§ 7.27 p.m.
§ The Minister Without Portfolio (Lord Young of Graffham): rose to move, That the draft order laid before the House on 15th January be approved. [8th Report from the Joint Committee.]
§ The noble Lord said: My Lords, the purpose of the order is to reduce from 41 per cent. to 35 per cent. the proportion of a statutory redundancy payment which is met from the Redundancy Fund. Your Lordships may be aware that under the provisions of the Employment Protection (Consolidation) Act 1978 any employee who is made redundant is entitled to a lump sum payment from his employer, provided he has at least two years' service. The payment is expressed as a multiple of his weekly wage and takes account of his age and length of service with the employer. In the last complete financial year employers' payments under the Act totalled nearly £754 million and the average individual payment was around £1,500. I should emphasise that these are the amounts laid down in the legislation. It is open to individual managements to pay more if they wish, and many do so.
§ It was recognised when the redundancy scheme was set up in 1965 that the cost of redundancies could fall heavily on firms which were in difficult financial circumstances and it was therefore decided to establish a Redundancy Fund for the purpose of spreading part of the cost over the general body of employers. All employers contribute to the fund through a small levy on their social security contributions which at present amounts to 0.15 per cent. of each employee's eligible weekly earnings. At the same time the employee contributes 0.25 per cent. of that band of his earnings. The resultant fund is used to provide a rebate to the employer of 41 per cent. of each redundancy payment made, though here too I should add that the rebate is payable only on the statutory amount, not any larger sum which the employer may agree to pay. If the demands on the fund exceed its income, there is provision for borrowing from the National Loans Fund and we have in fact been running in deficit for some time. Outgoings from the fund count as public expenditure and the Government look to this reduction to save some £37 million from the public sector borrowing requirement. At the end of October the deficit stood at £69.7 million compared with a peak of £282.2 million in July 1982 and the reduction in rebate will accelerate this slow return to surplus.
§ I should perhaps explain that the rather complicated formula set down in paragraph 2 of the draft order arises because a payment is calculated as a multiple of a week's pay and depends on the age of the employee. The basic rate is one week's pay per year of service in respect of employment between the ages of 21 and 40. From the age of 41, the rate is one and a half week's pay, and between 18 and 21 half a week's pay. Furthermore, in statutory provisions it is customary to use arithmetic fractions rather than percentages. I can assure your Lordships that the effect of applying the fractions specified to these various rates is to produce an overall rebate of 35 per cent. on all payments made.
§ Of course the Government recognise that this change will add a small amount to the costs of 375 employers which is never particularly welcome; but I think it should be borne in mind that the number of redundancy payments made has declined sharply in the past year from its 1981 peak. In 1981 there were nearly 810,000 payments. The figure for 1984 was little more than half that. I think it is not unreasonable that as the burden on employers diminishes there should be some reduction in the contribution from the fund,and I should emphasise that the legislation makes provision for cases where the employer is unable, because of severe cash flow problems, to meet his obligations. Where a firm can show that the cost of making redundancy payments is more than it can sustain, the Department of Employment will pay the employees direct from the fund and recover the money from the employer, less the appropriate rebate, when his circumstances improve. Also of course the employer's share is tax-deductible.
§ In view of this, I believe that this is a sensible saving which we can make at this time without causing industry undue difficulty, and I commend it to your Lordships' House. My Lords, I beg to move.
§ Moved, That the draft order laid before the House on 15th January be approved.—(Lord Young of Graffham.)
§ 7.33 p.m.
§ Lord Dean of Beswick
My Lords, perhaps I may first of all express my appreciation to the Minister for the way and the spirit in which he has moved this order. I do not think there is much more that can be said on it. I have perused Hansard of another place where the order was dealt with in Standing Committee and I think that most of the points that could be debated where there might be a slight difference of opinion were fully explained by members of my own party.
It is, of course, on record that the people who on this occasion are being called to pay the piper—the CBI or its members—are not happy about it. One can understand that because, if I read it correctly, the order means that globally they will be asked to subscribe an extra £37 million. I think they are right to express their opinions in a forceful way because it is a fact of life that if any additional expenditure is placed on the shoulders of industry or commerce it has an adverse effect and must have an adverse effect on employment. I think the Minister will agree although he may differ as to what the dimension would be.
It was mentioned in the debate in another place that this is an example—most political parties which have been in Government and in Opposition are guilty of it—of doing the very thing when in Government that political parties have criticised when in Opposition. When the previous Labour Government made some moves of a similar nature—or of a not dissimilar nature—on this particular operation they were roundly criticised in another place by prominent members of the then Opposition, which was then the Conservative Party. One was an honourable Member in another place who only a short time ago ceased to hold Cabinet rank and another is I think a Minister at 376 the Treasury. This indicates that people sometimes change their stance according to the position they hold.
Having said that, I do in some ways regret the additional £37 million. It will have an adverse effect—perhaps it will be only marginal but many marginal decisions very often make a substantial decision at the end of the day. There is not much more to say. We cannot vote against the order, but I do not think we would if we could. Having expressed our opposition in principle to what has happened, we on these Benches at this time care to leave it at that.
§ Lord Young of Graffham
My Lords, I am grateful to the noble Lord, Lord Dean of Beswick, for the way in which he responded. It would be slightly discourteous of me to remind the noble Lord that in 1977 the then Labour Government reduced the fund. The fund was actually in surplus and it was done at that time in order to save the public sector borrowing requirement. We are, of course, taking steps in a similar way today and it really is a question of transferring the burden from all taxpayers to the particular taxpayers. I am grateful to the noble Lord for his remarks and, with the consent of the House. I beg to move.
§ House adjourned at twenty-three minutes before eight o'clock.