Jacob Williams
Saturday 28th September, 2013

Pension potty

Pension potty

Today marks exactly two years to the date of a controversial meeting of Pembrokeshire County Council’s six-member Senior Staff Committee.

That meeting made available to senior council officers, the option of receiving their pension contributions in-hand, instead of directly into their pension scheme, in the name of avoiding tax. And now, the chickens have come home to roost, because the first payments appeared in the 2012/13 financial accounts, which the auditors believe are of questionable legality and are refusing to sign off pending further investigations.

We now have it confirmed that the meeting was held in the Chief Executive’s office at County Hall. It was required by law, as are all such committee meetings, to be accessible by members of the public to attend and observe. It appears to be the only meeting of this committee to have ever been convened in this private office, deep inside County Hall behind security-controlled doors.

During the meeting, six councillors, including the then leader, the current leader, and three former or current cabinet members – who had convened in private session behind closed doors – voted to approve a recommendation that allows the highest-paid council officers to avoid tax by opting to drop out of their Local Government Pension Schemes and instead receive their pension contributions as cash in their own hands. It appears that only the Chief Executive, during the 2012/13 financial year, availed himself of this tax-saving arrangement.

That’s exactly what it was, too. There’s absolutely no doubt that the new scheme was brought in to give extremely well-paid officers the option to avoid a higher rate of tax. The minutes for the meeting tell us in no uncertain terms:

Having convened in private session under the terms of Paragraph 12 of Part 4 of Schedule 12A to the Local Government Act 1972, the Committee considered a report regarding the effects upon pension contribution arrangements of recent changes in taxation provisions affecting higher earners and which had imposed limitations and penalties on the levels of annual contributions and the taking of benefits. As a consequence, at certain points in their careers, staying as active contributing members of the pension scheme would create substantial tax liability for individuals (including on promotion), thereby reducing incentives for recruitment.

(My emphasis in bold.)

As you can see, the minutes of the meeting appear to suggest that if the council didn’t come up with a way of getting around this new tax increase, it would lose out in the recruitment stakes. Presumably, this view is based upon the assumption that senior local government employees come mainly from the private sector, where highly controversial tax-saving arrangements are revealed almost daily in the national newspapers. It is surely a nonsensical argument that, having to pay more tax would reduce the chances of employing the highest quality applicants. As everybody knows, senior appointments made in local government are more often than not, inter-authority promotions, or career progression within the same authority, so applicants would know full-well of this new tax provision, and may well be affected by it in the jobs they they wish to leave.

The arrangement brought in front of the six councillors in 2011 appears to be making the case that, as a result of the change to tax laws, public servants looking for career progression opportunities in British local authorities would be more attracted to County Halls located within ‘tax havens,’ and that was the direction Pembrokeshire had to take itself in, to remain a key player in the cut-throat world of municipal governance.

And it seems to JW that there must’ve been some joined-up thinking in setting-up the south-west of Wales as the public servants’ equivalent of the investment banking capital of the world, Switzerland.

If Haverfordwest was to become a financial centre like Zurich, then Carmarthen’s claim to become Geneva’s Welsh-speaking twin-town seems to be quite well-founded. Incidentally, I note that one of Carmarthenshire’s council wards is called ‘Swiss Valley’!

Over in Carmarthenshire what appears to be the same arrangement was introduced in 2011, and their Chief Executive has also opted for the handout scheme and received his cash payments during the same financial year, which the auditor has gone as far as saying were ‘unlawful.’ A similar tone to PCC’s – and in even stronger terms – has been emanating from CCC, which says its advice, too, is that the scheme is lawful.

There has been a noticeable defence of this scheme so far from Pembrokeshire County Council. It was wheeled out in 2011, and it has been again, during this furore. And that is that the council has been keen to stress that this tax-beneficial option for its highest paid officers did not cost the authority any extra money. Indeed, the minutes of the 2011 meeting record this as one of the bases upon which the committee acted – that the option “be made available to senior staff on the basis that no additional cost accrues to the Authority.”

As you’ll realise, this tax-avoiding concoction might well put the exact same sum of public cash into a recipient’s hand that would instead have been slipped into their LGPS pension pot. In which case, on the face of it, the council might not appear to be out-laying any extra money. However, it cannot be correct to state that adopting this arrangement has not cost the authority – the public – extra money.

The reason we can be so sure of this is that, according to the WAO report and a statement to the BBC, both Pembrokeshire and Carmarthenshire councils have sought legal advice that the arrangement (and so, presumably, the recommendation given to councillors to approve it) was entirely above board.

This legal advice wouldn’t have been free – and costs could rocket up further if a legal position has to be defended in the courts. I am trying to establish just what information the decision in Pembrokeshire was based upon, in 2011. Aside from the one-page confidential paper presented to committee members, I wonder if there is an external report, or something from some self-professed tax-expert which precipitated the introduction of this novel way of avoiding tax. It’s a matter of simple logic that this tax-avoiding scheme did not come out of thin air.

It can’t have done. It came from the workings of somebody’s mind. And if that person was inside the council – an employee – then who? Was it somebody who stood to gain from the scheme? And if that person was outside of the council, then who was it? And who, inside the council, instructed them to investigate a route by which the highest paid council staff could ask councillors to vote to change a council policy to implement it? And how much did it cost to seek professional opinions if any were sought? And if they weren’t sought, then why? Was this bold step taken from an uninformed position?

There are so many questions to be asked, not least, as there are a potential number of ways in which the Wales Audit Office could believe this arrangement is unlawful. At this stage, we just don’t know. It could even be the process by which the arrangement was introduced.

The BBC has been told in a council statement that: “chief executive, Bryn Parry Jones, was present at the senior staff committee meeting on 28th September 2011 as he would be for all senior staff committee meetings.” Yesterday’s Pembrokeshire Herald also reports that the meeting’s formally-approved minutes record no declarations of interests having been made either. Further, the BBC states: “BBC Wales has learnt that the chief executive of Pembrokeshire council, Bryn Parry Jones, was present at the meeting when the changes were discussed by members and he was also present when the issue of changes to pension contribution was discussed.”

As a councillor, I have been able to acquire a copy of the (still) confidential report presented to the meeting in which the recommendation is put to the six councillors to adopt the scheme. It is contained within one sheet of paper, and, whilst it is redacted from the agenda published online, its position falls at page number 3.

Though the report remains confidential, I can reveal that it does state who it was authored by, though it does not refer to any background documents or advice.

The question over why it was felt necessary to enter into private session for the discussion of this item is one that will be on many people’s minds. What was sensitive? Was the 1972 Local Government Act applied properly?

One sentence on the confidential report that is required to be revealed in the minutes, is: “It is also my [the document author’s] opinion that the public interest in maintaining the exemption outweighs the public interest in disclosing the information.”

The act requires that councillors can decide to enter into private session if it is likely that exempt information would be disclosed, and even then it is up to the councillors to determine whether the public interest in disclosing that information is more important than keeping it under wraps.

Unless Mr. Parry-Jones’ banking details were going to be read out, or those of any of the extremely limited number of his colleagues who qualified to take up the scheme, it’s not easy to see how this matter could be sensitive, as public officials’ salaries are a matter of public record. And that is the essence of this scandal.

Working for the public, on behalf of the public, and paid by the public. As mentioned, the relevance, then, of whether this ‘arrangement’ does not cost the authority more money is largely irrelevant, because there are serious moral and ethical implications that can be understood by every single Pembrokeshire resident.

The facts are: two years ago today, a decision was made by some very senior publicly-elected representatives of a publicly-funded body, to allow their highly-paid public servants to financially benefit by paying lower taxes into the public purse, at a time when pay freezes were already in place, and pay cuts were on the horizon.

Furthermore, the arrangement was specifically brought in as a knee-jerk reaction to changes in tax legislation that were disadvantageous to only a handful of highly-paid employees. It was a decision which provides them with the option to go down a route which allows them to avoid the rise in tax that the law was intending to introduce.

There is no possibility that a school cook or a library worker can benefit from this 2011 decision. As a final thought, if a scheme could be concocted that would also enable lower paid council workers the option to avoid tax on their own pension contributions, it is yet to appear on an agenda for a behind-closed-doors meeting of the Senior Staff Committee in the Chief Executive’s office.

THE CORPORATE GOVERNANCE COMMITTEE will meet at 10am on Monday morning to discuss the WAO’s audit of the council’s accounts. It is certain to be an interesting affair, and is open to the public and the media.

Carmarthenshire’s version of the same meeting was held yesterday morning, where a source tells me the auditor’s representatives in attendance were reluctant to enter discussion with councillors on some of the legal issues, as they were in legal hands.


Share this...
Share on FacebookTweet about this on Twitter

13 Comments...

  • Weasel

    One question that comes to mind and has not been addressed is exactly how was this payment in lieu of pension contributions made?

    Would this have been a benefit in kind, and therefore taxable?

    It’s not difficult to see how the Auditor believes something unlawful may have gone on.

  • Keanjo

    I would like to congratulate Jacob for this report but may I also commend the Herald for reporting on this matter in this week’s edition. It is refreshing to read a local newspaper which is prepared to criticise this pathetic Council. The Herald deserves our support.

  • A very good report indeed, and one which raises some important questions. In Carmarthenshire the council took both independent financial and legal advice before implementing the scheme. How they can claim that the tax dodge didn’t add to costs is beyond me.

  • Quill

    I have a good memory, I remember when the Council has been confident with its legal opinions not so long ago in the past.

    Google Pembrokeshire care homes judicial review. TWICE I think the council was beaten up in the courtroom.

  • Vivien Stoddart

    I too have a long memory…the then council leader John Davies, just prior to the first court hearing in the care homes “fees fiasco” in November 2010, told the press: “We are confident that the council’s position will be upheld by the court when the full facts are explained in the hearing in Cardiff on Tuesday.”

    Fast forward two years; two failed court cases, and a legal bill of £400k to be paid by taxpayers.

  • Keanjo

    £400,000 on legal fees. £1,750,000 on Bluestone. I wonder if someone with long memories would like to work out precisely how much public money has been wasted by PCC over the last two administrations. Could be a tidy sum!

  • John Hudson

    Who exactly gave the council legal advice on this matter and perhaps more importantly, who asked for advice, affecting a small number of senior officers, to sidestep pension arrangements/restrictions considered in the national interest by the UK Government?

    Does it matter if it is legal or not, surely it is wrong and not what we should expect from a public funded body.

    Is it likely that IPG members will condemn these payments?

  • John Hudson

    On another tack, this happened against the background of MP expenses troubles and national financial collapse.

    I think OG first brought this to public attention shortly after it was agreed. It was also picked up by WT.

    I wrote to our AM, who was apparently comfortable with the proposal as it wasn’t going to cost the Council (us) any more, and our MP thought the proposal was “interesting”. I would like to know if they have had any further thoughts now.

  • John Hudson is right.

    I first drew attention to this business back in February 2012.

    See link: http://oldgrumpy.co.uk/archived/February%2016%202012.html

    So Jacob is only 20 months behind the times.

  • And Old Grumpy was only a month behind the Western Telegraph’s coverage. That’s no boast!

    See link: http://www.westerntelegraph.co.uk/news/9485101.Top_earner_pension_change_at_Pembrokeshire_County_Council/

    It’s also worth noting that, of the two reports, only the Western Telegraph’s coverage questioned the issue of legality. Who’d have thought?

  • Dave Edwards

    Not to be outdone by claims for either OG or WT, I must tell you that on 25/10/11 I submitted an FoIA request to PCC to obtain a copy of the report. They provided me with a copy of the draft minute which I forwarded to OG and WT to use as they wished.

    In a Labour Party meeting in October 2011 I questioned Sue Perkins over the decision, pointing out that as a mutual scheme the Pension Fund relied an contributions from high earners to achieve investment returns for the benefit of all. Sue replied that the committee had relied on advice from the Director of Finance as nobody on the committee had in-depth knowledge on pension matters.

  • Malcolm Calver

    So the Director of Finance advised Cllr Susan Perkins and her fellow committee members on financial matters that he and other high salaried employees would probably benefit from financially, or would definitely be able to. Cllr Perkins then suggests/admits that nobody on the committee had any in depth knowledge on pension matters.

    I cannot believe that if someone advises you that a tax benefit would occur if certain steps where taken, you would not seek advice from someone with an in-depth knowledge of taxation to make a decision.

    I am sorry but these councillors are in control of a multi million pound budget and have failed the taxpayers of Pembrokeshire.

  • Jacob – revealing to all the world that I was scooped by Wales’ biggest selling weekly snoozepaper is a bit of a low blow.

    I had hoped our rivalry could be conducted on civilised terms, but now you have chosen to make this sneak attack on my reputation, the gloves are off.

    To deprive you of any future opportunity to deploy these underhand tactics, I would ask that another similar failure is “taken into account”.

    Details can be found at http://oldgrumpy.co.uk/archived/June%2014%202005.html

  • Have your say...