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“a maximum of no less than”
This amendment would provide that regulations may make provision to secure that the total amount of exit payments made to a person in respect of a relevant public sector exit does not exceed a maximum of no less than £95,000.
With this it will be convenient to discuss the following:
Amendment 109, in clause 35, page 50, line 16, leave out “£95,000” and insert “£145,000”
This amendment would increase the cap to a level similar to the NHS, £145,000.
Amendment 112, in clause 35, page 50, line 16, at end insert
“which amount shall be subject to annual re-evaluation”
This amendment would subject the amount of the cap to annual revaluation.
Amendment 114, in clause 35, page 50, line 16, at end insert
“except for payments made to a person earning below the national average wage”
This amendment would exempt from the cap those earning below the national average age.
Amendment 115, in clause 35, page 50, line 16, at end insert
“except for a person who has been in long-term service”
This amendment would exempt from the cap those who have provided ‘long service’
Amendment 128, in clause 35, page 50, line 16, at end insert
“the level of the provision made under subsection (1) will be linked to inflation and earnings growth.”
This amendment would ensure that the level that the restriction on public sector exit payments is set will be linked to inflation and earnings growth.
Amendment 104, in clause 35, page 50, line 34, leave out paragraph (c)
This amendment would exclude from the cap compensatory payments made by an employer to a pension scheme which do not go to the person leaving the service.
Amendment 121, in clause 35, page 50, line 40, leave out subsection (g)
This amendment would remove payment in lieu of notice from the public sector redundancy exit payment cap.
Amendment 105, in clause 35, page 51, line 7, at end insert
“including payments relating to employees earning less than £27,000 per year”
This amendment would provide that regulations may exempt from the public sector exit payment cap those earning less than £27,000.
Amendment 106, in clause 35, page 51, line 7, at end insert
“including cases relating to employees who have been in long-term service”
This amendment would provide that regulations may exempt from the public sector exit payment cap employees who have provided ‘long service’.
Amendment 108, in clause 35, page 51, line 7, at end insert
“including where the full council of a local authority decides to grant a waiver of the cap”
This amendment would provide that regulations may make exemptions where the full council of the local authority decide to grant a waiver of the cap.
Amendment 122, in clause 35, page 51, leave out lines 18 and 19 and insert—
“(9) The amount for the time being specified in subsection (1) shall be increased by order made by the Secretary of State every year by a revaluation percentage.
(9A) The revaluation percentage to be specified in section (9) is the percentage increase in the general level of earnings in Great Britain in that year.”
This amendment would ensure that the level of the cap is maintained in real terms.
Amendment 124, in clause 35, page 52, line 35, at end insert—
“(2A) All prescribed public sector authorities may relax the restrictions imposed by regulations made under section 153A, if certain conditions are met.
(2B) The Secretary of State shall by regulations made by statutory instrument specify the conditions to be met under subsection (2A).”
This amendment would extend the waiver in respect of the cap to all public sector authorities.
We have had a very exciting afternoon, as I am sure you would agree, Ms Buck. The Government have adopted what might be called the “Boris principle” on voting—namely, that they can ignore the result of the first vote if they do not like the way it came out and demand a second. We live and learn about parliamentary procedure. We obviously respect your ruling on the matter, Ms Buck, with absolute and total respect.
We now come to part 8, which interestingly has nothing to do with enterprise, despite the Bill’s title. This has been called a “Christmas tree Bill”, because it has lots of different baubles on it. If that is the case, part 8 is an Easter egg hanging on the Christmas tree, because it has absolutely nothing to do with enterprise. Nevertheless, the Government chose to include it and it was ruled to be in scope, so it is completely in order for us to discuss these matters as part of the Enterprise Bill.
Let me make it clear from the outset that the Opposition agree that excessive exit payments in the public sector should not be paid, and that abuses in that regard should certainly be ended. The problem with the Government’s approach is that they are attempting to govern by headline in a very complex area. In doing so, they are creating anomalies and unfairness, and—that old favourite of ours—legislating to invoke the law of unintended consequences. That is what is likely to happen as a result of legislating rigidly on this matter, as they are doing.
Governments often resist legislating rigidly in Bills because they understand the mess that can ensue. It was Otto von Bismarck—not Leo from “The West Wing”—who first said that people should not see how two things are made: laws and sausages. This is a very good example of that. Putting such things in the Bill is basically a Government headline for the tabloid press about public sector fat cats—an odious remark that the Secretary of State made on Second Reading, which was an insult to many thousands of decent, hard-working people in this country. By legislating in that way, all sorts of messy, sausage-like substances will seep out.
The first group of amendments to clause 35 are about where an exit cap should be placed, who should be covered and who should be exempt. They are largely probing amendments, but I may press one of them later to test the Committee’s opinion on it, because it refers to what the Government said their intention was in introducing this legislation on exit payments. The amendments also cover an annual revaluation to ensure that the value does not diminish and that more workers are not caught inside the exit cap net.
Let me go through the amendments in turn. Amendment 116 would provide that regulations may make provision to secure that the total amount of exit payments made to a person in respect of a relevant public sector exit does not exceed a maximum of no less than £95,000. In other words, it seeks to ensure that the cap cannot be lowered further without legislation. I would be interested to hear from the Minister what the Government’s intension is on the question of whether it can be lowered without further legislation.
Amendment 109 probes why the cap has not been set at a level similar to the NHS level, which was £145,000. Although it is a probing amendment, I am interested to know why the provision introduces a disparity between different sets of public sector workers. The NHS caps underwent proper research, consultation and subsequent scrutiny, and were seen to be fair. I am afraid that that compares very badly with a completely rushed consultation with minimal research and the resultant limited scrutiny that these Government proposals have had.
Will the Minister supply the Committee with the figures for the workers who would be affected by an exit cap payment of £95,000? The words, “a large majority” are a bit woolly; we need a bit more precision than that when we are legislating. What are the exact projections for the cap of £95,000 and what would the exact projections be if the cap were introduced at £145,000? I do not intend to press the amendment to a vote—it is a probing amendment—but we want to understand who is being affected and what we are talking about. Perhaps the Minister would supply the Committee with the cost to the public purse of the cap set at those two limits. I hope that she is able to do so. If she is not accepting on the grounds of costs, she will obviously have those figures to hand.
Has my hon. Friend looked into whether the employees of the UK Green Investment Bank would be covered by the cap? Obviously there are several executives who, as I mentioned previously, get significantly more than the £147,000 cap. Looking into their terms and conditions, I notice that they have a six-month notice period and that pay can be given in lieu of notice. In the event of that happening for one of the Green Investment Bank employees, does my hon. Friend think that this cap would click into force? Give that the Green Investment Bank might not be privatised until 2018 or 2019, how does he think that those employees would be affected?
As I understand it from the Secretary of State, they would be affected only if they were officially classified as fat cats. If they are not affected, they are not officially fat cats in the eyes of the Secretary of State and if they are affected, they are officially fat cats according to the Secretary of State. It remains to be seen whether those employees are fat cats under the Government’s own definition.
Amendment 112 would subject the amount of the cap to an annual re-evaluation. Amendment 122 covers a similar subject. It is vital that any proposed cap is flexible and updated on a regular basis to take into account differences in pay and increases in separate areas of the public sector. In considering the scope and impact of the policy, it is important to note that the proposal to make the cap effective at £95,000 means that it will not just impact on higher paid senior managers.
If the £95,000 figure is not uprated, it is likely to affect more and more grades, so we ask the Government to consider re-evaluating it annually, perhaps using the same uprating as for public sector pensions. Similarly, will the Minister open discussions with the relevant stakeholders on technical considerations such as whether the cap will include other means by which an individual can access an unreduced pension, such as on compassionate grounds?
Uprating is important if workers are not to fall further behind. Having the uprating enshrined in primary legislation rather than being devolved to secondary legislation would ensure that it is reviewed annually. I would be interested to hear the Government’s explanation for why they are not picking this route and why they want to do it through secondary legislation. We will listen to that explanation with an open mind.
Amendment 114 would exempt from the cap those earning below the national average wage, who, by definition, could not be called the best paid—they would, however, be called fat cats by the Secretary of State. It is hard to see how the Government can include that group of workers if that is really what they think the measure is about. What are the specific reasons for not including people earning below the national average wage in an exemption from the exit cap? The only way those workers could get up to the cap is through decades of long service, and surely that kind of loyalty is not something the Government want to punish.
How many workers earning below the national average wage will be included in an exit cap of £95,000? I would be interested to hear the Government’s figures. I am sure they will have crunched the numbers carefully in considering and developing the policy, and I presume the Minister will have the figures to hand and examine them carefully before deciding whether to oppose our amendment.
It has been widely mentioned—this is really important and I will come back to it later—that the then Exchequer Secretary to the Treasury, Priti Patel, said in January 2015 on exit payments:
“This commitment, which will be included in our 2015 General Election manifesto, will cap payments for well-paid public sector workers at £95,000.”
I give her credit for her clarity on that. She went on to say:
“Crucially, those earning less than £27,000 will be exempted to protect the very small number of low earning, long-serving public servants.”
That commitment was given by a Treasury Minister a year ago. When the Conservative party manifesto came along, it said on page 49:
“We will end taxpayer-funded six-figure payoffs for the best paid public sector workers.”
On Second Reading in the House of Commons, the Secretary of State for Business, Innovation and Skills said that the measures were needed because
“Too many public sector fat cats are handed six figure pay-offs when they leave a job”—[Official Report,
If someone is affected by this provision, according to the Secretary of State they are a fat cat. The amendments will allow us to explore exactly why that is a dreadful thing to say.
Has my hon. Friend seen any figures on the impact of the measure according to gender? Does he know whether there has been a gender impact assessment? I am thinking in particular of people who have worked for a long time as, say, teachers or nurses and who will be above the £27,000 a year de minimis requirement set out by the Treasury Minister, but who find themselves unable to continue, perhaps after a traumatic event or injury at work, and are able after a period of 30 years to leave. How does he think they will be affected? Does he see that there could be a discriminatory impact?
My hon. Friend’s astute intervention saves me from going into too much detail on that score, but she is absolutely right: we simply do not know the equality implications of the measures, particularly in regard to gender, because the Government have not supplied us with the figures. It seems intuitively highly likely that the impact will be skewed heavily against female workers in the sorts of occupation that she outlined and perhaps in other public sector occupations.
The Bill, as it stands, does not have any such exemption as the Treasury Minister indicated it would last year. As far as I can make out, that was not the initial intention or, indeed, what was stated in the Conservative party manifesto. Despite the Government’s arguments, while the public sector exit payment cap includes pension entitlement within its scope—that is a key issue—it will affect employees on even lower salaries, as current pension protections wither on the vine.
That is a key point. We know that people working in the public sector have certain protections. In some services, those protections kick in at age 50, and in others at age 55. By including pension rights, people who may be forced to retire on the grounds of ill health or their simple inability to carry on working will find a cap on exit payments, meaning that they can get the six months’ notice. But the far more lasting injustice will be that their pensions cannot be made up as though they had worked to 60 or, in some cases, to 65. They will suffer detriment for the rest of their lives through loss of pension income that will not have been made up.
My hon. Friend makes that point far better than I would have made it. Again, her intervention is astute and understands the implications of what the Government have done by including pension payments within the exit cap. If the Government were serious in their rhetoric that doing so would affect only the best paid, it would be straightforward to include a provision in the Bill to exclude those on average earnings or below. On Second Reading, the Minister said:
“What we do know is that there is a very small number of workers in the public sector on about £25,000 who could be caught by this… But those are extremely rare conditions.”—[Official Report,
We are concerned about the Government’s reluctance to make the necessary exemptions to ensure that those unfortunate few, which is what Ministers tell us they are, are not disproportionately affected. If the low and average paid are affected in rare circumstances only, excluding them from the cap will not result in the Government losing a great deal of money, so what is the problem with exempting the low paid from the provisions?
That is not what we are discussing here. We are discussing the terms and conditions that public sector workers signed up to in agreement with the Government. In many cases, such people may have been in service for a long time and may well have given up the opportunity to earn more in the private sector by working as loyal public servants.
During the clause 26 discussion on Report in the Lords, Baroness Neville-Rolfe indicated that a drop of £500 would not be disproportionate for someone previously entitled to a pension of £12,500. I have to say that a drop of 4% is significant for somebody on a relatively small income, especially when that income is below that of someone on the national minimum wage. To say that a 4% cut is not significant is highly misleading.
The Government made the case in the House of Lords that leaving with a payment of £95,000 or above would be a large amount for any employee. For example, the Minister in the other place said that she does
“not accept that those exiting with a payment of £95,000”— which is not the case—
“will generally be subject to hardship”.
The idea that someone will receive £95,000 is a myth. A large amount will never actually be seen by employees on low to average incomes, because the payment includes compensation paid to the pension scheme. My noble Friend Baroness Hayter pointed out that
“they cannot go off and use that money to live on while trying to retrain or move or find another job; it is an actuarial payment that never comes near their bank account… This is not a sum of money they can use to buy themselves an annuity to help train or move or anything else—it is money they never see.”—[Official Report, House of Lords,
As ever, I cannot fault my hon. Friend’s interventions, even if I might fault her sources from time to time. She is right to point that out to the Committee. Let us take a hypothetical example of how someone might be affected. The Government are trying to make out that people will not be affected, but, to take her point, if we take someone who has been a librarian in the public sector for 34 years and who has reached the age of 55 with a career-average salary for pension calculation purposes of £25,000, their pension accrued at one 49th per year of service would add up to £510.20 for each year of service. With 34 years of service that would come to £17,346.93. Under the regulations, if it came to pass that that person had to leave the service owing to redundancy, they would get a pension of £17,346 11 years earlier than the normal retirement age of 66. Therefore, if we take those 11 years and count in the pension, that adds up to £190,816 of pension paid before normal retirement age.
The payment required by the pension fund to enable that unreduced pension to be paid would be likely to breach the Government’s proposed £95,000 exit cap. There are technical reasons why it does not add up to the full amount of £190,000, but the so-called strain payment required is highly likely to exceed the Government’s proposed cap, so the employer would not be able to make the member redundant without breaching either the proposed cap or the current local government pension scheme regulations.
On Report in the House of Lords, Baroness Neville-Rolfe said of that example that that person would not be affected by the cap if they were aged 52. That is correct, but that misses the point as no pension payment would be in play if someone were made redundant earlier than age 55. That would be a simple redundancy payment, paid directly to the member of staff in the normal way, which would be unlikely to breach the cap. The issue is with people made redundant after the age of 55 who are automatically entitled to early retirement rather than a straightforward redundancy settlement.
It is important to note that in the example I gave the normal retirement age is 66 and while many local government employees who are currently 55 will have some protections in place to mitigate the worst effects of such a cap, that will not be true for all employees, nor will it be true for staff as time moves on. We must remember that the proposals are expected to be in force for some considerable time and all current protections are withering on the vine as we speak.
Amendment 115 would seek to protect workers who earn less than £27,000 and have many years of loyal service. The Government’s manifesto referred to “best paid workers”, so I wonder whether they consider a worker earning £27,000 a year to be one of the best-paid workers in the country who should be covered by the cap. I do not think that was the original intention—in fact, I know that, because as I said earlier the right hon. Member for Witham, when in the Treasury, said that
“those earning less than £27,000 will be exempted to protect the very small number of low earning, long-serving public servants.”
She did not think that they were fat cats at that time and she thought they should be protected, so we need to understand why that is not happening in the Bill.
Why not accept amendment 115? Will the Minister outline the unusual circumstances, as Baroness Neville-Rolfe did, in which workers will be caught out? Why was a lower earnings floor not included given that the Government promised that a year ago in their manifesto, which said that they would pursue the “best paid workers” and that that was the cap’s intention? Of course, once the election was over, the Government ignored what they had said. The Minister referred to the small number of low-earning, long-serving public servants, but can this Minister supply the Committee with her estimate of how low-paid and long-serving workers will be affected by the cap?
I was going to talk about the poor quality of the consultation. I do not want to detain the Committee for too long, but the consultation was in no way of the same quality—I pay tribute on that score at least to Lord Maude—as the consultation done when caps were introduced previously in the civil service. Further problems have emerged as a result of how poorly the consultation was conducted. Usually, a full consultation takes 12 weeks rather than the four weeks taken by this one, which began on
That takes me to amendment 128, which would ensure that the restriction on public sector exit payments is set at a level linked to inflation and earnings growth, of which arbitrary fixed caps do not account. If the cap is introduced, there must be a commitment to index-linking it to ensure that it meets the original intention without becoming more and more punitive over time. Any cap must include a mechanism for index-linking in line with pay and prices.
This is a long group of amendments; I apologise, Ms Buck, but I must go through each one. Amendment 104 would exclude from the cap compensatory payments made by an employer to a pension scheme that do not go to the person leaving the service. That refers back to strain payments, which I was discussing earlier.
My hon. Friend is making an excellent point, and I agree particularly with his amendment to ensure that exit payments are linked to inflation and earnings growth. Otherwise, the cap would become an arbitrary bar that could dissuade people from going into public sector jobs.
For the record, I wanted to draw to my hon. Friend’s attention, particularly in terms of pensions, the payoff of £3.6 million made to Richard Glynn, chief executive of Ladbrokes. When Dalton Philips, chief executive of Morrisons, left after a chequered reign, his payoff was £4 million. The boss of Barclays, which of course is partially state-owned, left with £28 million in cash and shares. On the pensions point, the disgraced chief executive of Volkswagen, Martin Winterkorn, left with a €21 million pension pot. Just to be clear about the—
Order. We are in danger of straying from the subject.
Ms Buck, I will respect your ruling on my hon. Friend’s intervention, but I completely understand why she made it.
We were just about to discuss strain payments, which are made when workers in their 50s must take redundancy. The shortfall in their pension is actuarily adjusted at the time of redundancy. As I pointed out earlier, they do not receive the money in their pocket; it is paid by the employer to the pension scheme. I think we can agree that such payments are qualitatively different from the other payments covered by the legislation, which is why special provision should be considered to limit their impact.
Strain payments do not apply to the highest-paid workers. A middle-ranking public servant with long service is much more likely to be affected by the Government’s current proposals than a highly paid or best-paid worker who has worked in the public sector for a short period. Strain payments could make up a considerable amount of the £95,000 cap. If so, long-serving, loyal workers could finish work with a significant shortfall in the amount that should have been allocated to help them to deal with redundancy, unemployment and uncertainty. They will have little left over in their redundancy payments to pay for annuities to provide for long-term security. Some in areas of high unemployment will have little chance of getting alternative employment, and they will also be too old to retrain effectively. In other words, they will be left high and dry. I do not think that was the intention of the Minister, her Department or the Government, but surely she can see the difficulties for these workers if the vast majority of any settlement is taken up by strain payments, which are related to pensions.
An individual will only experience the benefit over a number of years. Even then, the impact is not great. If the employer pays £10,000-worth of strain compensation, the individual will only get about £500 in additional pension but will have lost that sum from their exit payment. The Minister in the other place appreciated that that raises real concerns, and she said so in her response to the debate.
Will the Minister for Small Business, Industry and Enterprise acknowledge the importance of pensions to public sector workers’ remuneration packages and respond to the points about strain payments? Many people are affected including, as we have heard and will hear again later, workers in the private sector—this not only affects public sector workers—such as those working for organisations such as Magnox. We will come back to that later. Will the Minister consider the implication of strain payments?
Amendment 121 would remove payment in lieu of notice from public sector redundancy exit payment caps. The reason for probing the Government with this amendment is that we have received representations, particularly from the National Association of Head Teachers, that the proposals might make it harder to address underperformance and might breach contractual entitlements, which will cost public sector bodies more money. The Government aim to class contractual entitlements such as notice pay and holiday pay as exit payments. Those entitlements are contractually owed to the employee. Have the Government assessed whether the provision—superficially unfair as it is—is actually workable or even legal? Could the provision lead to a large number of legal cases? Is it consistent with existing employment law?
I am not clear whether the provision applies retrospectively or about how far back it goes. Does it not potentially open the door to class actions from large groups of people? I can see one class action in development from the Magnox employees, who are working for a privately owned company that has been nationally owned. Does my hon. Friend find it interesting that the Minister was so keen to resist our amendments this morning that would have provided transparency on the remuneration of executives of the Green Investment Bank yet is so very keen to impose a cap on people working for a formerly state-owned company that is now a private company?
I do not believe the provision is retrospective—retrospective legislation is rare in the direct sense—but it certainly affects existing agreements and undermines previous agreements that the Government made and said were fair and would stand for a very long time. In the case of contractual obligations, the provision raises serious questions as to whether the Bill as it stands is legally sound. As well as the practicalities of the measure to include notice pay in the cap, there is also the impact on those who are too ill to work. Modelling by the National Association of Head Teachers shows that a headteacher who is compelled to leave work due to developing a physical condition and who is unable to work out their notice due to illness will be significantly worse off compared with an able-bodied head because of the proposed cap currently being drafted to include pay in lieu of notice. Does the provision to include notice pay and holiday pay comply with the provisions of the Equality Act 2010? What advice has the Minister had on that?
My next point relates to the way in which schools are run, because they are different from other organisations in relation to notice for obvious term-time reasons. The Government have committed to academise poorly performing schools. That can often include the removal of a headteacher from a school. How would that be possible under the provisions if that same headteacher decided to work out their notice, rather than leave straightaway? That is what anyone would do if their payment in lieu of notice was to be included in the exit payment. If a school is trying to make a fresh start under a new head, it will find it very difficult to remove the incumbent swiftly, because that person will seek to work out their notice rather than depart immediately. That is understandable, because who would act in a way that was financially disadvantageous to them in such circumstances?
The real problem is that notice periods for headteachers are often exceptionally long. If a headteacher is leaving just after Christmas, their period of notice might not technically run out until after the summer holidays in some cases. Schools and pupils could suffer under these plans if there were such delays. Has the Minister considered that? What is her response to that problem?
Amendment 105, on which I may well seek the Committee’s opinion, provides that regulations may exempt from the public sector exit payment cap those earning less than £27,000. Amendments 115, 105 and 106 offer protection for low to moderately paid public sector workers who have provided long service. I will not repeat the arguments made earlier, but the fact remains that excluding workers who earn less than £27,000 per year would protect workers earning the average wage of £26,400. A promise to protect those workers was made by the Government; that is the point.
The Minister shakes her head, but the then Treasury Minister specifically made that promise. I will read the quote again:
“those earning less than £27,000 will be exempted to protect the very small number of low earning, long-serving public servants.”
I cannot imagine anything more emphatically clear being said by a Government Minister, so why has that exemption not been included in the Bill? Amendment 105 would provide that exemption. As such, unless the Minister can convince us otherwise, we should insist on the Government keeping their word by pressing the amendment to a Division.
Amendment 108 is about the waiver process. The Government’s consultation response made mention of a waiver process and said that the full council would
“take the decision whether to grant a waiver of the cap in cases involving Local Authorities and for local government bodies within their delegated powers”.
In the Lords, Baroness Donaghy said that despite the assurances made in the consultation response, there was no reference to that in the Bill. That is a crucial issue for local government and should be dealt with in the Bill, rather than through secondary legislation. The Government’s draft statutory instrument allowing a waiver if the full council agrees has been published. That does not give local government the certainty it needs if it is to continue the job of restructuring itself in the face of the huge cuts to it. We have already seen agreements dealing with pay and conditions that were drawn up in 2010 disregarded just six years later. There is a concern in local government that it is not being given the certainty on waivers that it expected to see in the Bill, and it would like to know why.
Which public authorities will be allowed to exercise a waiver, and which will not? If there are exemptions from the waiver, will the Minister explain her logic in deciding which public bodies should be exempted and which should be included? The Government have done much to try to remove schools from local authority control. Will the waiver apply to all schools in local authority control? Will waivers apply to academy schools? Will there be a level playing field between the two categories of taxpayer-funded schools, or will one be favoured more than the other?
The ability of a local authority or other public sector body to seek a waiver would concur with the Government’s professed desire for local democracy and localism in general. Will the Minister explain how she drew up the rules for including or excluding public bodies and her role in the monitoring of waivers?
I echo much of what has been said by the hon. Member for Cardiff West. His comments have been extensive and detailed, so I will not keep the Committee for long. However, I want to support the amendments and highlight our concerns with the Bill. As we have heard, the Cabinet Office confirmed that someone earning less than £25,000 could be affected because of their long service. We share the concerns raised directly with us by Unison that the cap would affect redundancy payments for a wide range of NHS staff. Those people are not classed as executives, because redundancy calculations are made on the basis of length of service and earnings. Because a significant number of NHS staff work unsocial hours, capping the payments could affect staff in band 6 and above.
There is logic and sense in supporting the amendments and some of the comments made in the briefings. For example, the Local Government Association criticised the Government’s plans and the cap of £95,000. We understand the logic behind having a cap, but it is about how we legislate. In the other place there were concerns about the lack of an impact assessment to go with the proposals. Once again, we are seeing legislation that has not been clearly thought through. The Cabinet Office has admitted that a small number of people might be affected, but we need a proper impact assessment to understand that, and the amendments speak to such concerns.
My hon. Friend the Member for Kilmarnock and Loudoun, who was very keen to speak, has had to go to another debate. The issues that he wanted to raise relate to his experience and the experience of others in local government, particularly in Scotland. The Scottish Government have not been in favour of compulsory redundancies and have managed their workforce in a more creative way, which is something that should be considered. It is important that we look behind the pay cap and the details of it.
The overarching issue for us relates to the strain payments. As has been said, much of the payment does not actually go into people’s pockets; it goes to making up the shortfall in pensions. In summary, we support the amendments.
It is a pleasure to serve under your chairmanship, Ms Buck. My hon. Friend the Member for Cardiff West, the shadow Minister, made a powerful speech to which I hope the Minister has listened. I hope we will hear about changes to the current proposals, and I hope that our logical amendments to what seems to be an irrational approach to dealing with a problem of the Government’s own making will be accepted. Ideologically driven cuts to the public sector have proved far more costly than the Government initially anticipated. We only have to look at the payments made as part of the top-down reorganisation of the NHS, which is estimated to have cost £1.6 billion in six-figure pay-offs alone to 1,000 highly paid officials. That goes some way to explaining the Government’s keenness to claw back some of those payments, or certainly to ensure that that does not happen in future. They appear to be trying to slam the gate shut after the horse has bolted.
Nobody questions the logic of what the Government are trying to achieve in trying to prevent significant pay-offs. However, it seems to be a sledgehammer to crack a nut approach. In my former role as shadow Attorney General, I came across examples in parliamentary questions to the Department that tried to uncover similar practices in the Law Officers Department. The Crown Prosecution Service had spent £83 million since 2010-11 on redundancy packages, and 24% of that went to just 153 individuals who received redundancy payments in excess of £100,000 each.
No one is questioning the principle behind what the Government are trying to achieve. They have clearly said that the measure is aimed at the highest paid officials, but in reality it will hit the redundancy packages of ordinary civil servants on modest wages—even some on wages below the national average—who have given long years in public service. It would, for example, hit a worker on just £24,611 who had worked for 34 years and was over 50.
“Is this just a rather nasty, crafty little device that they have alighted on simply to help to reduce the deficit, given that the Chancellor seems to be having difficulty with it, by hanging that deficit around the neck of their own employees? Or is this just mistaken drafting, which the Minister will be happy to amend on Report?”—[Official Report, House of Lords,
Unfortunately, the answer given seemed to indicate that it was not a mistake, that it is the Government’s intention and that they do not intend to amend the measure. I very much hope that the Minister tells us something else today. It would be good to hear from her that the Government have taken on board some of the concerns about the impact of the measure. I hope that they will accept the amendments we have tabled or give some indication that they will amend the clause themselves, as they seem happy to do with other clauses. That does seem to have caused confusion with voting in Committee.
I have received a number of representations from extremely worried constituents. Large numbers of civil servants work in Newcastle, and they are concerned about the impact that the clause will have on very average earners, some of whom are on less than £25,000. Thousands of civil servants work for Her Majesty’s Revenue and Customs and Department for Work and Pensions in Longbenton in Newcastle, and I have been contacted by a huge number who say that they are concerned about the unfairness in how the cap is being implemented. They want to see it brought more in line with the promises made by the Government before the general election.
The cap should impact on only those highly paid workers who the Government said they were seeking to target, and not on those on modest salaries. Does the Minister recognise those concerns, which are being raised by Members of this House and members of the public? Does she agree that the proposals in clause 35 will inadvertently hit long-serving civil servants on very modest salaries? Or does she consider them all to be fat cats, as they seem to have been characterised in previous comments?
My constituents have also pointed out that their terms and conditions and exit packages were already significantly altered by legislation passed in the previous Parliament. When the changes were introduced by the civil service compensation scheme in 2010, the former Cabinet Office Minister, now Lord Maude, described them as fair for the taxpayer and right for the long term. Given that we are looking at the matter again today, it would be useful if the Government recognised that their approach is deeply disconcerting and in many ways discourteous to public sector workers, who ultimately feel that their contract with the Government is being broken in a manner that is not well considered or thought through.
Alternatively, if the approach is well considered and thought through, it certainly appears to be an abuse of power by the Government. The Minister has placed great emphasis on provisions that allow for special exemptions from the cap, but she has not provided sufficient information as to how and where those exemptions will apply, and that concern is very much shared by employees in the private sector and in the public sector, who will be impacted by the changes. Will she give some consideration to the concerns that have been raised not only by the shadow Minister, very eloquently, but by the hon. Member for Livingston and by constituents and public sector workers up and down the country who want a fairer approach from the Government?
It has been a good debate and I will be the first to admit that there have been some good contributions. It is absolutely right that we should go into the matter in detail. It has to be said at the outset that the Government are acting on what was very clear in the manifesto promise upon which we were elected. We said that we would cap the public sector pay-out to end six-figure pay-outs. I am bound to say, as somebody who was self-employed for nearly 20 years, that this is the sort of stuff that simply never came my way at all. That does not mean to say that I do not have any sympathy for people who—and this is the most important point—are made redundant. That means that they had a job and, suddenly, they do not have a job. We have to recognise that we are talking about people who are being made redundant.
To answer the hon. Member for Wakefield directly, people who are made redundant because of ill health are not touched by the cap at all. I hope that we can deal with that claim. We have to set this in some context. In terms of statutory redundancy in the private sector, I am reliably informed that the maximum statutory payment that someone could receive if they earned £25,000 and had worked for some 30 years is £14,250. I am told that the evidence is that the average payment is in the region of £16,000. We have to set what happens in the private sector in sharp focus and contrast that with what happens in the public sector.
We have heard much about modelling, in effect, of what happens when people are on lower pay and find themselves being made redundant. They first thing to say, of course, is that nurses do not get made redundant. On the contrary. It is fair to say that we are rather keen to employ more nurses, not to make nurses—nor, indeed, teachers—redundant. In any event, the Cabinet Office has confirmed that no civil servant earning below £25,000 will be caught by the cap. We are not saying that there are not exceptions. To be truthful—and I always want to be truthful—we cannot actually find an exception. I will go through some examples that I hope will give some assurances to people. We cannot actually find an example—we are not going to say that there are not any but we cannot find one—of somebody who could be earning £25,000 but finds themselves having a payment, on being made redundant, of more than £95,000 and therefore having it capped.
A senior manager at grade 7 in the civil service with a classic pension scheme who leaves aged 55 with 30 years’ service would not be caught by the cap if he or she were earning below £50,000. A prison officer earning £28,000 with 34 years’ experience would be able, even with the cap in place, to retire on a fully unreduced pension aged 52. A tax inspector aged 52, earning £60,000 a year with 25 years’ experience, would have a pension of £17,500 per annum instead of £19,000.
The hon. Member for Livingston was specifically concerned, and many others would be concerned, at the thought of a nurse being made redundant. Frankly, it is difficult to conceive but it might happen. I am trying to imagine what the circumstances could be. No one earning below £47,500 in the NHS will be affected by the cap and the vast majority of nurses earn below that figure. To satisfy the hon. Lady—I know that she specifically raised that point—we said that we would go away and look at it all and that is exactly what we have done.
I thank the Minister for giving way, and I would very much hope, obviously, that she would be truthful. The information she provides gives some reassurance for today but, given that the £95,000 will not be indexed by the Government, will she explain how longer-term security will be provided? Also, if she is so confident that no one will be affected, why will the Government not accept the £27,000 cut-off that they seemed to promise before the election but are not delivering in the legislation?
Let us make it clear that what a Minister said before the manifesto was written does not count as a manifesto commitment. The manifesto is what matters the most, and in it we made it clear that we would place the cap at £95,000. I can go only on the figures—I specifically asked for them. Someone on £25,000 who has worked for 30 years in the private sector will get a maximum of £14,000 and we are talking about people in the public sector who have been working on that same salary for the same length of time having their payment capped because it might exceed £95,000. We really must see the cap in context.
Gaining a maximum pay-out of £14,000. Is the Minister talking about a statutory redundancy payment or a private contractually agreed one? If it is the latter, how does she know what all the private contracts provide for?
That example shows the profound difference between the private and public sectors. I do not for one moment say that people who work in the public sector do not work hard, but we must take a long, hard, honest look at the terms and conditions of those who are paid for by other taxpayers, to ensure fairness and equality between the sectors.
I thank the Minister for giving way. She is not comparing like with like by saying that the statutory redundancy payment is all that a private sector employee would get. In the vast majority of cases there would also be a contractual sum that would or could be agreed, and her analysis is, therefore, unfair.
I am just putting out the figures on statutory redundancy payments, and setting the context—it is important that we understand the context. That does not mean that there are not lots of people working in public service on low wages—my own brother works on a very modest wage within the NHS. We have to look honestly at those terms and conditions. My hon. and learned Friend the Member for South East Cambridgeshire made an important point. She struggled to think of examples of people on £25,000 who had worked for 30 years and would, in the event of being made redundant, be entitled to more than £95,000. That is all I am saying. That is why such examples are so interesting and, I think, make my point.
I will give some more examples. A librarian, earning £25,000 and with 34 years’ experience, would, even with the cap in place, be able to retire on a fully unreduced pension at the age of 55. A health and safety inspector earning £50,000, with 20 years’ experience, would receive a pension of £12,000 per annum, rather than the £12,500 they would have received before the cap. I think we would all struggle to imagine teachers being made redundant, but a classroom teacher earning £38,000, which is the maximum of the upper pay range, with a normal pension age of 60, would not be caught by the provisions.
We know that the armed forces are exempt. Again, I am grateful to my officials, because I asked why and whether they were put into a special case for good reasons such as the nature of their service. In fact, I am helpfully advised by my officials that, given the higher payments to those in more senior ranks, who can get quite substantial amounts of money for redundancy, we are looking at that situation and ensuring that there is a responsible attitude and pay-out.
Earlier, I made the point about the impact of potential gender discrimination. Has the Minister done any sort of gender impact assessment of the working of the two rules, in particular given the exemption for the armed forces, which are dominated by men?
I am sorry, I really do not see it as a question of gender. If it was a question of a large number of public sector workers being women and tending to be low paid, the hon. Lady might be making a good point. Therefore, it behoves all councils, of whatever political persuasion, to ensure that they do not in any way, shape or form discriminate against women, nor should they see certain jobs as jobs for women or as in some way for pin money; and, if we are honest, local authorities of all political persuasions have done that over the years. I am delighted to see that those old-fashioned, outrageous attitudes are beginning to move.
No, I am going to make some progress, if I may. I did not intervene on any hon. Members, because I want people to be able to develop their arguments.
I will go through the list. Among firefighters there have been few if any formal redundancies. They receive statutory redundancy entitlements and the other staff fall under local government arrangements. People might want to know about the judiciary. Why are judges not covered? Judges cannot actually be made redundant. Magnox workers we will deal with in connection with the next group of amendments.
I was asked a number of other questions, including about academies, which are classified as part of the public sector—I will deal with that one in a moment. On pension top-up, it is often the case that those with the highest salaries will receive the greatest top-up, and we know that there are some examples of that. In answer to the hon. Member for Wakefield, the Green Investment Bank could well be in scope if it remains in the public sector as defined by the Office for National Statistics. If we are successful and the bank is sold into the private sector, it will not be in scope. Another important point is that the £95,000 cap represents only 5% of exits to date. As we might imagine, those primarily affected are the highest paid. That is an important statistic.
Will the Minister address the point about indexation? I appreciate that she is giving helpful statistics about the number of people affected or likely to be affected today, but it would also be helpful to keep in line with rising prices and wages into the future.
Subsection (9) states:
“Regulations may substitute a different amount for the amount for the time being specified in subsection (1)”, so it looks as if there is provision to up the cap in future.
I am grateful to my hon. and learned Friend. Another question that has been asked is why so much will be in secondary legislation. One reason why we are doing that is that it is genuinely a much better way to introduce something that will undoubtedly—I am not going to pretend otherwise—have its complications and nuances. It is important that we do not just introduce blanket rules, but have provisions to look at any cases that might or should be exempted.
Somebody asked a question—forgive me for not remembering who, but I think it might have been the hon. Member for Wakefield in an intervention—about the national health service, which, as she identified, has a cap of £160,000. This legislation will affect the existing cap, taking it down to £95,000.
I want to make some progress and deal with the amendments. Amendment 109 seeks to raise the cap to £145,000. I would argue that it is unclear whether the Opposition favour completely uncapped exit payments or a cap set at what could be over 10 times the maximum statutory redundancy. The Government have made it clear, however, that we want to put the figure at £95,000. We were very clear about that in our manifesto.
Amendment 105 seeks to impose a £27,000 earnings floor for the cap, but the cap will have no impact at all on the large majority of public sector workers. As I have said, it will affect only the top 5%. We are really struggling to find an example of any civil servant earning below £25,000, for example, who would be in any way affected by the cap. Those earning below £27,000 will not be caught and, in any event, we believe that this represents a generous package that many will be entitled to.
Amendments 106 and 115 would exclude those in long-term service. There may be some instances where individuals with very long-term service on more modest salaries could be affected by the cap, but as I have explained, the £95,000 represents a generous package compared with what is available to those on similar pay in the private sector. The majority of long-serving employees caught will be those with high or very high salaries.
Amendments 112, 116, 122 and 128 relate to annual revaluation. Amendments 112, 122 and 128 all seek to subject the cap to annual revaluation, while amendment 116 seeks to impose a minimum level of £95,000 for the cap. All those amendments fail to offer the flexibility that the clause provides for. The clause allows the Government to amend the level of the cap to take into account all prevailing circumstances, with the additional scrutiny of the affirmative procedure. Any form of fixed-term revaluation would just create an artificial and arbitrary mechanism. As any amendments to the cap require an affirmative procedure, the current mechanisms for changing the cap offer both flexibility and full parliamentary scrutiny.
Amendments 104 and 121 would exclude pension top-ups and payment in lieu of notice. We are not discussing retirement in the normal manner; we are discussing the additional top-ups linked to redundancy, funded by employers. As I mentioned previously, any earned pension that has been accrued by an individual is outside the cap. Again, it is really important that everybody appreciates that any sums of money paid by an employee into a pension pot of any description—anything accrued by them through their own money—is outside the cap. These top-ups linked to redundancy can greatly increase the value of pension payments above the level that has been earned through years of service. They often represent a substantial amount of an individual’s exit payments.
Payments in lieu of notice are also part of an exit payment and can be substantial for high earners—again, the emphasis really is on high earners—as some recent high-profile exits have shown. Excluding such payments would not just be unfair, but provide an obvious loophole to avoid the effect of the cap.
Amendments 108 and 124 relate to extending the waiver to local authorities and public authorities. Although we note and agree with the intentions of amendment 108 to give the full council of a local authority waiver power, I would argue that the amendment is unnecessary. Our indicative regulations, published on
Amendment 124 seeks to grant all public sector authorities waiver powers. However, the potential inappropriate use of settlement agreements and exit payments more widely is precisely why the clause requires approval by a Minister of the Crown— rather than the employer—to relax the cap. Ministerial or full council approval means that the power will be exercised objectively with full accountability and will prevent circumvention and misuse.
For all those reasons, I very much hope that Committee members will take the view that the amendments add nothing and are not necessary, and that the Government have done the right thing by introducing the cap at £95,000. The reality is that in any event very few, if any, lower-paid workers will be affected if they are made redundant. It has to be said again that, compared with what is available in the private sector, an exit payment of £95,000 for someone who has been on low pay must be seen as generous.
Let us make sure that that “very few, if any” is none. We have the opportunity to do that now. We could fulfil the Government’s objective and, if the Minister is right that no lower-paid workers will be affected, it would cost nothing at all, but it would provide assurance to people who are not fat cats on high pay in the public sector that the provision is not intended for them and will not affect them.
Does my hon. Friend think the Minister was being slightly misleading when she said that people in the private sector would be entitled only to the maximum statutory redundancy pay of £14,500? That is the statutory maximum, but, as I said in earlier interventions, when people are made redundant they are often entitled to pay in lieu of notice, so it is slightly misleading of the Minister to use the statutory maximum for redundancy in the private sector as a comparator.
I do not think the Minister was being misleading, because had she been, it would have been out of order, but she was perhaps using an example that was not directly comparable, if I can put it that way.
I am listening to the hon. Gentleman and, having run a small business, I can say that when one faces decisions about making staff redundant, one is invariably looking at a situation in which one’s business is compromised by financial circumstances or a change in direction or whatever. To surmise that the majority of businesses—99%-plus of which are small and medium-sized enterprises in this country—give enhanced rates and so on is an illusion.
That is certainly not what we are saying with the amendments, which are designed to ensure that the Government’s avowed intentions and the sentiments with which they were expressed are actually fulfilled. Without going over all the detail in this lengthy groups of amendments—the Minister made an effort to respond in some detail, for which I thank her—it is important that we test the Committee’s view on the Government’s previous position.
Last year, the then Treasury Minister, the right hon. Member for Witham said:
“This commitment, which will be included in our 2015 General Election manifesto, will cap payments for well-paid public sector workers at £95,000. Crucially, those earning less than £27,000 will be exempted to protect the very small number of low earning, long-serving public servants.”
That is exactly what amendment 105 would do. It would fulfil the commitment that that Minister made to the British people at that time, which was the basis on which people understood the Government were intending to act to ensure that those earning less than £27,000 would not be affected. On that basis, I ask my hon. Friends and others to support me in voting for amendment 105, but I beg to ask leave to withdraw amendment 116.
“except in the case of conciliation settlements”
This amendment would exclude settlements made at an early conciliation stage from the public sector exit payment cap.
With this it will be convenient to discuss the following:
Amendment 111, in clause 35, page 50, line 16, at end insert
This amendment would create an exemption from the cap for whistle-blowers.
Amendment 127, in clause 35, page 50, line 16, at end insert
“except for those payments made in COT3 pre-conciliation settlements.”
This amendment would ensure that Early Conciliation settlement via ACAS, cases when organisations use payments as an alternative to legal claims, which employers are legally obliged to attempt, would be excluded from the restrictions on public sector exit payments.
Amendment 118, in clause 35, page 50, line 16, at end insert—
“(1A) Regulations under subsection (1) may not apply to exit payments paid under terms of settlement agreed between the parties in respect of litigation concerning claims of unlawful discrimination, harassment or victimisation (or both) brought under the Equality Act 2010, or exit payments that comply with an award order (or both) of a court or tribunal in relation to such claims.”
This amendment would exclude discrimination cases from the cap on public sector exit payments.
Amendment 125, in clause 35, page 53, line 24, at end insert—
“153D Reporting and referral mechanisms to be included in regulations under section 153A
(1) The Secretary of State shall by regulation make provision in relation to restrictions imposed by section 153A where the exit payment relates to a potential claim under Part IVA of the Employment Rights Act 1996 (protected disclosures).
(2) Regulations under subsection (1) shall—
(a) provide for the creation of a regulatory referral system, to apply where an exit payment relates to a potential claim under Part IVA of the Employment Rights Act 1996, in circumstances where—
(i) the Minister of the Crown as described in section 153C considers it appropriate; and
(ii) there has been suspected or likely wrongdoing, malpractice, health and safety risk, breach of law or regulation; and
(b) provide that any individual who is subject to an exit payment as described in subsection (1) shall have access to legal advice on section 43J of the Employment Rights Act 1996 (contractual duties of confidentiality).
‘(3) The Secretary of State or the Treasury shall periodically produce guidance on exit payments made in accordance with section 153D(1) for relevant public sector employees as described in section 153A(2).”
This amendment would provide further protections for employees who have made protected disclosures when being considered for exits.
The amendments deal with the impact of the exit cap on conciliation and tribunal services for those who have been involved in disputes because of disability or whistleblowing, or general conciliation. Amendment 110 would exclude from the public sector exit payment cap settlements made at an early conciliation stage. I am discussing this in tandem with amendment 127, which would ensure that early conciliation settlement via ACAS—cases when organisations use payments as an alternative to legal claims, which employers are legally obliged to attempt—would be excluded from the restrictions on public sector exit payments.
This issue has not been addressed in the debate on the Bill so far, and it is important that we know what early conciliation is. These are settlements via ACAS which are used when an employment tribunal claim has been formally lodged and organisations or individuals are obliged to use a facilitated process to attempt to settle the claim, rather than go straight to a tribunal hearing. The long and the short of it is that employers and employees are legally obliged to attempt to settle during this process. As such, there is a case for settlements to be excluded from the restrictions on public sector exit payments, because when an employee wants to lodge an employment tribunal claim, they must first notify ACAS, and ACAS has a statutory obligation to offer early conciliation for an initial period of up to a calendar month, with the conciliator having the discretion to extend that if both parties agree.
When a resolution is agreed, the conciliator will record what has been agreed, both parties sign up to that as a formal record of the agreement and it is a legally enforceable contract. That means the claimant will not be able to make a future tribunal claim on those matters. If a tribunal claim has already been lodged, it is then closed by that process. These agreements are currently included in the restrictions on public sector exit payments, and there is a concern that placing a cap on settlements made by the early conciliation process would create a perverse incentive for employees to avoid settlement at this early, optimal stage.
I would like to hear from the Minister, without going through chapter and verse of how the procedure works, what consideration has been given to the law of unintended consequences. Including early conciliation settlements could lead to the perverse outcome of even more tribunal claims being made in future. I would be grateful if the Minister directly addressed that point. I will not press the amendment to a vote, but I want to hear what she has to say and we may need to consider this further. She may need to go away and consider it further, as it has not been rehearsed very much in deliberations on the Bill.
My hon. Friend makes an important point. I hope the Minister is listening, because it is not just about the financial savings in these cases, but also the human cost involved where there may be a discrimination or whistleblowing claim, which is a very traumatic experience to have to take to tribunal. People should be able to get a fair settlement through the ACAS process if that is the most sensible course of action for them.
I will come on to whistleblowing, but my hon. Friend is absolutely right to make that point.
Amendment 118 would exclude payments from the cap if they relate to claims of unlawful discrimination, harassment or victimisation under the Equality Act 2010. The Equality and Human Rights Commission is concerned that the provisions of clause 35 disincentivise the early settlement of disputes. The Government have given assurances that the cap will not apply to tribunal awards but, perversely, the cap will therefore encourage claimants to pursue their claim at tribunal, where awards in discrimination cases are uncapped, rather than settling at an early stage.
What assessment has the Minister made of the concern raised by the Equality and Human Rights Commission? Would a better approach not be to make it clear in the Bill that payments in respect of discrimination litigation, both tribunal awards and settlements, are excluded from the cap, while monitoring the existing, robust safeguards to ensure that the approval process continues to operate effectively? These safeguards will deter unmeritorious claims and encourage settlement where that is merited and offer value for taxpayers’ money. It is important that we hear the Government’s thinking on this matter.
Again, my hon. Friend makes an important point, which also highlights the Government’s glaring omission in not undertaking any form of equality impact assessment of these changes. Had they done so, it may well have highlighted the impact on these groups, who will obviously be disproportionately affected if the changes are not made by the Government.
Yes, and that is exactly how bad law gets made, as we know. Therefore, I encourage the Minister to give some further thought to those points if she has not already decided how she will deal with them.
Amendments 111 and 125 would provide protections for whistleblowers—my hon. Friend mentioned this earlier—and remove them from the cap on exit payments. Capping payments could act as a deterrent to whistleblowers. There is concern across the House about the unintended consequences of an exit cap on whistleblowers’ willingness to come forward. Whistleblowers are public-spirited individuals who, when they spot an injustice or malpractice, make it public. We have seen their value not just in the public sector but in the private sector as well, but whistleblowing often leads to a backlash from the authority or business concerned. As a result, many whistleblowers do not continue to work in the same industry, understandably, and they often suffer financially as a result of their brave actions.
It is possible that such workers might think twice about whistleblowing if they are to be further punished financially by the proposed cap. Will the Minister update us on the latest view of the Treasury and her own Department on relaxing the cap for whistleblowers? The Government would do a grave disservice to openness and transparency in the public sector if they did not afford those brave individuals the protection they deserve.
I get slightly agitated when it is suggested that we did not think of something. Obviously we have thought about this issue, and we have already discussed with officials precisely those two points about people who have been booted out or unfairly dismissed for whistleblowing or through discriminatory injustice by their employer. As we know, tribunals—unusually, given the powers of the various tribunals—can give an award that is basically unlimited, meaning that in such circumstances, people who have done the right thing by whistleblowing or who have been treated unfairly through discrimination would find themselves unfairly treated by the imposition of a cap. We are absolutely alert to that issue.
I do not know why the hon. Lady is saying no. That is exactly the mischief that the amendments seek to cure. We understand exactly what the trap could be. The other thing that we absolutely understand is that only a tribunal can find that somebody has been made redundant or dismissed unlawfully because of their whistleblowing or because of discrimination. In other words, people must go through the whole process of giving evidence, with all the trauma involved, in order to get a finding. The difficulty is ensuring that we know on exactly what basis someone is entitled to a substantial amount of money in damages, in effect, for injustice.
If they have not gone all the way through to a determination by tribunal—everybody is wildly and rightly encouraged not to go all the way through the process but to settle, avoiding all the trauma, costs and loss of time—the problem is then that usually, although it should not be so, they will be subjected to a confidentiality agreement, or to some device that satisfies everybody. They get the money to which they are properly entitled, but nobody says, “Actually, yes, we did sack you because you are a whistleblower.” We are absolutely alert to the possibility that the measures could create problems.
That is why the regulations will deal specifically with such instances. We will issue good guidance to all public authorities so that in instances where there is a settlement—in other words, where an organisation says, “Yes, we accept that we made you redundant because you blew the whistle, and that was the wrong thing to do, but we are not going to go all the way to tribunal; we are going to settle beforehand”—the parties must clearly mark in some way the reason why they are settling, so that the payment can be exempted from the cap.
The hon. Member for Cardiff West and I are both trying to cure the same mischief. The question is how we achieve that. The trouble with the amendments is that they would open the process to abuse because somebody could claim to be a whistleblower without in fact being a whistleblower—they could be a fantasist. Such cases are rare, but it is a dangerous loophole that could be opened up, which is why we must ensure that we have a mechanism so that we know whether a person who is entitled to a large sum of money because they have either blown the whistle or have been discriminated against is not subject to a cap. We aim to do that through regulations.
In the case of a settlement agreement, where there is no finding by a tribunal, the claim might not be genuine for the reasons I have just explained, so appropriate scrutiny is essential before making exit payments over the cap. We will issue guidance to assist relevant authorities in determining when to use their discretion to relax the cap. Obviously, they should relax the cap if they have accepted that somebody has been unfairly dismissed or made redundant because they were a whistleblower. I hope that makes sense.
As a former employment lawyer, I can not help feeling that the Minister is creating a potential can of worms. Even though the issues may not be successful at tribunal for one side or the other, it is often in the employer’s interest to settle a case simply on cost grounds where the case would cost more to fight than to settle. From what the Minister is saying, it is not clear that the provision will allow for such circumstances and will not significantly complicate the situation for public sector employers across the board.
Forgive me, but I thought I had made it absolutely clear that this is about settlement agreements. Obviously we do not want people to go to tribunals; we want people to settle. In the case of a settlement agreement—this is the point—there is not a determination by a tribunal. Conciliated by ACAS or agreed privately, there is no finding by a tribunal, but the claim may not be genuine, so appropriate scrutiny is essential before making exit payments over the cap. [Interruption.] The hon. Member for Newcastle upon Tyne North says that I have not said that, but I have just said it again. Guidance will be in place to assist relevant authorities in determining when to use their discretion to relax the cap, so it will be made absolutely clear. If a public authority employer is of the view that somebody has been unfairly dismissed either because they are a whistleblower or because they have been discriminated against, guidance will make it very clear that they should relax the cap to allow for an extra-large payment to be made.
Unison has raised concerns that a perverse incentive will be created for employees to avoid settlement via the early conciliation process, which is the optimum stage. What is the Minister’s view of that?
That is exactly what this is all about. It is about ensuring that, when two parties reach their settlement, the employer understands that it must not impose the cap. If the employer is admitting, “You have been made redundant in the wrong way. We accept that you are a whistleblower. Somebody said that they were going to make you redundant, and they did the wrong thing,” it has to make that clear when deciding the amount of damages to be awarded: “We find that you were a whistleblower. We find that you were discriminated against.” By doing that, the employer can relax the cap without any hassle or difficulty. I do not think it could be more clear.
To put it politely, the Minister is severely optimistic if she thinks that this is straightforward, because it is not. She will know that a settlement agreement is only entered into when neither party will accept liability. Therefore, it is not as simple as the employer accepting liability for something and entering into an agreement. Would it not make more sense to simply accept the amendment and to exempt all such agreements and arrangements from the cap altogether?
Absolutely not—and for the exact reason that the hon. Lady gave: we know that lots of people in settlement agreements will not accept liability. We also know that if we agree to the amendment, we will open the floodgates for people to make spurious claims that they have been made redundant on the grounds that they were a whistleblower. We will then get into a nightmare situation where there is a hearing to determine whether that person’s claim is accurate. Members are not letting me make progress, so that I can further explain this provision, which we have put some thought into.
Ministers of the Crown and Scottish Ministers will have discretion and be able to delegate it in the normal way. Under draft regulations, discretion will also be held by full council for local government bodies and for Welsh Ministers. A blanket exemption from the cap would unfortunately open the door to sweetheart deals designed to avoid the effect of the cap, based on dubious claims.
On amendment 125, there is no need for a regulatory referral scheme for whistleblowing claims. Whistleblowers can already make a disclosure directly to the relevant regulator or other prescribed person. Settlement agreements cannot stop them; the law is clear on that. There is no need to require that whistleblowing claimants have access to legal advice before entering into a settlement agreement. The Employment Rights Act 1996 already makes settlement agreements unenforceable unless the employee has received independent advice, so there is no need to require Ministers to produce guidance on settlement agreements for whistleblowers. In fact, we have already had three guidance documents in 2015 alone.
We have looked at this issue. Although I am not an employment lawyer, I am an old lawyer, so I can see the difficulties, but I am satisfied that the way we craft the regulations and, most importantly, the guidance we give to employers will cure the mischief that we all want to be cured.
This is a complicated area. We have skirted over it a little bit, but there are real concerns about the implications for things such as early conciliation, which I raised under amendment 110. It has been rightly pointed out that that is a concern to trade unions, and Unison in particular. There is also a concern about the impact on whistleblowers. I think that the Minister was trying to give the Committee an assurance, in her own unique way, that the Government are committed to ensuring that genuine whistleblowers—
As the hon. Gentleman might imagine, I often am quite robust with my officials. I am keen to ensure we get this right. If we need to go away and make another tweak, we will, because I want to be sure we get this right.
The Minister said in response to one of our amendments that, in such areas, secondary legislation is often a better way to do things. If the Bill were rigid, it would create the kind of anomaly and cause the kind of concern raised by myself and other Opposition Members.
I take at face value the Minister’s commitment to go back and think about this, and we will have an opportunity on Report to explore some of these issues further and to ensure that we get the right sort of response from the Government. No doubt, those who watch our proceedings will have listened carefully to what the Minister had to say. Perhaps she will provide the Committee with some further information to help our proceedings on Report. I beg to ask leave to withdraw the amendment.
“except where exit payments are made under existing public service agreements”
This amendment would exempt exit payments made under existing public service agreements.
With this it will be convenient to discuss the following:
Amendment 119, in clause 35, page 50, line 16, at end insert—
“(1B) An exit is not a relevant public sector exit if, prior to regulations, the terms of an exit taking place after the regulations issued under subsection (1) coming into effect are subject to a contractual agreement made prior to those regulations coming into effect between—
(a) an employee of a prescribed public sector authority and their employer, or;
(b) a holder of a prescribed public sector office and the relevant prescribed public sector authority.”
This amendment would exclude from the public sector exit cap certain exit agreements that have already been entered between the employer and employee, prior to the implementation date of the cap.
Amendment 120, in clause 35, page 50, line 16, at end insert—
“(1C) Regulations made under this section may not take effect before 1 April 2018.”
This amendment would ensure that redundancy schemes underway before regulations implementing the cap take effect are not interfered with retrospectively.
Amendment 107, in clause 35, page 51, line 7, at end insert
“including any period of institutional reorganisation being implemented within two years of the passing of this Act”
This amendment would provide that regulations may make exemptions from public sector exit payment cap for any period of institutional reorganisation being implemented within two years of this Act.
I am afraid it is me again. Hopefully, we do not have too much longer to go this evening.
This third group of amendments on clause 35 is about exit payments, which we have already started debating, and whether the Bill—my hon. Friend the Member for Wakefield, who is not in her place at the moment but has been here for the vast majority of our proceedings, raised this issue earlier—will retrospectively apply to agreements that have already started.
Let me first turn to amendment 113. A public service agreement was introduced by Lord Maude in 2010 that saved a significant amount of money in the first year in which it was implemented. More than 90% of one union—Prospect—voted for it. The review was based on research, analysis, consultation and, I think some would agree, a degree of give and take. It was an attempt to find a solution that was fair to both the taxpayer and the employee. It was supposed to settle the issue of access to pensions for 25 years, but now 100 pension schemes will be forced to change their rules. People made plans on the basis of those renegotiated conditions, which were supposed to last for 25 years. They had a significant effect on those workers’ life plans and the decisions that they made.
Comparing the quality of the process and the outcome, the 2010 review and the present review are light years apart. That has added to the worry of many workers, particularly those who are in a state of limbo when considering the outcome of the Bill. Why have the Government not considered allowing workers who were covered by the 2010 Maude agreement to continue to be covered by its terms and conditions? If that is not possible, will the Minister at least consider letting workers who started the process under the Maude review continue through to completion?
On amendment 119, many workers would have already started and completed their redundancy process had they known of the Government’s true intentions last January. They were wooed into a false sense of security by the pledge that the Minister for Employment said would be made, which I referred to earlier. The Government are directly responsible for the many workers who are now trying to complete their redundancy process before the Government pull up the drawbridge with this change of approach. They would have been reassured by the Government’s manifesto pledge to end taxpayer-funded, six-figure payoffs for the best paid public sector workers, because they did not think it was intended to cover them. They would have looked at their pay packet and thought, “I’m on £25,000, £26,000 or £27,000. The Government couldn’t possibly mean me.” Many people who might have considered taking voluntary redundancy would have thought, “I have had that reassurance from the Government. It has been made twice, so they are not thinking about me. I won’t be affected by these measures.” If they had known the full story, they might have changed their decision. They might have finished the exit process by now, so they would not be caught in this widened net.
Many of those people are on low or middle incomes and have not had the ability or the time to save large amounts of money to see them through the crisis of redundancy that they might be facing. What assessment has the Minister made of the number of workers who are already in the process of negotiation? What would the cost to the public purse be if all those who have started the process were allowed to finish and not to fall victim to the retrospective nature of this Bill? I am interested to know what figures the Minister has on that, because if she opposes the amendment today, she will obviously be doing so for a reason.
Will the Minister give us an idea of the Government’s intended date for the implementation of the Bill, assuming that it completes its passage through Parliament? We found out today that it will be considered on Report in the Commons on
I turn to amendment 107. In speaking to amendment 119, I mentioned how workers were caught unaware by the Government’s widening of the net. A sensible solution might be to accept that there should be a period of grace, given that there was a change of approach. Amendment 107 would propose a period of two years before the legislation takes effect. Baroness Neville-Rolfe said that that would frustrate the intention of the cap. It would not do that, but it would give people who have plans under way an opportunity to complete them before it comes into force. After all, their expectations were very different as a result of Government’s previous statements.
Amendments 113 and 119 would limit the cap to new entrants, as has been described, and therefore not stop existing highly paid individuals from receiving six-figure payouts. That is why I oppose those amendments. Public sector exit payments have cost £2 billion a year in recent years and asking taxpayers to continue to fund exit packages of more than £95,000 for those already employed does not represent value for money and goes against our manifesto commitment.
We signalled our intention to end six-figure exit payments as far back as January 2015. We committed to do so again in our manifesto and in the Queen’s Speech. We have since issued a public consultation and consultation response. Public sector employers can therefore be in no doubt about the Government’s intention to end exit payments of more than £95,000 and should be planning accordingly. To answer the hon. Gentleman’s question directly, the regulations giving effect to the cap will not be in force until
I will not press the amendment to a vote. I am grateful to the Minister for indicating the earliest date at which the legislation can come into force; it is useful to have that guidance. I do, however, think that again the emphasis on the very highly paid is not correct. Many on lower pay who have made plans accordingly could be affected, but I beg to ask leave to withdraw the amendment.
“( ) Regulations shall make provision to require prescribed public sector authorities to consider, prior to making a public sector exit payment—
(a) whether the payment being paid is appropriate; and
(b) whether the payment would provide value for money.”
This amendment would ensure that when considering staff for exits value for money is considered.
Value for money is a key concern, which is why it is mentioned in the amendment. The Government seek to justify a cap on exit payments solely on the basis of the cost of payments to staff between 2011 and 2014, which is not a helpful period to look at because the evidence provided fails to recognise that during that period employment across the public sector was reduced by 790,000, which inevitably affected the cost of exit payments. During that period, civil service employment fell by 107,350 using the current compensation scheme arrangements. No evidence has been offered to demonstrate that an exit payment cap would deliver real value for money and savings into the future, and it could do the opposite, as changing the compensation payments will naturally affect the willingness of staff to exit the public sector, which could lead to higher costs elsewhere.
We have already heard about the deal that Lord Maude described in 2010 as fair to the taxpayer as well as fair to workers; he also said that the deal was fair to employees. The agreement took into account length of service, salary and age, and there was a salary cap that protected against extremes, which resulted in a huge decrease in the number of settlements over £100,000, which is the Government’s intention in the measures before us.
Exit payment caps will have significant effect on workers, whose terms and conditions will be dramatically altered; there will also be an impact on the efficiency of the Government. Both of those issues should be of concern to the Minster. Baroness Neville-Rolfe said in another place that the amendments on value for money were not “necessary or desirable.” She went on to say,
“There is already a fundamental duty on the public sector to ensure that exit payments are value for money and that they are made in the most appropriate manner.”—[Official Report, House of Lords,
What is the clear evidence that imposing the cap does not represent value for money or is not appropriate in a particular case?
Does the Minister now agree that it might have been a mistake not to have the formal impact assessment that colleagues referred to earlier? Even the Dangerous Dogs Act 1991 had an impact assessment that reached some 50 pages.
That is exactly my point. Even the Dangerous Dogs Act had an impact assessment that was 50 pages long. The idea here is that we should not have an impact assessment of a measure that is extremely complicated and affects tens of thousands of workers and hundreds, if not thousands, of public and private sector businesses and bodies. It deserves an impact assessment. It would have made the issue of value for money far more transparent than it is to us in Committee. There is a lack of information about the likely savings to the taxpayer because a proper impact assessment has not been undertaken.
Perhaps the Minister can tell us what proof she is offering that what she is proposing will offer value for money and will bring genuine savings, and that some of the unintended consequences will not militate against that and make any net savings very small or even negative? Where are the facts and figures to support the Government’s claim that the previous schemes did not offer value for money and her new scheme will? In 2010, the scheme the Government introduced was said to offer value for money. Does it still offer value for money now? If not, what has changed in the meantime? Can the Minister guarantee that her changes will not damage the existing value for money that is being achieved as a result of that settlement?
What assessment has the Minister made of the impact of reduction of flexibility brought about by the exit payments cap on the ability of management to manage restructuring of organisations in terms of downsizing? What assessment has she made of the potential impact on staff morale? Is she satisfied that introducing exit payment caps will not actually result in moving costs from one section of the public purse to another. Why are the publicly owned banks the ones that are exempted from the value for money test in the Bill?
I want to mention the fact that the impact on value for money also affects the private sector. Private sector companies working in the nuclear industry will be affected by the exit payment proposals and their impact on value for money. We know about the specific concern in relation to Magnox, which we will discuss further at a later stage. When Magnox stopped producing electricity and moved into decommissioning, the staff were promised that their pensions and severance benefits would be safeguarded. If the Bill goes ahead as it stands, many hard-working and long-serving staff would lose a significant amount of money. There could be a significant impact on value for money in the private sector.
Value for money needs to be looked at in the round, taking in its impact on workers, employers’ ability to manage change, and the knock-on effect on other Government Departments and, indeed, on nuclear safety. I look forward to the Minister’s response.
ENT 26 Derrick Ford
ENT 27 Nick Banning
ENT 28 Association of Educational Psychologists (AEP)
ENT 29 Leona Parker
ENT 30 Darren Stevens
ENT 31 Stefan Roman
ENT 32 Mike A Stevenson
ENT 33 Wayne Griffiths
ENT 34 Ray Jeffery
ENT 35 Stuart Lancaster-Rose
ENT 36 Alex L Weir
ENT 37 Philip Thurlow
ENT 38 Neil Bonner
ENT 39 Ian Milligan
ENT 40 Phil Outten
ENT 41 Nick Mills
ENT 42 Sean Kelsey
ENT 43 Ian Gillies
ENT 44 Fred George
ENT 45 Fiona Apfelstedt further submission
ENT 46 Dave Dodman
ENT 47 Ian Falcus
ENT 48 Horticultural Trades Association (HTA)
ENT 49 Federation of Small Businesses
ENT 50 Association of Convenience Stores
ENT 51 Bob Fuller
ENT 52 Royal Institute of Chartered Surveyors
ENT 53 Pastor Peter Simpson, Minister of Penn Free Methodist Church
ENT 54 Andrew Hetherton
ENT 55 CARE (Christian Action Research and Education)
ENT 56 Prospect
ENT 57 Sameen Farouk
ENT 58 City of London Corporation
ENT 59 Leona Parker further submission
ENT 60 ALACE (Association of Local Authority Chief Executives and Senior Managers)
ENT 61 David Martin
ENT 62 Institute of Revenues, Rating and Valuation
ENT 63 Kevin Smith
ENT 64 Nick Banning further submission
ENT 65 Colin Hunter, Lambert Smith Hampton
ENT 66 PCS Union