Mr Major’s Parliamentary Statement on Statutory Sick Pay – 15 January 1986

Below is the text of Mr Major’s Parliamentary Statement on Statutory Sick Pay, made on 15th January 1986.

---

The Parliamentary Under-Secretary of State for Health and Social Security (Mr. John Major) I beg to move, That the draft Statutory Sick Pay Up-rating Order 1985, which was laid before this House on 17th December, be approved.

The purpose of the order is to increase the rates of statutory sick pay and the bands of earnings which determine the rate payable. My right hon. Friend the Secretary of State has carried out his annual review of those amounts as he is required to do by the Social Security and Housing Benefits Acts 1982. The uprating of the bands, and consequently the rates, is reviewed in relation to changes in the general level of prices which, in the 12 months to October 1985, rose by 5.4 per cent. as measured by the index of retail prices. The draft order accordingly provides for an equivalent increase in the SSP rates and earnings levels to apply from 6 April 1986.

As hon. Members will know, there are three rates of SSP. As usual, in working out the new rates we have followed established practice and rounded them to the nearest 5p. The new upper and middle thresholds have been rounded down to the next 50p. Rounding down in that fashion is beneficial to employees as it enables more to qualify for the higher and middle rates of SSP than would otherwise be the case. The lower earnings threshold – below which no SSP is payable – is not subject to uprating by the order. That is set automatically by the Act at the lower earnings limit for class 1 contributions, which will be £38 from 6 April 1986.

The result of these calculations is that from next April employees with average earnings of £74.50 or more per week will qualify for SSP at the new standard weekly rate of £46.75. Those who earn between £55.50 and £74.49 will be entitled to the new middle rate of £39.20. And those who earn between £38 and £55.49 will receive the new lower rate of £31.60. These new rates represent increases of £2.40, £2 and £1.60 per week respectively.

The draft order makes the usual transitional provision for those employees who have current entitlement to SSP at the time the uprating takes effect. Whichever level of SSP an employee is receiving at the time the uprating takes place, whether standard, middle or lower, he will, from 6 April receive the new amount of SSP relevant to that level for as long as his period of entitlement lasts. This is so even if his average earnings – which are, of course, calculated at the start of his sickness – would put him in a different earnings band. Without this beneficial provision some employees could face a significant reduction in the SSP payable to them at the uprating date and I am sure hon. Members will welcome the fact that this will not occur. [HON. MEMBERS: “Hear, hear.”] I acknowledge support from whatever quarter it comes.

April 1986, will, of course, see other changes in SSP that lie outside the main provisions of the order. The House will recall that under legislation passed in the Social Security Act 1985, an employer’s maximum liability for paying his employees SSP when sick will increase from eight weeks to 28 weeks. Full reimbursement of the costs of this extended period will continue to be available with employers deducting their costs from their national insurance liability. Some other changes in the present rules and procedures will also take place consequent on the increased maximum duration. These were developed following consultation and discussion with employers and others earlier last year. I am pleased to say that a completely revised employer’s guide to statutory sick pay, incorporating these changes, was issued to all employers last October to enable them to make the necessary preparation for these changes. The new rates covered in the order before us will thus be the first ones to apply to the extended scheme.

It remains the Government’s intention to review SSP rates and earnings bands annually, with increases taking effect from the following April. By 1987 social security benefits will also have moved to an April uprating date, We intend, therefore, that in future the Secretary of State will review SSP rates at the same time as other social security benefit rates.

Details of the new SSP rates and earnings bands will be notified to employers shortly in a leaflet issued with the new national insurance contribution rate tables, which will also come into operation in April. The new SSP rates will also be publicised in leaflets available generally from the Department of Health and Social Security.

Finally, I should perhaps remind the House that the rates of SSP are statutory minima. Many employees – in fact, the great majority – receive occupational sick pay from their employers and a number continue to get full pay when sick. We have no evidence to suggest that the current rates of SSP have resulted in hardship or difficulties for employees. Indeed there are clear indications that most employees prefer SSP to the sickness benefit it replaces because it is so much simpler for them to receive their money when sick from the same source as when working. Neither is there evidence to suggest that the rates have affected employers’ and employees’ flexibility for negotiating levels of occupational sick pay.

The draft order provides for the SSP rates to keep pace with the rise in the general level of prices. I commend it to the House.

Mr. Michael Meacher (Oldham, West) First let me make it clear that the uprating principle underlying the order is not in contention, but I wish briefly to use the debate to highlight two main issues where the Opposition remain distinctly critical. One is the experience of statutory sick pay as it has developed, especially in the light of its extension to 28 weeks from 6 April next, and the other is the proposed privatisation of other benefits where the example of statutory sick pay is being used as a model.

Our main objection is that the extension of statutory sick pay represents not only the abolition of state sickness benefit but the prolongation over a much longer period of all the disadvantages clearly manifest in this act of privatisation.

First, unlike sickness benefit – and we take a view of it different from the over-generous picture for employees given by the Minister – statutory sick pay is taxable and subject to deductions for national insurance contributions. Therefore, for many employees, especially those on low earnings, SSP means less money when they are unable to work because of sickness or disability. Indeed, for those on very low incomes, about £50 a week, the loss can be as hefty as £14 or £15 a week.

Nor is it any defence to say, as Ministers do – although the Minister did not do so tonight – that the low level of SSP is compensated for by supplementary benefit. Recent figures show that one third of sick or disabled people do not claim the supplementary benefit to which they are entitled. Perhaps that is the best indication of the inadequacy of SSP. Means-tested supplementary benefit should never be regarded as a satisfactory substitute for an adequate benefit as of right when people cannot work.

Ministers also like to evade the unsatisfactory nature of SSP by referring – as the Minister did tonight – to the number of occupational sick pay schemes. Of course, a few do exist, but many employees are not covered by them because they are generally run on a discretionary basis. In particular, part-time workers and others in low-paid jobs are frequently excluded.

A sign of the amount of loss of benefit from the extension of SSP is provided by the Government’s estimate of the so-called savings that will accrue in the next financial year – of the order of £200 million. Those savings are being made purely at the expense of the sick and disabled who are already having to cope with the extra costs of disability. It is surely wrong and unfair that employees will be paying out more in tax and national insurance contributions because of the extension of SSP, while employers will not be expected to pay any national insurance contribution for SSP payments.

Another matter for concern is that –

The Minister for Social Security (Mr. Tony Newton) The hon. Gentleman plainly has not understood the financial basis of SSP. The saving of £200 million is a saving to public expenditure, but it is almost precisely counterbalanced by the revenue forgone from the national insurance fund in compensation for the payments by employers to employees. The notion that either the original introduction of SSP or its extension entail losses to beneficiaries of the sort suggested by the hon. Gentleman is, quite simply, wrong.

Mr. Meacher The figures are not so very different from what I have suggested. The Minister is right to say that there is an offset, and I wholly accept that. But there are substantial disadvantages to employees. The figure that I am quoting is the public expenditure figure that appears in the Government’s public expenditure papers.

Does the Minister deny that, if employees are to pay substantially more in tax and national insurance contributions, there will be a significant disadvantage for them? Does he deny that as a result of the scheme, many on the lowest levels of income – about £40, £50 or £60 a week – are suffering substantial losses that can be as much as £14 or £15 a week?

Another matter for concern is that the rate of unemployment is already higher among the disabled than among the work force as a whole. An extension of SSP, with the additional administrative burden on employers, is all too likely to lead to discrimination against workers with poor health records. Indeed, there are other disadvantages to SSP. It has involved a much harsher linking than that applying to sickness benefit, although that is now to be changed.

Moreover, because it is administered by employers – that is not to be changed – and not by the DHSS, there are no powers, short of taking the employer to court, to enforce payment of statutory sick pay by employers. If an adjudication officer, social security appeal tribunal or a social security commissioner issues a formal decision that a person is entitled to statutory sick pay, the DHSS cannot force a recalcitrant employer to pay the correct amount to the employee. Employees in unorganised workplaces, particularly part-time workers or those in low-paid jobs, are vulnerable to harassment by employers in relation to absence through sickness, given the leeway that the DHSS has now given to employers.

There is no protection for employees who are dismissed by their employers so that the latter can avoid paying them statutory sick pay. Extending statutory sick pay in April will increase the employee’s exposure to unscrupulous manoeuvres by some employers.

For those reasons, we contend that statutory sick pay, which was introduced almost without warning and with perfunctory consultation, has worked to the detriment of employees in a variety of ways.

There are good grounds for the fear that the introduction of statutory sick pay will be used as a wedge in the door of further moves to hive off state responsibility for social security benefits. Evidence of further intended privatisation by the Government emerged on 19 December when the DHSS issued a consultation paper on statutory maternity allowance. That proposed that responsibility for paying maternity allowance –

Mr. Deputy Speaker (Mr. Harold Walker) Order. The hon. Gentleman is straying wide of the order. I have given him a lot of rope, but he must not discuss maternity pay.

Mr. Meacher I am not seeking to introduce a debate on maternity allowance, but I am making the valid point that the introduction of statutory sick pay is being used as a model for further extending the privatisation of social security benefits. I wish to make one or two other brief comments related to that, but I do not seek to discuss that argument in depth because it is to be discussed in another place.

Mr. Deputy Speaker That can be left to another place because the order is about uprating statutory sick pay, not the principle, which the House has already decided.

Mr. Meacher I accept that, but it is important that this is being used as a model for further privatisation. It suggests that statutory maternity allowance should be paid at the lowest rate of statutory sick pay – £31.60 a week in April 1986 terms – regardless of earnings. Statutory maternity allowance and statutory sick pay should not in general link to the same period of interruption in work. A further act of privatisation is now to be carried out on the model of statutory sick pay, despite all its drawbacks, but in this case it will be on even meaner terms with only one level of benefit instead of three, and that will be the lowest statutory sick pay level.

We do not dispute the uprating basis in the order, but we want to place firmly on record our strong condemnation, not only of the principle of the privatisation of social security benefits, but of the manifest disadvantages for the employee that this has been shown to involve. We oppose the extension of the principle, with its disadvantages to other benefits such as statutory maternity allowance.

If the Government do not take note of our objections, I give notice that when we come to power we shall deal with them rapidly

Mr. Charles Kennedy (Ross, Cromarty and Skye) The speech of the hon. Member for Oldham, West (Mr. Meacher) was reasonably credible, and I agreed with much of what he said until his closing sentiments – perhaps that does not surprise him. It will certainly not surprise those sitting on the Treasury Bench. A return of the Labour party to power would greatly surprise the British people.

My hon. Friend the Member for Roxburgh and Berwickshire (Mr. Kirkwood) and I welcome the fact that, on this occasion, the DHSS is staying within and upholding the law of the land, and will uprate accordingly. We have no argument with that. It was sensible of the DHSS to bring the uprating procedure into line as from 1987. My noble Friend Lord Banks and others have argued for that, and we welcome it.

My basic point on the uprating order relates to the impact that statutory sick pay has on small businesses. The Minister will recall that my hon. Friend and I have moved amendments and made speeches, in Committee and in the House, on the effect of the statutory sick pay scheme in this respect. That is why we welcome the reference in the explanatory details that accompanied the order to the DHSS consultation paper on the reduction of burdens on business. It would be helpful if the Minister would say briefly how matters are progressing in that respect – by which I mean the suggestion that employers should be allowed to opt out of SSP, provided that they pay wages to their sick employees at least as good as their SSP entitlement.

The Government will recall that the announcement of an extension of the SSP scheme was met with horror by, among others, the National Federation of Self Employed and Small Businesses. I agree with the hon. Member for Oldham, West that the bureaucracy of the SSP scheme and the extension which has been announced would discriminate against the employment potential of small businesses, and encourage more part-time employment rather than full-time employment. The Government said during SSP debates that they were conscious of the difficulty, and made some concessions in terms of bridging the gap.

You have been tolerant of my similarly lateral interpretation of the order, Mr. Deputy Speaker. May I end by saying that we welcome the fact that the uprating will go ahead, and especially the fact that the SSP uprating will be brought into line with other benefits. Any comments which the Minister can make on these broader points, based on the principle that we are debating this evening, would be helpful to my hon. Friend and myself.

Mr. Major This has been a modest debate—[Interruption]. I make no complaint about that. As is often the case on such occasions, the debate has ranged rather more widely than the strict terms of the order. The hon. Member for Oldham, West (Mr. Meacher) went substantially more widely, and the hon. Member for Ross, Cromarty and Skye (Mr. Kennedy) greatly tested your traditional good nature and patience, Mr. Deputy Speaker. Being a more timorous soul, I have no intention of tempting your good nature to that extent.

I am grateful to the hon. Member for Oldham, West for welcoming the principle of the uprating, although I was a little alarmed that he seemed to see plots and difficulties where none exists.

The hon. Gentleman also spoke a little scornfully of what he described as the privatisation of social security benefits. That seems an odd way to put it. The introduction and subsequent extension of the SSP principle leads to a closer and better relationship between employers and employees. I believe that the ability to make SSP payments in the way that now obtains makes for a sound basis for relationships between employers and employees. It has generally been welcomed, it has proved fairly successful and I am sorry that the hon. Gentleman made that rather ideological point.

The hon. Gentleman also touched in passing on occupational sick pay schemes. The two issues are not unrelated. A very substantial number of employees now benefit from such schemes. Precise up-to-date figures are not available, but the latest firm information is that about 80 per cent. of employees are covered. That figure is based on a survey in 1977 and, although I cannot state this as a firm fact, there is every reason to believe that the number of employees so covered has continued to grow since then. In my view, that makes out the case for the rationalisation of SSP in the way in which it has been introduced in recent years. I hope that in due course the hon. Member for Oldham, West will entirely welcome the changes that have been made.

The hon. Gentleman referred also to the forthcoming extension of SSP liability from eight to 28 weeks. In terms of the number of weeks that is a considerable extension, but on further examination it proves not to be so great a change as it might appear at first glance. Under the existing eight week scheme employers already deal with the bulk of short sickness spells. Only about 10 per cent. of sickness spells last longer than eight weeks and of those about half last no longer than 13 weeks. We estimate, therefore, that under the current eight-week scheme employers deal with about 5 million spells of sickness per year. The extension will mean that 700,000 of those cases will not be transferred to state sickness benefit but will continue to be paid SSP by employers until the sickness ends or there is a transfer to invalidity benefit at the commencement of the 29th week.

We all know that my hon. Friend the Minister for Social Security is one of the most tolerant Members to represent any party in the House in recent years, but even his traditional tolerance started to snap – I felt him quiver at my side like a greyhound ready to leave the trap – when the hon. Member for Oldham, West referred to the saving of £200 million on the extension of SSP as a loss to sick employees. My hon. Friend intervened to make it quite clear that that is not so. The £200 million saving in public expenditure certainly represents sickness benefit that is not paid out, but it is replaced by £285 million paid out in statutory sick pay and recovered by the employer from the national insurance fund through deductions from the national insurance contributions that would otherwise be paid into the fund. Therefore, although I understand the hon. Gentleman’s point, I think that it had no substance and that in view of the clear comments of my hon. Friend the Minister I need not labour the matter any further.

Mr. Meacher Perhaps I may press the matter a little further. It is true that contribution income to the national insurance fund will be reduced by £285 million in a full year as a result of the Government’s decision to relieve employers of paying national insurance contributions on employees’ SSP, but that is offset to some extent by increases in revenue from tax and national insurance contributions from employees on their statutory sick pay. There is a reversal in the burden of payment which is very much in favour of employers and against employees. The Minister must take that firmly on board.

Mr. Major I understand the hon. Gentleman’s point. He should bear in mind, in the context of the state’s capacity to pay, the fact that this change has meant a substantial saving as so few sickness benefit claims are now made through the normal social security system. I do not have the figures here, but that substantial administrative cost saving has meant funds are available for other uses in the social security system. We must consider the broad principle. The scheme has been successful and, with the exception of some of the unharmonious comments of the hon. Member for Oldham, West, it has been broadly welcomed.

Mr. Meacher The Minister tries to make something out of the savings on administrative costs. He says that he does not have the figures, but I understood the savings to be only £3 million to £4 million. It in no way derogates from my main point.

Mr. Major I did not find the hon. Gentleman’s main point very attractive. Nor do I think that it weighs heavily in the scales against the convenience, principally to the employee, of receiving statutory sick pay in lieu of state sickness benefit from the same source as he receives his salary. It is an administrative convenience of some significance to him, too. I know that the hon. Gentleman is anxious about the beneficiaries of any type of social security benefit. I should have thought that he would regard this as a significant advance. That is our view and I believe that it would be shared by most beneficiaries.

In the midst of his other comments, the hon. Member gave the impression that the extension of statutory sick pay would lead to discrimination against the chronically sick and disabled. I hope that he does not believe that. We have no evidence to that effect. There is no reason to suppose that the scheme will have that effect. In general, disabled people do not have bad attendance records. Indeed, they tend to be very good. Successive Governments have tried to increase awareness that a disabled employee is a good employee whose attendance record, on the evidence available to us, is likely to be better than average.

Some employers might try to avoid employing people likely to have poor attendance records, but I do not believe that statutory sick pay has aggravated that. Employers are more likely to be worried about problems with production and with the employment of temporary staff which frequent absences of their regular employees can result in. As employers are fully compensated for the statutory sick pay that they pay out and, as the hon. Gentleman said, the cost of making that payment, there is no realistic reason for fearing that the extension of the scheme will mean additional discrimination against the chronically sick and disabled. That is the thrust of much that we have tried to do and will do in the Bill that will shortly be presented to the House to ensure that the sick and disabled are treated as well as possible. That is an important priority.

The hon. Gentleman considered other matters beyond the scope of the order. I hope that he will understand that, in your presence, Mr. Deputy Speaker, I have no intention of pursuing them. The hon. Member for Ross, Cromarty and Skye made several interesting points. I am grateful to him for welcoming the alignment of uprating and the support that he offered. It is a logical extension and, in the absence of the hon. Member for Oldham. West mentioning it, we can conclude that we have his support on that count.

The hon. Member for Ross, Cromarty and Skye asked about the “Burden on Business” consultation document issued by my hon. Friend the Parliamentary Under-Secretary of State for Health and Social Security. The consultation period has ended. We are considering the responses. I hope that we shall soon be in a position to reach conclusions on that matter. It was a useful exercise to have the consultation. We have had a number of worthwhile responses.

The hon. Member for Oldham, West welcomed the general principle. Despite some of his comments, the statutory sick pay scheme has been running smoothly and successfully. I should like to take the opportunity to congratulate employers on the way in which they have taken the scheme on board. When it was mooted I think they had reason to be concerned, and many of them expressed concern. Their experience in running the scheme has shown that their concerns were largely unrealised. I am confident that they will equally take in their stride the extension of the period from eight to 28 weeks, not least because it will not lead to anything like a proportionate increase in payments, as might be supposed.

The order proposes an increase in the rates of statutory sick pay so as to keep them in line with the general rise in prices since the rates were last reviewed. Despite some equivocation, I detect no opposition to the order. I hope that the House will feel inclined to approve it without dissent.

[Question put and agreed to.

Resolved, That the draft Statutory Sick Pay Up-rating Order 1985, which was laid before this House on 17th December, be approved.]