Jonathan Djanogly opposes plan to link statutory redundancy pay to average earnings

On Friday Labour MP Lindsay Hoyle's Statutory Redundancy Pay (Amendment) Bill had its second reading. It calls on the Government to "link the value of statutory redundancy pay limits to the level of average earnings, which will ensure that future increases in statutory redundancy pay are linked to average earnings". Mr Hoyle explained that:

"The amount of statutory redundancy pay to which an employee is entitled depends on his or her age and length of service and pay. An employee who has been employed continuously for more than two years is entitled to half a week’s pay for each complete year of service between the ages of 18 to 21, one week’s pay for each complete year of service between the ages of 22 and 40 and one and a half week’s pay for each complete year of service after reaching the age of 41. There is, however, a statutory cap on the amount of employee’s weekly pay that can count towards the entitlement to statutory redundancy pay. Since February, the limit has been set at £350."

The Bill had 85 Aye votes and 17 No votes, although it is not supported by the Government. Jonathan Djanogly, Shadow Minister for Corporate Governance and Solicitor General, spoke for the Conservatives:

"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.

...

Providing help to working people in this country means making sure that we have an economy that will create and sustain jobs, and that includes getting credit moving in a way that this Government are consistently failing to do. We simply believe that this proposal would be damaging to our economy, to our companies and to the workers who drive our economy.

...

We are hugely concerned that, in this economic downturn and with unemployment already predicted to rise to 3.5 million, this diversion of cash will only add fuel to the fire. Essentially, the Bill could damage those whom it seeks to protect. Although some redundant staff will enjoy a short-term monetary gain, it could also have negative effects. First, the additional financial strain on companies could lead to more businesses becoming insolvent, so there could be fewer businesses to offer jobs once the economy begins to recover and, perversely, there could be more workers to compete for those limited job opportunities.

Secondly, the Bill may lead to employers ceasing to offer more generous contractual provisions in case of redundancy. As we have heard, some 50 per cent. of organisations offer workers more than the statutory minimum. In an attempt to improve conditions for those who enjoy only statutory protection, the Bill might indirectly harm a host of other workers. Thousands could potentially be put under pressure to renegotiate their contracts, and many new workers would simply be left with the statutory minimum.

Thirdly, the Bill might lead to employers looking to avoid its provisions. For example, they might seek to avoid potential payments by increasing staff turnover so that workers do not qualify for statutory redundancy, or through complex contractual means. More worryingly for workers, employers may simply be unable to pay the enhanced sum. Fourthly, the Bill might also lead employers to make workers redundant pre-emptively, for fear of incurring far higher costs by delaying the process in the hope of recovery. Young and newer workers, who are comparatively cheap to make redundant, would likely be sacrificed. Rather than softening the blow of redundancy, the Bill might actually make it more frequent and more financially painful, particularly for newer employees.

Finally, we need to appreciate that this measure is not designed to help the poorest employees. That is because increasing the maximum week’s pay would provide no increase in statutory redundancy pay for the lowest paid employees—those earning less than £350 a week. To that extent, this Bill seems to be out of line with the Government’s policy of “protecting vulnerable workers” and “supporting good employers”. Indeed, it is quite feasible that the poorer workers who receive nothing under this Bill could have less job security because of the benefits given to higher earning employees."