Largely overlooked in the Budget was the confirmation of plans to introduce across the state sector a new standard for fair pay. The intention is that the best paid will receive no more than 20 times the salary of the lowest paid.
There is a wealth of detail still to be worked out, though reassuringly much of that work lies in the hands of Will Hutton, who is heading up a commission on fair pay in the public sector. Particularly important are questions of how broadly the public sector is defined (similar to the questions raised by Freedom of Information legislation, whose remit the coalition government is pledged to increase) and how factors such as pensions, bonuses and overtime are tackled.
There is also the question of how the boundaries for the calculations are drawn up. For example, is the maximum pay in the NHS determined in relation to minimum pay in the NHS, or is maximum pay within a particular trust determined by the minimum pay in that trust?
Despite the simplicity of the 20:1 ratio becoming blurred as you work through these details, it does provide a clear principle to use when working through them.
Crucially too it provides a fair pay benchmark which campaigners, pressure groups and the public can use more widely. Whatever is decided to be the formal extent of its applicability, there is nothing to stop people pushing for its wider adoption and there is good evidence that pay at the very top of the private sector has got out of control, increasing far faster than profits, turnover or other performance would justify. Partly because of the number of firms who set their top pay saying that it must compare well with the rest of the sector, there has been a self-reinforcing upward spiral in pay as everyone pushes up everyone else’s top pay.
A 20:1 ratio would still allow for generous top pay, but stop that cycle – if it ends up applying more widely. Whether or not that happens is not just a matter for central government. For example, even if the government holding the majority of shares in a bank does not mean the 20:1 ratio applies to that bank, that doesn’t stop a campaign to introduce such a ratio. The use of the 20:1 ratio across large parts of the economy will provide a clear benchmark that will make those sort of wider campaigns more effective.
It’s easy to see how over time the 20:1 ratio could become a standard applied to suppliers to the public sector, by ethical investment funds, by good corporate practice lobbyists and more.
So as I said, a quiet fair pay revolution may be on its way – and whether or not that transpires won’t be up to someone sitting in Whitehall to decide. It’ll be up to the rest of us and whether we campaign well or not.
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20 Comments
So what will the Government do about things like the vast bonuses being paid to Network Rail’s top people? Is that classed as public sector?
I will find it fair when the best paid in the PRIVATE sector are paid only twenty times more than the lowest paid!
A fair point by MacK. When there is belt-tightening, it tends to be the public sector that gets hit. It happened in the late 1970s (leading to the “Winter of Discontent”), and it is happening again now. Accompanied, of course, by torrents of media demonisation of the public sector, which is staffed by idle, over-paid second-raters, at least according to the “Daily Mail”. In the private sector, managers require incentives, in the public sector, they do what they do out of the goodness of their hearts. If cuts lead to the deterioration of services, you can be sure that it will be public sector staff, not the Tory government, that gets blamed.
MacK – and you would enforce that how exactly?
MacK
I agree. I’d enforce it via tax. I’d hire more tax officers to follow them around gathering video evidence, where necessary. I’d even enter their homes to have a little nosey around. I’d see what they’ve got, and how much it is worth. Maybe I won’t believe their claims and hit them with a tax bill! If it is good enough for the unemployed to be snooped on, then why not those with far greater incomes? If, say a bank, can afford to pay a trader millions, then why are we the tax payer subsidizing the pay of the receptionist, the bank clerk etc. Let us not forget the footballers. How much does the dressing room cleaner earn? If we have to hear nonsense claims that we cannot afford housing benefit for the unemployed, then we certainly can not afford to subsidize the housing costs for the football teams.
Time they stopped externalising all their costs, and that is the responsibility of those who think that by wearing a suit and sitting at a desk rather than working a mop, deserve far more.
We do have serious problems in this country and across the industrialised nations. My first boss when I left school was German and Jewish. He seemed to me, at 16 years of age to be a gruff old man and way too old to be shuffling around a factory floor; when I saw the tattoo on his left hand I knew what that was but felt too awkward to ask – my mother would have strung me up for being so rude! That old man was employing over 100 women. He wasn’t making a profit, just paying the bills. His kids refused to take the business out of his hands, saying they didn’t want it without decent profits. Finally, as his wife began to fade, dying of cancer, and he was finding it too painful to walk he closed the factory and spent the last few months at home with her.
For years that man kept that factory operating without anything like a profit because he knew me and those women in that factory had bills to pay. Most of the women had children to feed and he worried about the times when their husbands would be unemployed.
How many of our business men today in this country would do likewise? The vast majority never will because they appreciate nothing but greed.
Every time I hear or see talk about the scrounger unemployed, the undeserving poor I think of that old man. How many of the super rich can measure up to him? In my view, none of them can.
If the capitalist system of the third way, or Thatcher and There Is No Alternative were successful in terms of benefiting th eelectorate, then why does it seem clear that incomes have been falling for decades. No longer can mum stay at home while dad works. No longer can the family depend on the wages of both parents. Both parents work and still there isn’t enough for the family.
Single people are truly roasted!
No those salaries and those ideologies are failures. Time to redistribute.
This is a very welcome idea – credit to the coalition for going ahead with it. I wish Labour had tackled this long ago.
The Human Rights Act is an example of legislation that set up a debatable boundary between “public authorities” and the rest of the world – there has been quite a bit of litigation about that. But I think this may be simpler. I’d be happy for it to start with the obvious public sector – central and local government, the NHS, police and fire services and so on.
On the boundaries for calculations, you could adopt the “single source” rule that operates in the equal pay context. The normal rule would be that comparisons could only be made within one employer, but if worker’s conditions in two organisations were determined by a “single source”, then cross-employer comparisons can be made.
On how to deal with pensions etc., surely the only correct approach is a “term by term” comparison. Once you allow what’s often called a “package approach”, allowing additional perks whether accepted or not to offset the 20:1 ratio, you open up possibilities for employers to break the rule by getting senior executives to accept the right not to use the staff gym, subsidised travel costs and so on, to use silly examples, or not to have pensions rights, more seriously. The way to stop this is to compare like with like – full stop. If x’s salary is 21 times y’s, that should be a breach regardless of any other benefits x or y have. And each of those benefits should also be valued and subjected to the 20:1 test. If the value of x’s pension rights is 20 times the value of y’s (on a like-for-like basis) that should breach the rule, regardless of their salaries.
Another big issue is audit and enforcement. I think the 20:1 rule could work brilliantly, if organisations know they’ll be checked and know they’ll suffer costs if caught. Otherwise, you may find change happens very, very slowly. If the government wants to avoid legislation, it could still require all the public sector to publish information about every salary it pays, require them to allow the EHRC to monitor them on a voluntary basis, require them to act on EHRC findings and impose some sanction – like automatic budget cuts, or automatic claw-back from top salaries – for failure to rectify the position. How prepared they are to enforce will show me how serious they are about this.
Finally, I think built in to the policy should be some expectation of a ratchet. The government is already beginning to imply there’s a norm for top public pay at about £150,000. Fine. I don’t think an organisation that pays its boss £150,000 is being at all fair if it pays its lowest-paid worker £7,500. I think a 10:1 ratio would be less unfair, and should be worked towards. How about incentivising those who do better than 20:1, and announcing now an intention to bring the ratio down, step by step, over a period. That period could be set by some sort of Commission, subject to an outer limit of something like 20 years.
Combine this with gradual relative increases to the minimum wage, and a more determined approach to gender pay equality, and you’re beginning to get something like a real equality policy.
“The intention is that the best paid will receive no more than 20 times the salary of the lowest paid.”
I trust this will be extended to the BBC ?
20:1 is a good ratio for the public sector. We should apply this to all quangos, such as the BBC and other organisations funded by the taxpayer.
Government should also push those it procures from to adopt fair pay ratios as a condition of purchases.
The private sector is slightly different. Ratios will always be higher, and to a degree that is acceptable, what shareholders do with their money is their business. The real problem comes when we get organisation with top pay 100’s of times higher than bottom pay. Setting a private sector threshold of 50:1 and then instituting strong incentives not to raise pay above that level may help. The major problem though is that we need an entire social change, rather than a quick fix.
I believe just legislating for salary caps is profoundly illiberal. What we need is measures to encourage and lobby for fairer pay, possibly through tax incentives. Maybe maintaining the 50p tax rate long term, but pushing the threshold right up so it only hits the truly obscenely paid. Fixing the band at roughly 20x the annual wage of someone working a full time job on the hourly living wage, to send a message against ridiculously high public sector pay.
20:1 is still far to high and also there is a danger that this will become a target for managers and senior executives within the public sector who are not currently paid this much.
Personally, I would like to see a single standard scale for all public sector employees introduced with every post tied to a grade on that scale. Everyone would know where they stood and it would help to reduce back-door institutional and unintended pay discrimination.
Contractors should also have to use this scale and the maximum pay ratio should also include the lowest paid working on those contracts.
Considering where these ratios have been in the past there is no reason why we should not set a target of between 10:1 and 12:1.
mma – then, as now, some people were motivated by making a lot of money and others not. There are many, many people today who work in jobs for lower salaries than they could make, or choose to set up companies as a co-operative, not-for-profit or social enterprise – it’s a thriving sector in many ways.
Does that make it wrong for other people to want to earn lots of money? I’m not sure it does.
How about some fair pay at the bottom too? There are lots of public sector workers on or just a little above the minimum wage.
Many public sector workers aren’t badly off, especially the professionals who are well paid but not super paid, but in reality we are talking only about a relatively small number of unfairly rewarded ‘super public earners’ and many of them I suspect willturn out to be lawyers or specialists. Do doctors and headteachers earn 20 times as much as full time care/ classroom assistants?
Am I alone in thinking this is a bit of a diversionary fig leaf for what is going to in reality to hit the lowest paid public sector workers who unlike some public sector better paid professionals don’t get annual increments. They are facing a long term pay cut for many as their wages won’t keep up with inflation and rises in taxation; a lot of people may find that to be really unfair – is this in the scope of the enquiry too?.
The Tories will simply sub contract more of the low pay jobs out ! (Short and sweet)
The only thing is that I can’t really see this firing imaginations at 20:1… I mean, really? I would have thought the less seen of that ratio the better!
I too think that this will lead to contracting out to get round it. And in a few places it clearly will not work – you won’t get top stars on the BBC for 20x the security guards wage, so if it does apply to the BBC, presumably ITV will be delighted.
What we need is a decent education system so that everyone has enough human capital so that the supply-demand imbalance is different, particularly for low skilled work. That is the only sustainable answer to low pay. Anything else is essentially a gimmick.
(I think my univ will be within the regs – which shows that only a handful of people in the public sector are likely to be affected. And frankly if the policy only affects 20 people, it really is a gimmick!!)
But that type of thinking is precisely the reason why we have such pay inequality.
The BBC should be included, and if stars are purely driven by their greed, then the BBC is better of without them. You have to start somewhere with pressure for fairer pay.
If its worth paying ridiculous pay to keep pointless TV stars, then why not footballers or executives? Are you seriously saying that TV stars earn their millions more than CEO’s of large corporations or people who manage whole departyments of the NHS or Education sector?
There must be no exception to this rule if it is going to work. At least maybe set the BBC by a higher private sector fair pay ratio, say 50:1, and then stick to it rigorously.
I have been expecting a tough budget for a long time, in fact for the past couple of years it has seemed clear that something dramatic would happen. Nevertheless, I have to confess that now that the fiscal constraints and tax regime have been announced, I am in rather a dazed state of shock. I appreciate that with governments all over Europe drastically tightening the screws, and with rating agencies talking down the creditworthiness of sovereign debt, that this has been absolutely unavoidable. Undoubtedly the general voting population is as equally dazed as I am: ultimately no one has been spared the lash. Tory voters expecting dramatic rises in inheritance tax thresholds have instead been greeted with a rather more dramatic rise in capital gains tax. Liberal Democrat voters expecting the working poor to be spared with a rise in the threshold for the basic rate of income tax have seen their demand met but face the equally unpalatable medicine of a rise in VAT to 2.5%.
Labour activists are over the moon by it all: they are freed from the responsibility of dealing with their own fiscal imprudence, whilst also left free to condemn every tax rise, every decrease in welfare benefits and every public service cut. They are genuinely the happiest pigs in all this shit, free to preach their Manichean doctrine with fire and brimstone laced sermons of Conservative axe murderers and treacherous Liberal running dogs. I’ve heard enough Labour humbug over the last three decades to know their bargoens lexicon inside out and back to front. No irrational attack will surprise me. Although I can’t say that it fills me with cheer, I am actually rather looking forward in a strange way to fighting back. I hope that my fellow Liberal Democrat minded voters, party members, activists and elected officials can find the fight in them too!
However, it has to be said that the rise in Value Added Tax is particularly hard to swallow.
Seeing you are asking me to do that, I feel it only right that there are certain things that you should do for me:
a) WTF is this nonsense about a commission to examine the change in aviation taxation and other green taxes? The appointment of a commission reeks of a certain reluctance to follow through. Can I strongly request Chris Huhne and other frontbenchers not to allow tabloid attacks to distract them from this key plank of Liberal Democrat policy? Their success amongst Liberal Democrats will be measured by the implementation of this, amongst other things.
b) why are senior Liberal Democrat ministers being awarded with shares in grace and favour residences, when most of them could profitably be sold off without any loss of legitimate ability of the government to entertain foreign dignitaries, which should surely be the only good reason for keeping those monstrosities?
c) why are civil service salaries in excess of those of the Prime Minister simply not being capped to 5% below the level of his salary?
d) if low paid civil servants are having to suffer the rigours of pay freezes why are civil servants (and elected politicians) earning over £50K not suffering a 5% pay cut?
e) why are huge numbers of quangos with executives earning eye watering levels of remuneration not being brought back into the civil service on these reduced civil service pay schemes? Or being scrapped altogether? Surely most of these bodies were just sinecures for Tony’s cronys, anyway? Or just fig leaves for the previous government welching on some promise?
f) the BBC. Like the man says above, cap salary levels for “talent”. As the BBC is not subject to commercial pressures, the remuneration given to its executives and “talent” merely distorts the market. Let an independent review set the levels of remuneration. Then knock it back by 10%.
g) the BBC again. Sell of Radio 1 and Radio 2. This would raise quite large sums, as they would be lucrative commercial propositions.
h) the Lords. Save loads of money by replacing 700 odd peers with a 100 or 200 seat elected senate. How many ermined Prescotts do we need as adornments to our constitution. Personally my constitution is not strong enough to stomach the idea of a single ermined Prescott. Get rid NOW. ASAP, no damned committees to push it out on the long finger yet again.
i) as hundreds of thousands of people are going to face redundancy, perhaps it is time to re-examine the issue of university funding. Let the universities take the strain, give bursaries to the capable amongst the poorest, rather than raising fees. Surely better than just putting more young people on unemployment benefit? The policy could always be re-examined towards the end of the parliament if economic growth had kicked in removing the need for such a crutch. It might make sense for long term unemployed to be offered funded vocationally oriented one or two year Masters Degrees, too, provided they met matriculation requirements or had equivalent experience. I know that we are trying to save money and that this is a spending increase, but surely it is simply much better to have people doing something useful rather than just wasting away? Surely?
j) if the defence review will not countenance not replacing Trident like for like, how about extending the current system’s life span rather than purchasing a new system, particularly as a new system would entail handing over large amounts of sterling to the American defence industry, when our own country’s industries are in need of sterling, too?
k) if there are to be any large scale sporting or cultural events brought to this country after the Olympics, could they please be sited in one of the poorer regions, such as the North East? I never understood why well heeled London should have enjoyed the bounty of the Olympics rather than Newcastle or Glasgow.
There are scores and scores of such savings which could profitably be made, before a single policeman, prison officer or fireman is made redundant.
Just a few thoughts. I’m sure that many will have other ideas.
Oh and if work is to be made to pay, a la IDS, raise the minimum wage from its current ridiculously low level.
@Paul McKeown
Manichean doctrine? No, simply exposing Lib Dem Con contradictions. (Uncomfortable for Lib Dems I know)
Bargoens lexicon? Oh, you mean when legitimate contributors to this site are accused of being trolls and tribalists?
Incidentally, the origin of the term “Running dogs” is Russian and was inspired by the little dogs that trotted alongside their master’s troika. Seems a reasonable description of the junior partners in the coalition to me.
I agree with a), h), i) and k) All quite worthy. But your other suggestions are just ideological public sector bashing and, apart from the abandonment of Trident, would raise diddly squat. Why not consider raising the higher rate of income tax to very high levels for a prespecified fixed term period? Similarly Corporation tax. Everyone would know when it was going to come to an end and so would be able to live with it and the poor would not have to bear the burden of the banking sector’s incompetence.
Further to that list, I think there is an important further means of ensuring that savings are distributed failry:
m) remove the ring fencing from the NHS budget. There must be huge savings that can be made and given the size of the NHS budget (£110B) this would certainly take some of the strain from other departmental budgets. 1% would be £1100M, 5% would be £5500M, 10% would be £11B, those are significant sums. To start with one could get rid of large amounts of administration, form filling, box ticking, etc. One could end contracts for all external Price Waterhouse type consultants. One could scrap the development of unwieldy database systems. Renegotiate the pay deal with the BMA, which was a farcical joke under the last government and lead to huge pay increases for NHS doctors. Definitely one could scrap all non-science based so-called “medical” treatments (e.g. homeopathy) which for some unfathomable reason Labour decided to fund, and, as Prince Charles doesn’t vote, are of little political significance. Completely forbid the prescription of all commercially trademarked equivalents to generic drugs, except if the patient pays full costs, including administration.
n) As VAT is to increase, examine the possibility of zero rating adult clothing under a threshold price. This would help relieve the burden on the poorest paid. For example, an unemployed person who wishes to look well for a job interview might buy a business suit for £25 from Matalan, a pair of shoes for £12 from Lidl, a shirt from Tesco for £4. These can hardly be classified as luxury items, they can hardly be called discretionary. Why should someone on JSA have to pay VAT on them? For someone who has a very limited income, such necessities are very difficult to afford. Also basic toiletries, such as soap at 10p per bar, shampoo at 30p per litre, sanitary towels, etc.
If one looks at zero rated and VAT exempt items, http://www.hmrc.gov.uk/vat/forms-rates/rates/goods-services.htm#8 , one sees for instance that helicopter purchase or charter is zero rated. WTF? Hardly a commonsense approach here, or one based on social justice, obviously someone just buying friends in an industry lobby.
o) Remove zero rating for luxury foods and foods that contain unhealthy levels of salt or fat. Cream with one’s strawberries might be nice, but it is not a requirement for life. This would not only raise money, but would ultimately save money by reducing NHS bills.
The review is a waste of money. Most low paid work is contracted out and look forward to more of it if this is policy. Quangos will be exempt and the private sector is exempt – what matters are the extremes in society between top and bottom – not a fake attempt at a 1-20 differential in the public sector. Its a fig leaf. And to those incapable of debate I am not a Labour troll or tribalist.
I agree. Why don’ t the private sector pay the true cost of raising a family when paying wages?