Draft Restriction of Public Sector Exit Payments Regulations 2020

Steve Barclay Excerpts

Monday 21st September 2020 General Committees

[The Chief Secretary to the Treasury (Steve Barclay)]

I beg to move,

That the Committee has considered the draft Restriction of Public Sector Exit Payments Regulations 2020.

It is a pleasure to serve under your chairmanship, Sir Christopher. I know that you have a long-standing interest in the topic of the draft regulations, and I am pleased that you will oversee the debate.

Each year, hundreds of millions of pounds are spent on exit payments to public sector workers that exceed £100,000. The money funding these payments comes from taxpayers. The draft instrument will fulfil the Government’s 2015 manifesto commitment to end six-figure pay-offs by capping public sector exit payments at £95,000.

The concern over high exit payments is shared by many across the House. For example, the right hon. Member for Warley (John Spellar), an Opposition Member, said in the House as recently as 13 March 2020:

“The hon. Gentleman is rightly drawing attention to a significant problem. Is there not another aspect to it, which is that many of these individuals, quite frankly, should not be being given any payments, because they should actually be being sacked for failure to perform their jobs? They are taking sums of money and then transferring to other parts of the public sector, where they will have a repeated pattern of failure. Is there not a need for a real change in culture”.—[Official Report, 13 March 2020; Vol. 673, c. 622.]

I am sure that view, expressed by an Opposition Member, is shared by many other colleagues in the House.

Public sector workers play a vital role in the running of our economy. Earlier this year, we accepted the recommendations of the independent pay review bodies and announced a significant real-terms pay increase for around 900,000 public sector workers. However, we must ensure that all aspects of public sector pay and remuneration deliver value for money for the taxpayer. There are many recent examples of employees leaving their role and receiving six-figure packages funded by the taxpayer, and it is our view that these large exit payments do not deliver that aim, not least given the wider economic impact of coronavirus.

[Neil Coyle (Bermondsey and Old Southwark) (Lab)]

Although I do not think there is disagreement on the need to tackle excessive exit payments, why are the Government choosing to include harassment and discrimination payments in the scope of what they seek to do?

[Steve Barclay]

I will come on to the distinction between those on large payments, where I think there is a degree of consensus in the House, and how the waivers will address some of the concerns that the hon. Gentleman and other Opposition Members expressed in the previous debate on this issue. I will come on to that if he gives me a moment, and if he then wants to come back with an intervention, I will be very happy to accept it.

Exit payments are important to an employer’s ability to reform and to react to new circumstances. They are also an important source of support for individuals as they find new employment or as a bridge to retirement age. That is why the Government are taking forward these important regulations to cap public sector exit payments at £95,000. The level of the cap amounts to almost six times the maximum statutory redundancy payment. On an average salary of £24,897, the average person would have to work almost four years to earn £95,000, while someone working 35 hours a week on the national living wage would have to work around six years to earn £95,000—and that ignores the fact that the first £30,000 is paid tax-free. As such, it is clear that a £95,000 cap will still offer a significant level of compensation while ensuring value for money for the public finances. In fact, I think that the majority of our constituents would regard it as a generous amount.

[Patricia Gibson (North Ayrshire and Arran) (SNP)]

The Minister has talked about trying to address some concerns. What can he tell Members about how he will address the concerns expressed by the nuclear workers who were given specific guarantees about their pensions that have been repeatedly overridden?

[Steve Barclay]

I very much welcome that intervention, because that concern was raised by a number of Opposition Members when we debated this issue in the House previously. We have agreed a waiver that will apply to nuclear decommissioning as part of the draft regulations. I will come on to the wider point about how the waiver will apply, but the exemption that applies to nuclear decommissioning illustrates that we have taken on board some of the concerns that Opposition Members have raised.

I am grateful to all members of the public, employers, unions and others who submitted their views as part of the consultation process. The consultation in April 2019 received more than 600 responses, which helped inform the final regulations following the earlier consultation in 2015, which had more than 4,000 responses. I am also grateful to many of my right hon. and hon. Friends for their representations during the development of the policies.

The Government’s intention was made clear at the start, which was to apply the cap to all public sector workers. As the 2015 consultation stated, it would apply to

“all bodies classified within central and local government and non-financial public corporation sectors as determined by the Office for National Statistics for National Account purposes, with a small number of exceptions.”

The 2019 consultation stated:

“The government is proposing a staged process of implementation across the public sector. The first stage will capture most public sector employees, before extending the cap to the rest of the public sector in the second stage. Prioritising in this way will ensure most exit payments in the public sector are limited to £95,000 without further delay, while work continues on expanding the scope of the regulations.”

To ensure fairness and consistency and to give taxpayers confidence that their money is being spent properly, it is right that all public sector bodies are immediately in scope, with limited exceptions, such as the one I just referred to. The consultation in 2019 proposed capturing public sector bodies in two stages. Many of the responses objected to that proposal. We have therefore revised the proposal and reverted to applying the cap to all public sector bodies at once. The Government’s intention to cap exit payments has now been in the public domain for more than five years, providing public sector bodies and employees with sufficient time to communicate their views, including through the consultation process, and to prepare for the implementation of the cap.

[Neil Coyle]

The Minister raised the point about fairness, and he says this matter has been in the public domain since 2015. Why, then, has no equality impact assessment been undertaken? How many people are affected and when will the Government provide the EQIA?

[Steve Barclay]

It depends on different circumstances as to how many people will be affected. A key issue is that the proposals do not affect individuals’ accrued pension rights. A concern was raised in the previous debate about the impact on pension rights. Again, that is one of the issues we have listened to and taken on board. It is important to note that accrued pension rights are not affected by the regulations. In the vast majority of cases, the cap will have no effect on the exit package of an individual, because individuals retain any right to receive an unreduced pension, provided their overall exit payment falls below the cap of £95,000, which applies in most cases.

However, the Government believe it is right to include all payments related to exit within the scope of the cap. The option of an employer-funded early retirement, known as pension top-up payments, is often the most costly element of an exit payment. It is ultimately funded by the taxpayer, so it is right that it is included.

[Neil Coyle]

The Minister is being very generous in giving way. The measure states that all payments will be taken into scope. A very practical example is the case of the Birmingham women who received unequal pay for many years. The 174 women took the case to the Supreme Court and won. For some full-time care workers, the payments would have been more than £100,000 just to catch up on the unequal pay they had experienced for many decades of service in a difficult job. Why are the Government including that in these regulations?

[Steve Barclay]

I agree with the hon. Gentleman. I took that point away from the previous debate and was concerned to show the House that we had listened. In fact, it echoes the next line of my speech: I do accept that in some circumstances it will be appropriate for employees to receive an exit payment of more than £95,000.

[Patricia Gibson]

rose—

[Steve Barclay]

I am always generous in taking interventions. I was trying to answer the hon. Gentleman’s legitimate challenge, but I will of course take the hon. Lady’s intervention.

[Patricia Gibson]

May I just ask the Minister, for the purpose of clarity, whether he is saying that he will exempt nuclear decommissioning workers? Magnox is on the list here, so unless the Minister has been very clear and I have not listened properly, I wonder whether he will clarify that point.

[Steve Barclay]

I am very happy to share with the hon. Lady the detail of that waiver as it relates to the pensions of Nuclear Decommissioning Authority workers. The waiver will apply in respect of the Nuclear Decommissioning Authority. That includes—

[Patricia Gibson]

An exemption?

[Steve Barclay]

If the hon. Lady will allow me to answer the question, I was going to read out the exact legal prose. Sometimes we are accused of not being precise enough, so I was going to go straight to the legal text for her. It says:

“made to or on behalf of an employee…who is employed…by a company or other body holding a site licence granted under the Nuclear Installations Act 1965 for one or more nuclear-licenced sites…and on a site that is subject of a decommissioning programme agreed between the NDA and the BEIS Secretary of State, and…whose employment is terminated”—

details follow accordingly. So there is an exemption there.

I will come back to the point made by the hon. Member for Bermondsey and Old Southwark. In fact, the hon. Member for Newcastle upon Tyne North, who has not as yet spoken, said in the previous debate that she accepted the wider principle of exit payment caps, but had some concerns. We have sought to look at, and listen to, the concerns that Opposition Members have raised. I accept that there are some circumstances in which it is appropriate for employees to receive an exit payment over £95,000, including where imposing the cap would cause genuine hardship. We are committed to ending taxpayer-funded six-figure payouts for the best-paid public sector workers, but it is appropriate that the waiver system can be exercised with ministerial discretion if it is felt that implementing the cap would go against the original principles and result in hardship.

[Neil Coyle]

rose—

[Steve Barclay]

Let me just finish the point. The waiver may also be used to give effect to urgent workplace reforms. It applies where a payment is made as a result of the application of TUPE regulations, or where the payment is made to settle a grievance related to whistleblowing, discrimination, or health and safety-related dismissal. This mechanism is very important in allowing us to review how the cap is being applied and to ensure that we remain consistent with our original aims for the regulations. I hope that this system will address many of the questions that hon. Members have.

Does the hon. Gentleman want to come in one final time?

[Neil Coyle]

I just want a clarification on the waiver process. Do the Government intend to make it the case that a local authority has to seek permission from a Minister in the Department to honour a legally decided case of discrimination and make the payment that a court has ordered? Is that the process that local authorities and other public bodies will have to follow?

[Steve Barclay]

That is a very valid question. In a whistleblower case, for example, there is no requirement on the local authority to submit a business case for approval. There are mandatory causes for exemption. However, where a discretionary exemption is sought, such as on a restructuring, it is necessary to submit a business case.[Official Report, 2 November 2020, Vol. 683, c. 1MC.]

[Neil Coyle]

indicated dissent.

[Steve Barclay]

The hon. Gentleman shakes his head, but I simply remind him that as a Minister, I constantly get requests when bodies want to exceed the £150,000 payment. They are quite happy to submit business requests for that, so I do not see why it is onerous to say that the same applies to seeking consent when looking to restructure, and to exempt in that way.

In other parts of the United Kingdom, devolved Administrations have already acted to implement their own policy on severance payments. The Scottish Government have implemented a £95,000 cap on payments made by devolved bodies by updating the Scottish public finance manual. It is right that this Parliament does the same by approving these regulations. As we respond to the financial impacts of covid-19, the inappropriateness of large exit payments is reinforced. Ensuring that rewards are proportionate and taxpayer money is spent fairly must be prioritised. The regulations are carefully designed to end excessive exit payments, and will come into force 21 days after they are made. I commend them to the Committee.

--- Later in debate ---

[Steve Barclay]

I thank colleagues for their engagement in the debate. As I have already remarked, the Government are strongly of the view that the regulations are important in delivering value for money. It is right that the cap on public sector exit payments comes into force without further delay to stop the excessive payouts that are, unfortunately, all too common.

The hon. Member for North Ayrshire and Arran asked me to clarify the position on nuclear decommissioning, which has been a much-debated issue. Indeed, there was extensive debate during the passage of the primary legislation about the inclusion of nuclear decommissioning workers in the scope of the regulations. As we have set out many times—most recently by ensuring that the cap covers all of the public sector at once—the cap should apply to all public sector organisations with very limited exemptions. The defining feature of that is what is set by the Office for National Statistics.

We are able to exercise our own judgment, but for the most part, the scope has been guided by the ONS, which makes objective judgments, independent of Government and the regulations. The ONS classification is what means that the Nuclear Decommissioning Authority and its site-licensed companies are in the scope of the regulations, but we have a mechanism to waive certain pension-related payments upon redundancy, and that is what has been decided—I read that out for the benefit of the hon. Lady. In short, the Nuclear Decommissioning Authority has a waiver, but the organisation is classified by the ONS, which is why it is within the scope of the cap—that is the interaction between the two.

The hon. Member for Ilford North started by generously acknowledging that we have listened and addressed some issues of concern. There are some areas of misunderstanding: an equalities impact assessment was issued with the primary legislation. He then said that on the one hand, we do not need the regulations, but that on the other, he was against excessive payments. I would argue that the whole purpose of the regulations is to curb the excessive payments that he, I and a number of colleagues across the House agree are not value for money.

The hon. Member for Bermondsey and Old Southwark—

[Neil Coyle]

rose—

[Steve Barclay]

I will take his intervention before I address his question and then I can answer them both at the same time.

[Neil Coyle]

I appreciate that. If the Chief Secretary believes that the issues are resolved, why has the British Medical Association—the organisation that represents the health workers that he clapped on Thursdays—already sought a judicial review against the regulations because they extend the scope of the enabling statute? How does he square the circle when the regulations mean preventing some contractually agreed payments and tribunal award, and which the BMA says represents an unlawful extension of the primary legislation?

[Steve Barclay]

The reality, without wanting to stray into the issue of litigation, is that this is a cap on payments, so a body representing members may have concerns about that. The issue before the Committee is what constitutes value for money for the taxpayer. I remind the Committee of the fact that payments can be more than six times the national living wage and four times the average earnings. During the time of coronavirus, those are very substantial payments. You will be familiar with, Sir Christopher, some of the payments that were read out on the Floor of the House—those of NHS managers for example, who receive very large payments and then reappear elsewhere in the NHS very shortly.

[Wes Streeting]

Of course, it is easy to point to those examples. I wonder how the six-figure pay-off to Mark Sedwill could have been considered value for taxpayer money, and how much the wider cull of top civil servants under the Government is costing the taxpayer.

[Steve Barclay]

I was going to come to local authorities, but to address the issue of senior civil servants, that flowed from the decision to split the role of the Cabinet Secretary and the head of the civil service with that of Sir Mark’s other role as National Security Adviser, which meant that he was stepping down before the end of his tenure. It was therefore appropriate that Sir Mark was compensated in line with the civil service compensation scheme, and the sum is in line with the normal rules governing civil service pensions and compensation. Since 2015, in anticipation of the introduction of a cross-public sector cap on exit payments, any civil service exit costing more than £95,000 requires approval by Cabinet Office Ministers to ensure that it provides value for money to the taxpayer. As someone who worked with Sir Mark, particularly in my role as Secretary of State for Exiting the European Union, I place on the record what a fine public servant he was and how much I valued working with him during his time in office.

The hon. Member for Bermondsey and Old Southwark, who made a number of interventions—I hope that comment is not untoward—also raised a legitimate point about local authorities. As I say, it is something I looked at in particular. Local authorities’ ability to restructure should not be dependent on six-figure taxpayer-funded payouts. Councils will still be able to restructure and exit staff in any way they wish, provided the sum of any exit payment does not exceed £95,000. The Government accept that there might be instances where it is in the interests of urgent workplace reform to relax the restriction imposed by the regulations, so there is flexibility within the system.

Finally, the hon. Member for Ilford North raised the issue of index-linking. The point is that we want to retain the flexibility to revalue the cap both upwards but also downwards. If one looks at the economic consequences of coronavirus, ensuring that there is flexibility in the system is a prudent way to manage the public finances.

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

I have listened carefully to everything the Minister has said. I appreciate the arguments that he has put forward, but we should remember that, in the time of covid, many of the people who will be affected by the proposed changes are on relatively moderate salaries and have given years of their lives dedicated to public service, and will be giving everything to help get through this covid crisis. I want to put on the record that it is vital that the Government keep the measure index-linked so that it does not erode over time and vital that all the promises that the Minister has made today do not become meaningless within a few years.

[Steve Barclay]

I acknowledged earlier that in a previous speech the hon. Lady accepted the principle of capping excessive payments, but raised concerns to which I listened intently. I join with her in paying tribute to the work that so many have done across the public sector, but at the same time it is important to get value for money. For that reason, I commend the regulations to the Committee.

Question put.