BRIEFING PAPER Number CBP 7827, 26 October 2017

Civil Service By Doug Pyper

Compensation Scheme

Contents: 1. Introduction 2. Civil Service Compensation Scheme (CSCS) 3. Previous reforms

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Contents

Summary 3 1. Introduction 4 1.1 Redundancy provision in the public and private sectors 5 2. Civil Service Compensation Scheme (CSCS) 6 2.1 The 2016 Reforms 6 Public consultation 8 Judicial review of the 2016 amendments 12 Early Day Motion 13 Other changes to exit payments 14 3. Previous reforms 15 3.1 Labour Government’s reform proposals 15 Response 17 3.2 Modified reform proposals 18 Response 19 3.3 February 2010 agreement 19 Response 21 3.4 Judicial Review 22 3.5 Coalition Government’s proposal to introduce compensation caps 24 Response 25 3.6 Negotiations on a longer term solution 26 3.7 The 2010 amendments and the Superannuation Act 2010 28

3 Commons Library Briefing, 26 October 2017

Summary

The Civil Service Compensation Scheme (CSCS) is a statutory scheme which provides compensation for loss of office for reasons including compulsory and voluntary redundancy. The CSCS was amended on 9 November 2016 following a consultation that ran between 8 February and 4 May 2016. The proposed changes were generally opposed by those who responded to the consultation, comprising mainly Civil Service workers affected by the changes. In parallel with the consultation, the Government undertook negotiations with trade unions, who also opposed the changes. The Government set out its final offer to the unions on 26 September 2016. Following changes in the law enacted in 2010 there is no longer any statutory requirement to obtain consent from unions before amending the main terms of the CSCS, although there is a duty to consult. In amending the Scheme the Government sought to reduce the cost of exits from the Civil Service, facilitate staff turnover enabling recruitment of younger workers and incentivise voluntary exits as compared to voluntary or compulsory redundancy. On 18 July 2017 the High Court held that the Government had failed to comply with the duty to consult prior to amending the CSCS, in that it had imposed conditions on union participation in the consultation process. As such, the 2016 amendments were unlawful. The Court’s decision is at the time of writing subject to appeal to the Court of Appeal. The 2016 amendments replaced earlier amendments to the CSCS made in 2010, implemented under the Coalition Government. The 2010 amendments followed failed attempts to amend the CSCS under the Labour Government, which had been quashed by the High Court. In July 2009, the Labour Government set out proposals to reform the CSCS in order to control costs and address elements that were thought to be age- discriminatory. In broad terms, the CSCS provided severance for those under 50, and early retirement for those aged 50 to 60. The Civil Service unions opposed the proposed changes on the grounds that they represented a reduction in terms for most of their members, did not adequately compensate those faced with compulsory redundancy and compared unfavourably other public sector schemes. In February 2010, the Cabinet Office announced a modified set of proposals on which it had reached agreement with five of the six Civil Service unions. This agreement limited the maximum payment on compulsory redundancy to three years’ pay, where this led to a payment of no more than £60,000, and to two years’ pay for higher earners. Additional protection was provided for those closest to retirement. The CSCS was amended accordingly. However, the Public and Commercial Services Union (PCS), opposed the changes and applied for judicial review. On 11 May 2010 the High Court ruled in favour of the PCS. The amendments to the CSCS were quashed, with the exception of certain changes to address elements considered age discriminatory. On 6 July 2010, the Coalition Government said it would legislate to cap payments at 12 months’ pay for compulsory redundancy and 15 months’ for voluntary redundancy. It hoped to negotiate a permanent and sustainable agreement with the unions, at which point the caps would be withdrawn. The unions objected that the proposed cap was less than in other public sector schemes, where a limit of two years’ pay was the norm. The Superannuation Bill 2010-11 was published on 15 July 2010 and received Royal Assent on 16 December 2010. The Act imposed the aforementioned limits although these were repealed almost immediately, and new, higher limits put in place. Those limits remained unchanged until the 2016 amendments. 4 Civil Service Compensation Scheme

1. Introduction

The Civil Service Compensation Scheme (CSCS) is a statutory scheme under which compensation is provided to civil servants for loss of office, including involuntary departures (e.g. compulsory redundancy) and voluntary departures (for instance, when a department seeks to address staff surplus by asking for volunteers to leave). The terms of the CSCS were amended on 9 November 2016. Prior to that, the CSCS was amended in 2010, changing terms that had been in place since 1987. The legislative authority for the CSCS is the Superannuation Act 1972. This provides a broad enabling power to establish, maintain and administer a scheme to provide compensation on loss of employment.1 Amendments to the terms of the CSCS can be made by means of instruments which are laid before Parliament but are not subject to parliamentary procedures. Until 2010, any change to the CSCS required agreement from the Civil Service trade unions, although this requirement for consent was removed by section 1 of the Superannuation Act 2010, enacted in response to a judicial review that had quashed Labour Government attempts to amend the Scheme (see below section on ‘previous reforms’). While the Superannuation Act 1972 as amended no longer requires union consent, it does require consultation with unions. On 18 July 2017 the High Court held that the Government had failed to satisfy this duty to consult; as such the 2016 changes to the CSCS were unlawful. At the time of writing the Government is appealing the judgment (see below) and reviewing compensation payments made on 2016 terms. There are three types of exit payment made under the CSCS: • voluntary exit: for use when staff reductions are sought outside of a redundancy situation; • voluntary redundancy: offered to staff that are at risk of redundancy; and • compulsory redundancy: paid to staff that are made redundant. The Scheme applies to people serving “in employment in the civil service of the State”2 and to employees of non-departmental public bodies and other public bodies specified in Schedule 1 of the 1972 Act. Changes to who is covered by the Scheme must be made by statutory instrument (SI), subject to the negative parliamentary procedure.3 SIs subject to the negative procedure become law unless either House (or the Commons only, in the case of SIs dealing with financial matters) passes a motion calling for their annulment. The CSCS arrangements are separate from the benefits payable to members of the Principal Civil Service Pension Scheme (PCSPS) when they reach the Scheme pension age, which are discussed in a separate Library briefing paper.4

1 See, in particular, Sections 1 and 2 2 Superannuation Act 1972, section 1(4) 3 Superannuation Act 1972, section 1(4) to (8) 4 Civil service pensions - current reforms, Commons Briefing Paper, SN06744 5 Commons Library Briefing, 26 October 2017

1.1 Redundancy provision in the public and private sectors The public and private sectors generally take different approaches to providing redundancy compensation. In the public sector, compensation tends to be provided under a statutory scheme, with the details enumerated in scheme rules. In the private sector, employees tend to have their redundancy terms set out in contracts of employment. This means that private sector practice is, by and large, more flexible, with terms determined from time to time.5 Aside from rights under contract, employees who qualify are entitled to statutory redundancy pay. Broadly, an employee will be regarded as dismissed by reason of redundancy if the dismissal was wholly or mainly attributable to: (a) the fact that his employer has ceased or intends to cease— (i) to carry on the business for the purposes of which the employee was employed by him, or (ii) to carry on that business in the place where the employee was so employed, or (b) the fact that the requirements of that business— (i) for employees to carry out work of a particular kind, or (ii) for employees to carry out work of a particular kind in the place where the employee was employed by the employer, have ceased or diminished or are expected to cease or diminish.6 Statutory redundancy pay is the sum of a week’s pay or multiple thereof for each year of the employee’s period of employment, reckoned backwards from the date of dismissal. The multiple for any given year of employment is determined by the employee’s age during that year:

Multiple of one week's pay (subject to statutory maximum) Age band 1.5 41 and over 1 22 to 40 0.5 under 22 The length of service for calculating pay is capped at 20 years. A week’s pay is subject to the statutory limit in force at the time of the dismissal, which is set annually by regulations. Recently prescribed limits are: Date Maximum amount of one week’s pay (£) 6 April 2017 - 5 April 2018 489 6 April 2016 - 5 April 2017 479 6 April 2015 - 5 April 2016 475

5 Cabinet Office, Proposals to reform the Civil Service Compensation Scheme – Q&A, 31 July 2009 6 Employment Rights Act 1996, section 139 6 Civil Service Compensation Scheme

2. Civil Service Compensation Scheme (CSCS)

2.1 The 2016 Reforms On 9 November 2016 new CSCS terms came into effect, following consultation earlier in the year and negotiation with trade unions. The implementation of the reforms was announced by the then Minister for the Cabinet Office, Ben Gummer, on 8 November 2016: Today I have laid an amended Civil Service Compensation Scheme before Parliament along with a report setting out the process by which we have sought to try to reach agreement with relevant trade unions. The terms outlined in the Civil Service Compensation Scheme 2016 will come into effect from tomorrow, 9 November. This amended scheme is in line with the Government’s response to the consultation on the Civil Service Compensation Scheme that was published on 26 September and the offer made to trade unions on the same day. The Government has reformed the Civil Service Compensation Scheme to align with wider compensation reforms planned across the public sector, giving the Civil Service an effective, cost- efficient system to help civil servants leave when exits are needed. Our overarching aim will always be to provide the best possible service for the public and to create a Civil Service that treats our workforce with fairness and respect. I believe that these reforms represent a strong negotiated settlement. It has been reached with trade unions that have engaged constructively in discussions. As a consequence we have an agreement that provides a firm foundation for the management of the Civil Service and its people for a generation. This administration will not seek to deviate from this agreement. With this reform concluded, I want to work with trade unions on the aspirations we both have to make the Civil Service an even better place to work.7 The consultation resulted in a final offer being presented to the unions, which formed the basis for amendments to the CSCS. In July 2017 the High Court held that the consultation process failed to comply with the requirements of the Superannuation Act 1972, meaning the amendments were unlawful. The judgment is subject to appeal. The CSCS website states that as a result of the judgment “any compensation payments made to members after 9 November 2016 will need to be reviewed”.8 The headline terms of the CSCS as it stood after the 2010 changes are shown on the following page alongside the 2016 terms.

7 Reforms to the Civil Service Compensation Scheme: Written statement - HCWS240 8 Civil Service Compensation Scheme for members, CSCS website [accessed 26 October 2017 7 Commons Library Briefing, 26 October 2017

2010 terms 2016 terms

Other features: an increase in the lower paid underpin (the minimum salary used for calculating exit payments), from £23,000 to £24,500. 8 Civil Service Compensation Scheme

In addition to those changes set out above, one of the key amendments concerns early access to an unreduced pension. The new terms permit this only for departing employees aged 55 and over, whereas formally this was available to some employees from age 50. The changes to early pension access arrangements, and the Government’s case for them, were set out the equality impact assessment, published alongside the Government’s consultation response: Currently, employees have a right to draw some or all of their pension from 50 or 55 (depending on when they joined the relevant scheme). If the pension is put into payment before the Normal Pension Age (NPA), which can be 60, 65 or State Pension Age (SPA) depending upon the scheme, the pension is reduced to reflect the fact that it will be paid for longer. The current scheme rules allow exiting staff to opt to have their pension, unreduced for early payment, from any point once they have reached Minimum Pension Age (MPA) and for that reason, if the cost for this is more than the compensation payment, then the employer meets the additional charge. Although it remains challenging for those close to pension age to be able to find comparable employment, the government is supportive of people being able to work for longer and to remain economically active until later in life. It therefore runs counter to this for the Civil Service, as an employer, to spend significant sums of money to encourage people to become economically inactive. The proposed changes are for employer funded pension top up to be only available to employees over 55, and for that age to track 10 years behind State Pension Age. Rationale for change • The 2010 provisions do not reflect the reality that under the current arrangements staff taking unreduced early access to pension may be 15 years from State Pension age, and may remain economically active. • The requirement to have been a member of the scheme in 2006 in order to have a MPA of 50 means that there is a small and declining population of people with access to employer-funded early access to pension between the ages of 50 and 54. • However, the cost to employers of exit payments for this group is currently disproportionately high compared to other age groups and those of the same age with a higher MPA.9 Public consultation prior to 2016 reforms On 8 February 2016 the Government issued a consultation on amending the terms of the CSCS.10 While the terms had been amended relatively recently in 2010, the Government was concerned that: • The Voluntary Redundancy (VR) terms are limiting the flexible use of the Voluntary Exit (VE) terms. The scheme is therefore not functioning as intended but is still

9 Cabinet Office, Equality Analysis - Civil Service Compensation Scheme Reform, June 2016, p7 10 Cabinet Office, Consultation on reform of the Civil Service Compensation Scheme, 8 February 2016 9 Commons Library Briefing, 26 October 2017

encouraging staff to hold on in the expectation of better terms later; • Early access to pension was included to allow staff to retire and draw all of their Civil Service pension without reduction for early payment. Given the significant costs, the limited eligibility and that Government’s aim in encouraging longer working lives (for example the recent pension reforms) it is questionable as to whether it is still appropriate for the employer to be funding this as an option; • Overall the scheme remains too expensive in light of the national debt and budget deficit leaving less money available to support those where necessary. This is especially acute because of the requirement to reduce current staff numbers due to both the spending review and the need to create space to allow for the recruitment of apprentices; and • More broadly the scheme is out of line with the terms that the Government considers should be generally available in the public sector. In particular the Government does not believe that six figure compensation payments are likely to be fair or to offer value for money.11 In seeking to address these concerns, the consultation document described a number of principles for reform: • to align with wider compensation reforms proposed across the public sector, including the Government’s manifesto commitment to prevent excessive payouts to the better paid by ending six-figure exit packages; • to support employers in reshaping and restructuring their workforce to ensure it has the skills required for the future; • to increase the relative attractiveness of the scheme for staff exiting earlier in the process, and to maintain flexibility in voluntary exits to support this aim; • to create significant savings on the current cost of exits and ensure appropriate use of taxpayers money; and • to ensure any early access to pension provisions remains appropriate.12 Central to the Government’s case for change was a desire to reduce the cost of Civil Service exits by modifying compensation arrangements which it saw as being “more generous than are needed and so do not provide good value for money to other tax payers”.13 The Government estimated that, if the proposed new terms had been in force during 2014-15, the costs applied to the same population that left in the period would have been “at least a third lower”.14 With a view to realising these costs savings and broader aims, such as facilitating staff turnover to allow for recruitment of young workers, the consultation floated a number of changes, which fell into the following categories:

11 Ibid., p6 12 Ibid., p7 13 Ibid. 14 Ibid., p8 10 Civil Service Compensation Scheme

• Structural changes to reduce costs. This includes changing how the amount is calculated or reducing the maximum payable; • Options for improving the use of flexible terms. This mainly covers the terms and use of Voluntary Redundancy; • Employer funded early access to pension. An element of the scheme with significant cost implications; and • An absolute cap on compensation payments, in line with the Government’s proposed legislative changes (see below). The Government also intended to encourage greater uptake of voluntary exit terms by increasing their relative attractiveness as compared to voluntary redundancy. It canvassed a number of possible ways of achieving this, including removing the requirement to make a voluntary redundancy offer or paying less for voluntary redundancy than voluntary exit. The consultation closed on 4 May 2016. Consultation response The consultation received approximately 3,000 responses from individuals, together with responses from the main Civil Service unions. The Government published its consultation response on 26 September 2016.15 The response document sets out that there were “some responses supportive of the changes proposed to the Civil Service Compensation Scheme but the majority of respondents were opposed”.16 The principle areas of concern were summarised as: • that there was already enough flexibility in the current system of Voluntary Exits to ‘increase the attractiveness of the scheme for staff exiting early’. There was no need to alter the current scheme – it just needed to be used appropriately; • rather than looking to reform the CSCS further, the should [sic] target required skills in advance of any exits as part of its workforce planning, consider improving its staff redeployment systems across government and speed-up what can otherwise be stress-inducing exit clearance procedures at the centre; • the removal or reduction of access to employer funded early retirement was a particular concern. It was argued that while many ex-civil servants may remain economically active, it could be more difficult for over 50s to get another job and the current policy mitigated against this. • the changes that were made to the CSCS in 2010 were described by the then Minister for Cabinet Office as “fair, protects those who need the most support, addresses the inequities in the current system and is right for the long term.” Many respondents were concerned that making further changes to the scheme would impact on thousands of civil servants particularly those with long service;

15 Cabinet Office, Civil Service Compensation Scheme Response to consultation on proposed reform of the Civil Service Compensation Scheme, 26 September 2016 16 Cabinet Office, Civil Service Compensation Scheme Response to consultation on proposed reform of the Civil Service Compensation Scheme, 26 September 2016, para 5.2 11 Commons Library Briefing, 26 October 2017

• some respondents thought “the existing terms allow for a great deal of flexibility and employers are able to offer better terms on Voluntary Exit.”17 The consultation response was accompanied by a final offer to trade unions. The final offer letter described engagement with trade unions up to that date (my emphasis): We held a series of discussions throughout the consultation period with the National Trade Union Council (NTUC). I then wrote on 3 June to all unions who provided substantive responses to the consultation to invite them to continue with talks with the aim of reaching agreement on a set of reforms focussed around a basic structure outlined in that letter. In summary these were: • the CSCS terms will be reformed to produce significant savings; • the tariff to be three weeks per year of service; • the compulsory notice period to be reduced to three months; • the limits for both voluntary exit (VE) and voluntary redundancy (VR) exits to be set at 15 months’ salary; and • for employer funded early access to unreduced pension to be available from age 55 (and then track 10 years behind state pension age). The 3 June 2016 letter from Simon Claydon, Director, Civil Service Workforce Strategy and Inclusion at the Cabinet Office, contained the following paragraph: 6. I want to be clear that attendance at any further discussions will be taken as a clear commitment that those union engaging in the talks have accepted that the proposal above18 will form the basis of a reformed, negotiated, set of arrangements that their relevant executives can recommend acceptant to their members in any ballot. The aim of these further discussions is to reach agreement on the precise form that those changes will take.19 It was this paragraph that led to the High Court’s decision that the consultation process failed to comply with the Superannuation Act 1972, as amended. The Court held that it imposed, unlawfully, conditions on participation in the consultation process, serving to exclude some unions from discussions (see discussion below). The final offer presented two sets of CSCS terms. The second set was less favourable than the first (for example, Voluntary Exit and Voluntary Redundancy payments would be capped at 15 instead of 18 months’ pay). The letter stated that the offer of the first set of terms was conditional on acceptance by a sufficient number of unions, which the Minister for the Cabinet Office considers appropriate to constitute an agreement.

17 Ibid. 18 The proposal referred to here was the same as set out in the bullet points above 19 See Public And Commercial Services Union & Ors v Minister for the Cabinet Office [2017] EWHC 1787, para 35 12 Civil Service Compensation Scheme

Failing such acceptance, the Government said the second set of terms would be imposed. Since 2010, the Government has had the power to impose changes to the CSCS without the consent of unions, following changes to the law brought about by the Superannuation Act 2010 (see below). Prior to the Act, union consent was required. Ultimately, as set out in the statement by the Minister, Ben Gummer MP, on 8 November 2016, the Government reached agreement with some unions, although not with all. The Public and Commercial Services Union, Unite and the Prison Officer’s Association refused to accept the conditions set out in the 3 June 2017 letter from Simon Claydon, and were thereby excluded from further participation in the discussions. The Public and Commercial Services Union (PCS) commenced judicial review proceedings. Judicial review of the 2016 amendments On 4 and 5 July 2017 the High Court heard PCS’s application for judicial review of the Government’s approach to amending the CSCS. Judgment was handed down on 18 July 2017 and reported as Public And Commercial Services Union & Ors v Minister for the Cabinet Office [2017] EWHC 1787. Lord Justice Sales & Mrs Justice Whipple agreed that the Government had failed to comply with the consultation requirements of the Superannuation Act 1972, and consequently the amendments to the CSCS were unlawful. Basis of the Court’s decision The Superannuation Act 1972 was amended in 2010 following an earlier judicial review brought by PCS. The 1972 Act had provided that the Government must obtain consent from trade unions prior to modifying the CSCS. The Government implemented changes to the Scheme although failed to obtain agreement from PCS, the union representing the majority of civil servants. As such, PCS succeeded in its judicial review on 11 May 2010. In response, the 2010 amendments to the 1972 Act changed the requirement to obtain agreement to a duty to consult. The basis for PCS’s 2017 judicial review was that the Government had failed properly to consult within the terms of the 1972 Act, as amended. Section 1(3) of the Superannuation Act 1972 as amended provides: Before making any scheme under this section the Minister … shall consult with persons appearing to the Minister … to represent persons likely to be affected by the proposed scheme. Section 2(3D) then provides: So far as it relates to a provision of a scheme under the said section 1 which would have the effect of reducing the amount of compensation benefit, the duty to consult in section 1(3) of this Act is a duty to consult with a view to reaching agreement with the persons consulted. Lord Justice Sales explained the combined effect of these provisions: … it is an obligation to consult in good faith and in a spirit of willingness to consider counter-proposals put forward by any representative trade union, such as the PCSU, with a view to seeing if, after giving them consideration , they might be 13 Commons Library Briefing, 26 October 2017

accommodated in or alongside any proposed changes to the CSCS which the Minister proposes to make.20 As set out above, on 3 June 2016 the Director of Civil Service Workforce Strategy and Inclusion at the Cabinet Office wrote to unions making their continued participation in negotiations conditional on accepting proposed amendments to the CSCS. PCS, Unite and the POA refused to accept these conditions and were excluded from negotiations. Lord Justice Sales held that this imposition of conditions breached the 1972 Act’s requirement to consult: There was no basis on which the Minister was entitled to exclude the PCSU from the consultation on the revised proposed terms set out in Mr Claydon’s letter of 3 June 2016 and as they came to be further refined in the course of the second round of discussions, thereby depriving some 160,000 civil servants of a voice in those debates. The Minister was not entitled to impose additional entry conditions above and beyond those stipulated in the 1972 Act for participation in that consultation, in the form of the pre- commitments he required the unions to make. … For the reasons given above, in my judgment the claimants succeed in relation to Ground (1) of the challenge to the 2016 amendments21 As a consequence, the amendments to the CSCS were unlawful. At the time of writing, the CSCS website states: The Government lost a Judicial Review against the changes made to the Civil Service Compensation Scheme on 9 November 2016. This means that any compensation payments made to members after 9 November 2016 will need to be reviewed. We are currently working with employers to agree how these changes impact the schemes that have been run on 2016 terms. All impacted members will be notified of the outcome of the review by no later than 31 December 2017.22 The Court’s decision is subject to appeal; it is not yet known when the Court of Appeal will hand down judgment. Early Day Motion During the 2016-17 session of Parliament 113 MPs signed Early Day Motion 310 expressing concern about the amendments to the CSCS. The text of the Motion was as follows: That this House is concerned by the Government's proposed reforms of the Civil Service Compensation Scheme (CSCS); notes the proposal to drastically cut civil service compensation payments by between 25 and 60 per cent, affecting thousands of civil servants across the UK; is alarmed that these reforms are being brought forward at the same time as hundreds of government offices are closing and departments are facing immense pressure to downsize, putting thousands of civil service jobs at risk; is aware that the then Minister for the Cabinet Office introduced

20 Public And Commercial Services Union & Ors v Minister for the Cabinet Office [2017] EWHC 1787, para 50 21 Ibid., paras 57 & 61 22 Civil Service Compensation Scheme website [accessed 26 October 2017] 14 Civil Service Compensation Scheme

changes to the CSCS in 2010 which he described as fair and sustainable in the long term; further notes that an equality impact assessment on these proposed new reforms has not been carried out; is concerned that cuts to the CSCS may affect older workers, women, those with disabilities and BME civil servants; notes that civil servants across the UK are facing an uncertain future and that additional uncertainty regarding exit payments has had a negative impact on staff morale and health; and therefore calls on the Government to halt its plans to further cut the CSCS and instead invest in the civil service through staff training, decent pay rises and honouring the terms and conditions of all civil servants. Other changes to exit payments Cap on exit payments - £95,000 Section 41 of the Enterprise Act 2016 gave the Government a regulation-making power to lower impose a £95,000 cap on exit payments to workers in the public sector, including those in the Civil Service. The draft implementing regulations were published alongside the then Bill. It is not clear when this will come into effect. The regulations could allow for some limited variation. The consultation document explained: The Government has proposed legislation to limit compensation payments in the public sector to £95,000 or less. If Parliament passes this legislation the Government intends to amend the Civil Service Compensation Scheme to reflect this change in the law. This will mean that any payments that would be more than £95,000 will be limited to £95,000. There will be a mechanism whereby the Minister is able to approve (in exceptional circumstances) cases presented for exits costing more than £95,000. We also propose to make explicit that a Voluntary Exit scheme can be run either with a “hard” cap on the level of payments (i.e. there is no option for any payment to exceed the cap, which could be set at a level lower than £95,000) or without an additional cap (in which case the legislative cap of £95,000 will still apply).23 Recovery of exit payments Sections 154-157 of the Small Business, Enterprise and Employment Act 2015 created a power for regulations to require “repayment of some or all of any qualifying exit payment in qualifying circumstances”. The Government intends for the claw-back provisions to apply to public sector workers earning in excess of £80,000 at the time of departure. They would require recovery of part of the exit payment if the worker returned to the public sector within a year, or all of the payment if he or she returned within 28 days (and on a sliding scale between those periods). For further background to the proposals, see pages 121-123 of the Library’s briefing on the Small Business, Enterprise and Employment Bill. The regulations to implement the proposal are currently in draft and were consulted on between 20 December 2015 and 15 January 2016. The Government has not responded to the consultation nor laid finalised regulations before Parliament.

23 Cabinet Office, Consultation on reform of the Civil Service Compensation Scheme, 8 February 2016, p13 15 Commons Library Briefing, 26 October 2017

3. Previous reforms 3.1 Labour Government’s reform proposals In March 2009, the then Prime Minister, Gordon Brown, announced an intention to reform the existing arrangements in order to “control costs” and improve departmental accountability: The Government therefore intend fundamentally to reform the severance and early retirement terms for all civil servants in order to control costs. The current arrangements have been in place since 1987 and are inflexible and expensive. The new terms require departments to reduce costs and will improve accountability and value for money for the taxpayer, saving up to £500 million over the next three years.24 Some aspects of the scheme were considered “age discriminatory” and needed to be addressed: In addition, the current terms provide different benefits depending on age. Some aspects of the rules have been challenged by members on age discrimination grounds, with varying degrees of success. However, even if the discrimination is judged by the courts to be justifiable, it is not necessarily the case that members perceive the differential approach as fair.25 In July 2009, the Labour Government published a consultation document setting out reform proposals.26 It had earlier consulted the Council of Civil Service Unions (CCSU), which acts on behalf of the Civil Service unions on national issues,27 but had been unable to reach a position where an agreed set of proposals for reform could be presented.28 The Labour Government described the principles underpinning its reforms as follows: At the meeting with the unions on 22 September 2009, Cabinet Office Minister Tessa Jowell MP set out the key principles for reform, namely: To deliver the savings that the Prime Minister had committed to; To set terms at a reasonable level which is not over-generous; To remove aspects of the current scheme which may be perceived as providing “perverse incentives”; and To ensure that the terms are not age discriminatory. These key principles are supplemented by further principles set out in Fairness for All: A distinction will be drawn between the compensation payable in respect of cases of unavoidable redundancy (“compulsory redundancy”) and all other exits (including the inviting of volunteers to reduce staff surpluses). Where staff leave as a

24 HC Deb, 31 March 2009, c60-61 WS 25 Cabinet Office, Fairness for All – Proposals for reform of the Civil Service Compensation Scheme, July 2009, p4; See also Cabinet Office, Proposals to reform the Civil Service Compensation Scheme - Q and A, July 2009 26 Cabinet Office, Fairness for All – Proposals for reform of the Civil Service Compensation Scheme, July 2009 27 CCSU, An initial response by the Council of Civil Service Unions (CCSU) to the Independent Public Service Pensions Commission, July 2010 28 Cabinet Office letter to Council of Civil Service Unions, 31 July 2009 16 Civil Service Compensation Scheme

consequence of compulsory redundancy the compensation payable will be mandated in the Compensation Scheme rules and will therefore be the same for all employers. In other cases the employer will have a degree of flexibility as to the compensation payable subject to certain maximum amounts. All civil servants work for employers who already have, or are planning to have by 1 April 2010, no retirement age. Compensation payments will therefore be paid regardless of age (subject to the next point). Civil servants have access to an index-linked occupational pension which is largely employer-funded. Most civil servants have access to an unreduced pension from age 60, while recent entrants have a pension age of 65. Compensation payments will be tapered to take account of access to pension. Taxpayers have the right to know how much public money has been spent on redundancy and other early departure costs. Treasury is consulting on amendments to guidance on the preparation of departmental resource accounts. For the future, Departments will generally deliver compensation on termination of contract in the form of a cash payment rather than continuing the current model of early retirement for those aged over 50 and severance payments for those aged under 50.29 As this explained, the Government proposed to draw a distinction between compensation in cases of wholly unavoidable “compulsory redundancy” and all other exits. In future, compulsory terms would only apply after all the procedures and processes of the joint Cabinet Office/CCSU Protocol30 had been followed and the Cabinet Office agreed that compulsory redundancies appeared inevitable. Compensation on compulsory redundancy would be mandated in scheme rules and, subject to transitional terms, would be in the form of a cash payment up to a maximum of two years’ pay. Older workers wanting access to an early pension would be able to opt to use their cash payment to buy out all or part of the actuarial reduction: From 1 January 2010, employees made compulsorily redundant will get cash compensation based on length of service and subject to a maximum of 2 years’ pay (the maximum will apply to those with more than 14 ½ years’ service). Staff may choose to use some or all of the payment to top-up their pension, but – other than during the transitional period to 31 March 2011 – enhanced early retirement packages will no longer be available on redundancy. For those who are able to take an unreduced Civil Service pension (that is, typically, someone who is over 60), the cash payment will be less to take account of the fact that their pension is largely funded by the taxpayer. In these cases, payments will typically be 6 months’ pay. Payments for those close to pension age will be tapered to avoid a “cliff edge”.31

29 Cabinet Office, Civil Service Compensation Scheme Reform – Response to “Fairness for All” consultation, As updated on 2 February 2010, page 6 and 7 30 Cabinet Office and Council of Civil Service Unions Protocol for handling staff surplus situations (April 2008) 31 Cabinet Office, Proposals to reform the Civil Service Compensation Scheme - Q and A, July 2009 17 Commons Library Briefing, 26 October 2017

When seeking volunteers for redundancy, employers would have flexibility to set their own terms, subject to certain constraints: In other circumstances, including as a measure to attract volunteers as a redundancy avoidance measure, a standard tariff will exist based on one month’s pay per year of service up to a maximum of two years’ pay, Employers will have discretion to substitute their own arrangements (for individual or group departures) paying more or less than the standard tariff, but subject to an absolute maximum of twice the standard tariff (or, if less, two years’ pay) and a minimum of statutory redundancy. This discretion will be subject to guidance to be issued by the Cabinet Office which will emphasise the need to secure value for money and the need for Departments to satisfy themselves that their terms are not unjustifiably discriminatory. Where employers wish to provide discretionary exit terms in excess of the standard tariff (but still within the two-year maximum), the following controls will apply: Staff below the senior Civil Service (“SCS”) - the Permanent Secretary must be satisfied that there are appropriate processes in place to ensure value for money Deputy Directors and Directors - the Permanent Secretary must approve the exit terms personally Directors General and above - the Permanent Secretary must obtain Cabinet Office approval for the exit terms Departments will have discretion to offer early payment of pension to those aged 55 or over. Departments may choose to fund part or all of the cost of buying-out the actuarial reduction but cannot provide extra years of service as well. If employers choose to exercise this discretion they cannot make a cash payment as well.32 Certain issues were outside the scope of the review, including: • The terms of medical retirement (whereby an unreduced pension can be taken early on ill-health grounds);33 and • The Principal Civil Service Pension Scheme, which had recently completed a major reform.34 Response The proposals were opposed by the unions representing civil servants. Main concerns included the reduction in the maximum payment on compulsory redundancy from three years’ salary to two. Furthermore, the terms were considered to compare unfavourably to those elsewhere in the public sector. Whereas employees in the NHS, local government and teachers made redundant when over minimum pension age (50 or 55) could still get immediate access to an unreduced pension, civil servants would only be able to get this if they could pay for it with their severance lump sum. The FDA35 – the union representing senior civil

32 Cabinet Office, Fairness for All – Proposals for reform of the Civil Service Compensation Scheme, July 2009, p10 33 Ibid, p5 34 Cabinet Office, Proposals to reform the Civil Service Compensation Scheme - Q and A, July 2009 35 The FDA website explains that “the FDA's original name - the Association of First Division Civil Servants - was registered in 1918. The organisation was founded to 18 Civil Service Compensation Scheme

servants - considered this to be a “major detriment” and described the proposed new terms as “the worst in the public sector.” 36 Another Civil Service union, Prospect37, said that an explicit aim of the package was to limit the circumstances in which compulsory terms could be used. In the case of voluntary departures, it was concerned that employers would be able to “vary up or down the discretionary terms”, with the only protection for employees being the statutory redundancy terms.38 The Public and Commercial Services Union (PCS) said the vast majority of its members would be “worse off” under the proposals: It is the case that, in a compulsory situation, those over 60 who currently are quite badly treated under civil service compensation scheme will get better terms because of the impact of new age discrimination legislation. It is also potentially the case that those with short service and those under 35 might think the new proposals are better. But as they get older that very rapidly ceases to be the case.[...] The employer says that these changes are legal and are derive from ministerial discretion but PCS have taken legal advice on all aspects of the proposals including accrued rights, contractual obligations and have started a judicial review process.39

3.2 Modified reform proposals On 4 December 2009, the Cabinet Office published its response to the consultation. The main proposed changes to those in the July 2009 consultation document were an increase in the proposed cap on compulsory redundancy from two to three years’ pay, provided this led to a payment of no more than £50,000. There would be entitlement to immediate payment of an unreduced pension where the person was within five years of pension age, or aged at least 50 and with at least five years’ current qualifying service at 31 July 2009: a) the maximum payment on compulsory redundancy will be set at three years’ pay where this leads to a payment of no more than £50,000. In other cases the payment will be limited to the higher of two years’ pay or £50,000. This change is intended to provide greater protection to the lowest paid civil servants; b) in cases of redundancy, where people have a preference for an immediate pension rather than a severance payment, earned pension can be paid without reduction even where the severance payment is insufficient to buy out the actuarial reduction. This provision will apply generally from 5 years before pension age and, additionally, to those aged at least 50 and with a minimum of 5 years’ current qualifying service at 31 July 2009. This change reflects the importance that certain groups of staff attach to being able to opt for early retirement rather than severance;

protect the interests of senior civil servants, who were at that time known as the 'first division' within the civil service hierarchy.” 36 FDA, Civil Service Compensation Scheme update, 29 September 2009 37 Prospect describes itself as the “union for professionals” and represents engineers, scientists, managers and specialists (see the “about us” section of its website). 38 Prospect, Profile Magazine, September 2009 39 PCS, Frequently asked questions – Civil Service Compensation Scheme; See also PCS, ‘Civil Service Compensation Scheme Briefing’, September 2009 19 Commons Library Briefing, 26 October 2017

c) the minimum qualifying period for a redundancy payment will be increased to two years. This reflects concerns raised by some smaller employers and is in line with the statutory scheme; and d) where civil servants return to the Civil Service after receiving a severance payment, the severance will be repayable pro-rata during the notional period of the payment. So, for instance, where someone receives a severance payment of 18 months‘ salary and is then re-employed after a gap of 12 months, then they will be allowed to keep the equivalent of 12 months’ pay but will be required to repay the rest of the severance payment. This change reflects concerns expressed by a number of civil servants about the potential for abuse of the system.40 The implementation date for the changes was postponed from 1 January 2010 to 1 April 2010. Staff made compulsorily redundant would be allowed to leave under existing terms, provided their last day of service was on or before 31 March 2011.41 The Cabinet Office said its new proposals would still “save up to £500 million over the next three years without impacting on the very lowest-paid civil servants”.42 Response The FDA welcomed the changes to protect the lowest paid and those close to retirement. However, it condemned the decision to impose change without agreement and was considering legal action “to enforce what we believe are our members' accrued rights to the current terms.”43 On 10 December, PCS said it had decided to “launch legal action with other unions against the government over unilateral changes to the Civil Service Compensation Scheme and hold a strike ballot among 270,000 PCS members working for the civil service and its related bodies.”44 An Early Day Motion in the name of Labour MP, Katy Clark, urged the Government “urgently to re-examine these disappointing and unfair proposals before they are implemented.”45

3.3 February 2010 agreement On 3 February 2010, the Cabinet Office announced that it had reached agreement with five of the six main Civil Service unions (Unite, the GMB, Prospect, the Prison Officers’ Association, and the FDA) on a modified set of proposals. The sixth and largest union, the PCS had not agreed.

40 Cabinet Office, Civil Service Compensation Scheme Reform – Response to “Fairness for All” consultation. Questions and Answers; Cabinet Office, Civil Service Compensation Scheme Reform – Response to “Fairness for All” consultation, December 2009 41 Cabinet Office, Letter to all staff. Proposals to reform the Civil Service Compensation Scheme, 4 December 2009 42 Cabinet Office Press Release, ‘Civil Service compensation scheme reformed’, 4 December 2009 43 FDA Press Release, ‘FDA condemns imposition of new redundancy terms’, 4 December 2009 44 PCS Press Release, ‘PCS to launch legal action and hold strike ballot.” 10 December 2009; See also, Prospect Press Release, ‘Redundancy deal angers specialist staff’, 4 December 2009. 45 Early Day Motion 251 – Civil Service Compensation Scheme, 25 November 2009 20 Civil Service Compensation Scheme

The then Cabinet Office Minister, Tessa Jowell, explained that two issues had come across strongly in responses to consultation: These were, the need to ensure that the lowest paid workers with long service could still access up to three years' pay in compensation on redundancy, and the need to preserve the option of access to an unreduced pension on redundancy for those close to pension age.46 In response, the Government had increased the proposed cap on compulsory redundancy to a maximum of three years’ pay where this led to a payment of no more than £60,000. Those earning between £20,000 and £30,000 would be eligible for severance payments of up to between two and three years’ pay. For higher earners, the cap would be two years’ pay. Further protection was provided for those closest to retirement. Staff aged at least 50 as of 31 March 2010, and with a minimum of five years' service, would continue to receive existing compulsory retirement terms based on service to 31 March 2010: The new terms provide added protection, enabling the lowest paid to continue to receive a service-related redundancy payment of up to three years' pay, up to a maximum of £60,000. As in our earlier proposals, payments will be capped at a maximum of two years' pay for higher earners. The added protection for the lowest paid means that those earning under £20,000 will not be affected by the new cap limiting severance payments to two years' pay, while those earning between £20,000 and £30,000 will be eligible for severance payments of up to between two and three years' pay. We have also agreed some further transitional protection for existing staff. If made compulsorily redundant, staff aged at least 50 as of 31 March 2010 - and with a minimum of five years' service - will continue to receive existing compulsory retirement terms. This means they will continue to receive an early, enhanced pension based on their years of service as at 31 March 2010, thus providing a significant level of further protection, for those closest to retirement, from the position reached in December. A relatively small number of civil servants, who joined the civil service before 1987, are currently eligible for a reserved right severance payment. Here, we have modified our earlier proposals so that if made compulsorily redundant, these staff would receive a severance payment based on their years of service as at 31 March 2010, with the cash value tapered to become equivalent in value to the new terms within 3 to 4 years.47 The minimum qualifying period was increased from one year under the July 2009 proposals, to two years.48 The Cabinet Office described the new terms as “broadly comparable” to those elsewhere in the public sector: The new terms now make the scheme broadly comparable to schemes offered elsewhere in the public sector. Private sector practice tends to be more flexible, with the terms being

46 HC Deb, 3 February 2010, c11-13WS 47 HC Deb, 3 February 2010, c11-13WS; For further details, see Cabinet Office, Reforming the Civil Service Compensation Scheme – summary and Q &A 48 Cabinet Office, Civil Service Compensation Scheme Reform - Response to “Fairness for All” consultation, as updated February 2010, p11 21 Commons Library Briefing, 26 October 2017

determined from time to time rather than being formalised as is the case in the public sector.49 It said it would work to minimise compulsory redundancies in order that the proposed cost savings could be achieved: The modifications will not affect the savings committed to as the Civil Service will work in partnership with the unions to minimise compulsory redundancies and therefore limit the extent to which the compulsory redundancy terms are payable. The improved transitional terms will only apply when the Cabinet Office is satisfied that all redundancy-avoidance measures have been pursued. And work will be taken forward to amend the terms around Civil Service mobility to allow compulsory transfers of staff between Government departments and agencies.50 Two instruments to implement the reforms – the Principal Civil Service Pension Scheme (Amendment) Scheme 2010 and the Civil Service Compensation Scheme (Amendment) Scheme 2010 – were laid before Parliament on 5 February 2010.51 Response The five unions supporting the proposed terms believed them to be the best that could be negotiated: We recognise the requirement for reform and believe that the terms that have been reached are the best that might be negotiated. We have been particularly concerned that they should take account of the position of the low paid and those close to retirement and are very pleased that they now do so. Under these circumstances, we support these proposals and recommend them to our respective members.52 The FDA said the new terms represented a package that was “balanced and, overall, fair” to its members.53 General Secretary, Jonathan Baume, told the Public Administration Select Committee that while some of its members would lose, others would gain entitlements for the first time: Anyone who earned under £20,000 retained three years’ pay and that is just under half the Civil Service on the figures we have seen recently. If you want the significant change, it was the higher earners and, to be fair, in particular, groups of people in their mid-40s who felt particularly aggrieved about the way that the balance worked out. A final comment on all of that was that if there was going to be change, what we wanted to do was negotiate a package that did mean that some got less, some retained existing terms and some actually benefited. There were no terms in place for anyone who over 60 under the old

49 Cabinet Office, Reforming the Civil Service Compensation Scheme – summary and Q &A, February 2010 50 Ibid 51 EDMs 837 and 838, tabled by John McDonnell MP proposed that the instruments be revoked. EDM 1060, in the name of the then Liberal Democrat Cabinet Office spokesperson, Jenny Willott, called on the Government to “reconsider these proposals in discussion with the relevant unions” (10 March 2010). 52 “Agreement agreed between the Cabinet Office, FDA, Prospect, POA, GMB and Unite – Agreement reached on new Civil Service Compensation Scheme’, 2 February 2010 53 See, for example, FDA Press Release, ‘Unions reach deal on new civil service redundancy terms’ 2 February 2010; Prospect press release, ‘Statement from Dai Hudd on the Civil Service Compensation Scheme’, 29 January 2010 22 Civil Service Compensation Scheme

arrangements and there were no redundancy terms in place for anyone who had joined since 2007 under what is called the Nuvos scheme, the career averaging arrangements that were brought in as part of the pension changes in 2007.54 Prospect asked its members to endorse the final deal, which would ensure “access to terms at least as good as the rest as the public service”. The lowest paid would get up to three times salary on compulsory redundancy. Although higher paid civil servants would have their payments capped at two years’ pay, the great majority of those staff had longer service and were over 50. Their current rights would, therefore, be “fully protected by the reserved rights negotiated for the over 50s.” 55 However, the PCS opposed the agreement to reform the scheme.56 As regards the cap on cash severance payments on compulsory redundancy, it said, for example: Those earning over £30,000 would lose their existing entitlement to 3 years’ compensation, which would be replaced with a 2 year cap, a loss of tens of thousands of pounds in many instances. Those earning between £20,000 and £30,000 would have any compensation capped at £60,000 if they had enough service.57 It held three days of strike action in March 2010.58

3.4 Judicial Review The PCS applied for judicial review of the decision to press ahead with changes that were detrimental to existing civil and public servants, without the agreement of the union representing the majority of civil servants.59 On 11 May 2010, the High Court ruled in favour of the PCS and said the amendments to the CSCS should be quashed. Mr Justice Sales pointed to section 2(3) of the Superannuation Act 1972 (as amended), which says: No scheme under the said section 1 shall make any provision which would have the effect of reducing the amount of any pension, allowance or gratuity, in so far as that amount is directly or indirectly referable to rights which have accrued (whether by virtue of service rendered, contributions paid or any other thing done) before the coming into operation of the scheme, unless the persons consulted in accordance with section 1(3) of the Act have agreed to the inclusion of that provision.60 He rejected the argument made by the Cabinet Office that the protection conferred by section 2(3) applied to benefits under the Principal Civil Service Pension Scheme (PCSPS) but not to the CSCS:

54 Oral evidence taken before Public Administration Committee, Civil Service Compensation Scheme/Work of the Cabinet Office, Tuesday 27 July 2010, Q3 55 Prospect, Public Eye, February 2010 56 PCS Press Release, ‘National strike ballot gets underway’, 2 February 2010 57 PCS, Additional notes for speakers, 4 February 2010 58 PCS press release, Massive support on first day of civil service strike, 8 March 2010; PCS Press Release, PCS responds to the Budget, 24 March 2010 59 PCS press release, Judicial review dates set, 22 March 2010 60 The Queen (on the application of the Public and Commercial Services Union) and Minister for the Civil Service [2010] EWHC 1027 ,10 May 2010, para 49 23 Commons Library Briefing, 26 October 2017

in my judgment the phrase “rights which have accrued” uses the words “rights” and “accrued” in the same natural, non-technical sense in which they were used in paragraph 12 of the Joint Committee report. In the context of the PCSPS as it stood down to 1994 and now in the context of the PCSPS and CSCS, those entitlements which existed as a matter of administrative practice (albeit not as a matter of legal right) were nonetheless regarded by both staff and management sides as “accrued rights” in the sense relevant for the protection of section 2(3) to apply. The position down to 1972, according to which benefits which were a matter of legal form discretionary were nonetheless treated in substance as entitlements and were in fact always paid, had continued without a break up to the amendment of the law in 1990. Moreover the language in the PCSPS in relation to such discretionary benefits was the language of entitlement and right. Thus, on the natural reading of section 2 (3) in its particular context and against the background of the Joint Committee report, I consider that the phrase “rights which have accrued” was apt to cover both those pension and other rights which were a matter of legal entitlement and also other “rights” to benefits which were in substance a matter of administrative entitlement.61 This meant the terms governing the amount of those CSCS benefits referable to length of service and contributions paid, could not be altered without the consent of the trade unions consulted: In light of the interpretation of section 2(3) of the 1972 Act as amended set out above, therefore, those benefits under the CSCS in relation to redundancy, compulsory early retirement and the like, which are defined by reference to length of service or contributions paid, all attract the protection of section 2(3). The Claimant’s agreement is required before the terms governing the amount of those benefits may be altered.62 The Court ruled that consideration would need to be given to how far the effects of the judgment should extend: For these reasons, the Claimant’s application for judicial review succeeds and the amended CSCS falls to be quashed. Consideration will now need to be given to what any quashing order should say and how far the effects of this judgment extend. The parties should consider the terms of the order which they propose should be made in the light of this judgment. Any outstanding area of dispute in relation to the terms of the order can be referred back to the court for determination.63 The Cabinet Office said it was “disappointed by the High Court's decision” and was “considering the terms of the judgement."64 The PCS hailed it as a “major victory”.65 The parties later returned to the High Court because they disagreed about whether “the whole of the amended CSCS should be quashed or whether parts of it might be saved.”66 Mr Justice Sales quashed the

61 Ibid, para 51 62 Ibid, para 59 63 Ibid 64 Cabinet Office, Civil Service website, downloaded 13 May 2010 65 PCS press release, ‘Major victory for union over plans to cut civil service redundancy pay’, 10 May 2010 66 The Queen (on the application of the Public and Commercial Services union) and Minister for the Civil Service [2010] EWHC 1463 (Admin), 18 June 2010 24 Civil Service Compensation Scheme

amendments that had been made to the scheme, with the exception of some specific changes which had been introduced to address elements of the scheme that were deemed to be age discriminatory: 25. The age discrimination amendments are contained in Schedules 3 and 4 to the Scheme. Schedule 3 is to have effect from 16 July 2008 and Schedule 4 is to have effect from 1 April 2009, whereas the remainder of the Scheme is to come into operation only on 1 April 2010. Schedules 3 and 4 were therefore intended to amend the CSCS in a way completely distinct from the operation of the other amendments contained in the Scheme. The operation of Schedules 3 and 4 is not dependent upon those other amendments being in place. 26. The rationale of the age discrimination amendments is also completely distinct from the rationale for the unlawful amendments (which was to introduce flexibility in relation to benefits payable upon, and to diminish rights available in respect of, compulsory severance and voluntary severance). By contrast with the rationale for the unlawful amendments, Schedules 3 and 4 are directed to rectifying what might otherwise be a distinct area of unlawfulness in the existing CSCS in terms of its compatibility with age discrimination legislation.67 The Explanatory Note to the Civil Service Compensation Scheme (Amendment) Scheme 2010 explains that the provisions referred to affect individuals approaching or over age 60: Schedule 3 amends rule 2A.5.3 and rule 5.1 of the CSCS to remove the tapering which currently applies to the lump sum element of the compensation paid to a person aged between 57 and 60 who leaves on compulsory early retirement terms. The removal of the taper has retrospective effect from 16th July 2008. Schedule 4 provides for a lump sum of 6 months’ pay to be paid to a person who leaves on compulsory retirement terms aged 60 or over in the same circumstances as a lump sum is payable to those under age 60. This has retrospective effect from 1st April 2009. An EDM in the name of Labour MP (and currently Shadow Chancellor), John McDonnell, congratulated the PCS on its legal victory and encouraged “the new Government to enter urgent negotiations with the union to seek a negotiated settlement.”68

3.5 Coalition Government’s proposal to introduce compensation caps In opposition, the then Shadow Minister for the Cabinet Office, Francis Maude had expressed a view that the CSCS needed to be reformed: The current scheme is significantly more generous than others even in the public sector. We want to work with the unions to adjust these payouts to levels more akin with those that prevail in the private sector.69 Following the change of Government after the 2010 General Election, the Coalition Government announced on 6 May 2010 its intention to

67 Ibid, para 26 68 EDM 301. Civil Service Compensation Scheme. 23 June 2010 69 Francis Maude. Speech - ‘Delivering a better public service’, 6 July 2010 25 Commons Library Briefing, 26 October 2017

legislate to limit the amount payable under the CSCS to 12 months’ salary on compulsory redundancy and 15 months under any other voluntary arrangement. It argued this was necessary in the light of the difficult fiscal circumstances and the High Court judgment in favour of the PCS (see section 3.4 above). The then Minister for the Cabinet Office, the Rt Hon Francis Maude MP said: In the light of the extremely difficult fiscal circumstances facing the national economy, the Government has no option but to take steps to ensure that any scheme for civil servants is affordable in the economic climate. Earlier this year, the previous government introduced a revised Civil Service Compensation Scheme that introduced a two year cap on the payment of compensation for loss of office, or redundancy. The terms of this scheme were agreed with the FDA, Prospect, the GMB, Unite and the Prison Officers’ Association. One union, however, the PCS, did not agree, sought judicial review in the High Court, and won. The revised scheme was accordingly quashed. The previous scheme is therefore once again in force. This scheme is prohibitively expensive - in some cases worth up to six and two thirds years of salary. We believe swift action to curb its excesses is essential. We take this step without relish. It has been made necessary by the unilateral action taken by PCS, acting on its own, to contest the previous government’s scheme. I will therefore bring legislation to the House as soon as Parliamentary time allows in a Bill to limit the costs of future compensation payments for both compulsory and voluntary civil service exits. Specifically, the Bill will propose that all departures on compulsory terms from the Civil Service will be capped at a maximum of twelve months salary and departures under any other voluntary arrangements will be capped at fifteen months salary.70 The intention was to negotiate a “sustainable and practical long-term successor scheme” with the civil service unions. The Minister believed this could be in place by the time the Bill reached the statute book: Having acted swiftly to limit the costs of future compensation payments I hope that the government’s invitation to the Council of Civil Service Unions will be received in the spirit it is offered and that they will engage speedily and constructively with a view to reaching an agreed, fair and sustainable long term Civil Service Compensation Scheme. I believe that with goodwill and determination a new scheme could be in place by the time the Bill made necessary by the PCS’ action reaches the statute book.71 Response The civil service unions expressed their opposition to the proposed changes. The FDA described the Government’s approach as “unreasonable and unacceptable”, particularly the threat to impose inferior terms if agreement could not be reached. It argued that the February 2010 deal should form the basis for future negotiations:

70 HC Deb, 6 July 2010, c3-4WS 71 HC Deb, 6 July 2010, c3-4WS 26 Civil Service Compensation Scheme

We continue to believe that the agreement reached in February between the Cabinet Office and the FDA, Prospect, POA, UNITE and GMB represents a fair balance between the Government's requirement to make efficiencies with protection and fairness for our members. This February deal should form the basis of any future negotiations. The Minister has argued that civil service redundancy terms are 'completely out of kilter with what is on offer in the wider public sector'. However, the government is proposing that civil servants should have considerably worse redundancy terms than any other public servant.72 Prospect agreed and described the emergency plans as “unlawful and undeserved” and pledged to “fight them in the courts and the House of Commons”.73 The PCS accused the Government of treating its staff with “contempt” and said it would be exploring the “legal implications” of the announcement and said it would “use all the means at our disposal to fight back.”74 The Financial Times welcomed the announcement: The UK government has shown a flash of steel. A court ruled that the state was not allowed to alter redundancy terms for civil servants without the agreement of a truculent trade union. So the administration announced yesterday it would simply change the law. This is the first concrete step in the government's welcome push to cut the cost of the civil service . Many civil servants are now entitled to three years' pay if they are made redundant. Some are even eligible for six-and-a-half years of income. The new legislation will limit compulsory redundancy payments to a maximum of 12 months' earnings. This is a hard-line position: civil servants accrue the rights to their generous redundancy terms with years of service. But it is not customary in the UK to treat redundancy rights with the same gravity as pension rights, and the current terms are too generous.75

3.6 Negotiations on a longer term solution The Coalition Government said it wished to negotiate a “sustainable and practical long term successor scheme.”76 It indicated a willingness to negotiate additional protection for lower paid staff and “suitable terms for voluntary departures” but not to increase the 12-month cap on compulsory redundancy. Francis Maude wrote a letter to the CCSU to coincide with the announcement: I have therefore asked my officials to being immediate discussions with the Trade Unions to see whether agreement can be reached on a new compensation scheme for the Civil Service. Such a scheme must be affordable in the current economic climate and the details set out in our Bill today indicate very clearly the

72 FDA Press Release, ‘Government’s civil service redundancy payment cap is ‘unreasonable and unacceptable’, says FDA, 6 July 2010 73 Prospect Press Release,‘Union denounces government assault on redundancy terms of civil servants’, 6 July 2010 74 PCS press release, ‘Anger as the government treats its staff with contempt’, 6 July 2010 75 ‘Cutting the cost of the civil service; Intransigence is not a good strategy for UK trade unions’, Financial Times, 7 July 2010 76 HC Deb, 6 July 2010, c3-4WS 27 Commons Library Briefing, 26 October 2017

government’s intent to control the overall cost of compensation payments. But I want to make it very clear that there remains scope to find and reach a fair and practical settlement. One of the key areas for discussion will be how to provide fairness to lower paid workers. My view is that any long-term future scheme should provide additional protection for lower paid staff. There are many different ways this could be achieved and we will have to be constrained by the demands of affordability. For example, we could aim to create some sort of tapered underpin. Furthermore, whilst I do not expect there to be scope to vary the twelve month cap for compulsory payments, I am content (in the interests of reaching an agreed settlement) for talks to take place on the most suitable terms for voluntary departures. Finally, I have asked my officials to discuss also the establishment of a maximum cap on the level of compensation which can be paid out to any individual who is made redundant.77 The Minister told the Public Administration Select Committee that, although a lower cap was being placed on payments on compulsory exits than voluntary exits, he did not want there to be compulsory redundancies: I would need huge persuasion that we should move off the 12- month cap on compulsory redundancy. It is a pretty universal feature of redundancy schemes that you should always aim for that. We do not want there to be any compulsory redundancies at all. I make that absolutely clear at the outset. It was said that there had only been a handful of compulsory redundancies recently, and that is true, but there were several thousand redundancies which were made voluntarily but on compulsory redundancy terms, so I do not want there to be compulsory redundancies. In a rational world you would have headroom so that you can devise voluntary redundancy schemes which are more generous than the compulsory redundancy terms, but devise them in a way that suits the needs of the organisation and the group of people to whom they are going to apply. What I would want to see is us being able to negotiate a higher cap on voluntary redundancy terms as well as the all important additional protection for lower paid workers.78 Chair of the CCSU, Paul Noon, said he thought negotiation was the way forward: Our position now is that we are still prepared to enter into negotiations. We think that is the way to resolve the issues and we would want to do that with due expedition. We do not believe that the Money Bill, the piece of legislation which I understand is coming forward through the House, is a good way to do things because it looks to us like it is legislate first and negotiate afterwards and effectively by trying to introduce a compulsory cap in that way it puts a gun to our heads. We would rather negotiate without it but we are certainly prepared to negotiate.79

77 Letter from Francis Maude to CCSU chairman, 6 July 2010 78 Oral evidence taken before Public Administration Committee, Civil Service Compensation Scheme/Work of the Cabinet Office, Tuesday 27 July 2010, Q35 [Francis Maude] 79 Ibid, Q2 28 Civil Service Compensation Scheme

Both the FDA and Prospect argued that the February deal (see section 3.3 above) should form the basis for negotiations.80 The PCS said that it could form the basis for negotiations if there were better protection for the lower paid. Deputy General Secretary, Hugh Lanning, told the Public Administration Select Committee: We come back to the fact that there was a lot in that that we did find acceptable and we thought if we had carried on a bit further we would have been able to come to an agreement. We did not feel that the cash protection for the lower paid went far enough but if there was movement and change around that area that would be a basis for discussion for us.81 The trade union Unite was concerned that the Government’s actions so far had demonstrated that it was “not interested in reaching a negotiated settlement that is fair to those covered by the CSCS.”82

3.7 The 2010 amendments and the Superannuation Act 2010 The Superannuation Bill was introduced to Parliament on 15 July 2010 and given Royal Assent on 16 December 2010. The Superannuation Act 2010 imposed a cap of 12 months’ pay for compulsory redundancy and 15 months’ for voluntary redundancy. It also contained a ‘sunset’ provision, whereby section 3 (which imposed the caps) would expire after 12 months, unless repealed earlier by order-making powers, or extended or revived using order-making powers. The Government’s intention, stated throughout the Parliamentary passage of the Act, was that a new scheme amending the CSCS would be made after Royal Assent, and that section 3 would be repealed prior to the operation of that new scheme. This would follow consultation with the trade unions.83 In the event the unions agreed to 12 months for compulsory redundancy but for voluntary redundancy they and the Government agreed an increased 21 months’ pay. Section 1 of the Act made a critical change to the process of negotiation with the unions. Its effect is to enable the Government to impose changes in the CSCS without achieving agreement with the unions, which had hitherto been a requirement and formed the basis of PCS’s judicial review. The effect of section 1 is stated in the Act’s Explanatory Notes as follows: Section 1 removes the requirement in section 2(3) of the Superannuation Act 1972 to obtain the consent of civil service trade unions for reductions in benefits provided under the CSCS. But the removal of this requirement does not apply to

80 FDA Press Release, ‘Government’s civil service redundancy payment cap is ‘unreasonable and unacceptable’, says FDA’ 6 July 2010; See also Prospect Press Release, ‘Union denounces government assault on redundancy terms of civil servants’, 6 July 2010 81 Oral evidence taken before Public Administration Committee, Civil Service Compensation Scheme/Work of the Cabinet Office, Tuesday 27 July 2010, Q3 82 Unite written evidence to the Public Administration Select Committee on the Civil Service Compensation Scheme (CSCS), 26 July 2010 83 You can read more on the background to these changes in HC Library briefing papers SN5201, RP10-56 and RP10-60 29 Commons Library Briefing, 26 October 2017

benefits provided in respect of an exit which is the consequence of a notice of dismissal given, or an agreement made, before the scheme making the reductions comes into effect. The limits imposed through the 2010 Act were repealed almost immediately, on 21 December 2010. The then Minister for the Cabinet Office, Francis Maude, announced the repeal and the implementation of new terms: The Minister for the Cabinet Office and Paymaster General (Mr Francis Maude): I am laying before Parliament today the Civil Service Compensation Scheme (Amendment No.2) Scheme 2010 and the associated revisions to the Principal Civil Service Pension Scheme. The new scheme will replace the old scheme which the previous Government tried to reform in February 2010. I first announced that the coalition Government intended to reform the civil service compensation scheme on 6 July 2010, following which the Superannuation Bill was introduced to Parliament on 15 July to ensure that reform of the scheme could not be vetoed by any one of the unions. Extensive discussions then took place between officials and Ministers and the civil service trade unions. Proposals were put to the Council of Civil Service Unions on 24 September. In the event, the council did not accept those proposals, but five of the unions-Prospect, the FDA, the Prison Officers' Association (POA), the GMB and Unite-approached the Government directly and asked to continue discussions on those terms. There followed an intensive period of meetings between the five unions and officials, which on 5 October resulted in an agreement being reached between the negotiators on terms that might form the basis of a new compensation scheme. The five unions wrote to confirm that these terms had accurately recorded an agreement, that all their negotiating teams were able to recommend positively to their executives, as being the best that might be achieved in negotiation. Subsequently, the POA's executive committee voted to distance itself from that agreement and to request further discussion. The sixth union, the Public and Commercial Services (PCS) Union, had decided not to take part in the talks at the point when the five other unions had agreed to negotiate separately with the Government. The Superannuation Act 2010, which received Royal Assent on 16 December, amended the Superannuation Act 1972 so as to remove the requirement for agreement of the civil service unions to any changes that could reduce the benefits of the compensation scheme. However, during the passage through Parliament of the Superannuation Bill, the Government agreed a number of changes to it, including a further amendment to the Superannuation Act 1972 so as to introduce a clear requirement that future consultation on any changes that would reduce the value of the civil service compensation scheme must be undertaken "with a view to reaching agreement" and that a report is made to Parliament setting out the details of the consultation that has been carried out with the unions. During the Superannuation Bill's passage through Parliament, the Government remained committed to trying to reach an agreement with the Council of Civil Service Unions and offered 30 Civil Service Compensation Scheme

every opportunity to those unions that wished to engage constructively in negotiations. Five of them did so, and their proposals formed the basis of the discussions and subsequent agreement on which the new proposed scheme is based. On 9 November, the Council of Civil Service Unions wrote with suggestions for areas that could be considered in further talks, and I responded on 15 November. The suggestions made in the council's letter would have had the effect of reducing the level of compensation paid to many lower-paid civil servants, and I therefore did not wish those suggestions to form the basis of further discussions. Having a new scheme that provides genuinely better protection for the lowest-paid civil service workers, many of whom are members of the PCS, has been an important aim of the Government throughout the discussions on reform. I explained to the Council of Civil Service Unions that, in the absence of detailed proposals from the PCS, work would have to proceed on drafting the rules for a new scheme. On 6 December 2010 officials sent the draft rules for the new compensation scheme to the Council of Civil Service Unions to seek its views. Those rules form the basis of the new compensation scheme, which is being laid before Parliament today. The Superannuation Act 2010 provides a fall-back position by introducing statutory caps on compensation which would be applied if, for any reason, the Government cannot implement the new proposals. The Government are now in a position to be able to repeal the caps set out in the Act through the Superannuation Act 2010 (Repeal of Limits on Compensation) Order 2010, which comes into force today. The repeal means that the statutory caps of a maximum of 15 months' pay for voluntary departures and 12 months' pay for compulsory departures, will not apply to the new civil service compensation scheme that is starting on 22 December 2010. The key points of the new civil service compensation scheme are as follows: Voluntary Redundancy Below normal pension age (either aged 60 or 65)-one month's pay per year of service up to 21 months, with a taper of between a maximum of 21 months' and six months' compensation for those approaching pension age; At or above normal pension age-one month's pay per year of service up to a maximum of six months; Staff who have reached minimum pension age (either aged 50 or 55) can choose to opt for early retirement on their current pension entitlement. Staff will be asked to surrender some (or all) of their severance payment to meet the cost of receiving this pension early. Period of notice All staff will be entitled to at least three months' notice. Compulsory Redundancy One month's pay per year of service up to 12 months. All staff who may face compulsory redundancy will first have had the opportunity to exit under voluntary terms. Low and high pay thresholds 31 Commons Library Briefing, 26 October 2017

All staff earning less than £23,000, on a full time equivalent basis, will be treated as if they earn £23,000 for the purpose of calculating their redundancy payments. There will also be an upper pay threshold of £149,820. Staff earning more will have their salary capped at this figure for the purpose of calculating their redundancy payments.84 These terms remained in place until their amendment on 9 November 2016.

84 HC Deb 21 December 2010 cc159W-161W

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