Guidance

Local government exit pay: a guide for local authorities for the interim period until MHCLG regulations come into force

Published 16 December 2020

This guidance was withdrawn on 2 March 2021

This guidance is no longer in effect following the revocation of the Restriction of Public Sector Exit Payments Regulations 2020. Please see updated guidance on public sector exit payments.

Applies to England

1. Purpose

The Restriction of Public Sector Exit Payments Regulations 2020 (“the regulations”) impose a cap of £95,000 on the payments which specified public sector bodies, including local authorities, can make in relation to employee exits.

Section 153C(1) of the Small Business, Enterprise and Employment Act 2015 gives government ministers a power to relax this cap in relation to particular payments in accordance with the waiver process as set out in HM Treasury (HMT) directions accompanying the regulations.

The regulations apply to all exits that take effect on or after 4 November 2020 and take precedence over previous contractual agreements, regulations and other exit schemes which would have made provision for larger payments than those permitted under the regulations.

This document provides guidance on how the Ministry of Housing, Communities and Local Government (“the Department”) will deal with applications for the relaxation of the restrictions from public sector employers in relation to employees who are eligible for membership of the Local Government Pension Scheme (LGPS) including LGPS employers who are also covered by the regulations.

This guidance is written with particular emphasis on local authorities in England, but the same principles will be applied to all requests for a relaxation of the restrictions that come to this Department.

This document should be used in conjunction with HMT guidance.

Where necessary, a reference to employee in this document refers to an office holder.

This guidance, HMT directions and HMT guidance will be reviewed and where appropriate, amendments made as a result of the outcome of any relevant statutory consultation procedure.

1.1 Intended audience

The main audience for this guidance is local authorities, pension administrators, trade unions and other stakeholders within scope of the regulations and their employees.

The guidance applies to LGPS employers in England only.

2. Background

The regulations, amongst other things, restrict the payment of redundancy and severance payments over £95,000 for workforces of prescribed bodies. MHCLG consulted on proposals to reform exit payment terms for local government workers. This consultation closed on 9 November. The consultation proposals are free-standing but could grant further flexibilities to local government workers and carry the reform process further.

Once the regulations came into effect, local government employers were no longer permitted to make payments over £95,000 to the pension scheme to fund early exit terms unless payment is in compliance with the regulations and the waiver process.

3. Grounds for the relaxation of restriction

HM Treasury directions have set out circumstances where the power to relax restrictions must be exercised in either mandatory or discretionary cases.

3.1 Mandatory relaxation

HMT directions set out circumstances where the power to relax the restrictions in the Restriction of Public Sector Exit Payments Regulations 2020 must be exercised:

• where a payment is made as a result of the application of TUPE Regulations or the EU Acquired Rights Directive
• where a payment is made to avoid employment tribunal litigation in relation to a complaint that someone has suffered a detriment or been dismissed as a result of whistleblowing
• where a payment is made to avoid employment tribunal litigation in relation to a complaint that someone has suffered a detriment or been dismissed as a result of carrying out activities in connection with preventing or reducing risks to health and safety at work
• where a payment is made to avoid employment tribunal litigation in relation to a complaint of discrimination under the Equality Act 2010

There are other mandatory exemptions that apply specifically to other sectors – see HMT guidance for full list.

MHCLG ministers have given officials a delegation to approve mandatory cases. Business cases must contain all the required information in section 4.

3.2 Discretionary relaxation

The discretionary relaxation process relates to circumstances where ministers agree that it is necessary or desirable to relax the restrictions imposed by the regulations. Decisions made by full councils to propose that ministers relax the cap in respect of exit payments to be made by local government bodies or the relevant administering authority, must submit a business case for approval to the Secretary of State for Local Government and Treasury ministers.

Employers should not make formal offers to employees nor confirm their last day of service prior to decisions on the relaxation of the restrictions being taken by ministers.

The grounds below detail situations where the power to relax the restrictions may be exercised. Business cases submitted by local authorities must clearly specify which of the following grounds are being relied on and sufficient evidence must be provided in all instances:

• compassionate grounds owing to genuine hardship – exceptional circumstances where an exit payment of £95,000 would lead to genuine hardship. Circumstances such as the situation of family members will also be considered

• it is necessary to exit an individual to give effect to urgent workplace reforms – where this ground is relied on the business case submitted must provide as much detail as possible including a value for money analysis and robust cost savings. We would expect the section 151 officer to personally sign these off as both urgent and offering value for money. The business case will need to demonstrate that the granting of a relaxation is necessary to deliver the reforms, not just that the cost can be accommodated within the expected savings

• a written arrangement to exit was entered into before the date regulations came into force, with the intention an exit takes place that date, but the exit was delayed, and this delay was not attributable to the employee concerned

A business case may apply on more than one of the above grounds but in such cases, the evidence will need to address each of these grounds in its own right.

3.3 Bulk redundancies

Where councils make bulk redundancies (20+) it is acceptable for the responsible authority to submit a single bulk request for a relaxation of the restrictions. However, the business case must establish how the elements are subject to the relaxation and prove value for money.

3.4 Individual redundancies

Where councils make individual redundancies, one or more of the conditions stipulated above must be met in the business case submitted for a relaxation of restrictions.

3.5 Administering authorities

When an employer wishes to submit a business case for a relaxation of the restriction, then the relevant LGPS administering authority should provide the employer with the information detailed below as soon as possible, and within a period no longer than two weeks.

In the case of individual redundancies – the strain cost associated with the exit if the relaxation power were to be exercised in favour of employee and, the strain cost if the relaxation power were not to be exercised.

In the case of bulk redundancies – the total value of individuals’ strain costs in relation to these exits (with and without the relaxation power being exercised in favour of the employee) as well as the range and distribution of individual strain costs

In cases where compassionate grounds owing to extreme hardship is claimed, as well as the level of strain cost (with and without the relaxation power being exercised in favour of the employee) the annual pension benefit which the member would receive in each case.

The employer making the application needs to ensure that this information is contained in the business case submitted to the Department.

4. Process

All exit payments to be made by local government bodies or the relevant pension scheme administrative authority requiring a relaxation of the restriction must be submitted as a business case to the MHCLG dedicated email inbox for scrutiny. Sign off by the section 151 officer and approval from full council should be evidenced with the application.

4.1 Information required in a business case

When submitting a business case for a relaxation of the restrictions, the employer must provide the information detailed below:

• type of exit (e.g. voluntary exit, voluntary redundancy, compulsory redundancy, or other mutual termination)
• the reason for the proposed exit scheme (e.g. restructuring/downsizing, long-term workforce planning, in the interests of the efficient exercise of the employer’s functions (business efficiency), agreed settlement)
• proposed reason for relaxation of restrictions
• selection criteria (in cases of redundancy)
• intended date of exit

For bulk relaxation applications (see section 3.3 above), information should also include:

• confirmation that formal consultation has begun
• total number of exits/payments projected under the scheme
• why the scheme represents value for money, as a whole and in relation to each individual for whom a relaxation is requested
• value of total exit payments and any assumptions
• the overall cost of the scheme against savings to be made

4.2 ’In principle’ decisions

There will be occasions where local government bodies are undertaking a redundancy exercise which would need a bulk relaxation. These applications will be subject to an preliminary view by the Department of whether in principle a discretionary relaxation would be possible to aid the authority to make requests for volunteers and will need to come back to the Secretary of State for Local Government and Treasury ministers for a final decision.

Councils may use flexibility within their redundancy exercise to decide when these bulk requests for a relaxation of the restrictions are submitted, as government recognises that they may need approval early in the process. However, they must ensure that formal offers are not made to employees before the relaxation power has been approved.

The above process will need to be followed, and all necessary information provided for ministers to consider whether a preliminary view is appropriate.

The individual applications will need to be submitted to ministers for a final decision.

4.3 Decision making

A decision may take up to 28 working days or more if further clarification is requested by ministers.

Business cases will be scrutinised carefully, with each considered by ministers on its own merit.

Ministers decisions will be final, with no further point of Departmental appeal.

Ministers will issue a decision letter which sets out the reasons for the decision and this should be disclosed in the organisation’s annual accounts.

5. Record keeping

Where approval has been granted to relax the restriction, employers have a duty to maintain records for public accountability purposes and to provide the government or auditors with the information required to evaluate the operation of the policy. Employers are also required to publish this information in their organisation’s annual accounts.

These records must be kept for a minimum of 3 years from the date the power is exercised, showing:

• the name of the payee in respect of whom the cap was relaxed
• the amount and type of the qualifying exit payment for which the cap was relaxed
• the date on which the power to relax the cap was exercised
• the reason why the power was exercised (this should refer to the guidance and be sufficiently detailed to enable HM Treasury to assess if it has been appropriately applied)

6. Enquiries

If you have any enquiries regarding this document, please email: LGExitPay@communities.gov.uk.

or write to:

Local Government Workforce and Pay Team
Ministry of Housing, Communities and Local Government
2nd Floor, Fry Building
2 Marsham Street
London
SW1P 4DF