Pay and Consultants (Public Sector)

Clive Efford Excerpts

Tuesday 13th March 2012 Westminster Hall

[Clive Efford (Eltham) (Lab)]

This is the first time that I have participated in a debate under your chairmanship, Mr Howarth, so I am pleased to be here today. I congratulate my hon. Friend the Member for Hammersmith (Mr Slaughter) on securing this important debate.

In response to concerns about the time, I will make just two quick points to add to the forensic examination by my hon. Friend regarding public sector pay and the use of consultants, and I would like the Minister to consider them.

When my hon. Friend opened the debate, he was intervened on several times, and Members pointed out that some of the problems had existed under the previous Government. I fully accept that. A lot was made of the issue around the time of the general election, and the then Opposition were right to do so. There were concerns in the public about the rates of pay that were paid through public funds—taxpayers’ money. That is a legitimate issue to raise. Having raised the issue, even going as far as to say in the coalition document that the Government would reduce public sector pay, that there would be a cap on pay and that a mechanism would be put in place for agreeing pay that is above the rate of the Prime Minister’s salary, it is legitimate to have a debate such as today’s to examine what progress is being made.

What we have seems to be an approval of a mechanism for avoiding tax and paying higher salaries for the performance of tasks and roles that are paid for out of the public purse. There is a certain irony in that some of the mechanisms seem to allow payments that end up reducing the amount of tax that is available to pay for the services in the first place. We are talking about people who are recognised to be on the payroll, but whose salaries are paid through private companies. An article in The Guardian on 16 February states that many people who are being paid through private companies and who are avoiding paying tax at source

“are listed as full-time legal, IT or human resources consultants. The department said many of them had been employed for a long time, and appear on staff directories.”

Such people are, for all intents and purposes, full-time employees—of the national health service, in this particular case—and yet they are being paid through service companies that allow them to reduce their tax liabilities.

The article says that Departments are complicit in that. It states:

“The arrangement can be tax-efficient both for the individual and for the Whitehall department, including arm’s-length bodies, since the department may not need to pay national insurance in addition to fees.”

My concern here is that Departments, which are paid for by tax and whose revenues are collected by the Exchequer, seem to be colluding to reduce the amount of money paid to the Exchequer. Will the Minister respond to that, or at least look at the issue? When she conducts her review, will she specifically respond to that? Am I alone in thinking that there is something peculiar about a Whitehall Department seemingly colluding with the private sector to reduce the amount of tax payable? Is that practice acceptable? Should we be encouraging such practice?

[Stephen Pound]

My hon. Friend came into the House at the same time as I did. He will remember, as I do, the huge debate on IR35 at the time, which I thought had addressed the issue. Is he as shocked as I am to hear today, and to read in the sheets of that august organ, Private Eye, that a golden carousel fuelled by avarice is spinning chief executives from one fleshpot to another, letting them fill their boots on the public purse without even pausing for breath? Does he agree that that should have been sorted years ago? I thought that it had been by IR35.

[Clive Efford]

My hon. Friend is tempting me along a path that I do not wish to go down because I have limited time. However, he has made his point and put it on the record.

I will quote from another article in The Guardian dated 15 February to illustrate my point further. What is disturbing about that article is that the officers within the Department—whether inadvertently or not—have failed to give the full facts in answer to a Member asking questions specifically about the use of such vehicles for paying permanent members of staff in the NHS. The confusion seems to rest around whether those people are classified as civil servants, or whether they are private sector consultants.

The series of e-mails that The Guardian quotes from in the article suggests that there are attempts within the Department to facilitate that sort of arrangement. I find that alarming. The answer provided failed to give the full facts to the House. The article states:

“The emails handed to the Guardian also show senior civil servants at the department discussing the possible reputational damage to the department and seeking to avoid ways of revealing the nature of the payments sought in a written question last December by Gareth Thomas, the shadow Cabinet Office minister”.

The Guardian goes on to say that the answer to the question from my hon. Friend the Member for Harrow West (Mr Thomas) stated:

“It is not the department's policy to permit payments to civil servants by ways of limited companies.”

That led to the belief that no civil servant was being paid through such a mechanism. However, it transpires that there is an issue surrounding the definition of a civil servant. A civil servant is someone who is on pay-as-you-earn, rather than someone who is being paid through one of those mechanisms. Therefore, the answer was entirely misleading. Whether that was deliberate or not, we need to have some answers to that practice. Do the Government think that that is a satisfactory definition? Alternatively, does it need clarification so that when hon. Members seek answers in the future about how people are being paid, we get accurate answers? We can then be the scrutineers of what is going on with public sector pay and how much public sector money is being used. With that, I conclude my speech.

[Several hon. Members]

rose—