Wednesday, December 01, 2010

That's Not Fair!

You said it, Bro
The Treasury has just published the Hutton Report on Fair Pay in the Public Sector.

As BOM readers will recall, back in the summer Mr Cam commissioned Will Hutton "... to investigate pay scales across the public sector, and make recommendations on how to ensure that no public sector manager can earn more than twenty times the lowest paid person in the organisation."

In other words, Hutton's job was to address the scandal of fatcat pay in the public sector - a scandal that was first exposed in a series of reports from the TaxPayers' Alliance (eg see here). And to work out how to implement a 20-to-1 cap on top public sector remuneration.

But predictably enough, left-winger Hutton has found it impossible to stick to that very clear remit. Instead, much of his 128 page report is a polemic on top pay in the private sector, driven by 1970s-style politics of envy.

He kicks off by charting how the pay of the top 1% has pulled away from the average:

No matter that this relates to just 1% of the population, and most them are being paid by the market not taxpayers, for Hutton it's a serious problem:
"Substantial and growing pay inequality poses a serious challenge to society and Government. Do high earners deserve such large rewards? And is it fair that a wide and growing gap should exist between the pay of those at the very top of the income scale and the rest of the population?"
Fair? This is the market, Will. The thing that in just two millenia has lifted us from mud huts to plasma tellies. Sounds fair to us.

He goes on:
"...chief executive pay for Britain‟s leading listed companies rose by around eight times between 1986 and 2010... It is increasingly doubtful whether this has been proportional to increases in performance, or even reflects the real demand and supply for executive services. Chief executives have become treated as business super-stars drawn from an ever narrower potential pool... benchmarking between firms locks them into a kind of arms race... Any one company that tries to stand out against the trend risks losing its top people and inviting markets and investors to view it as second rate. Little... seems capable of creating more rationality or slowing the pace of increase... There is widespread scepticism whether this degree of increase in executive pay is fair."
Fair - there it is again. Look Will, we don't care what private sector chief execs get paid - especially when the figures relate just to the 100 FTSE100 CEOs. We only care about what they do for us as customers, whether they deliver good returns to us as shareholders, and whether they stay within the law. Everything else is so much envious wibble.

Now public sector pay, that's a different matter entirely. Because we have to fund that through compulsory taxation. We're very interested indeed in what those guys get paid because it comes straight out of our wallets. We can't choose to take our custom elsewhere, and we can't sell our shares in their companies.

So what does he say on top public sector pay - ie the job he was asked to do.

First, he tells us that there are now no fewer than 20,000 public sector employees in the top 1% of income earners (earning over £117,523 pa). Well, actually he doesn't tell us that - he merely rehashes some numbers given on a recent Panorama programme.

Anyway, most of those 20,000 turn out to be doctors employed by the NHS (ah, those brilliant Simple Shopper pay deals). But there are also 4,000 managers distributed across the various bits of the public sector as follows:

These findings are broadly consistent with what the TPA has previously published in its Public Sector Rich Lists (eg here) - if anything, Hutton's overall fatcat number is a shade higher than the TPA's.

In terms of pay growth under Labour, Hutton confirms that top public sector managers generally did outstandingly well. For example, between 2000 and 2009 chief execs of NHS hospital trusts got an average 50% increase in real terms:

The bottom line is that Hutton pretty well agrees with everything the TPA has been saying on public sector fatcats. So naturally he offers his thanks to the TPA for their outstanding service to taxpayers.

Except... just a cotton pickin' minute... he doesn't offer his thanks.. Actually he suggests the TPA has been misleading the public:
" Top pay in the public sector has come under greater media scrutiny in recent years... But public understanding remains divorced from the data set out in this[report]...

Limited understanding feeds through into the wider debate. Campaign groups such as the Taxpayer' Alliance argue that the public sector must get value for money – which they define as paying the lowest amount to secure a suitable candidate – but that it does not currently achieve this...

A media narrative which over-concentrates on public sector 'fat cats' while not offering the same proper scepticism and focus over what is happening at the top of the private sector does not lead to understanding, and can undermine the desirable move to greater transparency over pay."
Allow me to translate:

The TPA has been far too successful in focusing the public's attention on the cavalier way in which the public sector wastes their hard-earned cash. The spotlight on fatcat pay, and the number of bureaucrats who get paid more than the Prime Minister, has resonated with taxpayers in a way that has caused huge discomfort for the promotors of big government. People like Hutton need to hit back, and they aim to throw taxpayers off the scent by suggesting the real problem is excessive pay in the private sector. Welcome back 1970s incomes policy and the politics of envy.

And what about the job Mr Cam actually asked him to do? That 20-to-1 pay ratio cap for the public sector?

Well, Hutton likes the idea. He likes it for a number of reasons, but in particular:
"A pay ratio is an easily understandable reference point, and could give the public confidence that public sector pay is being kept in check. Defined appropriately, this can have more flexibility than merely using the Prime Minister's salary as a benchmark."
In other words, by accepting this ratio cap, public bosses could maybe get taxpayers off their back, while simultaneously getting round the current de facto pay cap of the PM's salary. The latter clearly has to go, since post Cam's self-imposed cut, it's down to a measily £142,500 pa.

Are you ready to be fooled?

PS So should Mervyn King be fired as Bank Governor? The preposterous lefty Blanchflower reckons so, because of King's supposed political bias. But in truth, there is no bias. Like most of his predecessors, King almost certainly reckons everyone down the Westminster end of town is rubbish. The WikiLeaks "revelation" that he thought Cam and George inexperienced and too political is what all previous Governors have thought about all inexperienced politicos ever since 1694 - you should have heard what Governor William Ewer said about Pitt the Younger in 1782. Cam would be mad to sack King - we'd be straight back to the final bunker days of Mad Murdo McMad.


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