The head of the union representing senior civil servants has said that pay deals for officials that could reduce their tax liability need to stop and are widespread across Whitehall, especially in commercially orientated wings of government departments.He was speaking in the wake of a Guardian story revealing that 25 senior members of staff at the Department of Health have had their salaries paid to limited companies. The practice is also understood to occur in primary care trusts.
The department has apologised after documents sent to the Guardian showed that contrary to assurances given to parliament, more than 25 senior staff employed by the department are paid salaries direct to limited companies, with the likely effect of reducing their tax bills. In some cases, the documents show the named individuals are being paid more than £250,000 a year, as well as additional expenses. The payments amount to almost £4.2m in one year.
Jonathan Baume, general secretary of the First Division Association, said: "We now need to be very transparent, very clear that this cannot continue, but at the same time grasp the very difficult political nettle which is to address pay at the senior levels of the civil service. Frankly, it's a shambles. Ministers are going to have to raise the salaries."
Baume said the deals had often been put in place to hide the true level of payments to senior officials: "It would be a mixture of motives here. In some cases it was certainly I think to disguise the real level of the pay being offered."
Speaking on BBC Radio 4's Today programme, he said it was important to "get to the bottom of to what extent this is happening both in civil service departments and in the arm's-length bodies".
He added: "Under the last Labour government there was a big push to bring people into the senior levels of government, from in particular the private sector … At the same time, over quite a number of years, salaries have been held down.
"What we have found is that in certain cases because the market rate was so much greater than the salary that would have been offered in the civil service, various deals were being done and some of these are now being exposed."
The department claimed the 25 were not civil servants, or technically even staff, although a large number have been employed by the department for many years and hold very senior positions. It said the arrangements would be subject to review by the Treasury.
One Whitehall source said: "We cannot defend these arrangements, but it may be it is very common in Whitehall and this is just the tip of an iceberg."
Danny Alexander, the chief secretary to the Treasury, set up a cross-Whitehall review this month into the extent of the pay arrangements after it was revealed the Department for Business, Innovation and Skills had sanctioned a similar salary deal for Ed Lester, the chief executive of the Student Loans Company.
At the time it was presented as a rare practice.
But details of the Department of Health payments obtained by the Guardian show nineteen staff were paid more than £100,000, with the single largest payment being £273,375.
The majority of such payments were paid to companies with the same address as the home address of the staff.
Most companies provided to the department are registered as business and management consultancies, yet the internal departmental payroll information also details the department offices in which they work, job title and email address. In most cases the companies' names emerge to be little more than an adaptation of the individual's surname.
The Guardian holds details of the payments to 25 individuals, month by month, for the tax year ending April 2011, the identity of their limited company and their work in the Department of Health.
The staff work in a variety of areas such as the policy, strategy and finance directorate, medical directorate, the office of the chief scientific officer, and commercial contracting.
The emails handed to the Guardian also show senior civil servants at the department discussing the possible reputational damage to the department and seeking to avoid ways of revealing the nature of the payments, information about which was sought in a written question last December by Gareth Thomas, the shadow Cabinet Office minister.
Asked by Thomas if any health department staff were paid by means of payments to limited companies in lieu of salary, the health minister Simon Burns said in a written parliamentary answer that no payments were being made to civil servants in this way.
He also said: "It is not the department's policy to permit payments to civil servants by ways of limited companies."
In a fresh statement on Wednesday the department said: "The definition of staff in this context refers to civil servants, and we can confirm that no civil servant who is an employee of the Department of Health is paid in this way. To this extent it was certainly not our intention to mislead anyone involved.
"We would be happy to clarify the situation in greater detail with anyone who asks and apologise for any misunderstanding involved. We are currently carrying out a full audit of such arrangements in line with the recently announced Treasury review of tax arrangements of public sector appointments."
Health department sources said it allowed staff to define themselves for payroll purposes neither as civil servants nor payroll staff.
In the emails, Jason Skill, in the procurement centre for expertise, discusses the motivation of the written question by Thomas, saying: "There is probably an employment and taxation angle to this question though it might not be in the mind of Mr Thomas.
"Salary is paid to employees. It may be that some or all of the non-payroll workers are in reality employees and the payments made to their limited companies would be in lieu of salary, but we would not want to suggest that all payments to limited companies are in lieu of salary."
The email also goes on to discuss Revenue and Customs (HMRC) rules, including tests "to differentiate between a contractor who HMRC deem to need to pay tax like an employee and a contractor who does not".
It continued: "The department would probably want to avoid anything that implies its NPWs [non-payroll workers] are disguised employees reputationally, to avoid unnecessary employers' national insurance and because HMRC may use this to take forward IR35 cases with those NPWs."
The emails also discuss whether it would be possible to reply that an answer cannot be provided due to disproportionate cost.
Thomas said he was writing to the health secretary, Andrew Lansley, to seek clarification. "The question was clear enough and I am therefore very surprised that the Department of Health was unable to provide a complete and accurate answer.
"Given the importance of parliament being given accurate answers from government ministers I will be writing to Andrew Lansley for a full explanation. I will also be asking other departments to check whether their answers were complete and accurate, and whether they have similar numbers of staff asking for their salaries paid to companies to reduce their tax bill."
In the wake of the Student Loans Company episode, Alexander said Lester's tax and national insurance would in future be deducted at source. He urged Whitehall departments to unwind similar schemes as quickly as possible, adding: "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."
Original Article
Source: guardian
Author: Patrick Wintour
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