One rarely sees a letter from a Cabinet Minister instructing a senior public servant to break the law. Matt Hancock’s letter of 22 November 2019 to Simon Stevens, Chief Executive of NHS England, appears to have done exactly that. In his 18 November letter, Stevens requested approval for “a commitment to make payments to certain clinical staff outside of the NHS pension schemes to restore the value of their pension benefits package, if they have elected to use the “Scheme Pays” facility to settle an annual allowance tax charge arising from of [sic] their pension saving in the NHS schemes in 2019/20.”
He and his Principal Accounting Officer needed written “Direction” from the Secretary of State because an employer paying its employees’ tax bills is evasion. Section 5.6.1 of HM Treasury’s rules for “Managing Public Money” state: “Public sector organisations should not engage in, or connive at, tax evasion, tax avoidance or tax planning. If a public sector organisation were to obtain financial advantage by moderating the tax paid by a contractor, supplier or other counterparty, it would usually mean that the Exchequer as a whole would be worse off – thus conflicting with the accounting officer’s duties (section 3.3). Thus artificial tax avoidance schemes should normally be rejected. It should be standard practice to consult HMRC about transactions involving non-standard approaches to tax before going ahead.” [1]
Although the matter was discussed with HM Treasury, there is no mention of discussion with HMRC, as Section 5.6.1 requires, nor of the tax treatment of the subsequent topping up of pension pots which would normally be regarded as additional (taxable) salary nor of the pension pot excesses that would result.
The problem goes back to 2015 when some bright spark in the Treasury, leaning somewhat to the left of Lenin, decided that NHS consultants were putting too much into their pension pots and should be penalised for so doing. They forgot to tell the consultants about the resulting 2016 tax change, so earlier this year, those who had worked overtime in 2016/7 were surprised by large tax bills. In many cases, effective tax rates exceeded 100%; in other words, consultants were having to pay the Treasury for the pleasure of doing overtime in surgical theatres and A&E departments.
The Department of Health and Social Care became aware of the problem at least by May 2019 but beyond soothing words and fruitless discussions with the Treasury, nothing was done. The Treasury, of course, is never wrong.
On 7 November, the Royal College of Surgeons published a “Survey on the NHS Pension Scheme”. Their key findings were “69% of consultant surgeons have reduced the amount of time they have spent working in the NHS as a direct result of changes to pension taxation rules. This coincides with a period of rising and record waiting lists for planned operations” and “68% of consultant surgeons are considering early retirement because of the new pension arrangements.” Personal contacts tell me that much the same applies in A&E which is heading for record long waiting times even with this week’s intervention by Messrs Hancock and Stevens.
There is nothing like an election to concentrate minds. The Conservative manifesto released on 24 November states “We also want to make sure that doctors spend as much time as possible treating patients, so we will address the ‘taper problem’ in doctors’ pensions, which causes many to turn down extra shifts for fear of high tax bills. Within our first 30 days, we will hold an urgent review, working with the British Medical Association and Academy of Medical Royal Colleges to solve the problem.” (p.10). But then Whitehall has been holding “urgent reviews” for six months without finding a legal solution.
Whitehall must sort this out before the end of the tax year as otherwise the illegitimacy will increase when the pension pots are topped up and there will be another two years of compensation due to NHS staff earning over £110,000 p.a. and doing overtime.
The truth is that this is just another Whitehall farce of many. Training places have been restricted for doctors for decades (short term thinking) so that the Conservatives now claim they will magic 12% more GPs by next year and 17% more appointments, a remarkable increase in productivity by any standards. Training place preference, also over decades, has been given, for ideological reasons, to those most likely to work part-time. Specialisation and big hospitals have been favoured over the much better value general practice. “A year's worth of GP care per patient costs less than two A&E visits, and we spend less on general practice than on hospital outpatients.” Surgeons complain that expensive theatres and kit lie idle because staff scheduling is incompetent.
The NHS has become a political football and a very expensive one at that. We need a cross party consensus on the structure and management of NHS England to run alongside the one the Conservatives now propose for Social Care. And we need it now.
[1] HM Treasury Managing public money, July 2013 with annexes revised as at September 2019, p.36.