Pay and Consultants (Public Sector)

Cathy Jamieson Excerpts

Tuesday 13th March 2012 Westminster Hall

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship once again, Mr Howarth.

I congratulate my hon. Friend the Member for Hammersmith (Mr Slaughter) on securing the debate and on giving us an extensive and forensic tour around local and national concern. He said that his speech would be both interesting and controversial. Actually, it has been helpful that there have not been too many controversial issues. Perhaps there is more agreement than disagreement, notwithstanding some party political points. My hon. Friend talked about the financial, the moral and the legal practices in relation to some contracts in the public sector and to absolute levels of remuneration. They have been reflected in the contributions of various hon. Members. He was clear that he was most concerned to focus on deliberate avoidance and evasion and the improper use of the rules, or attempts to use the rules improperly, to benefit individuals.

I have worked in the public sector. It would never have occurred to me, when I worked in a senior post of a local authority social work department, to set myself up as a company and contract my services to that local authority. I was brought up—this was mentioned by a number of hon. Members—with a public sector ethos that recognised that working in the public sector made us accountable to the local taxpayers who paid our wages.

The hon. Member for Shrewsbury and Atcham (Daniel Kawczynski) made a distinction between the private sector and the public sector. I hope that he feels that the private sector ought to have a set of business ethics. Everyone operating in the private sector ought to take account of that. It is not simply about squeezing as much as possible out of employees because they happen to be in the private sector.

We heard that people are angry about such arrangements. They are angry because they feel that low-paid workers, particularly in the public sector, are suffering the squeeze more than those at the top. The Minister will recall that I raised this issue last week at Treasury questions. I asked what the Government are doing to ensure that they deliver on their promise that the lowest paid public sector workers receive the £250 a year pay rise that they believed they were going to get. We also need to ensure that we do not have a further expansion of excessive pay at the opposite end.

Perception is an issue. The public understand that people whose primary job is with a local authority or public body—whether nationally or locally—and who are being remunerated by it, should pay their fair share and be involved in a proper, transparent arrangement. The public become concerned when it looks like individuals or companies have set themselves up in a particular way to benefit themselves financially, and are not paying their fair share.

In response to points made by the hon. Members for Shrewsbury and Atcham, for Wimbledon (Stephen Hammond) and, in his brief contribution, for Hexham (Guy Opperman), I do not think that anyone is suggesting for a moment that everyone who is self-employed, works as a consultant or in such organisations, is “at it”, to use a term used on the streets of my constituency. There are many people who add value, who can offer very specialist knowledge and expertise and who can be paid through appropriate contracts in the public sector. However, there is genuine concern about some of the arrangements, which we heard about in the forensic contribution by my hon. Friend the Member for Hammersmith, whereby it is clear that people are contracted to do a particular job and, in any reasonable definition, would be seen as employed by the public sector.

Some hon. Members mentioned IR35, which not only affects people in the public sector—I do not intend to deviate from the subject of the debate other than to mention the review of IR35—but many small businesses. There are many situations where people, who are either self-employed or in small businesses, find themselves at odds with HMRC when dealing with definitions of how tax should be collected and paid. I hope that the Minister will say a bit more about the progress on IR35, and how it will be modernised and changed. A quick look at the Treasury website showed me that, far from the situation being simplified, there were about 40-plus—I lost count—different guidance notes on IR35 that would have to be interpreted to decide whether someone was an employee or not. That is not helpful and gives rise to speculation that such guidance is not necessarily there to help people, but to help people avoid the payment of taxes. Many small businesses feel that they are currently being pressed, unlike some of the arrangements we have heard about this morning.

I am conscious of the time, so I will not go through, point-by-point, everything that was raised. Clearly, there have been situations over a number of years—I do not think that anyone particularly wanted to make a party political point—and the general public, understandably, feel that they are taking the pressure to do their bit on deficit reduction. I do not always feel that we are all in it together. It is not fair that those on the lowest pay are set to lose some of their benefits. As was pointed out, those on the lowest pay are feeling the squeeze and do not have a living wage. We are not focusing on pay at the top or the ratio—the difference—between those on the lowest pay and those on the highest pay in the public sector. We should do everything possible to ensure that there is openness and transparency.

There is a place—perhaps not all my colleagues agree—for using specialist expertise and consultants on a short-term basis to add value to the public sector, but that must be done openly and transparently, with proper processes in place. We should never allow people to use the rules and regulations to avoid paying the appropriate tax or to benefit themselves—that is not what the public expect.

Finally, I have already mentioned IR35. Will the Minister say what action has been taken to ensure that, across local authorities, there will be no other examples of the type of practices that give rise to public concern? What will the Government do to monitor them in the future?

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

It is a pleasure to serve under your chairmanship, Mr Howarth, in an important debate to which hon. Members have contributed with some thoughtfulness. I should like to mention my entry in the Register of Members’ Financial Interests for 2009.

Hon. Members are aware that we face a tough challenge to repair the damage to our economy resulting from the recent crisis. Restoring the economy to prosperity requires restraint in many sectors of society. It is right that public sector pay restraint plays a part in that fiscal consolidation. I shall start with general pay restraint and then refer to various areas mentioned by hon. Members.

I am confident that all hon. Members agree that public servants do a crucial job delivering the high-quality public services on which we all rely. It is right that we continue to offer rewards to those who have skills that would help and assist all our constituents who need those services. At the same time, however, given the pressures on public finances, public pay restraint can help to protect jobs and services in the public sector. That is why, in the June 2010 Budget, the Chancellor announced that there would be a two-year pay freeze for public sector workers earning more than £21,000. At the autumn statement, the Chancellor announced that, for the two years following the freeze, public sector pay awards would average 1%.

On senior pay restraint, it is particularly important, in a context of overall pay restraint, that senior managers show leadership on pay. That is why, at the first meeting of the coalition Cabinet, Ministers announced that they would take a 5% pay cut and that their pay would be frozen for the rest of the Parliament. In May 2010, it was announced that the number of senior civil servants receiving bonuses would be reduced by two thirds, which I am sure hon. Members welcome. At the same time, it was also announced that the Chief Secretary to the Treasury would sign off any appointments for those earning more than £142,500, in areas where Ministers control pay. Of course, much of what we are discussing today can only cover the areas where central Government have control over pay. There is a certain amount of complexity in that landscape to which I may not have time to do justice, but I hope that hon. Members will understand what the Treasury could comment on today.

The Government asked Will Hutton to review senior pay in the public sector. The Government accepted his recommendation that Departments publish a top-to-median pay multiple each year, and Departments will include that as part of their annual reports from this year.

Likewise, the Government are also clear that any consultancy arrangements in the public sector should provide good value for money. In May 2010, we announced that the Cabinet Office and the Treasury would join forces to drive out waste, through a new group called the Efficiency and Reform Group. One of that team’s first priorities, with immediate effect, was to freeze all new consultancy spend unless it was an operational necessity. Where such spending was proposed, ministerial sign-off was required for £20,000 or above. This spending control remains in place. Because of that decision, in the 10 months from May 2010 to March 2011, £870 million was saved through a reduction in consultancy spending by central Government. I am sure that hon. Members welcome that.

On tax avoidance by senior staff, which has been of interest to hon. Members throughout this debate, the Government have been clear that we are committed to tackling all forms of tax avoidance. We do not believe that tax avoidance is appropriate in the public sector. Indeed, it is expressly forgiven—[Interruption.] It is expressly forbidden—I hope Hansard can hear this—in a document entitled “Managing Public Money”, which I know hon. Members have as their bedside reading. The hon. Member for Eltham (Clive Efford) asked whether an NHS trust would be covered by that guidance and I confirm that that would be so. All bodies covered by that guidance are covered by the Chief Secretary’s review, which has been mentioned in the debate.

The review occurred after it came to light that a senior public servant had been appointed in way that could be perceived as minimising his tax. The Chief Secretary therefore announced a review of the tax arrangements of senior public sector appointees. This review will consider the extent to which use is made of arrangements whereby the tax position of appointees can be perceived to be minimised, and will make appropriate recommendations. The review will include individuals being paid through PSCs, to use an abbreviation relevant to this debate.

Several hon. Members, including my hon. Friend the Member for Wimbledon (Stephen Hammond), have mentioned that there is much complexity here that the review should reasonably take into account. The review is not intended to be a witch hunt.

The hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) asked specifically about IR35. She will know that in the Budget last year, following a review by the independent Office of Tax Simplification, the Chancellor announced that IR35 would be maintained, but that Her Majesty’s Revenue and Customs will take forward options for improving its administration. That is a separate point, but I hope that that answers the hon. Lady’s question.

[Cathy Jamieson]

I thank the Minister for that clarification, but I hope that she offers slightly more information in terms of how the administration will be improved and whether any of the guidance will be changed.