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Ever since 2015 the government has been considering capping public sector exit payments.  Following an initial consultation it introduced sections 153A to C to the Small Business, Enterprise and Employment Act 2015 (via the Enterprise Act 2016) enabling the Treasury to make regulations imposing a £95,000 cap on public sector exit payments.

In April 2019 the government issued a consultation on the draft Restriction of Public Sector Exit Payments Regulations 2019 and associated draft guidance.  A response to the consultation was published on 21 July 2020 along with the draft Restriction of Public Sector Exit Payments Regulations 2020.  The government has made it clear that it does not intend to change the level of the £95,000 cap at this stage, but that it will be kept under review.

The Regulations provide that a "relevant authority" must not make an "exit payment" to a person which exceeds the "exit payment cap" (£95,000) in respect of a "relevant public sector exit".  A "relevant authority" is either a body listed in the Schedule to the draft Regulations, or a body responsible for determining the level of remuneration payable to the holder of any of the public offices listed in Part 2 of the Schedule.

Payments deemed to be exit payments under the draft Regulations include redundancy payments (with the exception of statutory redundancy payment entitlements where the cap will not be applied), pension strain payments, severance or ex gratia payments, and any contractual payment in lieu of notice (though only if it exceeds one quarter of the individual's salary).

A "relevant public sector exit" means a situation where either an employee leaves the employment of a relevant authority, or an office holder leaves an office.  Where the relevant public sector exits occur in respect of the same person within any period of 28 consecutive days, the total amount of the exit payments made to that person in respect of those exits must not exceed the exit payment cap.

Registered Providers are excluded from the remit of the Regulations and continue to calculate severance payments in the same way that they have always done without the constraints imposed by the regulations.