Enterprise and Regulatory Reform Bill
Debate between Lord Lea of Crondall and Lord Blackwell
Lord Lea of Crondall
My Lords, I strongly back this amendment. I know that it is not for here and now with the present Government, but in two years’ time it will be very interesting to see how a Labour Government get the architecture together to relate the income distribution of the rest of the enterprise to the incomes at board level. That is what they have in the most successful European societies—I include Germany, Holland and Scandinavia, and I do not think that anyone would draw up a very different list. In answer to the notion that these economies are not competitive, their place in growing world market share is far superior to that of Europe generally and certainly to that of Britain.
The point has just been made that the banking sector is a rather special sector. I can tell you one respect in which it is very special: people get paid enormously more at the top than in any other sector. That is what is special about it. It is not special in the sense that there has not been a huge growth in the disparities in all the rest of the sectors. Anybody close to industry will know that two things happen when pay at the top gets to 30, 40 or 50 times that at the bottom. The first is that there is a crossover effect in the rest of the sectors—in construction, mining or any other sector. Banking does not live in a world of its own, although in some respects, of course, it does. Some people say that the banking industry is Britain’s biggest industry. When we were young, to say that banking was Britain’s biggest industry would have been thought a rather risible thing to say. Yet that is infecting the rest of the economy. A lot of the best talent used to go into the Civil Service. Now, not as much of the best talent is going into the Civil Service. Not as much of the best talent is going to many of the sectors that had their share of the best available talent years ago.
While we are on the subject of top people and talent—and what you might call inherited wealth, which is part of this question—the fact is that we are failing to bring out the best of the talents and opportunities of everybody else in society. So when one talks about 1%, one immediately says, “What about the 99%?”. I think that for this Government to ally themselves ideologically with the interests of the 1% at the top is going to prove a fatal mistake.
The clock is ticking, and those of us who now believe what this side of the House believes, in the challenges that we will face in two years’ time there must be some connection between our policy of worker representation on boards and what is happening in the rest of the company. You do not need to be Einstein to figure out that if there is some new structure of boards, there has to be some substructure. You cannot have a superstructure without a substructure. Whether it is through information and consultation bodies or any other way, it will be a major challenge to get it right this time under the next Labour Government. It is rather academic from the point of view of Members opposite in the Conservative Party, but it is a very interesting pointer to the future that this is one of the elements in the architecture that will be built.
Lord Blackwell
My Lords, I have listened very carefully to the speeches of the noble Lords, Lord Mitchell and Lord Lea of Crondall. While they made some interesting points, I did not find that either of them had any compelling rationale for this particular amendment.
We have all agreed that the remuneration policy for those at the top of companies has to be transparent and has to be voted on and agreed by shareholders; that is only proper. As for the low-skilled workers on the minimum wage, that is a matter which is voted on by Parliament in setting the minimum wage. However, I am not sure that to juxtapose those two things in a company’s annual report provides any useful information. Let us consider company A, which, we hope, does a great job for the community in employing lots of people, including low-skilled workers, on relatively low wages. Offering them employment helps them to come off benefits and thus creates a great benefit to society. Company B, operating in the same sector, decides to ship all those jobs off to India. Which company would shareholders—or, indeed, society as a whole—think is doing a better job? I do not think that juxtaposing how many people a company successfully employs at the lower end of the skill level compared to the top end, and comparing that with other companies, gives any useful information about whether those at the top of the company are being rewarded appropriately.
Lord Lea of Crondall
The noble Lord asked a direct question about the connection, because of the minimum wage, between the bottom and the top. One phrase that gives a clue to the connection is, “We are all in it together”. Does that not give any sort of clue to the noble Lord?
Lord Blackwell
That is precisely my point. I would have thought that the company that successfully employs lots of people at all skill levels, including those on the minimum wage or at a low-skill level, is helping society and helping us all to prosper together.
Another example is a company in a consultancy that employs only PhDs. The ratio between the top and the bottom in that company may be relatively small. Is that a better company than one that employs lots of people on the minimum wage? I think that this information is almost entirely irrelevant to any judgment about whether the pay at the top of the company is appropriate. That is a relevant question, but this information is potentially misleading and potentially encourages those viewing the annual report to take a misguided view of the appropriateness of the pay policy within the company. I do not think a case is being made for it.