11/04/2019

The government has confirmed that it still plans to introduce a £95,000 cap on exit payments for public sector workers.  This is a step which was first announced in 2015 but had not yet been introduced, although it has already been legislated for, as part of the Small Business Enterprise and Employment Act 2015, which became the Enterprise Act 2016.   

Relaunching the idea, the Treasury began a consultation on 10 April,  setting out the proposed draft regulations, schedules and accompanying guidance and directions. It notes that exit payments to employees leaving the public sector workforce in 2016-2017 cost the taxpayer £1.2 billion, with payments at and above £100,000 amounting to £0.2 billion.

The intention is that the guidance and new regulations will not replace existing regulations applying to an organisation’s exit payments where these apply more stringent conditions than the regulations. However, the regulations will take precedence over existing contractual agreements, regulations and other exit schemes where they make more generous provision than allowed by these regulations, unless these arrangements are exempt in the regulations

The following categories of public sector employer are within scope of the draft regulations:

  • the UK Civil Service, its executive agencies, non-ministerial departments and non-departmental public bodies (including Crown non-departmental public bodies and Her Majesty’s Prison and Probation Service)
  • the NHS in England and Wales
  • academy schools
  • local government including fire authorities’ employees and maintained schools
  • police forces including civilian and uniformed officers

The full list of bodies in scope of the regulations is set out in Schedule 1 to the draft regulations.  Where an employer is not specified, there will be no legal obligation under the regulations to apply the cap to an exit payment but the government expects public sector authorities which are not currently listed to apply commensurate arrangements voluntarily.

The exit payments caught are set out in regulation 6 and include:

  • redundancy payments
  • payments in lieu of notice
  • payments to pension funds to cover
  • severance or ex gratia payments
  • voluntary severance payments
  • payments in consequence of termination of employment or loss of office.

There will be a power to relax the restrictions which can be exercised in “exceptional circumstances”, including where imposing the cap would cause genuine hardship by: a Minister of the Crown; full council of a local authority; and Fire & Rescue Authority. There will also be mandatory relaxation in specified circumstances including TUPE scenarios and settlements to avoid discrimination and whistleblowing Employment Tribunal claims.

The consultation is due to close on 3 July 2019.

We will report more fully on the implications of the proposals in Employment Eye.