Unions prepare for battle over redundancy cuts

Ministers were on a collision course with the unions last night over moves to slash redundancy payments to civil servants who are sacked.

The risk of industrial action was growing after Francis Maude, the Cabinet Office minister, announced that civil servants made compulsorily redundant would have their compensation capped at one year's pay.

He is also refusing to rule out introducing regional pay bands for civil servants in the drive to achieve massive savings in the cost of government. Mr Maude told a civil service conference in London that "radical steps to increase efficiency and performance will be required". And he warned that civil service pay, pensions and redundancy payments had to be reformed to become "modern, flexible and appropriate to the times".

He said the current redundancy arrangements – which can see civil servants retire with a severance payment of up to six years' salary – were "out of kilter" with the private sector.

Mr Maude announced the Government intended to introduce a cap of one year's pay to civil servants made compulsorily redundant, and 15 months for those who volunteered for redundancy. A Bill will be introduced to enshrine the new limits in law – and to prevent the threat of legal challenges by civil service unions.

But Mark Serwotka, the general secretary of the Public and Commercial Services union, said: "If ministers are determined to make low-paid public servants pay for a crisis caused by bankers and traders, we will use all the means at our disposal to fight back." Prospect, which represents 120,000 civil servants, said the plans were "unlawful and undeserved" and pledged to fight them in the courts and the Commons.

Although Mr Maude did not mention regional pay rates in his speech, both Downing Street and the Cabinet Office refused to rule out attempting to introduce them after 2012, when the current civil service pay freeze runs out. Some three-quarters of the 520,000 civil servants work outside London and the South-east of England. Any move to break away from national pay-rates would also trigger a union backlash.

Mr Maude announced that all existing Whitehall contracts with consultants would be reviewed. "This will not only save resources, but also give civil servants the opportunity to undertake new roles and deepen their skills," he said.

*Public sector pensions are, on average, worth at least 40 per cent of salaries, a report today concludes. The finding is bound to be seized on by ministers as they draw up plans to reform pension entitlements to state employees. The Public Sector Pensions Commission also warns that employee contributions – currently running at about six per cent of pay - will have to rise sharply if pension levels are to be protected. The commission estimates that the schemes will cost the taxpayer £18bn in this financial year.