Varney takes big pay cut for challenge of top Revenue job

David Varney, the chairman of mmO2, is taking a substantial pay cut to head the merged Inland Revenue and Customs & Excise departments.

David Varney, the chairman of mmO2, is taking a substantial pay cut to head the merged Inland Revenue and Customs & Excise departments.

Mr Varney, who was seen as a candidate for the top job at Marks & Spencer, will implement the Government's plan to merge the two bodies and to cut 14,000 jobs across the tax-collection services.

He will be paid between £130,000 and £150,000 ­ at the bottom end of the pay scale for a Whitehall permanent secretary ­ when he takes over as executive chairman on 1 September.

He is currently paid £350,000 for two and a half days a week at the mobile phone company mm02, from where he will stand down as chairman in July.

His decision effectively rules him out of the race to take over as chairman at M&S, the troubled retail giant.

The appointment is also being seen as a coup for the Treasury, which has persuaded an experienced private sector businessman to take a 60 per cent pay cut to take on one of the toughest challenges in Government.

The merger is part of a plan to cut 40,000 jobs and save £20bn by 2006 to allow more cash to be pumped into frontline services without raising taxes.

Gordon Brown, the Chancellor, told MPs yesterday: "His remit will include implementing staff reductions. Varney is an outstanding business leader with a first-rate record proven across the private sector."

The Public and Commercial Services Union, which represents almost 80,000 of the 100,000-strong combined workforce, gave his appointment and salary a lukewarm welcome. "I hope he's worth it," an official said.

A spokesman said the union, which is considering taking industrial action over job cuts at the Department for Work and Pensions, said it was seeking an early meeting with Mr Varney.

"As far as industrial action over the merger, we are not at that stage yet," he said. "We are opposed to job losses but if there are to be redundancies we would expect them to be voluntary and with full consultation with unions. We are keen to get the relationship off to a positive start."

Mr Varney will have to oversee 8,000 job cuts at Revenue, 3,000 at Customs and a further 3,000 as a result of the merger to save £200m a year in costs and streamline the administration of VAT and business taxes. He said yesterday: "This is one of the biggest delivery jobs in Government and I am very excited about the challenge of making the new department a success."

In a submission to the review of the departments headed by Gus O'Donnell, the permanent secretary of the Treasury, Mr Varney said the merger would be a "tremendous challenge".

"This includes the staff, who will have to balance the demands of the ongoing work with the uncertainty of change," he said. "It will be a challenge to keep a long-term focus on the effectiveness prizes and not fall prey to the temptation to substitute short-term cost reduction objectives."

Mr Varney, 58, has considerable experience in corporate restructuring. At British Gas he steered through the demerger of the exploration and production arm, which became BG Group, from the pipelines business. He was BG's chief executive from 1996 to 2000.

He has been chairman of mm02 since it was set up in May 2001 as part of the demerger of the mobile business from BT. Between 1968 and 1998 he worked for Shell, rising to director responsible for its European oil products business.

One current business associate said: "What attracted David to this job was that it was unique in Government while he had a track record in change management."