Examination of Witnesses (Questions 20-39)
MS POLLY
TOYNBEE, MR
TONY TRAVERS,
MR DAVID
CLARK AND
MR BEN
FARRUGIA
30 APRIL 2009
Q20 Julie Morgan: The Equality Bill
is going to be introduced a week on Monday, the second reading,
and that of course will ask for, at the first stage, voluntary
pay audits. I think there is going to be more openness as a result
of the Equality Bill. Obviously the purpose is to illustrate the
gender pay gap that does exist, as we know, in many places. I
wondered on this transparency issue whether you think that this
will be a step forward.
Ms Toynbee: Definitely. It is
a small step, but yes.
Q21 Mr Walker: I think that there
does need to be something done in the public sector to curb pay
at the very highest levels. To balance that, I recognise there
are head teachers paid £120,000 who do a simply outstanding
job. They have changed the prospects of children in a way that
would have been almost unimaginable a decade ago. I think we need
to temper the argument here. Do you regard the TaxPayers' Alliance
as the sort of witch-finder general riding into the public sector
and crucifying people and driving stakes through their hearts?
Sometimes it does seem like that. Your rabid hostility to anybody
working in the public sector seems odd.
Mr Farrugia: I think that is slightly
unfair, in so much as I certainly hold no hostility towards particular
people in the public sector. I think we are probably the only
group who are pursuing this voraciously. I feel that perhaps there
is room for more people to be doing so. At the moment we are the
only people standing up, investigating this and putting it to
the press and putting it to the people, and saying, "These
are the facts. This is the data you can get from published accounts.
You make up your own minds." I know it has been interpreted
that we have this kind of blood-lust for the public sector but
I think that is unfair.
Q22 Mr Walker: But it is not unfair.
The danger of the TaxPayers' Alliance is that you are clearly
a very studious, academic gentleman, but the way the TaxPayers'
Alliance allows itself to be represented in the press is really
as just a rent-a-quote organisation. If the boot needs to be put
into the public sector, be it civil servants, Members of Parliament,
anyone in the public pay, get the TaxPayers' Alliance to it and
they will put the boot in. Does that ever concern you, that sometimes
the TaxPayers' Alliance does allow itself to be portrayed as a
rent-a-quote organisation as opposed to a serious, research-based
think tank?
Mr Farrugia: It does not concern
me because I work in the same office with the people who are providing
the quotes to journalists and they are not doing that. Journalists
come with stories for them and I strongly believe they are representing
a true and honest opinion which I think quite a lot of people
in the public hold as well.
Q23 Mr Walker: I notice your Chief
Executive Matthew Elliott has worked in the public sector. He
was a researcher to an MEP.
Mr Farrugia: He was.
Q24 Mr Walker: Paid by the taxpayer.
How does he feel about Members of Parliament and MEPs paying researchers
out of their staffing allowances? Because we get a lot of grief
from the TaxPayers' Alliance. I think it was £125,000 last
year I trousered, when, in reality, £103,000 of that was
paid to my excellent staff. Surely Matthew Elliott knows that
because he has been paid by the taxpayer out of a European parliamentary
allowance.
Mr Farrugia: I am afraid I am
not here to speak for Matthew Elliott. I have no idea where his
particular feelings are on this issue. I only have mine.
Q25 Mr Walker: It is funny that his
experience does not seem to colour his thinking. Anyway, moving
on, Polly Toynbee, of The Guardian, I do not agree with
much of what you believe in but I respect your right to believe
in it, but what are your concerns about the public sector? You
are the champion of the public sector but when you start having
concerns about the public sector that sets alarm bells ringing
with me. Where specifically do your concerns rest within public
sector pay inflation? Is it in the sort of uber managerial class
that has appeared over the past decade that seems to be extremely
busy and working very hard the whole day through doing perhaps
not much?
Ms Toynbee: I think it is not
the sort of superheads turning around very difficult schools.
As you have said, it was 387 earning over £150,000. I think
that at that level there is a danger of them losing touch with
what is ordinary any longer. I think it does cause public concern.
I do not want the public sector to be brought into any kind of
disrepute. I think perhaps the honours system had something to
do with this. There used to be a system where you got honours
for public sector because you were, on the whole, paid less than
somebody doing as difficult a job. As David said, there is hardly
a more difficult job than to be chief executive of a really complicated,
large county or inner city area, where you are covering a vast
array of quite different things, with quite different demands,
where you go from child protection to schools to social care for
the old to running your streets and your parks. Not many executives
in the private sector, where they only have one target, which
is their bottom line, have to deal with anything as complicated
as that. I do not think that means that they should therefore
be paid more, but I think they deserve more respect. Sometimes
the respect comes from not perhaps being paid quite so much but
from people recognising that they are public servants who want
to do it—which is true of most of them. They are not in
it for the money, they want to do it because it is an honourable
thing to do. I think perhaps the honours system should recognise
this and there should be rather fewer honours for bankers, fewer
honours for people who earn monstrous sums of money—I cannot
see why they get honours as well—and rather more honours
for people doing public service, for being paid less for very
hard jobs.
Mr Farrugia: I think Polly makes
an interesting point there. If you take local government chief
executives, if they have now chosen to pay themselves private
sector wages, essentially, for their jobs, then they are going
to lose that kind of respect because no-one is going to think
they are doing it out of duty, they are going to think they are
doing it, quite rightly, perhaps out of their own self-interest.
I think that is a very important point: if we are going to have
this duty, then people have to believe it and being paid a private
sector chief executive wage does not tell people that is what
is going on.
Ms Toynbee: Not all of them are.
They are still paid a great deal less than chief executives in
FTSE companies.
Q26 Mr Walker: There are some salaries
that do make my eyes water. Is it British Waterways where four
people are earning over £400,000 or something? That just
seems remarkable.
Mr Farrugia: They would argue
that they do a lot of mainstream commercial work and so consequently
their salaries reflect the mainstream commercial business, but
they are funded by the taxpayer. Yes, they make money from selling
land along our lovely canals, but the majority of their funding
comes from the taxpayer.
Q27 Mr Walker: I wish I had known
about those types of jobs before I decided to become a Member
of Parliament. Anyway, thank you very much.
Mr Clark: In the local authority
chief executive world, they are not paid anything like their opposite
numbers in the private sector, nor indeed some public sector jobs.
You are right, people do not go in it for the money; on the other
hand, I can report that there has been rather a good thing to
come out of the TaxPayers' Alliance work—I never thought
anything good would, but it did—and that is that we run
a graduate scheme and the number of graduates thinking of local
government as a career as a result of thinking you can earn decent
money there, so that you do not have to go into banking or anywhere
else, has really gone up. So every cloud has a silver lining,
as far as SOLACE is concerned, on the subject of pay.
Q28 Chairman: I would like to hold
on to an important point that Polly raised just then and Ben agreed
with, because, if it is true, it has quite important implications.
It is this idea that if public servants start earning these very
large amounts of money, then it devalues the currency of public
service. The way that people see them and see their organisations
may change. If that is true, that really does have profound implications,
does it not? Do you think it is true? Tony, do you think it is
true?
Professor Travers: There are not
that many of them in the stratospheric league. I agree there are
some. I think the reason that some of them started to go upwards
was because there has been significant pressure from governments
of both parties, as it were, for the public sector to use more
private sector expertise, and that has, at the margin, involved
looking at the private sector to bring people in. You can see
that headhunters, or whatever they are called, in doing that will
have jollied up the pay a bit in order to try to tempt people
in from the private sector. There have been some significant and
highly paid people within the private sector, and it is all a
complicated set of steps that have led to these big jumps in a
small proportion of private sector pay. But, overwhelmingly, chief
executives in public sector institutions are not paid those stratospheric
sums. There is a small number. The Prime Minister as a benchmark
is actually a good one, I think, and where they do get way above
that level it will corrode and erode the way people look at public
service because the figures do not make sense. I think Polly used
that term "do not make sense".
Chairman: I represent a small district
council area and the chief executive of the small district council
earns twice what I do. Obviously people think that is wholly unfair
and they want me to be paid more, but it causes quite a lot of
comment of a negative kind locally, that this person running this
small district earns that kind of money. I just sense that it
does corrode the way that people perceive local government.
Q29 Mr Prentice: But why should he
not—if it is a he—be paid twice what you are paid?
That begs all sorts of questions. Exactly the same is true in
Pendle, which is a small district council in Lancashire, where
Steven Barnes, the Chief Executive, earned £125,770 in 2007-08.
When people reflect on the salary that Mr Barnes gets, they think,
"Well, over the years, he has lost responsibility for housing"—council
housing has gone over to Housing Pendle—"he has lost
responsibility for leisure services"—all leisure services,
swimming pools and so on, have gone over to Pendle Leisure Trust—"all
back-office functions in the local authority have gone over to
the private sector Liberator, and yet I do not think his salary,
over the 16 years that he has been Chief Executive, has dipped
in any one year to take account of the reduction in his responsibilities."
I am looking at you, Tony Travers.
Professor Travers: We are tottering
again on the edge here of the ravine marked "Comparability
Exercises." You will remember from the 1970s the efforts
to undertake what were in the end chaotic comparability exercises
between different kinds of jobs in the public sector and private
sector to try to decide what would be fair public sector pay.
Your point is well made. You could go on with that kind of comparison:
If a district council chief executive is paid £125,000 and
the chief executive of a very complex, inner city council is paid
£175,000, is one of them paid too little and the other too
much or are they both paid too much? I am saying I do not know
the answer to that question.
Q30 Mr Prentice: Very eloquently
you are saying you do not know.
Professor Travers: It is as complicated
as saying that it is a comparability exercise where we are now
trying, as it were, to compare different sorts of public sector
jobs with each other and all of them with the private sector,
and I do not think those exercises have ever been very successful.
Mr Clark: I would agree entirely.
Ms Toynbee: A little earlier Tony
brought up one of the causes of this. I think it is about comparability,
in a way, but in a very negative way. In the private sector, as
we have chronicled in our book, you have headhunters called in
by private companies and the directors sit around considering:
"Are we an upper quartile company or a bottom quartile company?"
and they all say, "We definitely want an upper quartile person
with an upper quartile salary." The same thing is now happening
in the public sector too. David knows about this. People are being
headhunted from a very, very small group of people. They say,
"We want someone who already has experience of running a
very large county," and that is only going to be a small
number of people. If you are having all these counties competing
in a tiny pool, that is a self-inflating mechanism for pay. I
think the role of headhunters in both private and state sector
ought to be looked at in the course of your investigation.
Mr Clark: It is also the role
of government. I am interested in what Gordon had to say. Presumably
you would think that he might get some more if the Government
gives him another unfunded mandate to deliver and that would be
equitable. What is happening in a number of cases—and we
have seen it—is that leaders of councils, often large shires,
when they lose their chief exec, publicly say, "We only want
somebody who has been the chief executive of a county council
before and it must be an excellent rated county council."
Then you look around and that is nine people, five of whom are
nearing retirement. Once you do that, you are going to get spiralling
wages. One of SOLACE's positions on this is that councillors are
a little risk-averse. If you were in Lincolnshire, for example,
they have a chief executive, an excellent chap called Tony McCardle.
Prior to that he was Chief Executive of Wellingborough District
Council. He is doing an excellent job and he is never quoted as
on a big inflated salary—much to his disgust actually, but,
nevertheless, he is not. If councillors realised that there is
quite a lot of talent out there, in districts as well as in other
areas, and were prepared to take bets a little more, it would
not have the impact. I think it is one of the perverse effects
of all this strange CAA-ing and CPA-ing and whatever else, where
people get stars and all of a sudden you think, "Right, I
have to have somebody who already has the stars," but there
is not much evidence that that is true.
Q31 Chairman: That is interesting.
Mr Farrugia: We are often told
that these executives such as SOLACE represents could walk out
of their jobs and walk into excellent private sector jobs, and
I have no doubt they could walk into excellently paid private
sector jobs as consultants. But there are very few who have genuine
private sector experience. I know Tony made a good point that
in some quangos there have been people brought into the public
sector who have inflated wages, but by and large we see career
public servants who have never been tested in the private sector
justifying their pay on the grounds that they could just leave
and go and earn fantastic money elsewhere, and so they deserve
this. That is a concern for us, because where is the proof of
the pudding?
Q32 Chairman: We have business appointment
rules in the Civil Service because private companies are queuing
up to take former civil servants.
Mr Farrugia: I would like to see
that in local government. I would like to see some local government
chief executives and some large regional quango chief executives
who are there to promote business, who genuinely have a business
background and who can say, "I was earning £1 million
and now I am being paid £100,000 to do this public service."
Professor Travers: I do not disagree
with that, save I would like to add a footnote. The reason the
comparability is so difficult is that it is very difficult to
compare the jobs. Among the many things that are difficult to
compare are the downside risks if things go wrong. I completely
accept that in the private sector the downside risk of things
going wrong is bankruptcy and that is a very bad thing for the
companies concerned, but certainly in some parts of the public
sector, the downside risk of things going wrong is total ruin.
If things go wrong in some parts of the private sector, the risks
to the executives concerned are very, very great indeed, both
for them personally but for their long-term reputation. I am not
saying you can price that but they are very difficult things to
compare.
Q33 Mr Prentice: My Chief Executive—and
I do not have a fixation about the Chief Executive, I just do
not—was awarded, I see from the stuff produced by the TaxPayers'
Alliance, a retention payment of £15,366. It gets back to
the point you just made, David, about councillors being risk averse.
They want to hold on to the person they know. Are these retention
payments common place in local government?
Mr Clark: No. They occasionally
appear when parliamentarians have decided to reorganise local
government, because the danger that you have in reorganisation
is that everybody jumps ship into the new, and the old one that
is being closed down has nobody running it. There are times when
they are used and it is usually around where there are major reorganisations
and you do not want the new reorganised councils to steal all
your staff. But they are not common place—you know, a handful.
Q34 Mr Burrowes: Is not the public
sector out of step with the private sector in relation to, for
example, salary increases? Should we not be taking a leaf out
of Obama's book in having a pay freeze for White House staff?
In terms of showing a lead, would it not be right for Gordon Brown
to be insisting that in Number 10 they take a similar pay freeze,
like the private sector is having to do, given the recession?
Mr Clark: I still hold to a belief
that local authorities are individual sovereign bodies. Whitehall
may do something if it wishes to do so itself, but I suspect that
you did not take many orders from Number 10 when you were an Enfield
councillor because that was not how you would have experienced
this in a sovereign body. I do think—and certainly my organisation
has already been talking about—"What should we be saying
professionally?" I accept that this is a decision which definitely
lies with elected members and elected councillors, but, professionally,
we take the view that in a recession like this it is very hard
to justify pay awards at all.
Q35 Mr Burrowes: But more particularly
Number 10.
Mr Farrugia: Yes. I think you
make a very good point. I hope Polly would agree that, when senior
executives are discussing with frontline staff about cutting their
pay, it would make much more sense to go into those conversations
saying, "We are freezing our pay" or "We are cutting
our pay. We are shouldering this pain with you." We have
not seen evidence of that.
Ms Toynbee: I think that is true.
You cannot underestimate the power of gesture, quite often, when
you are in a national crisis. I think the higher top tax rate
was in that category, in a way. It said, "We're all in this
together. We share the pain fairly." I think that what Obama
did in the White House was very sensible in that context, and
I do not see why we should not have more of it here. In terms
of public or private, it is important to remember that, according
to England Data Services, the cycle is different in pay for public
and private sector, and often public sector is countercyclical.
In 2008 the private sector average pay increase was 3.8% and the
public sector 2.7%. It will probably reverse itself this year
and maybe next, but then when things pick up it will go the other
way again, so you need to look at it over a reasonable span of
time. I think gestures for top people is a good idea—I think
you are right—but in terms of overall pay, I think it is
important that ordinary people in the public sector do not fall
too far behind and that you look at the different cycles.
Q36 Mr Burrowes: We have spoken about
the particular examples in relation to town hall chiefs, so let
us take the example of the Cabinet Secretary. Should he be paid
more than the Prime Minister?
Mr Farrugia: I think he might
be one of the cases where evidence could be put forward that he
has an extraordinarily complex job with very particular responsibilities
that mean he should be paid at least equal to, if not around or
in the range of the Prime Minister, if not a little above. I do
understand that he gets paid significantly more currently. Even
at the TaxPayers' Alliance, although hard for some members to
believe, there are certain people who are going to demand higher
pay than the Prime Minister, but the Prime Minister is going to
be a useful benchmark. Anyone over that should be considered extraordinarily
well paid in the public sector and there must be extraordinarily
good reason why they are being paid more than that.
Q37 Mr Burrowes: Polly, you have
said that you feel there is something wrong with any public servant
earning more than the Prime Minister. Is the Cabinet Secretary
included in that?
Ms Toynbee: I do not quite see
why he should not be. It seems to me odd, because, after all,
you have come all the way up through the Civil Service, you have
not come from somewhere else, so I find it odd.
Professor Travers: Being Prime
Minister of the United Kingdom, because of the centralised nature
of the state, is a very, very exercising job. It is a bit like
being Mayor of England in some ways. You are almost an executive
running everything, responsible for every bedpan in every hospital,
and so on. I think that makes the argument for the Prime Minister
being seen as some kind of a limit pretty powerful.
Q38 Chairman: As an extension of
this, if we are tossing the idea of benchmarks and such like around,
what about this idea that there should be some connection between
the top earner in an organisation and the bottom earner, that
there should be some kind of ratio that would bound the range
of salaries? Does that make sense?
Ms Toynbee: It is a bill that
has just been brought into the House of Lords by Lord Gavron and
Lord Taverne and I think it is a very good idea. All they are
suggesting—a very modest proposal—is that at the front
of every company report, on the front page, it should say what
the relationship is between the highest paid person in that company
and the average of the bottom 10% of people working in that company.
It might be that we get some incredibly well paid cleaners shortly!
Again it is transparency, making people think about that as a
first step before you start to implement something. I think it
should apply equally to public companies and to the public sector.
Q39 Chairman: Would that make sense
in local government, to have an explicit ratio between the chief
executive and the lowest paid worker?
Mr Clark: I suppose you could
try it but I think we are back to that problem that Tony describes,
which is the fiendish complexity of local government. Let us take
Gordon's example of Steven in Pendle.
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