An emergency review of the pay of senior public officials has found that over 2,000 benefit from arrangements allowing them to slash their personal tax bills.
The higher-than expected numbers involved in avoiding tax led the Treasury to propose sanctions for departments that fail to crack down on such arrangements, including budget cuts of up to five times the salaries concerned.
In a letter leaked to the news website Exaro, the Chief Secretary to the Treasury Danny Alexander set out the review findings to the cabinet: "The sheer scale of off-payroll engagements across government, and the length and size of these contracts, suggests that the scope for artificial tax minimisation may be greater than previously understood".
The review followed a row over the revelation in February that the head of the Student Loan company Ed Lester, avoided thousands of pounds of income tax by being paid via his own private company.
The Treasury now wants anyone employed on such deals for six months or more to prove they are paying income tax and national insurance in full.
Mr Alexander's letter continued:
"Departments have provided the Treasury with information in relation to all individuals engaged off-payroll - for payment in excess of #58,200.
"Of more than 2,000 such people identified, 1,500 are paid more than #380 a day. At least 1,600 people have been working for their departments for more than six months. Of these, 1,200 have been working for in excess of a year. And 800 of them have been working for at least two years."
While recommending that in future such arrangements should only be allowed in "exceptional" cases and for short-term projects, the Treasury has suggested that the crackdown should be extended to cover town halls, the NHS and the education system.
Labour MP Margaret Hodge, the chair of the Commons public accounts committee, told Exaro:
"I am absolutely shocked that what was seen as a rogue case appears to be commonplace across the whole of the civil service. Danny Alexander has promised that our committee will receive a full report and we intend to interrogate vigorously the worst offenders. It does appear that he is taking the right steps to deal with this."
16 February 2012
02 February 2012