Serco too taxing for Treasury

The Treasury has stepped in to stop Serco shipping 600 of its workers offshore to avoid around £1.8m in national insurance contributions.

Serco won a contract in 1996 to run the former Ministry of Defence Warship Support Agency, which services sea vessels. But it proposed taking advantage of a tax loophole to move staff offshore to compete with foreign companies when it rebids for the contract in 2005.

The Transport and General Workers' Union has campaigned against the company's proposal to register the workers, many of whom were former MoD employees, outside the UK. The union said they could lose employment rights and did not want to be part of a tax "scam". But Dawn Primarolo, the Paymaster General, has told officials to tighten up the loophole, and all UK-based shipping companies operating in UK waters will have to pay the tax from 6 October.

"I share your concern about the situation," Ms Primarolo said in a letter to worried local MPs. "I will be taking steps to ensure UK-based shipping companies operating in UK territorial waters can no longer avoid employers' national insurance contributions by transferring the employment of their workers to offshore companies."

The T&G welcomed the decision. "Serco's shameful scam risked robbing our members of their employment rights and the Treasury of £1.8m a year that should be spent on hospitals and schools," said Jack Dromey, a union organiser and candidate to become its general secretary. "The MoD was wrong to encourage cut-throat competition. The Treasury is right to end the scandal of our members being forced offshore."

Serco said it welcomed the move. "Serco Denholm, who have never employed workers offshore, wish to be in a position to compete fairly with other companies in our sector who currently have UK workers employed through offshore companies," said a spokesman. He said the company was seeking clarification on the legislation. "Serco has been fully supportive of staff and trade unions," he added.