Regulations capping public sector exit payments at £95,000 have been revoked by the government, after a review found the cap may have had ‘unintended consequences’.
The Restriction of Public Sector Exit Payments Regulations 2020 came into force in November 2020 and set a £95,000 cap on exit payments in public sector organisations.
It has not yet specified what the “unintended consequences” of the payment cap have been.
A guidance document issued by the Treasury today encourages employers to pay any former employees who had an exit date between 4 November 2020 and 12 February 2021 and were affected by the cap the additional sums that would have been paid had the cap not been applied.
“Given that the cap has now been disapplied, it is open to employers to do so and HM Treasury’s expectation is that they will do so,” it says.
However, it said the issue of “unjustified” exit payments was still a matter of concern.
“For the avoidance of doubt, it is still vital that exit payments deliver value for the taxpayer and employers should always consider whether exit payments are fair and proportionate. HM Treasury will bring forward proposals at pace to tackle unjustified exit payments,” the guidance says.
Organisations affected by the cap included local government, fire services and schools; the NHS; police forces; the civil service and its executive agencies, non-ministerial departments and non-departmental public bodies; and academy schools.
Employment law consultant Darren Newman said the government needed to reflect on its “refusal to listen to those advising them that the [regulations] were a mess”.
A policy 5 years in the making has collapsed overnight. Government really needs to reflect on its refusal to listen to those advising them that the Regs were a mess. #exitpaycap #ukemplaw
— Darren Newman (@DazNewman) February 12, 2021
However, unions have claimed the withdrawal of the cap will benefit “millions of workers”. They say that the cap would not only have prevented excessive exit payouts to high earners but also affected those on lower salaries who had been made redundant after a long career in public service.
Christine McAnea, Unison general secretary, said: “Through no fault of their own, long-serving staff over the age of 55 and facing redundancy would have been hit by the regulation. Because they’re obliged to take their pensions if they lose their jobs, when combined with redundancy payments the final amount could have exceeded the £95,000 cap.
“All along the Treasury was told that the regulations were flawed, and they would hit ordinary workers. Unfortunately, ministers wouldn’t listen, so Unison had to take them to court. The government has wasted much time and money and should now abandon any plans to reintroduce the regulations.
“Instead, ministers should concentrate on supporting dedicated public service workers who are delivering for their communities in the most challenging of circumstances.”
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Unite assistant general secretary Howard Beckett said: “We warmly welcome this decision by the government to jettison the £95,000 cap that would have adversely affected dedicated long-serving public servants earning relatively low salaries of £25,000 a year.
“A potential injustice that would have dramatically lowered morale in the workforce has been averted and Unite is pleased to have played its part in achieving this victory.”
