We cannot address public sector pay without addressing private sector pay

The data about the earnings of ‘council fat cats’ need to be put in context; we cannot address public sector pay without addressing private sector pay.

Duncan Exley is the campaign director for One Society

Stories about “council fat cats” earning more than the prime minister are becoming something of a tradition. Yesterday’s story, covered by the Daily Mail, Guardian, Independent and Sun (among others), is based on data from Incomes Data Services, showing that 43 per cent of surveyed local authorities paid their chief executives more than David Cameron’s £142,500 salary.

It is good that high public sector salaries are being scrutinised, especially at a time when many of the lowest paid public servants are facing unemployment.

It is also welcome that the government has commissioned Will Hutton to 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 a review of Fair Pay in the Public Sector, the policy background to the public debate).

However, the data about the earnings of ‘council fat cats’ need to be put in context: not only does Hutton’s interim report point out that the highest public sector pay ratios are not in local authorities (“the highest ratio was in higher education”), it also demonstrates why we cannot address public sector pay without addressing private sector pay.

The most obvious link between public and private sector pay is the fact that:

“Recruitment from the private sector is currently limited, but where it does occur it has contributed to senior pay inflation.”

Perhaps recruitment is limited because the public sector already cannot afford to attract senior staff from the private sector?

According to data quoted by the Department for Business, Innovation and Skills, FTSE 100 CEO pay in 2009 was 115 times higher than average pay in the same organisations; how much more those CEOs are paid than “the lowest paid person in the organisation” can only be guessed at.

But the real elephants in the room are those companies in receipt of substantial public money. Surely we can expect, if we are keen to ensure that taxpayers’ money is spent in a way that gets good value and promotes fair rewards, that the government will consider:

“…recommendations on how to ensure that no private sector manager whose business is mainly based on public money can earn more than twenty times the lowest paid person in the organisation”?

At the moment:

“Remuneration in firms within the contracted-out public services industry reflects private, rather than public, sector norms.”

But those companies – and those whose low pay business models are effectively subsidised by tax credits – do not even have to report on their pay ratios.

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