HL Deb 21 December 1983 vol 446 cc778-82

2.40 p.m.

Viscount Long rose to move, That the draft order laid before the House on 1st December be approved.

The noble Viscount said: My Lords, the draft Employment Protection (Variation of Limits) Order 1983 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 the 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.

The Secretary for Employment has by law to take account of three factors in carrying out the review and reaching a decision. These 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, as a result of the review, the Secretary of State considers 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 1983 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 Government 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 1984.

I have 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 1983 figure for average earnings, which was the latest figure available at the time of the review, showed an increase of 8.5 per cent. over the previous 12 months. The figure for September 1983 was 8.5 per cent. and the provisional figure for October is 8.7 per cent. higher than a year previously.

If the level of earnings was the only factor to be considered, that would suggest that the limits should be increased by 8 to 9 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 weekly earnings limit of 3.6 per cent. and guarantee payment of just over 5 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 £140. The Government therefore propose that that limit should be increased to £145. For redundancy payments, that means that the new maximum redundancy payment under the statutory provisions will be £4,350—that is, 30 weeks at 145—which will be the amount due to a man aged between 61and 64 who has served 20 years and is entitled to one and a half weeks' pay for each year of service. The increased weekly earnings limit of £145 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.

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 we 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 £4,350. The additional award which an industrial tribunal may award where an employer has refused to comply with an order to reinstate or reengage a dismissed employee is also currently subject to a £140 weekly earnings limit, and this too is increased to £145.

Finally, I turn to the daily limit on guarantee pay. The Government propose to increase this limit from £9.50 to £10 which is an increase of just over 5 per cent. We have decided not to increase the other limits, namely, the specified number of days in any relevant period—now five days—and the length of the relevant period, which is now three months. The reason for the decision was given in the report laid at the same time as the order, and is that the maximum number of days for which payment is required to be made still seems to strike a fair balance between the employer's obligations and the employee's rights.

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 commend them to your Lordships. I beg to move.

Moved, That the draft order laid before the House on 1st December be approved.— (Viscount Long.)

2.48 p.m.

Lord Ponsonby of Shulbrede

My Lords, I thank the noble Viscount for explaining the order in such detail. As he has said, the order seeks to raise the notional "week's pay" used to calculate redundancy, unfair dismissal and insolvency payments from £140 to £145 a week which, as he has said, is an increase of approximately 3.6 per cent.; and also to raise the daily limit for workers on short time or temporary lay off from £9.50 to £10 which is an increase of something slightly over 5 per cent. In arriving at these figures as the noble Viscount said, three factors have to be taken into account: earnings, the retail price index and certain other relevant factors to which the noble Viscount referred. Yet, as the noble Viscount said, during the period under review earnings moved up by almost 9 per cent. and the retail price index has moved up by 5.1 per cent.

I think one should point out that this is the fifth annual review in which the real payments have lagged behind the increases in earnings and prices. Last year the increases of 4.6 per cent. and 3.8per cent. were made at a time when earnings moved up by 9.3 per cent. and the retail price index by 11.4 per cent. Indeed, it has been calculated that if the real value of these payments were to be maintained, the notional week's pay figure should now be in the region of £200 and not £145. One wonders what are the other factors which the Government have taken into account in arriving at these figures.

The noble Viscount mentioned the question of the national economic situation. But is it right that those receiving redundancy pay, those on short time and those in need of the benefits should be penalised in this way and not have these benefits increased truly in line with the rate of inflation and with the general rate of earnings? We regard it as most unsatisfactory that proper and real increases have not been agreed.

Lord Kilmarnock

My Lords, on these Benches we should also like to thank the noble Viscount, Lord Long, for having explained this order in considerable detail. We also have one query to put to the noble Viscount which follows along the lines of the remark made by the noble Lord, Lord Ponsonby. We note that the increase provided on the daily rate is 5.1 per cent., whereas the increase from £140 to £145 seems to be considerably less—in the region of 3.5 per cent or 3.6 per cent. Could the noble Viscount enlighten us on the reason for the disparity in these increases?

Viscount Long

I am most grateful to the noble Lords, Lord Ponsonby and Lord Kilmarnock, for their kind words about this order. The noble Lord, Lord Ponsonby, said that it was unsatisfactory. One cannot satisfy everyone, and when one starts raising a great deal of money it becomes very costly. The noble Lord referred to the other factors to be taken into account: the general level of earnings, the national economic situation as a whole and any other relevant matters which crop up at the appropriate time. In any one year one never knows what will happen. Therefore, one has to take into consideration at that moment of time what has suddenly been brought forward. At that time the figures have to be examined and this year earnings have been increased by just over 5 per cent. Since this criterion was first introduced by the Labour Government some years ago earnings have gone up every year. This Government have increased the percentage slightly but not, as the noble Lord said, by what he wants. The noble Lord, Lord Kilmarnock, asked me about a certain matter which I would ask him to repeat.

Lord Kilmarnock

My Lords, I simply wanted to ask the noble Viscount—and I think I did ask him—why the up-rating on the daily rate from £9.50 to £10 works out at just over 5 per cent. whereas the figure which has been chosen for the weekly rate off 140 and which has been raised to £145, works out, according to the noble Lord, Lord Ponsonby, at 3.6 per cent. I just wondered what was the reason behind the thinking which produced these different varieties of up-rating on a very similar theme.

Viscount Long

My Lords, to answer the noble Lord, I think it was in the autumn of this year that this problem arose. It was then that it probably needed to be adjusted. Account must be taken of the law and consultations between employers and trade unions have helped. The Secretary of State came to the view that a modest increase in the limits was justified. However, we have tried to be sensible about this and we therefore propose to increase the earnings limit by £5. I agree that it is not a lot, but it has gone up by about 50p. As to the question of the noble Lord, Lord Kilmarnock, I think he will find these figures in the financial review published in the autumn.

Lord Ponsonby of Shulbrede

My Lords, before the noble Viscount finally sits down, perhaps he could confirm the figure I gave him: that if this weekly figure had been up rated in line with inflation and in line with earnings, it would now be £200 and not £145?

Viscount Long

My Lords, I am not at all certain of my answer to that. I think the noble Lord will find that financially we could not go as far as that.

On Question, Motion agreeed to.