On 28 July 2025, HM Treasury updated its guidance on the use of special severance payments by public sector employers, to allow such payments by some public sector employers without its prior approval in certain cases. However, the relaxation of the requirement for prior approval for certain payments does not apply to NHS employers.
Background
The Guidance on Public Sector Exit Payments: Use of Special Severance Payments was first published in 2021, as a supplement to the guidance in Managing Public Money.
Special severance payments are payments to employees whose employment is terminated that do not correspond to any contractual or statutory right. They include, for example:
- Payments made under a settlement agreement
- Payments agreed as part of a judicial or non-judicial mediation
- The value of employee benefits or allowances which continue beyond the employee's agreed exit date
- Write-offs of outstanding loans
- Payments for special leave such as gardening leave
- Hardship payments
- Compensation in lieu of notice
Payments in lieu of notice, pension strain payments, and payments towards legal fees included within a settlement agreement may constitute special severance payments depending on the terms of the individual's contract, relevant statutory provisions, applicable non-statutory schemes and any other relevant terms and conditions.
Statutory and contractual redundancy payments, payments in respect of untaken annual leave, and payments ordered by a court or tribunal are specifically stated not to constitute special severance payments.
Updated guidance
Under the original guidance, all special severance payments required prior approval from HM Treasury, on the basis that such payments are usually "novel, contentious and potentially repercussive". Payments above £100,000 and/or where the employee earns over a specified threshold required approval at Ministerial level.
The updated guidance relaxes the requirements for prior approval slightly, by providing that "Departmental Accounting Officers" may approve certain special severance payments under £100,000 without HM Treasury's involvement provided they do not involve:
- A member of the Senior Civil Service
- A Special Advisor
- A board level individual of an Arm's Length Body
- Anyone earning over the senior pay threshold (now £174,000 per year)
These are referred to as "delegated limits".
However, HM Treasury approval will still be required in all cases where the payment is "novel, contentious or repercussive". This will include cases in which:
- Lawyers have assessed the employer's chances of successfully defending the matter in court or tribunal as greater than 50%
- The payment is not affordable to the department or organisation
- The payment is likely to set a precedent or have implications for wider government policy or other settlements (e.g. if it differs markedly from previous cases)
- The payment has high visibility or is likely to be contentious (e.g. if the case is likely to attract public attention, or involves a senior member of staff and/or a high payment)
- The payment is made under a settlement agreement which contains a confidentiality clause
- The payment could be seen as rewarding failure or poor performance
Departmental Accounting Officers are the most senior official in a department – for instance, the Permanent Secretary of a Ministerial Department, or the Chief Executive of an Arm's Length Body.
Not all public sector employers have Departmental Accounting Officers and those that do not would not benefit from the relaxed delegated limits. Such employers will therefore still need to seek HM Treasury approval for all special severance payments.
What does this mean for NHS employers?
NHS employers (including NHS Trusts, NHS Foundation Trusts, ICBs, and Ambulance Trusts) do not have Departmental Accounting Officers and therefore cannot rely upon the relaxed delegated limits. There is therefore no change to the requirement for NHS employers to seek HM Treasury approval for all special severance payments.
It is also important to note that the government's default approach is not to settle claims, and HM Treasury will apply close scrutiny to ensure that special severance payments are only made in exceptional circumstances and represent value for money for the government as a whole. The required approvals should be secured before any offers are made. Since HM Treasury requires a minimum of 20 working days (and often much longer in practice) to assess individual cases, consideration of settlement should be made at the earliest possible opportunity to avoid any delays in obtaining the necessary approvals.
NHS England have confirmed to us that they will be updating their own guidance on the process for making special severance payments in light of the HM Treasury update in due course.
