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Government reforms (1): Public sector exit payments – what’s next?

exitWhat do we already know?

We updated you in our February 2016 Newsflash Reforming public sector exit payments – consultation that the Government had published a consultation (available here) on reforms to public sector exit payments (affecting the civil service, the NHS, teachers, police, fire-fighters, members of the armed forces and employees of local authorities).

The consultation document set out a package of proposed maximum levels for the calculation of exit packages, designed to make compensation terms fairer, more modern and more consistent. The consultation closed on 3 May 2016.

The proposals in the consultation are in addition to:

What’s new?

HM Treasury published its response, available here, to the above consultation on reforms to public sector exit payments on 26 September 2016.  Most of the 350 responses to the consultation were opposed to the proposals in the consultation, including that exit payment terms in the public sector have historically been set by collective agreement and balance the needs of employers and employees in each workforce and that there would be a negative impact on staff morale and an erosion of public sector terms and conditions.  However, the Government intends to proceed with the proposed reforms in any event, indicating that they could achieve savings of up to £250 million a year, while bringing public sector exit terms in line with those commonly available in the private sector.

The Government intends to:

The Government will require its departments responsible for each workforce to agree reforms to their exit payment arrangements that are consistent with the above framework. These departments should then implement these changes through, for example, changes to secondary regulations or other instruments governing compensation.

Although the response to the consultation talks of allowing “a limited degree of flexibility” and recognises that some departments are likely to seek permission to deviate from the framework in some areas (for example, where the framework might result in demonstrable inequality or will not achieve cost-saving), it also states clearly that the Government expects its departments to begin work “immediately” to produce appropriate proposals for compliant reforms for their workforces by July 2017.

The timeframe the Government has set is as follows:

This timeframe for action is accompanied by a clear warning that a failure to achieve meaningful reform within the timescales envisaged may lead to primary legislation to force the changes. The Government’s timescales may prove particularly challenging in some sectors, such as local Government, where changing the rules on employer-funded pension “top ups” cannot be achieved without changes to regulations.


These proposals will affect a far greater number of public sector employees than the cap on exit payments and the power to claw back exit payments from employees who return to the public sector. For example, the response indicates that more than 97% of exit payments in the public sector in 2014/15 were below £95,000 in any event.

Given the opposition expressed by the respondents to the consultation and the fact that the public sector is heavily unionised, it is likely to be difficult to implement these changes in the way envisaged by the Government, and within the anticipated timescale.

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