2 Managing public sector pay
Public sector pay control
12. Pay costs form a significant part of public sector
spending and a lack of control over pay could negate savings made
elsewhere. We asked the Treasury what it saw as the next step
in managing staff costs. The Treasury told us that the Government's
main concern would be to minimise the risk to the taxpayer of
increased costs in the future and that it was critical for the
Treasury to be able to identify long term trends or particular
issues so as to inform government decisions. The Treasury noted
as an example that large parts of the public sector still have
annual pay increments even though the Treasury had ceased this
practice some 20 years ago. The Treasury also noted that moving
from an annual pay increment system could lead to additional upfront
costs to buy staff out of their contracted arrangements, but the
Treasury review new arrangements to ensure that they are beneficial
to the taxpayer. The Treasury informed us that it is government
policy to remove the annual pay increment across the civil service
but that progress still had to be made in other areas of the public
sector, particularly in the health service.[21]
13. The Treasury allows public sector entities to
manage their own financial affairs with the autonomy to make decisions
such as the level of pay awards.[22]
However, this policy leaves the Government exposed to the risk
that these bodies may make decisions which go against wider policies
on pay restraint and the proper use of public monies. We were
concerned that not all bodies are subject to the same accountability
and transparency rules and the need for pay restraint within the
public sector is undermined when it comes to packages offered
to more senior public servants.[23]
14. We asked the Treasury what they were doing in
respect of controlling salaries in the education sector, especially
around Academies and 'Super-Heads' and who was accountable for
how much they were paid. The Treasury told us that they take a
close interest if it thinks that there are sector anomalies and
that the governing body of the Academy is accountable for pay.
The Treasury noted that there was now more discretion on pay in
this sector and that it was trying to collect data to assess the
degree to which individual Academies were taking account of the
freedoms granted to them. The Treasury also told us that should
it identify pay anomalies it would take this issue up with the
Department for Education.[24]
15. We also challenged the Treasury over the absence
of any control and transparency arrangements in respect to senior
university remuneration, for example at the vice chancellor level.
Despite universities being classed as outside the public sector,
they receive a substantial amount of funding directly, or indirectly,
from the public sector. The Treasury told us that where bodies
are outside the public sector it is difficult to apply controls
and that it was focussing on those areas where it had direct influence
first, but that it would consider what could be done in the university
sector.[25]
"Off payroll" arrangements
16. We have previously concluded that the Treasury
needed to manage 'off-payroll' arrangements (to pay remuneration
into limited companies to avoid paying income tax) across the
public sector more effectively.[26]
Since then, the Treasury and Cabinet Office have required central
government departments to report such arrangements in their Departmental
Accounts.
17. The 2012-13 WGA's Remuneration Report discloses
a fall in the number of central government civil servants paid
£100,000 or more from 861 at March 2012 to 807 by March 2013.[27]
We asked the Treasury to what extent Departments were still employing
people off payroll. The Treasury told us that it takes a great
interest in this subject and that it requires departments to report
their arrangements in their annual reports. The Treasury also
told us that where it has identified departments that have clearly
breached the rules it fines them. The Treasury quoted the example
of the Land Registry which had been fined £1 million. The
Treasury also told us that it would be issuing advice to Ministers
on the appropriate response to a rules breach.[28]
18. We also asked what constituted a rules breach
and how the Treasury determined the level of fine. The Treasury
advised us that the definition of a rules breach was not following
the guidance and not having a good reason not to do so. The level
of the fine was a judgement based on the seriousness of the breach
but was based on the cost of the salary so that bodies breaching
the rules would incur a fine equivalent to the cost of the salary
incurred. The Treasury also informed us that it also terminated
contracts where a breach was found and that it provided details
of such cases to HM Revenue & Customs.[29]
19. The National Audit Office found that central
government departments had declared 2,214 instances of off-payroll
arrangements for new joiners during 2013-14 and that, in 27% of
cases, employment contracts did not require individuals to provide
assurances that they were paying the appropriate income tax and
national assurance due under income tax rules. Within the Department
for Work & Pensions only 15% of starters which had off-payroll
terms were required to provide the Department with assurances
over the tax and national assurance obligations. The Treasury
explained that it was in the process of reviewing the contracts
for 2013-14 and that where examples were found that do not have
a clear explanation, the contracts would be terminated and fines
imposed.[30]
21 Qq 62, 77 Back
22
Q 78 Back
23
Qq 67, 81 Back
24
Qq 84-87 Back
25
Qq 88-91 Back
26
The Committee of Public Accounts, Off-Payroll Arrangements in the Public Sector, HC 532, October 2012 Back
27
HM Treasury, The Whole of Government Accounts 2012-13 P47, June 2014 Back
28
Q 67 Back
29
Qq 69-70 Back
30
Qq 72, 73 Back
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