Ministers set to slash sick pay: Switch could cost industry millions

SUPPORT for sick pay is set to be slashed by the Government, increasing industry's costs by tens of millions of pounds and possibly forcing more workers to take out private insurance.

A Bill to reduce the subsidy for the statutory sickness and maternity pay system has been drafted for inclusion in this month's Queen's Speech, sparking a row in Whitehall.

Senior ministers, including Peter Lilley, the Secretary of State for Social Security, are concerned that the measure will increase industry's outgoings at a time when economic recovery is patchy. John Major has repeatedly trumpeted his protection of British business from the costs of the European Community's social action programme.

But the Treasury, which has long wanted to reduce the costs of sick pay - now pounds 52.50 a week for a married man - has pressed Mr Lilley to sacrifice his department's support for it to balance the books in a tough spending round. Although one senior minister said yesterday that the Queen's Speech is 'not set in stone', Whitehall is expecting the changes to go ahead. The programme will be announced on 18 November.

Employers were able to claim the whole sick pay bill from the state until 1991 when the proportion was reduced to 80 per cent. If Mr Lilley is forced by the Treasury to introduce the new legislation it will reduce that proportion further, although sources in Whitehall said there was no question of employers footing the whole bill. An initial pounds 200m increase in industry's burden is likely, restricting support to 60 per cent.

Yesterday the Confederation of British Industry warned that it would be 'very concerned' if the Government made any further cut in statutory support for sick pay. A spokesman said: 'We made it plain that there were significant problems in cutting it from 100 per cent to 80 per cent. It is also part of a disturbing trend towards switching the burden of social costs from the Government to the employer.

'It would impose costs on the employers which would be partly hidden and would damage competitiveness.'

Industry fears that small businesses in particular would be hit hard if, for example, a large proportion of their staff were hit by an influenza epidemic. Some MPs will be concerned that employers would find means of laying off workers rather than give them sick pay, so forcing more people to take out private insurance.

The Government first admitted that it was considering a reform of the procedures in March when Sir Michael Partridge, permanent secretary at the Department of Social Security, told the House of Commons Public Accounts Committee that the sick pay system's future was 'under review'. Ministers have long argued that the system, which relies on self-certification for the first seven days, would be better policed if companies had to share a greater proportion of the costs.

Mr Lilley has fought a rearguard action to head off reforms of the social security system which involve legislation. Ministers are aware of the possibility of backbench rebellion and have battled hard to exclude the most politically sensitive moves.

Another social security change, tightening the criteria for claiming invalidity benefit - which starts at pounds 54.15 a week - is also due in the Queen's Speech. It too is likely to provoke fierce opposition.

One of the proposals is that claimants should satisfy an independent medical board before receiving the benefit.

Ministers are worried that sensitive social security measures could detract attention from areas the Conservative Party wishes to highlight - such as law and order where two criminal justice Bills will go before Parliament.

Mr Major emphasised his commitment to the 'back to basics' theme of his party conference speech in a briefing note sent to Cabinet ministers this weekend. Looking ahead to the legislative programme, the Prime Minister highlights measures on law and order and teacher training.

The note, from the Downing Street policy unit, said: 'Going back to basics means expecting and respecting personal responsibility. It means relying on the good sense of families rather than politically correct absurdities.'

The challenge is directed 'to areas of social policy where theorists dragged professionals and administrators furthest from common sense,' it added.

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