The Labour MP, Lindsay Hoyle, has put forward a Private Members' Bill calling for a significant rise in the level of Statutory Redundancy Pay (SRP).
At the moment SRP is calculated by a formula based on length of service and age, multiplied by the employee’s weekly pay, subject to a maximum of £350 per week. There is nothing to stop employers paying more, but this is the minimum entitlement. (In the case of some insolvencies the government picks up the tab and more on this later).
SRP usually rises annually in line with inflation (based on RPI, and then rounded up to the nearest £10) but in a recent Employment Bill the government created the provision for a ‘one off’ increase in the maximum week’s pay as part of a deal agreed with the trade unions before the last general election. They haven’t done this yet, in part because of representations made by EEF and others.
Lindsay Hoyle’s Bill seeks to raise the maximum week’s pay that is used to calculate SRP by, at first, linking this to the level of average weekly earnings and, thereafter, linking future increases to annual movements in the level of average weekly earnings. Suffice to say this would mean a significant increase. The latest information from the Annual Survey of Hours and Earnings from the Office of National Statistics shows that, in 2008, the average weekly earnings for all employees was £471.90 per week and for all full-time employees it was £574.30.
So why is this important? Well if it was adopted it would push up the cost of making redundancies, at a time when companies are already under intense economic pressure. There is a danger that, for those companies that need to make painful cuts to the workforce, the increased cost could be enough to push them over the edge.
It would also have a disproportionate on manufacturing. In part this is because manufacturers generally have higher rates of pay than many other sectors (with a significant proportion of their employees earning more than £350 per week). But some manufacturers also have supplementary redundancy pay arrangements which are often a multiple of the statutory rate and are very difficult to change.
So EEF is opposed to this Bill. However, it is clear that there is a political desire to do something in this area. (It’s quite a simplistic argument, but there is a sense that the ‘bankers’ have had their big pay-offs and pensions and now its time to do something for the rest of us.) However increasing the maximum week’s pay that is used to calculate SRP in the way that is being proposed would provide no benefit to low paid employees earning less than £350 per week.
So what’s the answer then? Well one solution could be to introduce a minimum week’s pay of, say, £200 per week. This potentially would mean greater financial support for the lowest paid workers, without driving up the costs for sectors like manufacturing. This is only one solution, but it may be something that would be easier for our members to cope with and there are indications that the government may be considering it.
In any case this is a difficult issue for the government for practical reasons. Obviously it is a big employer in its own right and, as mentioned above, it also picks up the cost of redundancy pay in some cases of insolvency. Any big increase in SRP then, could have significant implications on an already strained public purse.
So what happens next? Well the Private Members’ Bill got lots of support at second reading and now goes to Committee. The government could twist arms and kill it at this stage, but it is possible that they will look to do a deal or announce a compromise in the Budget. We’ll keep you updated here and you can follow the Bill's progress on the House of Commons website. You can also download this fuller EEF briefing.