Plans to increase redundancy payouts could unintentionally lead to more small business closures, a lobby group has warned.
The Forum of Private Business (FPB) said that the proposed legislation, which would increase the amount of money those made redundant are entitled to, could backfire by forcing struggling firms to close rather than attempting to recover.
The Statutory Redundancy Payment (Amendment) Bill, which will have its second reading in parliament tomorrow, proposes an increase of 43% in the maximum week’s pay used to calculate statutory redundancy pay, from £350 to £500.
The private member’s bill was introduced by Lindsay Hoyle, MP for Chorley and assistant minister for the North West.
However, the FPB has countered that, while intending to help those who are laid off, the proposal will inadvertently lead to increased unemployment and an extra strain on both business and the taxpayer.
“The proposal, apparently to protect workers, is misguided because it would increase unemployment by forcing many businesses to close that might have survived had statutory redundancy pay been left alone,” said Phil Orford, FPB chief executive.
“Inevitably, this would also increase the burden of social security on the taxpayer and become a downward spiral of further unemployment and economic deterioration.”
FPB member Keith Chetwynd, who has had to reduce the head count at his business (a supplier of hydraulic parts for vehicles), from 33 to 18 over the past year, agreed.
“This is incredible. It’s about time some of these politicians came into the real world,” he said.
“Why put myself through the strain and extra borrowing in order to keep people employed? It would be easier for me to close down. I don’t know how they could come up with something like this, especially at a time like this.”
© Crimson Business Ltd. 2009