The cap, which was first proposed in May, would be enforced across the civil service, the NHS, schools and local government, according to the consultation launched today.
Hands said that the limit would apply to all forms of compensation, which as well as redundancy payments can include pension top-ups, compromise agreements and special severance payments, once legislation is passed.
If the cap had been in force during the last Parliament, it would have saved £200m in the two years between 2011 and 2013, he said. This covers the period of the government’s controversial structural reforms to the health service that saw primary care trusts abolished and replaced by clinical commissioning groups.
“As the chancellor said when we launched the spending review, we need to invest taxpayers’ money more efficiently on priorities like the NHS and national security,” Hands added.
“I am not prepared to stand by and allow huge payoffs to be made at a time when we are having to find savings in our public services as we seek to run the strongest budget surplus for more than 40 years. That’s vital to ensuring economic security for the working people of Britain.”
Hands said he also expected other bodies that rely on taxpayers’ money, such as the Bank of England, the BBC and Channel 4, to apply the new limit once it is in force.
Responding to the announcement, Dave Penman, the general secretary of the FDA trade union that represents senior civil servants, said that the change would potentially hit hundreds of thousands of public servants who face redundancy as a result of government spending cuts.
“If this government is to deliver on its commitments, it needs to continue to attract and motivate the best talent, while at the same time managing another significant reduction in staffing,” he added. “I fail to see how this sort of approach will achieve either.”
Mark Serwotka, the general secretary of the Public and Commercial Services Union (PCS) said that capping the redundancy payments at the proposed level would “impact on long-serving, loyal staff earning just above the average civil service pay who have built up pensions and other entitlements under their terms and conditions”.
He added: “In fact, the buy out of early pension reduction means that even employees earning just £27,000 who go early on long service will be affected, as well as those who earn more than £47,000 – hardly high earners – who get 21 months’ salary.
“It is outrageous that long-serving public servants who have had their pay cut and pensions slashed will also see their redundancy capped, when this does not apply to the fat cats in the nationalised, bailed out banks, who were the cause of the deficit in the first place."
