Government Plan to Impose Cap on Public Sector Exit Payments

07 December 2015

The UK Government has published the draft of the Public Sector Exit Payment Regulations 2016. The intention is to impose a cap of £95,000 on exit payments made to public sector workers.

Amid a backdrop of spending cuts, the government has published its draft regulations to limit public sector exit payments. The move was triggered by evidence revealing that senior public sector employees re-joined the sector a year after receiving redundancy payments.

An End to Six-figure Payouts

The cap aims to end the highest pay-offs in settlement agreements  for the best-paid public sector workers. Those affected by this proposal will include local government employees, teachers, members of police forces, health service workers, fire and rescue workers and civil servants.

The type of exit payments covered by the Regulations include redundancy payments, voluntary exit payments, and payments made in respect of liability under a fixed-term contract, as well as any other payment made as a consequence of, in relation to, or conditional upon, loss of employment.

Between 2011-12 and 2013-14 the UK government paid out some £6.5 billion in exit payments, although this has dropped considerably, from £2.7 billion in 2011-12, to £1.8 billion in 2013-14. The government’s position is that these payments are far beyond those available to the majority of employees, whether in the public or private sector.

Strong Opposition

The measures have been met with opposition from a large number of councils and other concerned groups. Payments expressly excluded by the Regulations are incapacity or death; payment following an accident, illness or injury; and early retirement pensions for firefighters unable to maintain their fitness through no fault of their own.

Certain categories will also be exempt from the Regulations, including public broadcasters such as the BBC, Channel 4 and S4C, and financial corporations such as the Royal Bank of Scotland, Northern Rock and Bradford & Bingley, plus the Armed Forces and National Museums.

Unintended Consequences

Although saving public money is a laudable aim, the danger is that it will prove a false economy in these circumstances. Of particular concern is that the cap on exit payments could actually result in higher costs to the taxpayer, since there will very likely be an increase in legal challenges and long legal disputes before redundancy, as well as lengthy (and costly) notice periods designed to avoid such issues. Moreover, as early access to total pensions fall within the scope of the cap, older people will be disproportionately affected.

In addition, an arbitrary ceiling of £95,000 will disadvantage the claimants, for example, employees on moderate salaries and long service, who are genuinely deserving of such a settlement agreement.

More than anything else, the biggest concern is that the Regulations will add another layer of complexity to an already complex pay and pensions system in the public sector. In sum; although the draft Regulations might appear well-meaning, they risk a series of unintended and expensive consequences that stand to undermine any savings made.

For expert legal advice on settlement agreements call our Employment Law Solicitors on 03306069589 or contact us online and we will help you.

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