Local governments award over-generous severance payments at their peril as Northumberland Council has recently found out.
At what must have been a particularly tense meeting in late July, the council’s s151 officer (more colloquially known as the CFO), reported six unlawful severance packages amounting to £1.1 million in total. Luckily for the council, she stopped short of issuing a s114 notice. Had a s114 notice been issued, the council would have had to halt all new expenditures.
Headline point
All local authorities must have in place the relevant procedure and scrutiny when agreeing on severance payments which are deemed special severance payments (SSP) in accordance with the Government’s statutory guidance. The ramifications of not doing so range from a s114 notice to potential criminal proceedings, should there be any suspicion of illegality.
Severance payments – capped or uncapped?
The payments that dogged Northumberland Council were made over the preceding five years, the earliest dating back to 2017. Whilst the council’s reported shocking lack of scrutiny was undoubtedly to blame, the Government’s U-turns on the issue were probably not helpful.
In November 2020, following a government consultation, regulations came into force which capped exit payments at £95,000. The regulations lacked clarity and the cap included pension strain payments which prompted a huge outcry. Whether in response to this outcry or for other reasons, the regulations did not last long and the treasury disapplied the regulations in February 2021 and they were revoked in March 2021. 14 months later in May 2022, the Government introduced statutory guidance on the approval process and disclosure of special severance payments. Too late for Northumberland but key for severance payments going forward.
What are special severance payments?
Payments over and above statutory or contractual payments – include (are not limited to); settlement agreement payments, PILON payments (subject to certain limits) and pension strain payments paid on a discretionary basis to enhance standard pension benefits.
Does not include; statutory or contractual redundancy payments, untaken annual leave, compensation payments for death or injury, payments ordered by court or tribunal or as part of ACAS early conciliation or ill health retirement benefits under the LGPS.
What process should be followed?
When considering an SSP, local authorities must comply with their ‘duty of best value’. They must be able to demonstrate the economic reason for the payment and the impact of such a payment on the council’s efficiency and effectiveness.
What level of accountability?
Payments of £100,000 and above must be approved by a full council. Those between £20,000 and £100,000 must be signed off by the head of paid service with a clear record of the leader’s approval. Those payments less than £20,000 must be made in accordance with the local authority’s scheme of delegation and authorities should publish the relevant policy for approving such payments.
Takeaway points
- In light of the Northumberland experience, now might be a good time to investigate how severance payments (over and above statutory or contractual payments) are agreed within your organisation.
- Check there is scrutiny in the decision-making process; check there is accountability and transparency at all levels. The CFO in Northumberland noted that ‘more transparent and robust reporting and approval processes’ had been put in place since the last payment had been made and for this reason, she saw no public interest to make a statutory report. Making fair decisions is crucial but being seen to make them and being transparent with the process is equally vital.
- Is there time for a cultural shift away from ‘golden handshakes’? Often there grows up an unhelpful expectation of a ‘generous payment’ on exiting which may not meet ‘best value’ but may just be ‘the done thing’. It’s a problematic expectation and one which needs addressing.
For more information
If you would like to discuss this any further please do contact any member of our employment team. Pension considerations often loom large in exit payment discussions, please contact Doug Mullen for specific advice in that area.