Senator Mark Daly: I have a very short question. I ask the Minister to outline the details of an evaluation carried out by the Government prior to the introduction of the new redundancy arrangements, as they place a major onus on small businesses dealing with redundancies. It certainly does not help job creation. It acts as a deterrent to anybody considering employing a person.
Deputy John Perry: I thank Senator Daly for raising this very important issue. I am taking this Adjournment matter on behalf of the Minister for Social Protection, Deputy Joan Burton, who sends her apologies for not being present to respond in person to the Senator. The purpose of the redundancy payments scheme is to compensate workers, under the redundancy payments Acts, for the loss of their jobs by reason of redundancy. An eligible employee is entitled to two weeks statutory redundancy payment for every year of service, plus a bonus week. Compensation is based on the worker’s length of reckonable service and reckonable weekly remuneration, subject to a ceiling of €600 per week. Employees must have at least two years’ service to be eligible for a redundancy payment.
It is the responsibility of the employer to pay statutory redundancy to all their eligible employees. An employer who pays statutory redundancy payments to its employees is then entitled to a rebate from the State. I am sure the Senator is aware of these provisions. Where an employer can prove to the satisfaction of the Department that it is unable to pay the statutory redundancy to its employees the Department will make lump sum payments directly to the employees and will seek to recover the debt from the employer.
Both the redundancy and insolvency payments scheme transferred to the Department of Social Protection in January 2011. Payments under both schemes are made from the Social Insurance Fund, SIF, which is currently in deficit.
While the SIF is constituted primarily from employer’s contributions, the taxpayer’s contribution is also significant. Significant amounts have been paid out in redundancy rebates to employers from the SIF in recent years. The total amount paid out in redundancy rebates to employers was €152.2 million in 2006; €167.4 million in 2007; €161.8 million in 2008; €247.9 million in 2009; €373.2 million in 2010; and €185.3 million in 2011.
The deficit in the Social Insurance Fund is of significant concern at present and it is not considered that the country should continue to borrow money to plug the hole in the SIF in order to fund the cost of making people redundant — often from very profitable companies.
In the context of the 2012 budget, the Government decided that the 60% level of rebate was not sustainable in the current economic climate. As a result, the rebate was reduced to 15% for cases where the date of dismissal for the purposes of redundancy occurs after 1 January 2012. It is expected that this measure will save €81 million in 2012.
It has been acknowledged that this may cause difficulties for employers, and I appreciate the Senator is making this point, but it should be noted that redundancy rebate payments to employers are not common in many EU states or other jurisdictions. For example, in the UK the redundancy payment is funded by the employer and there is no recovery from the state. In Sweden there is no statutory system of redundancy payments from employers while in Spain the employer cannot claim back any amount from the state. This new arrangement brings Ireland more closely into line with practice elsewhere.
Senator Mark Daly: As the Minister of State will be aware, it was stated in the reply that people were made redundant “often from very profitable companies”, but at times they are seeking their redundancy payments from companies that are not profitable. This is militating against the creation of jobs.
The Minister of State is responding on behalf of the Minister for Social Protection and has been given the reply. However, I asked if a detailed evaluation was carried out prior to the introduction of the change in the scheme. I think the departmental officials did not read the question I asked, because I was looking for a cost benefit analysis and the impact on job creation, which should be done prior to the introduction of new measures.
I sincerely thank the Minister of State at the Department of Jobs, Enterprise and Innovation, Deputy Perry, for coming into the House to respond to the Adjournment, but unfortunately the reply he was given was not appropriate to the question I raised.
Deputy John Perry: I can answer that question. It is evident that an evaluation was conducted — the scheme cost €373.2 million in 2010, and if one considers that 1.8 million people are currently working in Ireland, of which 700,000 work in small companies, 137,000 work directly in IDA and an equivalent number in Enterprise Ireland companies, it is a question of affordability. Unfortunately, the evaluation of the Social Insurance Fund found that the tills are empty.
I fully accept that reducing the rebate to employers from 60% to 15% puts great pressure on small companies. The sad reality is that because we are borrowing from the IMF, it leaves the Government with few choices. An evaluation was carried out by the Department of the Finance which found that the scheme was no longer sustainable. The bottom line is that the scheme cost €247.9 million in 2009 and €373.2 million in 2010, which is a significant amount.
The backbone of our economy is the 200,000 companies employing fewer than ten people and giving employment to 700,000 people. The action plan for jobs is focused on increasing the number of jobs in SMEs by creating 100,000 new jobs by 2016. While the reduction of the redundancy rebate will have an impact, the Government has alternative schemes to encourage people to create jobs. The job of government is to make people employable and to encourage enterprise. The Government is incentivising companies to create jobs through the action plan for jobs, the lowering of the VAT rate, the reduction of the PRSI in the expectation, as the Taoiseach stated, that 50,000 small companies would each created one job at little or no cost to the State.
In 2010 it was costing the taxpayer €7 million each week to fund the rebate of the redundancy payment from the Social Insurance Fund. That is not sustainable. My job as Minister of State with responsibility for small business is to encourage employers and give them ten reasons to create a job and not ten reasons to make people redundant.
Senator Mark Daly: When I asked for an evaluation, I did not simply mean an evaluation in terms of pounds, shillings and pence and pence but an evaluation of the measures to create jobs. If an employer is thinking of employing an additional person and then looks at the changes to the redundancy scheme, it is aware it will cost it a fortune to let the person go. This is another barrier to creating jobs.