Employers propose ‘alternative to redundancy’ scheme

In July 2009, the main UK employer organisation urged the government to introduce an innovative ‘alternative to redundancy’ scheme. Under this scheme, surplus employees could be placed on long-term leave, which is jointly financed by the employer and the state, and return to work if their employer’s business picks up again. Trade unions were sceptical about the proposed plan.

On 6 July 2009, the Confederation of British Industry (CBI), the UK’s main employer organisation, issued proposals for labour market reforms that it believes could ‘help stem the tide of job losses as the recession pushes unemployment towards three million [people]’ and save businesses. The move comes against the background of CBI predictions that unemployment will continue rising to peak at 3.03 million people in the second quarter of 2010.

Alternative to redundancy

The centrepiece of CBI’s proposals is an ‘alternative to redundancy’ (ATR) scheme that would give employers the option of placing surplus employees on a special form of leave for a period of up to six months, as an alternative to redundancy.

During the period of ATR, the employee would receive the equivalent of unemployment benefit from the government – that is, the Jobseeker’s Allowance, which currently stands at GBP 64.30 (€74.84 as at 16 July 2009) a week for single persons aged 25 years or over. This allowance would be matched by an equal payment from the employer. The employer could take the employee back to work at the end of the ATR period or before then if business improved. If demand failed to pick up by the end of the ATR period, the employee would retain full service-based redundancy rights (including the period of ATR). An ATR scheme would only be implemented following workforce consultation.

CBI stated that the scheme would help companies to retain skills during a ‘short and sharp fall in demand’ and give workers greater security of returning to work. There would be no extra cost to the government and, while on ATR, an employee could seek new work. CBI furthermore emphasised that ATR would not be the same as a wage subsidy or short-time working. Unlike many continental European countries, the UK has no state-funded short-time working scheme in place.

CBI’s Deputy Director-General, John Cridland, stated that the proposed ATR scheme

could save jobs by giving businesses more leeway as the economy recovers. [...] We considered various forms of wage subsidy and support for short-time working, but this approach is better. Businesses will be more able to cope with sharp drops in demand and prepare for recovery, while workers benefit from improved financial support and a door that is kept open for six months. This is not about businesses ducking their redundancy responsibility – in fact if a scheme runs for six months and a redundancy is still made, then the business will end up paying more.

Other proposals

Further measures proposed by CBI include:

• a review of the length of statutory consultation periods over redundancies, to ‘check if the laws are working as intended’. Currently, companies must engage in consultations for at least 90 days where 100 or more employees face redundancy in a three-month period; CBI considers that this ‘prolongs uncertainty for staff and delays firms trying to adapt to rapidly changing circumstances’;

• the deferral of an increase in employers’ social security contributions, planned for 2011;

• testing all future employment legislation to assess whether it will ‘help create sustainable jobs’. CBI argues that ‘the UK has reached a tipping point on employment regulation’, claiming that new laws since 1998 have added GBP 70 billion (€81.4 billion) to business costs;

• measures to improve skills and target assistance at young people particularly hard hit by the recession.

Trade unions remain sceptical

The CBI proposals, to which the government has not yet given a formal response, were criticised by the Trades Union Congress (TUC). Its General Secretary, Brendan Barber, was pleased that CBI had ‘joined the call for more help to retain viable jobs during the downturn and is looking at alternatives to redundancy’ but was concerned about the detail of the proposals.

Mr Barber expressed concern about ‘whether employees who took up this option could end up losing redundancy rights’ and about ‘the big cut in income they will face, without any cushioning redundancy pay for the first six months’. For the TUC, it is

better to keep people in work and training with their employer even if on short-term working, rather than sitting at home, which is why unions and other employer groups are campaigning for the kind of wage subsidies that are now common in the rest of Europe.

The TUC also opposes the proposal to review redundancy consultation periods.

Mark Carley, SPIRE Associates/IRRU, University of Warwick