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Mr. David Miliband (South Shields): Judging by the number of hon. Members who were in the Chamber, I thought that there had been a sudden outbreak of interest in the position of workers who are sacked by companies in receivership. I am sorry to see Opposition Members leaving the debate.
The Government committed themselves in their 1997 manifesto to significant measures to ensure fair treatment at work. I am delighted that, since then, those aspirations have become legislation on the minimum wage, the rights of trade union recognition and more rights for part-time workers. Those measures are an important down payment on our vision of economic renewal that is based on partnership at work.
By contrast, today's debate focuses on a group of workers for whom the burden of insecurity and risk remains unfair. I am talking about employees who are sacked by companies in receivership. I want to stand upas do my hon. Friendsfor that group of workers, draw out the Government's thinking on such an important matter and find out how such an injustice can be remedied. For reasons that I shall explain, 350 sacked workers in south Tyneside have a particular interest in the debate. They are looking to the Government for help. Their cause is just and I look forward to the Minister's comments.
In September last year, 1,150 people producing printed circuit boards for a parent company called ViaSystems Ltd., based in the United States, were told that the company that employed them had gone into receivership. A second plant located north of the river Tyne was closed. The announcement raised a host of difficult issues, not least those concerning the good faith of the parent company and its use of public funds. But that is not my main interest today. The debate is about the human misery that arises from a loophole in the law as it affects sacked workers.
For 11 weeks after the receivership was announced, there followed a tensenot to say hair-raisingperiod of intensive activity to save the South Shields plant. I am delighted that the management buyout team was given outstanding support by public bodies in the region and, ultimately, by Ministers in the Department of Trade and Industry. The employees are highly skilled and the plant had been the subject of enormous investment, which made a new start possible. In early December, I was privileged to help launch a new company, Circatex, with the chief executive, Charles Brooks. We are hopeful that it will become Europe's leading PCB manufacturer.
However, we learn that with every silver lining comes a cloud. Within days of the announcement of the receivership in September, 350 workers had been sacked. They included people such as Selby Armstrong, a chemist with 33 years' service at the plant; Susan Feasey, a production worker with 21 years' service; Marjorie Joseph, a printer with 26 years' service, and Val Smith, a supervisor with 33 years' service. Although the launch of Circatex saved 800 jobs, I am sorry that it could not get their jobs back for them.
The legal position for workers in companies that go into receivership is complex. I shall outline it briefly. Payments owed under employees' contracts are treated as unsecured claims. The Insolvency Act 1986 gives employees some preference in the restoration of those claims for back pay up to £800 and for holiday pay, but redundancy pay has never been given that degree of preference, so many employees are left with redundancy entitlements that are not worth the paper on which they are written.
Mr. Bob Blizzard (Waveney): I wish to bring to my hon. Friend's attention an example from my constituency that supports his argument. I refer to Zephyr Cams, a company in Lowestoft. Its 100 employees knew from the accounts department that any income that the company received was transferred immediately from it. They watched while bailiffs removed machines from its factory to pay off debts. When the company eventually went into receivership, the employees were owed wages and redundancy payments. To their horror, they found that the American owner of the company, Mr. Kenny Joseph, had taken the same action with companies in Weston-super-Mare and has now transferred the assets of Zephyr Cams to a company up the road.
Mr. Miliband : I am grateful to my hon. Friend for bringing that example to my attention. I do not know the details of the case to which he referred, but it seems that sacked workers in his constituency have been left with worthless redundancy and contractual entitlements.
The Redundancy Payments Act 1965 tried to plug the gap. Under the Act, the Government offer a safety net for employees. In respect of a maximum of 20 years' service, ex-employees are now entitled to a maximum of £240 for each year worked between the ages of 22 and 40, and £360 for each year worked between 41 and 64. The maximum statutory redundancy payment is £7,200. Thanks to the Employment Relations Act 1999, that figure is uprated annually in line with inflation.
However, the tattered nature of that safety net becomes evident when we consider the contracts that the ex-employees at ViaSystems had signed. The contracts of the most experienced workers, which dated back to when the site was owned by Plessey, guaranteed them four weeks' pay for each year worked. So, instead of my constituents receiving £7,200 from the Government, they should have been entitled to much more. According to his contract, Mr. Armstrong was entitled to £46,000 in redundancy pay, but he received £7,200. Susan Feasey could have expected £25,000, but received £6,500. Marjorie Joseph has lost out to the tune of £32,000 and Val Smith has lost £51,000. That toll of misery goes way beyond the trauma of life without work. It puts at risk a life's work.
I know of a constituent of my hon. Friend the Member for Jarrow (Mr. Hepburn) who, according to his contract, should have received £170,000 in redundancy pay for a career of service. He received £7,200 instead.
Mr. Stephen Hepburn (Jarrow): I congratulate my hon. Friend the Member for South Shields (Mr. Miliband) on securing this important debate. It is noticeable that the Tories and Liberal Democrats are not present and I hope that that fact is remembered. I pay my hon. Friend specific tribute for saving hundreds of jobs by launching the firm that has taken over ViaSystems. He should be praised for his great work. I am sure that he agrees that we should applaud the attitude of the work force he represents. They have endured injustice, but they bear no animosity. We have a Government who listen. We have seen that happen in cases that involved miners and in asbestosis cases. My hon. Friend will agree that the Government must listen to the redundant workers.
Mr. Miliband : My hon. Friend makes a powerful point. By any standards, what has happened in south Tynesidean area that covers both our constituenciesis worse than rough justice. Our constituents feel let down by the system. They feel battered through no fault of their own. They have paid into the national insurance fund, but then found that the insurance policy had holes in it. Now they want reform.
We must discuss two aspects of reform: first, the legal position and, secondly, the safety net. The Government recognised some of the legal dilemmas in their White Paper on insolvency entitled "Productivity and EnterpriseInsolvency: A Second Chance", which was published last year. It highlighted the sole accountability of the administrative receiver to its appointer and the desirability of creating a system under which all creditors have a duty owed to them. The White Paper also signalled a willingness to follow Germany and Austria in abolishing Crown preferenceto the benefit of unsecured creditors.
However, the White Paper did not consider workers who expected redundancy pay. I hope that the Minister will set out today the Government's thinking on how to treat redundancy pay in the future. Why should it not have the same preferential status as back pay? It is anomalous that employees' rights to redundancy pay are stuck at the back of the queue while holiday entitlements are paid. It is a matter of fairness in the division of spoils from failed companies. I do not envisage public spending implications, and I believe that justice should prevail.
A second aspect goes beyond the legal position. It relates to the operation of the Government redundancy scheme. The latest Library figures, which relate to 1999, suggest a net outlay of some £150 million on the scheme£170 million paid out, and £20 million received in return. However, if the original maximum compensation of £40, introduced by the 1965 Act, had been uprated in line with inflation since 1965, it would today be worth not £200 or £300 but £460, almost doubling the £7,200 maximum to which former employees are now entitled.
Similarly, the Government payment was designed originally to equate to a weekly wage but no longer does. The average weekly wage today is slightly more than £400. The Minister may correct me, but I believe that it is about £409much higher than the £240 currently paid.
In addition to considering increasing what is effectively a flat-rate benefit, we should consider alternative methods of proceeding, such as relating statutory redundancy pay to contractual entitlement and/or length of service. I should like the Government to consider the feasibility of a graduated scheme. Statutory redundancy pay could be linked to contractual entitlement. The fundamental unfairness of the ViaSystems case relates to the gap between expected payments under contract and actual payments under the statutory scheme. It is simply not right that someone with a contractual entitlement to £50,000 receives the same as someone with an entitlement to £10,000. The latter receives 70 per cent. of their contractual entitlement; the former not even 15 per cent. Reform is, therefore, essential.
Entitlement under the statutory scheme could be specified as a percentage of the contractual entitlement, or the state minimum, whichever is higher. That would at least mitigate the catastrophic loss that redundancy currently represents. If it were set at, for example, 50 per cent. of entitlement, my constituents would take a hit from their redundancy, but they would not lose everything, as happens at the moment.
My second idea complements the suggestion that payments should be related to expected entitlement. Redundancy pay should be linked more closely to length of service. The current approach of paying more for years served by older workers is a nod in that direction, but in other countries and parts of the private sector, it is a clear principle that long service should be rewarded. A statutory formula based on length of service is used in Austria, Portugal and Spain; in France, the Netherlands and Germany, social compacts agree payment, and length of service comes into play. The Library reports that, in the private sector, companies as diverse as Lloyds TSB, Johnson Wax and Matushita (UK) relate redundancy payments to length of service. Ideally, those two elements of graduationrelating payments to entitlement and to length of servicecould be combined. For example, those with 20 years' service could be guaranteed 50 per cent. of their contractual entitlement; those with 10 years' service 30 per cent., and so on.
Obviously, those ideas need work. I do not expect the Minister to announce today that he has turned Government policy on its head. However, I am hoping for a commitment from the Government to consider the principles underlying a revised scheme, to accept that more work is needed on the subject and a willingness to work with all interested parties for reform. The matter may not be front-page news and may not affect the majority of people. However, I believe that British people have a strong sense of fair play. The scheme currently goes against fair play and should, therefore, be reviewed and reformed.
The tragedy in my constituents' case is that a change in the law would not help them. Former ViaSystems workers realise that it would not change the position. However, they believe that others should be protected in future, and that is why they came to London to present a petition to the Prime Minister two weeks ago.
The Parliamentary Under-Secretary of State for Trade and Industry (Nigel Griffiths) : I congratulate my hon. Friend the Member for South Shields (Mr. Miliband) on securing a debate on this important subject and for his efforts in pursuing the interests of his constituents who were formerly employed by ViaSystems Tyneside Ltd. I add my voice to that of my hon. Friend the Member for Jarrow (Mr. Hepburn) and congratulate my hon. Friend the Member for South Shields on his vital role in securing the management buyout of the south Tyneside plant by Circatex Ltd., which meant the continued employment of hundreds of his constituents. For that he deserves the highest praise.
It is always regrettable when employees lose their jobs through no fault of their own, such as through an employer's insolvency. However, such circumstances are commercial matters for the parties involved and are not open to direct Government intervention. Our role is to provide help and support for business when appropriate and to ensure that employees have a framework of minimum safeguards through employment rights legislation.
The DTI has in place a toolkit to help employees of companies that are in difficulty and close. When redundancies are inevitable, we do everything possible to help people find new jobs and, if necessary, acquire new skills. The job transition service can provide an intensive and personalised response to large-scale redundancies and work with local partners, and has a good record of finding new employment for people affected by major job losses.
We actively support manufacturing jobs in the region and the creation of strong regional economies. We pledged £1.2 billion, which will rise to £1.7 billion, to regional development agencies to support innovation and enterprise, and in raising the game in every region RDAs are working in partnership with the public and private sectors, businesses, universities and local authorities.
To summarise employees' statutory entitlements on the insolvency of their employer, the Employment Rights Act 1996, which consolidates earlier legislation and implements the European Union insolvency protection directive, allows for certain debts owed to former employees of an insolvent employer to be met up to statutory limits by the Secretary of State from the national insurance fund. Such debts include not only statutory redundancy payments but arrears of pay, holiday pay, compensatory notice pay and basic awards of compensation for unfair dismissal. Claims for such payments are processed on the Secretary of State's behalf by the DTI's redundancy payments service. I understand that claims received from former
Mr. Russell Brown (Dumfries): Matters are often not as clear as the Minister describes. I have some experience, with a knitwear company in my constituency that went into liquidation some 15 months ago. The employees are still awaiting redundancy payments, as the DTI declared, I suspect rightly, that the company re-started five days after the doors closed and was operating again. That is an issue. A safety net is provided, but the matter is never as straightforward as is sometimes portrayed.
When the Secretary of State makes payments on an insolvent employer's behalf, she becomes a creditor in the insolvency proceedings in the employees' stead, and the national insurance fund can thus recoup a portion of money paid out. The portion recouped obviously depends on factors such as the value of assets remaining in the insolvent business, the level and type of debts owed to other creditors, and the respective preferences accorded to those debts under insolvency legislation.
Although my hon. Friend the Member for South Shields did not mention it in his speech, I am aware that some comment has been made about the sale of part of the ViaSystems parent company to a new owner registered in the Cayman Islands in 2000. It may be helpful if I explain that that has no bearing on the former employees' entitlements. Their contracts of employment were with the ViaSystems subsidiary in Tyneside not the parent company. In any event, provided that former employees of an insolvent company worked in Britain, it makes no difference to their insolvency payments whether the company has a Britain-based or overseas owner.
Hon. Members may like to know that a proposal to revise the European Union insolvency protection directive is currently under negotiation in Brussels. It is designed to take account of changes in insolvency practice and law that have taken place in member states since the original directive was adopted in 1980, and other factors, such as the dynamism of the internal market and the need for consistency with other Community directives on labour law.
The Government support the Commission's proposals in principle and expect the revised directive to be adopted later this year. That will afford us an opportunity to update our domestic implementing provisions and ensure that they are operating as effectively as possible. We will, of course, carry out full public consultation before making any changes to legislation and I am sure that hon. Friends who take an interest in the issue will want to make their views known at that stage.
On employees' rights on redundancy, in cases in which employers propose to make collective redundancies20 or more at one establishment within a 90-day periodthey are required to inform and consult the affected employees through representatives and notify my right hon. Friend the Secretary of State.
The main thrust of the speech made by my hon. Friend the Member for South Shields concerned redundancy rights of employees, especially the amount of statutory redundancy payment for which they may qualify and which he considers inadequate. Unlike insolvency payments, statutory redundancy payments are not currently covered by European law, nor has any formal proposal yet been made that they should be. The entitlement of employees working in various member states is therefore determined by the law and practice of the country in which they work.
The purpose of the United Kingdom's statutory redundancy payments scheme is, as my hon. Friend suggested, to provide a minimum safety net for compensation for redundant employees for the loss of expected continued employment. It leaves employers and employees or their representatives free to negotiate more favourable severance terms on a contractual basis according to their priorities, needs and circumstances and what the business can afford. In many cases, that is what they do, and the Government welcome that.
My hon. Friend suggested that the amount of redundancy payment payable from the national insurance fund to former employees of an insolvent employer ought to be linked to their contractual entitlement rather than limited to the statutory redundancy payment amount. We do not agree. It would significantly increase the costs falling on the national insurance fund and, ultimately, on the taxpayer. Moreover, it would benefit the relatively well off, with generous terms and conditions, and do nothing for those on lower contractual entitlements.
My hon. Friend suggested that the calculation of statutory redundancy payments ought to take more account of length of service. However, length of service is already an important factor in the calculation. I will explain the formula used in the calculation, which may illustrate the point. The amount of the lump sum statutory redundancy payment depends on three things: how long the employee has been continuously employed by the employer; how the employee's years of continuous service relate to a particular age band; and the rate of weekly pay at the time of dismissal, up to a weekly limit.
For each complete year of continuous service between the ages of 18 and 21, former employees receive half a week's pay. For each complete year of continuous service between the ages of 22 and 40, employees receive one week's pay, and for each complete year of continuous service between the ages of 41 and 65, they receive one and a half weeks' pay. Over the age of 64, the amount is halved and is extinguished at the age of 65the underlying aim of the scheme is to compensate for the loss of expected continuous employment and, as retirement age is reached, that expectation diminishes.
The maximum number of years' continuous service that can be counted for statutory redundancy payments is 20. The length of continuous service is counted backwards from the relevant dategenerally that on which the notice of dismissal given to the employee ends.
I hope that hon. Members will agree that length of service is already accorded a great deal of importance in the calculation of statutory redundancy payments. It may also be helpful to mention the statutory limit on a week's pay used for such purposes. As my hon. Friend said, section 34 of the Employment Relations Act 1999 abolished the previous requirement to conduct an annual review of award limits and established a revised mechanism for annual changes in award limits in line with retail prices. The Secretary of State is required to change the limits accordingly by order.
To bring hon. Members up to date, the most recent uprating took place this month, when the limit on a week's pay was raised from the £240 mentioned by my hon. Friend to £250. The Government consider that the mechanism put in place in 1999 constitutes a suitable and effective means of ensuring that the limit on a week's pay remains fair and appropriate. I take my hon. Friend's point that in earlier years the levels of the limits may have been eroded in real terms, but I take no responsibility for the decisions of previous Administrations.
My hon. Friend mentioned the White Paper on insolvency, which will be followed up in our enterprise Bill. The White Paper afforded us the opportunity to undertake a wide-ranging review of corporate and personal insolvency issues. As my hon. Friend suggested, important proposals were put forward, including the abolition of Crown preference, which
We have it in mind to introduce a ring-fence mechanism to ensure that the benefits of abolishing Crown preference flow to unsecured creditors. That will benefit people after payments have been made to preferential creditors and for administration costs. A proportion of the money available for distribution will be ring-fenced for unsecured creditors, and employees may benefit in that capacity for the part of the debt that is not preferential.
I note my hon. Friend's suggestion that redundancy payments should be accorded the same preference as debts such as pay arrears. Although not specifically mentioned in the White Paper, I can confirm that we are giving further thought to that point. However, the preferences set out in the insolvency legislation were carefully considered when they were originally introduced and the need to examine them in the round rather than in a piecemeal way must influence the way in which we approach the issue.
I hope that I have answered my hon. Friend's key questions. I have every sympathy for former employees of ViaSystems Tyneside Ltd.especially those who have yet to find alternative workand for redundant employees of the other businesses. I am grateful to my hon. Friend for raising an important issue. I repeat that thanks are due to him for his sterling efforts to secure employment for those made redundant who are now re-employed. I commend that model to all hon. Members who might be confronted with similar circumstances with regard to companies in their constituencies that face the terrible plight of insolvency. The work of the regional development agencies, and the other mechanisms that the Department of Trade and Industry has established, place us in the forefront of the drive to ensure that employees who lose their jobs have the chance to secure comparable employment and to learn the new skills that they require. I thank my hon. Friend for raising this important matter.