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Cap on exit payments will hit middle managers

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Government plans to limit public sector exit payments to £95,000 will penalise long-serving middle managers and risks younger workers being made redundant, council chief executives have warned.  

In its response to a government consultation on the proposed cap, the Society of Local Authority Chief Executives & Senior Managers claimed it would have a number of “unintended consequences”.

The Local Government Association said the policy “misses the mark” of targeting high earners.

The consultation proposes legislation to impose a £95,000 cap on the total value of exit payments made to individuals when they leave public sector employment.

The LGA said the proposed policy would “unjustifiably” penalise longer-serving “junior to middle-ranking” employees as pensions and other benefits are included within the £95,000 cap.

Analysis by Solace found the policy would hit also long-serving middle income earners on £39,000 a year.

Solace’s consultation response warns the policy would “place a significant handbrake” on councils’ capacity to transform workforces as staff aged over 55 would be deterred from taking voluntary redundancy by the £95,000 cap.

As a result, younger employees would more likely be made compulsorily redundant, meaning the regulations risked being discriminatory, the Solace response said.

It added: “The overall impact in terms of service delivery, the quality of the pipeline for senior staff and the viability of pension schemes will be highly negative.”

According to Solace, the cap would create “perverse incentives”, such as encouraging managers to quit for agency work.

The proposed regulations were described by Solace as a “retrograde step” as it would make it harder for councils to attract high-quality candidates in general let alone from the private sector.

In its consultation response, the LGA said there was “little evidence” for setting the cap at £95,000. Solace described the cap as an “attempt to chase newspaper headlines”.

The LGA said an exodus of staff would result in a “drain of knowledge and talent”.

Feedback from councils pointed out that a national cap conflicted with the devolution agenda, according to the LGA.

Its response pointed out that exit payments above £100,000 already needed the approval of a local authority’s full council to ensure transparency.

Both the LGA and Solace said the policy would boost the number of legal disputes between employees and employers, which in turn could increase the cost to the public purse.

The two bodies also expressed concerns about the length and timing of the consultation.

They said it went against the government’s own guidance of allowing enough time for stakeholders to respond on such a complex issue over a holiday period.

The government is planning to introduce the cap as part of the Enterprise Bill which is due to be published when parliament returns from summer recess.

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