Tue 11 Aug 2020

UK wide restriction on public sector exit payments imminent

Regulations which will affect all public sector bodies where employment terms are subject to UK Government approval will come into force shortly.

Five years ago this month the UK Government consulted on proposals to introduce a cap on public sector exit payments. These were limited in their effect in Scotland, covering only Scottish public sector bodies where employment terms require UK Government approval and with similar restrictions in Wales.  However, after amending legislation to enable the Treasury and the Scottish and Welsh ministers to make regulations imposing the cap, and publishing draft regulations in 2016, it all went quiet leaving the devolved nations to deal as they saw fit with devolved public bodies.

 In Scotland, the Scottish Government consulted on changes to public sector exit payments insofar as they related to devolved bodies in 2017.  In September 2019 this resulted in the Scottish Government choosing not to legislate but instead introducing a £95,000 cap on exit payments made by devolved bodies by updating the Scottish Public Finance Manual.

In April 2019 the UK Government proposals were resurrected with a fresh consultation being undertaken and a further set of draft regulations published.  On 21 July 2020 the UK Government published its response to that consultation along with the draft Restriction of Public Sector Exit Payments Regulations 2020 ("the Regulations"). The Regulations will apply to a "relevant authority" or body responsible for determining remuneration payable to public offices identified in schedules to the Regulations. This means that listed Scottish public bodies where employment terms are subject to UK Government approval will soon be restricted in making exit payments in a way similar to the current restrictions on Scottish devolved bodies. 

 When the Regulations do come into force it is currently intended that the cap will be fixed at £95,000 however this will be kept under review.  Subject to some specified exemptions, "exit payments" are defined as:-

  • Any payment on account of dismissal by reason of redundancy;
  • Any payment to reduce or eliminate an actuarial reduction to a pension on early retirement or in respect of the cost to a pension scheme of such a reduction not being made;
  • Any payment pursuant to an award of compensation under the ACAS arbitration scheme or a settlement or conciliation agreement;
  • Any severance payment or ex gratia payment;
  • Any payment in the form of shares or share options;
  • Any payment on voluntary exit;
  • Any payment in lieu of notice due under a contract of employment;
  • Any payment to extinguish any liability to pay money under a fixed term contract; or
  • Any other payment, whether under a contract of employment or otherwise, in consequence of termination of employment or loss of office.

 A number of payments are exempted from the Regulations including those made in respect of death in service or incapacity as a result of accident, injury or illness.  There is also a mandatory waiver for discrimination cases, whistleblowing claims and health and safety-related detriment and unfair dismissal claims.  Although a statutory redundancy payment cannot be reduced (and nor would it need to be if it was the only payment being made) if it is made in conjunction with other payment(s) that results in a total greater than £95,000, the other payment(s) would need to be reduced.   In limited circumstances ministers will have the discretion to relax the cap.

 The explanatory memorandum to the Regulations explains that public sector exit packages totalled over £900 million in 2017-18, with packages of a value of over £100,000 accounting for £200 million of that.  On that basis it seems likely implementation of the Regulations will create savings of some significance.  While there is not yet a date for that implementation, given the current economic climate, it is anticipated these Regulations will be brought into force in the short term.

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