‘We should have looked at figures more carefully,’ admits Sir Nicholas Macpherson

By David Hencke | 16 July 2012

“The Treasury had been asking the wrong questions”
– Sir Nicholas Macpherson, permanent secretary to the Treasury

One of Britain’s top civil servants today admitted that a “catalogue of errors” led to the head of the Student Loans Company working ‘off payroll’.

And a second senior mandarin revealed to a committee of MPs that Ed Lester had originally asked for £260,000 a year to do the job, which was 44 per cent more than he was eventually paid.

Sir Nicholas Macpherson, permanent secretary to the Treasury, told the House of Commons public accounts committee this afternoon that he was shocked when a review sparked by an Exaro investigation revealed that 2,400 senior civil servants were paid through personal-service companies.

He also revealed that the Treasury would next year conduct a second review of the use of personal-service companies in Whitehall.

The hearing was triggered after an investigation by Exaro, together with BBC2’s Newsnight, revealed in February that the Student Loans Company (SLC) was paying its chief executive, Ed Lester, through a personal-service company without deducting tax or employee’s national insurance under concessions granted by HM Revenue & Customs (HMRC).

The SLC paid Lester’s £182,000 annual salary package without deducting tax or national insurance at source.

Macpherson said: “The Treasury had been asking the wrong questions. We were concentrating on value for money and not on the tax implications. We should have looked at the figures more carefully.”

MPs this afternoon grilled senior figures from Whitehall, HMRC, the BBC and local government after summoning them to answer questions over ‘off payroll’ contracts.

Howard Orme, finance director at the Department for Business, Innovation and Skills, revealed to the committee that Lester had originally asked for more than £260,000 a year, which was nearly £80,000 more than he was eventually paid. He disclosed the figure when justifying the deal, saying that the salary figure was reduced from the level sought.

Lin Homer, HMRC chief executive, told the hearing that the tax official who granted the concession might not have realised the implications. “He may not have been told the actual situation,” she said.

She also revealed that there were few checks on personal-service companies. The number of checks fell to as few as 12 per year at one stage, before rising to 23, she said.

“We intend to increase this ten-fold immediately,” she told MPs.

The Treasury carried out a review in Whitehall following Exaro’s disclosures. Danny Alexander, chief secretary to the Treasury, told Parliament in May that 2,400 senior civil servants were avoiding millions of pounds in tax by routing their pay through personal-service companies.

Public officials are able to save themselves tens of thousands of pounds a year in tax through such arrangements.

HMRC is launching an investigation into the practice of civil servants working ‘off payroll’. It is using the results of the Treasury review to open investigations into the “highest-risk cases” of suspected tax underpayment by senior public officials.

Homer told MPs today that HMRC had already quickly reviewed the 2,400 senior civil servants found to be using personal-service companies.

She said that HMRC had concluded that 15 per cent were potentially high risk, although the figure could reduce after closer scrutiny.

She revealed that HMRC would also examine how the BBC was handling ‘off payroll’ contracts.

The committee also grilled the BBC’s chief financial officer.

In addition, MPs questioned Carolyn Downs, chief executive of the Local Government Association over the issue.

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