Consultation outcome

Consultation on a Public Sector Exit Payment Cap

Updated 7 March 2016

© Crown copyright 2016

This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk.

Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.

This publication is available at https://www.gov.uk/government/consultations/consultation-on-a-public-sector-exit-payment-cap/consultation-on-a-public-sector-exit-payment-cap

1. Summary

The government announced on 23 May 2015 that it intended to end six figure exit payments for public sector workers.

Exit payments associated with loss of employment including redundancy are important to employers’ ability to reform and react to new circumstances, and provide important support for employees as they find new employment. Equally it is important that these payments are proportionate and offer value for money.

Between 2011-12 and 2013-14 the cost of exit payments in the public sector was around £6.5 billion. More than £1 billion of this cost came as a result of exit payments costing more than £100,000.

The government does not believe that six figure exit payments, which are far in excess of those available to most workers in the public sector or wider economy, are fair or offer value for money to the taxpayer who funds them.

The government therefore proposes to introduce a cap of £95,000 on the total value of exit payments. This consultation seeks views on the scope, level and design of this cap. The table below offers a summary of the key features of the government’s proposal.

In addition to this measure to cap the value of the highest exit payments, the government is also keen to ensure that exit payments in the public sector more widely offer a proportionate level of support to employees and are value for money to the taxpayer. The government is therefore considering further reforms to the calculation of compensation terms and to employer-funded early retirement in circumstances of redundancy. The government plans to consult on possible measures in these areas in due course.

1.1 Who is in Scope?

Which employees

  • Current and future employees and office holders. Ministers and Special Advisers

Bodies in Scope

1.2 How will it work?

Policy proposal

  • cap the total cost of all forms of exit payments available to individuals leaving employment to £95,000.
  • apply the cap to all types of arrangement for determining exit payments.

Which payments for recovery

The proposal is the cap will cover payments made in relation to leaving employment, including:

  • voluntary and compulsory exits
  • other voluntary exits with compensation packages
  • ex gratia payments and special severance payments
  • monetary value of any extra leave, allowances or other benefits granted as part of the exit process which are not payments in relation to employment
  • payments or compensation in lieu of notice and payments relating to the cashing up of outstanding entitlements (such as outstanding leave or allowances that are cashed up and added to the value of the sum)

It is proposed the following will not be in scope:

  • compensation payments in respect of death or injury attributable to the employment, serious ill health and ill health retirement
  • payments made following litigation for breach of contract or unfair dismissal

1.3 Waiver process

  • default position would be that any waiver of the cap would require consent from the relevant Minister, subject to Treasury controls and delegations to departments
  • the Full Council to take the decision whether to grant a waiver of the cap in cases involving Local Authorities and for local government bodies within their delegated powers
  • public corporations would require Treasury approval in the same way as bodies covered by Managing Public Money

1.4 Devolution

  • policy extends to all of the bodies where employment and remuneration practices are the responsibility of the UK government
  • Scottish government, Welsh government and Northern Ireland Executive to determine if and how they want to take forward similar arrangements in relation to devolved bodies and workforces

1.5 Compliance and transparency

  • require bodies to maintain records and publish annual details of all exit payments made within a financial year

2. Introduction

2.1 Policy background

Employers will normally make every effort to find alternative employment for employees where their services are no longer required. However, exit payments associated with loss of employment including redundancy are important to employers’ ability to reform and react to new circumstances, and to provide important support for employees as they find new employment.

In recent years significant numbers of individuals have left the public sector with exit packages. In 2011-12, the public sector paid out £2.7 billion in payments to staff exiting employment, in 2012-13 it paid out an additional £2 billion, and in 2013-14 it paid out a further £1.8 billion . These exit payments have helped unlock substantial reductions in staff costs in the medium to longer term and have helped in meeting the challenge of reducing the deficit. However, given the scale of the costs associated with exit payments it is vital that they offer value for money to the taxpayer who funds them.

Following a number of high profile cases where individuals have received large exit payments and then quickly returned to public sector roles, the last government passed legislation to prevent that highly paid individuals who return to the public sector within 12 months of exit from retaining their full exit payment. This measure will take effect in 2016 and will ensure that the taxpayer is not unduly compensating an individual for loss of employment only for them to return to the public sector after a short period of time.

Following on from this the government believes that it is right to ensure that public sector workers do not receive disproportionately large exit payments in the first instance. In particular the government is concerned about the number of public sector workers who are receiving exit payments of six figures. In 2013-14 alone, nearly 2,000 public sector employees received exit payments costing more than £100,000 and since 2011 six-figure exit payments have cost the public sector around £1.1 billion. The government does not believe that such pay outs, which are far in excess of those that most private or public sector workers would receive are fair or offer value for money to the taxpayer who funds them.

On 23 May 2015 the government therefore announced that it intends to end six-figure exit payments to public sector workers. This consultation sets out the government’s thinking on the scope, level and design of a cap to achieve this.

2.2 Policy intention

The government proposes to establish a £95,000 cap on the total value of exit payments made to an individual in relation to their exit from public sector employment, and intends to introduce clauses in the Enterprise Bill to give effect to such a cap.

2.3 Aim and scope of the consultation

The Government will consider the consultation responses and decide on how best to achieve its aims in relation to the proposals set out in this document. We are particularly interested in hearing from:

  • bodies within the scope of this policy
  • public sector employers and their representative bodies
  • employees and their representative bodies
  • members of the academic community with expertise in this area
  • pay, pension, remuneration and HR professionals in both the private and public sectors
  • anyone else who may be impacted by this consultation

In this document the public sector is defined in a wide sense according to the Office of National Statistic definition

This follows the same scope set out in the government response to the consultation Recovery of public sector exit payments published in the last Parliament. The government expects any changes brought about as part of this consultation to support existing or future changes to exit payment arrangements to ensure they are fair and deliver value for money.

2.4 How to respond

This consultation will run for four weeks and will close on 27 August. Responses should be sent by email to: Exit Payment Cap with the subject heading “Consultation on Exit Payment Cap”

Alternatively please send responses by post to:

Consultation on Exit Payment Cap,
Workforce, Pay & Pensions Team,
HM Treasury,
1 Horse Guards Road,
London SW1A 2HQ.

When responding please say if you are a business, individual or representative body. In the case of representative bodies, please provide information on the number and nature of people you represent.

2.5 Confidentiality

Information provided in response to this consultation, including personal information, may be published or disclosed in accordance with the access to information regimes. These are primarily the Freedom of Information Act 2000 (FOIA), the Data Protection Act 1988 (DPA) and the Environmental Information Regulations 2004.

If you want the information that you provide to be treated as confidential, please be aware that, under the FOIA, there is a statutory Code of Practice with which public authorities must comply and which deals with, amongst other things, obligations of confidence. In view of this it would be helpful if you could explain to us why you regard the information you have provided as confidential. If we receive a request for disclosure of the information we will take full account of your explanation, but we cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on HM Treasury.

HM Treasury will process your personal data in accordance with the DPA and in the majority of circumstances this will mean that your personal data will not be disclosed to third parties.

2.6 Consultation Principles

This consultation is being run in accordance with the government’s Consultation Principles. The Consultation Principles are available from Cabinet Office.

3. Exit payments in the public sector

3.1 Definitions and terms

The term exit payment is used in this document to refer to any financial or non-financial transfer to an employee from the employer which does not represent remuneration for normal ongoing activities that are part of their employment. This excludes for example: wages, salaries, allowances, regular non-financial benefits packages such as a company car, or employer pension contributions.

Exit payments may take a number of forms including:

  • cash lump sum – such as a redundancy payment, normally calculated on the basis of salary at the point of exiting the organisation and length of service.
  • early access to unreduced pension – some employers offer the option for employees that have reached the relevant age to take early retirement on an ‘unreduced’ pension, in place of, or in addition to, a cash lump sum compensation payment. In these instances employers bear the cost of ‘buying out’ the actuarial reduction that would normally apply to a pension that was taken early.
  • non-financial and other benefits – in a smaller number of instances, employers may offer other benefits such as additional paid annual leave at the end of an individual’s employment.
  • payments in lieu of notice – employers may also offer a cash payment equivalent to the sum that would otherwise have been earned had a notice period been worked by the employee.

Due to their related nature, the government is also interested in what are termed special severance payments, special payments or ex-gratia payments related to exit. These are generally defined as a payment made to the employee outside their basic statutory or contractual entitlement, upon unplanned termination of their employment contract. These payments may be made where an employee is dismissed, or agrees the termination of their contract in a settlement agreement (a legally binding contract, used either to settle statutory disputes or claims, or disputes or claims under an individual employment contract). Special severance payments may also be paid in order to settle current legal proceedings such as an Employment Tribunal claim.

 Question 1: What other forms of exit costs do you think are relevant in this context?

3.2 Exit payment arrangements

There are a wide range of exit payment arrangements in the public sector. These include formal redundancy schemes, usually closely linked to pension scheme provisions; discretionary powers to make ad hoc exit payments or time limited schemes; and provisions for making exit payments that are left entirely to individual employers to determine. In addition, individual contractual arrangements may operate at a local level which are in addition to, or outside of, the kinds of arrangements listed above.

The precise terms of exit arrangements vary significantly across different public sector workforces. Chapter 2 of the previous government’s consultation ‘Recovery of Public Sector Exit Payments’ gave a high level summary of the arrangements in place for the main public sector workforces at that time, though there have since been reforms in some areas, notably in the NHS where new arrangements were introduced on 1 April 2015.

3.3 Overall cost of redundancy payments

In 2011-12, the public sector paid out £2.7 billion in payments to staff exiting employment, in 2012-13 it paid out an additional £2 billion, and in 2013-14 it paid out a further £1.8 billion on exit packages.

In the public sector in 2013-14, the average cost of exiting a member of staff was £25,000. This is roughly equal to average annual earnings across the economy. Table 1 provides a breakdown of the size of public sector exit payments in the years 2011-12 to 2013-14.

Size of staff exits packages in the public sector 2011/12 2013/14

Number of exit packages Total cost
Exit package cost band 2011-12 2012-13 2013-14
<£10,000 8,441 6,817 5,679 0.3
£10,000 - £50,000 81,842 53,235 57,988 3.2
£50,000 - £100,000 14,461 8,782 6,940 1.9
>£100,000 3,490 3,452 1,838 1.1
Total 108,234 72,286 72,445 6.5

Source: estimate based on Whole of Government Accounts data

An examination of the distribution of exit payments across different parts of the public sector is made difficult by the differences in the size of the workforce and average levels of earnings. Table 2 provides an indicative breakdown. It is clear that, despite reforms to some compensation arrangements, significant numbers of public sector workers receive exit payment of more than £100,000.

Staff exit package by sector 2013-14

Number of exit packages
Exit package cost band <£100,000 >£100,000 Total cost £bn
Central government 30,375 1,050 0.975
Local government, Fire, LA maintained schools 38,406 660 0.750
Public corporations 1,826 128 0.075
Total 70,607 1,838 1.8

It is important to consider this in the context of the wider economy. While some larger private sector employers offer formal redundancy schemes or exit payments comparable with the public sector, many employers offer statutory redundancy pay. Under the terms of statutory redundancy employees are offered half a week’s pay for each year of service below the age of 22; one week’s pay for each year of service between the age of 22 and 41; and one and a half week’s pay for each year of service above the age of 41. No more than 20 years’ service can be counted and pay is capped at £475 per week. The maximum payment is therefore £14,250.

Assessment

Exit payments are important in their ability to allow employers to reform and react to new circumstances. Employers will normally make every effort to find alternative employment for employees where their services are no longer required. However, where this is not possible exit payments can facilitate reorganisation and reform while providing support for employees that helps bridge the gap to new employment.

However, exit payments need to be proportionate and provide value for money. The government is concerned about the number of exit payments made to public sector workers that exceed or come close to £100,000. Such payments can be four times average annual earnings or more, and are far in excess of the value of exit payments made to the majority of workers in the public sector and those in the wider economy. The government does not believe that such payments provide value for money or are fair to the taxpayers who fund them. The government’s proposal to cap exit payments so that public sector workers no longer receive six-figure pay outs is detailed in the next chapter. An impact analysis is at Chapter 5.

 Wider reforms

Alongside a cap on exit payments the government is also keen to ensure that exit payments in the public sector more widely offer a proportionate level of support and offer value for money to the taxpayer who funds them. The government is therefore considering further reforms to the calculation of compensation terms and to employer funded early retirement in circumstances of redundancy. The government plans to consult on possible measures in these areas in due course.

4. Policy proposal

The government is proposing to take action to end six-figure exit payments for public sector workers.

The core elements of the government’s proposal are as follows:

  • to introduce a cap on the total value of exit payments to employees in the public sector. The government is considering setting this cap at £95,000. A cap at this level is intended to ensure the cap affects those individuals in receipt of the highest payouts. It would also leave employers with some flexibility to make small numbers of payments at the higher end of this range that are necessary for pursuing workforce reform. Where this is the case, the government would continue to expect employers to ensure such payments provide value for money and/or enable redundancies which facilitate substantial medium to long term reform.
  • to apply this cap to all forms of exit payment available to employees on leaving employment. This will include cash lump sums, such as redundancy payments; the cost to the employer of funding early access to unreduced pensions for employees where available; and other non-financial benefits, such as additional paid leave. The cap of £95,000 on the total value of the exit payment will apply whether these benefits were taken individually or in combination.
  • to apply the cap to all types of arrangement for determining exit payments. This will include formal redundancy schemes, collective agreements and contractual arrangements. The government’s intention is that the cap will apply equally to arrangements, such as in the local government pension scheme, that give an entitlement in scheme regulations to an unreduced pension in certain circumstances.

The government’s aim is for this policy to apply across as much of the public sector as possible with only a small number of exceptions. The government’s starting point is the list of entities classified as central, local government and non-financial public corporation sectors as determined by the Office for National Statistics for National Accounts purposes . Subject to some potential exceptions set out below, all bodies in this list would be included . The government would also apply the measures to Ministers and their Special Advisers. For Members of Parliament, it will be for IPSA to decide whether equivalent arrangements should be implemented for MPs. The government’s preference is that equivalent arrangements should be put in place.

Finally, the government proposes that in exceptional circumstances the cap may be exceeded with approval from Ministers. Such approvals would be granted in an open and transparent way and only where they could be demonstrated to offer value for money for the taxpayer. The government proposes that such exemptions could be granted to individuals, or potentially to specific groups, where this represented value for money as part of a wider programme of reform.

To provide confidence that these limits will be adhered to and to ensure public sector employers have the necessary powers to introduce them, the government proposes to bring forward legislation through the Enterprise Bill in the first session of this Parliament.

 Question 2: Do you agree that the government should introduce a cap on the value of public sector exit payments on the basis set out above?

4.1 Policy design

Cap on payments

A cap on payments made as a consequence of leaving employment would apply to all existing and future employees of the organisations covered by the policy. It would also cover a wide range of possible payments to employees in order to ensure it is effective. The government considers the following payments as relevant in this context:

  • voluntary and compulsory redundancies
  • other voluntary exits with compensation packages
  • special severance payments and ex gratia payments related to exit from employment
  • the monetary value of any extra leave, allowances or other benefits granted as part of the exit process which are not payments in relation to employment
  • payments or compensation in lieu of notice and payments relating to the cashing up of outstanding entitlements (such as outstanding leave or allowances that are cashed up and added to the value of the sum)

Where a number of different payments are made they would be aggregated together to be measured against the cap. Payments would be in scope of the cap whether the compensation is paid as part of a standing compensation scheme, a one-off arrangement or under the terms of an individual contract of employment, whether open-ended or fixed-term. They also apply whether the exit payments have an immediate realisable monetary value or a potential monetary value, including share options or benefits in kind.

Compensation payments in respect of death or injury attributable to the employment, serious ill health and ill health retirement would be excluded as would payments made following litigation for breach of contract or unfair dismissal.

 Question 3: Do you agree that the payments listed above should be subject to a cap on exit payments under the terms set out above? If you believe certain payment types should be excluded please provide a rationale and examples.

Question 4: Are there further payments that the government should include?

Level of the cap

The government is proposing a cap of £95,000 before tax. The level of the cap would be subject to review by government.

Question 5: Do you agree that a cap on exit payments should be set at £95,000? If you think an alternative level would be more appropriate, please provide evidence and analysis to support your proposal.

 Benefits from early access to unreduced pension

It is common for individuals in the public sector who have reached a required age to be offered early retirement on an ‘unreduced pension’ in place of or as part of their redundancy terms or other compensation for leaving employment.

Employers offering early retirement on unreduced pension may make a contribution to the individual’s pension that ’buys out’ some or all of the reduction in pension benefits which the individual would normally face on retiring early. The size of the additional employer contribution or ‘top up’ is determined by the individual’s earnings, how close they are to retirement and their accrued pension rights.

Early retirement on unreduced pension represents a financial benefit to an individual in the same way that a lump sum compensation payment does. However the majority of the benefit is received by the employee over time (although the individual will usually be entitled to take a pension lump sum). In cases where early retirement is offered, the cost to the employer and the benefit to the employee can sometimes be considerably more than the cash lump sum payable to someone with long service who has not yet reached the age required to take an early pension.

Reflecting the above, the government is proposing to include the potential benefits to employees who are offered early access to pension in place of, or in combination with, a lump sum compensation payment within the £95,000 cap. This would operate as follows:

  • employees would retain the option to take early retirement on unreduced pension, where this is available
  • however the extra cost to the employer of offering this benefit, and therefore the financial contribution to the employee’s pension, should not exceed the £95,000 value of the cap on exit payments that the government is proposing
  • if lump sum redundancy payments are offered as well as early access to unreduced pension, the total employer cost of buying out the reduction in pension and the lump sum redundancy payment should not when taken together exceed the value of the cap

A single cap covering lump sum payments and additional pension benefits provides clarity and certainty to individuals. It would ensure the policy of capping exit payments is fair and not subject to avoidance through individuals taking early retirement. These changes will have no effect on individuals’ accrued pension rights, and will not affect the ability of employees to put their own funds into buying an unreduced pension, where this option is available.

The government’s intention is that this policy will apply equally to early access to pension for local government workers. Unlike other public service pension schemes, the Local Government Pension Scheme (LGPS) sets out an entitlement to an unreduced pension for employees aged over 55 who leave employment in certain circumstances. However the government does not believe there is any reason to exempt local government workers from the cap as it will apply to other public sector workers. The government therefore intends that the employer cost of funding early access to unreduced pensions in the LGPS is within scope of the exit payments cap.

Question 6: Are there other ways to ensure such arrangements are consistent with the cap on lump sum payments?

For employers in particular

 Question 7: Do you agree with the proposed approach of limiting early retirement benefits with reference to the cost for the employer? What alternative approaches would you suggest and why?

Devolved administrations

This policy will extend to all of those bodies where employment and remuneration practices are the responsibility of the UK government. It will be for the Scottish government, Welsh government and Northern Ireland Executive to determine if and how they want to take forward similar arrangements in relation to devolved bodies and workforces. The government will request Legislative Consent Motions from the Devolved Administrations (DAs) where appropriate, which will give the relevant Administration the option of including devolved workforces under the legislation which the government will be bringing forward. However, if and when a Legislative Consent Motion is required, it will be for the DAs themselves to decide whether this is a desirable approach. The government believes that a single, UK-wide approach to these payments would be preferable.

 Compliance and enforcement

Organisations will be required to maintain records and publish annually details of all exit payments during the financial year, for transparency and to assist the compliance process.

Scope of bodies affected

The government is considering applying these measures to entities classified within the central and local government and non-financial public corporation sectors as determined by the Office for National Statistics for National Account purposes. The government also intends to apply the measures to Ministers and their Special Advisers.

Future additions to, and removals from, this list would be considered on a case by case basis. The government’s intention is to seek powers to add and remove bodies from the scope of any legislation needed to implement this policy, in order to allow flexibility to respond to future changes in the scope of the public sector.

The government is considering a small number of exceptions to these measures.

An Armed Forces career has unique features and the special requirements made of individuals, including the transition from military to civilian life, are reflected in the range and level of compensation payments for this workforce. Compensation and resettlement payments make up a core part of the overall remuneration and reward package for those working in the Armed Forces and payments are sometimes required in order to ensure that individuals are properly compensated for what can sometimes be lifelong impacts felt at relatively early ages. The government believes it is right that in general the Armed Forces have a flexible and responsive set of remuneration practices which have the option to fall outside of the regime being established by this policy.

The government proposes to exclude the National Museums. In 2013 these organisations were granted a number of freedoms to enable them to operate on a more commercial basis. During the four year trial of these freedoms the government does not intend to impose additional restrictions on exit payments proposed for the rest of the public sector. This aligns with the approach that was taken to the recovery of public sector exit payments.

The government also proposes to exclude some public financial corporations and similar bodies – particularly Royal Bank of Scotland (RBS), Northern Rock Asset Management and Bradford & Bingley and any associated subsidiaries of these organisations. These are commercial financial organisations whose assets the government intend to return to the private sector in a way that ensures taxpayer value for money.

Finally, the government proposes to exclude the Bank of England; public broadcasters, including the BBC, Channel 4 and S4C; and some regulators from the scope of this policy, given their independence from government.

The government’s strong expectation is that, consistent with the approach taken to exit payment recovery, bodies that are proposed to be outside of the scope of the cap on exit payments will set out a commensurate cap on exit payments, at least equivalent to the arrangements proposed, and introduce this no later than the exit payment cap.

 Ex-public sector employees working in the private sector

The government is considering how to treat staff working in bodies that have brought the terms of their previous public sector employment with them under Transfer of Undertakings (Protection of Employment) (TUPE) rules. Employees returning or otherwise transferring to the public sector may also bring their previous employment terms with them. Without corresponding changes to these terms based on previous employment, such individuals may continue to be entitled to exit payments in excess of the cap introducing an inconsistency with public sector counterparts.

Question 8: Do you agree that the government has established the correct scope for the implementation of this policy?

Question 9: How do you think the government should approach the question of employees who are subject to different capping and recovery provisions under TUPE rules following a transfer to (or from) the private sector and whether there should be consistency with public sector employees in general?

 Waiver process

The government recognises that under exceptional circumstances it may be desirable to grant a waiver for public bodies and/or some individuals from the exit payment cap. Payments in excess of the cap may be needed to support of a particular programme of reorganisation where changes need to be made quickly to avoid undermining the continuing effectiveness of operational delivery, or where there are special circumstances pertaining to an individual employee or office holder. It may also be in public interest to grant a waiver in respect of particular special severance payments used either to settle statutory disputes or claims, or disputes or claims under an individual employment contract.

 Bodies covered by Managing Public Money

For bodies covered by the Managing Public Money (MPM) guidance (which is a significant part of the public sector including the Civil Service and NHS) the government proposes that exceptions to the cap on exit payment provisions would:

  • require consent from the relevant Minister, subject to Treasury controls and delegations to departments
  • be required to be disclosed in departmental accounts in a way that is consistent with rules on data protection

Public Corporations and Local government

For public corporations the government proposes that Treasury approval should be sought in the same way as bodies covered by MPM. The government will establish the most appropriate vehicle for setting out these requirements.

For local authorities, the government proposes that any waivers must require the approval of Full Council or a meeting of members in the case of fire and rescue authorities. Authorities would be required to publish a policy on the limited circumstances in which they would consider the granting of an exception. In line with bodies covered by Managing Public Money, authorities would be required to disclose all such exceptions in their annual Statement of Accounts, in a way that is consistent with Data Protection rules.

Question 10: Do you agree with the proposed approach for waivers to the cap on exit payments?

5. Impact Analysis

Economic and fiscal impacts

It is estimated that the fiscal impacts of this policy should be positive, although more work needs to be done with employers to assess the potential overall effects of a cap. By restricting excessive payments, the government will spend less on exit payments during workforce restructurings. This should outweigh any additional administrative costs in applying a cap.

It is difficult to estimate potential future redundancies as these will in most cases be required to meet future restructurings arising from developments in government policy, the wider economy, and administrative systems, that cannot be anticipated at present. However trends in exit payments over recent years suggest the cap could result in savings in the low hundreds of millions of pounds over the course of this Parliament.

We estimate that the wider economic impacts of the cap will be minimal.

 Social impacts – including distributional and equalities

Implementing a cap on exit payments will result in some individuals receiving a lower exit payment than they would receive under the current system. The effects will depend partly on employer decisions as to the numbers and earnings levels of those who volunteer, or who are otherwise selected, for exit.

In terms of impacts on groups protected under equalities legislation, using data from the Labour Force Survey (LFS) , it is possible to break down the working age population by whether they work in the private or public sector – and by age, gender, ethnicity, religion, disability and marital status. To assess the potential impact of this policy, statistics for the total population and the total UK workforce are compared to the statistics for public sector workers.

The LFS, however, cannot be used to estimate the proportion of the public sector workforce according to sexual orientation, gender reassignment status, pregnancy or maternity status – and therefore cannot estimate the impact of this policy on these groups.

As a consequence of the way exit payments are calculated, among a population of high paid individuals those that are long-serving, and in turn more likely to be older, are relatively more likely to be affected.

Environmental

This policy is estimated to have no tangible environmental impacts.

Costs and benefits – direct and indirect

The policy will produce a benefit to employers in terms of reduced cost of exit payments contributing more widely to the public finances as outlined above. The potential costs include: the reduction in compensation to affected employees (which the government believes is justified on grounds of fairness), and administrative costs to employers of implementing the necessary changes to their compensation arrangements.

Additional impacts include those relating to the possible effect of the cap on employers’ decisions over whether and when to offer staff redundancy; and on employees’ decisions about whether to accept voluntary exit terms. However it is not possible to reliably estimate these with the data available.

 Regulatory impact

This policy primarily affects the public sector and so is not expected to increase regulation on private business in the wider economy.

The policy will impose a small transitional cost and place restrictions on compensation arrangements for some Limited Companies that are classified as public sector organisations. Such organisations are small in number compared to the wider business population.

Depending on final decisions, the policy may also have an impact on bodies employing staff previously from the public sector that are subject to Transfer of Undertakings (Protection of Employment) (TUPE) rules. These impacts cannot be quantified at this stage.

Enforcement and implementation

The policy will be provided for in primary legislation in Parliament, although many of the details may be set out in secondary legislation or directions made under that primary and secondary legislation. It will therefore be a legal requirement that relevant public sector organisations do not compensate individuals for redundancy in excess of the £95,000 cap unless a Ministerial exemption has been granted.

Question 11: Are there other impacts not covered above which you would highlight in relation to the proposals in this consultation document?

Question 12: Are you able to provide information and data in relation to the impacts set out above?

6. Summary of questions

  • Question 1: What other forms of exit costs do you think are relevant in this context?

  • Question 2: Do you agree that the government should introduce a cap on the value of public sector exit payments on the basis set out above?

  • Question 3: Do you agree that the payments listed above should be subject to a cap on exit payments under the terms set out above? If you believe certain payment types should be excluded please provide a rationale and examples.

  • Question 4: Are there further payments that the government should include?

  • Question 5: Do you agree that a cap on exit payments should be set at £95,000? If you think an alternative level would be more appropriate, please provide evidence and analysis to support your proposal.

  • Question 6: Are there other ways to ensure such arrangements are consistent with the cap on lump sum payments?

  • Question 7: Do you agree with the proposed approach of limiting early retirement benefits with reference to the cost for the employer? What alternative approaches would you suggest and why?

  • Question 8: Do you agree that the government has established the correct scope for the implementation of this policy?

  • Question 9: How do you think the government should approach the question of employees who are subject to different capping and recovery provisions under TUPE rules following a transfer to (or from) the private sector and whether there should be consistency with public sector employees in general?

  • Question 10: Do you agree with the proposed approach for waivers to the cap on exit payments?

  • Question 11: Are there other impacts not covered above which you would highlight in relation to the proposals in this consultation document?

  • Question 12: Are you able to provide information and data in relation to the impacts set out above?

Back to top