Public Appointments: regulation, recruitment and pay - Public Administration Committee Contents

4  Benchmarking remuneration for public appointees

Government policy on benchmarking public appointee pay

61. Our predecessor Committee in the 2009-10 Session called for the establishment of a Top Pay Commission on executive pay in the public sector. The previous administration did not respond directly to this recommendation. The Chancellor of the Exchequer has clarified the position of the present administration on this recommendation: he wrote to the Chairman on 20 July 2011 indicating that the Government does not consider it necessary to establish such a commission in the form recommended by our predecessors. He set out the recent steps taken by the Government in respect of senior public sector pay:

  • A 5 % pay cut in Ministerial salaries, which will be frozen for the rest of the Parliament
  • A requirement for the Chief Secretary to the Treasury to sign off any proposed salary in areas under Ministerial control which exceeds £142,500 (the annual cash remuneration paid to the Prime Minister)
  • Commissioning of a review of senior pay led by Will Hutton, and (unspecified) progress on implementation of its recommendations
  • Publication of the names, grades, job titles and annual pay rates for most senior civil servants and officials of public bodies with salaries above £150,000
  • Provision in the Localism Bill to require local authorities and fire and rescue authorities to explain their approach to the pay of both senior and the lowest paid staff
  • Publication by the Senior Salaries Review Body of a report setting out benchmarks and evaluation processes for establishing the pay of chief executives of non-departmental public bodies.

62. There have already been two instances during this Parliament where the level of remuneration has been an issue in public appointments in which this Committee has a role.

63. During negotiations over the salary for the new Parliamentary and Health Service Ombudsman the Prime Minister wrote to the current Ombudsman:

As part of the critical process of cutting public sector expenditure generally, the Government is applying a strict policy of pay scrutiny and restraint for the recruitment of those very senior roles that attract annual salaries in excess of £142,500 [the Prime Ministerial salary]. This policy is being consistently applied across the board, including for those roles, like the Ombudsman's, that are independent...[46]

64. In this case we disagreed with the Prime Minister and in our Report on the pre-appointment hearing for Ann Abraham's successor as Parliamentary and Health Service Ombudsman we concluded:

We recognise and accept the need for restraint in salaries for the most senior and highly paid public sector officials. The Government has insisted on abandoning previous practice of a fixed salary point. Instead, the remuneration arrangements for the preferred candidate for the post have been negotiated directly between the individual and the Government. We agree with both the present Ombudsman and with Dame Julie Mellor that this places the prospective Ombudsman in an invidious position.[47]

65. We are also concerned by the decision, taken under the previous administration, to reduce the salary for the post of the Chair of the UK Statistics Authority. The current Chair of the UK Statistics Authority expressed his concerns to us:

I was concerned when I heard that the advertisement for my successor would be in terms of two days a week and £57,000. I was concerned that it might have an adverse effect on the quality of the people who put themselves forward. I have no idea about that, because I am not part of the process. I was also concerned that it would be seen as an indication of the Government's regard for the Authority and that it would be taken as a sign that the Government thought that the Authority was not really very important.[48]

66. We share Sir Michael's concern. The salary for such an important post should be assessed very carefully. We note that the Government, having originally advertised the post in terms of two days a week and £57,000 salary, has now advertised the post at two and a half days a week and £71,250 salary, that is, half the Ministerial salary paid to the Prime Minister.

Hutton Review of Fair Pay in the Public Sector

67. In June 2010 the Prime Minister and the Chancellor commissioned Will Hutton to carry out a review which would make recommendations on promoting pay fairness in the public sector by tackling disparities between the lowest and the highest paid in public sector organisations. The final report was published in March 2011 and included the following recommendation:

Once this framework of recommendations is in place, the Government should refrain from using the pay of the Prime Minister or other politicians as a benchmark for the remuneration of senior public servants, whose pay should reflect their due desert and be proportional to the weight of their roles and their performance.[49]

68. When he came before us on 6 September Will Hutton explained why his report had made this recommendation:

First of all, the Prime Minister's total remuneration is a great deal higher than £142,500 when you take the in­kind benefits into account, such as the use of Chequers and No. 10 Downing Street and any other benefits that accrue to the Prime Minister. One estimate I used in the Review was that you could put his pay as high as £581,000. That is the first point; [...] Secondly, there are no recruitment and retention issues. Thirdly, a great many people would do it for free.[50]

69. We were concerned to learn that little data was available to the Hutton Review on top pay across Government departments, largely because such figures were not collected centrally:

We did try to do some work [on levels of pay across Government], but we could not get anywhere because the data just is not there. I make this point in the interim report, that actually getting hold of the data, even for a dedicated Treasury team, was pretty difficult. [...]

What is going on across the top of the British public sector, all the salaries, payscales and so on, is not held centrally.[51]

70. Our predecessors' report on Top Pay in the Public Sector concluded that "any proposal to use the Prime Minister's salary as an absolute cap on public sector pay would be little more than a political stunt". We concur. It may appear straightforward to challenge Departments to justify pay settlements which exceed the salary of the Prime Minister, but, for the reasons set out by Will Hutton above, such comparisons are largely meaningless.

71. Departments are required to apply a value for money test on all decisions for pay to public sector appointees, with a strict process of scrutiny and approval for all proposed salaries above £142,500. We requested information from the Cabinet Office on the appointments made since 6 May 2010 where remuneration has been above the £142,500 threshold. Nine such appointments have been made, including that of the Ombudsman.[52] The Minister for the Cabinet Office, Rt Hon Francis Maude MP, told us that there had been "a noticeable reduction" in the number of salaries proposed at or above the threshold, indicating a "step-change in the approach to public appointee salaries": the Cabinet Office and the Treasury were now "systematically discussing" remuneration with departments and identifying possible savings. More posts were being advertised at salaries below the threshold without the need to activate the Treasury scrutiny and approval process. The Minister claimed that this represented "best practice on the issue embedding itself across Whitehall, with departments really focusing on value for money and challenging existing remuneration levels".[53]

72. More sophisticated mechanisms for determining appropriate levels of top pay have been put forward in the final report of the Hutton Review of Fair Pay in the Public Sector. Mr Hutton indicated that an approach which focused on prices paid for top salaries belonged "in the margins" though it could be used as a "deep, deep longstop"[54]: a preferable approach would be to establish a pay regime based on transparent and comparable multiples of basic salaries, together with a requirement for public appointees to earn back a proportion of their remuneration package in return for meeting performance targets.[55] He recommended that the Senior Salaries Review Body should ultimately take responsibility for the implementation of a top pay framework: "it has a competence, it has a capability, it is where much of the data reside and they are very robust."[56]

73. The Chancellor, in his letter of 20 July, indicated that "considerable progress" had been made in implementing the recommendations of the Hutton report and that further steps to complete this process would be taken in the coming months. Mr Hutton understood that substantial work was in train in the Cabinet Office and the Senior Salaries Review Body to implement his recommendations in respect of earn back.[57]

74. We recommend that the Government publish as soon as possible its response to the report of the Hutton Review of Fair Pay in the Public Sector. We also recommend that the Government give careful consideration to the proposal that the Senior Salaries Review Body should be tasked to implement a framework for top salaries for public appointments along the lines of the Hutton recommendations.

75. We accept the necessity of pay restraint on top salaries, but the government should not use the Prime Minister's salary as a cap.  Imposing such a benchmark may be superficially plausible but it is arbitrary.  The true value of the Prime Minister's total remuneration far exceeds £142,500 and the job of Prime Minister is not comparable to others in the public sector.  There is a constant danger that a fixed cap discourages the recruitment and retention of the best talent - something which the government seems to accept when it has chosen to ignore its own policy and pay much more in some cases.

76. We urge the government to substitute the arbitrary cap on salaries of senior posts in the public sector subject to Ministerial appointment with a proper system to assess the salaries to be paid for public appointments, as recommended by the report of the Hutton Review of Fair Pay in the Public Sector. While we support the principle of restraint in top salaries in the current climate, we are concerned that the quality, range and diversity of candidates applying for senior public appointments may be adversely affected by the imposition of this benchmark.

46   Public Administration Select Committee, Tenth Report of Session 2011-12, Remuneration of the Parliamentary and Health Service Ombudsman, HC 1350, Appendix 1 Back

47   Ibid. para 9 Back

48   Oral evidence taken before the Public Administration Select Committee on 10 May 2011, HC 910-i, Q 93 Back

49   Hutton Review of Fair Pay in the Public Sector: Final Report, March 2011, p12 Back

50   Qq 113-116 Back

51   Qq 120-1 Back

52   See Appendix 2 Back

53   Ibid. Back

54   Q144 Back

55   IbidBack

56   Q 149 Back

57   Q 133 Back

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Prepared 19 October 2011