Considered in Grand Committee
This Government want to do all they can to help hard-working people who have been affected by the current recession. Although levels of redundancies have not reached those seen in the recession of the early 1980s and 1990s, the devastation caused to communities by that experience, when whole industries were wiped out, are still fresh in the nation’s memory.
Recently, we have had the sad news that 2,000 people in the steel industry in the UK are going to lose their jobs. Each redundancy is the story of a career cut short, not out of choice but because of economic circumstances. For those individuals and their families, redundancy comes as a massive shock. When it happens, the Government have to be there for people. They have to help them through that situation and into another job. So it is right that, at this time, we do all we can to improve the situation for hard-working men and women.
We have made considerable progress in this area during the past 10 years. When we first came into office, the weekly limit had increased by only £5 a week over the previous six years, yet the annual uprating formula that we introduced back in 1999 has meant that the weekly limit has almost tracked average earnings for the past 10 years and increased by 6 to 7 per cent for the past three years—well above average earnings in that period. That is a far better record than any Government have had from the inception of the redundancy scheme back in 1965.
In addition to this financial support, we have introduced measures to help business and avoid the need for redundancies, but that is not all. We believe that you cannot simply stand aside and watch from the sidelines when people are losing their jobs. You have to step in and say, “We can help you to get a second chance”. That is why we have made it easier for people to get access to training to help them get back into work as quickly as possible. That is what we will be doing in the case of those steel workers. Those are just some of the things that we have already done to make a difference but we know that we have to do more.
The evidence might show that many people find work quickly after being made redundant, but that period between jobs can be tough—especially for those with families or loved ones to support. So, in the April Budget, we committed ourselves to raising the limit for statutory redundancy pay by £30. This order implements that commitment by providing for a one-off uprating to the statutory redundancy limit using a power contained in the Work and Families Act 2006. It increases the limit from £350 to £380 on 1 October 2009 instead of waiting until the next annual uprating round in February 2010, thereby giving immediate help to employees.
For the benefit of those noble Lords not fully acquainted with the intricacies of redundancy pay, I shall give a brief explanation of how this benefit is calculated. There are two elements to the calculation. First, you work out the number of weeks’ service that are payable to the person made redundant. That figure depends on their age and length of service. Up to the last 20 years’ service can be counted. Once you have worked out the number of weeks’ service that are payable, you multiply that figure by the weekly limit or actual pay, whichever is the lesser. Secondly, the capping mechanism is introduced. The limit is currently capped at £350. In other words, anyone earning that amount or more will have their number of weeks’ service multiplied by £350. So today’s proposals put an extra £30 a week into the redundancy calculation and, therefore, directly into the pocket of those most in need during this time of economic woe.
Besides the immediate help that an increase in redundancy pay will provide, the order has a number of associated benefits. First, it does not simply apply to the redundancy calculation alone, because other payments are linked to the weekly redundancy limit, including unfair dismissal awards and payments made to employees where their employer has become insolvent. Our order retains the link with these payments, effectively increasing their limit, too. This assistance is worth around an additional £15 million of support per year, provided directly from the Exchequer to redundant employees.
Secondly, our order addresses the problem of deflation. As things stand under the annual uprating formula, if deflation continues until the autumn, the limit could fall by £10 per week in February 2010 due to it being linked to the retail prices index. I am sure that noble Lords appreciate that in the current economic climate a fall would hit those already suffering the most. Our order rectifies this problem by suspending the annual uprating round for the redundancy limit in spring 2010, ensuring the limit will not fall.
So there are a number of clear benefits to the order. However, I am sure that noble Lords will also want to know the costs associated with this measure. We have calculated that the Exchequer would have to pay out from £15 million to £29 million per year, while the cost to business is estimated at between £51 million to £77 million per year. We accept that these are significant costs, but it is absolutely right to provide additional help to employees who are made redundant while keeping the additional costs on employers and the Exchequer to an acceptable level.
Of course, the order is not a panacea. No Government can ever say that they can stop a recession having an impact in terms of people losing their jobs or companies experiencing its effects. In the long term, the best way of avoiding redundancies in the future is to ensure that businesses are strong and able to take advantage of the opportunities offered by new technology and from increasing competition abroad. But future plans do not influence what happens today. Today, we must ensure that adequate provisions are in place during this time of unprecedented economic turmoil and that those made redundant are properly and fairly compensated for their service. For those reasons, I commend the order to the House.
I thank the Minister for introducing the order. We on these Benches are acutely aware of the effect that redundancy can have on people, and we have great sympathy with anyone made redundant. This order increases the weekly limit for a second time in six months; it has gone up since 1 January this year by over 15 per cent. It also removes the annual reassessment of the weekly cap, due in 2010, as the Minister said, when a fall is forecast in the RPI. So we think that there is a real risk that employers will in future have to make more redundancies than they would otherwise have had to in order to make the savings that they need to avoid being pushed into insolvency. That seems to us to be of questionable wisdom on the part of the Government. Furthermore, the Government have created an additional real and unnecessary problem for the many employers who offer enhanced redundancy schemes, which are based on a multiple of statutory redundancy pay. So what are the Government, who have created the problem for them, planning to do to assist them? With this order, the Government, in their anxiety to please their paymasters, are doing something that they may later regret.
From these Benches, I welcome this order. The two fundamental points that the Minister made are absolutely germane in the current situation. First, it is extremely important that with the uprating there should be an acceleration of the payments being made to those worst hit by what is happening in the economy. That acceleration is welcome. Secondly, the statement being made that the Government will ensure that an uprating, which might, in a deflationary world, result in people getting less from next spring, should not take place. For those two reasons, we welcome the order.
We believe that we have a good case for increasing the limit to help employees made redundant, particularly during the current recession. It is absolutely right for the Government to take action to prevent the collapse of the banks and to support business through the recession. It is right for us to help ordinary people as well as those people in difficult times. We have carefully considered the impact on employers, and the estimate is that the £30 increase would cost them an additional £51 million to £77 million per year. We accept that those are substantial additional costs, but stand by our view that we have struck the balance about right. There were calls to increase by an even larger amount, but we believe that we have got the balance right. We feel that we have had an excellent record over the past decade and that we now stand in the middle ground between those calling for no increase at all and those calling for a very substantial increase. We do not believe that the £30 increase is too onerous a burden for business. It is right to point out that businesses are vulnerable in what is a difficult economic climate. However, we weighed up the small increase against the needs of employees, who have shown loyalty to a company and deserve to have that loyalty recognised. We believe that the order strikes the right balance for both employer and employee.
It is unfortunate that the noble Lord, Lord De Mauley, used the derogatory phrase paymasters, as we are acting in the interests of fairness, not meeting any vested interests. We have also ensured that we are doing our best to help businesses in a number of different ways, whether it is the £270 million of guaranteed loans that have been offered to 2,855 businesses under the enterprise guarantee scheme, or the 135,000 businesses that we have helped to retain more than £2.4 billion of working capital by deferring tax payments. We have done our best to stimulate the automotive sector via the vehicle scrappage scheme, which has resulted in 50,000 orders since going live on 18 May.
I think that I have covered all the comments made. I welcome the comments made by the noble Lord, Lord Razzall, which are absolutely germane to the current situation.