The Guardian has discovered that 25 senior Department of Health staff are paid through limited companies, rather than as direct employees. Surprised? I’m not. These people are called interims and you will find them in most large organisations.
As I said when a similar row blew up over contractors at RBS, there is nothing unusual about this, especially when organisations have to change rapidly.
As public sector organisations, of which RBS is now one, rapidly restructure and cut costs, they will need to employ expensive contractors on a short-term basis. Doubtless there will be FoI requests which will uncover ‘scandalous’ payments similar to those made by RBS.
And so it has proved.
This all started with the row about the pay arrangements of Student Loans Company CEO Ed Lester, who was found to be receiving £182,000 per year via a limited company, rather than the payroll. According to the Guardian, assurances were given to parliament that this was a rare practice.
Whoever gave those assurances was either badly briefed or didn’t ask for advice. This quote, also from the Guardian piece, is probably nearer the mark:
One Whitehall source said: “We cannot defend these arrangements, but it may be it is very common in Whitehall and this is just the tip of an iceberg.”
Yep. I reckon if you did FoI requests you’d find similar people scattered across civil service departments, government agencies and the wider public sector.
There are a couple of reasons for this. Firstly, if public sector organisations want to buy in external expertise, which the government keeps urging them to do, the most likely recruits are people with experience in large companies who have retired early or taken redundancy. Pensions and other civil service benefits are often of little use to them so they prefer to work through their own limited companies. It’s quite normal for interims to do this. The arrangement has advantages for employers too. Someone charging for services can be dismissed on fairly short notice without compensation, so no ‘rewards for failure’ if they mess up.
Secondly, when the civil service hires consultants and contractors, in general, it isn’t very good at managing them. The line between consultants, contractors and interims is blurred in many organisations. In central government, as this NAO report pointed out, it is almost seamless. I’ve seen it happen often. You start off doing a specific piece of work, then the person you report to asks you to do some other related tasks, and, before you know what has happened, a permanent role has grown up around you and your client has become your boss. Consultants thus become contractors and eventually interims. Some of them end up in quite senior positions.
If the government wants to put a stop to this and put all those in senior roles onto the payroll, fine, but there will be consequences. Some people won’t want to do the jobs because that kind of financial arrangement won’t work for them. Adding these highly paid contractors to the payroll will also mess up the pay and grading hierarchy. The Guardian says that some of the DoH interims are paid more than £250,000 a year and one is on £273,375. That’s more then the Chief Executive earns. Again, this is not uncommon. The senior interim director will often receive more than the CEO. Having an interim in such a role maintains the distinction between the career civil servant and the hired gun brought in for specific expertise. It’s OK for an interim to be paid more than the boss. But if the interim comes onto the payroll on a higher grade than his boss, that’s going to cause problems, especially in a hierarchical organisation like the civil service.
Alternatively, public bodies could just go back to offering pay at the grade for the job but, if they did that, they would find it hard to recruit the external help they want. The very reason they pay senior interims in this way is because they couldn’t find the expertise at the civil service rates.
So, journalists and so-called tax campaigners, FoI away. You’ll find hundreds of £100k plus interims, and quite a few £200k ones, scattered across the public sector. All charging for their services through limited companies and many holding senior line jobs. Perhaps some of them could be replaced by permanent staff but a lot of them are there because their expertise is needed and it’s the only way of getting them in.
The 25 Department of Health staff may be the tip of a very big iceberg, but the iceberg is there for a good reason.