Tax and pay: avoiding the inevitable

29 Feb 12
Alan Leaman

The furore over alleged tax avoidance in top public sector jobs begs the question of just how much senior executives should be paid

The storm over ‘tax avoiding’ pay deals in Whitehall has faded as quickly as it started. A couple of days of press stories about Ed Lester at the Student Loans Company and some Department of Health staff who were paid via their own companies - and that appears to be that.

No doubt individual contracts are being hastily re-negotiated. But will there be a fundamental change of approach? Sadly, the one thing we can be pretty sure won’t be followed up is Jonathan Baume’s suggestion at the First Division Association that ministers grasp the nettle of pay at the senior levels of the civil service. They’ll accept the need for greater transparency; they won’t agree that they will have to raise salaries to sensible market rates so that top talent can be attracted in and difficult vacancies filled.

But there may be other benefits to be won out of what Jonathan called a ‘shambles’. The first should be a clear statement from within government about its talent strategy. You know the sort of thing. What skills and types of people is the public sector trying to recruit? How will it work with the education system to ensure that these are readily available? How is it responding to the changing expectations, attitudes and demands of today’s potential employees?

This would have been useful in all circumstances. But now it clearly needs an additional dimension. Because I find wherever I go that there is real confusion about what the civil service thinks it should be able to do in-house, and when it should be entitled to look outside for extra help, either through outsourcing or consultancy.

I am never surprised that the practice of engaging contractors to carry out work that could and should be done by permanent civil servants has created staff resentment as well as a lack of transparency around government. This sort of staff substitution is costly, particularly when contractors stick around for years in a single role.

But the confusion between this and genuine management consultancy is damaging both the consulting industry and its clients in the public sector. Despite the best efforts of the National Audit Office and others, government departments generally have a poor understanding of the difference between contractors and the role that consultancy plays. These are very different creatures.

Consultancy is project-based, focussed on a clear set of objectives and frequently transformational in its approach. It is not there to keep an existing system running or to provide an answer when vacancies cannot be filled.

And consultancy is cost-effective precisely because it means that organisations don’t have to recruit and retain particularly skills and expertise in-house. Indeed, we have discovered that, on average, spending on consulting delivers a return on investment of roughly £6 for every £1 that is paid in fees.

The public sector has got better at testing itself and its ability to use its own staff to carry out projects. Now it should go the next step and explain – for its own benefit as much as anyone else’s – when and how it will be using consultancy to deliver extra value for the taxpayer.

Alan Leaman is chief executive of the Management Consultancies Association

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