UK abandons redundancy cap following legal challenges
The UK government has repealed new regulations that limited exit payments for departing public sector staff to £95,000 (US$132,000), after its policy was challenged in the courts by unions and staff representative bodies.
Last November, the Restriction of Public Sector Exit Payments Regulations 2020 introduced a limit on redundancy and early retirement payments. But late last week, the Treasury issued guidance for public sector employers and staff stating that the £95,000 cap should no longer be applied and that regulations will be revoked. “After extensive review of the application of the Cap, the Government has concluded that the Cap may have had unintended consequences and the Regulations should be revoked,” it said.
The announcement followed legal challenges from unions including the FDA and Prospect, along with local government bodies including Lawyers in Local Government (LLG) and the Association of Local Authority Chief Executives and Senior Managers (ALACE).
In its new guidance, the Treasury said that anyone who left their public sector role between 4 November 2020 and 12 February 2021 with a £95,000 pay-out would be entitled to any additional sums they had been denied due to the cap.
Garry Graham, deputy general secretary of Prospect, said: “Despite initially contesting our legal case to go to Judicial Review – the government has now thrown in its hand. They have also conceded anyone the cap has been applied to so far should be compensated.
“We said at the time we believed the government’s approach was both unlawful and chaotic and have been proven right.”
Legal wrangling
The LLG and ALACE won permission from the High Court to proceed to judicial review in December; the hearing had been scheduled for March this year.
The FDA union, which represents senior and mid-ranking civil servants, also sought a judicial review, as did another civil service union, Prospect. Other public sector unions, including the British Medical Association, also pursued legal action.
The Restriction of Public Sector Exit Payments Regulations 2020 (£95k cap), introduced last autumn, enacted a 2015 government plan to limit the pay-outs for public sector staff heading for the exit door – either through redundancy or early retirement.
The government was responding to the perceived problem of public servants leaving office with large pay-outs. The total bill for exit payments in 2016/17 was £1.2bn (US$1.7bn), according to the Treasury. In a 2016 consultation on exit payments, the government said three principles would underpin reforms: “fairness; modernity and flexibility; and greater consistency.” The document added that reforms could save about £250m a year.
Pension pain
If a worker aged 55 or over was taking early retirement and their employer had to make extra payments into pension funds to cover the additional costs, these so-called “pension strain” payments were also counted as part of the cap.
Up to 86% of local authority officers facing redundancy over the age of 55 were likely to be adversely affected by the measure, according to LLG. “Given the increased likelihood of restructure in the sector and further likely job losses because of the impact of COVID on local government finances, the timing seems particularly pernicious,” the organisation noted.
Meanwhile, Prospect argued that the inclusion of “pension strain” payments meant that a measure presented as focusing on generous exit packages for highly paid senior managers would impact most heavily on “longer serving staff on modest salaries”.
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The trade union UNISON was also instrumental in bringing this successful challenge. It has many thousands of workers on modest salaries whose long service would have seen them hugely disadvantaged by the cap.
We will see how fast they can get the refunds made! Bearing in mind almost certainly any payout over £95,000 would have been taxed at 50%, so if it slips into the next financial year the additional sums will presumably taxed as a new allowance. 🙂