Her retirement, which will bring her a lump sum of more than pounds 142,000 and an annual pension of nearly pounds 36,000, means also that disciplinary allegations against her can no longer be pursued.
The deal, which will allow Miss Halford, 52, to leave her pounds 44,796 post as Assistant Chief Constable with Merseyside police on 31 August, was struck at a stormy meeting of the force's police authority yesterday in Liverpool.
The meeting, adjourned since Friday, was considering a financial package worked out by the lawyers for all sides - including the Home Office - and an application from Miss Halford for retirement on the medical ground that she was having problems with an arthritic knee.
Many left the meeting showing disgust at the outcome; some said they felt Miss Halford should have answered the disciplinary allegations that she drank and swam in a businessman's pool with other officers while she was the senior Merseyside officer on duty.
The voting was 10 to 8 in favour of a deal, with three members abstaining. Harry Rimmer, leader of Liverpool council's Labour group, said that an agreed press statement was being prepared but he 'did not agree with it'.
Miss Halford is expected formally to withdraw her sex discrimination allegations today at the industrial tribunal in Manchester that has sat for 40 days at a cost of pounds 1.2m. Her action has been backed financially by the Equal Opportunities Commission, which had hoped that it would be a test case for women police.
However, Whitehall sources revealed yesterday that as a result of the case the Home Office will involve the commission in reviewing police promotion procedures.
It is understood that pressure from Gillian Shephard, Secretary of State for Employment, with Cabinet responsibility for equality issues, has encouraged Kenneth Clarke, Home Secretary, to take action over alleged discrimination in the police.
If Ms Halford abandons her sex discrimination case today there will be considerable relief in Merseyside police and the Home Office. During 26 days of evidence to the tribunal, she has been brutally frank about life in the Merseyside force, describing drunkenness at senior levels and blatant misogyny. She kept diaries of meetings with Sir Kenneth Oxford, the former Chief Constable, whom she accused of being overbearing and abrasive.
She also described a 'desperate abuse' of the system within Merseyside police whereby officers accused of disciplinary offences had become sick and been retired on health grounds.
Miss Halford became the first woman assistant chief constable after 20 years' service with the Metropolitan Police. Of the 86 posts of chief constable and deputy chief in England and Wales, none is held by a woman. Miss Halford is expected to write about her experiences for a Sunday newspaper.
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