The Superannuation Bill contains provisions to dramatically reduce the maximum redundancy payment available to civil servants under the Civil Service Compensation Scheme (CSCS). The Bill has been considered by the House of Commons and has now been passed to the House of Lords for further scrutiny with the Committee stage being due to take place today (10 November).

The story so far…

Two years ago, the Labour Government began negotiations with six civil services unions in the hope of agreeing reforms to the CSCS. The CSCS offers civil servants compensation upon compulsory redundancy of up to six years' and eight months' pay for people over 50, and up to three years' pay for those under 50. These terms have been seen as out of step with the statutory redundancy payments available to workers in the private sector. Furthermore, there has been a concern that it may be prohibitively expensive to make high earners redundant under the CSCS.

In February 2010, five of the six unions agreed to reform of the CSCS limiting redundancy compensation to a maximum of three years' pay (where this did not exceed £60,000) and offering transitional protections to limit the adverse effect of redundancy on those close to retirement. However, the Public and Commercial Services Union (PCS), which represents a high proportion of low earning civil servants, did not agree. The Government introduced Secondary legislation to give effect to the new redundancy terms but the PCS successfully judicially reviewed the legislation, which the Courts set aside.

The Coalition Government responded by introducing Primary legislation, namely the Superannuation Bill. The Superannuation Bill caps redundancy payments under the CSCS to twelve-months' pay for compulsory redundancy; and fifteen-months' pay for voluntary redundancy. This is a much stricter position than had been adopted by the former Labour Government and overturned by the PCS earlier in the year. During its parliamentary passage the Bill has been amended to give the Government the power to change the CSCS (i.e. to impose the caps on compensation introduced by the Bill) without having to obtain the unions' consent, but only after they have consulted over the proposed changes. The terms of the Bill will come into effect on the day it receives royal assent. However, the caps will only apply to redundancies that are notified or agreed after the Bill is enacted and only after completion of consultation with the trade unions. The Bill will affect the whole of the UK.

Concerns about caps

The opposition protest that the caps will not protect lower paid workers. The Government disputes this and maintains the current scheme disproportionately impacts on lower paid workers who are more likely to be dismissed, as it is prohibitively expensive to dismiss senior (better paid) civil servants.

The Government argues that it is necessary to limit the cost of civil service redundancies now, given the pressure to reduce the budget deficit, while continuing to negotiate the terms of a lasting scheme with the unions. However, the unions have argued that the more generous redundancy terms of the CSCS form part of a package of benefits and should be balanced against the comparatively lower pay in the civil service: to compare the redundancy terms in isolation may not be the best approach say the unions.

The unions also contend the Bill (even though this time it is being enacted as Primary legislation) offends against Human Rights. Accordingly, even if the Bill is enacted, it is inevitable that the unions will seek to challenge its legality in the Courts. If the Bill were to be successfully challenged, then any civil servant receiving a redundancy payment subject to the caps in the Bill, could be entitled to compensation from the Government for the shortfall between the capped payment received and their original entitlement under the CSCS.

Sunset and sunrise

The Bill includes a 'sunset' clause, which is unusual. The payment caps will automatically expire after one year unless Parliament takes steps to either extend or reduce this period. The Government has argued that its aim is to agree a negotiated settlement with the unions and never to have to rely on the Bill. Some view this as an attempt to use legislation as a negotiation tool to push the unions to agree to amend the terms of the CSCS more drastically than they have been previously been willing to do. If an agreement cannot be reached, the default position would no longer be the CSCS, but the strict caps of the new Bill.

The Bill also contains a 'sunrise' clause. If the caps are allowed to expire, a simple statutory instrument can revive the Bill. This mechanism for revival has caused concern, as it avoids the scrutiny of Parliament. However, the Government has argued that it may be necessary given the history of problems reaching a negotiated agreement with the unions.

A possible agreement

As the Bill is making its way through the House of Lords, the Government is close to reaching an agreement with the unions on proposed changes to the CSCS. Negotiations have now concluded while union members are balloted. The proposed changes address some concerns with the Bill by offering additional protection for the low paid, while limiting compensation available to high earners. If a negotiated deal can be achieved, the strict caps of the Bill may never need to be used. However, as in February, the PCS remain unconvinced about the proposed amendments. It therefore seems unlikely that any agreement to change the CSCS will be reached prior to the Bill coming into force.

Going forward

The Bill aims to reduce the cost of redundancies while negotiations with the unions to amend the CSCS continue. The Government is clear that it sees the Bill as a temporary measure with the long-term goal being to agree a permanent negotiated solution with all six unions. The unions, although willing to seek a negotiated solution, may try to re-balance their negotiating position by challenging the legality of the Bill in the Courts. With these points in mind, while it seems that the Bill will be enacted, the future of civil service redundancy payments remains uncertain.