News story

Next step to capping public sector redundancy payments

Chief Secretary to the Treasury Greg Hands announces a consultation on capping redundancy exit payments for public sector workers.

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Six-figure ‘golden goodbyes’ in the NHS, local authorities and the Civil Service are to be banned by law in a move that will save taxpayers tens of millions of pounds a year, Chief Secretary Greg Hands said today (31 July 2015)

Mr Hands launched a consultation today on capping redundancy pay-offs for public sector workers at a maximum of £95,000, following controversy over large taxpayer-funded payments to officials.

The new cap, to be enforced through legislation, will apply to all major public sector workforces including the Civil Service, councils, the health service, schools and most quangos.

The government says it expects public service broadcasters, including the BBC, Bank of England and some regulatory bodies outside the scope of the legally-binding cap to follow suit and implement equivalent restrictions.

The cap will apply to all forms of compensation including redundancy payments, pension top ups, compromise agreements and special severance payments.

Mr Hands, who has asked all government departments to propose efficiencies ahead of November’s spending review, said the new law would ensure fairness for the taxpayer. In 2013, nearly 2,000 public sector employees received payouts costing over £100,000.

If the cap had been in force during the last Parliament, it would have saved £200 million in the two years between 2011 and 2013.

MPs on the cross-party Public Accounts Committee have led criticism of ‘compromise agreements and special severance payments to terminate employment contracts in the public sector’.

The committee said in a report last year: ‘The lack of transparency, oversight and proper accountability over their use has allowed taxpayers’ money to be used to reward failure.’

Chief Secretary to the Treasury Greg Hands said:

It’s not right that highly-paid public sector workers should receive huge taxpayer-funded payouts when they’re made redundant.

As the Chancellor said when we launched the spending review, we need to invest taxpayers’ money more efficiently on priorities like the NHS and national security. I am not prepared to stand by and allow huge payoffs to be made at a time when we are having to find savings in our public services as we seek to run the strongest budget surplus for more than 40 years. That’s vital to ensuring economic security for the working people of Britain.

The cap we are bringing into law will mean no more six-figure payoffs in the civil service, local authorities and the NHS. We also expect other bodies who rely on taxpayers’ money to follow suit.

The government’s consultation says: ‘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.’

Ministers announced their intention to cap payments in this year’s Queen’s Speech. They are keen to hear views in the consultation on whether they should go further than a £95,000 limit, and precisely which public sector organisations should be in scope.

The government is also announcing today that it is considering further reforms to the calculation of compensation terms, to ensure that redundancy payments offer value for money for taxpayers. It plans to consult on these in due course.

The Consultation on a Public Sector Exit Payment Cap has been published on the GOV.UK site and closes on 27 August 2015.

Published 31 July 2015