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Chapter 6 - Severance payments

Legislative basis

6.1 Our starting point for consideration of severance payments to councillors was the Local Governance (Scotland) Act 2004. It was not within our remit to revisit the policy intentions which led to the Act and we have devised a scheme within the parameters set by it. This means:

• A payment can only be made to a councillor who chooses not to stand again in 2007 for election to a council.
• A payment will not be made to any councillor who stands again for election and is defeated, or a councillor who is re-elected and subsequently stands down.

Nature of the scheme

6.2 We considered first whether the scheme should offer a fixed amount for all eligible councillors, or whether the rate should be linked to length of service. Part of the policy intention behind the scheme is to recognise long-service, and to acknowledge that councillors have not been eligible to join an occupational pension scheme. It also recognises that councillors may not want to continue their council career given the fundamental changes that are being introduced in 2007. This suggested that a scheme linked to length of service was more appropriate. We also had concerns about the fairness of a scheme that offered the same amount to a long serving councillor and to a councillor who had served for a shorter period. We concluded that our recommendation would be for a scheme that was linked to length of service.

6.3 We also considered whether payments under the scheme should be based on continuous service or cumulative service. The options we examined were:

• Option 1 - A continuous service scheme would count the total period of service from the first time a councillor was elected until May 2007, provided that they had not left office during that period, either by standing down for any reason or losing an election. If a councillor had left office for any period, only the latter period of continuous service would count in the calculation of a severance payment. Our view is that a strict continuous service scheme has a degree of unfairness built in. No account would be taken as to why a councillor had a break in service and we do not consider this option would adequately recognise long service.
• Option 2 - A cumulative service scheme would count the total length of service given by a councillor, regardless of how many times they were out of office, or the reasons for them being out of office. This option would better reflect the desire to recognise long service. It should also be relatively straightforward to administer, e.g. it would not be necessary to establish reasons why a councillor left office at any point in their council career. This option would be more transparent and easily understood.
• Option 2A - We also examined the suggestion made by the Councillors' Remuneration Progress Group that a cumulative service scheme with certain restrictions should be introduced. Essentially this would be a cumulative service scheme for most councillors, but would only count continuous service for councillors who had been out of office for two terms or more during their council career. We were concerned that this option could prove to be too bureaucratic to administer. For example, it would probably be necessary to establish why a councillor had been out of office. Given that this may apply to very small number of councillors, this could be an unreasonable burden on the administration of the scheme.

6.4 We concluded that Option 2, a straightforward cumulative service scheme, was most appropriate.

Eligibility and level of payment

6.5 We considered the eligibility criteria for the scheme. As noted above, the Act restricts the scheme
to serving councillors who choose to leave office at the next election. This means that councillors who have already left office, or do so at any time before the election, would be ineligible to apply.
We recommend the following criteria should also be built into the scheme:

• As the scheme is intended to recognise long service, a severance payment should not be available to councillors who will, by the 2007 elections, have served only one term. This means councillors elected for the first time at the Local Government elections held in May 2003, or at subsequent by-elections, should be ineligible for a severance payment.
• The scheme should not be available to any serving councillor who is, or becomes at any time before May 2007, a member of the Scottish Parliament, the United Kingdom Parliament, or the European Parliament. Any such individual would then be eligible for any severance arrangements that apply to standing down from these institutions, and a pension which reflects their length of service. We recognise that this may appear harsh as service as a councillor will not be taken into account by other severance schemes. However, we are conscious that our advice has to be acceptable to the local government electorate. Allowing a situation where an individual can receive two potentially substantial severance or 'resettlement' packages from public funds would not in our view meet that public opinion test. These arrangements are also in line with the scheme which was introduced for councillors in Wales.

6.6 In reaching a decision on levels of payment we needed to ensure that it recognises long-service, and is sufficiently attractive in comparison to the new salary arrangements we are proposing. The level of payment needs to provide some recompense for the fact that previous service has not been pensionable, and may have resulted in giving up career opportunities which might have been available to councillors had they not chosen to devote time to public service. We also wanted to create a scheme that was straightforward and transparent: it should be absolutely clear how a severance payment to any councillor is calculated. Clearly the attractiveness of the scheme will depend upon the length of service given by a councillor, and his or her own assessment of the likelihood of being re-elected for a further term. We consider that a payment of £1,000 per year served is an appropriate recognition of long service, when compared to the new salary arrangements we have recommended. Length of service for the purposes of determining a severance payment should start from the establishment of the regional and district councils in 1975, to which some serving councillors were first elected.

6.7 Having regard to our public opinion criteria, we consider that the maximum payment to any councillor under the scheme should not exceed £30,000.

Recommendation 22: We recommend that councillors elected for the first time at the Scottish local government elections held in May 2003, or at subsequent by-elections, should be ineligible for a severance payment.

Recommendation 23: We recommend that any serving councillor who is, or becomes at any time before May 2007, a member of the Scottish Parliament, the United Kingdom Parliament, or the European Parliament should be ineligible for a severance payment.

Recommendation 24: We recommend that the severance scheme should offer £1,000 for each full year served, and for any year in which the time served is 6 months or more. Service prior to 1975 should not be included in the calculation of a severance payment. No severance payment to any councillor should exceed £30,000 gross.

Taxation

6.8 Although HM Revenue and Customs are not able to give a view on the taxation rules that may apply to the scheme until the details are set out in regulations, we understand that tax and national insurance will be payable at the appropriate statutory rates. Figures set out below therefore represent gross payments.

Table 6 - Severance payments

This table shows total severance payments for councillors with continuous service from the date of their election until leaving office in 2007. Severance payments to councillors with broken service will differ. This is intended as a guide only. Actual payments would depend on each councillor's individual circumstances.

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