Redundant workers to get bigger pay-offs

The minimum amount of money that employers must pay staff they make redundant is set to be increased by the Government, The Independent has learnt. In another attempt to ease the pain of those worst affected by the recession, ministers have launched a review of the minimum payments to which people are entitled by law when they lose their job. With around 1,500 posts being axed each week, unemployment will soon pass the two million mark and could eventually rise to more than three million.

The plan emerged on the day that the Bank of England reduced interest rates to 1 per cent, the lowest in its315-year history, and warned of a "severe and synchronised downturn" in the global economy.

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.

Other options include lowering the qualifying period for redundancy payments from two years' service to one year, and raising the tax-free limit for more generous pay-offs. Since 1988 the first £30,000 has not been subject to tax, but the TUC wants it raised to £50,000. However, ministers may decide to focus any help on lower-paid workers by boosting minimum payments.

MPs and unions have launched a campaign for higher payoffs because the maximum pay figure used in the formula has declined from 203 per cent of average weekly earnings when the scheme was launched in 1965 to 56 per cent today. They want the limit linked to earnings rather than inflation in future. But employers are warning that at a time when many firms are desperate to keep costs down, bigger payouts could result in more job cuts.

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.

Yesterday, 57 MPs signed a Commons motion urging the Government to raise the £350-a-week cap. "In the current economic climate, the value of statutory redundancy pay is a real concern for thousands of people," it said.

The Labour MP Lindsay Hoyle, who tabled the motion, said: "There has never been a more appropriate time. People at the top of the chain walk away with a £1m cheque in their back pocket, but those at the bottom get a very raw deal. Even though the downturn is not their fault, they are thrown on the scrapheap."

Pressure on the Government to act will increase when Mr Hoyle brings in a backbench bill on the issue, which is due to be debated on 13 March. That is likely to force the Cabinet's hand. Labour promised a one-off rise in the weekly payment in its 2005 election manifesto under an agreement on workplace rights struck with the unions.

The TUC is pressing the Government to raise the weekly figure to £500 a week. That would raise the maximum payouts to between £10,000 and £15,000, depending on age.

Labour MPs are also pressing for a halt on huge bonuses and salaries at banks that have been bailed out by the taxpayer. The Royal Bank of Scotland denied that it planned to hand out six-figure bonuses. Gordon Brown insisted there were no "rewards for failure" in the Government's proposals. "I strongly agree with President Obama that a new approach... is required to reward senior banking executives," he said. "We expect whatever decisions are taken to reflect the conditions of the economy and the performance of the banks."