Golden goodbye: Ex-officials who return to public sector could lose exit payments

"Recovery agreements" and stricter controls come after £95,000 public-sector exit pay cap was abandoned
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Officials who receive large payoffs when they leave the public sector could be made to pay them back if they return to public service soon afterwards, in a crackdown on golden goodbyes.

The new “recovery agreements” would come alongside a tightened approval process for large exit payments, which ministers are hoping to introduce after they were forced to abandon a £95,000 cap last year.

The Treasury is inviting feedback on proposals unveiled last week – ahead of plans to cut civil service redundancy payments by a quarter – which would require a secretary of state to sign off on any payments to departing officials over £95,000.

Payments above the £95,000 limit would also require a business case, which must demonstrate the civil servant’s exit is necessary to their employer; that alternatives have been fully considered; that it provides value for money; and that it does not bring about “undue risks”.

“With greater guidance and scrutiny, bodies will seek to proactively ensure that their exit payment arrangements are fair and proportionate,” the consultancy paper said.

Extra measures will be needed for special severance cases, which could include a legal assessment and a lessons-learned exercise, as well as a recovery agreement.

The consultation, which is open until 17 October, is the latest step in the government’s attempts to cut its spending on public sector payoffs.

It abandoned a long-running attempt to cap exit payments at £95,000, following a High Court challenge by public sector unions. It introduced a regulation enforcing the cap in November 2020, but revoked it three months later after saying an “extensive review” had found it “may have had unintended consequences”. 

The Treasury said its latest proposals “will lead to additional scrutiny of high value exits; there should be greater public confidence in the use of exit payments in relevant parts of the public sector, and in some cases viable alternatives to staff exits will be identified, potentially generating savings.”

The proposed recovery agreements are intended to deliver on a 2019 Conservative manifesto pledge to “ensure redundancy payments can be clawed back when high-paid public servants move between jobs”.

They would apply to officials offered severance pay – which is used when an employee is sacked or their contract ends early in a settlement agreement, when settling an employment tribunal claim, and in some other cases that fall outside a contractual agreement.

“As special severance payments are based on specific agreements rather than existing contractual or statutory requirements, we believe there is a sound legal basis for attaching clauses to these payments which make provision for repayment under certain circumstances,” the document says.

It would be up to employers to reach an agreement with the official and should “reflect the individual circumstance”, guidance for the proposed reforms says.

The agreement could mean, for example, that a civil servant or NHS exec receiving a large payment would need to pay some of it back if they were to return to the same department, or it could kick in if they take a job with another organisation that uses the same compensation scheme, or any central government body, within a given period.

The agreement should cover a “reasonable period of time, which is neither overly restrictive on return to the public sector, nor unduly lax”, says the guidance – which suggests 12 months as a starting point for negotiation.

It would require the ex-employee to tell their old employer if they are returning to the public sector within that period, and to agree a plan for repayment, before signing a new contract.

“Our expectation is that bodies will use their discretion in designing and implementing repayment obligations in individual cases and will justify these decisions to HM Treasury,” the guidance adds.

The amount an ex-official would have to repay should take into account any “notional lost earnings” from their time between jobs, as well as any changes in terms, such as a reduction in salary.

As well as saving on costs, the proposed reforms aim to improve the Treasury’s understanding of where big payouts are being used. Departments and other public-sector bodies would also have to send a brief report of any exits above the £95,000 threshold.

The document admits the new measures will create “some increased administrative burden”, which it said the Treasury had sought to minimise.

“[The reforms] will support government’s wider ambition to reduce the use of large exit payments in the public sector, improving the consistency and accountability of decisions to exit public sector employees at a cost to the taxpayer,” it added.

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