HL Deb 25 July 1974 vol 353 cc1922-31

4.5 p.m.

BARONESS BIRK rose to move, That the Draft Calculation of Redundancy Payments Order 1974, laid before the House on July 24, be approved. The noble Baroness said: My Lords, I beg to move that the Calculation of Redundancy Payments Order 1974, a draft of which was laid before this House on July 24, 1974, be approved. As your Lordships will know this Order replaces the Redundancy Payments (Calculation of Payments) Order which was laid in draft before the House on July 19 and has now been withdrawn. I must apologise for any inconvenience or confusion which this has caused, but a drafting error was picked up only at the eleventh hour. I am glad to say that the Order at present before the House is now correct.

The substance of this Order is to increase from £40 to £80 the maximum allowance of a week's pay which may be used in the calculation of a payment under the Redundancy Payments Act 1965, which was introduced under the then Labour Government. Some of your Lordships present here to-day will be familiar with the operation of this Act, but in case there are some who are not, and as it is of considerable economic and social importance, I will try to explain briefly some of the background.

The Act can be described as having two main objectives, both of which are extremely important to our economy and also for social justice. First, it requires employers to make compensation payments to redundant workers to compensate employees for the loss of their jobs, for the loss of security, and during that time the possible loss of pension rights, fringe benefits or earnings which may result from an enforced job change. Secondly, it aims to increase the mobility of labour. Mobility of labour is essential for the economic flexibility that is required if we are to increase our productivity, which is so essential in this country to-day. The two are linked together, since if the level of compensation is not adequate there will quite naturally be resistance to what may well be highly desirable changes.

For example, the introduction of new and more efficient technological methods by means of improved machinery could certainly be delayed, and the problems of overmanning, which are hard to deal with anyhow, are even harder to eliminate if people do not feel they can get an adequate redundancy payment when they are laid off. We must surely all agree that the efficient use of manpower, particularly skilled manpower, is essential to the economic well-being of this country. For this reason alone I am sure your Lordships will agree that any reasonable measure which is directed to this end must be welcome. But it has become increasingly clear over the years that, due to wage increases, the Act is progressively lagging behind in its aim to provide adequate compensation for the bulk of the working population.

A redundancy payment—as I am sure your Lordships are aware—takes the form of a lump sum calculated on a scale related to weekly pay, age and length of service. If I may give an example, for each year of service between the ages of 41 and 65, or 60 in the case of women—and I must hastily say that this applies to men and women—it is worth one and a half weeks' pay. Each year of service from the age of 22 to 40 is worth one week's pay, and each year of service from the age of 18 to 21 is worth half-a-weeks' pay. Years of continuous service are counted up to a maximum of 20 and any weekly pay in excess of £40 is dis. regarded. This is the situation at the moment. This means the maximum redundancy payment at present is £1,200 and this will be payable to a man with 20 years' service who is between the ages of 41 and 64, and earning £40 a week or more.

Under the new earnings limit which would come into being, the Order has provided that the maximum payment would be £2,400, but comparatively few will qualify for such an amount. The case for increasing the weekly earnings limit, as I am sure noble Lords will agree, is largely self-evident. The average gross weekly earnings since 1965 have more than doubled. The most recent detailed statistics available, which are those given in the New Earnings Survey of 1973, published last October in the Department of Employment Gazette, show that by April, 1973, average gross weekly earnings for men, excluding overtime pay, increased from approximately £18 to over £37. On these figures alone, a clear case can be made for doubling the £40 limit, as we propose to do.

Some of your Lordships may wonder, as I did myself, why I am not quoting earnings for women. This is only because men on average earn more than women, but women's earnings have increased in much the same proportion, and in many cases, women are now beginning to get the benefits of the Equal Pay Act, although the full benefits, in the case of most women, have still to come. However, what is really relevant to this Order is what a person is earning, and whether the compensation can be regarded as adequate in relation to their earnings.

My Lords, a further important consideration is that, while in 1965 only a small proportion of the working population was earning in excess of £40 a week, only about 3 per cent. were above the maximum. To-day a substantial percentage, nearly 40 per cent. of the working population of both manual and non-manual workers are earning in excess of this figure. It is evident that as the limit stands at the moment, the middle ranks of management, technical staff, certain white collar workers and higher paid manual workers—who in general are the skilled workers—are increasingly being discriminated against. Therefore, we must aim to provide adequate compensation under the statutory scheme for most employees. I will immediately admit it to be true that the £80 limit will exclude the higher pay of such people as top managers and executives, but economically there has to be a limit. I think it fair here to make the point that people in this more limited category still qualify for the statutory payment, and in addition have more and more benefit under private arrangements in the event of redundancy. Certainly the impresion I have—together with a great many other people—is that this is happening at an increasing rate. We have here a trend which I believe to be right, where management is taking a greater social responsibility. This is going hand in hand with the statutory responsibility.

My Lords, I now turn to the question of cost. The average redundancy payment is currently of the order of £400. It is estimated that this would rise by approximately 20 per cent. to £480. Also, it is true that there will be additional costs for employers. In the first instance, the obligation to make a redundancy payment rests on the dismissing employer, but part of the cost is spread over employers throughout industry by the operation of the Redundancy Fund, which is controlled and managed by the Secretary of State for Employment. This Fund is financed by employers' contributions and from it employers are reimbursed 50 per cent. of any statutory redundancy payment which they make. Thus, although employers will have to meet in full the increased costs in the first instance, they will be able to recover half of the cost in the form of rebate from the Redundancy Fund.

So far as the rates of contribution to the Redundancy Fund are concerned, current contributions which amount to 6.3p for men and 2.9p for women are collected together with employers' National Insurance contributions. In April, 1975, when the National Insurance contributions become earnings-related, the redundancy contribution will be 0.2 per cent. of the earnings on which those contributions are levied. It is therefore estimated that the earnings-related contributions will in practice generate sufficient income in future years to meet the charges which will accrue to the Fund on the basis of the average redundancy rate. There are approximately 250,000 claims a year on the fund. This is over most of the period during which the Act has been in operation.

Finally, I should like to say that this is an instance where the Government have not been under heavy pressure to make this improvement, but they have been concerned that this should be done. The Government have also received individual representations from time to time from the ordinary worker who does not consider he is getting a fair deal. As things stand at the moment, he certainly is not. It is also evident that if nothing is done, the position will only become worse. The higher-paid redundant worker will increasingly be penalised by the limit as his wages rise. This is not a situation which we feel can be allowed to continue. We are proposing this step to remedy the situation before demand so increases that it can no longer be ignored.

My Lords, your Lordships may query why there has not been an increase over the last few years since the Act came into being in 1965. While, as I have indicated, there will be additional cost to those employers who require to make redundancy payments to workers earning more than £40 a week, I would emphasise that we are seeking to do no more than restore the coverage of the scheme substantially to what it was in 1965. Indeed, the statutory scheme can be regarded as establishing a minimum level for redundancy payments. Some employers have introduced schemes which are more generous than the Act, and for them there could be even more benefit, since in some cases they will be able to claim a higher rebate from the Fund and thus offset, in part at least, the higher cost of their private arrangements.

My Lords, I have no hesitation in recommending to your Lordships that you approve this increase from £40 to £80 in the maximum amount of a week's pay which may be used in the calculation of payments under the Redundancy Payments Act, 1965. I beg to move.

Moved, That the Draft Calculation of Redundancy Payments Order, 1974, laid before the House on July 24, be approved.—(Baroness Birk.)

4.19 p.m.


My Lords, I am not entirely sure the House will have realised as the noble Baroness, Lady Birk, assumed, that this Order replaces the Order which was tabled on July 19. I think I am right in saying the Joint Committee drew attention to the drafting in one part of the original Order. I should like to express the appreciation of noble Lords on this side of the House for the care taken by the Department concerned in withdrawing the original Order and in putting the matter right.

The noble Baroness has given a very full explanation, both of the background and of the objects of this Order. I for one am most grateful to her. If I am right in thinking that the amount of pay which is to be computed under the Order has remained exactly at the same figure of £40 ever since the parent Act was brought in in 1965, may I make it quite clear that we on this side of the House would accept that this Order is necessary to ensure the aims of the Act which are, as the noble Baroness explained to the House, to see that those aims are achieved.

May I ask the noble Baroness one question only. Am I right in thinking, from what the noble Baroness said about the working of redundancy pay, that the Government take the view that the Redundancy Fund under the arrangements now will remain buoyant? This is obviously a most important matter for both employers and employees. As the noble Baroness explained in her remarks, there is the most important consideration from an employer's point of view that 50 per cent. of the contribution can be recovered from the Fund. I am asking whether the Government take the view that under this Order—so far as they can see—the Fund will remain buoyant.

If the noble Baroness can give me an assurance on that point, in addition to us accepting the Order I am sure that it will be welcomed.


My Lords, all sides of the House will welcome this Order as a contribution towards improving and increasing the free mobility of labour. Reference has already been made to the fact that this takes the place of an Order which was withdrawn due to drafting error. Due tribute has been paid to the officials concerned in providing the substitution at early notice. I should like to take this opportunity to underline and emphasise the contribution made by the Joint Committee on Statutory Instruments whose sharp eyes and careful attention to this Order was responsible for that effort on the part of the Minister.


My Lords, I welcome the statement made by my noble friend Lady Birk, because I was in at the beginning of this idea of redundancy payment. I was in at the beginning for very humanitarian reasons, because in times of slackness of trade men were simply thrown on to the streets and very rarely did they have an opportunity of going back to the job that they had left. Some measure of security was needed. This was discussed on the National Economic Development Council at that time, and pressure was then exerted on what was the Labour Government to do something about redundancy. It would have its value not only in its humanitarian activities, but it would also prove of value at a time when technological improvements were demanding mobility of labour.

There were two great problems. One was to get the money for the new techniques. The other was to get the skilled men into the new techniques. As matters stood before that, if a man became unemployed he simply dashed to the nearest job he could get and very often he became a round peg in a square hole. So much of this happened that it was detrimental to the economy of this country. The redundancy payments scheme at that time eased the situation so that men now began to be drafted into jobs for which they were extremely suitable. However, I have sat on the Redundancy Tribunal dealing with these cases over the intervening years and watched its developments.

One of the most important points is that we have now moved from simply dealing with manual workers, whether they be skilled or unskilled, and in dealing with them quite an amount of good has been done. I have seen employers coming in with an off-hand attitude towards the unemployment of people whom they had employed for years, but who received the shock of their lives when they found they had to pay something to a man they had taken on. This meant they were careful whom they took on, and when they had to discharge them they saw that it was for a very good reason.

The most important development I observed over those years was that young executives were now coming to the Redundancy Court, the men on whom we depend for the intelligent direction of the highly sophisticated industry which is developing inside this country. If I have any complaint about this Order it is that it is not sufficient to bring the advantages up to the higher-paid young executives in this country to give them those advantages which they are undoubtedly seeking. It has been said, I think with a good deal of truth, that because of the problems we have in this country many young executives are seeking positions abroad and we cannot afford to lose their skills. With a scheme of this character and adequate compensation, when technological improvements debar them from continuing the job they have at the present time, this is a much greater attraction for young executives—as well as for skilled workers in this country—to stay in this country.

As at the time of the Bill's inception way back in 1965, we have considerable sympathy from the Conservative Party in this matter, and I should not like to take away any of the advantages we would have from their sympathy. But it is essentially a Bill and an Act and now an Order which has stemmed from the T.U.C's concern with unemployment. Frankly, I am not at all sure that, do what any Government will in this country, we are going to avoid unemployment in the future. As it is something that will deal with a crisis of that character, and because it is something that will assist us in getting round pegs in round holes in the technological developments that exist in this country, I give a warm, heartfelt welcome to the statement of my noble friend Lady Birk.


My Lords, I thank the three noble Lords who have supported this Order. May I answer the question of the noble Lord, Lord Belstead. First, Yes, I can assure him that the Redundancy Fund will remain buoyant, given that the redundancy rate remains roughly at the average of the present time. That brings me to the point raised by my noble friend Lord Douglass of Cleveland in the interesting speech he made on this Order. He made a point with which I have a great deal of sympathy, as to why there should be this limit of £80. One could ask why there should be any limit at all. I regret the answer is that at the present time one could certainly not argue for a State scheme to provide a cover irrespective of earnings. Also, we have to strike some kind of balance between the contribution levied and the demands which can be made on the fund, otherwise we should be in the situation raised by the noble Lord, Lord Belstead, where the Redundancy Fund could no longer be buoyant.

However, I take the point—and I agree with the thinking behind the point raised by my noble friend Lord Douglass—that it is essential that the young executives and other executives should be brought into it as well as other workers in the field. That is why I stressed, when I was moving the Order, how important it is that private arrangements should be encouraged and that social responsibility should be shown by management as well as by the State. That is what is happening at the moment.

I am also grateful to the noble Lord for stressing the importance of mobility of labour. One of the things that these payments also do is to get round—as he so rightly put it—the problem of the square peg in the round hole. It also enables the worker to have this amount of securities in order that he can move house and move from one place to another. One of the great faults in the economy of our country is the slow mobility of labour. I should also like to thank my noble friend Lord Peddie for his remarks and encouragement on this Order. Like my noble friend Lord Douglass of Cleveland, he also has a great deal of experience in this field. May I thank the noble Lords and commend the Order to them.

On Question, Motion agreed to.