Civil Service Compensation Scheme

Karen Buck Excerpts

Tuesday 19th March 2019 Westminster Hall

[Christian Matheson]

Can the Minister describe some of the smarter ways of working that helped to encourage the signing off of that particular pay rise?

[Ms Karen Buck (in the Chair)]

Order. May I encourage the Minister not to stray too far from the subject matter of the debate in responding to that intervention?

[Oliver Dowden]

Thank you, Ms Buck; I will take that injunction seriously and, if I may, I will write to the hon. Gentleman to set out the policy in more detail, so that I do not detain Members any longer on this point. Following your lead, Ms Buck, I turn to the substance of the debate.

The Government have a responsibility to ensure that the civil service is both efficient and cost-effective, and that includes the compensation scheme to support civil servants when exits are necessary—the hon. Member for Glasgow South West outlined the overall history. Important steps towards this goal were taken in 2010 when Lord Maude, then Minister for the Cabinet Office, introduced important reforms to modernise redundancy arrangements in the civil service. A revised civil service compensation scheme was launched in December 2010; at that time, Lord Maude set out his hope and intention that it would be a fair settlement for the long term. I fully acknowledge that point.

However—this is the key point—over the years since 2010, it has become apparent to the Government that those reforms did not fully deliver on their aims. If hon. Members will allow me, I will set out the reasons for that. Part of the rationale for the 2010 reforms was cost savings, and it has become clear that the expected cost savings did not fully materialise. The average compensation entitlement under the 2010 scheme is considerably higher than was intended when the scheme was first introduced. In 2010, the average compensation entitlement for voluntary exits and voluntary redundancies was expected to be £33,754, but by 2017 it was estimated to be £40,513.

More widely, it has become clear that other aspects of the scheme were not appropriate. To give an example, the compensation scheme provisions for early access to pensions for staff aged as young as 50 enable them to retire and draw all of their civil service pension without a reduction for early payment. That is often very expensive for the employer and is increasingly out of line with the Government’s wider aim of encouraging longer working lives.

In recognition of those concerns, the Government introduced new civil service compensation scheme terms in 2016, which, as the hon. Member for Glasgow South West highlighted, were challenged by way of judicial review in 2017. It is important to point out that the court accepted the Government’s reasons for making the reforms, but it found that the Government had not fully met their obligations with regard to how the consultation process was carried out. The 2016 terms were accordingly struck down and the 2010 terms reinstated.

Although the Government of course accepted the court’s judgment—as we must—we still believe that the 2010 compensation scheme reforms have not fully met their objectives, and that there remain good reasons for reforming the scheme. Accordingly, we launched a new consultation on reforming the civil service compensation scheme in September 2017, which set out the Government’s objectives. Principally, the objectives are to align with the principles of the compensation scheme reform expected across the wider public sector; to support employers in reshaping and restructuring their workforces to ensure that they have the skills required for the future; to create significant savings on the cost of exits and ensure the appropriate use of taxpayers’ money; to ensure that any early access to pensions remains appropriate; to ensure that efficiency compensation payments are appropriate for the modern workplace; to support the flexible use of voluntary exits; and, where possible, to implement a set of reforms that are agreed by the trade unions.

The consultation also set out a proposed new set of civil service compensation scheme terms that the Government believe would deliver on those objectives. In summary, those are a standard tariff of three weeks’ salary for a year of service, voluntary exit and redundancy payments of up to 15 months’ salary, compulsory redundancy payments of up to nine months’ salary, employer-funded pension top-up payments allowed only from the age of 55, increasing in line with the state pension age, and that the efficiency compensation tariff should align with the compulsory redundancy tariff.

The Government took the view that those terms would meet the objectives set out in the consultation document, and considered that the scheme would offer a good level of support to civil servants to bridge the gap until they found new employment or entered retirement, and would provide the flexibility needed to support employers in reshaping and restructuring their workforces to meet the challenges that they will face. It will also be fair to taxpayers, who ultimately fund the cost of civil service exit payments, as Members know.

I recognise that this is an area in which trade unions rightly have strong views. The Government are therefore carefully consulting with unions with the aim of reaching an agreement if at all possible. The consultation has already stretched for more than 18 months—a very long period—and has included numerous meetings between my officials and union representatives and between my predecessor and union representatives, and I myself have now held two rounds of meetings with union representatives, which have been extremely useful in helping me to understand the unions’ positions on the proposed reforms.

I am pleased to say that throughout the process PCS and all the other unions engaged openly and constructively with the consultation, notwithstanding their overarching position, which I acknowledge, that the Government should not be reforming the compensation scheme. I place on the record my thanks to all the unions—Prospect, FDA and PCS—for their work in engaging constructively with the process.

As well as engagement through meetings, unions have also put forward detailed counter-proposals setting out their alternative vision of what a reformed scheme should look like. As has been highlighted by hon. Members—particularly the hon. Member for Glasgow South West—those proposals are detailed and well thought through and reflect the considerable effort that has clearly gone into their preparation. Again, I thank the unions for that constructive engagement.

As a result of the meetings and counter-proposals, I am left in no doubt as to the unions’ positions. I understand the areas that they consider priorities for reform, their concerns about the Government’s proposals and their preferred alternative reforms. Contributions to the debate have further increased my understanding of the position of PCS and the other unions it is working with on this consultation. I am very grateful to hon. Members for their contributions.