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Reports that some civil servants, almost certainly a small if noticeable minority, are abusing the duty rebates granted as part of the non-monetary benefits to those working for the State brings up the whole problem of allowances and special benefits.
The duty rebate scheme was simple. Civil servants of at least 10-years standing, and as with all matters concerning pay and benefits the term “civil” includes the uniformed forces as well as the pure civilian employees of the State, who do not have an official vehicle assigned to their post are allowed to import every five years a vehicle without paying any duty.
This is a major benefit as after the direct cost of the vehicle the duty is the second-highest component of the money needed to buy a car. Transport, licensing and the like are very modest components of the final cost. So many of those working for the State suddenly could afford a car, and around 6 000 have now already benefited.
The purpose of such benefits is that they may well be affordable for an employer, in this case the Government but the same argument applies in the private sector on other benefits, while a direct increase in salary is not affordable.
While the Government loses revenue when giving a duty-free benefit it is a one-off, not something that has to be paid every month.
Spreading the average loss of duty on a fleet of cars as a pay increase over five years to all civil servants would produce a very small extra sum in the pay slips.
The problem that comes up is when someone wants to monetise a benefit. This, in effect, is what has happened among a modest group of civil servants.
They either do not want a car, or already have a car that does not need replacing. But they do not see why they should be left behind and so, in effect, sell their right to import a duty-free car, which is technically an abuse but an understandable one.
And as with a growing number of benefits there is need perhaps to work out a legal option, that costs no more, that allows a benefit to be monetised.
We will be seeing this problem as other non-monetary benefits are gradually added.
The Government would like to see all in its service having the right to Government-owned housing, a right that a lot in the uniformed services already have, along with growing groups of nurses and other blocks of employees who are on emergency call-out contracts or who are subject to transfer at short notice.
At some stage, if we have not already met this, we are going to have State-employees who already own a house or flat and who become eligible for a Government-owned house or flat with the rent at most just set at the level needed for rates, utilities and maintenance. Some may well decide to rent out their private house, but others may want to continue living in their own home but still be able to monetise their Government-accommodation benefit.
This could lead to some serious cheating, or might lead to the position that a civil servant with the benefit could rent out the house or flat to a civil servant without, probably one more junior, although that in turn could lead to many other problems. But we need to be ready to face these now so when the problems arise we have the solutions ready.
In a pure and perfect economy there are no allowances or benefits, just pay. Every employee gets their entire compensation in money, pays their taxes and spends what is left over on whatever they like. The employee chooses their own priorities when it comes to housing, transport, education for themselves and their children and the like and divides their net salary accordingly. Up until around 50 years ago this was the standard system in this country.
Allowances first came in because they were not taxed, and so an employee could get more money at lower cost to the employer, which is why it was easy to make these deals in salary negotiations. Allowances did not count to final pension, but many do not worry about that.
Of course the Government was never going to let a lot of income go untaxed and quickly moved to tax most allowances from the early 1980s as the allowance system exploded, except interestingly the allowances paid to its own staff, the civil servants, where there was some control over what proportion of compensation was paid in allowances and what in salaries. And civil servants did not get some of allowances becoming common in the private sector until very recently.
But a lot of the allowance culture, the pressure from employees for allowances, dates from the tax-free era even though in theory these days, pure pay increases would work just as well.
The other benefit of universal allowances, those paid to all staff, is that they help reduce the growing inequalities between the best paid in an organisation and the lowest paid. If everyone in some entity, for example, gets the same transport allowance regardless of their rank or how far from work they live, the allowance just reduces the earnings gap.
Other allowances are not universal. A major example is school fees allowances, which civil servants now have along with a majority of the workforce in the private sector. These are obviously only paid to those with school-going children, with those who have yet to start families and those whose children have grown up not winning. But they cause little dissention because most staff at some stage in their life are hit by school fees.
So again they provide crucial support to those who need this when they need it at a lower cost, and so affordable cost, to the employer since the extra cash in concentrated in fewer hands, the parents.
There are also tax benefits that come up that preclude a pure salary-based system. In theory raising all salaries 8,33 percent and not awarding an annual bonus gives the same answer. But there is a huge tax concession on the bonus which overtakes the equivalent system.
Employer car schemes, such as senior staff in both private and public sectors enjoy, are taxed, but the tax paid is less than if the senior staff had to buy and run their own cars from salary.
So while it is easy to condemn those civil servants who have sold their right to import a car duty-free, we still need to look at why they have done this and in many cases perhaps set up a monetary equivalent of a benefit, which can be less than the value of the benefit but still enough to prevent cheating as most people would prefer not to go through the risks of dishonesty.
This sort of option would still allow an employer, and in the car duty scheme this is the Government, to afford the scheme and its modest monetary alternative, but still give the employees the option of how they want their total compensation distributed.
We can accommodate individual preferences with no extra costs.
Online Reporter