Magazine article Public Finance

Councils Face Huge Hike in Equal Pay Costs

Magazine article Public Finance

Councils Face Huge Hike in Equal Pay Costs

Article excerpt

Revenue and Customs officials have dealt a huge blow to local government plans to settle equal pay claims by insisting that backdated payments to staff qualify for tax and National Insurance. The move will add hundreds of millions of pounds to councils' multi-billion pound bill.

Letters obtained by Public Finance this week show that Revenue and Customs has received legal advice compelling councils to stump up pay-as-you-earn tax and national insurance contributions relating to all arrears of pay' claims by employees.

The ruling is likely to increase the cash needed to settle backdated equal pay claims for hundreds of thousands of mostly female staff by around 25%, the Employers' Organisation for local government told PF.

The EO, together with the Local Government Association, lobbied the government against declaring backdated payments as income for tax purposes because councils already faced equal pay bills in excess of £2bn.

Andy Wilson, the EO's employment relations adviser, described the decision as 'a kick in the teeth' for local authorities and a 'windfall tax' for the Treasury.

'We are aghast at the decision, but we now have to work with the government to find ways of meeting large payments that councils have not yet accounted for.'

One council treasurer told PF that he had been facing a 'tough, but relatively achievable' £13m bill, but would now need to find between £17m-£18m. 'That additional money is simply not available to us right now.. .without potentially cutting education or social services,' he warned.

Other authorities, particularly those that have made little progress against equal pay obligations, face even higher bills.

Backdated equal pay claims grew in importance during the 1990s when it emerged that men still earned far higher salaries than women performing similar jobs across the public sector, despite the 1970 Equal Pay Act.

In 2003, the Local Government Pay Commission reported that hourly wage disparities were as high as 33% despite the 1997 Single Status Agreement, which put white-and blue-collar workers on the same pay spine, leading to thousands of backdated claims.

A letter sent from Mike Harmon, technical adviser at Revenue and Customs, to Sarah Wood, LGA director of policy, on August 4, breaks down the department's advice into four categories.

Harmon advises that local authorities that obtained agreements that backdated awards were merely compensation for employees' 'hurt feelings', which allowed some authorities to settle claims quickly, will not be subject to PAYE/NIC bills. …

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