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Review into Civil Servants' service companies
by Susie Hughes at 13:02 03/02/12 (News on Business)
A Treasury Minister found himself trying to explain and control the growing scandal around tax avoidance by senior Civil Servants.
The row erupted after it was revealed that Ed Lester, CEO of the Student Loans Company was being paid through his own limited company. This led to cries of tax avoidance from some and double standards from others as a senior Government employee seemed to be avoiding tax and NI; and also IR35 with the Government's or Whitehall's knowledge and/or approval.

The issue was raised as an urgent Parliamentary Question which saw Chief Secretary to the Treasury, Danny Alexander, face an hour of questioning in the House of Commons about the deal.

He has launched an immediate review and promised to reveal its finding to the House. In the meantime, the arrangements relating to Mr Lester's remuneration have been stopped. Mr Lester started in an interim capacity before changing to a more permanent role at the Student Loans Company.

Mr Alexander was asked to explain the 'Government’s policy on the operation of tax avoidance schemes in the civil service'. He declined to comment on the specifics of any case, but claimed that 'there is no place for tax avoidance in Government' and said that he would explain what action he had taken in the light of a recent case.

For senior civil service appointments whose salary exceeds £142,500, terms and conditions are negotiated by the appointing Department and are presented to Mr Alexander for approval of the salary. Those arrangements are in place to control excessive pay.

Mr Alexander said he has asked his own Department, the Treasury, to review 'the appropriateness of allowing public sector appointees to be paid through that mechanism' - meaning a limited company.

He has also reminded all accounting officers across Whitehall 'that all appointments should, in line with existing guidance, consider the wider cost of lost revenue to the Exchequer when considering value for money' and asked all Departments to carry out an internal audit by the end of March.

He said: "The Student Loans Company will for the remainder of the contract in question change the arrangements and deduct tax and national insurance at source. Across Government, if any appointments that do not provide value for money are found, whether agreed by this Government or the previous one, I have urged Departments to seek to unwind them as quickly as possible and as quickly as is compatible with securing good value for public money.

"At a time when we all have to pull in the same direction to tackle the country’s financial problems, it is essential we all pay our full and fair share. That is why I have taken this action to ensure that Government Departments do not support tax avoidance schemes."

Other points
In response to specific questions, Mr Alexander said:

  • Knowledge: his own responsibility was the salary level and he was not aware of any tax benefit to any individual.
  • Transparency: he would update the Commons when the review was completed.
  • Other cases: he was not aware of a similar previous case involving the Rural Payments Agency, but said that the review would bring to light any similar cases which currently exist.
  • HMRC he acknowledged there would be an opportunity for the Public Accounts Committee to scrutinise the role of HMRC and the Cabinet Secretary in these issues, if it wished to.
  • Cabinet Secretary he confirmed that it was a matter of public record that the Cabinet Secretary signed off these arrangements.
  • Tax avoidance on a point of fact he agreed that tax avoidance was legal, but that this Government has taken strong action to deal with both tax avoidance, where they have removed schemes that people use to minimise the amount of tax they pay, and tax evasion, which is illegal.
  • Service company fees he could not give a detailed answer about the fees paid to the service company, but later said that they are set out in the publicly available Student Loans Company annual report.
  • Legality and fairness he discounted a suggestion that if the process was legal, in the interests of fairness all public sector employees should have the same advantages of tax efficiencies.
  • Restitution - the arrangement has now been stopped but without any decision on the question of restitution, though it would now be considered.
  • BBC - although the review is directed at central Government Departments and their non-departmental public bodies, he will consider whether that includes the BBC, where, it was reported, daily rates are quite prevalent
  • Complexity'precisely the complexity of the tax system that creates some of the opportunities of which many people take advantage'.
  • BIS - on a number of occasions, he denied knowledge of the detailed arrangements, which were put in place by Department for Business, Innovation and Skills, the Government Department responsible for the Student Loans Company.
  • Tax avoidance - when asked 'who signed off the tax avoidance measures in this deal', he warned about being careful about how these arrangments are characterised, given that they are currently subject to a review. He avoided naming any Minister who may have signed off the deal.

During the Parliamentary debate much was made of the guidelines and rules which govern the payment of senior Civil Servants, namely that:

“public sector organisations should avoid using tax advisers or tax avoidance schemes as any apparent savings can only be made at the expense of other taxpayers or other parts of the public sector.”

However, there was no reference to IR35 which is aimed at preventing so-called 'disguised employment' and ensuring that everyone pays their 'fair share of tax'.

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Susie Hughes © Shout99 2012

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Review into Civil Servants' se... Susie Hughes - 3/02
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