Revocation of the Public Sector Exit Payment Cap

In an earlier article, Restrictions on Public Sector Exit Payments – the next step in a long-running process, we discussed the Government’s plans to introduce the cap on value of public sector exit payments, which came into force on 4 November 2020. Four months later, the Government has now announced that it will be revoking the Public Sector Exit Payments Regulations 2020 (the Regulations).

HM Treasury (HMT) has published updated guidance, particularly for those employers and employees affected by the cap, following an ‘extensive review’ of the cap in place from the Restriction of the Regulations. HMT’s Exit Payment Cap Directions 2021 came into force on 12 February 2021 and formally disapply the restrictions found in the Restriction of Public Sector Exit Payments Regulations 2020. The guidance set out that it may have ‘had unintended consequences’, and has recognised serious deficiencies, therefore resulting in the Regulations now be revoked. Whilst the Government has not yet specified the ‘unintended consequences’ of the payment cap, it is likely that they relate to the serious issue of strain payments to the LGPS which would be due on certain departures, which could not be paid because of the cap.

Several unions, such as BMA and Unison, had sought a review of the Regulations on the basis that long-serving public sector workers earning salaries of around £25,000 per year would have been affected by the cap, contradicting the Regulations’ aim to benefit ordinary workers.

HMT has published Directions disapplying the cap until the Regulations have been revoked, which encourage employers to pay former employees who had left their employment between 4 November 2020 and 12 February 2021, and were affected by the cap, the additional sums that would have been paid to them had the cap not applied, or to encourage employees affected to request such a payment from their employer.

The new guidance does state that “HMT will bring forward proposals at pace to tackle unjustified exit payments”, so public sector employers need to watch this space.

For more information on the article above please contact Charles Pallot.

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