Whole of Government Accounts 2012-13 - Public Accounts Committee Contents

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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