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Top civil servant apologises to Justine Greening over west coast rail debacle

Category : Business

Assessment failures were ‘clearly responsibility of officials and not ministers’, Philip Rutnam tells former transport secretary

The most senior civil servant at the Department for Transport has issued an apology to former transport secretary Justine Greening over his officials’ handling of the west coast mainline franchise.

In a sign of the depth of contrition among senior civil servants, Philip Rutnam made a point of reaching out to Greening, who is said to be livid at the conduct of officials in her former department.

Greening, moved from the transport department in last month’s reshuffle to become the new international development secretary, is understood to have let her displeasure be known in Whitehall. She is particularly angry because she summoned officials to give an explanation after Virgin’s complaint over the decision to strip it of the west coast mainline and award the franchise instead to FirstGroup. Officials initially told Greening they were confident the assessment process was reliable. However, when she asked them to double-check, civil servants reported they had identified one error, but said they were confident it would not have changed the outcome.

This alarmed Greening to such an extent that, at the same meeting on 3 September, one day before the reshuffle, she ordered a full-scale review which was designed to run a fine-tooth comb through the franchise process.

The findings of this review prompted Patrick McLoughlin, who replaced Greening as transport secretary, to abandon the process last week. He said the fault lay “only and squarely within the Department for Transport”. Three officials from his department were later suspended.

In his note to Greening, Rutnam reiterated that the problem was “clearly the responsibility of officials and not ministers” and acknowledged that during the franchise process “both you and Theresa Villiers [then a transport minister] were assured by officials in this department that the process was robust and sound”. That was “manifestly not the case”, added Rutnam.

No 10 said on Thursday that the first the prime minister knew of the severity of the problems with the west coast bid was when McLoughlin made his announcement, a month after the reshuffle on 4 September, in which Villiers was promoted to Northern Ireland secretary.

The apology and Greening’s anger is another example of the often poor relations between ministers in the Conservative-Liberal Democrat coalition and civil servants. The Public and Commercial Services union, which represents one of the three suspended officials, has described the decision as “deplorable, but sadly not out of character” for the government.

The episode has also highlighted questions over the Department for Transport’s practice of only showing ministers anonymised details of franchise bids to ensure they cannot be open to charges of favouritism. Some ministers are concerned that this gives too much power to officials and makes it more difficult for ministers, who are accountable to parliament for the work of their entire department, to maintain proper oversight.

McLoughlin is due to decide on Monday who will run the line while investigations are held before the franchise process begins again.

This will follow two separate investigations also announced by the transport secretary, one into the west coast bid process and the second into the overall franchise system.

The transport department has said that the problems found with the Virgin and First Group bids were focused on assessment of the train companies’ forecasts of passenger numbers and the calculation of inflation. Officials told the Guardian the same mistakes were made in assessing all four original bids for the contract, including two which were dropped at the first stage. However, the decision to suspend the original award suggests that the same error applied to different bid numbers would have differing levels of impact on the assessment.The second reviewwill be led by the chairman of Eurostar, Richard Brown. He is likely to put more focus on ministers since the current franchise system was introduced by the coalition government following a review commissioned by the first coalition transport secretary, Philip Hammond, who was replaced by Greening when he became defence secretary in October 2011.

West coast mainline row: civil servant hits out at Department for Transport

Category : Business

Kate Mingay, one of three suspended officials, says department has portrayed her role inaccurately

The row over the scapegoating of civil servants in the west coast rail franchising fiasco has intensified as one of the three suspended officials hit out at her own department for creating a “completely inaccurate portrayal” of her role in the process.

Mandarins had been urging staff to face facts and fix the problems in the wake of a crisis that saw the west coast service run by Virgin handed to FirstGroup before the competition was scrapped, leaving the future of Britain’s railways in chaos.

Philip Rutnam, the permanent secretary, has told staff they must come clean and move on, and accept that the reversal was the fault of officials.

However, Kate Mingay, a former Goldman Sachs executive director, spoke out after being identified as one of the suspended officials. She said: “My role has been inaccurately portrayed, mainly due to statements and other comments made by the Department for Transport itself.

“I would like to make it clear that I did not have lead responsibility for this project; neither I nor any member of my team had any responsibility for the economic modelling for this project, or for any DfT project. Nor did I have any responsibility for the financial modelling in respect of this project.”

A televised interview in which the transport secretary, Patrick McLoughlin, referred to “serious errors” has alarmed lawyers. Mingay is being represented by top law firm Mishcon de Reya.

Mingay’s statement comes as the DfT embarked on a damage limitation exercise after mistakes that will probably land taxpayers with a bill far in excess of the initial £40m compensation announced for bidding companies.

A senior official said of the franchising fiasco: “It’s a big blow, as it is so clearly the responsibility of the officials. And it will take time to rebuild the department’s reputation. But this department is not broken. There are so many things we have done well and are doing – the Olympics, or Crossrail.”

Department chiefs asked the franchising team to check the numbers were correct in the summer, when Richard Branson and Virgin first publicly challenged the DfT’s expected decision. The official said: “We didn’t just ignore [Branson] – we kicked the tyres in July and got back assurances.”

Fresh checks were ordered after an admission of minor procedural errors in late August, after Virgin’s legal challenge was mounted. But only on Tuesday did consultants discover that the spreadsheet on which all calculations were modelled was fundamentally flawed. The key mechanism, called the GDP resilience model, mixed up real and inflated financial figures and contained elements of double counting.

A separate internal disciplinary procedure will investigate the precise actions of the three suspended staff. According to senior officials, no evidence has been uncovered of anyone acting in bad faith, despite Virgin’s fears. Between eight and 10 civil servants were closely involved, as well as hired private consultants.

No decision has been reached on who will run the service after 9 December when the current contracts expire.

The transport secretary is taking legal advice on options including allowing Virgin to run the service under contract from the department’s own arm’s-length company, Directly Operated Railways. FirstGroup said the option of legal action was being “kept under review”.

MoD to axe one in four senior military and civil staff

Category : Business

Philip Hammond unveils cost-cutting plan in bid to show all ranks are making savings

One in four senior military and civilian staff at the Ministry of Defence are to be axed over the next two years, the defence secretary, Philip Hammond, has said.

A new senior structure for the ministry will be introduced next year in an attempt to show that all ranks of the services are making savings, and the cuts are not falling disproportionately on serving lower ranks.

“At a time when we are making difficult decisions about defence spending and have had to accept reductions across the board, we cannot ignore the volume of posts at the top,” said Hammond. “For too long the MoD has been top heavy, with too many senior civilians and military.”

In July, Hammond announced that 17 units were to be axed from the British army as part of sweeping reforms that will reduce its overall strength by 20,000. There would be at least two tranches of redundancies next year and in 2014.

By April 2013, 26 civilian and military posts at the rank of Commodore, Brigadier, Air Commodore or above are expected to have been phased out, saving an estimated £3.8m a year. Following the change, the slimmed-down head office is expected to focus on strategic direction, and frontline commanders will start to take responsiblity for their own budgets.

The changes were recommended in a report in 2011 by Lord Levene, the former chairman of Lloyds of London. The 84-page report also recommended a joint forces command to break down rivalries and barriers between the army, air force and Royal Navy, and that senior military should lose their jobs if over-spending got out of control.

Student loans chief tax row prompts civil service inquiry

Category : Business

Chief executive of Student Loans Company has £182,000 salary paid via company without tax being deducted

The Treasury has asked Whitehall to review all the tax affairs of top civil servants after it emerged that the head of the Student Loans Company (SLC) is paid via a company without tax being deducted.

The SLC’s chief executive Ed Lester has his £182,000 salary paid gross to his private service company, potentially saving him tens of thousands of pounds in tax.

The arrangement, entered into in 2010, was disclosed in a HM Revenue and Customs (HMRC) letter obtained under the Freedom of Information Act by Exaro News and BBC Newsnight. Ministers will be dismayed if it is seen that they have been presiding over a system in which senior civil servants have been able to minimise their tax payments, at a time when the rest of the country is being urged that we are “all in this together”.

It is embarrassing specifically for the Treasury, which is committed to tackling tax avoidance and is planning to bring in a general tax avoidance rule in the Budget.

The arrangement is also likely to be examined by the Commons public accounts committee, its chair Margaret Hodge promised, with the support of the senior Tory on the committee, Richard Bacon.

Newsnight alleged that the arrangement was known to the higher education minister David Willetts, but the department had been desperate to hire someone capable of sorting out the SLC after years of inefficiency. Danny Alexander, the chief secretary to the Treasury, was said to be unaware of the arrangement although he was required to sign off Lester’s pay deal in common with all public sector salaries of more than £142,500.

He said: “I have asked Treasury officials to urgently review the appropriateness of allowing public sector appointees to be paid through an agency by a personal service company.

“I have also written to my cabinet colleagues asking them to carry out an urgent internal audit to ensure that all senior consultancy appointments provide value for money.

“As I have said before, I believe everybody should pay the right tax at the right time … that is why I’ve taken this action.”

Aides to Alexander believe this kind of arrangement was not appropriate in the public sector and strongly believed that tax avoidance was “wrong”.

Bacon said he was “concerned” that HMRC had 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.

“My understanding is that this arrangement saver Lester tens of thousands of pounds each year, some of which would otherwise be paid in income tax.”

The payment method allows Lester to pay corporation tax of 21%, rather than up to 50% income tax on his earnings.

The overall pay arrangements, known to have occured with some BBC executives, are estimated by accountants to have saved him £40,000 a year, according to Newsnight.

Lester, who lives in Buckinghamshire, also receives £550 a week to pay for his travel and living expenses and cover his costs of getting to the company’s offices in Glasgow.

In emails, a letter and memos, one civil servant at the Department for Business, Innovation and Skills described the arrangement as “tax efficient” for Lester.

A Treasury spokesman conceded Alexander had approved Lester’s pay, though reduced by about £13,000, in continuation of terms already agreed on a previously interim basis.

“The chief secretary to the Treasury is required to approve senior civil service appointments where the salary exceeds £142,500,” he said.

“Terms and conditions are negotiated by the appointing department, and presented to the chief secretary for approval of the salary level.

“In the case of the chief executive of the Student Loans Company, the chief secretary approved the overall pay, at a reduced rate and in a continuation of the interim arrangements previously agreed.

“The chief secretary was not made aware of any potential tax benefit to an individual.”

Departments have been told that any appointments which do not provide value for money should be unwound “as quickly as possible”, the spokesman said.