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Civil Service Compensation Scheme (CSCS) 3 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 www.parliament.uk/commons-library | intranet.parliament.uk/commons-library | [email protected] | @commonslibrary 2 Civil Service Compensation Scheme 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.
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