Cut in sick-pay will hit small companies: Beckett says all employers will lose out under Chancellor's plan to save pounds 700m

THOUSANDS of small firms will be hit by the Budget measure to stop reimbursing employers for the cost of statutory sick pay despite an implication in the Chancellor's speech that only the largest employers would lose out.

Margaret Beckett, deputy Labour leader, told the Commons during a guillotine debate on the Statutory Sick Pay Bill that smaller companies had been given the impression in Kenneth Clarke's speech that they would be better off. Unfortunately, she said, this was not so.

Ms Beckett said the regulations which would implement the Bill spelt out what the Budget speech did not - that smaller companies would receive no government help towards the cost of statutory sick pay for the first four weeks of an employee's sickness. At present smaller companies receive 80 per cent of the costs for the first six weeks and 100 per cent after six weeks.

The detail of Mr Clarke's Budget speech confirms that the Government will stop reimbursing all employers for sick pay in most cases. Mr Clarke said the transfer of sick pay costs from the taxpayer to business will reduce public spending by abour pounds 700m a year. Statistics published by the Department of Social Security in April show the cost of statutory sick pay is pounds 710m a year. Therefore most employers will lose out.

From April the Treasury will reimburse small companies only after the first four weeks. Ms Beckett said: 'No doubt it is just a coincidence that all researchers have confirmed that the vast majority of sickness is under four weeks.'

A careful reading of Mr Clarke's speech reveals smaller companies will miss out. He said: 'After the first three days of sickness, their (employees') employers are entitled to reimbursement from the Government for 80 per cent of the cost . . . With effect from next April we propose to stop reimbursing the cost of statutory sick pay for the largest employers.

'For smaller companies, the current special exemptions will be extended. At present, those with National Insurance bills of less than pounds 16,000 a year are fully reimbursed after the first six weeks of each statutory sick pay claim. I propose to increase that threshhold to pounds 20,000, to bring more companies into the scheme, and to provide full reimbursement after only four weeks. Two-thirds of all employers will therefore continue to get help.'

Mr Clarke also revealed that to help compensate businesses for this loss the main rate of employers' national insurance contributions would be cut by 0.2 per cent.

He said: 'This means that for well-managed companies with low sickness rates there will be a net reduction in the cost of employing people. Other companies will have a much sharper incentive to improve their management of sick leave and to take a greater interest in the health of their own employees.'

A spokeswoman for the Confederation of British Industry said small employers would probably not lose out overall, 'so long as there isn't an epidemic or several people off sick at once for more than a few days'.