K (Ltd) 4 London

A senior Labour MP - Margaret Hodge - has waded into the debate about setting up companies as a means of potentially avoiding pay higher tax.

Now such arrangements are perfectly legal and sometimes necessary - depending on the kind of business a person does - but are they really necessary is the big question?

Margaret Hodge was commenting on a practice which has grown up in the public sector over recent years - whereby people who would have previously have been on the public payroll - have their salaries or fees paid directly into a limited company.

The potential advantage is that such people have the option to pay themselves via dividends - which are taxed at a lower rate - and they can also national insurance contributions at a lower rate.

Exactly this kind of arrangment was operated by Ed Lester - the head of the Student Loans Company which is a public body of course.

But why wasn't the chap just employed directly by the SLC - instead of coming up with this kind of over-complicated arrangement - is the underlying point.

Margaret Hodge - who is the chair of the House of Commons Public Accounts Committee - is quoted as saying:

"This is a tax avoidance scheme which is totally wrong. If someone sets up a scheme to avoid paying tax, that is income foregone to the public purse."

Quite so - but the very same arguments could be used in the case of her Labour colleague and former MP - Ken Livingstone - who is standing for election as London Mayor.

Maybe the thing to do is to have a sensible 'test' - a checklist of criteria that people must satisfy in order to channel their earnings into a private company.

If one were in place now, I doubt very much that Ed Lester would pass - quite possibly Red Ken too.

Maybe his new election slogan will be - K (Ltd) 4 London!