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Draft Work and Families (Increase of Maximum Amount) Order 2009


16th June 2009

Jonathan Djanogly opposes proposals for an uprating to the statutory redundancy limit as it will make it more expensive for employers to make redundancies and consequently more redundancies will have to be made to meet that cost.

Mr. Jonathan Djanogly (Huntingdon) (Con): Good afternoon, Mr. Martlew. I congratulate the Minister on his appointment. I had an excellent relationship with his predecessor, the Minister for Business, Innovation and Skills, and I hope to have the same relationship with him. I think that he is the fourth, fifth, or perhaps even sixth Minister that I have faced over the past few years-Peter Bottomley (Worthing, West) (Con): Seen off.Mr. Djanogly: Or seen off. Perhaps the Minister will be the last, but we shall see.Column number: 6The problem with the order is that it will reduce numbers of jobs at a time when unemployment is soaring. I mentioned our concerns when the Minister for Business, Innovation and Skills and I recently debated redundancy pay-I will not go into the details. The Government's proposals are admittedly more limited than proposals to link statutory redundancy pay to average weekly earnings, but we still have our concerns.Since 1999, the weekly limit for statutory redundancy and unfair dismissal payments has been increased in line with the RPI, rounded up to the nearest £10. In 1998 the sum was £220; in 2004 it went up to £270; in 2007 it was raised to £310; in 2008 it was increased to £330; and on 1 February 2009, only four months ago, it went up to £350. The weekly limit has already been increased by 6 per cent. this year, and now the Government want to increase it again by more than 8 per cent. to £380 at a time when we are experiencing negative RPI inflation. They also wish to bring the increase five months forward, even though we have already had an inflation-busting increase this year. I think that we need the Minister to put on record why he thinks that such a large increase in the weekly limit will be acceptable to companies and why now is the right time to do this rather than the statutory time, which would be five months ahead.Mr. Hoyle: Does the hon. Gentleman agree that years of neglect and never providing the right increase has led-rightly-to a more significant increase now? Does he agree that it is right that those at the lowest end should see the increase, rather than those who receive enhanced payments, which we see in most businesses? Surely it must be correct to put right the wrongs of many decades.Mr. Djanogly: I think not, but I remind the hon. Gentleman that in 1999 his own Government set the formula that now applies: the RPI increase rounded to the nearest £10. In effect, he is saying that his Government's policy for the past 10 years has been wrong.Of course redundancies are a last resort for employers. Employers do not want to lose the investment that they have made in their employees and they will try to retain their staff for as long as possible. Employers generally make redundancies only when they are forced to reduce their labour costs.Mr. Hoyle: That is just not the case. I have the greatest respect for the hon. Gentleman, but he ought not to put his case in such a way. There are many occasions when we have seen European companies choose to sack workers in the UK as it is easier and cheaper to get rid of people in this country than it is in France. Does he support the actions of foreign companies?Mr. Djanogly: I dispute what the hon. Gentleman says. There is no statistical evidence to show that that is the case. Many multinational companies come and invest in this country because we have a low-cost, efficient economy.Mr. Hoyle: Will the hon. Gentleman give way?Mr. Djanogly: No, I will not.Mr. Hoyle rose-Column number: 7Mr. Djanogly: I will move on; perhaps the hon. Gentleman can come back on that later.The Minister will realise that he is making it more expensive for employers to make redundancies. Employers will now have to make more redundancies to reduce their labour costs by the same amount. The effect of providing more money to those who have been made redundant could be to put more people out of work or discourage businesses from taking on more staff in the first place. The Conservative party does not want to see more people out of work and struggling for survival because of the Government's ill-thought policies.The order is reflective of a Government who have lost touch with reality. I would appreciate hearing how the Minister consulted on the measure. I have been speaking to businesses-big and small-and they are against the Government's proposals. The CBI, the Federation of Small Businesses and the British Chambers of Commerce are all opposed to the measure. Businesses are having an extremely tough time at the moment, and many cannot afford to pay for such a large increase in statutory redundancy pay, especially when RPI inflation is negative.

Employers have to be increasingly tight with their budgets during the turbulent times in which we find ourselves. They had already budgeted for an increase to £350 this year and a very modest rise next year-if any-because inflation is negative. Instead, they are faced with a significant and costly rise five months ahead of schedule. This is an additional burden for businesses when they can least afford it. The Government's impact assessment shows that the measure will exert extra costs of up to £121.2 million on business, and £53.9 million on the Government. We should be helping businesses, especially during this low point in the economic cycle, not making it even harder for them to help us get the economy out of recession.

We recognise that many employers offer enhanced redundancy schemes, many of which are based on a multiple of statutory redundancy pay. The Government's changes will have an even greater impact on those employers, who are, in effect, being penalised for providing enhanced terms for their employees. For example, employers who offer a redundancy pay scheme with a multiple of two times the statutory limit will have to pay an additional £60 for every year of service.

Since the Minister's predecessor and I last debated statutory redundancy pay, the economic situation has not changed, and has even worsened in many ways. Britain still faces extremely serious and difficult economic circumstances. I remind the Minister that unemployment continues to rise and more companies continue to become insolvent. The Government have so far failed to lead us out of this almost unprecedented recession and have let the economy drift. How does the Minister think that the order will help?

The Government have continued to pile the pressure on businesses. According to the British Chambers of Commerce, in 2008 alone, the annual cost of regulation jumped by £10 billion to £76.81 billion. Over the last two quarters, gross domestic product fell by 1.5 per cent. and 1.9 per cent. A recent report by Sir David Arculus stated that the annual cost of regulation to the UK economy could be as high as 10 or 12 per cent. of GDP. The Government cannot continue with its poorly considered approach. The increase in the weekly limit on statutory redundancy pay is a further unnecessary cost to business. The Government do not seem to realise that we need to support businesses through this low point of the economic cycle to keep people in work.

Will the Minister tell us what representations he has had from the trade unions and others on increasing the weekly limit for statutory redundancy pay? Is the proposed increase connected with the Warwick II negotiations that have been taking place between Labour and the trade unions? Does he think that he has now done all that is necessary to appease the trade unions on redundancy measures? Has he come to an arrangement that the unions' private Member's Bill-the Statutory Redundancy Pay (Amendment) Bill, which was brought before the House by the hon. Member for Chorley-will be quietly dropped from parliamentary business? Was that the deal, or do Labour Members intend businesses to face another significant increase in the weekly limit on statutory redundancy pay? If that is the case, many more businesses will be under increased pressure, and that could lead to further business failures and even more people out of work. I note that the Minister has at least confirmed the Government's intention to continue opposing the redundancy Bill for the moment, if it is not dropped.We are against increasing the weekly limit on statutory redundancy pay when businesses are struggling to survive in this economic climate, when unemployment is rising and we are experiencing negative inflation. It is clear that such an increase will damage many businesses and could lead to a further increase in unemployment. The Conservative party supports business and employment and does not want to see any more decent and hard-working people losing their jobs through ill-considered measures such as the order. We will therefore oppose the Minister's proposal.

4.49 pm



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