Treasury to pursue reform to public sector exit payments despite opposition

The Government is to press ahead with plans for further reforms to public sector exit payments, despite the majority of responses to a consultation expressing opposition to the proposals.

Designed to address the significant disparity in the exit terms between different workforces, the reforms will apply to the majority of the five million public sector workforce, including local government workers, civil servants, teachers, NHS works and police officers.

The Treasury has set out an exit payment framework, which includes:

• a maximum tariff for calculating exit payments of three weeks’ pay per year of service
• a ceiling of 15 months on the maximum number of months’ salary that can be paid as a redundancy payment
• a maximum salary of £80,000 on which an exit payment can be based
• a taper on the amount of lump sum compensation an individual is entitled to receive as they get closer to their normal pension retirement age
• action to limit or end employer-funded early access to pension as an exit term

Government departments will now be expected to produce proposals for reform for each workforce, consistent with the terms set out in the Treasury’s document. The Treasury said it expected the necessary changes to be made within nine months of the publication of the response.

Criticisms of the proposals made by respondents included that:

• exit payment terms in the public sector had historically been set by collective agreement at workforce level and as such had evolved to be responsive to the specific circumstances and to balance the needs of employers and employees in each workforce;
• there could be disproportionate impacts in some sectors, particularly the civil service and the NHS;
• incentives for staff to choose to leave on voluntary exit terms would be reduced;
• there would be a negative impact on staff morale, with some arguing this was part of a larger erosion of public sector terms and conditions;
• public sector exit payments were not out of line with those in the public sector.

In its response to the consultation the Treasury said ministers remained of the view that it would be appropriate to reform exit payment arrangements, despite the level of opposition.

“In particular the government has not seen evidence to change their view that applying upper limits across the different elements used to calculate exit terms in the public sector would make public sector exit terms fairer, more modern and more consistent,” it said.

The Treasury added that such reform could achieve “significant cost savings of up to approximately £250 million a year, while maintaining a good standard of compensation for individuals; better reflect factors such as improvements in life expectancy; ensure greater consistency between the terms available to different public sector workforces; and bring public sector exit terms more in line with those commonly available in the wider economy”.

Chief Secretary to the Treasury David Gauke said: “These reforms ensure public sector exit payments are consistent and fair, and that they are also fair to taxpayers too. By applying these reforms across public sector workforces for the first time, appropriate standards will be in place for workers and public services will remain protected.”

The Government had already committed to introducing a cap on all public sector exit payments at £95,000, and the ‘clawback’ of redundancy compensation when a highly-paid individual returns to the public sector shortly after receiving an exit payment.