HL Deb 22 December 1982 vol 437 cc1092-7

1.2 p.m.

Lord Glenarthur rose to move, That the draft order laid before the House on 6th December be approved.

The noble Lord said: My Lords, with permission, I will speak at the same time to the draft Unfair Dismissal (Increase of Compensation Limit) (No. 2) Order 1982. The draft Employment Protection (Variation of Limits) (No. 2) Order 1982 has been laid before your Lordships in accordance with Section 148 of the Employment Protection (Consolidation) Act 1978, which requires the Secretary of State for Employment to carry out each year a review of the limits relating to certain payments made under that Act. The limits are the weekly earnings limit laid down for the purpose of calculating redundancy payments, the basic and additional unfair dismissal awards and certain debts in relation to the insolvency provisions of the Act, and the daily limit on guarantee payments to workers on short time and temporary lay-off.

There are three factors which the Secretary of State for Employment has by law to take into account in carrying out this review and in reaching a decision. They are, first, the general level of earnings obtaining in Great Britain at the time of the review; secondly, the national economic situation as a whole; and, thirdly, such other matters as he thinks relevant. If the Secretary of State considers, as a result of the review, 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 simultaneously with the order a report giving his reasons for not varying those limits.

As part of the autumn 1982 review, the Government consulted a wide range of organisations for their views of what changes, if any, should be made to the limits. In the light of these consultations the Govern- ment have decided that all the monetary limits covered by the review—that is, the limits of payments for redundancy, for basic and additional awards for unfair dismissal, for certain debts payable under the insolvency provisions of the Act and for guarantee pay—should be increased. The proposed changes, which I shall later refer to in more detail, 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 1st February 1983.

I mentioned the three factors which the Secretary of State must take into account in reaching decisions on the limits. One of these factors is the general level of earnings obtaining in Great Britain at the time of the review. The August 1982 figure for average earnings, which was the latest figure available at the time of the review, showed an increase of 7.8 per cent. over the previous 12 months. The figure for September 1982 is 6.8 per cent., and the figure for October is 7.3 per cent. If the level of earnings was the only factor to be considered, this would suggest that the limits should be increased by about 7 per cent. The Secretary of State, however, also has to take into account the national economic situation as a whole. Although the Government recognise the need to protect employees, they are also aware of the need, on the other hand, to keep within tolerable bounds the burdens which the employment protection legislation imposes on employers. The Government have therefore decided that increases in the limits of about 3.75 per cent. are the maximum increases which can be justified in the present economic circumstances.

The current weekly earnings limit for calculating certain payments under the Act is £135. The Government therefore propose that this limit should now be increased to £140. For redundancy payments, this means that the new maximum redundancy payment under the statutory provisions will be £4,200—that is, 30 weeks at £140—which will be the amount due to a man of 61 or over who has served 20 years and is entitled to 1½ weeks' pay for each year of service. The increased weekly earnings limit of £ 140 will also apply to certain payments made to employees under the insolvency provisions of the Act. The additional cost to the Redundancy Fund, from which such payments are made, is expected to be marginal for the year 1983–84.

Another of the payments subject to a weekly earnings limit is the basic award of compensation for unfair dismissal. I would remind your Lordships that this part of an unfair dismissal award is intended to reflect broadly the amount of redundancy payment which would have been received by an employee if he had been made redundant instead of being unfairly dismissed. For this reason, the Government consider that the limit for calculating the basic award 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 £4,200. The additional award which an industrial tribunal may award where an employer has refused to comply with an order to reinstate or re-engage a dismissed employee is also currently subject to a £135 weekly earnings limit, and this, too, is increased to £140.

Finally, I turn to the daily limit on guarantee pay. The Government propose to increase this limit from £9.15 to £9.50. Guarantee pay is payable for five days in a quarter, and the Government have decided that these limits should not be varied. The reason for this decision—that they still seem to strike a fair balance between the employers' obligations and the employees' rights—is given in the report which was laid before your Lordships at the same time as the draft order. To sum up, the increases take some account of the increases in average earnings, but are inevitably strongly influenced by economic and employment considerations.

I should now like to turn to the other order for which I seek approval, the draft Unfair Dismissal (Increase of Compensation Limit) (No. 2) Order 1982. This has been laid before your Lordships in accordance with Section 75(2) of the principal Act. It revokes the Unfair Dismissal (Increase of Compensation Limit) Order 1982, which set the limit on the compensatory award for unfair dismissal at £7,000, with effect from 1st February 1982. This limit is not subject to annual review under the principal Act, but it may be reviewed from time to time. Perhaps I ought to mention that, as in previous years, those consulted on the limits covered by the statutory review were also asked for their views on this limit. The Government propose that the upper limit on the compensatory award should be raised from £7,000 to £7,500 (an increase of about 7 per cent.) from 1st February 1983.

My right honourable friend the Secretary of State considered it appropriate that some account should be taken of the effects of inflation during the year. Furthermore, it is important to note that, whereas the weekly limit is used for the calculation of a basic award for unfair dismissal, the compensatory award is more closely related to the actual loss of the dismissed employee, and is therefore a truer measure of compensation.

In conclusion, I think that I should mention that the limit of £7,500 will apply not only to unfair dismissal compensatory awards, but to compensation which may be awarded by industrial tribunals in cases where complaints of discrimination under the Sex Discrimination Act or the Race Relations Act have been upheld. It is also relevant to compensation payable in cases involving unreasonable expulsion or exclusion from a trade union. I commend this increase and the order to your Lordships. I beg to move.

Moved, That the draft order laid before the House on 6th December be approved.—(Lord Glenarthur.)

1.11 p.m.

Lord McCarthy

My Lords, I am glad that I intimated to the noble Lord, Lord Glenarthur, some of the questions that I wanted to put to him, because at least he has given us a great deal of argument about why these particular increases in both of these orders are what they are. It is much better for the House and for us that we should have had that kind of answer than—I say this with respect—the kind of answer that we had when the noble Lord, Lord Lyell, was here and was asked a question that he could not answer. He took the view, well, if caught out, use a tennis analogy. At lease we have some figures, at least we have some arguments, but I have to say that they do not add up, they do not fit, and they do not convince.

Setting aside the complexity of some of the arguments put forward by the noble Lord, Lord Glenarthur, the situation is simple enough. We have here two orders, and the first order, which affects basically weekly earnings limits on short time, insolvency, redundancy, and so on, does not in fact give us the same percentage increase in each case. In fact, the percentage increases vary from a little above 3 per cent. to a little above 4 per cent. So if the same factors apply throughout these series of cases, why do we not get the same percentage? However, much more important than that is the point that, whether the percentage is 3.2, 3.75, or 4.21, it is very much less than the RPI. Yet we have recently had through this House an order, which we welcomed, in which the Government, admittedly three years late, have decided to increase a payment under an Act of Parliament by the full extent of the RPI; I refer to the pneumoconiosis order. We have another order here today, the second one, which relates to the maximum for unfair dismissal compensation, where once again, in very broad terms, for the period under review I calculate that the 7 per cent. increase which is being proposed is roughly in line with the RPI.

So that is the mystery, and no amount of argument about the economic state of the nation and the other factors can explain why each one of the proposals has a slightly different percentage increase and in fact the unfair dismissal proposal is covering the RPI while all the others are no more than 50 per cent. of the increase in the RPI over the period.

I suppose that the only argument that might have been put forward is that it cannot be afforded, either by industry or by, for example, the redundancy payments fund. But of course we know that many of the increases do not come fully from the employer concerned, and in any case so far as the overall effect of employment protection goes, in the Employment Act 1980 the Government removed altogether very large numbers of people from protection in the case of unfair dismissal.

So I do not feel that we can accept an argument that somehow there is a situation of national economic crisis, which means, I think for the second or third year running, that we cannot fully index weekly earnings limits and things of that kind, but we can index unfair dismissal compensation. Perhaps there might be another reason, which came right at the end of the remarks of the noble Lord, Lord Glenarthur, when he said that the maximum for unfair dismissal compensation affects unfair dismissal on grounds on non-unionism. Well, of course anything that has an effect on grounds of non-unionism must be made as high as possible!

Lord Kilmarnock

My Lords, I, too, should like to thank the noble Lord, Lord Glenarthur, for his very frank exposition of the basis of the Government's calculations. Having said that, I should simply like to add my voice to that of the noble Lord, Lord McCarthy, and to ask why the Government in effect adopted a double standard of indexation? The increase under the unfair dismissals order is just over 7 per cent., according to my calculation, whereas, as the noble Lord, Lord Glenarthur, has himself confessed, the increase under the redundancy order, under Section 148 of the Act of 1978, is only in the region of 3.75 per cent. Surely there cannot be any justification for the application of a double standard in those upratings. Finally, in view of what I think is an increase of just over 7 per cent. on the unfair dismissal compensation amount, I should like to ask the noble Lord whether in fact that constitutes the Government's forecast of the rate of inflation during 1983.

1.17 p.m.

Lord Glenarthur

My Lords, the noble Lord, Lord McCarthy, argues that the increases that are being made by the orders are not in line with inflation, and that anyhow the two are completely separate. Perhaps I ought to point out that, so far as the second order is concerned, the 7 per cent. does in fact broadly reflect inflation—the increase in the RPI, anyway—over the last 12 months. I can give him the figures, which I am sure he already knows, relating to the last 12 months. In October the figure was plus 6.8 per cent. and in November it was plus 6.3 per cent. So 7 per cent. is rather more than that. The answer to the question of the noble Lord, Lord Kilmarnock, about whether that reflects what inflation will do over the next year, is that inflation is going to be lower than that.

The two reviews that I have dealt with are completely separate, and there is no reason for the increases to be the same. The increase of 7 per cent. was thought appropriate, having regard to the effects of inflation on the type of loss to which this particular limit applies. The 7 per cent. increase in the upper limit on the compensatory award is higher because this award relates to actual loss, and not to average earnings. As I explained when I spoke to the first order, my right honourable friend the Secretary of State has to take account of the economic situation generally. Despite what the noble Lord, Lord McCarthy, might feel about it, it is essential that he does so, and this is what he does. I fear that the noble Lord may not feel that the awards are quite as generous as the awards made for pneumoconiosis. I do not think that for one minute he will deny that it is absolutely no one's fault, but rather just extreme misfortune that those who work in particular industries suffer from the dreadful disease of pneumoconiosis.

I hope that in the light of all the circumstances, and in the light of the need for my right honourable friend to take account of all the economic factors which make up the present situation, the noble Lord will accept that these are the best increases that could be made under these awards.

Lord McCarthy

Before the noble Lord sits down would it be fair for me to summarise what he is saying in this way: that the Government's view is that where you compensate for redundancy and insolvency you take into account the economic situation, but otherwise not?

Lord Glenarthur

My Lords, I think it would be a mistake to go back to discuss pneumoconiosis. We have, in fact, closed the book on that.

Lord McCarthy

I did not say that.

Lord Glenarthur

My Lords, that is the implication of what the noble Lord has said. The answer is that I have made it perfectly plain that the Secretary of State had to take into account various factors before making these awards, and these are the best that can be produced in the circumstances which pertain at the present time.

On Question, Motion agreed to.