Guidance

Civil service pay guidance 2014-15

Published 13 March 2014

1. Scope, roles and context for 2014-15

1.1 Scope

This guidance covers pay setting arrangements for civil servants throughout the civil service, including departments, non-ministerial departments and agencies, and for public sector workers in Non-Departmental Public Bodies (NDPBs).^{[footnote 1]} It provides a framework within which all departments will set pay for 2014-15 and departmental pay strategies and pay reporting will be taken forward.

1.2 Roles in the pay process

The Treasury has overall responsibility for the government’s public sector pay policy. This includes defining the overall parameters for civil service pay uplifts each year in the pay guidance, to ensure that civil service pay awards are consistent with the government’s overall objectives.

Cabinet Office has responsibility for civil service management. It works with departments and agencies on workforce and reward strategies to encourage greater consideration of workforce needs and properly tailored reward policies.

Departments have responsibility for implementing civil service pay policy for their workforce in a way that is consistent with the civil service pay guidance but also reflects the needs of their business and their labour market position. All pay remits must be approved by a Secretary of State or responsible Minister, and each department, through its accounting officer, is responsible for the propriety of the pay award to staff.

1.3 Context for 2014-15

Following the June 2010 Budget, the Spending Review published in October 2010 set out the spending reductions required to deliver the government’s consolidation plans through to 2014-15. The public sector paybill makes up over half of departmental resource spending, so managing public sector pay within agreed departmental baselines and performance targets continues to be central to the government’s plans for fiscal consolidation and will help protect jobs and services.

Pay awards limited to 1 per cent

In the Autumn Statement 2011 the Chancellor of the Exchequer announced that public sector pay awards will average at 1 per cent for the two years following the pay freeze (2013-14 and 2014-15). In the Budget 2013, the government announced that public sector pay awards will be limited to an average of up to 1 per cent in 2015-16; and in addition that in 2014-15 pay awards for civil service departments who entered the pay freeze early will also average at one per cent, aligning them with the rest of the public sector.

Progression pay reform

In the Budget 2013 the government announced that it will seek significant further savings from progression pay in the Spending Round 2013. In the Spending Round 2013 it announced that departments will be putting in place plans to end automatic time-served progression pay in the Civil Service by 2015-16; also that substantial reform to progression pay will be taken forward or are already under way for teachers, the health service, prisons and police.

1.4 Signing off pay remits

All department, agency and NDPB pay remits will be approved by the relevant Secretary of State (or responsible Minister). They must comply with the civil service pay guidance and associated guidance issued by Cabinet Office unless alternative or modified arrangements have been agreed by the Treasury. No additional approval is required by the Treasury (subject always to the requirements of Managing Public Money). The only exceptions to this are those organisations that are the direct responsibility of Treasury Ministers and those for which there is no relevant Secretary of State, as set out in Annex A. Their remits will continue to require Treasury approval.

1.5 Pay data reporting

In return for the continued delegation of pay to Secretaries of State, departments are expected to provide data to the Treasury on their forecasts and outturns for the pay round. This is to enable the Treasury to confirm that departments are abiding by the parameters set in the annual pay guidance, to report overall priorities and risks to the Chief Secretary and to set overall civil service pay parameters for future years. Each department is asked to submit data covering the department itself, any non-ministerial departments falling within the area of responsibility of their Secretary of State and any agencies or NDPBs that they sponsor.

Departments are asked to submit this data using the Workforce and Pay Remit (WPR) application in OSCAR. One submission of data will be required covering the department’s remit year. Required data for each remit year includes revised outturn for 2012-13, outturn for the pay round for 2013-14 and a forecast for 2014-15 for relevant pay and workforce data and uplift factors. Departments should submit data on OSCAR for each remit as soon as they are approved, but in any case by 30 August 2014 (if necessary on a provisional basis in the first instance).

Detailed guidance and requirements are in Annex C and D, and information is also available on the OSCAR website. Failure by a department to provide appropriate data, or provide it in good time, may result in the Treasury re-imposing the requirement for Treasury approval of remits for that department in future years or taking other action to encourage better compliance.

1.6 Changes to this year’s pay guidance

Main changes since the previous 2013-14 edition of the guidance are as follows.

This year’s guidance continues to include:

• flexibility in relation to the 1 per cent if this is linked to substantive plans to remove progression pay; but now requires any remaining bodies that have not submitted proposals to do so as soon as possible and in any case by 30 April 2014 (Section 2.2 and Annex E)
• a limited flexibility for departments to address specific recruitment and retention pressures by re-allocating non-consolidated performance-related pay (NCPRP “pot”) funding within their overall paybill to fund targeted recruitment and retention incentives. (Section 2.4 and Annex F)

The guidance includes a deadline of 30 April 2014 for departments with contractual progression pay to submit to Treasury proposals for its removal supported by a robust business case (Section 2.2). Where increases arising from contractual progression pay increments are paid in 2014-15, no additional increases to pay (such as increases to progression pay scale-points) may be paid unless suitable proposals for removing progression pay have been received (Section 2.2).

The guidance provides details of the Paybill Control Pilot scheme announced in the Autumn Statement 2013.

The guidance also includes the following clarifications and technical amendments:

• the guidance clarifies that the Increase in Remuneration Cost (IRC) is to be calculated on the assumption that all increases are implemented from the Settlement Date (Annex D)
• departments are required to include the non-consolidated performance pot as an additional item of data on OSCAR (Annex C)
• as last year, workforce size is required to be calculated as an average for the year rather than as a spot date figure. However departments are asked to ensure this data for historic years is similarly adjusted (Annex C)
• departments are reminded to include full information about replacement or reformed pay terms in pay remit and other pay-related business cases, where relevant (Annex B and Annex F)

2. Main factors affecting pay-setting for 2014-15

All departments and their sponsored bodies, including those which entered the pay freeze one year early, are expected to implement the 1 per cent pay policy announced in the Autumn Statement 2011 and follow the civil service pay guidance 2014 when setting pay remits for 2014-15. Pay remits will need to take account of the following factors:

2.1 1 per cent average annual award

There will be a limit of 1 per cent on the percentage increase in remuneration cost for staff covered by each departmental remit. All elements which increase paybill cost must be included, except employer National Insurance contributions and employer pension contributions. For example, the following must be included:

• revalorisation
• progression increments
• introduction of new allowances^{[footnote 2]}
• increases to existing allowances
• cost of increases in the non-consolidated performance pot above its existing proportion of total pay bill
• non-consolidated payments (except for payments related to performance from the non-consolidated performance pot)
• buy-out of allowances or non-pay entitlements
• incentive payments relating to the implementation of pay reforms
• cost associated with changes in non-pay benefits (e.g. leave entitlements)
• increases arising from pay restructuring (e.g. associated with machinery of government changes or repositioning staff within the pay range)
• non-pay rewards
• salary sacrifice schemes^{[footnote 3]}

For individual employees, the actual increase in pay will vary according to criteria determined by the department, including location and performance. Further guidance on the increase in remuneration cost is included in Annex D.

2.2 Progression pay

Increases arising from contractual progression pay increments will continue to be paid where such increments are a legal entitlement. Departments and NDPBs are encouraged to include contractual progression increments to which there is a legal entitlement as part of the one per cent award. However, unless suitable proposals supported by a robust business case for the removal of contractual progression pay have been received by the Treasury (see next paragraph), no additional increases to pay (such as increases to progression pay scale-points) may be paid in such cases.

Reform of progression pay arrangements

In the Spending Round 2013 the government announced that departments will be putting in place plans to end automatic time-served progression pay in the Civil Service by 2015-16. Treasury will consider proposals for flexibility in relation to the one per cent (see section 2.1) if they are linked to substantive plans to remove contractual progression pay. To qualify for consideration, departments must provide a robust and fully costed business case for their proposals that offers clear value for money for the taxpayer and includes the removal of legally binding progression arrangements. Any remaining department that has not put forward proposals supported by robust business cases to remove progression pay from the core department or its ALBs is invited to do so as soon as possible, but in any case by 30 April at the latest, to allow sufficient time for proposals to be agreed and implemented.

Departments are also reminded of the request to appoint a Junior Minister and Senior Official to be responsible for ensuring each department and its arm’s length bodies with progression pay meet the objective to end progression pay by 2015-16.

In order to assist Treasury’s assessment of their business case, departments may wish to refer to the additional guidance set out in Annex E when drawing up proposals. The supporting business case should if possible also be provided to the Cabinet Office, who can provide further advice.

2.3 Non-consolidated performance pay

Non-consolidated performance pay will continue to be managed, as in previous years, with each department’s non-consolidated performance pay “pot” calculated as a fixed percentage of pay-bill. Guidance on the operation of performance pots is included in Annex D. As last year, departments may take advantage of a flexibility to reduce the size of their pot (where this would not jeopardise performance pay arrangements) to meet targeted recruitment and retention pressures – see next paragraph.

2.4 Exceptional recruitment and retention pressures

The Treasury will consider requests from departments for the flexibility to address specific recruitment and retention pressures by re-allocating funding within their overall pay-bill from the non-consolidated performance pay “pot” to fund targeted recruitment and retention incentives. For proposals approved (in advance) by the Treasury, departments may reduce their existing pot by up to 50 per cent to fund recruitment and retention proposals.

The pot adjustment is subject to an overall limit of 0.5 per cent of the baseline pay-bill, and would be available only where this would not jeopardise the operation, development or effectiveness of performance-related pay arrangements in the department. More details of the scheme are set out in Annex F.

2.5 Paybill control pilot scheme

At Autumn Statement 2013 the government announced that it will pilot paybill control in a small number of government organisations in 2014-15. This is a new method of pay restraint where the overall pay budget is controlled for the organisation, rather than average pay awards. The pilot is intended to explore new mechanisms for pay setting in the civil service, with the aim of continuing to maintain overall control over civil service pay while allowing employers more flexibility to decide how best to deploy their paybill. The requirement in Section 2.1 that the annual award should average at 1 per cent will not apply to the organisations participating in the pilot.

3. Pay timetable, feedback and contacts

3.1 Pay timetable

It will be for departments to determine when they submit their remits to the relevant Minister and enter into negotiations with the Trades Unions. The Treasury will require departments to report pay data on OSCAR once Ministers have approved their remits (but in any case by 30 August 2014).

3.2 Feedback and contact details

Departments are invited to submit feedback to the Treasury and Cabinet Office on this year’s guidance and on the remit process as a whole. This will help to identify any areas for further improvement in future remit rounds. Any queries in relation to this guidance, or the remit process in general, should be addressed to these contacts.

Email the Workforce, Pay and Pensions Team at HM Treasury

Or write to:

Workforce Pay and Pensions Team
HM Treasury, Zone 2 Red
1 Horse Guards Road
London
SW1A 2HQ

Email the Civil Service Workforce Reform Team at Cabinet Office

Or write to:

CS Workforce Reform Team
Cabinet Office, 4.23
1 Horse Guards Road
London
SW1A 2HQ

Annex A – organisations requiring Treasury approval

All ministerial and non ministerial departments, agencies and NDPBs should submit their pay remit to their Secretary of State or responsible Minister for approval. They must comply with the civil service pay guidance and associated guidance issued by Cabinet Office.

Two groups of organisation will continue to submit their remit to the Treasury for approval. The first group comprises those that are the direct responsibility of Treasury ministers, so will be signed off by Treasury Ministers in the same way that other organisations will be signed off by their own Secretary of State. These are set out below.

Organisations that are the direct responsibility of Treasury ministers
HM Treasury
HM Revenue and Customs
Government Actuary’s Department
National Savings and Investment
Valuation Office Agency
Debt Management Office
Office for Budget Responsibility

The second group comprises those for which there is no Secretary of State with the authority to determine pay. These are set out below.

Organisations for which there is no Secretary of State with the authority to determine pay
Government Communication Headquarters
Secret Intelligence Service
The Security Service

Annex B – pay remit process and approval

Remit process for departments

Departments are required to set out their pay award proposals to the relevant Secretary of State in a short business case. Remit proposals must be assessed against the criteria for remit approval set out below. Information supplied by departments in their business cases must be robust in supporting the proposals, and departments may want to ensure that both relevant HR and Finance Directors have cleared the proposals, before being submitted to the relevant Secretary of State.

Departments should not enter into formal negotiations with Trades Unions until their remit has been agreed by the relevant Secretary of State. If organisations are uncertain about what constitutes ‘formal negotiation’ they should contact the Cabinet Office. Departments are encouraged to work constructively with the relevant Trades Unions on the development of their overall pay and reward strategies, prior to their remit being submitted to the relevant Minister.

It is government policy not to reopen civil service pay remits, once the relevant Secretary of State has approved them. Pay remits are considered and approved on the basis of the proposals submitted in the supporting business case. If, during subsequent negotiations with Trades Unions, any significant deviations are made from those proposals, then these need to be reported to the Secretary of State, or the Treasury as appropriate, before any final agreement is reached. Any organisation that is uncertain as to whether what they are agreeing constitutes a significant difference from that agreed under the remit should contact the Treasury for advice.

Pay settlement changes are expected to apply from the settlement date (see Annex D) and not deferred.

Remit approval

The Secretary of State should assess the business cases submitted to them against the following factors:

• departments need to demonstrate that their proposed pay remit is affordable within settlements agreed under the Spending Review process
• the requirements in Section 2 of this guidance must be met
• the business case should cover, where relevant:
  • the workforce groups that are affected, and the internal and external labour market in which they operate
  • the relevant local labour market in which staff operate
  • the recruitment and retention situation within the workforce
  • the need to comply with age discrimination and equal pay legislation, and the need for departments to have due regard to their equality obligations and to record their findings on this
  • the total reward of staff, including pensions and conditions of service
  • any structural changes or reforms to pay arrangements

Legal commitments

Departments are advised to take legal advice on the drafting of any pay commitments to ensure that these are affordable and consistent with this guidance.

Ministerial approval of pay remits is on the basis that an organisation does not enter into any legally binding agreements in Trades Unions negotiations that effectively commit it to automatic costs in the future.

Senior staff

Senior civil servants and NDPB equivalents are not included within the civil service pay guidance. However, senior staff have an important leadership role in demonstrating the need for pay decisions to follow public sector pay policy. Therefore any annual pay increase or decision to award performance-related pay to such staff must be considered alongside and according to the same principles as the pay remit of the rest of the organisation.

Pay award arrangements for all senior staff, including those in NDPBs, should be consistent with government pay policy and the arrangements for senior staff in NDPBs should be in line with the arrangements for the Senior Civil Service.

Annex C – pay reporting requirements

This annex summarises the data that departments are expected to report to the Treasury for the 2014-15 remit year. Departments are asked to provide updated data using the appropriate template in the Workforce and Pay Remit (WPR) module of the OSCAR system. This includes formulae and drop-down lists where relevant, and indicates which cells need to be populated, to make completion more straightforward. It also includes validation checks to help reduce the likelihood of erroneous data being entered.

Each department should submit data covering the department itself, each non-ministerial departments falling within the area of responsibility of their Secretary of State, each agency that they sponsor and each NDPB. Departments should not in general combine data relating to separate remits. Exceptionally, aggregate data may be entered for NDPBs with prior Treasury agreement.

The data required is outturn for 2012-13 and 2013-14, and a forecast for 2014-15. Outturn data should be consistent with published resource accounts, (allowing for differences arising from the financial year basis of the latter) and forecasts, including any forecast changes to staff in post, should be consistent with the in-year expenditure forecasts that all central departments routinely provide to Treasury via the OSCAR network.

Data must be provided for the delegated civil service grades, and not combined with SCS data or data for SCS-equivalent grades. The OSCAR system makes provision for the separate collection of data relating to the Senior Civil Service but departments are not currently required to submit data on SCS or SCS-equivalent grades. Data should be provided for the year of the pay remit, not the financial year.

If there are significant anomalies in the data, for example because it represents less than a full year of activity, or there are large differences between successive forecast and outturn figures for a particular year, departments should provide a brief explanation, either in the space provided on the OSCAR template or in an email to WPP team at the Treasury – contact details are in section 3.

Definition of pay data

This section explains the information that is required in each section of the pay data reporting template. Please contact the Treasury if you have any further queries.

Total paybill (£ thousands)

Total paybill	In the OSCAR template total paybill will be calculated automatically as the sum of direct wages and salaries, pension contributions and national insurance contributions. Includes all staff-related costs (excluding the cost of staff not on the formal civil service payroll), comprising direct wages and salaries, employer pension contributions and employer National Insurance contributions – and also staff paid from programme budgets.
Direct wages and salaries	Direct wages and salaries include all the elements that go to employees on a current basis (as opposed to pension payments, for example, which are deferred). This will be calculated automatically from the sum of pay, allowances, non-consolidated performance (e.g. bonuses) and overtime entered in the OSCAR template.
Pension contributions	Enter the total cost to the department of pension contributions.
Employer National Insurance contributions	Enter the total cost to the department of employer National Insurance contributions.
Exit costs	Exit costs include any benefits to an individual, in the form of pay, pension or other remuneration, when leaving service (through either compulsory redundancy or other agreed departures) other than entitlements accrued in the normal course of employment up to and including the exit date.

Non-paybill staff costs (£ thousands)

Consultants/interim/agency staff costs not included in the pay bill

Enter the total cost of all staff who are not on the formal civil service payroll, including for example, consultants, interim and agency staff.

Paybill per head (£)

This section will be completed automatically in the OSCAR template.

Paybill per head	This will show the total paybill divided by the workforce size. Paybill per head – headcount is Total Paybill divided by Headcount; Paybill per head – FTE is Total paybill divided by FTE (Full-time equivalent).
Average earnings per head	This will show direct wages and salaries (i.e. pensionable pay – i.e. excluding employer pensions and NICs) divided by the workforce size. Average earnings per head – headcount is direct wages and salaries divided by Headcount; Average earnings per head – FTE is direct wages and salaries divided by FTE (Full-time equivalent).

Workforce size^{[footnote 4]}

Headcount	Enter the total civil service workforce on a headcount basis, calculated as the average for the remit year of the size of the workforce at the end of each month.
Full time equivalent	Enter the total civil service workforce on a full-time equivalent basis, calculated as an average for the remit year of the size of the workforce at the end of each month.
Full time equivalent over £21k/under £21k*	Enter the total civil service workforce who are earning over/under £21k respectively. The figures for each year should sum to the total.
Number of exit packages	Number of exit packages made within the year. This should relate to the ‘exit costs’ figure reported under pay bill.

*These figures are only required for the years in which the department was in the pay freeze.

Wastage and vacancies (percentage)

Staff wastage

Enter the proportion of employees leaving the organisation over the year (excluding redundancies but including exits due to all other factors including performance related exits and ill-health retirements) as a percentage of total workforce. Excludes those employees moving between jobs within the organisation.

Vacancy rates

Enter the number of unfilled posts (or forecast vacancies) in the final month of the remit year in question, expressed as a percentage of (headcount at the end of the month plus vacancies). This figure should reflect the number of posts that are either unfilled or filled by contract staff, which will be advertised under civil service fair and open competition rules. This figure should not include vacant posts that will be removed as part of organisational restructuring or planned workforce reductions.

Change in pay from previous year (percentage)

Basic award (percentage)*	Enter the average percentage increase to the steps (for a step based pay system) or maxima/minima (for a non-step based pay system) of the pay ranges within an organisation. See section 6.2 of the civil service pay guidance 2011-12 for further details.
Pay drift (percentage)	For the purpose of these pay reporting requirements, pay drift is the difference between average earnings growth percentage and basic award percentage. This section will be completed automatically in the OSCAR template.
Average earnings growth (percentage)	This is the change in average earnings per head (FTE) from the previous year, as a percentage of average earnings per head in the previous year. It includes all changes in direct wages and salaries. This section will be completed automatically in the OSCAR template.
Increase for staff in post (ISP) (percentage)*	Enter the percentage increase in the average cost of pay for individual members of staff that remain at the same grade/responsibility level. This figure should include revalorisation, progression and any increase to the bonus pot.
Basic award for those under £21k (percentage)*	Enter the average basic award increase (percentage) for staff earning £21k per annum or less. Do not include staff earning more than £21k. If no award increase is recorded for staff under £21k an explanation should be provided in the Oscar template (for example that the £250 payments has been made via a contractual entitlement to progression pay).
Percentage increase in remuneration cost (percentage)	The increase in remuneration cost (IRC) is the difference between the projected remuneration cost and the baseline remuneration cost expressed as a percentage of the baseline remuneration cost (see Annex D). Enter the percentage. Those departments which:
	a. pay contractual progression increments; or
	b. have agreed a switch in funding from the non-consolidated performance pay pot to fund recruitment and retention pressures (see Annex F)
	Departments are expected to report the effects of these factors on their IRC by entering outturn and forecast data for three versions of the IRC:
	1. excluding the effect of legally binding progression increments and any PRP pot switch
	2. including any PRP pot switch
	3. including any PRP pot switch and progression increments
	All departments should enter data for all three calculations of the IRC. For those to whom (a) and (b) do not apply, the figures will be identical.
Non-consolidated performance pay pot	Enter the size of the non-consolidated performance pay pot expressed as a percentage of pay-bill (see paras D4-D6). This may differ from outturn or forecast expenditure on non-consolidated pay recorded as a component of salaries and wages (C9).

*These figures are only required for the years in which the department was in the pay freeze.

Annex D – other pay definitions and notes

Baseline remuneration cost

The baseline remuneration cost is the cost to the department, for the remit year, of the expected staff complement, excluding the costs of progression or revalorisation or any other increases. Baseline remuneration cost does not include employer national insurance and pension contributions.

Projected remuneration cost

The projected remuneration cost is calculated by adding the increase in remuneration cost arising from the remit proposals to the baseline remuneration cost.

Example: if the total costs of the remit proposals were £100,000 and the baseline costs were £2,000,000 the projected costs would be £2,100,000.

Increase in remuneration cost

As stated in Section 2.1 the increase in remuneration cost includes all increases arising from the remit proposals, apart from employer National Insurance and pension contributions. The IRC calculation should assume that all increases are implemented from the Settlement Date. Departments cannot reduce the IRC by deferring the date of implementation of component increases.

Non-consolidated performance payments

Non-consolidated performance payments are awarded to staff based on performance either at an individual, team or organisational level. They are re-earnable and do not have associated future costs. Types of payment include:

• performance related payments based on individual contributions to the organisation and assessed by the departments performance management system
• special bonus schemes for individual payments for special projects or outstanding pieces of work that are not covered by the normal performance management system

Non-consolidated performance payments met from the performance pot are excluded from the calculation of the one per cent average annual salary increase. However, the amount of any increase in the pot itself must be included in calculating the 1 per cent.

Calculating the performance pot

The organisation’s existing non-consolidated performance pot is a cash value derived from a percentage of the consolidated Baseline Paybill, and not a fixed cash amount.

Example: In 2011-12 an organisation has a consolidated paybill of £20 million and has built up a non-consolidated performance pot of 3 per cent. The cash value of the non-consolidated pot is 3 per cent of £20 million = £600k. In 2012-13, because of staff reductions, the consolidated baseline paybill is reduced to £19 million. While the non-consolidated pot as a proportion of consolidated paybill remains unchanged at 3 per cent, the cash value is reduced (3 per cent of £19 million = £570k).

Other non-consolidated payments

Non-consolidated payments other than those related to performance must be included in the calculation of the increase in remuneration costs.

Progression pay

Progression pay systems are those under which pay to individuals in a specific grade or post increases periodically according to pre-determined increments or amounts (or would be expected to do so in the absence of public sector pay restraint.) In some cases this is subject to a satisfactory performance assessment and/or may be a legal entitlement. Progression pay cost is the cost of moving someone through the pay range and in spine point or step based system relates to the costs of incremental steps. In milestone- and reference-point based systems, progression means the cost of moving staff within the pay range.

Revalorisation

Revalorisation relates exclusively to spine point or step based systems and is the value by which all points on the pay spine are increased. This may be different for different grades.

Non-pay rewards/benefits

These are increases in annual leave entitlements, reduction in working hours, etc. These changes should be costed and included in the calculation of the increase in remuneration cost.

Non-paybill staff costs

This covers consultants/interim/agency staff costs not included in the paybill. It includes the total cost of all staff that are not on the formal civil service payroll, including for example, consultants, interim and agency staff.

Remit year

The dates between which the approved pay remit applies. Remits apply for one year, but commencement dates vary from one body to another. The settlement date is the date on which the remit year commences.

Recyclable savings

Recyclable savings are generated when staff leave the organisation and are replaced by entrants with a lower salary cost. The difference between the leaver’s salary costs and the entrant’s salary costs is the saving to the paybill. These savings should not be applied to reduce the percentage increase in remuneration, and should therefore be netted out of the calculation.

Vacant posts do not generate recyclable saving, because until the post is filled the salary cost to the paybill cannot be determined.

Annex E – pay reform proposals

Treasury will consider proposals for flexibility in relation to the one per cent if they are linked to substantive plans to remove automatic time-served progression pay. To qualify for consideration, departments must provide a robust and fully costed business case for their proposals that offers clear value for money for the taxpayer and includes the removal of legally binding progression arrangements.

In order to assist Treasury’s assessment of their plans, departments should identify and include all relevant information in the business case. In doing so they are asked to refer to the factors set out below:

• timing of progression removal: whether (contractual right to) progression pay for all staff would be abolished from year one of the deal
• coverage: whether the agreement would apply to all staff (eg via the collective bargaining process)
• savings: business case to set out cash-flow forecasts demonstrating costs and savings against a realistic baseline and forecast of the counterfactuals; to show for example whether in-year savings are generated within two years, and “pay-back” of the original up-front costs provided within five years
• maximum payments: whether the business case clearly sets out the maximum payments, both consolidated and non-consolidated, to individuals, and the number and proportion of individuals who receive these payments
• non-consolidation: whether buy-outs will be non-consolidated, rather than a permanent pay increase
• reformed pay arrangements: new pay terms following the removal of progression pay will be relevant to the vfm assessment of the business case

As with business cases generally, proposals are expected to follow best practice as set out in the Green Book and provide relevant and clear information. They are expected to focus on the removal of automatic time-served progression rather than other pay and workforce reforms. The case might also set out, for example, how reformed pay arrangements will incentivise performance and any legacy pay arrangements, and will clearly distinguish costs and savings directly relevant to the removal of progression pay.

Any outstanding proposals from departments or their NDPBs should be submitted (through the sponsor department if appropriate) to the Treasury together with a robust supporting business case as soon as possible, but in any case no later than 30 April 2014. The supporting business case should also be provided to the Cabinet Office who can provide further advice.

Annex F – meeting recruitment and retention pressures

The Treasury will consider requests from departments for the flexibility to address specific recruitment and retention pressures by re-allocating funding within their overall pay-bill from the non-consolidated performance-related pay “pot” (PRP pot) to fund targeted recruitment and retention incentives. (See Annex D for an explanation of non-consolidated performance pay and the calculation of the pot.) Key features of this flexibility are:

• recruitment and retention: departments are expected to provide evidence of exceptional recruitment and retention needs which will be addressed in a targeted way
• permanence: any agreed reduction of the PRP pot will be permanent, to avoid the creation of ongoing increases in paybill costs
• limit on conversion: departments cannot convert an amount exceeding 50 per cent of the PRP pot (or 0.5 per cent of baseline paybill if less)

A more detailed exposition is provided below.

Reduction in PRP pot

Departments and NDPBs are permitted to reduce their PRP pot as a percentage of consolidated pay-bill only to offset agreed increases in pay-bill costs applied to meet targeted recruitment or retention pressures (“PRP-related funding”).

The permitted reduction in the PRP pot is capped at an amount equivalent to 50 per cent of the pot, or 0.5 per cent of the baseline paybill if smaller, in order to ensure that departments maintain sufficient resource to continue to fund non-consolidated performance arrangements.

PRP pots may not be reduced to provide additional funding for the consolidated pay-bill generally (for example to fund an across-the board increase in excess of 1 per cent), but must be targeted to address recruitment and retention pressures.

Eligible PRP schemes are encouraged to be targeted at those staff in the top performance category. The Civil Service Employee Policy (CSEP) best practice model gives the flexibility of setting distribution ranges at between 10% - 25% for those in the top performance category.

To avoid this flexibility resulting in subsequent paybill increase, the reduction in the PRP pot will be permanent once the pot as a percentage of pay-bill has been reduced.

Departments must be satisfied that their proposed reduction will not jeopardise the operation, development or effectiveness of their performance-related pay arrangements.

Funding increases in pay

PRP-related funding must only be applied to specific targeted recruitment and retention pressures.

Treasury will exceptionally consider proposals for targeted consolidated increases, if supported by a sufficiently robust case.

For proposals which will result in changes to employer superannuation and ERNIC costs (or are likely to do so), for example arising from a switch of funding from non-consolidated pay to consolidated pay, PRP-related funding will be 85 per cent of the reduction in the PRP pot.

The agreed increase in paybill excluding the PRP pot and offsetting PRP pot reduction will come within the scope of the percentage increase in remuneration cost (see Annex C), but will be in addition to the 1 per cent limit set in Section 2.1.

Business case requirements

Departments wishing to take advantage of this flexibility are required to submit a business case to the Cabinet Office in the first instance in support of the proposal. The flexibility is also available to NDPBs who should submit business cases to Cabinet Office through their sponsor department. The business case will be expected to include all relevant information and financial data, including:

• details of the recruitment or retention pressure to be addressed, including supporting evidence
• metrics relevant to the proposed increase in (non-PRP pot) paybill, including: the number and nature of posts involved; existing and proposed pay rates and payments; whether increases are consolidated or non-consolidated; the total number of posts covered by the remit; and the impact of the proposal on the remit paybill excluding the PRP pot (amount and percentage)
• the amount of the existing PRP pot calculated as a percentage of the 2013-14 baseline pay-bill, and the percentage
• evidence to confirm that the proposal complies with the limits of the scheme set out above: the amount of the proposed reduction to the existing PRP pot, also expressed as a percentage of the pot and of the baseline pay-bill; and that the proposed pay-bill increase is offset by the PRP pot reduction, taking account of any adjustment for employer superannuation and ERNIC costs
• an explanation as to how the proposal will not jeopardise the operation, development or effectiveness of existing performance-related pay arrangements

Treasury will also take into consideration whether rates of pay relevant to the applicant’s remit are already high compared with the rest of Whitehall, although this would not rule out higher-paying departments taking advantage of this flexibility.

1. Throughout the guidance the term “department(s)” includes all organisations (ministerial and non-ministerial departments, agencies and NDPBs) that come within its scope, unless the context clearly implies otherwise. ↩

2. Departments are reminded that all new allowances must be non-pensionable. If a department wishes an existing or new allowance to be made pensionable a separate business case must be submitted (if appropriate through the sponsoring department) to the Minister for the Cabinet Office for approval. ↩

3. A letter from the Financial Secretary to Secretaries of State on 3 November 2009 clarified the rules on salary sacrifice schemes in the public sector. Departments should refer to this if needed. ↩

4. Please ensure that headcount and FTE are calculated on the required basis for all years from 2010-11 to 2014-15, and if necessary enter revised figures. ↩