The Treasury has relaxed its controls on special severance payments, allowing some cases to now be agreed without its approval.
The Treasury yesterday updated its guidance on the use of special severance payments for public sector exits. The refreshed guidance includes a new section, "delegated limits", which sets out criteria for when departmental accounting officers have the authority to approve special severance payments without HMT’s involvement.
Under the previous guidance, which was published in 2021, all special severance payments needed Treasury approval.
The new guidance says: “Departmental accounting officers have the authority to approve special severance payments under £100,000 for employees, except where the payment involves:
- A member of the senior civil service
- Special adviser
- Board-level individual of an arm’s-length body
- Anyone earning over the senior pay threshold.”
The guidance says arm’s-length bodies should seek approval from the AO of their sponsor department.
Another stipulation is that Treasury approval is still required if the payment is “novel, contentious or repercussive, regardless of value”.
The guidance sets out a series of examples of what could count as novel, contentious or repercussive.
These include where the payment is “not affordable” to the department or organisation. “Any payments made must not add unfunded pressure to departmental in-year spending budgets,” the document says.
Another example is if the payment is “likely to set a precedent or have implications for wider government policy or other settlements”, such as if payment terms “differ markedly” from previous cases, as this could shape future departmental decisions on exit arrangements.
Other examples include: if the payment can be seen as rewarding failure or poor performance on the part of the individual or employer; payments that do not represent value for money; and if the payment has high visibility or is likely to be contentious, at any grade.
The guidance says that if departments are not sure if a special severance payment can be made under the “delegated limits”, it should contact the Treasury’s spending team or workforce, pay and pensions team.
The document also says that departmental accounting officers have the authority to approve early severance cases connected to an upcoming redundancy programme.
This delegation – which does not apply to voluntary exit schemes – allows accounting officers to approve payments below a contractual redundancy entitlement where an individual is leaving prior to a formal voluntary or compulsory redundancy payment process, even if the amount exceeds the £100,000 general delegation threshold.
For all payments over £100,000, departments must notify HMT, however. If the payments comply with contractual limits, no further approval is required.
As with the special severance payment delegated limits, ALBs must seek approval from the AO of their sponsor department.
The guidance also says: “Where employers have existing special severance payment delegations, these should be reviewed and brought in line with this guidance. Irrespective of delegations, departmental guidance should reflect that employers should consult the Treasury about any cases which meet any of the novel, contentious, and repercussive criteria outlined in paragraph.”
What are special severance payments?
Special severance payments are paid to employees, officeholders, workers, contractors, and others outside of normal statutory or contractual requirements when leaving employment in public service – whether they resign, are dismissed or reach an agreed termination of contract.
They are payments made on termination of employment which do not correspond to an established contractual, statutory or other legal right. Any payment where the employer disputes this right, in whole or in part, is treated as a special severance payment that requires approval.
The types of payments that fall under this category will vary according to an employee’s individual circumstances.
Examples include:
- Payments made under a settlement agreement
- The value of any employee benefits or allowances which continue beyond the employee’s agreed exit date
- Write-offs of any outstanding loans
- Special leave, such as gardening leave
- Honorarium payments or gifts
- Hardship payments
- Payments to employees for retraining related to their termination of employment
- Compensation in lieu of notice
- Payments agreed as part of a judicial or non-judicial mediation.
The following do not constitute special severance payments:
- statutory redundancy payments
- contractual redundancy payments, whether applicable to voluntary or compulsory redundancy, and whether agreed by collective agreement or otherwise
- payment for unused annual leave
- payments ordered by a court or tribunal
The recently published 2024-25 accounts for HM Revenue and Customs and the Department for Work and Pensions, two of the biggest government departments, give an insight into how often these payments are made, and how big they can be.
At HMRC,nine special severance payments were made last year, totalling £85,535. The highest payment was £25,000 and the lowest was £35. The median payment was £6,000.
At DWP, 21 special severance payments were made, totalling £370,000. The maximum payment was £96,000, and the minimum was £125, while the median value was £10,000.