Councils should have the power to claw back taxpayers’ money paid out to cut ties with their town hall chief if they later get re-hired to another local government job.

Communities Secretary John Denham welcomed the report and made clear taxpayers’ money should not be used by councils to resolve personal differences and called on Local Government to quickly adopt the recommendations.

It found that pay-offs for 37 chief executives cost £9.5m.The average was over a quarter of a million pounds but a few cases exceeded £500,000. It called for publication of pay-off details; recouping where necessary; ending pay-offs to remove poor performers; formal appraisals for chief executives; and management training for councillors.

Mr Denham said every council needed to set up remuneration committees with some outside representation to set pay levels and structures for senior posts that also decided severance and discretionary payments.

Last August, John Denham asked the Audit Commission to investigate the so called ‘Boomerang Bosses’ phenomenon where Town Hall chief officers are being allowed to walk off with big pay-offs after falling out with the council’s political leadership.

The Audit Commission report, ‘By Mutual Agreement’ found that between 2007 and 2009:

• More than a third of council chief executives lost their jobs. 35 per cent resigned for new posts, 30 per cent left under mutually-agreed contract terminations with pay-offs (37 from 122) and one in six took up a job at another council within a year;

• The average payment was £256,104 while 34 per cent were over £300,000. 70 per cent of cases included either lump sums or increased pension years;

• Decisions by members to pay off the chief executive often following a change in leadership are not always justified. Between 60-70 per cent of councils cite relationship breakdowns as a factor;

• In a earlier report the Commission found that councils that replaced their chief executive with one from another council paid a 42 per cent wage increase on average;

• There could be a delay of 18 months between a severance payment and its publication, too long for adequate accountability to the public. Only 46 per cent of dismissals included agreed press statements;

• Poorly performing chief executives, or those with poor conduct records are paid off rather than disciplined or dismissed. 15 per cent of all mutually agreed departures were performance related;

• Chief Executives work for the whole council and have a right to fair treatment and protection from political interference.

Mr Denham has today written to Margaret Eaton, Chairman of the Local Government Association, inviting her to agree these proposals as key actions that Government and councils need to take forward to reassure the public that taxpayers’ money is being used properly.

He has also asked Cllr Eaton to set out how the LGA intend to take forward the recommendations, including meeting immediately with Government to discuss how to change to the existing framework for pay-off claw back.

In addition, the minister made clear councils should publish ‘accessible’ statements justifying to taxpayers any senior employees. This builds on ground breaking pay transparency rules that require from 31 March all posts over £50,000 to be set out in annual accounts including the pay and perks of all ‘senior posts’ and naming individuals paid over £150,000.

John Denham said:

“The Audit Commission report shows that too many Chief Executives are being dismissed because they have fallen out with council leaders – this can cost as much as £500,000 in some cases and is all too often seen as a quick fix solution. Taxpayers’ money should not be used to resolve personal differences.

“It is time we find a way to change the rules so taxpayers’ money can be clawed back where the system has been exploited. Councils should also make publicly available what they waste in pay-offs and set up remuneration committees to decide appropriate pay awards and senior structures.

“Local Government, like the rest of the public sector, needs to show that it can take the tough choices to make sure public money is used in a way that protects the frontline services which matter to people most.”