• Treasury announces bid to reduce NHS redundancy payments
  • Changes could affect all NHS staff including doctors and senior managers
  • Legislation will cap exit payments and claw back payments from returning staff

The Treasury has revealed plans to substantially cut the size of redundancy payments made to public sector workers, including NHS staff.

Ministers have announced measures to crack down on public sector exit payments including in the NHS. These totalled £1.5bn across the public sector in 2014-15.

The proposals include:

  • Reducing the tariff used to calculate redundancy payments from four weeks’ pay to three weeks’ pay for every full year of service.
  • Lowering the ceiling for the maximum number of months’ salary that can be paid as a redundancy payment from 24 months to 15 months.
  • The maximum salary on which an exit payment can be based will be capped at £80,000. This is already the case for Agenda for Change staff in the NHS but will be extended to all staff including senior managers and doctors.

The Treasury also proposes to limit, or in some cases end, employer-funded early access to pensions and to introduce a taper on the amount of money people can take as a lump sum as they near their normal pension retirement age.

The changes will affect public sector staff leaving their employment on a voluntary or mutually agreed basis, or as part of a compulsory redundancy.

The government has announced legislation to introduce a cap on public sector exit payments of £95,000, which could come into force as early as October. Changes will also include provisions to “claw back” redundancy payments from senior staff who return to the public sector after receiving an exit payment.

HM Treasury

HM Treasury

The Treasury said the changes would save £250m a year

The Treasury said it expected all departments including the Department of Health to produce proposals for reform for each workforce group within three months, and to have completed negotiations and made the necessary changes within nine months.

This means the DH and NHS Employers will need to put forward proposals at the same time as trying to negotiate reforms to consultant contracts, reform the Agenda for Change pay framework and introduce the junior doctors’ contract.

In its response to a consultation published this week, the Treasury said the changes would save £250m a year.

The document said: “There is currently significant disparity in the exit terms between different workforces. This is the case even after recent reforms in the NHS and civil service exit schemes, for example. While the government’s £95,000 cap will curb the most generous exit payments and so may provide some greater consistency, it will not have an impact on the large majority of exits.

“The 2014-15 whole of government accounts showed that total expenditure on public sector exit payments in 2014-15 was £1.5bn (compared to £1.8bn in 2013-14), but that within that £1.5bn more than 97 per cent of exit payments in the public sector in 2014-15 were below the level of the £95,000 exit payments cap.”

Chief secretary to the treasury David Gauke said: “These reforms ensure public sector exit payments are consistent and fair, and that they are also fair to taxpayers. By applying these reforms across public sector workforces for the first time, appropriate standards will be in place for workers and public services will remain protected.”

The DH said it would work with trade unions in the coming months to determine how the changes will apply to the NHS.

Jon Skewes, policy director at the Royal College of Midwives, said: “The RCM completely opposes this move by the government. The government intends for this to hit high earners, but this will actually affect midwives and other middle earners in the NHS with long periods of service.

“The NHS has a national agreement for redundancy payments that was negotiated by the NHS trade unions, including the RCM, with employers and it is utterly inappropriate for the government to legislate to steamroller this agreement.”