Public Sector Exit Payments Regulations to be revoked

19th February 2021

Following five years of discussion and debate and two formal consultation processes about the prospect of a cap on public sector exit payments, we saw a flurry of activity at the end of last year when the restriction of Public Sector Exit Payments regulations 2020 were made into law on 14 October 2020.

They became effective 21 days later on 4 November 2020 but in a surprising development on 12 February 2021, the Government announced that the Regulations are to be revoked.

The timing of the Regulations coming into force, given the significant strain on the public sector due to COVID-19, and the speed within which they were finally introduced attracted significant criticism. Perhaps more controversial was the fact that the £95,000 cap also caught the so called “pension strain costs”, despite significant opposition to this proposal at consultation stage. The inevitable but unintended consequences of the inclusion of the pension strain cost within the cap was that lower paid public sector workers who were over 55 and had long service were disproportionately impacted.

What followed was, in some cases, a scramble to speed up exit processes to ensure that they were implemented prior to 4 November 2020. In cases where this was not possible, the relevant public sector bodies had to impose the cap or apply for ministerial discretion to disapply the cap.

Within a very short period of the Regulations coming into force a number of trade unions (including Unite, Unison, FDA, GMB and BMA) mounted legal challenges by way of judicial review and the cases were due to be heard next month. However, on 12 February 2021, just three months after coming into force, the Government announced that, having undertaken an extensive review, the Regulations would be revoked.

Revoking public sector exit payments

A HM Treasury Direction was published under which the cap was dis-applied with effect from 12 February 2021 until such time as the Regulations could be revoked. The Government also updated its guidance on the public sector exit payment cap which stated that “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.” Contained within the guidance are separate sections for individuals and employers.

The guidance for individuals states at paragraph 2.2 that:

If you have been directly affected by the cap whilst it was in force, you should request from your former employer the amount you would have received had the cap not been in place by contacting your employer directly. Employers are encouraged to pay to any former employees to whom the cap was applied the additional sums that would have paid but for the cap.

In paragraph 3.2 of the Guidance for Employers it states:

In light of the withdrawal of the Regulations, employers are encouraged to pay to any former employees who had an exit date between 4th November 2020 and 12th February 2021 and to whom the cap was applied, the additional sums that would have paid but for the cap. Given that the cap has now been disapplied, it is open to employers to do so and HM Treasury’s expectation is that they will do so.

However, given the wording of the guidance there is a level of ambiguity about the requirement to pay affected staff the balance of their exit payment once the cap has been disapplied. Employers are “encouraged” to do so and it is HM Treasury’s “expectation” that they will do so, but they are not currently specifically mandated to do so. Given the level of trade union involvement in the judicial review proceedings it is likely that any refusal to make good the payment will face the threat of legal challenge but it may well be the case that a public sector body may not have implemented an otherwise cost prohibitive restructure or redundancy programme, had it not been for the imposition of the cap. At a time when most public sector bodies are under significant financial strain, will there be an appetite to make good such payments?

The guidance does not apply to devolved Welsh authorities, and as at the time of writing there has been no further comment or guidance from Welsh Government in relation to this issue.  However, it is inevitable that Welsh Government will follow suit not least because it had written to public sector bodies in November 2020  expressing concern about the timing of the UK Government’s implementation of the Regulations, the impact of the inclusion of pension strain costs for low paid staff with long service and that as at November 2020 they were seeking guidance on Welsh Ministers’ ability to introduce a waiver that where legally possible, removed the pension strain costs from the cap.

Contact Paula Kathrens or another one of our employment law experts for legal advice on the revoked public sector exit payments.

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