Public sector redundancy capped at £95,000

Public sector redundancy will be capped at £95,000 as part of plans to ‘modernise’ public sector pay offs.

The new rules aim to reduce costs and ensure greater consistency across the public sector, eliminating large discrepancies across the workforce.

The cap comes as part of wider changes to redundancy payments, which include: setting a maximum tariff to calculate exit payments at three weeks’ pay per year of service; capping the maximum number of months’ salary that can be used to calculate redundancy payments to 15 months; introducing a tapering element that will reduce the amount of compensation lump sum an individual is entitled to the closer they get to their retirement age; setting a salary cap for calculating exit payments which will be based on £80,000; and reducing the cost of employer funded pension top ups for early retirement as part of redundancy packages .

The plans also aim to align public sector redundancy payments with the private sector, as redundancy pay averaged £12,700 in the private sector compared to £15,800 in the public sector from 2010 to 2014. These changes will apply to all major public sector workforces, including the civil service, teachers, NHS workers, local government workers, police offers and firefighters.

Other changes also mean that pay packages over £142,500 must be approved by the chief secretary, confidentiality clauses should only be used in exceptional circumstances and taxpayer’s money should not be used to pay for private health insurance.

Greg Hands, chief secretary to the Treasury, said: “At the Spending Review the government set out how it will protect Britain’s economic security, fix the public finances and return the country to surplus so we can pay down our national debt.

“A key part of this is modernising the public sector workforce. Reforming public sector redundancy payments could save taxpayers hundreds of millions of pounds by 2020 and will ensure that public sector workers get a fair deal by ensuring greater consistency in redundancy pay-out terms between workforces.

“New guidance for public sector employers on pay and terms will set out what is acceptable and what isn’t. Taxpayers’ money shouldn’t be used to pay for private health insurance and gagging orders to cover up bad practice. These are just the latest steps in our modernisation plan – which saved taxpayers £12 billion over the last Parliament.”