Hutton on public sector fat cats

December 02, 2010 9:15 AM




The Treasury has just published the interim Hutton Report on Fair Pay in the Public Sector.

Back in the summer the Treasury commissioned Will Hutton "... to investigate pay scales across the public sector, and make recommendations on how to ensure that no public sector manager can earn more than twenty times the lowest paid person in the organisation."

In other words, the remit was to address the scandal of fat cat pay in the public sector - a scandal first exposed in a series of reports from the TaxPayers' Alliance (eg see here). And to work out how to implement a 20-to-1 cap on top public sector remuneration.

Unfortunately the report has not stuck to that very clear remit. Instead, many of its 128 pages focus on top pay in the private sector, and read more like a 1970s-style politics of envy polemic.

The report kicks off by charting how the pay of the top 1% has pulled away from the average:

No matter that this relates to just 1% of the population, and most them are being paid by the market not taxpayers, for Hutton it's a serious problem:
"Substantial and growing pay inequality poses a serious challenge to society and Government. Do high earners deserve such large rewards? And is it fair that a wide and growing gap should exist between the pay of those at the very top of the income scale and the rest of the population?"

Fair? This is the market - the thing that we're all depending on to lift us out of our current crisis. The report goes on:
"...chief executive pay for Britain‟s leading listed companies rose by around eight times between 1986 and 2010... It is increasingly doubtful whether this has been proportional to increases in performance, or even reflects the real demand and supply for executive services. Chief executives have become treated as business super-stars drawn from an ever narrower potential pool... benchmarking between firms locks them into a kind of arms race... Any one company that tries to stand out against the trend risks losing its top people and inviting markets and investors to view it as second rate. Little... seems capable of creating more rationality or slowing the pace of increase... There is widespread scepticism whether this degree of increase in executive pay is fair."

Fair - there it is again. Of course, some private sector chief execs may get paid more than they're worth - just like some Premier League footballers. But why should we care - especially when many of the report's shock figures relate to a mere one hundred FTSE100 CEOs (whose average tenure has now fallen to about 3 years). Surely what we care about is what they do for us as customers, whether they deliver good returns to us as shareholders, and whether they stay within the law. Everything else is so much envy.

Now public sector pay, that's a different matter entirely. Because we have to fund that through compulsory taxation. We're very interested indeed in what those people get paid because it comes straight out of our wallets. We can't choose to take our custom elsewhere, and we can't sell our shares in their companies.

So what does the report say on top public sector pay - ie the thing it was supposed to look at.

First, it tells us that there are now no fewer than 20,000 public sector employees in the top 1% of income earners (earning over £117,523 pa). Well, actually that's a rehash of some numbers given on a recent BBC Panorama programme which said 38,000 are earning more than £100,000, and 9,000 are earning more than the Prime Minister.

Anyway, most of Hutton's 20,000 turn out to be doctors employed by the NHS (largely thanks to some huge pay awards conceded by the last government). But there are also 4,000 managers distributed across the various bits of the public sector as follows:

These findings are broadly consistent with what the TPA has previously published in its Public Sector Rich Lists (eg here) - if anything, Hutton's overall fatcat count is higher than the TPA's.

In terms of pay growth under Labour, Hutton confirms that top public sector managers generally did outstandingly well. For example, between 2000 and 2009 chief execs of NHS hospital trusts got an average 50% increase in real terms:

The bottom line is that Hutton pretty well confirms everything the TPA has been saying on public sector fat cats - thanks to big pay increases over the last decade there are now thousands of them.

So does the report congratulate the TPA for outstanding service to taxpayers? Er, no. It actually suggests the TPA has been misleading the public:
" Top pay in the public sector has come under greater media scrutiny in recent years... But public understanding remains divorced from the data set out in this[report]...

Limited understanding feeds through into the wider debate. Campaign groups such as the Taxpayer' Alliance argue that the public sector must get value for money – which they define as paying the lowest amount to secure a suitable candidate – but that it does not currently achieve this...

A media narrative which over-concentrates on public sector 'fat cats' while not offering the same proper scepticism and focus over what is happening at the top of the private sector does not lead to understanding, and can undermine the desirable move to greater transparency over pay."

Allow us to translate: the TPA has been far too successful in focusing taxpayers' attention on the cavalier way in which the public sector wastes their hard-earned cash. The spotlight on fat cat pay, and the number of bureaucrats who get paid more than the Prime Minister, has resonated with taxpayers in a way that has caused huge discomfort for the promotors of big government. This report tries to throw taxpayers off the scent by suggesting the real problem is excessive pay in the private sector.

And what about the report's original remit? That 20-to-1 pay ratio cap for the public sector? Well, Mr Hutton and his colleagues like the idea. They like it for a number of reasons, but in particular:
"A pay ratio is an easily understandable reference point, and could give the public confidence that public sector pay is being kept in check. Defined appropriately, this can have more flexibility than merely using the Prime Minister's salary as a benchmark."

In other words, by accepting this ratio cap, public sector bosses could maybe get taxpayers off their back, while simultaneously getting round the current de facto pay cap of the PM's salary. The latter clearly has to go, since post Mr Cameron's self-imposed cut, it's down to a measily £142,500 pa.

Hutton's final report will be with us sometime next year. Taxpayers need to be on their guard.





The Treasury has just published the interim Hutton Report on Fair Pay in the Public Sector.

Back in the summer the Treasury commissioned Will Hutton "... to investigate pay scales across the public sector, and make recommendations on how to ensure that no public sector manager can earn more than twenty times the lowest paid person in the organisation."

In other words, the remit was to address the scandal of fat cat pay in the public sector - a scandal first exposed in a series of reports from the TaxPayers' Alliance (eg see here). And to work out how to implement a 20-to-1 cap on top public sector remuneration.

Unfortunately the report has not stuck to that very clear remit. Instead, many of its 128 pages focus on top pay in the private sector, and read more like a 1970s-style politics of envy polemic.

The report kicks off by charting how the pay of the top 1% has pulled away from the average:

No matter that this relates to just 1% of the population, and most them are being paid by the market not taxpayers, for Hutton it's a serious problem:
"Substantial and growing pay inequality poses a serious challenge to society and Government. Do high earners deserve such large rewards? And is it fair that a wide and growing gap should exist between the pay of those at the very top of the income scale and the rest of the population?"

Fair? This is the market - the thing that we're all depending on to lift us out of our current crisis. The report goes on:
"...chief executive pay for Britain‟s leading listed companies rose by around eight times between 1986 and 2010... It is increasingly doubtful whether this has been proportional to increases in performance, or even reflects the real demand and supply for executive services. Chief executives have become treated as business super-stars drawn from an ever narrower potential pool... benchmarking between firms locks them into a kind of arms race... Any one company that tries to stand out against the trend risks losing its top people and inviting markets and investors to view it as second rate. Little... seems capable of creating more rationality or slowing the pace of increase... There is widespread scepticism whether this degree of increase in executive pay is fair."

Fair - there it is again. Of course, some private sector chief execs may get paid more than they're worth - just like some Premier League footballers. But why should we care - especially when many of the report's shock figures relate to a mere one hundred FTSE100 CEOs (whose average tenure has now fallen to about 3 years). Surely what we care about is what they do for us as customers, whether they deliver good returns to us as shareholders, and whether they stay within the law. Everything else is so much envy.

Now public sector pay, that's a different matter entirely. Because we have to fund that through compulsory taxation. We're very interested indeed in what those people get paid because it comes straight out of our wallets. We can't choose to take our custom elsewhere, and we can't sell our shares in their companies.

So what does the report say on top public sector pay - ie the thing it was supposed to look at.

First, it tells us that there are now no fewer than 20,000 public sector employees in the top 1% of income earners (earning over £117,523 pa). Well, actually that's a rehash of some numbers given on a recent BBC Panorama programme which said 38,000 are earning more than £100,000, and 9,000 are earning more than the Prime Minister.

Anyway, most of Hutton's 20,000 turn out to be doctors employed by the NHS (largely thanks to some huge pay awards conceded by the last government). But there are also 4,000 managers distributed across the various bits of the public sector as follows:

These findings are broadly consistent with what the TPA has previously published in its Public Sector Rich Lists (eg here) - if anything, Hutton's overall fatcat count is higher than the TPA's.

In terms of pay growth under Labour, Hutton confirms that top public sector managers generally did outstandingly well. For example, between 2000 and 2009 chief execs of NHS hospital trusts got an average 50% increase in real terms:

The bottom line is that Hutton pretty well confirms everything the TPA has been saying on public sector fat cats - thanks to big pay increases over the last decade there are now thousands of them.

So does the report congratulate the TPA for outstanding service to taxpayers? Er, no. It actually suggests the TPA has been misleading the public:
" Top pay in the public sector has come under greater media scrutiny in recent years... But public understanding remains divorced from the data set out in this[report]...

Limited understanding feeds through into the wider debate. Campaign groups such as the Taxpayer' Alliance argue that the public sector must get value for money – which they define as paying the lowest amount to secure a suitable candidate – but that it does not currently achieve this...

A media narrative which over-concentrates on public sector 'fat cats' while not offering the same proper scepticism and focus over what is happening at the top of the private sector does not lead to understanding, and can undermine the desirable move to greater transparency over pay."

Allow us to translate: the TPA has been far too successful in focusing taxpayers' attention on the cavalier way in which the public sector wastes their hard-earned cash. The spotlight on fat cat pay, and the number of bureaucrats who get paid more than the Prime Minister, has resonated with taxpayers in a way that has caused huge discomfort for the promotors of big government. This report tries to throw taxpayers off the scent by suggesting the real problem is excessive pay in the private sector.

And what about the report's original remit? That 20-to-1 pay ratio cap for the public sector? Well, Mr Hutton and his colleagues like the idea. They like it for a number of reasons, but in particular:
"A pay ratio is an easily understandable reference point, and could give the public confidence that public sector pay is being kept in check. Defined appropriately, this can have more flexibility than merely using the Prime Minister's salary as a benchmark."

In other words, by accepting this ratio cap, public sector bosses could maybe get taxpayers off their back, while simultaneously getting round the current de facto pay cap of the PM's salary. The latter clearly has to go, since post Mr Cameron's self-imposed cut, it's down to a measily £142,500 pa.

Hutton's final report will be with us sometime next year. Taxpayers need to be on their guard.


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