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EXCLUSIVE: £95k exit cap will be ‘lawyers charter to print money’

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Proposals to restrict public sector exit payments will result in more employment disputes ending up in court and be a “lawyers charter to print money”, organisations representing councils’ most senior management have warned.

Consultation on draft regulations to implement a £95,000 cap closed on 3 July. The cap is set to affect staff in local government, the police, schools, the NHS and the civil service.

In their submissions to the consultation, the Association of Local Authority Chief Executives trade union and the Society of Local Authority Chief Executives & Senior Managers also warned that the cap would frustrate councils’ plans to reform services and would not just affect high earners but all staff earning over £30,000.

In its submission Solace said the proposals would take control of payments associated with loss of employment from elected members which “facilitate reorganisation and reform”.

It added the removal of flexibilities would “place a significant handbrake on the change process” by reducing the possibility of employers and employees reaching agreement on redundancies, slowing the process down and “potentially impact negatively on the quality of service during the transition and lead to a greater use of the courts to resolve disputes.”

It added the proposed exit cap is “particularly penalising for those currently involved in local government reorganisation”, including in Buckinghamshire and Northamptonshire, and called for councils striving “to deliver greater efficiency and prevent further Section 114 scenarios” to be made exceptions.

Solace said the draft regulations would also undermine the independent accountability of local government, where senior staff answer to elected members and terms of employment are discussed in the public domain.

Highlighting “critical” skills shortages in children’s services and adult social care, Solace also said the proposals add to “existing disincentives for high quality applicants to enter a middle or senior management career in local government or other public service”.

It added the proposed cap would create “perverse incentives” that drive prospective and current managers into agency roles, self-employment and interim roles which increase costs.

The cap will be implemented using powers created in the Enterprise Act 2016 which have not previously been acted on.

Calling for it to be dropped, Alace said it would hinder the process of change in local government and disproportionately impact on older staff. It added complexity caused by the regulations, including various “exemptions and exceptions” and questions over how the cap would operate in individual cases, means the current draft would be a “lawyers charter to print money”.

Alace said the proposed £95,000 cap should be increased to £103,000 to take account of inflation since it was first announced in 2015, and then reviewed every year, with a potential link to average rises in wages or an appropriate measure of inflation.

Alace has also criticised the proposal to include the cost of ‘pension strain’ in the cap. In the case of local government, pension strain payments must be made by councils to the Local Government Pension Scheme if an individual is made redundant over the age of 55 in order to compensate the scheme for paying out pensions earlier than planned.

Alace argues this cost should not be included as the employer, rather than the employee, should bear the costs of making a member of staff compulsorily redundant “as a matter of principle and in the interests of fairness”.

The current proposal suggests when a ‘pension strain’ payment breaches the cap, either the payment into the scheme will be reduced or the employee will be required to find a lump sum to “buy out” that reduction, Alace said.

“The former means less income in retirement and, in the latter case, employees will have to pay upfront costs to their pension scheme for losing their jobs,” it added.

Alace also said “unique features” of the LGPS mean the impact of the draft regulations would also lead to a “postcode lottery”. This is because the pension strain calculation takes into account demographic features such as life expectancy in areas, meaning it could vary significantly for two employees with identical circumstances living in two different parts of the country.

Alace added: “This is not an issue that arises in respect of unfunded pension schemes in the rest of the public sector.

“It is one of the reasons why we call for omission of pension strain altogether or, at the very least, that a divisor should be applied to minimise the impact of these variations.”

The proposed cap would not only affect high earners but also long-serving middle and junior managers and others on an annual salary of £30,000 or more, Alace said.

Alace said it supports the concerns raised by organisations such as the Local Government Association, Unison and Solace.

 

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