Government to cap public sector redundancy payments


New limit of £95,000 accompanied by curbs on large salaries

The government is today announcing new curbs on public sector redundancy payments, and restrictions on the largest salaries in the sector, in moves it claims could save up to £250 million a year.

Any public sector salary of more than £140,000 will in future need to be authorised by the chief secretary to the Treasury. Redundancy payments will be capped at £95,000, fulfilling a pledge in the Conservative Party manifesto. The BBC has voluntarily agreed to match the £95,000 limit.

Charles Cotton, performance and reward adviser at the CIPD, said: “This is part of a wider agenda from the government to place more emphasis on various aspects of the public sector, such as pay ratios and good governance. At this point in time, it’s important for people to see that rewards, especially of this large scale, aren’t being given for failure.

“I believe these new policies are intended to reassure taxpayers that their money is being used wisely, as well as reassure other public sector workers that the payments are being fairly given. It’s important to emphasise, however, that these new policies will only affect a small minority of the senior public sector workforce.”

The moves build on a pledge made by former chancellor George Osborne to “rein in” redundancy payments to managers in the public sector and reduce spending on senior salaries. The rules capping payments at £95,000 will cover all types of departures, including voluntary as well as compulsory redundancy and other severance arrangements.

Media reports have decried individuals who receive large payments only to take up new roles in other parts of the public sector, while a recent Freedom of Information request by the Daily Mailsuggested that around 3,500 council employees across the UK earned more than £100,000 per annum.

But some local authorities have argued that retaining valued staff in senior roles – with associated salaries and redundancy terms – is more cost-effective in the long term. The Treasury has said it wanted to make exit compensation “fairer, more modern and more consistent.”

The government launched a separate consultation in August to look into the case for limiting payoffs to three weeks’ salary per year of service. The consultation, which will last for three months, will see it consider setting a standard formula to calculate exit payments.

The government said that the BBC, Channel 4, Bank of England, the Armed Forces, Royal Bank of Scotland and other taxpayer-owned banks would be among those exempt from such rules, but ministers would expect these bodies to introduce “their own, commensurate cap on exit payments.”

Ministers also want to find out if there is support for preventing public sector employers offering staff private health insurance, and tapering the amount that individuals approaching retirement can receive in redundancy payments.

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