I am grateful to noble Lords for their comments. At the outset, I shall address the point that the noble Baroness, Lady Hayter, made about whether the cap had been extended deliberately. First, £95,000 is a large exit payment, whatever the level of an individual’s former salary. The Government do not believe that the taxpayer should continue to fund exit payments larger than that. The clause allows for the cap to be relaxed, including to take account of exceptional individual circumstances. The large majority of workers are not affected by these arrangements; for example, less than 2% of recent exits in local government would have exceeded the cap. But where generous early retirement provisions are offered that include immediate payment of unreduced pensions, some lower-paid staff with very long service can currently be eligible for exit packages above the level of the cap.
The Government recognise the importance of exit payments in providing workers with support as they get back into employment or enter retirement. However, the fundamental point is that the Government do not believe that it is fair for taxpayers to continue funding the small minority of exit packages that cost over £95,000. The Government made a clear commitment in their manifesto—the source of the figure—to end six-figure exit payouts for public workers.
The noble Baroness, Lady Donaghy, asked about consultation; she said that it had been inadequate. The measure has been public for a long time. We announced the intention to legislate in May, I think, in the Queen’s Speech. We received over 4,000 responses, and do not believe that that suggests that there has been insufficient time to comment. Obviously, the measure will go through full parliamentary scrutiny during the passage of this Bill; we discussed it at Second Reading, are discussing it today, and I am sure that it will be discussed again. I express my thanks to the noble Baroness for her positive comments about some of the exclusions, which she has rightly highlighted. She also asked about the impact assessment. It is not a private
sector impact, so it does not go through the RPC. There was an impact assessment as part of the consultation, which followed the usual criteria set out in government guidance. I do not know whether she has seen that; if not, obviously I will send it to her. I understand that the public had an opportunity to comment on it.
It is currently possible for employers to use taxpayers’ money to fund excessive exit payment, as a substitute for good management practice. I remember the noble Lord, Lord Stoneham, saying at Second Reading how important management was. I think he said that 100 good managers were worth a billion pounds. The availability of very large payments can lead to issues of poor performance. The possibility of redeployment is not always given adequate consideration, which we would all like to see. The cap and the additional scrutiny it brings to payments will encourage employers to act with discipline and proportionality in considering public sector exits, and will help to ensure that good management practices are embedded in decision-making.
Amendment 53A seeks to increase the value of the cap to £145,000, a much higher figure. It would require taxpayers to continue to fund six-figure exit payments for public sector workers. Statutory redundancy pay is of course capped at £14,250. Exit payments of £145,000 would of course represent payouts of 10 times that amount. A cap even at the level proposed by the Government will not affect the large majority of public sector workers, as I have said. For the few who receive such payments, the cap does not reduce their compensation to an unreasonable amount and still compares favourably to the private sector. In addition, as I have said, the clause applies for a waiver power to allow the cap to be relaxed in exceptional circumstances.
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Amendment 54A seeks to subject the level of the cap to annual revaluation, presumably by reference to a factor such as inflation or earnings. This amendment is not necessary, as the value of the cap can already be altered in secondary regulations, which allow for the value of the cap to be reviewed and amended in a flexible manner. The LGA recently commented that,
“it is vital the proposed exit cap is flexible and updated on a regular basis to take into account differences in pay increases in separate areas of the public sector”.
The Government agree with that. However, annual revaluation would fail to offer the flexibility that the clause provides for. As it stands, the Government can amend the level of the cap to take into account all prevailing circumstances, and with the additional scrutiny of the affirmative resolution procedure.
Finally, the amendment in the name of the noble Baroness, Lady Hayter seeks to remove the power to make regulations implementing the exit cap from the clause, which has the effect of leaving the cap unenforceable and the clause redundant. I note that, in a similar spirit, the noble Baroness, Lady Donaghy, gave notice of her intention to oppose the Question that Clause 26 stand part of the Bill. By removing this power to make regulations to implement the cap, this amendment seeks to ensure that this manifesto commitment cannot be delivered. The Government have clearly set their
intention to end six-figure exit payments and believe that the cap of £95,000 is the appropriate means of achieving this. The level of the cap can be changed in response to changing circumstances, after parliamentary scrutiny. I am glad to say that I agree with the noble Baroness that we should look at the procedure and how we might achieve an affirmative resolution procedure when we come back on Report.
To respond to a further question, the cap will take effect after Royal Assent. We expect this to be in summer 2016, all being well.
The Government have a mandate for these proposals, and I respectfully urge noble Lords to resist any attempt to frustrate that commitment in this House. I will of course look at Hansard to see if we can provide any further clarification on points of detail before Report. However, I hope that the noble Lords and Baronesses will not press their amendments and will engage constructively with the Government to ensure that this manifesto commitment can be delivered.