By David Hencke | 1 February 2012

Alexander and Willetts ‘agreed contract for SLC chief’Two ministers allowed a senior civil servant to minimise his tax liability, according to internal Whitehall correspondence obtained by Exaro.

The documents suggest that Danny Alexander, chief secretary to the Treasury, and David Willetts, universities minister, approved a contract that enabled Ed Lester, chief executive of the Student Loans Company (SLC), to avoid being taxed as if he were an employee.

However, Alexander’s spokesman told Exaro that he was unaware of any potential tax benefit to Lester and has ordered an urgent review of the issue.

The arrangements, agreed with HM Revenue & Customs (HMRC), were also circulated to Scottish ministers and the devolved governments of Scotland, Wales and Northern Ireland.

Margaret Hodge, the Labour MP who chairs the House of Commons public accounts committee, said: “It is outrageous that the government appears to be helping top civil servants set up tax-avoidance schemes. Everybody should pay their fair share of tax, and the government should be setting an example.”

The SLC said that Lester’s tax arrangements were a matter for him and HMRC, but that he declined to comment.

The Department for Business, Innovation and Skills (BIS), in which Willetts is a minister, negotiated the contract. A BIS spokeswoman said that the department had followed proper procedures.

Under the Cabinet Office’s guidance, Alexander must approve any civil servant’s job paying more than £142,500 a year, including benefits.

Documents sent to him and Willetts show that they were prepared to sanction a salary of up to £200,000 a year for Lester to become interim chief executive in 2010.

In the event, Lester was offered a package worth up to £195,300, including a possible £27,900 in bonuses, plus “travel and subsistence expenses”. There was an agency fee on top for Penna Consulting, which acted as headhunters.

Civil servants drew up a document about the proposed appointment that recorded what Willetts thought about it, saying: “He understands that we need to pay an agency fee on top of this, but feels it is necessary to secure an interim CEO who is capable of turning the company round and ensuring that students get paid this year.”

A memo by an unnamed civil servant records Alexander as saying: “The salary must come down to below £200,000.”

But both ministers are noted as agreeing the terms requested by Lester in late May 2010 “in anticipation of his potential employment.”

One official wrote: “We’d need to move fast on this.”

The two ministers approved the interim appointment before agreement was reached on how Lester would be paid. HMRC only agreed in October 2010 to the concession for him to be paid through a company.

The same ministers had to approve what the documents describe as Lester’s “permanent” position as chief executive, which was a two-year contract from February 2011.

Ed Smith, the SLC chairman, wrote a letter to Willetts dated December 2010, outlining the deal: “You will wish to note that it has been provisionally agreed with Ed Lester that the contract arrangement that was agreed by the department prior to his appointment as interim chief executive should be extended for this two-year term subject to ratification with HMRC on the extension of their current concession with payment of agency fees along the lines of the existing agreement.

“If the ratification is not forthcoming, then a standard employment contract will be agreed, with a finder’s fee then becoming payable to the agency.”

Smith added: “I understand that this proposal is also subject to clearance from HM Treasury on the terms of his appointment, which your officials are working to gain as quickly as possible.”

Willetts replied the following week, still in December 2010: “The terms of the appointment that you proposed in your letter of December 15, 2010 have been agreed by the chief secretary to the Treasury, with a fixed cap of £28,000 for travel and living costs.”

“It is important that the SLC Board now moves quickly to put in place a permanent leadership team to provide the company with stability going forward. I look forward to working with both you and Ed.”

Alexander approved the appointment that same month, according to an e-mail from an unnamed civil servant to Chris Andrew, the SLC’s company secretary.

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