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Government to apply £95k exit payment cap to whole public sector at same time

The government is to press ahead with implementation of its proposed £95,000 cap on exit payments in the public sector, but will no longer do so in two stages as originally suggested.

Instead, the whole of the public sector will be captured “as soon as possible, with few exceptions”, HM Treasury said in its formal response to the consultation published on 10 April 2019 and which closed on 3 July last year.

“This approach will ensure that the cap applies where intended to ensure value for money as soon as feasible,” it argued.

The final schedule listing all public sector bodies the cap will apply to is contained within the regulations.

The final regulations will include details on when the cap will come into force.

The Small Business, Enterprise and Employment Act 2015, as amended by the Enterprise Act 2016, provided the power for HM Treasury to make relevant regulations for the exit cap.

HM Treasury said the cap “will take precedence over existing contractual agreements where they are less stringent than the exit payment cap regulations”.

The consultation revealed a significant amount of responses expressing concern over the inclusion of employer-funded early access to pensions (pension top-up payments) within scope of the exit payment cap and how this could affect long-serving, lower-earning employees. Some also argued that this would be discriminatory towards older workers.

However, the Treasury dismissed the criticism. It said the government “believes it is right to include all payments related to exit within scope of the cap. The option of employer-funded early retirement is often the most costly element of an exit payment and is ultimately funded by the taxpayer so it is right that it is included.”

Local authorities in particular had meanwhile questioned how the discretionary waiver system would work in practice. This was amongst concerns over how long the process would take, given that the power to waive the cap is delegated to full council.

The Treasury insisted that the government was “committed to making the process for considering waivers efficient in order to not cause any unnecessary delays for public sector employers and employees, while ensuring that cases receive sufficient and appropriate scrutiny”.

It added: “The waiver process has been designed to ensure there is accountability for the way the waiver is being used at all stages, therefore it’s appropriate that uses of the waiver receive ministerial clearance. If needed, further guidance may be provided by the sponsoring department or employer.”

The government will also provide policy direction in the published guidance document, however, employers should consult legal advisors on specific cases, including with regards to the mandatory TUPE waiver, once the cap comes into force, the Treasury said.

In response to concerns that there was no provision to uprate the £95,000 figure over time, and that this would lead to more lower-earning employees being captured, the Treasury said the level of the cap would be kept under review “in order to allow for a flexible approach to make decisions on the level of the cap with reference to full contextual factors”.