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Commentary: SLC tax deal is ‘morally indefensible’

Nick Brown asks of Alexander: what didn’t he know, and when didn’t he know it?

The arrangement is corrupting for public service and public servants

In its coalition agreement, the government stated that it would “make every effort to tackle tax avoidance, including detailed development of Liberal Democrat proposals.”

It seems that the Liberal Democrat proposals included tax avoidance by senior public-sector employees.

Ed Lester, the chief executive of the Student Loans Company (SLC), who was appointed in May 2010, has been paid through Penna Consulting, which charged to provide Lester’s services. The money then went via a personal-service company, which means that income tax and national insurance are not deducted at source from his annual £182,000 pay by the SLC – unlike student-loan repayments.

Paperwork obtained by Exaro, which carried out the investigation that exposed the affair, in partnership with the BBC’s Newsnight, shows that Lester’s contract was signed off at ministerial level.

Danny Alexander, George Osborne’s right-hand man, underlined this in the House of Commons last week when he said: “As chief secretary, I now personally sign off any new pay above £142,000.”

Alexander boasted that in 45 out of 83 cases that had passed his desk, he had managed to lower the pay level. In at least one case, it seems that this was at the cost of excusing the individual involved from paying income tax.

David Willetts, the universities minister, seems happy with the decision on the grounds that the state saved money through this set up. If Lester had been obliged to pay tax like the rest of us, his wage bill would have been increased accordingly.

This is absurd. Why then should any public servant have to pay taxes? Should the head of HMRC have to pay income tax, or would it be more cost effective to let her off? Should the prime minister?

What kind of message does this send to self-employed workers in the private sector who have just spent January filling in their tax returns? What kind of message does it send to the benefit cheats and fraudsters that the prime minister says he is uncompromisingly chasing?

Willetts has form on being in deep political trouble. Back in the days of John Major’s government, he had to resign after “dissembling” over his involvement in Neil Hamilton’s fall from grace. (That too was down to Exaro’s journalist, David Hencke, then working for The Guardian.)

We expect the sort of logic that allowed Lester’s contract from a Conservative Party  that takes donations of half a million pounds a month from bankers and financiers, and whose leader recently recommended a knighthood for a donor who reportedly made some £100 million from the collapse of Northern Rock by ‘short-selling’ its shares to profit from their fall.

But the Liberal Democrats claim to be the moderating force in this government. They are nothing of the sort.

In that same Treasury session in Parliament last week, Alexander said: “Our message to tax dodgers is, ‘No matter how well-known you are, how clever you think your accounts are or how far away you hide your money, we are coming to get you.’” Sanctimonious hypocrisy.

At a time when the public finances are so tight that benefits are being cut for cancer patients and disabled people, Alexander is giving the go-ahead for contracts that enable well-paid public servants to avoid paying income tax.

As well as being morally indefensible, the arrangement is corrupting for public service and public servants. Alexander must answer questions urgently about how many other deals of this kind he has let through, and what estimate he has of the total cost of these deals to the public purse. What didn’t he know, and when didn’t he know it?

It is a great irony that a government, which has set up a new model of student finance that threatens to price a generation out of higher education, has excused from taxation the very man in charge of recouping student debt.

Nick Brown is a Labour MP, and the former chief whip in the last Labour government. He was granted permission by the speaker of the House of Commons for an ‘urgent question’ in the wake of Exaro’s revelations, which prompted a lively debate in the House of Commons.

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