Understandable questions across the public sector have arisen with the news that up to 18,000 NHS administrative and managerial redundancies will now proceed. This follows a Treasury agreement to permit overspending on redundancy costs. Although this announcement is specific to NHS England, the message is clear; national departments expect organisations to absorb restructuring costs now and deliver savings later, all within existing settlements. 

For councils, blue-light services and combined authorities already working within strict financial limits, this reinforces the need for early planning across tax, employment, and budget decisions. 

The Treasury position. Spend now, recover later 

The NHS will be permitted to overspend in 2024-25 to fund more than £1bn in redundancy costs. In return, future operational savings are expected to offset the initial cost. No new money is being injected beyond the current spending review envelope. 

Although this is not a local government announcement, the principle is familiar. Public bodies are being asked to reorganise, simplify management structures, and move funding towards frontline delivery. Many councils are already planning service redesign, workforce changes, and reviews of shared services to manage similar pressures. 

Why tax treatment matters during restructuring 

Tax issues are always created by workforce reductions, new service models, and governance changes. PSTAX regularly supports the public sector with: 

• VAT recovery on transformation projects and consultancy 

• Employment tax considerations linked to severance arrangements 

• CIS exposure on new delivery models or capital projects 

• SDLT questions when assets move between entities 

• VAT consequences from services transfers under shared or combined arrangements 

Clear planning at the earliest stage avoids avoidable costs and protects budgets. 

What councils should do next 

With the Treasury holding firm on spending control, public bodies should expect continued scrutiny of structural reform and financial management. Councils reviewing workforce plans, digital programmes, or service changes should ensure tax risk and opportunity are built into the planning rather than revisited later. 

PSTAX will continue monitoring the detailed implications of the NHS announcement and any follow-on guidance for the wider sector. For tailored VAT and employment tax advice, or to discuss the consequences of service redesign, please contact the PSTAX team. 

Contact the team