New Consultation on Public Sector Exit Pay Controls Announced
On 8 August 2022, the Government announced a consultation and published draft guidance setting out new administrative controls in relation to public sector exit payments over £95,000 and amending the existing process for special severance payments.
In recent years, the Government has taken various steps in order to seek to limit public sector exit payments and ensure that payments made to individuals leaving employment in the public sector represent 'value for money' for the taxpayer:
- The Government first announced its intention to introduce a cap on public sector exit payments in 2015. However, it was not until November 2020 that legislation imposing a £95,000 cap on public sector exit payments was introduced. As previously reported, the legislation was highly criticised and was revoked very shortly after being implemented.
- Then in May 2021, the Government issued guidance in relation to Special Severance Payments (SSP's), which supplemented the Managing Public Money guidance. We reported on this here.
- Separate guidance for certain bodies or sectors relating to exit payments has also been issued (for example, specific statutory guidance for local authorities in England regarding SSP's).
The new consultation is around introduction of "an expanded approvals process for employee exits and special severance payments, and additional reporting requirements".
The key points are:
- The guidance is intended to apply to all bodies that are classified as ‘Central Government’ and/or bodies that do not have a specific right to make exit payments as set out in their Framework Document, Articles of Association, Board Terms of Reference or elsewhere. It will not apply to devolved administrations, but will apply to roles in reserved functions carried out in devolved administrations.
- Approval will be needed from the relevant Secretary of State for the agreement of any exit where the total exit payments on offer would exceed £95,000 (including contractual and statutory elements) and there will be an additional requirement to report to HM Treasury.
- Approval would be sought by the relevant body through a business case, sent to the relevant Secretary of State after going through accounting officer clearance and any other existing clearance processes. The guidance sets out a range of criteria according to which business cases should be appraised.
- A further approval will be needed if any payments in excess of contractual obligations (ie special severance payments) are to be offered. Approval will be needed from a Secretary of State and HM Treasury where a total exit payment exceeds £95,000 and includes a special severance element.
- There will be an expectation that recovery of special severance payments should be considered across central government, where such payments are agreed and an official may be re-employed in the Public Sector.
What Next?
The guidance is currently only in draft form and may not be introduced, or introduced with amendments. The Government has further stated that legislation may yet be introduced, and this is something it will keep under review.
It is evident that public sector exit pay continues to be an area of focus. The Government concedes that such payments play an important role in organisational changes and supporting employees leaving employment. However, we can expect a focus on restricting some payments and administrative barriers to remain in place and even increase.
The consultation closes on 17 October 2022 and can be found here.