The Treasury has confirmed its intention to impose a £95,000 cap on severance pay-outs for civil servants, amid sharp criticism of the plan from unions representing officials.
A consultation on the cap was published today, with the Treasury saying it wants to end exit payments "far in excess of those available to most workers in the public sector or wider economy".
As well as the civil service, the £95,000 limit is set to apply to the wider public sector. But the Treasury says it is considering exempting organisations like the BBC and the Bank of England from the cap, as well as bailed-out banks RBS and Bradford and Bingley.
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Civil service trade unions have warned that the changes could see officials on relatively modest salaries left worse off, and could undermine a 2010 deal on civil service compensation.
According to the Treasury, 1,050 central government employees took six-figure pay-outs in 2013/14. It says the cap – due to come into force from next year and set to affect both current and future civil servants– "could result in savings in the low hundreds of millions of pounds over the course of this parliament".
“It’s not right that highly paid public sector workers should receive huge taxpayer-funded pay-outs when they’re made redundant,” said Greg Hands, the chief secretary to the Treasury. "I’m not prepared to stand by and allow huge pay-offs to be made at a time when we’re having to find savings in our public services.”
The consultation document confirms that the Treasury intends to apply the cap to "all forms of exit payment available to employees on leaving employment". That means the £95,000 limit will take into account not just lump sump payments, but also early access to unreduced pensions, and non-financial benefits such as extra annual leave.
Ministers will also be granted discretion to waive the cap in "exceptional circumstances", the document states, but only where such a move is deemed to represent "value for money as part of a wider programme of reform".
The proposals have already come under fire from civil service unions, with Prospect – whose membership includes specialist civil servants such as engineers and scientists – saying it represented "another attack" on civil service morale.
"The reason it's a harmful move is that, although it sounds like a lot of money, included in that £95,000 will be, for example, pension top-up payments," Prospect's deputy general secretary Leslie Manasseh told Civil Service World.
"So actually, if you've got long service and even a relatively modest salary, you will be adversely affected. We've calculated that somebody who is 52, who has got 25 years' service, and earns £35,000 a year would be affected by this. Under the previous rules they would be entitled to [early] access to an unreduced pension but the £95,000 cap will eat into that."
That view was echoed by the Public and Commercial Services union (PCS) – the largest of the civil service unions with more than 200,000 public sector members – who argued the changes would hit "long-serving, loyal staff earning just above the average civil service pay" who had built up pension entitlements.
General secretary Mark Serwotka added: "In fact, the buy out of early pension reduction means that even employees earning just £27,000 who go early on long service will be affected, as well as those who earn more than £47,000 – hardly high earners – who get 21 months’ salary."
The FDA – the union representing senior officials – accused ministers of "indulging in the worst kind of dog-whistle politics", and warned of the potential impact on workforce management at a time the service was braced for further job cuts.
General secretary Dave Penman added: "If this government is to deliver on its commitments, it needs to continue to attract and motivate the best talent, while at the same time managing another significant reduction in staffing. I fail to see how this sort of approach will achieve either."
Civil service redundancy pay formed part of the reformed Civil Service Compensation Scheme negotiated by the Cabinet Office and a number of civil service unions – including FDA, Prospect, GMB, Unite, and the POA – in 2010.
The resulting deal included a limit on pay-outs equivalent to 12 months' salary for officials below pension age who are subject to compulsory redundancy. For those opting for a voluntary exit, the limit is the equivalent of 21 months' salary.
But Prospect's Manasseh said the redundancy cap suggested a change of tack from the government.
"After a very difficult and very protracted set of negotiations on civil service compensation [in 2010] we arrived at a settlement – alongside similarly difficult negotiations on the pension scheme. And we had very good reason to believe that these were durable," he said.
"But it seems that the government is going to seek to make changes by legislation. And understandably civil servants will think 'hang on, we reached an agreement after a very difficult time in 2010, not that long ago'. What this is doing is undermining confidence in their employer."
The Treasury consultation also raises the prospect of further changes to public sector compensation, saying the government is "keen to ensure that exit payments in the public sector more widely offer a proportionate level of support and offer value for money to the taxpayer who funds them".
It adds: "The government is therefore considering further reforms to the calculation of compensation terms and to employer funded early retirement in circumstances of redundancy. The government plans to consult on possible measures in these areas in due course."
consultation on the changes will now run until August 26, with the Treasury seeking views from the bodies affected, as well as unions and the wider public.
Update: This story was amended on July 31 to correct details of the 2010 CSCS agreement – thanks to our readers for pointing out the mistake. Matt