Marcus Evans Group | Worldwide Headquarters | American Offices | Latin America | European Offices | African / Asian Offices

Student Loans chief’s tax deal ‘was approved by top civil servant’

Emails released under Freedom of Information Act show Sir Gus O’Donnell was ‘content’ with Ed Lester’s arrangement

A controversial deal that allowed the chief executive of the Student Loans Company (SLC) to be paid without tax being deducted at source was approved by Britain’s most senior civil servant, according to emails released under the Freedom of Information Act.

Correspondence between Whitehall officials show that Sir Gus O’Donnell, the then cabinet secretary, initially called for “urgent clarification” on the deal for Ed Lester. The following day, it was reported in another email that O’Donnell was content with the arrangement.

The disclosures, in documents obtained by the investigative website Exaro, will raise concerns that other senior public servants have also had favourable tax deals waived through. One email dating back to 20 December 2010 shows that Chris Andrew, the company secretary of the SLC, wrote that “Gus O’Donnell has asked for urgent clarification prior to this being put to the CST [Danny Alexander, the chief secretary to the Treasury]“.

“Gus has asked us to set out why we are not proposing to put Ed Lester on the SLC payroll,” it continued.

In an email written the next day, it appeared that O’Donnell’s questions had been answered. Andrew wrote: “I have spoken with the Cabinet Office this morning who have confirmed that Gus O’Donnell is now content and that this is being sent to the CST this morning.”

The arrangement with Lester, entered into in 2010, was first revealed in an HM Revenue and Customs (HMRC) letter obtained under the Freedom of Information Act.

It showed how the chief executive of SLC was able to save around £26,000 a year in tax by working as a consultant rather than an employee.

O’Donnell, who became a member of the House of Lords last month, was cabinet secretary and head of the UK’s civil service until he retired in December.

The emails reporting his concerns were raised just days before ministers approved the contract. Whitehall documents show that Alexander and David Willetts, the universities minister, agreed Lester’s contract.

They also suggest that Alexander was informed of the plan to keep Lester off the payroll. He has insisted he was unaware of the tax consequences of the deal.

Alexander has ordered an urgent Whitehall-wide review of the issue. He announced to parliament that the SLC would deduct tax and national insurance from Lester’s pay at source in future, after being challenged by MPs in an emergency debate.

The debate was triggered when John Bercow, the speaker of the House of Commons, gave permission for an urgent question on the issue from Nick Brown, the Labour MP and former government chief whip.

The Cabinet Office last week declined to answer questions about O’Donnell’s role in approving Lester’s contract. A spokesman said: “We shall be working with the Treasury following the chief secretary’s announcement of a review into the issue, and as such shall not be getting into the ‘ins and outs’ of this until that has concluded.”

The SLC said Lester’s tax arrangements were a matter for him and HMRC, adding that he declined to comment.

O’Donnell did not return a telephone call from the Guardian. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds