The government's foolish redundancy pay cap plan

As speculation grows that the Ministry of Housing, Communities and Local Government is limbering up to vastly reduce the number of local councils (with major disruption to workers), it is now bearing down even harder on the amounts which a local authority can pay to a departing employee. As such it risks rendering the rules more restrictive than elsewhere in the public or private sector. What is being proposed and what is the scope of any reforms?

The classic but implicit compact over the years has been that public sector employees enjoyed decent terms and conditions, especially on pensions, in compensation for the fact that the salary was normally lower, in some cases far lower, than in the private sector. Local government in particular employs many lawyers, accountants, public health and housing experts, and engineers who could be much better paid in the private sector (and with less public scrutiny too).

But in 2015, the government said that it would look at areas where public sector employees had an advantage over those in the private sector, so as to produce “fairness, modernity and greater consistency.” This more general review has only just been put into effect: The Restriction of Public Sector Exit Payment Regulations (“the exit regulations”), published in July, introduced a maximum of £95,000 on all forms of exit compensation, including forms of pension top up, redundancy payments, compromise agreements and special severance. The government says it wants to ensure the public gain value for money but the provisions appear unfair and inconsistent.

A new MHCLG consultation paper is more focused. It applies to local government rather than the wider public sector. It is difficult to ascertain why local government has been picked out as one the worst offenders when it comes to over-generous payouts, and why it has been decided that local authorities must be reined in more than other parts of the public sector.

The new paper begins with a truth we all know: “Redundancy provision and exit payments play an important role in enabling employers to reform and reorganise.” Its proposals include a maximum tariff for exit payments of three weeks’ pay per year of service; a ceiling of 15 months’ (66 weeks') salary on redundancy compensation payment; and a maximum salary of £80,000 on which a payment can be based.

The risks of ever-greater restriction of this kind include a “dash for the door” as experienced staff over the age of 55 seek to leave councils before a more restrictive cap is implemented. There is also the risk of an increase in the number of claims for compensation to be addressed by employment tribunals, given that such compensation is not covered by the cap. An aggrieved employee who might previously have been prepared to agree terms of departure will now have greater incentive to submit a grievance and pursue a tribunal claim in order to maximise any payments. Indeed, the regulations will tend to frustrate early conciliation and settlement agreements as an alternative to formal legal proceedings, which ironically it is public policy to promote. Then there is the general hindering of the negotiations and agreements necessary for public service and local government reorganisations, including in terms of devolution and further "efficiency savings."

The government claims a generalised electoral mandate for “[ending] taxpayer-funded six-figure payoffs for the best paid public sector workers," which was on page 49 of the 2015 Conservative manifesto. This very much chimes with the agenda of the Taxpayers’ Alliance and similar right-wing pressure groups who have the government’s ear.

But staff in the public sector feel already that they are living through a horror show, and it is only likely to get worse. They are being given increased responsibility in the monitoring and management of a global pandemic without sufficient finance or resources. The treatment of local government staff contrasts in particular with the £250,000 given to Mark Sedwill when the government suddenly found his services as cabinet secretary expendable.

The question is whether we will still have the loyal and motivated local government, public sector cadre we are used to at the end of this process of limiting exit payments. This is especially important as we rely on them even more during the pandemic.