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Alfred Sargent and Sons Ltd

Volume 488: debated on Friday 6 March 2009

Motion made, and Question proposed, That this House do now adjourn.—(Helen Jones.)

I am extremely grateful to Mr. Speaker for granting me this Adjournment debate at such short notice. Mr. Speaker has a well deserved reputation for his concern about people losing their employment. I am extremely pleased and delighted that the Minister is in his place to answer this debate, as he is well known for his willingness to listen to constructive arguments and to enter into debates. He is also well known for being wheeled out when there is a difficult problem. I hope he is here today for the first rather than the last reason.

It is not my intention to blame the Government for what I see as a gap in the national law. If a Conservative Government were in power today, I would still rise to press this issue. It is not party political; there is a gap in the law and it needs to be put right. The issue involves 40 hard-working men and women who lost their jobs in December last year and have been out of pocket ever since through no fault of their own; they are still out of pocket.

Let me start by setting out the background to the problem. The Wellingborough constituency consists of two main towns, Wellingborough and Rushden, and a small number of smaller villages. The constituency lies in the east midlands region or at the extreme south of the east midlands located to the east of the M1. Historically, the Wellingborough constituency has been a prosperous area built around the boot and shoe industry, gaining national and international recognition for its products.

Over the past decade, however, manufacturing industry in my constituency has gone into a nosedive with shoe factory after shoe factory closing. If we take Rushden alone, we see that there were 106 shoe factories there in 1920; as late as 1973 there were still 40 shoe factories; today, we will find just five. For anyone wishing further information about the shoe trade in Rushden, I would recommend the website

The decline in manufacturing has been a national disgrace. If I were to be critical of the Government in this debate, I would refer only to their over-reliance on banking and financial services at the expense of manufacturing industry, which has been a total disaster. We need think only of the billions of pounds thrown at the banking and financial sector at the most enormous cost to each man, woman and child in the country to see the folly of that policy. If only a small percentage of the taxpayers’ money now being thrown at the banking industry had been directed towards making the lives of manufacturing companies any easier, we would now be in a far better position and there would be no need for today’s debate. I said at the start that I was not going to be political in this debate, so it would be wrong for me to make that point.

It is fair to say, however, that the economic boom bypassed Wellingborough. Unemployment in the area is now much higher than it was in 1997: at the end of January, 2,708 people were on the unemployment register, whereas in January 1997, there were only 2,144. Unemployment in my constituency has gone up by more than a quarter.

That sets the general background to the debate. Let me now talk about the specifics. Early in December last year, I began to receive complaints from constituents who had been employed by Alfred Sargent and Sons Ltd in Rushden. They had been made redundant, but had not received any redundancy payments, although the company continued to trade. Losing one’s job is hard enough, but not receiving redundancy payments was very worrying for the people who had contacted me, particularly as it was just before Christmas. The situation was covered extremely well by my excellent local newspaper, the Northamptonshire Evening Telegraph, which kindly published an article reflecting my concern and suggesting that affected workers should contact me directly.

I want to make it very clear that I make no criticism whatever of Alfred Sargent and Sons Ltd, its board of directors, or any of its work force. The company was faced with an extremely difficult Catch-22, and dealt with it as best it could. At the end of the story, there is some good news: Sargent’s has streamlined and continued to trade, and I understand that its prospects of success are extremely good. My aim today is not to criticise the company, but to expose a loophole in the law. Nor do I intend any criticism of the Government, who may well not have been aware of the loophole.

I should also point out that Alfred Sargent and Sons Ltd was not some fly-by-night organisation that had existed for only a few years. It was founded in 1899 in Rushden, and was a family business that had passed through four generations based in Portland road. It produced high-quality footwear using traditional techniques. The view of the factory from the road has changed very little in more than 100 years. This was a traditional family business, producing high-quality goods and refusing to cut corners; but it was hit by the extraordinary recession that faces us today, and given unhelpful banks and falling demand, its position became impossible.

As someone who has run a small family business and has had to make employees redundant, I know that it is the worst thing that a boss ever has to do, but sometimes a boss is faced with the dilemma that if he does not reduce his work force, the whole company will go under. In a small family company, the boss’s employees are his friends and part of his extended family, and to tell them that they have no job is extremely difficult. In the case of Alfred Sargent and Sons Ltd, it must have been even more difficult. Many of the workers had been employed by the company for many years, as many as 20 years in some cases. A boss does not make the decision to lay such people off lightly. It is heartbreaking, and extremely difficult.

Why do companies go bust? Is it because they are running at a loss? No, that is not the reason; the reason is that they run out of cash. They may be highly profitable, but if they have no cash they will go bust. Equally, they can run loss after loss, but if they have substantial cash or loans they can continue to trade.

This is the dilemma for Sargent’s. It has a work force of 120 people. If the company lays off 40 of them, it can save £600,000 a year in cash and continue in business. If it does not lay the staff off, that extra £600,000 will force the company to go under. Reluctantly, the boss is forced to make the employees redundant. But here is the Catch-22. As he has been a good employer and run an excellent family company, his employees have been with him for many years, some for more than 20. The cost of redundancy, if the company had to pay it, would be a quarter of a million pounds. That would bring the whole company down, with the loss of an additional 80 jobs and, of course, one less high-quality manufacturing company.

This situation is not adequately covered by current regulations. Of course, if the company in its entirety went into liquidation, the Government would immediately pay everybody their redundancy money from Government funds. Alternatively, if a large public company lays off people to make itself more profitable, it is required—and it should be—to pay the redundancy money from its existing assets. However, for a small family company trying to soldier on under the current law, the situation is a mess.

Let me take this opportunity to read a letter I received from the Minister for Employment Relations and Postal Affairs, which sets out the current law—and I must say that it reveals the current law to be an ass.

“Dear Peter,

Thank you for your letter of 12 January, about employees that have been made redundant from Alfred Sargent and Sons Ltd of Portland Road, Rushden, NN10 0DQ.

As I said in reply to your question on 11 December 2008”—

I was able to ask an oral question in the Chamber—

“there is a scheme administered by the Insolvency Service to assist employers to meet the costs of statutory redundancy payments against an agreement from the employer to reimburse the National Insurance Fund over a period of time. The scheme is administered by the Insolvency Service’s Redundancy Payments Offices (RPOs). To date no application for assistance has been made by Alfred Sargent and Sons Ltd.”

I will return to that sentence letter, as it is crucial to my argument.

“I understand that one ex-employee made a claim for payment to the Birmingham RPO. As the company has not applied for assistance, the RPO had no legal basis under which to make a payment to that employee. She has been advised of her right to take employment tribunal action in respect of the payment owed to her by the company.

It may be helpful if I explain that legislation places the primary responsibility for making redundancy payments on employers. However, I hope your constituents take some comfort from the fact that, under provisions contained in the Employment Rights Act 1996, the RPO can take over that responsibility if either the employer qualifies for assistance under the Financial Difficulty Scheme, or is legally insolvent as defined under the 1996 Act, or has failed to comply with an employment tribunal award. Consequently, if your constituents obtain an employment award and Alfred Sargent and Sons Ltd do not pay it, the RPO would be able to pay any statutory redundancy payment due. The RPO would then seek repayment from the company.”

The letter continues, but those are the main points, and it is signed by the Minister for Employment Relations and Postal Affairs at the Department for Business, Enterprise and Regulatory Reform.

What does all that mean for the former employees of Sargent and Sons? It means that they can get their money through only two methods. One is to approach the employment tribunal service, and then to fill in a complicated 12-page form, of which I have a copy with me. I am a fellow of the Institute of Chartered Accountants in England and Wales, and I would find it difficult to fill in this form and answer all these questions correctly, let alone someone with no financial background who has just lost their job. I have had three mass meetings with the people laid off by Sargent, and I found it incredible to learn that the jobcentre was not interested in this problem. Its basic view was, “We’re here to find you a new job and organise your jobseeker’s allowance. A different department deals with redundancy payments. It is nothing to do with us.” So, these people are left with a difficult form—which they first have to find out that they need—that they then have to submit, and somewhere down the line there is an employment tribunal at which they will be awarded a claim for redundancy payment. Only after that can the RPO enforce the claim. In practice, in this case, the redundancy money due in December to the ex-employees of Sargent and Sons will not be paid until June this year—more than half a year after they were entitled to it. That is a highly bureaucratic and unsatisfactory way of dealing with redundancy.

The second way in which the ex-employees could have got their money was if their company had approached the RPO under the financial difficulties scheme, negotiated with it, been investigated by it and, eventually, the RPO had paid the redundancy money and agreed a schedule of recovery from Sargent’s. That sounds good on paper and sounds like it would have solved the problem. However, for a family company fighting for its survival, that option is a non-starter.

Anyone who has ever fought to keep their company going through a difficult time, with cash-flow difficulties, knows that people in that position have to work every minute of the day and night to find a solution. They have to deal with problem after problem—problems that never had to be dealt with before—and probably have to put their own money into the company to keep it going. They are negotiating with banks, suppliers and customers, as well as trying to keep the company running in an orderly manner.

To believe that a family business in that position has the time to negotiate with a Government Department is to live in cloud cuckoo land; yet the law says that the RPO cannot approach the company and offer it help, as we read in the ministerial letter that I quoted from. The RPO has to be approached by the company. In several of my discussions with the regional RPO, I suggested to the lady there, “Pick the phone up, ring the company and tell them what you can do for them.” She said, “I would love to do that, Mr. Bone, but the law prohibits me from doing it.”

Before saying what I think the Government should do and how the law should be changed, I did promise a happy ending to my story. Last Thursday, at 3.50 pm, Alfred Sargent and Sons went into administration, but since then the management have bought the assets of the former company and it is trading successfully, with 80 employees, and the future looks encouraging. The employees who lost their jobs have been issued by the administrator with an RP1 form, which will entitle them not only to their redundancy money but to any arrears of pay and holiday pay and, ultimately, to pay in lieu of notice. That will all be paid by the Government, and I understand that it should be done within about a month.

So for those employees, who have acted in a very restrained and responsible manner throughout what has been a very difficult few months, there is at least light at the end of the tunnel. However, they should never have been placed in this position. They should have received their redundancy money as soon as they were laid off. I do not blame the Government, because I do not think that they realised that there was this unusual—but I guess now not uncommon—problem. If a family company continues to trade but has to lay people off so that it can survive—as in the case of Sargent and Sons—it should not be those who are laid off who suffer and bear the burden. In my view, the Government should step in and help.

The law needs to be changed so that the RPO can be proactive when a company is about to make people redundant. It should pay the redundancy money as if the company had gone into liquidation, and then seek to recover it from the company over a period of time. Under that scheme, the Government would not be any worse off, and could be better off.

In that context, let us consider the case of Alfred Sargent. The company has now gone into administration and the Government will have to pick up the tab, so they might as well have given the redundancy payments to the Sargent workers in mid-December. The Government would not have been any worse off. In fact, they might have been better off because, had the original company survived, they would have got their money back over a number of years.

I appreciate that this would be a minor change to the law and that it would not be applicable in many cases, but in the ones to which it does apply it would save jobs and protect workers’ rights. I look forward to hearing from the excellent Minister. I hope that he will be able to take on board my comments and seek ways to improve the situation. I stress again that I am not criticising the Government at all, but I believe that they have an opportunity to solve a Catch-22 problem. I assure you, Mr. Deputy Speaker, that even if the Minister cannot help me, I do not have any green custard.

I congratulate the hon. Member for Wellingborough (Mr. Bone) on securing this debate and compliment him on the vigorous way in which he always stands up for his constituents’ interests and the thorough way in which he analyses issues.

I shall touch on the points that the hon. Gentleman made about whether there is a loophole in the legislation and whether the redundancy payments office ought to be more proactive, and about paperwork and form-filling, but may I first offer a few general comments, as he did? Let me refer first to the Northamptonshire economy. The employment rate is 81.6 per cent., which is high, and the gross value added per head has consistently been above the regional and United Kingdom average since 1996. I understand that the jobseeker’s allowance claimant count in Northamptonshire is 3.3 per cent. The county is suffering from the recession, just as other counties and regions in the UK are at the moment. I note that a job fair is taking place today in Kettering town centre and that Jobcentre Plus is providing support to a number of people who have had to suffer redundancies in companies in the Northamptonshire area.

The hon. Gentleman will probably be aware that the Prime Minister launched the booklet “Real help for the East Midlands” in Northamptonshire on 13 February. It signposts practical help from the Government to support businesses and families. The Minister for the East Midlands, through his regional economic cabinet, has set up a cross-agency redundancy response group, providing a wide range of assistance for businesses and individuals across the east midlands. The group includes Jobcentre Plus, the regional development agency, the Learning and Skills Council and ACAS. The LSC and the careers service are both supporting people to retrain in Northamptonshire through schemes such as Train to Gain. As he will be aware, a number of plans are in place, such as improving the A14, which runs through the north of the county.

The hon. Gentleman will also be aware, because we have debated this on a number of occasions, that in response to the worsening economic situation the Government have put in place a range of measures to support business: the enterprise finance guarantee, which helps companies with a turnover of up to £25 million by providing a loan of up to £1 million over a flexible period, of which the Government will guarantee up to 75 per cent.; the working capital scheme, which we hope to introduce very shortly; and the help that we are offering the automotive industry—a number of components companies are located in Northamptonshire—through the automotive assistance package.

I shall now refer specifically to some of the comments that the hon. Gentleman made about Alfred Sargent and Sons Ltd and the situation in which the workers have found themselves. This well-established footwear company, which is based in Rushden, Northamptonshire, has been going through difficult times. I was pleased that he ended on a positive note by saying that the company has risen from administration and looks to have brighter prospects. We all welcome that. It is clearly regrettable when anybody loses their job and has to be made redundant in the economy. The first thing that the Government seek to do, under our active labour market policies, is provide rapid response help through Jobcentre Plus, to try to ensure that we can get them training and jobs as quickly as possible.

The situation with Alfred Sargent and Sons, as the hon. Gentleman explained, is unusual. It is my understanding that some 30 workers were made redundant at the end of November, and since then they have been pursuing wages, holiday money and redundancy payments. At the beginning of December, they were paid one of the weeks’ wages that they were owed, but they have not been able to obtain the rest of their money from the company.

Business Link East Midlands had contact with the company in October 2008 and recommended that it pursue a range of support products, including a regional development agency business transformation grant, which would involve bringing in a business specialist. It also recommended accessing the transition loan fund, which is a temporary cash flow loan available through the regional development agency. It further recommended contacting the Manufacturing Advisory Service for the east midlands, which can provide hands-on support for companies. I am not aware that the company took those offers up, and it obviously had other things on its mind during a very difficult time.

The hon. Gentleman read out a letter he received from my right hon. Friend the Minister for Employment Relations and Postal Affairs. As the hon. Gentleman will be aware, at that time the company was not formally insolvent, and since then an insolvency practitioner has been appointed. At that time, therefore, the redundancy payments office was unable to help. However, there are rare specific circumstances in which the RPO may be able to offer help to those companies making redundancies prior to becoming insolvent. That is the nub of the issue, and where the hon. Gentleman sees a loophole.

The RPO wrote to the company asking whether it wanted to take advantage of its support, so to that extent the RPO was proactive, as the hon. Gentleman enjoined it to be, but it was the company that decided not to pursue the issue.

I appreciate that the RPO did contact the company, but that was only after I badgered it to do so, and it broke its own rules in doing so.

I am interested to hear the hon. Gentleman say that. My understanding is that the RPO can contact companies in that situation, but it is up to companies to contact the RPO and say that they want to take up the offer. In this case, the company did not do so. It is regrettable that the company had to decide to make the workers redundant, although that was a commercial matter for the company. I have had to make people redundant in the past, and it is the worst thing that one ever has to do as a manager. Nobody in their right mind relishes doing it.

I will ask my officials to get back to me and to my right hon. Friend the Minister for Employment Relations and Postal Affairs on the specific question of whether there is a loophole in the law. It is clearly the case that in rare circumstances the RPO can offer help prior to a company becoming insolvent, but the question whether that has to be triggered by a request from the company or can be offered by the RPO is an interesting one. We can perhaps explore whether there is more we can do to help. I will also ask my officials to consider the paperwork and form-filling that is involved, to ensure that it is proportionate and reasonable in the circumstances.

We live in incredible times. We face a recession that is of a different nature from any that I have lived through. We are taking some extraordinary action as a Government, and we need to continue to have an open mind and do all that we can to help those who are unfortunately being made redundant and to support viable businesses to get them through these tough economic challenges in the best possible way.

Question put and agreed to.

House adjourned.