Last reviewed 20 October 2020
The Government legislated for a cap of £95,000 on exit payments in the public sector in the Small Business Enterprise and Employment Act 2015, as amended by the Enterprise Act 2016.
It then consulted, in April 2019, on draft regulations and accompanying guidance, explaining that exit payments to employees leaving the public sector workforce in 2016–17 cost the taxpayer £1.2 billion, with payments at and above £100,000 amounting to £0.2 billion.
The response to that consultation was published in July 2020, confirming that “the Government will take forward these proposals through secondary legislation in the form of affirmative Regulations”.
The Restriction of Public Sector Exit Payments Regulations 2020 (SI 2020 No. 1122) have now been published and can be found at https://www.legislation.gov.uk/uksi/2020/1122/made/data.pdf.
As originally set out, the cap is to be £95,000 on the total pre-tax aggregate value of exit payments made to most types of public sector employees including those working for local authorities, the NHS, Government departments, port health authorities and a wide range of public bodies specified in a schedule to the regulations.
These include the Bank of England, the BBC, the British Library, the College of Policing, the Crown Prosecution Service (CPS), the Environment Agency, the Equality and Human Rights Commission (EHRC) and Transport for London (TfL).
The regulations lay down that, where two or more relevant public sector exits occur in respect of the same person within any period of 28 consecutive days, the total amount of the exit payments made to that person in respect of those exits must not exceed the exit payment cap.
In force with effect from 4 November 2020, the cap will apply to any exit thereafter, even if other arrangements have already been agreed before that date.
Payments exempt from restriction
The following are among those not considered to be exit payments under the terms of the new regulations:
any payment in respect of death in service
any payment in respect of incapacity as a result of accident, injury or illness
certain payments made under the Firefighters’ Pension Scheme Regulations
any payment in respect of annual leave due under a contract of employment but not taken
any payment in compliance with an order of a court or tribunal
any payment in lieu of notice due under a contract of employment that does not exceed one quarter of the relevant person’s salary.
The regulations also impose an obligation not to reduce the amount of a statutory redundancy payment or the equivalent payment paid to civil servants or employees of certain prescribed public offices.
Relaxation of the rules will also be applied to payments made as a result of TUPE and there will be a discretion to relax the rule if applying it would cause undue hardship or significantly inhibit workforce reform.