Parliamentary report blasts NHS, local government and BBC after Exaro exposed scandal
“When it comes to filling senior, high-pressure Whitehall jobs, the mind-set has been to get people into posts without due regard to the strings that might come attached” – Richard Bacon, member, House of Commons public accounts committee
MPs today condemn the scale of ‘off payroll’ deals for civil servants across Whitehall as “shocking”.
The House of Commons public accounts committee says in a damning report that the practice “generates suspicions of complicity in tax avoidance,” and “fails to meet the standards expected of public officials.”
It begins the report by saying: “The public sector must itself maintain the highest standards of propriety in its employment practices if it is to show leadership in the fight against tax avoidance.”
The scandal has been exposed by Exaro since first revealing in February, with BBC2’s Newsnight, that the Student Loans Company (SLC) was paying its chief executive, Ed Lester, through a personal-service company without deducting tax or national insurance under concessions granted by HM Revenue & Customs (HMRC).
Danny Alexander, chief secretary to the Treasury, told Parliament in May that a Whitehall review found that 2,400 senior civil servants were avoiding millions of pounds in tax by working ‘off payroll’.
He announced a clampdown, although civil servants later complained that it was proving much tougher than they expected.
Sir Nicholas Macpherson, permanent secretary to the Treasury, admitted to the committee that Lester’s arrangements resulted from a “catalogue of errors”.
In its report published today, the committee of MPs criticises ‘off payroll’ arrangements not only in Whitehall, but across the National Health Service, local government and the BBC. Too many public officials, it concludes, “have been paid using off-payroll arrangements for too long.”
On Lester’s deal, the MPs’ report says: “The appointment of the chief executive of the Student Loans Company through a personal-service company should not have gone unchallenged by any part of government.”
“Also of concern is the fact that HM Treasury, Cabinet Office and HM Revenue & Customs all failed properly to challenge the appointment, giving the appearance of endorsing the use of off-payroll tax arrangements.”
Margaret Hodge, the Labour MP who chairs the cross-party committee, said: “Avoiding tax and national insurance when paying public-sector staff is almost always staggeringly inappropriate.”
The committee praised the Treasury’s speedy review and the clampdown in central government, but Hodge warned: “Tax avoidance in the public sector goes much wider.”
She said: “We suspect that many individuals and employers in local government and in the health service do not pay their proper tax and national-insurance contributions.”
Hodge also revealed to Exaro that the committee was considering whether to recall the Local Government Association, which represents councils in England and Wales, to explain why local authorities reported to it just 13 examples of off-payroll arrangements.
“We are sceptical about these numbers given reports about numbers within individual local authorities,” the committee’s report says.
Hodge said that the committee was also “shocked” by the scale of ‘off payroll’ deals at the BBC, which Exaro revealed in March.
Zarin Patel, the BBC’s chief financial officer, told the committee that nearly one in three presenters at the broadcaster work through personal-service companies.
The committee is waiting for the BBC to report back on a review of the broadcaster’s use of personal-service companies.
Hodge said: “We want the review to explain how the BBC will gain assurance that members of staff involved are paying the correct amount of tax on their income from the public purse.”
A BBC spokeswoman said that the review is ongoing, and that no completion date had been set.
The report also urges HMRC to increase the number of investigations into public officials’ compliance with the ‘IR35’ rules that govern off-payroll arrangements.
Richard Bacon, a Conservative MP on the committee, said that Whitehall’s reliance on “hired guns”, or interim staff brought in to make up for a lack of specialist skills across the civil service, led to the use of so many off-payroll arrangements.
“When it comes to filling senior, high-pressure Whitehall jobs, the mind-set has been to get people into posts without due regard to the strings that might come attached, such as requests for favourable tax treatment,” he said.
Bacon urged the Cabinet Office to do more to employ specialist staff directly. He also called on the Treasury to “cast its net wider” by undertaking a full investigation into off-payroll arrangements in the broader public sector.
Update 11 October 2012: The BBC is planning to put many of its people working through personal-service companies on the payroll after it completes its review.
Lord Patten, chairman of the BBC Trust, told a lunch held by the Broadcasting Press Guild that some BBC freelances on such arrangements – possibly including leading presenters – would be offered staff contracts.
He said: “It is undoubtedly the case that some freelancers will be put on the payroll. I am sure that we shall also want more regular information going to the Revenue on service companies so that they can be absolutely clear about the tax liability.”
He said that the BBC had asked freelancers to be paid through personal-service companies “in order to avoid the licence-fee payer having to be liable for unpaid taxes by people being paid in that way.”
The BBC had never “connived in tax dodging,” he said.
The BBC executive board, led by George Entwistle, director general, would meet this week to discuss the review findings, he said. They will then be passed to the BBC Trust, which will publish its own assessment in the next fortnight.