What’s happening to redundancy payments in the NHS?

Thu 24 Nov 2016

Less than two years after new redundancy terms were agreed for the NHS, the Treasury has forced unions and employers back to the negotiating table. Craig Ryan brings you up to speed on the government’s plans – and what might happen next.

It’s hard to imagine a worse time to throw the NHS redundancy arrangements up in the air, but that’s what the government is doing. As if STPs, devolution, the financial crisis, staff shortages, the still-unresolved junior docs dispute and the looming of another hectic, underfunded winter, weren’t enough, employers and unions will spend the next nine months negotiating new redundancy terms for the NHS in England. All this at a time when the uncertainty facing NHS staff at all levels has never been greater.

The NHS Staff Council, which brings together employers and unions at national level, agreed on 18 November to begin negotiations within a framework for “reforming public sector exit payments” set out by the Treasury in September.

This comes on top of measures already in the pipeline to clawback redundancy payments to staff paid over £80,000 who return to work anywhere in the public sector within a year, and to cap all public sector redundancy payments at £95,000. The post-Brexit logjam in Whitehall has delayed implementation of these measures, but they’re still expected to come into force next year, whatever the outcome of the new talks.

The Treasury’s framework

The Treasury has set five “criteria” for negotiations in each area of the public sector, including the NHS. They are:

  • Reducing the standard “tariff” for redundancy payments to 3 weeks per year of service (currently 4.35 weeks in the NHS)
  • Capping payments at 15 months’ salary (currently 24 months in the NHS)
  • Reducing the maximum salary used to calculate payments to £80,000 (this is already the maximum in the NHS following changes agreed in 2015)
  • Limiting the use of redundancy payments to fund early access to pensions (such “employer top-ups” were removed from the NHS scheme in 2015)
  • Tapering redundancy payments for staff nearing retirement age

That’s the bad news. The good(ish) news is that there is a strong chance of improving on these terms in negotiations.

Sara Gorton, Unison’s deputy head of health, says: “They’re not saying everyone’s got to meet all these five criteria, but they want sectors to have a discussion and reach a sensible balance. And when they’ve finished, they’ll look to see if they’ve made progress and then take a decision.” Initial discussions with the Department of Health also suggest there is leeway to negotiate on the Treasury’s proposals.

The Treasury’s framework applies only to England. Although the Treasury is “encouraging” the governments in Scotland, Wales and Northern Ireland to go down a similar road, they’re under no obligation to do so.

The tragedy is that all this upheaval and uncertainty will yield such paltry savings for the public purse. Even the Treasury estimates that savings across the whole public sector will amount to just £250m, less than a quarter of one percent of the NHS’s annual budget.

What could this mean for me and my staff?

If they cannot be improved through negotiation, the Treasury’s proposals could mean substantial cuts in redundancy entitlements for many MiP members. However, for higher-paid members or those with long service, the proposed £95k cap may have the bigger impact. For example:

  • A band 8b manager on £57,640 with ten years of service would see their redundancy payment fall from around £48,000 to £33,000; with 30 years of service, it would be cut from £115,000 to £72,000.
  • A band 9 manager on £99,437 with ten years' service would see their entitlement fall from around £67,000 to £46,000; with 30 years' service, the government’s cap would kick in and they would receive £95,000, compared to £160,000 now.

At the moment, it’s unclear how the proposed “tapering” for staff nearing retirement might work, so it’s possible that payments could be even lower for people within one or two years of retirement age.

Unlike the £95k cap, which hits mostly high-earners (and some middle-earners with long service), many lower-paid NHS staff would be hit hard by the Treasury’s proposals. For example, redundancy payments for a Band 5 staff nurse with 30 years' service would fall from £57,000 to £35,000. The current £23k minimum salary for calculating redundancy is not mentioned in the Treasury framework. If it is abolished, redundancy payments for a Band 2 support worker, also with 30 years' service, could be cut from £46,000 to just £22,000.

Obviously, MiP and Unison will be doing everything in their power to make sure that doesn’t happen. The recent settlement in the Civil Service shows there is plenty of scope to improve on the Treasury’s criteria.

The Civil Service redundancy deal

The first part of the public sector to agree new redundancy arrangements following the Treasury’s intervention was the Civil Service. The deal, negotiated by the FDA and other Civil Service unions, represents a considerable improvement on the Treasury’s framework and was accepted in a ballot by 89% of FDA members in October. The main features are:

  • a standard tariff for redundancy payments of 3 weeks per year of service
  • redundancy payments capped at 18 months’ salary (9 months for compulsory redundancy, a distinction that does not exist in the NHS – unchanged from the existing Civil Service terms)
  • maximum salary for calculating redundancy payments of £149,950
  • employer-funded top-ups to pension allowed for people ten years or less below state retirement age
  • extension of the redundancy scheme to the Senior Civil Service (roughly the top 4,000 officials) for the first time

FDA general secretary Dave Penman says the deal vindicates the union’s decision to negotiate, despite its belief that the Treasury’s proposals were neither necessary nor justified.

“We worked hard at convincing officials – and two separate ministers – that not only was a deal possible, it was preferable,” says Penman. “Ultimately, that’s what unlocks movement in negotiations. If an employer is convinced that a deal isn’t possible or preferable, why should it make concessions? We sought to avoid that at any cost.”

What’s MiP’s position?

Both MiP and Unison argue that redundancy terms are best left to negotiations between NHS employers and unions who understand the issues and know what’s happening on the ground. The unions believe the Treasury’s interference is entirely unhelpful and unnecessary, and the impact on staff engagement and morale is too high a price to pay for such modest savings.

“The Treasury has torn up existing agreements at the worst possible time,” says MiP chief executive Jon Restell. “Employers and unions need the flexibility to negotiate redundancies. With STPs and the effects of the funding crisis, no one needs this – not employers, not staff and certainly not the NHS as a whole.”

Gorton says NHS unions will be pressing for cost savings already made in the NHS to be taken into account. “While all public sector schemes have been asked to look at these further changes, NHS staff will feel particularly aggrieved as they have only recently concluded a set of changes to the way the scheme operates in England.” 

Those changes included capping the salary used to calculate redundancy payments at £80,000, and removing employer “top-up” payments to fund the early payment of pensions to people made redundant near retirement age. Gorton says “very productive” discussions on further reforms were cut short by the government’s proposals for clawback and the £95k cap.

“The government wielded its big stick and we were no longer able to negotiate because we were working with constantly moving goalposts. If the government had just let collective bargaining work as it’s supposed to, some of these issues might already have been agreed.”

It’s still unclear if the Treasury is really interested in harmonising redundancy terms across the public sector, or simply in cutting costs and avoiding lurid headlines in the Daily Mail. “It won’t be lost on staff that a ‘policy’ which started with tabloid attacks on ‘fat cat’ executives has morphed into a threat to cut terms and conditions for the vast majority of the NHS workforce,” says Gorton.

She argues that, while some redundancy payments may seem high in cash terms, it’s right to set them at levels that make deleting a post the last resort. “Essentially, if redundancy benefits were slashed, deleting posts could become a lazy alternative to workforce organisation. Some employers would find it easier to offer individuals cash to leave rather than work with us in planning proper restructuring within a unit or department. 

“For many types of job, the NHS is a monopoly employer, so redundancy may also be about compensating many staff for the loss of a livelihood,” she adds.


MiP will be pressing for a comprehensive redeployment package as part of any reform of redundancy arrangements. The union believes far more money could be saved by reducing the need for redundancies than by cutting people’s entitlements – and it would be much better for staff engagement and morale.

“As we saw with the upheaval created by the Lansley reforms, it’s crazy that the NHS doesn’t have a better system for redeploying staff displaced by service changes, or any interest in aligning change to maximise redeployment opportunities,” says Restell. “Millions of pounds have been wasted on unnecessary redundancies and employing consultants. We need to make sure we don’t repeat the same mistake with STPs.

“Ultimately, this is a question of the relatively low value placed on managers. Until policymakers accept they need managers, they will keep making them unemployed and then re-hiring them. With a fifth of managers lost since 2010, we need to husband our managerial capacity and skills far better.”

A redeployment package could involve using a central resource, like the NHS Jobs website, to match jobs to people facing redundancy elsewhere, and “ring-fencing” of most vacancies.

“Within a geographical area, you might have a process where jobs that come up are only available to people identified as at risk of redundancy for a period of, say, ten days,” Gorton explains. “Then, if they haven’t found a suitable candidate, it can be opened up. There are different ways we could look at this, but we need to find a way of giving everyone who is at risk a chance to stay working in the NHS.”

What happens next?

The NHS Staff council must submit interim proposals to the Treasury within three months, and reach a final agreement within nine months, which implies a deadline around the end of June 2017. If no agreement is achieved, the Treasury says it will consider imposing new redundancy arrangements, although it’s unclear whether this is possible within the existing legal framework.

MiP will be fully involved in the discussions and will keep you informed every step of the way.

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