Carmarthenshire county councillors yesterday accepted they had acted “unlawfully” in granting a pension “pay supplement” to chief executive Mark James which saw him pocket an additional £28,750 in lieu of employer pension contributions.

The climb-down followed a Wales Audit Office (WAO) report which stated that the policy agreed by the council’s executive board in November 2011 was little more than a “tax avoidance” scheme set up for the chief executive to counter changes to UK pension laws announced earlier that year.

Mr James – who is said to earn around £181,000 per year – was paid an extra £16,353 between April 2012 and March 2013 and a further £12,397 between April 2013 and December 31, 2013. Had the scheme not been in place the money would have been paid into the Dyfed Pension Scheme as part of Mr James’ civil servant pension plan and would have been subject to tax due to his accumulated pension pot exceeding £1.25million by April 2015. Instead the money was given directly to Mr James.

The WAO deemed the means by which the council reached and implemented its decision to pay the supplement “unlawful”.

In the public interest report – issued in January after the council refused to rethink its stance – auditor Anthony Barrett said that while a pay supplement was not intrinsically unlawful, the council scheme was “contrary to the law” on six separate grounds.

The decision, he said, had been made to avoid tax, had failed to take into account relevant legal considerations, failed to take into account public sector pay equality, constituted indirect indiscrimination, did not appear on any council agenda and was based on a report drafted by “a senior officer who had a disqualifying personal and pecuniary interest in the decision” in that he would benefit from it.

The council had previously rejected the WAO findings but withdrew the supplement in December. Councillors finally agreed to accept the auditor’s findings with a unanimous decision at Thursday’s extraordinary meeting.

The meeting was watched by a full public gallery which contained two plain-clothes officers from Gloucestershire Police, the force called in to investigate events at County Hall following of the WAO reports in the pay supplement and the legal indemnity granted Mr James to pursue a libel counterclaim against Llanwrda blogger Jacqui Thompson.

“This reminds me of a football team losing 1-0 through a penalty where there may be room for doubt as to whether it was a penalty or not,” Llangennech councillor Gwyn Hopkins told the chamber.

“When the team loses 6-0 you have to accept the result. When the referee says it is 6-0 and you have lost, it is time to give up.”

Three senior councillors, current leader Cllr Kevin Madge, current deputy Cllr Pam Palmer and former leader Cllr Meryl Gravell – all of whom were members of the board that approved the scheme in 2011, later survived a vote of no confidence and maintained the decisions taken had been made “in good faith”.

“I accept that there are lessons to learn,” said Cllr Madge.

Cllr Meryl Gravell added: “Some mistakes were made and I am the first to admit it, however we were motivated by a genuine intention to make sure that we can recruit and retain people of the highest quality.”

However, there was anger in the chamber with members of the Plaid Cymru opposition group demanding that senior members of the Labour-Independent Group ruling coalition be held to account for implementing the scheme.

Cllr Sian Thomas, a trustee of the Dyfed Pension Scheme, said: “The Dyfed Pension Scheme used to be one of the best in the UK, but now our reputation is in smithereens and that possibly is irreversible.

“Labour councillors who purport to be socialists voted for a dodgy tax avoidance scheme.”

In relation to the decision failing to appear on publicised agendas and minutes, Cllr Emlyn Dole said: “To try to say that this decision and the procedures were taken in the context of staff retention is totally disingenuous.

“Did you suddenly decide on a whim that staff retention was an urgent item that you need to discuss? I don’t think so.”

Cllr Cefin Campbell added: “The WAO report makes it perfectly clear that this is unlawful, but this is also immoral.

“The values the Labour Party stand for - egalitarianism, fairness and justice - have been lost here.

“I would ask all members of the executive board to take serious account of the moral issues involved here and the message we are sending out.”

Cllr Madge acknowledged there had been serious flaws in the “processes and procedures” in the decision-making and implementation of the pay supplement scheme.

“I accept that there are lessons to learn and that there will be a cross party group, to include independent representation from outside the council, to look at all aspects of the council’s constitution and decision-making to ensure that such errors do not occur again,” he said.

Councillors voted unanimously to accept the WAO's findings.