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Former cabinet secretary: ‘content’ with SLC tax deal

Whitehall e-mail also shows Alexander was told Lester would be kept off payroll

We shall be working with the Treasury following the chief secretary’s announcement of a review into the issue

Cabinet Office spokesman

Proposals to allow the Student Loans Company’s chief executive to stay off its payroll were approved by the UK’s then cabinet secretary.

E-mails between Whitehall officials obtained by Exaro reveal why Sir Gus O’Donnell was “content” with what one internal memo described as the “tax efficient” arrangements, which included no tax being deducted at source.

Our evidence also suggests that Danny Alexander, chief secretary to the Treasury, was informed of the plan to keep the executive off the payroll, although he has said that he was unaware of the tax consequences of the deal.

An investigation by Exaro, in conjunction with BBC2’s Newsnight, last week revealed how Ed Lester was able to save around £26,000 a year in tax as chief executive of the Student Loans Company (SLC) by working as a consultant rather than as an employee.

O’Donnell, who became a member of the House of Lords last month, was cabinet secretary and head of the UK’s civil service until he retired in December. In that role, he sought an “urgent clarification” about Lester’s proposed two-year contract from February 2011 and questioned the payment arrangements, according to a Whitehall e-mail.

O’Donnell’s concerns were raised just days before ministers approved the contract. Whitehall documents revealed by Exaro last week show that Alexander and David Willetts, universities minister, agreed Lester’s contract.

Alexander says that he was unaware of any potential tax benefit to Lester and ordered an urgent Whitehall-wide review of the issue.

He also announced to Parliament last Thursday that the SLC would deduct tax and national insurance from Lester’s pay at source from then on after being challenged by MPs in an emergency debate.

The debate was triggered when John Bercow, the speaker of the House of Commons, gave permission for an ‘urgent question’ on the issue from Nick Brown, the Labour MP and former government chief whip.

The Cabinet Office declined to answer questions about O’Donnell’s role in approving Lester’s contract. A spokesman said: “We shall be working with the Treasury following the chief secretary’s announcement of a review into the issue, and as such shall not be getting into the ‘ins and outs’ of this until that has concluded.”

O’Donnell did not return calls from Exaro this week in time for publication.

Willetts is a minister at the Department for Business, Innovation and Skills, which said that it had followed proper procedures.

The SLC’s position was that Lester’s tax arrangements were a matter for him and HM Revenue & Customs, but that he declined to comment.

The e-mails naming O’Donnell were released to Exaro under the Freedom of Information Act (FOIA). O’Donnell has, ironically, called for greater restrictions on FOIA, for example, wanting civil servants’ advice to be kept secret.

Exaro is planning further disclosures about 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.

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