The Department of Health has tightened up the approval process for NHS redundancy payments as the abolition of primary care trusts and strategic health authorities approaches.

Redundancies are the main tangible cost of the commissioning reform process, which will see PCTs and SHAs abolished at the end of March, and there is likely to be high level concern about payments being made unnecessarily.

NHS chief executive Sir David Nicholson announced in a letter today that DH approval will be required for all severance proposals for very senior managers at PCTs, in addition to those at SHAs. Previously only SHA redundancies had to be approved by the DH.

Sir David’s letter says: “The [old] process was developed at a time when such occurrences were rare. However, the current reforms and subsequent movement of staff mean that there may be an increase in the number of cases over the coming months.

“I am sure you can appreciate that it is vital for me to have an overview of VSM capacity and any proposed changes to this during this critically important period for the NHS.

“I have therefore decided that DH approval is required for all PCT VSM severance proposals in addition to the SHA VSM proposals for which I already act as grandparent… No termination or termination payment should be agreed with an individual until DH sign off has been received.”

The letter also reiterates the necessary requirements before severance is offered. It says: “I expect SHA cluster remuneration committees to have ensured that business cases evidence that the individual’s employer has met their requirement, where appropriate, to identify and advise the individual of any suitable alternative employment and that the individual has not unreasonably refused to apply for or accept [suitable alternative employment] with their own or another NHS employer.”

The approval process also previously only applied to VSMs who reported directly to chief executives, but it will now also apply to all VSMs who do not. The clustering of PCTs and SHAs means there are more VSMs who fall into this category.

In September the DH’s revised impact assessment estimated the total cost of the reforms at between £1.2bn and £1.3bn, the vast majority of which would be redundancy costs.

However, the department’s most recent estimate – in a quarterly business plan review released in July – shows an apparent increase in the estimated cost of the “modernisation transition programme” to £1.5bn.

The DH has declined to say what makes up the estimated cost as, it said, it “may unduly influence decisions currently being made at local level”.