Treasury moves to implement £95k redundancy pay cap

Written by Richard Johnstone on 7 March 2019 in News
News

Treasury plans to finally implement cap after passing legislation in 2016

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The Treasury is preparing to implement a £95,000 cap on redundancy payments to civil servants and other public sector staff after Liz Truss wrote to ministers seeking permission to implement the plan – three years after first legislating to introduce the limit.

According to a report in the Daily Mail, the chief secretary to the Treasury has written to other cabinet ministers to propose formally imposing the cash limit on payoffs.

The proposal was first set out in 2015 following the Conservative government’s 2015 election victory which pledged to limit redundancy payments in the public sector at £95,000. The government then passed the primary legislation required to make the change in the 2016 Enterprise Act, but the secondary legislation required to enforce the limits across local councils, NHS trusts, schools and police forces, as well as civil servants, has not yet been passed.


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In her letter, Truss said she was “pleased the government was able to announce the biggest public sector pay rise in 10 years this summer, with most going to the lowest-paid nurses, teachers and police officers”. Civil servants received one of the lowest pay increases in the public sector in 2018-19, after Treasury pay guidance limited rises to an average of 1-1.5%.

Truss added that “the way we reward public servants must be proportionate and fair to tax-payers. The very high exit payments we have seen granted to some highly paid public sector employees in recent years clearly breach these principles”.

She wrote: “It is right that the government takes action on this to give taxpayers the confidence their money is being spent properly”, and said she wanted to “ensure that the vast majority of exit payments in the public sector are [capped] as soon as possible”.

Cabinet backing for the plans is expected to lead to a consultation on the changes before regulations are laid before parliament. It is possible further details will be revealed at next week’s Spring Statement.

The cash limit will apply alongside the regulations of the Civil Service Compensation Scheme. The Cabinet Office is seeking to revise the terms after the PCS union succeeded in getting 2016's revisions to the scheme overturned in court. As a result, departments have had to revert to the more generous 2010 version of the CSCS, and boost pay-outs made to thousands of former staff.

The Cabinet Office has proposed capping voluntary redundancy payouts at 15 months’ salary, rather than the 18 months in the 2016 agreement and 21 months in the 2010 scheme. Compulsory redundancy payouts would be capped at nine months’ salary, the same level as the 2016 scheme, rather than 2010’s entitlement of 12 months.​

The revised scheme was subject to consultation in 2017, but the government has not yet responded. In an update to pension administrators, the Cabinbet Office said that “until new CSCS terms are finalised, exit schemes signed up to before the 31 May 2019 will be on 2010 CSCS terms (as long as they take place within a reasonable timescale after that date, for example, standard notice periods)”.

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Richard Johnstone is CSW's deputy and online editor and tweets as @CSW_DepEd

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