Treasury confirms £95k redundancy pay cap – one year on from consultation

Treasury says government will take forward proposals to limit public sector payoffs
Photo: PA

By Richard Johnstone

22 Jul 2020

The government is set to finally implement its longstanding policy to limit public sector redundancy payments to £95,000 after the Treasury published its response to a consultation on the plan – a year after it closed.

The department yesterday published its response to its call for views on the plan to cap exit payments, which initially ran from 10 April to 3 July 2019.

At the time, then-chief secretary to the Treasury Liz Truss said she wanted to “ensure that the vast majority of exit payments in the public sector are [capped] as soon as possible”.

“Tt is right that the government takes action on this to give taxpayers the confidence their money is being spent properly,” she said.

The policy has been a longstanding aim of successive Conservative governments. It was first set out in the Conservative government’s 2015 election manifesto, which pledged a £95,000 cap.

The government passed the primary legislation required to make the change in the 2016 Enterprise Act, but the secondary legislation needed to enforce the limits across local councils, NHS trusts, schools and police forces, as well as the civil service, has not yet been passed.

In its response, the Treasury said that it would “no longer implement the cap in two stages and will instead capture the whole public sector as soon as possible, with few exceptions”.

Forthcoming regulations will include a schedule listing all public sector bodies the cap will apply to, according to the response.

“The government will take forward these proposals through secondary legislation in the form of affirmative regulations. The final regulations will include details on when the cap will come into force,” it said.

The cap will “include all payments related to exit”, including pension top-up payments.

Such payments have been in the news following the announcement that cabinet secretary Sir Mark Sedwill’s departure from government would include a £250,000 pension contribution.

The Treasury document noted that “a significant amount of responses... expressed concern over the inclusion of employer-funded early access to pensions (pension top-up payments) within scope of the exit payment cap and how this could affect long serving lower earning employees".

"Some also argued that this would be discriminatory towards older workers,” it said, but added: “The option of employer-funded early retirement is often the most costly element of an exit payment and is ultimately funded by the taxpayer so it is right that it is included.”

However, it added: “The exit-payment cap legislation will allow relevant employers and authorities to pay the pension scheme member an equivalent sum if the pension scheme has not been amended to reflect the introduction of the cap.”

The Treasury also said that the government was “committed to ensuring exit payments can be recovered when high-paid public servants move between jobs". It will and take forward further regulations" in due course”, it said.

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 in 2017. 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 most recent guidance from the Cabinet Office indicates the new scheme will not be in place this year as the deadline for signing up to exits under the 2010 terms has been extended from 31 July 2020 to 31 March 2021.

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