HPC Head of Research Luke Hildyard discusses proposed 11% pay increase for Parliamentarians
The mooted 11% payrise for Members of Parliament has prompted the curious spectacle of a professional group howling in protest at the prospect of an increase in their own pay. David Cameron has threatened to scrap the IPSA, the body responsible for setting MPs pay; Nick Clegg has declared it incomprehensible; Ed Miliband wrote to both Cameron and Clegg declaring that he ‘cannot go through’ with the proposed pay rise.
Meanwhile, many backbenchers have suggested they won’t accept a pay increase on this scale.
(A bold prediction for 2014 – bankers, lawyers and corporate executives probably won’t follow this interesting precedent.)
But there is something of a logical failing behind the politicians grandstanding. The approach to pay – and indeed to the stewardship of the wider economy – that all the major parties have encouraged in recent history is completely in line with the arguments for the 11% payrise.
It is repeatedly argued that the UK needs to become more ‘competitive’. In terms of pay, this generally means holding down wages for ordinary workers to reduce costs, but outbidding rivals in the marketplace for the finite pool of footloose talent at the top.
The net effect is for this small pool of ‘talent’ to grab an ever-increasing share of the UK’s total wealth. Pay growth for the bankers, lawyers and executives, as well as for senior public servants, has greatly outpaced that of low and middle-income earners over the past 30 years. In 1979 the richest 1% took home about 5% of total income. It’s now closer to 15%.
This reflects an assumption that the UK’s prosperity is dependent on a small pool of irreplaceable ‘wealth creators’ who have an innate ability to do the most important jobs that simply cannot be instilled in the rest of us. If we don’t pay these people more money, they might choose alternative industries or even alternative countries.
Such thinking is reflected in the case for the 11% pay increase for MPs. We constantly hear of the need to attract a higher calibre of Parliamentarian and of how poorly politicians are paid in comparison with similarly demanding roles in business. The IPSA report suggests pay should be increased in line with legislators in other countries (as if our MPs might defect to the French National Assembly without an 11% pay increase). Rupert Murdoch, to whom most politicans have been utterly beholden on economic matters, has suggested they should be paid £1 million per year.
Variations of the same arguments are used for all top earners – the need to attract the top talent, the threat of exodus overseas, the reward for demanding roles. But unlike politicians, bankers, city executives and their ilk have just about managed to resist the public demand for pay restraint.
The net result is that the UK has become a more unequal country, with more income going to those at the top meaning there is less left over for the rest of us.
In many ways, the suggested payrise for politicians is a symptom of this problem rather than a problem in itself.
We need to establish a more accurate understanding of how wealth is created – through the hard work and effort of the workforce as a whole, rather than one or two god-like individuals at the top. Top managers in all sectors are dependent on the education and training that they, their workforce and their customers have received, as well as things like the transport infrastructure, the Police and Justice systems supporting the rule of law and the billions of pounds that taxpayers invest in research and technology.
Pay policy for everyone – from MPs to bankers to ordinary workers – should be formulated on this basis, leading to a fairer, more equal distribution of pay across the economy.