Hancock admits NHS pension proposals ‘could constitute tax avoidance’

Secretary of State for Health and Social Care, Matt Hancock, has admitted that NHS England’s proposal to resolve the pensions taxation crisis “could constitute tax avoidance”, but said it is in “the wider public interest” to implement it.

Last Friday, 22 November, NHS England confirmed its emergency plan to allow pension tax bills incurred by doctors to be paid through the ‘scheme pays’ option. In a letter, NHS chief executive, Simon Stevens, wrote: “The NHS will therefore now ensure that clinicians who exceed their NHS pension annual allowance in this financial year are not left out of pocket.”

Through the scheme pays option, NHS staff are able settle annual allowance tax charges of over £2,000 by deducting the doctor’s pension pot. The NHS has assured staff and members of the scheme that it intends to make a “contractually binding commitment” to pay the corresponding amount on retirement.

In another letter, dated 18 November, from NHS chief executive, Simon Stevens, to Hancock, Stevens said that given the election, it is clear that a “substantive answer to the tapered annual allowance issue is unlikely to be forthcoming until the new tax year”.

However, given the “urgent operational requirement” to “remove barriers” to clinical staffing over winter, he has been working with HM Treasury and Hancock’s officials “on an in-year mitigation”.
“This will involve 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 their pension saving in the NHS schemes in 2019/20.

“This proposal has the agreement of Sir Chris Wormald in his capacity as your department's principal accounting officer. However for this policy to be put into effect - and as required by the Managing Public Money guidance - you will need to give a formal written direction to Sir Chris and me to do so, confirming that on an exceptional basis for 2019/20, paragraph 5.6.1 of MPM should not apply,” Stevens said.

In his response, Hancock acknowledged that it is “operationally necessary” to take further action on clinicians’ pensions to protect patient care over winter.

“As you set out, the proposals which you plan to introduce for ‘scheme pays’ for the 2019/20 tax year constitutes an example of tax planning. Depending on the detail of how you put the proposed approach into practice, the scheme could constitute tax avoidance.

“In deciding on this detail, you should seek to minimise this risk. The proposed measure is therefore incompatible with paragraph 5.6.1. of MPM. I am advised by Sir Chris Wormald that this is an issue of regularity and propriety and that if I am so minded the direction should be granted on that basis, taking into account the wider public interest which I am able to bring to bear,” Hancock stated.

He also confirmed that whilst it is an NHS England proposal, he is treating the request as if it applied to any related provider spend that falls within the scope of the separate accounting officer delegation given to Amanda Pritchard, in her capacity as chief executive of NHS Improvement.

“Given the importance that this government attaches to the NHS and to its performance over winter, and recognising the unique circumstances within the NHS and necessity of this intervention to address operational capacity at this time, I am content formally to direct you to proceed with your operational proposals, as set out in your letter for clinicians and for 2019/20 only,” Hancock said.

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