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Revealed: special tax deal approved for senior official

Student Loans Company chief executive works as ‘consultant’ rather than employee

We shall work closely with HM Treasury on its review of engagement practices and public-sector appointments

HMRC spokesman

Ministers approved a contract that enabled the UK’s Student Loans Company to avoid deducting any tax from the pay of its chief executive.

An investigation by Exaro, in conjunction with BBC2’s Newsnight, uncovered details of the contract under which the chief executive, Ed Lester, works as a consultant rather than as an employee.

According to Whitehall documents, Danny Alexander, Liberal Democrat chief secretary to the Treasury, approved the deal, despite repeatedly talking publicly about closing loopholes in the tax system.

However, Alexander’s spokesman told Exaro that he was “not made aware of any potential tax benefit to the individual.” He has ordered the Treasury to “urgently review” the issue, and Whitehall departments to carry out “an urgent internal audit to ensure that all senior consultancy appointments provide value for money.”

The spokesman added: “As he has said before, the chief secretary believes everybody should pay the right tax at the right time.”

The Student Loans Company (SLC), thanks to a concession  granted by HM Revenue & Customs (HMRC), pays Lester an annual package of £182,000, plus expenses, without deducting any income tax at source or paying national insurance.

This is despite SLC, a government-owned company, also appointing Lester as a director, and his being its accounting officer to Parliament. Instead, Lester receives payment via a private company, which is liable to pay corporation tax.

For several months since 2010, three other SLC executives were paid in a similar way, which provides a legal way of minimising the amount of tax due, as one former tax inspector explained.

Lester was appointed to overhaul the SLC after a fiasco that left thousands of students without their loan payments. The SLC said that Lester’s tax arrangements were a matter for him and HMRC, but that he declined to comment.

The documents also show that David Willetts, Conservative universities minister, approved the deal. He is a minister at the Department for Business, Innovation and Skills (BIS), which oversees the SLC and negotiated the contract.

A BIS spokeswoman said: “The department adopted the correct processes and was satisfied it had come up with a package that met the relevant guidelines, including value for money. Terms and conditions were negotiated by the SLC and BIS, and presented to the chief secretary of the Treasury for approval of the salary level.”

The spokeswoman declined to answer specific questions, saying: “Personal taxation arrangements are a matter for the individual.”

An HMRC spokesman said: “We cannot discuss the tax arrangements of named individuals for legal reasons, but we shall work closely with HM Treasury on its review of engagement practices and public-sector appointments.”

Memos, letters and e-mails released to Exaro under the Freedom of Information Act show that one senior civil servant at BIS described the arrangements as “tax efficient” for Lester. The SLC is also able to avoid paying employer’s national insurance.

The exposure of the deal for a senior civil servant is bound to embroil ministers in a row as the British taxpayer faces financial pressure, and few people or companies can expect to benefit in the same way.

Exaro has established that BIS first agreed to the special arrangements for Lester when he was appointed as interim chief executive in May 2010. He kept the tax deal when he was confirmed in the post from February last year after concerns that he would “re-open negotiations on his remuneration” if he had to be paid on the SLC payroll.

Under the current deal, in place since February 2011, the basic annual salary is £140,000. This is a shade under the £142,500 annual pay taken by David Cameron as prime minister, whose government is trying to limit the number of senior civil servants earning more than £150,000 a year.

But the SLC also pays annually, as part of the deal, a bonus of up to £14,000, pension contributions of £28,000, plus up to £28,600 expenses to cover travelling between London and Glasgow and a contribution to rent an apartment near the SLC headquarters. This makes the total remuneration package up to £182,000 a year plus expenses.

Exaro will be revealing more details behind the SLC chief executive’s “tax efficient” arrangements. Exaro is also planning a series of disclosures on how other senior civil servants have struck similar contracts – instead of being treated as employees. If you have information that might shed more light on this practice, please e-mail news@exaronews.net or use our secure dropbox.

Additional reporting by Alison Winward.

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