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Statutory Redundancy Pay (Amendment) Bill

13th March 2009

Jonathan Djanogly opposes a Private Members Bill that would increase statutory redundancy pay as being inappropriate during the prolonged and deep recession that the country is facing today.

Mr. Jonathan Djanogly (Huntingdon) (Con): I have listened to the debate and the internal Labour bust-up, including a review of the party's manifesto pledges, with some degree of amusement. However, I need to remind hon. Members that Britain is currently facing extremely serious and difficult economic circumstances. Unemployment continues to rise and company insolvencies are increasing rapidly during this prolonged and deep recession. Figures show that the number of companies collapsing increased by more than 250 per cent. in the last quarter of last year, and the knock-on effect of that increase, and of the recession generally, are startling. The amount of people out of work hit almost 2 million at the end of last year, which is the highest level since Labour came to power.

I am sure that the hon. Member for Chorley (Mr. Hoyle) honestly believes that his Bill will help employees, but from the Opposition's point of view it is, at best, an inappropriate reaction to the crisis that we are facing. Moreover, we are extremely concerned about the damaging effect that it could have on workers in the longer term. In diverting money away from the running of businesses, which could lead to more insolvencies, the Bill could undermine and damage the very workers whom it seeks to protect. Whether or not it is a panicked reaction to the financial crisis, I state now that we do not support this Bill.

What measures are in place for those who face redundancy? The first relevant source for many employees will be their contract of employment. A contract of employment will often stipulate an employee's entitlement on being made redundant. Such a contract must at least be in line with the minimum requirements for all employees, which are contained in the Employment Rights Act 1996. That legislation provides that employers must pay employees a minimum amount, depending on their age and number of years of service. Currently, the Act stipulates that employers are required to pay laid-off employees a minimum redundancy payment calculated by multiplying the length of service by a specified sum. That specified sum is calculated by multiplying the redundant employee's salary-up to a capped level-by a figure from 0.5 to 1.5, depending on the employee's age and length of service.

Mr. Hendrick: Is not the hon. Gentleman hiding behind a piece of legislation that his party opposed in the 1960s?

Mr. Djanogly: The hon. Gentleman can go back to the 1960s if he wants, but I will return to the matter of the current recession.

For example, for each year's service when the employee was aged between 41 and 64, 1.5 weeks' pay are factored in. There is a maximum of 20 years' service which counts towards the calculation. There is also a maximum limit on the amount that constitutes a week's pay under the Act. It is currently set at £350. That means that the maximum redundancy payment is £10,500. Importantly for our debate, however, it should be noted that pursuant to section 34 of the Employment Relations Act 1999, under existing law these sums already increase in line with inflation on an annual basis. I am not entirely sure whether the hon. Member for Chorley made that claim in his opening remarks.

The Bill would serve to increase the statutory maximum limit on the sum applied for a week's wage. It is currently capped at £350, but the Bill, in linking the cap to average weekly earnings, could increase it to as much as £500 on a one-off basis, and then maintain the link to average weekly earnings on an ongoing basis.

Nia Griffith (Llanelli) (Lab): Can the hon. Gentleman explain the logic of not linking redundancy pay to average earnings?

Mr. Djanogly: As I have said-and as the hon. Member for Chorley failed to say, I believe-the current legislation provides for increases in relation to inflation. I have the figures to hand: in 1998, the sum was £220; in 2004, it went up to £270; in 2007, it was raised to £310; and in 2009, it became £350. I am not here to make the Government's case for them, but the fact of the matter is that measures that the Government brought in have been increasing the amount, and I do not think that came out in the hon. Gentleman's comments.

Mr. Hoyle rose-

Mr. Djanogly: I am sure that he is now going to set me right.

Mr. Hoyle: Of course I am going to try to do so. I made the point that there had been increases. In fact, I made the point that we are in the very dangerous situation of having inflation falling and every other economic indicator dropping, and statutory redundancy pay could drop, too, because it is linked in this manner. That is why we want to broaden the link. I am sure that the hon. Gentleman would not want to support a cut in statutory redundancy pay, but that could happen under the current terms.

Mr. Djanogly: The economic situation changes, but I assume that the hon. Gentleman is hoping that we do not move into a deflationary economic situation. We will leave that to those on his Front Bench, who are at present doing a pretty good job of taking us towards such a situation. That is something we may have to deal with, although I hope we do not.

John Bercow: I understand, although I do not agree with, my hon. Friend's argument that statutory redundancy pay should not be increased in line with earnings because we are in economic bad times. As a demonstration of good faith on the issues, can he identify an occasion of economic good times in which he did support such an increase?

Mr. Djanogly: One does not have to support such an increase, because it is in legislation that it happens. My hon. Friend just mentioned good faith. He has also discussed how clause 1(2) provides for the Government, in good faith, to bring in regulations over 12 months, and I must say to him that it is the looseness of the Bill's wording that causes me great concern. Rather the opposite of what he maintains is the case, he should realise that the looseness of the Bill's drafting will mean that business does not really know what is going to happen, and that problem causes much concern.

The hon. Member for Chorley made the point that because money is involved, the format of the private Member's Bill makes it difficult for him to draft the measure precisely and he is therefore drafting on principle. He must appreciate that the Bill's implications for business are significant, and that when loosely worded Bills are presented to Parliament, people will have concern.

Mr. David Hamilton: May I draw hon. Members' attention to the current situation? Every hon. Member will have worries about their high streets. We face the possibility of an amalgamation of banks, and the tellers-the lowest-paid people-will be pushed into taking redundancy packages. How will the hon. Gentleman and other Front Benchers explain that although those at the top of the tree-the people who created the problem-are walking away with millions, we will make other people suffer, such as the young and the loyal workers who will walk away with the minimum redundancy arrangements?

Mr. Djanogly: The hon. Gentleman makes two important points. The first concerned the general state of the economy. I totally agree with him that this country, and its economy, is in an utter mess. We place the blame for that on this Government; their missed opportunities for reform over the past 10 years have led us to where we are now. His second point was that the poorest are having to bear the brunt of the situation. Of course it is very sad that working people are losing their jobs because of the failed policies of this Government, but it is also important to realise that the more wealthy one is, the more one suffers under these redundancy provisions.

Several hon. Members rose -

Mr. Djanogly: Let me finish my point, because it is an interesting one. When I discussed the Bill with several employment law experts who do not act for unions, they told me that the main shocks that they see involve wealthier people who think that the law will provide them with some form of fair redundancy-it does not. [Interruption.] But the law is right. Labour Members are maintaining that it works only against poorer people, but that is not the case, for the more wealthy someone is, the more the existing law is prejudiced against them. Someone earning a vast amount who asks their solicitor whether they are going to get a few months' pay because they are being made redundant will get the answer, “No, because it is capped.

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