Report urges public sector pay cap

An interim review of fair pay in the public sector, published today, has suggested top civil servants should not be paid more than 20 times the salaries of the lowest paid staff.

Will Hutton, executive vice-chairman of the Work Foundation, who was appointed by the Government to lead the review, said executive pay in the public and private sector had been rising faster than medium and low earners, creating greater pay "dispersion" over the past decade.

The review found there were around 20,000 public sector employees earning over £117,000, while average salaries for executives were £200,000 for heads of universities, £150,000 for NHS hospital trust chief executives, £117,000 for local authority chiefs, £170,000 for four star generals in the armed forces and £160,000 for permanent secretaries in Government departments. There are also individuals in each sector who earned considerably more than average, it found.

Mr Hutton said: "When the economy grew there were fewer concerns about fairness in general and fair pay in particular. Now the economy is under pressure, how fairly society distributes its benefits and burdens has suddenly become more pressing.

"The basic concept of tracking pay dispersion within boundaries is where concern with fair pay must lead. There is a strong case for public sector organisations having to comply with, or explain why they do not comply with, a maximum pay multiple, such as 20:1.

"This would demonstrate fairness by reassuring public opinion, address a problem of collective action across remuneration committees, and benefit organisations' productivity.”

He added: "There are signs that in parts of the public sector that have more autonomy - such as universities, foundation trusts and arms length bodies in general - there are significant upward pressures on senior pay and, before the pay freeze, some increasingly eye-catching settlements.

"Some of the arms race character of top private sector pay determination is also showing signs of reproducing itself in the public sector. On the occasions when the public sector does recruit from the private sector it has to pay significantly more for staff, creating knock-on inflationary pressures.

"Moreover the range of top pay deals across the public sector has little coherence or relationship to the public's priorities in generating genuine public value. Without clear principles there is every prospect of the rise and potentially irrational range in senior pay settlements continuing - which will accentuate already growing concerns about pay fairness."

Union Unite has called the report a “smokescreen”. Unite’s Assistant General Secretary for Public Services, Gail Cartmail said: “This interim report is just the tip of the iceberg when it comes to looking at pay inequalities in Britain today, which will widen and become worse because of the coalition’s ‘cuts at any cost’ austerity programme.

“There is a case for wage ratios; societies with lower income inequality than the high levels prevalent in the UK are measurably happier and healthier. This is something that David Cameron may take note of as he ponders his so-called ‘happiness index’ proposal.

“The remit of the Hutton review ruled out the highest-paid public servants, such as the BBC and publicly owned banks. The remit that Hutton was given seemed designed to take the glare of publicity away from the real ‘fat cat’ villains lurking in the City and boardrooms of large FT 100 companies.

“And if fair pay is a good idea why not stretch the principle across the whole economy? The truth is that - despite Will Hutton's personal integrity and impeccable reputation in analysing the long-term flaws in the British economy -  there is a severe danger that his report will serve as a smokescreen to the real problem that blights many public sector workers, especially women - many of whom work part-time.”

In its Final Report in March 2011, the Fair Pay Review will make detailed recommendations on the definition and implementation of a pay multiple and other elements of a wider fairness framework in the public sector.