Top Pay in the Public Sector - Public Administration Committee Contents

2  Scope of the report

    The man on the street has no idea where the public sector begins and ends, and the reason these stories build up so much steam is that people are shocked when they find out that these people are getting paid with taxpayers' money. (TaxPayers' Alliance)[10]

8. One of the most basic difficulties when starting to look at top pay in the public sector is definitional. As the above quotation shows, there is a lack of clarity about what constitutes the "public sector". Indeed, the quotation itself conflates the concept of the "public sector" - a definition that can be based on ownership or on function - with "people [who] are getting paid with taxpayers' money". The evidence we received shows that these two things are not always the same. Certain parts of the private sector rely heavily or entirely on taxpayers' money, while not all public sector workers are paid with taxpayers' money.

9. For example, some areas of the public sector contract work out to privately owned businesses and pay them with taxpayers' money. Some of these businesses survive almost entirely on such contracts. As Tony Travers of the London School of Economics told us:

    There are now, because of successive governments' policy, a significant number of companies that are, for want of a better word, 'parastatal'; that is, they only exist because the public sector buys services from them. Answering the question of whether some of those companies are really in the private sector, when they get 100% of their work, let us say, from the public sector, is a very, very awkward one. Public-private partnerships have made this a very murky piece of territory indeed to say where the public sector ends and the private sector begins.[11]

10. There are also parts of the public sector—Ordnance Survey and the Met Office, for example—that operate on a commercial basis and raise money without any direct recourse to taxpayers' funds. Another example is the Financial Services Authority, which performs a public function, but is established as a private limited company which raises all of the funding it requires from the companies it regulates.

11. There are other parts of the public sector—Ofcom, for example—which depend in part on central government funding and in part on funds raised from the sector in which they operate. Similarly there is question of comparison. When are we talking about pay, should a public sector, taxpayer funded body such as Royal Mail be compared with the public sector at large, or its private sector competitors? The FDA trade union has expanded on this confusing situation in its written evidence to us:

    [there is] substantial room for debate about how wide to extend an inquiry into senior public sector pay given the ambiguous status of universities, the need to consider whether the BBC should be considered within the framework of the public sector or the wider private sector media industry, and public utilities such as Network Rail and the Post Office. There are also organisations such as those delivering the 2012 Olympics which are clearly public sector bodies but for which the Government appears to have explicitly used only the private sector as the comparator in setting salaries.[12]
    Case study: universities

    12. The Committee of University Chairs (CUC) was keen to stress in its evidence to us that universities were "not-for-profit private institutions" outside of the public sector which "should not therefore be compared to schools, FE colleges, or indeed any other quasipublic organisation". They also pointed out that "on average, 40% of university revenue now comes from non-state sources". [13] This of course presumably means that the majority of their revenue comes from state sources. As it happens, this ratio of state to non-state funding mirrors almost exactly that at Ofcom, an avowedly public-sector organisation.[14]

    CUC's position was disputed by the Director General of the Society of Local Authority Chief Executives (SOLACE), who told us that University Vice-Chancellors "really are in the public sector".[15] The FDA trade union perhaps most accurately described universities as having an "ambiguous status".[16]


    13. There are parts of the public sector which receive none of their income from tax revenues; equally, there are parts of the private sector which receive all or nearly all of their income from public sources. In addition, there are organisations which to some eyes fall within the public sector, but not to others. Public private partnerships and the nationalised banks only add to this complexity. If "getting paid with taxpayers' money" is the main concern,[17] why should the remuneration of senior executives at National Savings & Investments, a public body, be considered in a different framework from that at Royal Bank of Scotland, a publicly listed, but now largely taxpayer-owned, company? To take a different sector, why should remuneration at British Waterways (a public corporation) be considered in a different framework from that at Network Rail (a company limited by guarantee, the debts of which are underwritten by the government, and which is funded by the Government), or from that at Tube Lines (a private limited company carrying out work contracted entirely from the public sector)? We are not seeking to suggest that people in these organisations should be paid the same, but it does seem perverse to consider the pay of some of these people without any reference to the pay of the others, simply because of formal status issues.

    14. The first obstacle to coherence in setting public sector pay is confusion about what constitutes the "public sector". It is clear that there are many people who are paid with taxpayers' money who are not in what is traditionally considered the public sector. Similarly, there are people who would be regarded as being in the public sector who are not paid with taxpayers' money. When we launched this inquiry, we made clear that we would focus on civil service posts and on public appointments made by Ministers and by the Crown. These posts are indisputably within the public sector, and remain at the centre of our inquiry. However, the fact that boundary lines between the public, private and third sectors are blurred rather than clearly demarcated means that it would be not only wrong but impossible to look at public sector pay in isolation from pay elsewhere in the wider economy.

    10   Q 17 [Ben Farrugia] Back

    11   Q 17 [Tony Travers] Back

    12   FDA written evidence  Back

    13   CUC written evidence Back

    14   Q 192 [Millie Banerjee] Back

    15   Q 1 [David Clark] Back

    16   FDA written evidence Back

    17   Q 17 [Ben Farrugia] Back

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Prepared 21 December 2009