Treasury consults on proposed £95k public sector exit payment cap

The Treasury has launched a consultation on its proposal to legislate for a £95,000 cap on the total value of exit payments made to public sector employees.

The consultation paper claimed that between 2011/12 and 2013/14 the cost of exit payments in the public sector was around £6.5bn. “More than £1bn of this cost came as a result of exit payments costing more than £100,000,” it said.

The Treasury added: “The Government does not believe that six figure exit payments, which are far in excess of those available to most workers in the public sector or wider economy, are fair or offer value for money to the taxpayer who funds them.”

The proposal is that the cap will cover payments made in relation to leaving employment, “including:

• voluntary and compulsory exits;
• other voluntary exits with compensation packages;
• ex gratia payments and special severance payments;
• monetary value of any extra leave, allowances or other benefits granted as part of the exit process which are not payments in relation to employment;
• payments or compensation in lieu of notice and payments relating to the cashing up of outstanding entitlements (such as outstanding leave or allowances that are cashed up and added to the value of the sum).”

The Treasury proposes that the following will not be in scope:

• compensation payments in respect of death or injury attributable to the employment, serious ill health and ill health retirement;
• payments made following litigation for breach of contract or unfair dismissal.

The proposals for a waiver process suggest, amongst other things, “the Full Council to take the decision whether to grant a waiver of the cap in cases involving Local Authorities and for local government bodies within their delegated powers”.

Bodies will be required to maintain records and publish annual details of all exit payments made within a financial year.

A limited number of bodies will be exempted from the cap. However, the paper said that the Government’s “strong expectation” was that those bodies would come forward with their own, commensurate cap on exit payments.

The cap is to be brought in via clauses in the Enterprise Bill.

The consultation paper also reveals that the Government is considering further reforms to the calculation of compensation terms and to employer-funded early retirement in circumstances of redundancy. A consultation on possible measures in these areas would be held “in due course”.

“The Government is…keen to ensure that exit payments in the public sector more widely offer a proportionate level of support to employees and are value for money to the taxpayer,” the paper said.

The consultation runs until 27 August.