proposes that it should be reduced from two-thirds to one-half—but it reduces the rebate on service over 41 from seven-ninths to two-thirds, instead of from seven-ninths to one-half as proposed in the Bill. The only reason the Government have given for what is, after all, a savage increase in the burden on employers who for one reason or another have to reduce their work force, is that the proportion of older men made redundant has risen from 60 per cent. in 1963 to 70 per cent. in 1968, which they say is due largely to more older men volunteering to be made redundant when redundancy schemes are being made between employers and employees. This increase in veteran volunteers is no doubt due in part to the introduction of wage-related unemployment benefit, and in part to the higher level of redundancy payment in respect of service over 41.

The Government seem to think that the best way to discourage such volunteering is not to reduce the incentive to volunteer, but to make the employers pay a higher proportion of the redundancy payment made to old men. This may be good policy but it is curious logic. The Bill is so drawn that we are concerned only with rebates and not with the payments themselves. What we are entitled to consider is how much higher a proportion of the redundancy payments ought to be paid in the circumstances; and that is what this Amendment seeks to achieve.

I hope that the broad effect of the Amendment would be that the reduction of the rebates would suffice to meet the rising level of payments without running the Fund into further deficit. But it would, of course, slow down the repayment of advances already made by the Exchequer. But as this is only an interim scheme, that does not seem important, especially as the level of employer contributions, on the basis of a proportion of payroll which is envisaged in future, seems likely to provide a surplus and, at any rate, could be adjusted to do so. So it is only a question of time as to when the advances should be recovered. In the meantime, it is a question of the burden laid upon the employer.

I must give your Lordships some indication of the Amendment's effect on employers, in comparison with the proposal in the Bill. Broadly speaking, under the Amendment the rebate is reduced proportionately by the same fraction of a week's pay, whether in respect of service under 41 or over 41—it is reduced by one-sixth of a week's pay—whereas under the Bill as drafted the rebate is reduced by no less than five-twelfths of the week's pay in the case of service over 41. Let me illustrate this by one example. Let us take two men, one 41 and the other 61, each with 20 years or more of service and each earning a basic wage of £24 a week. The redundancy payment would be £480 in the case of the man of 41, and £720 in the case of the man of 61. That is unchanged, of course, under the Bill. At present the employer pays £160 in the case of each; under the Bill the employer would pay £240 for A and £360 for B. Under the Amendment the employer would pay £240 for each. So while the Bill would increase the employer's share of payment to A by £80, and the payment to the man over 41 by no less than £200, the Amendment would increase the payment by £80 in both cases.

I would remind your Lordships that when the Government first introduced redundancy payments to Parliament they proposed that rebates should be half of payments, but then wiser counsels prevailed. Now they are going back to their original suggestion. I think we all agree that the redundancy payments scheme has two purposes. The first is a social purpose: to provide employees with some compensation for being made redundant which is related to their years of service up to 20, and at the same time to recognise that it is a greater hardship for men in their fifties to be paid off, because it is more difficult for them to find other work and to adjust themselves to change. Then there is an economic purpose: to reduce the natural reluctance of employees to accept schemes designed to improve efficiency and productivity where they involve some redundancy.

I do not think it can be denied that the Bill as drafted will render such schemes considerably more expensive for the employer to introduce. Therefore, it is idle to pretend that it will have no adverse effect whatsoever on modernisation. But of course it is not only in such schemes that redundancy payments are involved. During the passage of the 1965 Act in another place, one of the main arguments that persuaded the Government to agree to increase the rebates to their present level was the effect that redundancy payments would have on businesses, particularly small businesses, which were forced by economic circumstances of one kind or another to reduce or disband their labour force. The redundancy payments scheme, as it is now, is admirably adapted to serve the economic purpose I have mentioned. Its advantage is that it helps progressive employers to improve productivity by reducing resistance to change by employees, and its disadvantage is that it places a heavy financial burden on employers who are already in difficulties, at a time when they are least able to bear it. But this Bill is greatly increasing the disadvantage as compared with the advantage. The burden is increased under the Bill by 50 per cent. in respect of service under the age of 41, and by no less than 125 per cent. over the age of 41. My Amendment restricts the additional burden to 50 per cent. in both cases.

Lastly, in the case of any terminal or redundancy payments related to years of service there seems to be no logical reason why an employer should pay more in respect of service over the age of 41 than in respect of service under the age of 41. Take the case of two men who have each served five years, one aged 40 and the other aged 50, both of whom are laid off. It seems to me almost inconceivable that any employer would think of making a higher payment to the man aged 50 simply because all his service was given when he was over 41. But if Parliament thinks fit to make a distinction between the payments to these two men, then in my view Parliament should so arrange the financing of the payments that the employer pays the same and the difference is borne by the poll tax (or whatever one likes to call it) levied on the employer in respect of each employee and paid into the redundancy payments fund. I think that is the logical thing to do: to do what the employer would do in any case and for the State to step in and arrange for the rest to be paid through the redundancy payments fund, financed by all employers. That in fact is what Parliament wisely did in 1965 when it passed the Redundancy Payments Act, and that is what my Amendment proposes to continue to do, though inevitably, because of the state of the fund, at a higher cost to the employer than at present. I beg to move.


I like compromises and it would have been nice to accept the midway stage between the Government's proposal for an Amendment to the Act and that put forward by the noble Lord, but I am afraid I cannot do so. The noble Lord has put forward a quite convincing case by reciting the arguments in support of his Amendment—and no blame to him for that—but I shall have to recite other arguments against doing this. The noble Lord has been perfectly logical in reciting the arguments in support. I do not dissent from much of what he said but I think it is worth reminding the Committee that a survey in 1963 showed that less than 60 per cent. of redundant workers with over two years' service were more than 40 years old, whereas a survey on the same basis in 1968 showed about 70 per cent. to be over the age of 40. There is inferential evidence that one of the influences of the 1965 Act has been to influence employers to accept the voluntary offers of older workers to be made redundant.

In this connection I ought to say that it is the view of the Government that in these days of rising employment and, in some parts of the country, of shortage of employees—although I wish it was so in some other quarters—to displace the older worker, with the probability that he will find great difficulty in getting alternative occupation and in learning new skills, is not in the economic interests of the country. I should like to draw the attention of the Committee to the fact that in recent years the average expectation of unemployment for a man coming on to the unemployment register has been seven to eight weeks; for a man under 25 years of age it has been only four weeks, whereas for those between 55 and 65 it has been over 23 weeks. This is just an additional factor of the situation. I freely admit that it is a question of judgment as to what is the best point at which to pitch the amount of the payment which is recovered collectively rather than paid by the individual employer, and in this connection I would dissent from the noble Lord's description of the effect of the Bill as being a savage increase of the burden on employers collectively. It represents no change in the burden collectively. Individually it will involve some employers in greater expense, but it will relieve employers collectively of some of the amount they would have to draw from the fund.

The other parts of the argument against the Amendment are these. On the best estimates that we can make—and the noble Lord knows how difficult it is to make estimates in this connection—it would reduce the size of the increase of the revenue to the fund from £17 million to £10½ million. That is to say, it would reduce the repayments to the fund to replace the deficit which has been created recently, by £6½ million per annum. I agree that the Government have the intention of moving towards a different type of recovery of sums from employers to recoup the fund. It is arguable when this will come about, but I do not think it would be far off pushing the fund into further deficit. It is difficult to say in advance just what the rate of call on this fund will be. It might be that we should push it further into deficit, and we are nearly at the limit of the borrowing powers. I hope that at some time in the near future the Government will change the basis of assessment in regard to this fund. I regard it as dangerous to reduce the income to the fund by this large figure of £6½ million per year.

Finally, I am grateful to the noble Lord for doing his sums and pointing out the difference there would be on the call on the fund if his Amendment were passed and the amount that would be required from the fund if the Bill remained as it is at present. This gives me the oportunity to point out that it is the intention of the Government to introduce a deterrent to the employer from accepting the offer by older men to be made redundant when redundancy becomes inevitable. That is part of the Government's intention in introducing this Bill. We feel that it is a by-product of the Bill and if this Amendment were to be accepted this important by-product would not arise. It is on these grounds that the Government feel that their judgment in this matter is probably correct, and with great respect to the noble Lord I would ask him, if he sees fit, to withdraw his Amendment on the grounds I have given.


It is with some reluctance that I do so, because I do not think there is really a very strong argument for the case put forward by the Government as against the case that I have put forward to-day. Take, for example, the deterrent to the employers and let us look at it for one moment. It means that the employer will be almost compelled to reduce the number of younger men. In many cases this will mean that he will have to retrain the older men. Can we have any assurance that the trade unions will allow the older men to be retrained? If not, the logic is that the employer should make the older men redundant. All these things fit together, and I am not at all certain that this is the right or reasonable course in circumstances of this kind. It is all very well to say that the younger men get snapped up quickly, but that is simply because they can be easily retrained. If the redundancy scheme is based on a wide restructuring of the industry which involves a high proportion of retraining, this may be pretty difficult. That is the kind of consideration one should have in mind. As I showed before, if you want to prevent the older man from volunteering, then the right way is inevitably and undeniably to reduce the incentive to volunteer. The Government say that for social reasons they do not want to do that. But the alternative is either not to have any volunteering at all or to say to the older man, "You cannot volunteer because it is too expensive".

What view are the unions going to take of this? I think it is quite likely to give rise to a lot of trouble. I simply do not like these arrangements. I think the judgment Parliament made in 1965 as to how the payments should be split between the Fund and the employer who has a redundancy scheme where redundancy takes place was about the right one. And then the noble Lord did not mention at all the effect on employers who have no option but to have redundancy schemes, no question of choosing to have a redundancy scheme in order to get greater efficiency, having no option because they have to reduce staff or disband it altogether. This will come at the very moment when they are least able to bear it; and this is an increase of 125 per cent. in the amount they have to pay.

I do not think the noble Lord has answered these questions. Obviously, we cannot take this matter to a Division, but I hope the Government will consider it further. If they think there should be a slightly higher proportion in respect of service over 41 it would be fine, but this difference of 125 per cent. really sticks in my throat. I do not think it can be right. I hope that the Government will look at it again.


If I may reply on one point, the noble Lord suggested that if more of the older employees are retained in a redundancy he hopes the Government will help in the retraining of those older men. But the nature of the normal redundancy is not to produce a situation where those remaining have to change jobs; the nature of a normal redundancy is that some leave their occupation, and those who are left do not normally have to change their occupation. It is those who leave who have to be retrained and it is right that the younger man, more adaptable for training, should leave rather than the older man. The noble Lord suggested that one should reduce the incentive to volunteer. One could, of course, do that by reducing the payments to the older man. We do not want to enter into this argument, but it is the Government's view that the one and a half weeks per year is the proper recompense for men in the latter part of their service. They should have this amount, and I believe that most good employers would acknowledge that the rate of pay ment for old servants should be higher than for younger men who have more opportunity to gain employment elsewhere. One always has this consideration in mind as an employer.

The noble Lord made a point about the effect on the employer who has to introduce redundancy and is in a bad way. I do not deny that perhaps many employers who have redundancy on their hands are in a position of financial strain at the time. But it is equally true that many employers are having redundancies in order to improve the efficiency with which they are operating. There are other employers of a smaller soft who decide to retire from business and who may sell their business or disband it. There are employers who find themselves in a fortunate position as well as those who find themselves in an unfortunate position. What we are really doing is swapping the alternate sides of this argument. This is a matter of judgment, and it is one for the Government to decide where they want to place the balance of judgment. They have so decided, I think rightly. Again I hope the noble Lord will withdraw his Amendment in the light of the arguments I have put.


I am prepared to withdraw the Amendment but not in the light of the arguments. I should like the Government to think about this subject further. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 1 agreed to.

Remaining clause agreed to.

House resumed: Bill reported without Amendment; Report received.