Bureau Recommends: Ministers approve tax deal for civil servant

The Bureau recommends a joint investigation by Exaro News and BBC Newsnight revealing that senior government ministers approved a contract that allowed a government-owned company to avoid deducting tax on the pay of its chief executive.

Danny Alexander, Liberal Democrat chief secretary to the Treasury, signed off on a deal that allowed the Student Loans Company to employ its chief executive, Ed Lester, as a consultant rather than an employee.

The deal meant that Mr Lester received his £182,000 pay package without deductions for income tax or National Insurance. Newsnight claims that the set-up would have saved Lester approximately £40,000 in tax liability.

Mr Alexander told Exaro that he had not been ‘made aware of any potential tax benefit to the individual’ when he signed off on the deal, and has since ordered his department to ‘urgently review’ other contracts.

Freedom of Information requests made by investigative journalist David Hencke unearthed documents showing that the Student Loans Company directed his salary via a private company, which meant that it was only liable for corporation tax, rather than being taxed as an employee.

Lester was originally recruited by the Student Loans Company as a consultant, for which he was paid a daily rate of £900, after a string of administration problems at the Student Loans Company in 2009 that resulted in thousands of students being left without their funding. Exemptions from National Insurance contributions was permitted by HMRC for the temporary contract.

However, In January 2011 he was given a two-year contract to continue working as chief executive, but retained the terms of his previous contract.

The revelations come at a time when senior ministers and civil servants are talking up the importance of closing loopholes in order to inhibit the loss of tax revenue.

Richard Bacon MP and member of the Public Accounts Committee, described the investigation’s findings as ‘outrageous’.

‘I’ve only come across this kind of thing twice before and on those occasions we forced the consultant CEO to go on the books. We can’t have one rule for those with tax advice and another for everyone else,’ he said.

For Exaro’s coverage of the investigation, click here. For BBC Newsnight’s coverage of the investigation, click here.