Redundancy in Jersey

Last year Horseplay fell victim to the collapse of its parent company, and by the end of this year, we had no more Woolworths either. The Money programme on Radio 4 was discussing fallout from the credit crunch, and they suggested that the vulnerable end of the market would not be either the very expensive retailers, because the people who buy from them are not that badly hit by the credit crunch (and may even still be getting improbably high bonuses), not the very cheap cut price retailers, because people will be downsizing their purchases to those. They suggested that the middle market of shops like BHS, Marks and Spenser etc is where the downturn will hit hardest, and possibly garden centre chains, B&Q, and so on. These may trade very well in Jersey, but as the recent closures show, if a chain goes down, the local shop goes as well, regardless of how well it is doing.

This is a vulnerability in our local economy, and if any steps can be taken to mitigate against it, they would take the form of encouraging local businesses where possible rather than UK chains, whenever a choice presented itself. Otherwise, I fear we may see more closures in the high street, and more unemployment. This is especially bad because we have no compensatory redundancy payment scheme, and while funding one will mean some kind of extra tax, possibly on employers, it is certainly time that it was considered.

Now New Zealand does not have any specific redundancy scheme in operation, but in June 2008, they commissioned a report on the matter which explores the options in great detail. The advantage of this is that they are looking at the kind of tax burden or employer / employee burden that this will involve, and also the state of the economy (i.e. an economic downturn) in their assessment of the pros and cons of the options. No doubt Jersey could get consultants to do the same kind of exercise, but most of the basic economic groundwork would, I am certain, have been done in principle in the New Zealand report.

The full report, well worth reading, is at:
http://dol.govt.nz/publications/research/restructuring-and-redundancy/restructuring-and-redundancy-01.asp#contents

Report of the Public Advisory Group on Restructuring and Redundancy

A summary of the funding models can be found at:
http://dol.govt.nz/publications/research/restructuring-and-redundancy/restructuring-and-redundancy-05.asp


Funding models

In considering options for compensatory funding models the Group agreed that the primary aim for any model is that there should always be money available to distribute for compensation to employees in the event of a redundancy.

Self Insurance - Employers remain responsible for funding statutory redundancy entitlements, and can fund that either through their own balance sheet or by taking insurance with a third party provider.

Compulsory Compensation Insurance - Employers remain responsible for funding statutory redundancy entitlements, and must take insurance with a third party provider to ensure payments are available even in an insolvency situation.

Levy - Employers (and possibly employees) pay a payroll-based levy to a centrally managed fund which then meets statutory redundancy payment costs (similar to the levy collection under ACC scheme, but with only lump sum compensation payable as per the statutory formula).

Contributions - Employers and employees (and possibly government) make contributions representing a small proportion of wages into one or more managed funds (similar to Kiwisaver) which then provides any lump sum compensation payable as per the statutory formula.

General Taxation - Government funds statutory entitlements from general taxation (effectively an enhanced social security or unemployment benefit in redundancy situations).

Options (b) through (e) offer higher funding certainty, but with varying degrees of compliance and administration costs. Options (b) through (d) potentially open another source of short and medium term investment funding in New Zealand, potentially assisting capital deepening and through that productivity. Options (b) through (e) could have reduced administration costs, greater efficiency and lower risks if they were firmly aligned with a similar funding scheme already in operation for another purpose (e.g. (b)) private income protection insurance, (c) ACC, (d) Kiwisaver, (e) Unemployment Benefit payments made by MSD) rather than set-up on a stand-alone basis.