Pay and Consultants (Public Sector)

Andy Slaughter Excerpts

Tuesday 13th March 2012 Westminster Hall

[Mr Andy Slaughter (Hammersmith) (Lab)]

It is a great pleasure to be here, Mr Howarth, with so many hon. Friends and hon. Members, for what I hope will be an interesting, if somewhat controversial, debate. It is a pleasure to serve under your chairmanship. I look forward to the Minister’s response to some of my specific points, and to the comments of my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson).

To be clear about the topic, I intend to cover three closely related issues, which I believe raise the question of financial, moral and, in some cases, legal abuses in the employment practices of public sector organisations. Those issues are absolute levels of remuneration; the use of consultants—sometimes called interims—and agency and other alternatives to employed staff; and the avoidance and sometimes evasion of tax by the improper classification of employees as consultants. All three often occur together, although not always, and there are often other related abuses. I shall give examples of how that works and use one egregious example from my local authority that has wider implications.

Such practices would be offensive at any time, but when the country is in recession, when many, if not all, workers in the public sector at a lower level are facing pay freezes and when there are hundreds of thousands of redundancies, it is particularly offensive that what I can only describe as a new elite in the public sector appears to be immune to the worries, fears and constraints of ordinary working life and, in some respects, seems to be more comparable with those at the top of the banking or other private sector industries. The difference is, of course, that everyone thinks of bankers—outside the Royal Bank of Scotland, perhaps—as being in the private sector and responsible to shareholders. The people whom I am concerned about are responsible to us, the taxpayers or council tax payers.

The issue is not only controversial, but very topical. The Daily Telegraph has an article today headed “Council chief executives enjoy pay rises as services are cut”. It reports:

“Town hall chief executives have seen their pay packets rise by as much as £17,000 while cutting front-line services, including libraries, care for the elderly and bin collections.”

It goes on to point out that the average council chief executive is still paid more than the Prime Minister, with one in 20 earning more than £200,000 last year. At a time of pay freezes in the public sector, the average relevant salaries in local authorities were £143,995 last year, with total pay packages averaging £146,957.

[Stephen Hammond (Wimbledon) (Con)]

The hon. Gentleman may be right to point out that the average salary in that category last year was £143,000 and that the average remuneration was £146,000; but does he accept that before 2010, or before the Government took action in 2011, the average was something like £221,000? There has been a significant drop under the Government’s procurement rules.

[Mr Slaughter]

I cannot say that I will keep away entirely from party politics in what will be quite a long speech, but I will try to make a point with which I hope all hon. Members agree. The hon. Members whom I shall refer to come from both sides of the House. I take the hon. Gentleman’s point but would rather that he addressed his comments, and that the Cabinet and other Ministers would address themselves, to the current abuses, rather than playing some sort of tit-for-tat game.

[Daniel Kawczynski (Shrewsbury and Atcham) (Con)]

On the point made by my hon. Friend the Member for Wimbledon (Stephen Hammond), will the hon. Gentleman at least acknowledge that rocketing salaries in some public sector jobs are not a recent phenomenon? That is something that mushroomed in the previous 13 years, under Labour.

[Mr Slaughter]

I suspect that it goes back even beyond then and that the tradition of public service and people doing jobs not primarily for the remuneration changed in the 1980s, when a lot of moral values went out of the window in the era of Gordon Gekko and Margaret Thatcher. We could talk about that all night if we wanted to, but I would rather talk about the current situation—and the issue is very contemporary. At 8 pm this evening on Radio 4, “File on 4” will cover tax avoidance through personal service companies. I think—I am never quite sure, with the BBC—that it will cover some of the same examples that I will give today. The brief for that programme begins:

“How strong is the government’s commitment to ending schemes set up to minimise tax? A number of schemes have proved popular in the private sector, including Employee Benefit Trusts. These have been used by football clubs for tax planning purposes, but are now in the sights of HMRC as it attempts to recoup what it sees as unpaid tax. But how widespread are these trust schemes and why are they so popular with companies that have large government contracts?

As the Treasury reviews tax avoidance by senior government employees, it has emerged that employees in other parts of the public sector are using payment schemes that keep them off the payroll. There is growing concern that paying public servants through personal service companies may be inappropriate.”

I have received briefings in advance of the debate from the TaxPayers Alliance and the Public and Commercial Services Union. The concern that these issues cause across the political spectrum is such that I could read a paragraph from each briefing, seamlessly, without affecting the flow of my argument. That is not something that can be said about every topic.

The Treasury review, to which the “File on 4” blurb refers, is the one announced in the main Chamber on 2 February by the Chief Secretary to the Treasury, in response to an urgent question from my right hon. Friend the Member for Newcastle upon Tyne East (Mr Brown). That, in turn, was a response to the exposé of the funding of the head of the Student Loans Company. The investigation at the time was, I think, by “Newsnight”, but I am now referring to a report in The Daily Telegraph. The investigation showed that the

“chief executive of the Student Loans Company, was paid through a private firm he had established rather than being paid direct—a tax avoidance mechanism which could reduce his income tax liability by £40,000 a year.

The disclosure threatens to undermine Coalition pledges to crack down on tax avoidance in the private sector and opens ministers up to accusations of double standards.”

Heaven forbid!

“Documents show the deal was signed off by David Willetts, the Universities minister, who said in a letter that it had been ‘agreed by the Chief Secretary to the Treasury’ Danny Alexander.

Mr Alexander insisted he did not know that the arrangement allowed him to avoid tax, and has ordered an urgent investigation across Whitehall to see if the practice is widespread.”

I am sure that many hon. Members remember that urgent question and that many took part in the debate. I could not be there, but I have of course looked at the Hansard and will outline what the review was said to entail. After, rightly, quoting the Treasury’s “Managing Public Money” guidance, which states that

“public sector organisations should avoid using tax advisers or tax avoidance schemes as any apparent savings can only be made at the expense of other taxpayers or other parts of the public sector”

and making the bold assertion that

“There is no place for tax avoidance in Government”,

the Chief Secretary said in relation to his review:

“I have asked the Treasury urgently to review the appropriateness of allowing public sector appointees to be paid through that mechanism”—

the one used by the chief executive of the Student Loans Company. After being interrupted, the Chief Secretary continued:

“I have also asked the Treasury officer of accounts to write to all accounting officers across Whitehall to remind them that all appointments should, in line with existing guidance, consider the wider cost of lost revenue to the Exchequer when considering value for money.”—[Official Report, 2 February 2012; Vol. 539, c. 1001.]

[Jeremy Corbyn (Islington North) (Lab)]

Will my hon. Friend not go further and say that anyone working directly for the public sector in any capacity should be employed by, and accountable to, the public sector? There should be utter transparency about their employment, and we should not have these ludicrous schemes that are probably to do with tax avoidance and lack of accountability.

[Mr Slaughter]

As always, my hon. Friend has summed up my 40-minute speech in about 40 words. I agree with him, but I will not sit down.

[Daniel Kawczynski]

I am pleased that the hon. Gentleman is making this point about tax avoidance. How does he regard the Labour mayoral candidate, Ken Livingstone, and the panoply of mechanisms that he set up to avoid taxation?

[Mr Slaughter]

My earlier pleas clearly fell on deaf ears. If the hon. Gentleman wants to have a debate on that subject, he is entitled to request one. This debate is not on that subject. It is about people who are employed by the public sector—they are actually employees—who are receiving, in many cases, high remuneration, but who are falsifying their employment status not only to make more money for themselves and possibly for the organisation for which they work, but effectively to defraud the taxman. None of those points applies in the hon. Gentleman’s case, and if we go down those avenues, we will not get far with this debate. I hope that he has not come here today to score points—or to fail to score points.

Let me return to the urgent question on 2 February. I think that it is fair to say that the Chief Secretary was struggling that day. I think that he was trying to come to terms with what had effectively been exposed in the media a couple of days before. Hon. Members from all parts of the House raised other examples. The hon. Member for South Norfolk (Mr Bacon) raised the case of the chief operating officer of rural payments. The innovation director of the Technology Strategy Board has been referred to subsequently, as have at least 25 senior officials at the Department of Health and employees of health trusts.

[Stephen Gilbert (St Austell and Newquay) (LD)]

I am sure that the hon. Gentleman welcomes the review that my right hon. Friend the Chief Secretary announced. Is it not quite extensive in its scope, taking on board more than 4,000 contracts across Whitehall? Moreover, it is already having the effect of terminating some of the arrangements that the hon. Gentleman is talking about. It is, therefore, a review that he should welcome.

[Mr Slaughter]

Oh, I do welcome the review. I think that the hon. Gentleman may be quoting from The Guardian article in the debate pack. It said:

“Treasury review of the extent to which civil servants channel salaries into tax-efficient private firms is to look at more than 4,000 postings across Whitehall and its quangos—and is expected to conclude that such schemes must end for full-time permanent staff, even if the arrangement led to a net financial gain for government departments.

The Department of Health is deciding whether to cancel contracts paid to at least 25 staff via private firms worth over £4m… The Guardian has been alerted to similar schemes operating in NHS trusts and primary care trusts. In one recent case, the Milton Keynes Hospital paid its acting chief executive Mark Millar via a partnership called Millar Management Associates. There is nothing illegal in staff being employed as consultants, especially if they are temporary.”

[Ms Karen Buck (Westminster North) (Lab)]

While my hon. Friend is on the subject of acting consultancies in the national health service, does he share my concern about the signal that was sent out by the Imperial College Healthcare NHS Trust last year when it appointed an interim chief executive allegedly on an arrangement of £2,000 a day for up to 200 days. Does he accept that, with a £35 million deficit, that sends out a very worrying message to the public? Moreover, does he not think that the fact that the chief executive has now been appointed the permanent managing director—I welcome that move and do not throw any doubts on his competence to do the job—implies that that consultancy arrangement was wrong?

[Mr Slaughter]

My hon. Friend is absolutely right. Our constituencies share the world-renowned Imperial health care trust. When I was first introduced to the new chief executive, I assumed that he was just that—a paid chief executive. It was only when I read the articles in The Sunday Times that I understood that he was being paid £2,000 a day as a consultant. I do not know whether it was always the intention to regularise his position or whether it was The Sunday Times and perhaps my hon. Friend who acted as a prompt. I am, however, pleased that the chief executive, Mark Davies, applied for the job and has now been appointed to the full-time position. If that is a precedent in removing such anomalies and abuses, I hope that it will be followed.

Going back to the point made by the hon. Member for St Austell and Newquay (Stephen Gilbert), I do not object at all to the review. However, as he will have seen, the issue goes wider than Departments and non-departmental public bodies. It is my understanding—the Minister may want to correct me when she responds or even now—that that is the limit of the review at the moment. Even in the statement on 2 February, my hon. Friend the Member for Tynemouth (Mr Campbell) asked about local government—a topic to which I will return—and the hon. Member for Warrington South (David Mowat) asked about the BBC. Will the Minister update us on whether the terms of reference of the review have been extended to cover those areas, what progress has been made so far and when will we see a report?

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

To assist the debate in its early stage, I am happy to confirm that the review extends to all bodies that are covered by Her Majesty’s Treasury’s guidance on managing public money, with which Members will be familiar. That includes all central Government bodies, such as Departments and their arm’s length bodies. On the subject of the BBC, I can confirm that the review will not cover arrangements in public corporations, public broadcasting authorities or the publicly owned banks. I hope that that information is of assistance.

[Mr Slaughter]

That is disappointing. I wish that both local government and councillors were covered. The leader of Kensington and Chelsea is paid a six-figure salary. The days of councillors being volunteers or being paid small amounts have gone. The review should also cover health trusts, non-executive directors of health trusts, the whole panoply of organisations that surround the public sector bodies, the Local Government Association and the Local Government Improvement and Development board, because those are the organisations in which abuses are likely to take place. We are talking about bodies that recruit people who have retired from the public sector and who, because of restrictions on their earnings thereafter—such earnings affect pension rights—will be prone to adopt these devices to avoid being classed as employees.

The figures for high pay in the public sector speak for themselves. The Chief Secretary conceded that he had cognisance of more than 180 civil servants on packages in excess of £142,500. I commend the work of the TaxPayers Alliance—I have been doing that quite often recently—in publishing the “Town Hall Rich List”, which shows that the highest paid chief executives, who are, I think, in Wandsworth, are on around £350,000 a year. That list of shame, which is regularly updated and published, is a great public service.

Let me just say, though, that as someone who has spent 20 years in local government, I have worked with some very fine public servants who did not do the job primarily for money. I even had a chief executive who capped his own salary, which is not something that we see much of at the moment. However, I have also had the unedifying experience of seeing the last chief executive of Hammersmith and Fulham, which is one of the smallest unitary local authorities in the country, retire on a salary of £281,000 a year. That salary had been increased by £11,000 in the last year of service—the salaries of everyone else in the organisation had been frozen—in order, I suspect, to enable him to retire on the maximum pension. The authority would not divulge the details of that pension but the House of Commons Library calculated that it would be substantially in excess of £100,000 a year. In addition, he received a lump sum payment of a sum much larger than £250,000 a year. To my mind, that is not where local government should be.

I will return to the issue of consultants. I say again that I am grateful to a number of organisations for their help, particularly the PCS union, which takes an interest in this subject.

[Jim Sheridan (Paisley and Renfrewshire North) (Lab)]

I want to make a point before my hon. Friend moves on from consultants. Before I do so, Mr Howarth, I give early apologies that I have to leave Westminster Hall early as I am on Select Committee business with the Culture, Media and Sport Committee this morning. Coincidentally, the Committee will be taking evidence from the Under-Secretary of State for Culture, Olympics, Media and Sport, the hon. Member for Wantage (Mr Vaizey), who is the Minister at the Department for Culture, Media and Sport who is closing libraries up and down the country. Can my hon. Friend just clarify his earlier comments about chief executives being awarded something like a 17% pay increase? Is that accurate?

[Mr Slaughter]

It must be accurate—it is in The Daily Telegraph.

The PCS union quantifies the amount spent by Government on consultants at more than £1 billion; I think that that amount is based on figures from the National Audit Office. Before Government Members jump up and down, I accept that the figure paid to consultants has been too high for too long, but that is not any reason for not addressing the issue.

The PCS union says that, when hundreds of thousands of jobs are being cut in the public sector and its members on low pay are being forced to take pay cuts, it is not right that, for example, the Ministry of Justice—an organisation with which I am reasonably familiar—spent £43 million on consultants between May and November 2011. The Legal Aid, Sentencing and Punishment of Offenders Bill, or LASPO, is currently being mauled in the House of Lords, particularly about the issue of social welfare legal aid. If that figure of £43 million were annualised, the cost of consultants to the MOJ would effectively pay for the entire cuts in social welfare legal aid. So, all the agonising about cuts to citizens advice bureaux, law centres and to the funding for disabled people seeking advice on welfare benefits, housing or whatever would be unnecessary, if only the Lord Chancellor and Secretary of State for Justice could address his habit for consultants.

[Glyn Davies (Montgomeryshire) (Con)]

I thank the hon. Gentleman for allowing me to intervene, and I must say that I have a lot of sympathy with the general principle of some of the things that he has said this morning, but not with everything he has said. Is his opposition to the public sector’s use of consultants completely based on principle, even if such use of consultants adds to efficiency and does not cost any more money? Even if those situations existed, which in some cases I believe they do, would the hon. Gentleman still oppose the use of consultants just on principle?

[Mr Slaughter]

There is a definition of consultants that I will give—it is not the PCS definition, which I think is plagiarised anyway:

“People who borrow your watch, tell you what time it is and then walk off with it.”

The definition that I will use is:

“People who do a specific task, which is needed, usually for a short period of time, and which is a particular piece of expertise that is being bought in.”

What we are talking about this morning is—in very many cases—absolutely not that, and I will now give the hon. Gentleman an example. I hope that it is not a typical example, but it is certainly a very shocking example.

I will give way once more.

[Stephen Hammond]

The hon. Gentleman is being very kind in giving way. Just before he moves on from this issue, I want to ask him a question. He has talked about the £43 million spent by the MOJ on consultants. Can he tell the House exactly what that £43 million was for, and can he say whether there was a public sector evaluation of the cost if the work for which that money was paid had been carried out in-house? I think an answer to that question would aid the debate.

[Mr Slaughter]

I think answering that question would take us off on a siding, albeit an interesting siding, and I am not sure that the hon. Gentleman really wanted to come to Westminster Hall today to defend that spending by the MOJ. If he does, he is very brave, but there it is.

[Stephen Hammond]

I just want to know what it is.

[Mr Slaughter]

Of course, the MOJ pales into insignificance beside the Ministry of Defence and what are euphemistically—well, perhaps appropriately—known as FATS, which are framework agreements for technical support, and beside the hundreds of millions of pounds that have been spent through that route. The Department for Work and Pensions is another major offender. According to the PCS, “business consultancy services” cost the DWP £18.2 million in 2010-11. At a time when the Government could not find the money for the future jobs fund, that seems to be wrong. I could give a lot more examples in relation to Government Departments.

[Daniel Kawczynski]

Will the hon. Gentleman give way?

[Mr Slaughter]

I will not give way, if the hon. Gentleman does not mind, because I want to press on and hopefully finish by ten minutes past 10.

As I was saying, I could give a lot more examples about Government Departments, but I think that the point is made and I hope that it is a point that the Minister, when she responds to the debate, will say the Government are taking very seriously. I hope that takes seriously not only the issues about the levels of remuneration and taxation problems but whether the public sector is getting good value for money for the number and type of consultants that are hired.

I will give just one other little anecdote about consultants and again it is an anecdote from my own backyard. My local authority has got rid of 1,800 staff in the last five years—I think that is the figure—and that is a substantial proportion of its work force. A lot of that is related to cuts and a lot of it has proved unwise. However, the local authority has now cut so many staff that it is now “taking on”—to use the authority’s own words, which it uses to defend the number of consultants that it employs—agency staff and consultants, simply because it has got rid of so many PAYE staff. That cannot be the right way to run a public sector organisation.

Let me give another example of what I think we all know as IR35. Let me talk about a particular case in Hammersmith and Fulham. It has received some media attention, but I am not sure that the full horror of it has been expounded. It relates to a particular gentleman. I am sorry to have to talk about individuals, but obviously this issue is about individuals who have these consultancy contracts. That gentleman is called Nick Johnson. He used to be the chief executive of the London borough of Bexley, on a salary in excess of £200,000. His partner—his common-law wife, if that phrase is still in use—is a woman called Kate Davies, who is the chief executive of Notting Hill housing trust, and she is also on a salary of about £200,000. They jointly set up a personal service company, or PSC, called DaviesJohnson, to tender for work. I should point out that Ms Davies is still the chief executive of the Notting Hill housing trust, but Mr Johnson is no longer the chief executive of Bexley.

Rather than explaining their situation in my words, I will quote from a letter; although it is quite long, reading from it will save time. It was written by Councillor Stephen Cowan, who is the leader of the opposition in the London borough of Hammersmith and Fulham, to the Secretary of State for Communities and Local Government on 16 December 2010, which is some time ago. As far as I am aware, Mr Cowan is still awaiting a response to that letter. Mr Cowan wrote:

“I was interested to read your view that ‘Councils could cut chief executive’s pay’ as a means of saving money in these difficult times. You will no doubt have seen this article in the Mail on Sunday when it appeared on the 31st October 2010.”

The letter goes on to talk about the contents of that article. It continues:

“I believe that the issue it raises warrants investigation by your Department and the loopholes that have allowed this to occur need to be tightened. Such measures are likely to result in significant savings to the public purse. The Mail on Sunday reveals how Nick Johnson ‘receives a total of £310,000 a year, making him what is believed to be the highest paid council-funded official in Britain.’ However, this money is a combination of Dr Johnson’s ability to draw an alleged £50,000 local government pension as well as invoicing H&F Homes”—

that is, Hammersmith and Fulham Homes, which is the council’s ALMO, or arm’s length management organisation—

“over £260,000 a year. He is able to claim both these amounts because the ALMO’s money is paid to his private limited company (Davies Johnson Ltd) rather than directly to him. On the 24th of June 2010, Nick Johnson gave evidence to the Borough’s Housing Health and Audit Social Care Select Committee to say that he worked ‘full time’ for H&F Homes and now also LBHF”—

that is, the London borough of Hammersmith and Fulham. Mr Cowan went on:

“Nick Johnson worked as Bexley council’s chief executive. But he retired earlier than normal pensionable age on 4th November 2007. This happened after he was deemed to be ‘permanently unfit to discharge his duties or any comparable duties as defined by the Local Government Pension Scheme regulations.’ In a note to Bexley Councillors, the current Chief Executive of that authority explained that an ‘Independent Occupational Health Consultant’ reached the conclusion about Dr. Johnson’s health and the decision to retire him was made by ‘the Acting Chief Executive’…However, Dr. Johnson started work in Hammersmith and Fulham on 11th February 2008—fourteen weeks and one day after he retired. Since then he has billed Hammersmith and Fulham around £700,000…Bexley councillors have questioned why they are paying a pension to an individual who appears to still be working full time… Many people have raised concerns about this.”

Mr Cowan goes on to quote newspaper articles and adds that Conservative colleagues argue that Nick Johnson is good value for money. I think that £260,000-plus is a lot of money to pay a local government official. I question whether such payments have been correctly monitored. Only recently, the chief executive officer wrote to inform me that Mr Johnson’s company is paid £950 a day, which equates to an annual salary of approximately £160,000.

Mr Cowan then goes on to request action by the Department for Communities and Local Government, which has not been forthcoming.

[Kerry McCarthy (Bristol East) (Lab)]

Does my hon. Friend agree that what people find so shocking is not just the huge sums that are being paid out to these individuals, but the fact that many of the organisations in question do not even pay their lowest paid employees the London living wage, and the discrepancy between the pay at the bottom and the pay at the top is absolutely huge these days?

[Mr Slaughter]

My hon. Friend is right. If I have time, I will comment on the wider trend towards the involvement of such private sector companies in the public sector, which seems to be something that the Government intend to encourage.

I have calculated, from documents supplied to me, the sum that Mr Johnson has been paid so far since 2007. As a consultant—as a PSC—to the London borough of Hammersmith and Fulham and its daughter organisations, he has been paid £957,481, just shy of £1 million. That was for a series of contracts, but principally for being chief executive of the arm’s length management organisation running the council’s public housing in the borough, and subsequently as the council’s director of housing and regeneration. To my mind, that is a post of employment, not a post as a consultant.

Following that letter 15 months ago in December 2010, the matter was not allowed to rest there, despite the fact that the local authority wished that it would. Eventually, audit reports were commissioned to look not only at Mr Johnson and DaviesJohnson, but at the wider trend for Hammersmith and Fulham council to employ consultants. I want to put on record the shocking findings about how that local authority conducted itself. If this practice is common in other local authorities, I urge the Minister to consider that this needs to be looked at as surely as Government Departments are.

Following the complaints made by the leader of the opposition, a report from Deloitte was commissioned to undertake an internal audit of the use of personal service companies across the council and in Hammersmith and Fulham Homes, and in particular the contracts between DaviesJohnson and Hammersmith and Fulham Homes and the council. In summary, the findings were:

“There is currently no corporate policy covering the use of consultants appointed to interim positions or as temporary staff, regardless if they are self employed consultants or operating as Personal Service Companies (PSCs);

We were unable to obtain evidence of any formal, documented selection and recruitment process being followed for the appointment of any of the PSCs within our sample;

For the seven appointments examined that were procured by the Council, we were only able to obtain one agreement;

For the four PSC appointments within H&F Homes we identified a number of issues including agreements not being available for the entire period of engagement; the absence of signed original agreements; an agreement with a dissolved company and an agreement between the ALMO and the individual rather than the company;

PSC invoices tested were found to be authorised in all instances tested;

Departments are required to submit returns detailing all consultancies appointed; however this does not include individuals covering posts as interims. Therefore there is no complete, centralised listing of all PSCs currently in use by the Council; and

We were unable to obtain evidence of formal performance monitoring of PSCs.

2.2 These findings have led to a ‘nil assurance’ in this area and seven recommendations have been made that are currently being implemented. All the recommendations have been accepted by the council. Timeframes for implementation are given in the report and range through to September 2011 for all recommendations to have been implemented.

2.3 The internal audit identified three individuals in particular where the auditors thought that professional advice on tax status should be sought, including the contracts in relation to Davies Johnson Ltd that the Audit and Pensions Committee had asked to be reviewed.”

It separately looked at the issue of DaviesJohnson. Although the view of Deloitte is not necessarily that Mr Johnson was an employee, in words that may come back to haunt the local authority, it states:

“the application of the tax and NIC regulations in such situations is not clear cut and HMRC may form a different view. Therefore, to this end, we would strongly recommend that, if not done so already, H&F Homes Ltd documents the services provided by Davies Johnson Ltd during this period, which will support the tax/NIC application by H&F Homes Ltd and help counter any potential challenge from HMRC should it consider there might be a case to form a view that NJ was an officer holder and an element of the payments made were solely linked to that of NJ holding the office of Chief Executive.”

He held that post for more than three years on a remuneration of approximately £1,000 a day.

My next point deals with where the investigations are going now. I urge the Minister to consider how unlikely it is that organisations such as Hammersmith and Fulham will put their house in order. I am sorry to single out Hammersmith and Fulham, because it is my local authority. I am sure that the same malpractices occur elsewhere. I pay tribute to local media—the Hammersmith & Fulham Chronicle, the Shepherd’s Bush blog and the Hammersmith Today website—which have highlighted these issues constantly and have been the driving force, along with the opposition on the council, in getting any movement on the issues. The council remains stubbornly of the view that it will not investigate these matters. It has now instructed PricewaterhouseCoopers, following the Deloitte report, to look at whether it is or is not complying with the law—in other words, whether it has or has not broken tax law.

Deloitte has revealed that, on June 30 last year, there were 69 consultants working at Hammersmith and Fulham council, 17 of them working via personal service limited liability companies. It found that Hammersmith and Fulham council had broken all its own rules for hiring consultants. There was no evidence of a formal documented selection recruitment process and no evidence of formal performance monitoring. The council had potentially wasted up to £12 million in this way, potentially operating outside UK tax laws with a possible £15 million in back taxes, fines and other sanctions that could hit the borough’s finances. That was the reason for bringing in PricewaterhouseCoopers at the end of last year, but—this is an important “but”— PricewaterhouseCoopers’ remit is simply to look at the future. It is to look at whether— this is in the response from the director of finance to a member of the audit committee—contracts in Hammersmith and Fulham will comply with tax legislation in future. What it should be looking at is whether it has done that in the past. If it will not do that, HMRC should.

There was a council meeting on 29 February. The motion put by the opposition stated:

“This council is committed to full cost transparency wherever possible to enable tax payers to hold us to account. This council notes that it has employed 540 agency workers over the past year—20% of the directly employed workforce.

This council has also employed sixty-nine consultants, with almost twenty of those employees working via service limited companies. The Local Government Pension Scheme forbids retired local government employees from being re-employed in local government. However, a personal service limited company allows this rule to be side-stepped.

However, there are clear rules laid down by Her Majesty’s Revenue and Customs about what defines a consultant and there is a likelihood that the London Borough of Hammersmith and Fulham may have breached those rules in directly employing people to work in its management structure as “consultants” via personal service companies.

This Council therefore resolves:

1. To inform HMRC of all cases where it has employed individuals via personal service companies and ensure its tax obligations are met and up to date

2. To report to Cabinet and the Audit and Pensions Committee full details of any back-taxes and fines issues by HMRC on IR35

3. To review its use of agency workers looking for more cost effective means of employing individuals and to publish all details of agency workers employed by LBHF and/or its subsidiaries and details the salaries of all of those over £100,000 per year.”

That was proposed by the opposition and voted down by the administration.

The final and perhaps the most shocking matter is this. I have dealt in some detail with the DaviesJohnson contract, as it is such a significant contract—more than £1 million was paid to a private company—and because it opened the door to the other abuses occurring in the authority. However, when an opposition member of the audit committee asked whether the council should report the DaviesJohnson contract to HMRC, the director of finance said that

“given the high profile of the situation in the media, HMRC would be aware of the situation, and had not approached the Council. If the Council approached them directly, a further inquiry would take place, with further impact on officer time and resources. Given the PWC findings, she did not propose to refer the matter to HMRC.”

The opposition councillor

“then proposed that the decision to refer or not to refer the matter to HMRC be put to the vote. The vote having been tied 2-2, it was agreed, on the Chairman’s casting vote, that the committee should not refer the matter to HMRC.”

[Stephen Gilbert]

The hon. Gentleman has rightly given many examples of indefensible salaries and egregious working arrangements, but does he accept that there are 1.6 million freelancers throughout the country who contribute £21 billion? Is there not a danger of tarring the entire sector with the same brush?

[Mr Slaughter]

I do not disagree with that point, but the hon. Gentleman seems to be somewhat in opposition to his colleague sitting next to him, the hon. Member for Shrewsbury and Atcham (Daniel Kawczynski), who was tut-tutting earlier about a small business run by the former Mayor of London. I hope that they get their ducks in a row.

However, I have moved on from that point; I will draw my remarks to a close in a moment. I am now dealing with a different point: public authorities had it drawn to their attention, if they did not know it at the time, that they might be in breach of UK tax law, and are covering it up, refusing to engage with HMRC and making every attempt to suppress that information. That must be wrong, and it must be a matter for the Government, and above all for the Treasury and HMRC.

I do not have time, although I wish I did, to discuss A4e and the role that it is playing in the public sector. That organisation has multi-million-pound contracts in the public sector. It is taking huge sums of money and paying its chief executive huge sums of money, and it is now under investigation on five separate counts of fraudulent activity. McKinsey, too, was exposed three or four weeks ago in The Mail on Sunday for the role that it is playing in promoting the private health care industry. Again, to use an example from my own backyard, the Association Of British Insurers and the insurance industry have been pushing their own agenda with the Ministry of Justice in the drafting of the legal aid Bill. Those are all more than warning signs; they are indications that something is seriously wrong in public procurement, and the Treasury above all must handle it.

The two most infamous names in local government in my lifetime were probably Poulson and Porter. What is happening in my local authority has overtones of both. First, it involves a cabal of people who seem intent on feathering their own nests and earning huge sums of money from the public sector. Secondly, the project in which Mr Johnson is engaged involves the sale of two council estates for £100 million to a private developer so that they can be demolished to make way for luxury homes. The project will benefit the developer and Mr Johnson, but not the thousands of my constituents, mainly low-income, who live on those estates. Whether or not it is legal is not the point, although I do hope that there will be a proper investigation into the issue of tax law by HMRC, to which I have written; it is clearly quite wrong.

I pay tribute to the media. For every issue that I have introduced in my speech, I have referred to a media article. The campaign has been driven by papers from The Guardian to local newspapers, by blogs and by the BBC. They have done the job that the Government should be doing. I thank all those in the media who have taken the trouble to investigate the matter, and I urge people to listen to “File on 4” this evening.

I also pay particular tribute to the councillors in my borough—I am pleased to see that one of them has attended this debate—including the leader of the opposition, Councillor Cowan, whom I have quoted extensively. However, we cannot rely on volunteers and newspapers alone to ensure probity, fairness and economy in the public sector. I hope that the examples that I have given today are sufficient to show that something is seriously wrong, not just in the one or two examples that have been debated previously in the House and not just in central Government Departments and quangos but throughout the public sector. I hope to hear from the Minister that she is serious about tackling it and will talk to the Chief Secretary to the Treasury about extending the remit of the review to cover the matters that I have mentioned.

[Several hon. Members]

rose—

--- Later in debate ---

[Miss Smith]

I had better write to the hon. Lady, not being able to cover that matter under the terms of today’s debate.

The review is due to report to the Chief Secretary by the end of March, so hon. Members will understand that I cannot comment further at this time.

Local government is outside of the scope of the review, although I hear the points made by the hon. Member for Hammersmith (Mr Slaughter), including his wish for the review to go wider. He will know that the Secretary of State for Communities and Local Government has written to the Local Government Association to urge it to consider similar action.

It is right that light should be shone upon practices in the local government sector as well, although central Government do not control pay in local government: it remains, rightly, a matter for local authorities. We have taken several steps to bring greater local accountability and transparency to pay in local government, which I think local taxpayers welcome strongly. They now have the tools and information needed to hold their councils and elected councillors to account, through the Localism Act 2011.

[Mr Slaughter]

I hear what the Minister is saying and I look forward to the review, but will she at least hold open the prospect of widening its ambit, because what she has just said is not correct? In my experience, in my local authority, the audit committee is not meeting—it is being made inquorate by the majority party—and documents are being refused, not only to me but to the leader of the opposition, who has particular rights in law to get such documentation. If councils are going to abuse the position of trust, surely the Government and HMRC must act in this matter.

[Miss Smith]

Perhaps the hon. Gentleman feels that the council was better off his watch, when it was 363rd in respect of value for money out of 387 local authorities.

Let me provide one example of ways in which local authorities are now more transparent. I have no doubt that the good citizens of Hammersmith enjoy holding the pay practices of the council to account through measures under the 2011 Act. They can do that because local authorities are obliged to publish their pay policy statements by the end of March.

On the responsibilities that I am drawing attention to, the Government believe that there should be public accountability in this regard, not only for employees but for elected councillors. The responsibility for meeting the transparency that we all demand of the public sector rests not only with locally elected councillors through some of the measures in the 2011 Act, but with citizens who are now empowered to understand more about the choices that their councils take.

It is right that, as we call time on a decade of ever-increasing centralisation, targets, levers and poor value for money, greater localism must come with greater transparency and accountability. Opening up the pay deals of top town hall jobs to public scrutiny will mean that taxpayers know with certainty that their interests are being protected, complementing measures taken by central Government to control and cut consultancy spending under their areas of responsibility, while also freezing and tackling excessive pay elsewhere in the sector.