Friday, February 6, 2009

from the files of the Institute for Redundancy Institute

Responding to fears that the global recession may deepen, the British parliament is planning to increase the statutory severance that employers must pay staff who are declared redundant.

At present, statutory redundancy pay is based on a week's pay for each full year's service between the ages of 22 and 41, and one-and-a-half week's pay for older workers. Total payouts are capped at £7,000 and £10,500 respectively because wages above £350 a week and service of more than 20 years are ignored. Some 46 per cent of the workforce earns more than £350 a week. But Lord Mandelson, the Business Secretary, plans to propose a more generous scheme in his submission to the Chancellor Alistair Darling ahead of the Budget this spring.

Although no decision has been made, a big one-off rise in the £350-a-week limit is under consideration.

This idea is being championed by some Labour M.P.s, with union backing. However, it is generally panned by employers who caution "that at a time when many firms are desperate to keep costs down, bigger payouts could result in more job cuts."

At first blush, it would appear to be an odd strategy for a "stimulus package" to cobble the nation's employers with significantly more onerous severance liabilities at a time of economic instability and uncertainty. But there is an additional wrinkle.

So far Lord Mandelson has failed to win extra funds for the scheme from the Treasury, which says he should find the money from his department's budget. While redundancy costs are normally met by the employer, the Government foots the bill when a firm goes bust.

So, this would seem to be a disincentive for parliament to hasten the rate at which companies "go bust," wouldn't it?

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