14 March 2012
In February British media disclosed that nearly 2000 senior civil servants were engaged on tax minimising arrangements. Having set themselves up as companies, they contracted with agencies to provide the services traditionally provided by employees. Reports indicate that arrangements were well known by Ministers who in fact had approved them.
Inevitably, there are now reports of much greater numbers of senior officers contracted under similar, tax avoiding terms by Britain’s 400 local authorities. Some of the local authorities have been reluctant to disclose the numbers of staff paid through limited liability companies rather than through their payroll as PAYE-paying employees. Several have acknowledged that their chief executive is “contracted in”, that these officials are owners of the companies that contract their services to the local authorities.
Although the chair of a select committee has described the arrangements as unacceptable, the Local Government Association is defending the process as the best way of providing good value to residents through flexibility, reduced costs and diminished pension liabilities.
The BBC which first broadcast the circumstances has not reported any substantial remedial measures although a news programme about the matter described it .. “.as a voidance scheme which is totally wrong”.
Most New Zealanders would probably endorse a BBC remark that “Where you are a public servant, it’s not right you should be paid in a way that avoids tax”. However there are many contracted staff throughout the State services and these numbers are unlikely to diminish as the much predicted rationalisation of departments gets momentum. Arrangements like this inevitably conflict with the terms of almost every public sector code of conduct. Disclosure and consent would be necessary. The widespread nature of this problem will lead to questions about local government integrity.