Private sector pay must also be made transparent

Duncan Exley, One Society's campaign director, responds to Will Hutton's Review of Fair Pay in the Public Sector, which published its final report today.

Duncan Exley is the campaign director for One Society

Today’s coverage of the Hutton Review of Fair Pay in the Public Sector (which published its final report today) reflected the now-familiar narrative that taxpayers’ money should be spent in a way that reflects performance and is accountable. This is right – taxpayers’ money should be spent in that way, but this can only be done if public and private sector pay is made transparent (as Mr Hutton recommends), and if there is also reporting on low pay (as he does not).

The usual messages that the taxpayer is paying over the odds for performance that is neither sufficient or accountable are illustrated by today’s approving headlines in:

The Daily Mail: “Value for money at last”;

The Daily Telegraph: “Pay cuts for council bosses who don’t do a good job”; and

The Sun: “Fat cats to fat cuts”.

Most of the coverage does not mention Hutton’s recommendation that “all organisations delivering public services” (i.e. including the contracted-out sector) should report “remuneration of all executives”, and although his recommendation that all listed companies should “publish top to median pay multiples” is mentioned, it is little discussed. These recommendations should be discussed – and welcomed.

Pay transparency in the contracted-out sector is a matter of public interest. The chief executive of Serco (over 90% dependent on taxpayers’ money) is paid more than £5 million – far more than the fattest of the ‘council fat cats’.

But pay in those private sector companies which do not have public contracts is also a matter of public interest, and public cost; undeserved top pay can create perverse incentives of the sort that contributed to the financial crisis and which can lead the portfolios of our pension funds and other investments to under-perform.

Yet it is the bottom end of the pay ratios where there is the most glaring public interest. Where excessive top pay is subsidised by excessively low pay for those at the bottom, we all pay the cost. According to the Institute for Fiscal Studies, low pay costs the taxpayer around £6 billion a year in benefits and foregone revenue. This figure ignores the health and social costs associated with large proportions of the workforce working long hours on insecure incomes.

The need to examine low pay is most glaring in the contracted-out sector, because it is nonsense for the taxpayer to subsidise high executive pay, profit margins and the benefits that prop up low pay, but we should not assume that the rest of the private sector is ‘private’ as in ‘none of our business’. The public interest in the high cost of low pay means there is a strong case for public and large private sector employers to disclose “bottom to median pay multiples” as well as Hutton’s “top to median”.

This would not be a panacea, but would help us all to examine whether we are getting “value for money at last”.

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