I am pleased to inform the House that the Government have now finalised terms for reform of the civil service compensation scheme and that we have agreed these terms with the FDA, Prospect, the GMB, Unite and the Prison Officers’ Association.

The CSCS sets out the terms which departments may use on redundancy or voluntary exits. In reforming the scheme we have a number of objectives:

First, we wish to be certain that the scheme represents value for money for the taxpayer and delivers the £500 million saving set out by the Prime Minister in his written ministerial statement of 31 March 2009.

Secondly, we need to ensure that the scheme both does not create perverse incentives through awarding excessively generous payments to some individuals on redundancy, and complies with age discrimination legislation by ensuring that the level of severance payments awarded is primarily linked to length of service, not to age.

Thirdly, we need to ensure the reforms provide additional protection to the lowest paid staff.

Cabinet Office officials have held numerous meetings with the civil service unions since July 2008. We consulted fully on the provisional proposals that the Cabinet Office published in “Fairness For All” on 31 July 2009, receiving over 18,000 comments in response. I met with the civil service unions on 22 September as part of that process.

In our response to the consultation, on 4 December 2009 we modified our original proposals to reflect the comments we had received. There were two issues that came through particularly strongly in the responses to the consultation and in my meeting with the unions. These were, the need to ensure that the lowest paid workers with long service could still access up to three years’ pay in compensation on redundancy, and the need to preserve the option of access to an unreduced pension on redundancy for those close to pension age.

I met with the unions again on 17 December to discuss our revised proposals. I asked Cabinet Office officials to have further meetings with the unions in order to see if it were possible to reach agreement within the parameters of the principles that have been established.

Following these discussions, I am pleased that we have reached agreement with five of the six main civil service unions on a modified set of proposals. Unite, the GMB, Prospect, the Prison Officers’ Association, and the FDA have agreed that these terms represent a fair deal for their members. Together, these five unions represent a cross section of civil service staff across all grades, ages and professions. The sixth and largest union PCS has not agreed the terms, but its members, along with all other civil servants, will be subject to the settlement with the implementation of the amending order.

The new terms provide added protection, enabling the lowest paid to continue to receive a service-related redundancy payment of up to three years’ pay, up to a maximum of £60,000. As in our earlier proposals, payments will be capped at a maximum of two years’ pay for higher earners. The added protection for the lowest paid means that those earning under £20,000 will not be affected by the new cap limiting severance payments to two years’ pay, while those earning between £20,000 and £30,000 will be eligible for severance payments of up to between two and three years’ pay.

We have also agreed some further transitional protection for existing staff. If made compulsorily redundant, staff aged at least 50 as of 31 March 2010–and with a minimum of five years’ service–will continue to receive existing compulsory retirement terms. This means they will continue to receive an early, enhanced pension based on their years of service as at 31 March 2010, thus providing a significant level of further protection, for those closest to retirement, from the position reached in December.

A relatively small number of civil servants, who joined the civil service before 1987, are currently eligible for a reserved right severance payment. Here, we have modified our earlier proposals so that if made compulsorily redundant, these staff would receive a severance payment based on their years of service as at 31 March 2010, with the cash value tapered to become equivalent in value to the new terms within 3 to 4 years.

We consider that the package of changes addresses concerns raised in the consultation and provides a fair deal both for civil servants and the taxpayer.

I will lay the scheme amendments before Parliament by the end of this week so as to implement the changes to the CSCS from 1 April 2010.