High Pay Commission

Tony Lloyd Excerpts

Wednesday 2nd February 2011 Commons Chamber

[Tony Lloyd (Manchester Central) (Lab)]

I beg to move,

That leave be given to bring in a Bill to make provision for the establishment of a High Pay Commission; and for connected purposes.

The Bill would begin to do something credible about the problem of high pay for those at the very top of the earnings ladder in Britain, who are gorging themselves while the rest of the country is doing badly. I am delighted that the Secretary of State for Business, Innovation and Skills is in his place, because he was an advocate of a high pay commission in an earlier incarnation. I hope that he still shares that view this side of the general election.

The public are still furious about the Government’s failure to deal with bankers’ bonuses. Nothing makes people up and down this land so angry as the knowledge that before the election both coalition partners promised tough action on bankers’ bonuses, but the Bob Diamonds of this world and their gilt-edged friends still operate seemingly with impunity. People contrast that with members of the Government who did not commit themselves to the austerity programme that is being brought in, but who are now presiding over a situation in which real wages will have dropped by 4% between 2009 and the end of this year, the Governor of the Bank of England is on record as warning of the biggest squeeze since the 1920s, and the Office for Budget Responsibility, the Government’s own independent body, says that average pay for those on low and middle incomes will drop by £720 a year.

People in work are making big sacrifices, and of course those who will lose their jobs as a result of the Government’s programme will lose out even more. When the Governor of the Bank of England says that that is the inevitable consequence of an economy that is rebalancing, we therefore have to say that we also need some rebalancing of the pay of those at the very top.

The top-paid are doing not just very well but very much better than they were not so long ago. There is very little evidence that very high pay makes a material difference to the success of business in our country. In fact, rather the opposite. The gross bonus culture has actually led to short-termism, not just in the banking industry but across British industry of all kinds. There is little evidence, too, that pay needs to be ratcheted up to such levels to retain the top managers. There is no brain drain of managers. British managers are actually better paid than those anywhere other than the United States, and there is no systematic evidence of our managers being poached and moving across the Atlantic. The arguments in favour of top pay are effectively spurious.

Top pay is driven by the bonus culture and by the capacity of remuneration committees—the old pals’ act—to operate on the basis of “I’ll scratch your pay packet as long as you’ll scratch mine.” That is wrong and unacceptable. If we look at the evidence on pay, we see that the bonus culture has grown massively in the years since 1997. That is not just in banking, because the Prime Minister is right that we should not scapegoat banking. We should examine the top pay across the whole of our society. In 1997, bonuses across the City were estimated at £1.5 billion, not a small sum. By 2006, that figure had grown to £8.8 billion. It dropped a little at the bottom of the financial crisis, to £3.6 billion in 2008, but it is believed that this year bonuses will be back up to £7 billion. The Government, frankly, have not dealt with the problem.

If we examine the pay of chief executives across British industry, we see that the average pay of chief executives in FTSE 100 companies was something in the order of 47 times that of the average worker in those companies in 2000. That difference had grown to 88 times in 2009, so it has doubled in real terms from already colossal levels. In fact, the average chief executive is now paid 200 times the minimum wage. In a society such as ours, fairness means that if the poor and those on squeezed middle incomes are playing their part in the Government’s austerity programme, so should those at the very top. People on 200 times the minimum wage—not just the Bob Diamonds but those across all our industries—ought to begin to take their fair share of the strain.

A high pay commission—as I said, the Business Secretary is already on record as supporting the concept—could begin to do something positive about the problem. I hope that it can be charged with the following, among other things. First, we have to have transparency. We have to know what these people really are paid, not simply through their basic pay but through bonuses and the very high pension contributions that companies make on their behalf. That is simply a matter of social equity. Stakeholders, not just shareholders—employees, customers and wider society—are entitled to know what is going on. The high pay commission should therefore establish mechanisms for making transparent the whole question of high pay.

Inevitably, the high pay commission ought also to deal with the regulation of bonus payments, and to set down a framework by which bonus payments can be paid. It could set limits and time frames within which bonuses can be achieved. Of course, it could also make recommendations about the taxation of bonuses, which is an important part of bringing the bonus culture into some form of realism.

The commission should look at the role of remuneration committees—the old pals’ act that I have described, when one person looks after his friend’s pay, with the inevitable result that pay is ratcheted ever upwards. Remuneration committees ought to be opened up to the wider world. For example, employee representatives, whether trade union officials or others, and perhaps representatives of society more widely, should be on them, so that there is some reality in how pay is fixed for top earners.

The commission should be charged, every year, with making a report on tax avoidance. We know that tax avoidance among top earners amounts at least to an astonishing £13 billion a year. I must tell Ministers that recouping that £13 billion would make a serious contribution to the kind of deficit reduction with which the Government are concerning themselves, and in particular that it would make a big, material difference to the cuts in our police forces and our social and health services. It is not unreasonable that those at the top, who after all have the biggest shoulders, take the weight and make a proper contribution by way of taxation.

The thing that many people would most like the commission to look at is pay ratios. The Prime Minister asked Will Hutton to look at pay ratios in the public sector, and recommended a guarantee that the top earners earn no more than 20 times those at the bottom. That is a good starting point, but there is absolutely no reason why the principle for the public sector should not also apply to the private sector. That 20:1 ratio might be a good starting point for the high pay commission. The Government could ask the commission to make recommendations and to begin the process of a proper national debate. People are now being paid 200 times the national minimum wage—200 times what the lowest paid people in our society are legally paid, even if we ignore those who are paid less than that.

Fairness, social cohesion, simple common justice and the natural decency of the British public say that we must now do something about high pay. The rich and the better off in our society are gorging themselves when the rest of society is being asked to make restraint a way of life. It is about time that those who can afford to make that contribution are asked to do so.

Question put and agreed to.

Ordered,

That Tony Lloyd, Mr Dennis Skinner, Kate Green, Ian Mearns, Jim Sheridan, Frank Dobson, Mr David Anderson, Mr David Crausby and Martin Caton present the Bill.

Tony Lloyd accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 18 March, and to be printed (Bill 141).