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Redundancy payments fall to lowest point since recession as cost-cutting slows

The amount paid out by businesses in redundancy payments has fallen to the lowest level since the recession, dropping to &pound3.5bn last year*, down 10% from &pound3.9bn in 2013/14, says EMW, the commercial law firm.

EMW explains that the amount of redundancy pay paid out has fallen by 27% from its peak of &pound4.8bn in 2012/13 as businesses switch their focus to expansion rather than cost-cutting.

The overall number of redundancy payments have also fallen by 10% since 2013/14, from 284,000 to 257,000 last year. The number of redundancy payments are down by 37% from a peak of 410,000 in 2011/12 (see graph below).

EMW adds that of the 26.1 million** employees in the UK last year, just 0.98% received a redundancy pay-out, significantly down on the peak in 2011/12 when 1.64% of employees were made redundant.

Louise Holder, Principal at EMW, explains: “UK employers have borne over &pound21billion in direct costs due to redundancy programmes over the last five years.”

“Thankfully the burden on businesses of the cost of redundancies is beginning to lift as the pressure to cut capacity and strip out costs tails off.”

EMW explains that the number of redundancy payments is going to be markedly lower than the number of actual redundancies as an employee must complete two years of service before becoming entitled to statutory redundancy pay. The trend from employers to replace permanent staff with temporary or contract staff will also have depressed redundancy payments.

EMW adds that although the average redundancy pay-out has decreased slightly from &pound13,700 to &pound13,600 in the last year, it still remains much higher than in previous years. The average pay-out for redundancies in 2012/13 was &pound11,100.

Louise Holder continues: “The relatively high average pay-out suggests that most job cuts are still taking place in the public sector where redundancy payments are typically more generous.”

“In the public sector there is a strong expectation of further cuts, so that means that while the picture in the private sector is improving, the overall level of redundancies may take some time to shrink back to pre-financial crisis levels.”

Notable businesses who have recently announced plans to make redundancies include HSBC, who could cut up to 8,000 jobs in the UK, and the BBC who plan to make 1,000 redundancies in response to a shift to watching television online.

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