Treasury U-turns on £95k cap for civil service exit payments

Former staff will be entitled to settlement uplifts following “humiliating climbdown”
HM Treasury PA

By Jim Dunton

16 Feb 2021

Regulations limiting exit payments for civil servants and other public sector workers at £95,000 are being scrapped by HM Treasury barely three months after they came into force.

The department said that after an “extensive review” of the application of the cap, the government had concluded it “may have had unintended consequences” and the regulations should be revoked. 

HM Treasury was due to face a High Court challenge to the regulations next month after a range of public sector unions – including the FDA, Prospect and PCS – set legal processes in motion late last year.

A Treasury guidance note on scrapping the cap said that public sector workers whose exit payments had been limited by the regulations between their introduction and 12 February should ask their former employers to make up the difference. 

“Employers are encouraged to pay to any former employees to whom the cap was applied the additional sums that would have paid but for the cap,” it added.

The cap, which applied to civil servants, staff at arm’s-length bodies, local authorities and a range of other organisations, was provided for in the Small Business, Enterprise and Employment Act 2015. But secondary legislation underpinning its terms was only laid before parliament on 14 October.

A Cabinet Office consultation on the cap went live on 3 November,  the day before  the Restriction of Public Sector Exit Payments Regulations 2020 came into force.

The FDA, Prospect and PCS said last year that the government’s failure to properly consult on the cap before it was introduced was at odds with a requirement to consult on changes to terms and conditions set out in the Superannuation Act 1972.

At the time, FDA said at the  cap imposed “arbitrary cuts” to exit and redundancy terms that had the potential to affect hundreds of thousands of public-sector workers, ranging from those earning salaries below £30,000 to the highly-paid.

FDA general secretary Dave Penman said ministers’ acceptance that the cap proposals were flawed and should be revoked was a telling recognition of a poorly-thought-through policy.             

“This was a costly and unnecessary attack on the dedicated public servants who’ve been at the forefront of the response to both the health and economic emergencies,” he said.

PCS general secretary Mark Serwotka said the government's decision to revoke the regulations was a “humiliating climbdown”.

“Having already suffered the ignominy of being defeated by PCS in the High Court in 2017 following a previous attempt to cut our members redundancy payments, it is time for the government to stop its high-handed interference with our members legal entitlements and terms and conditions,” he said.

Prospect deputy general secretary Garry Graham said the government’s decision to throw in its hand on the exit-payments cap had come despite the fact it contested the basis for a Judicial Review of the regulations.

“We said at the time we believed the government’s approach was both unlawful and chaotic and have been proven right,” he said.

“This demonstrates the value in a union like Prospect protecting the legal rights of members.”

HM Treasury suggested in its guidance note that it would soon introduce new measures to limit public-sector exit payments despite the revocation of its 2020 regulations.

“For the avoidance of doubt, it is still vital that exit payments deliver value for the taxpayer and employers should always consider whether exit payments are fair and proportionate,” it said.

“HM Treasury will bring forward proposals at pace to tackle unjustified exit payments.”

Proposals to introduce a cap on public sector exit payments were included in both the Conservative Party’s 2015 and 2019 general election manifestos – but not the 2017 manifesto.

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