This advisory note reinforces the importance of the role of the section 151 officer in discussions and decisions concerning severance pay. Recently, there have been several examples where councils have made decisions which excluded a transparent discussion on value for money. This note underlines the good practice principles which local government bodies should adopt in line with recent government guidance issued from the secretary of state in May 2022 under section 3 of the Local Government Act 1999.
The guidance is timely and should be considered in conjunction with the statutory recommendation produced by Grant Thornton, the Local Auditor for South Somerset District Council, in the External Auditors’ Annual Report (the Report) in August 2022.
The publication of new guidance is inevitably followed by increased interest by local auditors and therefore directors of finance need to be aware of both the new guidance and relevant recommendations, and need to reflect on how to apply them within their own organisations.
This guidance forms part of the best value regime for local authorities in England. Authorities subject to the best value duty (termed “best value authorities”) are defined in section 1 of the 1999 Act. A list of these bodies can be found at the end of the government guidance.
Summary of the guidance
The Department for Levelling Up, Housing and Communities has published guidance clarifying that councils should only consider exit payments above contractually agreed limits in exceptional circumstances.
The guidance follows the government's decision to remove a separate £95,000 exit payment cap for all public sector workers, following a legal challenge in February 2021.
Section 151 officers should note that this guidance forms part of the best value regime for local authorities in England and states that:
“As part of their duties, an authority’s section 151 officer, and where appropriate, the monitoring officer, should take a close interest in, and be able to justify, any special severance payments that are made by that authority and in particular any payments made that are not consistent with the content of this guidance.
In addition to the new guidance link to best value requirements, there is also a prescribed arrangement for settlement payments approval set out at paragraph 5.1:
- payments of £100,000 and above must be approved by a vote of full council, as set out in the Localism Act 2011;
- payments of £20,000 and above, but below £100,000, must be personally approved and signed off by the head of paid service, with a clear record of the leader’s approval and that of any others who have signed off the payment;
- payments below £20,000 must be approved according to the local authority’s scheme of delegation. It is expected that local authorities should publish their policy and process for approving these payments.
The section 151 officer will need to be aware of and informed about relevant discussions as part of their role in holding local authorities to account. This requirement could include the duty to raise concerns with leadership, elected members and the auditor in the case of unlawful expenditure.
In addition to the new guidance, a recent publication by Grant Thornton has expressed concern about severance pay. In their report on South Somerset, Grant Thornton noted that during 2020/21, South Somerset entered into an employment related settlement agreement with a senior officer resulting in the officer getting a “substantial settlement payment.
The section 151 officer and the monitoring officer were both unaware of the payment and the decision-making process had not been in line with either the financial regulations or the council’s constitution.
Grant Thornton noted that, “from our enquiries of management, we have concerns that there was a lack of due process, insufficient records were maintained to evidence how the agreement was reached, and that the agreement does not reflect value for money.
The weaknesses identified resulted in a series of recommendations from the auditor and stated that the council should:
- comply with Financial Regulations, Standing Orders and the Constitution
- ensure that appropriate consultation takes place with the statutory officers
- ensure that approval for the agreement is obtained from appropriate elected Members
- maintain appropriate and sufficient evidence for the decision-making process
- assure itself of the legality of the transaction including seeking legal advice
- clearly demonstrate that value for money has been achieved.
While many authorities will not be significantly impacted by the government guidance, it is important that awareness across all organisations is maintained to avoid future challenge.
Authorities should ensure that they have an approval process in place that takes into consideration the criteria highlighted in the new government guidance.
Approved severance payments must reflect the appropriate governance in line with these requirements and records must be created that can demonstrate compliance. A review of the scheme of delegation may also be appropriate.
Section 151 officers and monitoring officers should work closely together to ensure decision making which complies with professional standards and relevant guidance.
The practice oversight panel has previously published an advisory note Understanding the Challenge to Local Authority Governance which supports many of the themes discussed in this note