Pay and Consultants (Public Sector)

Stephen Hammond 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.

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[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.

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[Stephen Hammond (Wimbledon) (Con)]

Thank you, Mr Howarth. For the record, I am Stephen Hammond—Philip is the tall, good-looking one. I listened carefully to your strictures and have therefore ditched my section on people seeking to re-enter public life and avoid tax. At the outset, I remind hon. Members of and guide them to my declared interest in the Register of Members’ Financial Interests.

I have listened carefully to the debate. I only wish that I had known my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski) sooner, as I could have followed Kawczynski’s law when I was in the private sector, but I singly failed to do so. I also listened to the fascinating opening speech of the hon. Member for Hammersmith (Mr Slaughter). He chided us on party politics, but I say gently that it might have been helpful if some of the examples had not been exclusively from Hammersmith and Fulham. On that basis, we might take his comments as a party political contribution.

I shall raise three points in my remarks. First, I shall discuss the concept of value for money. I shall then talk briefly about excessive pay and contractors. Many of us feel that one of the big areas where problems arose with value for money in relation to outside firms being used in the provision of public services was with the private finance initiatives that were set up. The public sector should be the enabler. Sometimes, it will also be the facilitator, but it does not need to be so. The real scandal of excessive pay and excessive failure to manage arrangements was in the unitary payment scheme set up under PFI. That unitary payment allowed the capital and the current payment to be collided for the deliberate obfuscation of what was being paid in current payments. That was a real scandal, and value for money was impossible to assess.

On excessive public pay, the hon. Member for Hammersmith is absolutely right: payment should be in line with performance. As reflected by the view of the vast majority of the public, the scandal has been that, at the time of entering austerity, a number of people in the public sector were getting paid well beyond their perceived performance. Although I was chided for using this example, it is absolutely true that, since the Government have come to office, there has been downward pressure on the overall pay in local government. Again, I give the example that, before 2010, £221,000 was the average salary for chief executives. It is now £143,000, which may well still be too high in terms of what is being delivered. None the less, there has been downward pressure. The TaxPayers Alliance “Town Hall Rich List” is a good touchstone for us all, but one should not forget to put the matter into context. Under the previous Administration, we had to revise the definition of public sector productivity twice, because pay increased without a commensurate increase in performance.

I want to put some balance into the debate because if we are not careful, we will end up saying that all contractors and freelancers are bad value and try to evade tax. That is simply not true. The skills that some of those people provide contribute a huge amount to not only the economy, but the public sector. That is clear. The public sector needs all sorts of skills in addition to the work that dedicated, hard-working public servants and public sector workers provide. Some 1.6 million people in the UK work as freelancers. The idea that all those people are tax dodgers is simple nonsense. Oxford Economics has made the point that, in 2009, the overall benefit to the economy was around £21 billion.

I want to touch briefly on the review that the Chief Secretary to the Treasury has set up. That review started because of the Ed Lester case and the fact he was given special concessions. However, the idea that all those concessions apply to every individual who is a freelancer in the public sector is simply wrong. We should not forget—I say this to the Minister, as I hope she will address this point—that the reason why a number of freelancers put themselves into limited companies is that the Government procure through agencies rather than directly. Those agencies require that the contract goes to a limited company. The Government need to address that in their review.

I want to allow my hon. Friend the Member for Hexham (Guy Opperman) time to speak, but I should like to say that, although I support what the Chief Secretary is saying, I hope that the Treasury will ensure that the review focuses on value for money. That is the key. The danger is that contracts will be delayed and taken away and that it will become a witch hunt, rather than a proper review of value. I hope that the Minister can reassure us that that is what will finally happen.

I did not catch exactly what the hon. Member for Ealing North (Stephen Pound) said, but he mentioned IR35. The Government rightly set up a review of IR35, but I say to the Minister that there is real concern that HMRC’s fairly simple business tests, which would have allowed a relatively clear definition of someone who is a freelancer or someone who is working full time, are going astray. I therefore urge the Treasury to get back involved in that debate to ensure that the tests are clear, because IR35 could be a good way to ensure that certain people working in the public sector are true freelancers and contractors, not people who should be on the full-time books of the public sector.