New cap on public sector exit payments set to be introduced

Last month, the government finally published draft regulations setting out how it intends to limit pay-offs to public sector workers, nearly four years after it first said it would tackle the issue of six-figure termination packages.

On 10 April, the Treasury published a consultation paper setting out plans to introduce a £95,000 cap on payouts to departing public sector workers. The proposed cap will cover redundancy lump sums and top-up payments to pension schemes.

It is expected that the cap will initially apply to local authorities, the civil service, the police, fire authorities, the NHS and schools but could be extended to organisations such as the BBC, Financial Conduct Authority and the Bank of England at a later date. The Armed Forces and other security services will be exempt.

Figures suggest that 1,600 people in the public sector received payouts in excess of £100,000 in 2016/17 which cost the taxpayer £198 million. The government previously vowed to cut down on these golden goodbyes – often regarded as payment for failure – in 2015 and made provision in the Enterprise Act 2016 to enable it to do so.

The consultation closes on 3 July 2019.

Comment

If these proposals become law in their current form, public sector workers will be severely restricted in the exit packages that they are able to negotiate on the termination of their employment.

It is not just people in senior positions who will be affected. Given the fact that most public sector workers still enjoy generous pension benefits under final salary schemes, any pension top-up payment negotiated as part of an agreed termination could take up most of the capped amount – leaving little or no room for further monetary payments to be made.

It is quite possible that there will be a “rush for the door” by public sector workers in advance of these regulations coming into force, in an attempt to secure more generous termination packages before it’s too late.

Individuals are free to have a protected conversation with their employer about their future employment (just as their employer may rely on the legislation to do the same). Where there is an existing dispute between the parties, the “without prejudice rule” has the same effect – although it is of wider application – so that the parties can have a frank, off-the record conversation which cannot be disclosed in any future court or tribunal proceedings (subject to some limited exceptions).

Further information

The consultation on restricting exit payments in the public sector is available on the Gov.uk website.

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