The chief secretary to the treasury has been grilled by MPs over the head of the student loans company dodging tax worth tens of thousands of pounds.
An urgent question tabled by MP Nick Brown put Danny Alexander in an uncomfortable spotlight over a Freedom of Information (FOI) request by Exaro and BBC Newsnight. The FOI response from HMRC revealed Ed Lester, head of the SLC, had his £182,000 salary paid gross into a private company account, thus dodging the taxman.
Despite protocols requiring the arrangement to be signed off by both the minister for Higher Education David Willetts and Alexander, the latter claimed to have no knowledge of the deal.
A Treasury spokesman said Alexander had approved Lester's pay, though reduced by about £13,000, in continuation of terms already agreed on a previously interim basis.
"My role is to sign off salary levels," he told the House of Commons. "I was unaware of any individual tax benefits.
"There is no place for tax avoidance in government."
When pressed further by MPs over Lester's avoidance he added: "I cannot comment on individual cases.
"I have asked the Treasury to review the system of allowing civil servants to be paid by this method."
Alexander also pledged to "unwind" any similar arrangements across the rest of the public sector.
When a civil servant's salary exceeds £142,500, the treasury's chief secretary is obliged to sign off any appointment. But throughout the parliamentary session, Alexander repeatedly dodged questions over who did sign off the tax avoidance agreement.
"I discharge responsibility in this case," he told MPs. "I reduced the salary and the expenses but was not aware of any tax benefits. As soon as I was I took immediate action."
Alexander added he had requested all departments to carry out an internal audit of civil servants' tax details and for the accounting officer to report back to the government.
But, as one MP pointed out, Lester is the accounting officer for his relevant department.
SLC: will change arrangements and deduct tax for remainder of investigations. Unwind arrangements which do not have good value for public money, both under this and the previous govt.
Chief Exec IS the accounting officer.
Amid accusations of Alexander providing "Murdoch" answers, Brown, responsible for tabling the question, asked whether the secretary had considered the "demoralising and corrosive effect this would have", to which Alexander replied he merely approved Lester's salary and had no knowledge of any tax benefits.
Alexander added the house would be updated of the review when completed.
"We are making sure tax dodgers are made an example of," he concluded. "This government has taken a series of very strong steps to make sure everyone pays the proper amount of tax."
A source said Alexander, one of the most senior Liberal Democrats in the government, instinctively felt this kind of arrangement was not appropriate in the public sector and strongly believed that tax avoidance was "wrong".
Tory backbencher Richard Bacon, a member of the Commons Public Accounts Committee, said he was "concerned" HMRC had even approved the arrangement.
"It is simply inappropriate for a full time civil servant and accounting officer for the Student Loans Company to be paid gross of tax through a personal services contract," the MP said.
The government has suspended any agreement pending investigations.