Civil Service Redundancy Pay Fun

From yesterday's FT:

The next government was presented with a spending setback yesterday when the largest civil service union won its High Court action to block cost-cutting measures to reduce the level of redundancy pay for civil servants...

The changes, introduced on April 1, [would have] reduced or removed payments based on age and length of service and were aimed at saving at least £500m during the next three years. Under the new package, civil servants still [would have received] redundancy terms more generous than most in the private sector, but in line with those in the National Health Service, local authorities and schools. These [would have included] up to two years' pay - with protection for the lowest paid, who get up to three years' pay or £50,000, whichever is the lower.

The new package [would have] replaced terms of up to three years' pay for those under 50, with staff who joined before 1987 entitled to more than six years' pay...

OK, here's an adaptation of a cunning plan, which I hatched with a fellow Ukipper in a similar context:

1. There is public law and private law. With its 'employer' hat on, the government is bound by the same private laws as any other employer, and cannot go round varying terms of employment willy nilly. There is also public law, such as taxation, in which regard the government can do what it likes, this is only subject to 'democratic' and not 'judicial' review.

2. So it might be a long fight to unpick all the old contracts and relevant legislation, but in the short term there is absolutely nothing to stop a government radically simplifying the tax rules, i.e. to scrap all the existing reliefs and exemptions for redundancy payments (I can't be bothered summarising them, people have written whole books about it, all of which were out of date after about six months).

3. What we came up with was that redundancy payments would simply be subject to a flat (say) 75% income tax charge, and all exemptions to be scrapped.

4. So a superfluous quangista is still entitled to a (say) £100,000 pay off (under private employment or contract law), but instead of netting (say) £60,000 after tax, would only net (say) £25,000. That's get the net cost to the taxpayer down by over half.

5. This leaves the problem of a private sector workers who are made redundant. Let's assume that you were entitled to £10,000, largely tax free (for one reason or another). You will be a bit dis-chuffed to see this knocked down to £2,500, but all we need is an extra rule in one or other of the taxes acts that says:

"Where the employer concerned is entitled to a deduction for a redundancy payment subject to the 75% tax rate in calculating the profits of his trade or business, an amount equivalent to 75% of the gross payment, up to a maximum of £x,000, will be reimbursed to the employee concerned via the payroll".

6. This is not particularly far-fetched, don't forget that things like Statutory Maternity Pay have to be paid, by law, but the employer can reclaim the amounts he pays out by knocking it off his next PAYE payment (OK, I am rabidly simplifying here, but that's the broad thrust of it).

That's that sorted. Next.