· Features

What are the ramifications if civil service redundancy payments are capped under the Superannuation Bill

On 7 September 2010, MPs voted to place a cap on what Cabinet Office minister Francis Maude called "unaffordable and unsustainable" redundancy pay in the Civil Service.

The Superannuation Bill received its second reading in the House of Commons and it will include imposing caps on the value of severance payments made to civil servants under the Civil Service Compensation Scheme (CSCS), including severance benefits. The current CSCS terms are (with some modifications) those that have been in place since 1987.

Civil servants can currently get three years’ salary if they are made redundant, with those recruited before 1987 entitled to as much as six years. The current scheme makes it prohibitively expensive to get rid of highly-paid, long-serving staff, meaning lower-paid workers would be disproportionately hit if job cuts were needed. It is also argued that civil service redundancy terms are far more generous than most low-paid workers in the private sector who are often only entitled to statutory redundancy pay – currently 32 weeks’ pay capped at £380 a week – equating to £11,400.

The Government is expected to cut thousands of jobs in the Civil Service following the spending review next month, with department budgets braced for cuts averaging 25%. The Government is therefore urging civil service unions to agree new redundancy terms including capping redundancy pay at 12 months’ salary for compulsory redundancies or 15 months for voluntary redundancies.  In most cases, this will cut existing entitlements by up to two thirds.

This is all very well, especially in the current economic climate, but what are the potential legal ramifications?

A research paper about the Bill published by the House of Commons library has highlighted two controversial aspects. 

First, the Government is keen for the Speaker to classify the Bill as a Money Bill to speed up its passage through the House of Lords.  The Parliament Act 1911 defines a Money Bill and it charges the Speaker of the House of Commons with certifying whether a Bill is a Money Bill.  If a Bill is so certified, the 1911 Act restricts the length of time the House of Lords has to consider it to one month and allows for a Money Bill passed by the Commons to be presented for Royal Assent, after that month has elapsed, even if the House of Lords does not agree to it. This does not disbar the Lords from amending such bills provided they are passed within the month, but the Commons is not obliged to consider the amendments.

Trade unions say they have received legal advice denying the Bill is a Money Bill and that the procedure would be an abuse of House of Commons rules. Previously the union’s understanding of these issues was that a Money Bill has been used to protect revenue or to raise tax. Arguably in this case it might seem to have been used to interfere with the contractual relationship between individual civil servants and their employer.  Ultimately the status of the Bill is a decision for the Speaker that is still awaited.

Second, the paper considers the arguments about whether the Bill's provisions are in breach of the Human Rights Act 1998.  Trade unions claim the proposals amount to unlawful deprivation of possessions (ie, accrued rights) contrary to Article 1 of the First Protocol to the European Convention on Human Rights.  The Government insist there is no breach.

Given that a legal challenge struck down the previous Government's attempts to reform the CSCS (more on that below) it will be unsurprising if a further challenge is brought once the Bill is enacted. For now, the Bill moves to the committee stage, which is due to be completed by 16 September.

The Government has invited the Civil Service unions to negotiate a ‘sustainable and practical long-term successor scheme’. A negotiated deal with the unions for a long-term settlement is the safest option, legally, for implementing changes to redundancy terms in order to avoid costly, and likely multiple, claims.  In doing so, the Government needs to ensure that negotiations with the trade unions have the effect of varying individual employment contracts. 

However, the difficulty the Government faces is that in May of this year, the High Court ruled that the PCS union’s judicial review of planned changes to the CSCS was successful because changes to workers' accrued benefits could not be altered without their consent or union agreement.  It is likely that the remaining five unions will want even more concessions and fall in behind PCS. 

The Government might now choose to delay Whitehall cuts and hold out for an agreement with the unions.  However, with six Civil Service unions, all of whom will have to agree to the new redundancy terms, it is unlikely that a deal will be achieved in the near future.  It therefore depends on how much time, and appetite, the Government has for negotiations.  

Industrial and/or legal action is a likely outcome if changes are unilaterally imposed without union agreement.  If the Superannuation Bill becomes law, it could prove very difficult indeed for the unions to challenge it. Time will tell whether each side is prepared to move enough to avoid further confrontation.

Anna Harris is a solicitor at Blandy & Blandy