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Redundancy Fund Bill

Volume 417: debated on Thursday 26 February 1981

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3.38 p.m.

My Lords, I beg to move that the Bill be now read a second time. This is a very short Bill with a very clear purpose. It aims to raise the limits set by the Employment Protection (Consolidation) Act 1978 on the amount which can be borrowed by the Redundancy Fund from the National Loans Fund. At present the Redundancy Fund can borrow up to £16 million and this can be raised to £40 million by order approved by both Houses of Parliament. This Bill will enable the fund to borrow up to £200 million and will provide for this limit to be raised to £300 million with parliamentary approval.

As your Lordships know, the Redundancy Fund is used to pay rebates to employers who have made statutory redundancy payments to employees. At present the rate of rebate is 41 per cent. In addition, where an employer is insolvent, those redundancy payments and debts such as arrears of pay or holiday pay, which are due under the insolvency provisions of the 1978 Act, are paid from the fund. The fund is financed by an allocation, currently 0·15 per cent. of salary, from employers' national insurance contributions.

As the House will recall, there have been a number of occasions in the life of the fund when it has been in deficit and when its borrowing limits have had to be adjusted. I think it is a sobering thought that the original limit set by the Redundancy Payments Act 1965 was £8 million, with a power to raise that sum to £20 million with parliamentary approval. With the use of the power, the limit was raised in August 1967 to £12 million, in April 1968 to £15 million and in August 1968 to the maximum of £20 million. The order raising the limit to £20 million lapsed after two years, but in 1972 the borrowing limit was again raised to £20 million for a two-year period. In 1975, as part of the Employment Protection Act, the limit was increased to £16 million with provision for extension to £40 million with parliamentary approval. This provision for extension has not been used since 1975.

Last April the fund was substantially in surplus and because of that surplus the employers' contribution was reduced from 0·2 per cent. of salary to 0.15 per cent. The surplus in the fund, which at the end of April stood at £144 million, then began to fall but, unhappily, as the number of redundancies grew during the second half of 1980 the decline accelerated and it was obvious that action had to be taken.

There were various things we could have done. We could have reduced the scale of redundancy payments or reduced the level of rebate to employers. We could also have increased the level of employers' contributions. We do not think it right or sensible, in the depths of a severe recession, either to reduce help to those employers in the greatest difficulties or to increase the burden on employers generally by increasing the level of contributions. We have therefore decided to take the very different course of increasing the borrowing powers of the fund to carry it through the period of deficit and, for the time being, to direct the whole of the employment protection allocation to the Redundancy Fund. This makes sense, because the Maternity Pay Fund is in substantial and growing surplus and can easily finance expenditure from its surplus for some time to come. But I hasten to say that of course the switching of the allocation will not detract in any way from the rights of those entitled to maternity benefit, and no order is, in any case, required to make this switch. I have met and explained this fully to members of the Advisory Committee on Women's Employment, which I chair.

To turn now to the actual wording of the Bill, Clause 1 raises the lower limit on the amount which can be borrowed from the National Loans Fund from £16 million to £200 million, and the upper limit from £40 million to £300 million. Clause 2 contains the Short Title and restricts the Bill to Great Britain. This is because Northern Ireland has its own Redundancy Fund and, if any increase in its borrowing powers is needed, this will be done by Order in Council. I make no apology for the size of the increase in the borrowing powers. The forecasting of future demands on the fund is always very difficult.

The House may be interested in the following quotation:
"Many things can affect the number and the amount of individual payments from the fund over a given period of time. Levels of unemployment are an important factor, but only one.
"Many redundancies are caused by other factors, such as the long-term adjustment of industries to changes… in the industrial structure. Perhaps the most important factor of all affecting the amount paid from the fund is the level of individual payments, which depends in turn on the age, length of service and earnings of those made redundant.
"With all these variables, even although it is possible to draw heavily on previous experience over the life of the Act, it is impossible to do very much more than make rough-and-ready estimates of future demand. I say this without apology to the House. It is intended to be no more than a statement of fact".—[Official Report, Commons, 7/2/77; col. 1127.]
I am using not my own words, but those used in another place by my predecessor, the then Minister of State for Employment, the right honourable Member for Doncaster, in February 1977.

As to the new limits chosen, all we are asking for is that there should be a sufficient margin of flexibility in administering the fund. The history books will remind us that in 1967–68 the Labour Government came before this House no less than three times in 12 months to seek further increases in the borrowing limits of the fund, and that does not seem to be the right kind of precedent to follow. My Lords, I therefore commend the Bill to the House.

Moved, That the Bill be now read 2a .—( The Earl of Gowrie.)

3.43 p.m.

My Lords, it would be churlish if we on this side of the House did not welcome the increases that have been suggested and, as usual, the noble Earl dealt with the issue in a constructive manner. I have taken the trouble to trace the history of this matter since the 1965 Act. Books were written about this subject by Members on this side of the House, by Fabians and by others and, originally, there was a sad belief that we had seen the end of unemployment. I shall not mention the name of one famous Fabian who has now passed away; it would be unlovely of me to do that. But there was a thought that we had solved the problem of unemployment.

As much as anything, the 1965 Act was intended to deal with the possibility of mobility. "Mobility" is an ugly word today. Mobility is not an easy thing. Nevertheless, we on this side of the House welcome this step, and I am quite sure that if the noble Earl has to come back again he will be welcomed. Unfortunately, the word "redundancy" is an ugly euphemism—that is a paradox—for the sack. I emphasise that the purpose of this short Bill is to raise the limits set by the Employment Protection (Consolidation) Act 1978, which is a broad Act—and I have gone through it—with many purposes. The Bill increases the amount that can be borrowed by the Redundancy Fund and the necessary order has to be approved by both Houses.

But on looking through the Act, I have worked out that the Treasury still has quite a power. In Section 40(5)(b) of the 1975 Act, we get the expression:
"'that Fund' substitute the words 'the Redundancy Fund and the Maternity Pay Fund in such shares as the Secretary of State may'"—
and here is the 64,000 dollar point of power—
"'with the consent of the Treasury determine'".
Always in these financial issues, the consent and the determination of the Treasury are of paramount importance. Those of us who have had the experience in difficult times, and in less difficult times, of needing money at periods when either side of the House has been in power, know that often the Treasury can be the bête noire of what I would call kindly and necessary legislation. I shall be very brief, as the noble Earl would naturally expect. My other point is that the Bill is a recognition of the truth of the existence of massive unemployment, and I believe that bovine bigotry and an obstinate belief in the efficacy of monetarism have landed us in this position. It is turning Britain's manufacturing, textile and engineering areas into industrial deserts—deserts of unemployment and indifferent listlessness which, if we are not careful, may ultimately become explosive pockets of uncontrolled reaction. This has to be faced on both sides of the House, without trying to make any specific point about it.

How long is this likely to last? Rightly, the noble Earl told us a moment or two ago that this cannot be calculated. But we ask how long is this likely to last, and what caveat, limitation or warning has the Treasury demanded? Has it demanded any warning? Will it use the powers under the Act? Section 40(5)(b) of the Employment Protection Act 1975 lays down that the Treasury has to give consent. The Minister acknowledges that forecasting is very difficult, and we must all acknowledge that. I do not want to be too nasty about this, but we were told that the lady was not for turning and we now have a maelstrom of social and economic disorder and, I regret to say, overspending. The Government have lost their strategy. Their tactics are difficult enough to understand, but what strategy are the Government now taking up?

On 12th February, The Times reported that the Government have overspent this year by £233 million on unemployment and related schemes, primarily because the Department of Employment underestimated the level of unemployment by £233 million. That was revealed in a committee by departmental officials who were answering MP's questions on supplementary estimates; and on both sides of the House there are many noble Lords who have had experience on such committees. The scheme's original budget was for £39·9 million, but it was overspent by just over £200 million.

We had a Question today about small businesses and I have the figures. Small businesses are failing, and falling apart, more rapidly than larger businesses. A written reply in another place showed that, between May 1979 and January 1981, the number of redundant workers in firms of 10 or more in England was 520,692; in Scotland, 84,169 and in Wales 55,209. The Official Report gave those figures on 17th February 1981; vol. 999, col. 93. We had that Answer in the other place. I want this place to be treated with the same courtesy. When we ask for answers, we want answers. We do not want half answers sent to this House. The cost of redundancy to a man or woman—we are grateful to the Government for having done this—is measured not only in pounds, shillings and pence. Worklessness over a period eats into a man's soul, into the dignity of a man or woman, into a human being's being. We know that the listlessness and the apathy which it causes is terrifying. One shrinks into an inferiority complex that could easily lead to violence and crime.

That brings me to a philosophical point which is to be found on page 118 of Nye Bevan's book Freedom From Fear. The canard that has been put abroad that my party wants to nationalise everthing is sheer rubbish. We believe that some type of mixed economy is bound to come. There are certain sections of the economy which have to be publicly owned. The tragedy of the deterioration in the National Health Service should not be measured in terms of its cost but in terms of those who today are four inches taller than their fathers because they have had 20 or 30 years' of good feeding, good nutrition and good places in good schools. God forbid that that system should be undermined by the sheer rush for profits. Our profits are as Ruskin expressed it. Ruskin said: "There is no wealth but life". And the finest life we have is that of our children. The great Sir Winston Churchill himself made that very point. Consequently, let us on both sides of the House get rid of measuring unemployment, the health service and the mixed economy in terms of pounds, shilling and pence.

I shall not bore the House—I have been speaking for nine minutes—with many more points or statistics but I should like to deal with a philosophical point. The House can stand it. Keynes himself—never mind Milton Friedman—said:
"The decadent international but individualistic capitalism in whose hands we find ourselves is not a success. It is not intelligent; it isn't beautiful; it is not just; it is not virtuous and doesn't deliver the goods. In short, we dislike it [and want to get rid of it]. But when we consider"—
here is the point—
"what to put in its place we are extremely perplexed".
It is time mankind tried to get together to destroy some of that perplexity. One thing which both sides of the House ought to accept—whatever may happen at the next election—is that we must not destroy every social service that builds a good life for the children we shall need in the future.

Missing out some of the other marvellous quotations I have here, much to my regret, but I have been speaking for 10 minutes now and the House has been tolerant, I would say that of course it would be indulging in schadenfreude, a wicked thing, to make capital out of this, because the day may come when we on this side of the House are in office and facing the same problem. But I would point out one phenomenon which the Government should now face. The phenomenon of crisis after crisis since the days of the Industrial Revolution should by now have taught us a lesson, but it seems to lie outside the scope of modern economic theory or so-called economic science. All over the world the business system is in decline or collapsing. Even Schumpeter, a capitalist economist in America a generation ago, said that the civilisation which we name capitalism was already beginning to wither away. Between us we must find an answer to these problems including, in the transition, redundancy payments.

3.54 p.m.

My Lords, I am afraid I shall not be able to match the rhetoric of the noble Lord, Lord Davies of Leek, but from these Benches I should like to make a brief contribution to the Second Reading of the Bill.

I am glad, first, to join in thanking the noble Earl, Lord Gowrie, for the way in which he has explained its purpose. It seems plain from the fact that the employers' contribution to the Redundancy Fund was reduced last April from 0·2 per cent. to 0·15 per cent. of salary that the Government failed to foresee the extent to which the surplus in the fund, then standing at £144 million, would fall because of the great increase in the number of redundancies that has occurred since that time.

In the present perilous state of British industry I am glad that the Government have not sought to balance the books by restoring the level of employer contributions to what it was earlier. I am also glad that they are reducing neither the scale of redundancy payments nor the level of rebate to employers. The course of action they have chosen of increasing the borrowing powers of the Redundancy Fund seems to us to be the right one to have taken in the circumstances in which they now find themselves.

We have noted that it is being done by directing the whole of the employment protection allocation to the Redundancy Fund. The Government are able to act in this way because the Maternity Pay Fund, which would in normal circumstances absorb 0·05 per cent. of salary, is in substantial surplus, as the noble Earl told us, and is likely to remain so for some time to come. The Explanatory and Financial Memorandum to the Bill states that there will thus be no direct effect on public expenditure overall, but it surely cannot be denied that money is now being spent on financing redundancies which would not have been spent if unemployment had not increased as sharply as it has in recent months.

I do not want on this occasion to make too much of a meal of this in criticising the present Government. In order to achieve the necessary restructuring of some of our most basic industries and to improve productivity in them, there now have, sadly, to be these redundancies. And what is more, in my view there would be fewer of them now if the last Labour Government had had the courage to take the action—for example, in the steel industry—that should have been taken long ago. It is also true that whatever Government were now in power—even, my Lords, a Liberal one—we as a nation could not escape from the recession which has struck other countries besides our own. I think, however, that it is fair for me to take this opportunity to reiterate the view of my party that the recession in this country has bitten more deeply into employment than in other countries in part at least because of the Government's economic policy.

In particular we feel that the time is long overdue when part of the revenue from North Sea oil might be used to renew some of our capital assets—I have in mind particularly as an example our railway system—in a way which we should all benefit from later on. The effect of this, I suggest, would be to bring back a little hope to our despairing building and construction industries and, more to the point in relation to the Bill we are now discussing, it might put a stop to redundancies in those industries and instead enable more people, including in particular skilled workers, to find employment in them.

The noble Earl, Lord Gowrie, may be relieved to know that I do not intend to take the chance afforded by this Bill to give the House another little homily on the virtues of an income policy or of electoral reform. But, for all that, I strongly adhere to the view that redundancies in this country will not be substantially reduced until there is a sufficiently widespread understanding that increases in pay cannot continue grossly to outstrip improvements in productivity, and until agreed action is taken to achieve that objective. Having ventured to make these few general observations, I am happy, on behalf of my noble friend, to agree to this Bill being read a second time.

4 p.m.

My Lords, I wonder whether I might make a short intervention and make a suggestion, because there is a point here which worries me. We are dealing with a Money Bill and this is really a money point so that we could not in any way amend the Bill to put this right. I accept entirely the advantages that the redundancy legislation has afforded. One of the objects of redundancy payments in cutting down the number of persons employed in a particular industry was to improve productivity at a time when there were opportunities in other industries to absorb those made redundant. However, the immediate prospects have changed. Firms are now having to slim down in order to survive at all. To the extent that firms have to make redundancy payments their chances of survival may be imperilled.

As I understand it, under the existing legislation if a firm is unable to meet its redundancy commitments at all the Government will assume those commitments. There must be a point at which the mere fact that firms have to make these redundancy payments may put them into liquidation. Their working capital will disappear, they may not be able to obtain loans and so forth. Would it not be practicable for the Government to advance the money in those narrow circumstances in order to be able to meet the redundancy payments at the point where the rundown is such that the capacity for the firm to carry on at all, if it met its full commitments, would be imperilled?

I wonder whether the noble Earl would have that point considered because it seems to me that it might be of help to an industry in these marginal circumstances. It would not involve very much. It might perhaps marginally increase the public sector borrowing requirement. But let us be quite clear that redundancy payments can be very great indeed—sometimes they run into tens, if not hundreds of millions of pounds—and might be just the factor to put a firm out of business altogether, whereas if money could be advanced to enable the firm to make those redundancy payments it might be able to survive.

My Lords, before the noble Earl replies, may I remark on something said by the noble Lord, Lord Rochester. As I understood it, he asked why the Government could not take some of the revenue from North Sea oil to re-equip the railways, but I understand that all the revenue from North Sea oil is now going to pay for social security. You cannot have your cake and eat it.

4.5 p.m.

My Lords, we are going to have an opportunity to debate unemployment and employment generally next Wednesday, so I hope the House will forgive me if I do not follow all the points that were made this afternoon,and I think it is fair to say that some of them were not directly connected with the Redundancy Fund Bill. I should like to congratulate the noble Lord, Lord Davies of Leek, on what is, to me at any rate, his first appearance at the Front Bench—but perhaps I have not been here when he has appeared there before—and on, as we would expect of him, an interesting and entertaining and fiery speech. I think it was perhaps a speech that started by being delivered by Dr. Jekyll and there may have been a change of gear to Mr. Hyde, but it ended with Dr. Jekyll again and for that of course we must be grateful. In this somewhat schizophrenic role the noble Lord got into a bit of a tangle between savage monetarism, on the one hand, and handing out money generously, on the other, and I think that is a circle that perhaps he will have to square next Wednesday.

One of the important points to get over in connection with this Bill is that, while unemployment as a total phenomenon quite rightly causes the deepest anxiety to those who suffer it, or may suffer it, and to Governments who at the very lowest level of their interest find it extremely expensive, there are circumstances in which unemployment is both necessary and good if people are to come out of industries in order that those industries should become profitable and thereby generate the wealth which will pay for the social services and the service industries and the other types of employment that people want. In those circumstances it is important that the individuals who come out of such industries are thoroughly compensated and, one might say, rewarded for their consent so to do.

It is important that we do not treat unemployment as a kind of monolithic black cloud, and recognise that it has positive aspects and that the important thing for a civilised society to do is to recognise that transitional structural changes bear heavily on individuals and that a civilised society picks up the bill for that. That is fundamentally what this kind of redundancy payment legislation is about, and that is why I commend it to the House.

On Question, Bill read 2a ; Committee negatived.