Government backtracks on public sector exit cap

The Government has revoked the £95,000 cap on severance payments for public sector employees introduced last November after a review found that the measure had created “unintended consequences”.

HMT Directions have been issued to disapply the cap in England until the Restriction of Public Sector Exit Payments Regulations 2020 can be revoked.

Quentin Baker, President of LLG (Lawyers in Local Governnent), which together with ALACE (the Association of Local Authority Chief Executives and Senior Managers) had sought a judical review of the policy, said: “Naturally we’re delighted that the government has chosen to revoke these ill-conceived regulations which unfairly impacted upon long serving local government employees. We await formal communication from the Government Legal Service as to their proposals regarding the judicial review proceedings.”

In new guidance published today (12 February), the Treasury said employers were now “expected” to pay anyone affected by the cap – which was in force from the 4th November 2020 to 12th February – any additional sums that would have paid but for the cap.

However, the guidance emphasised that future exit payments should “deliver value for the taxpayer and employers should always consider whether exit payments are fair and proportionate”. It said that the Treasury will bring forward new proposals “at pace” to tackle unjustified exit payments.

The Treasury noted that HMT Directions do not apply to exit payments made by a devolved Welsh authority.

Deborah Evans, CEO, LLG, said: "The revocation of the ill-informed and ill-timed exit payment cap regulations gives light to the many long serving local authority staff who face redundancy both now and in the future, or have been made redundant in recent months. Pensions are the foundation stone of retirement, and we are overjoyed that the erosion of pension rights has been stopped in its tracks. LLG and ALACE have worked tirelessly to challenge these regulations, as have so many other organisations, and we welcome the government’s decision to reconsider."