A quiet fair pay revolution

Largely overlooked in the Budget was the confirmation of plans to introduce across the state sector a new standard for fair pay. The intention is that the best paid will receive no more than 20 times the salary of the lowest paid.

There is a wealth of detail still to be worked out, though reassuringly much of that work lies in the hands of Will Hutton, who is heading up a commission on fair pay in the public sector. Particularly important are questions of how broadly the public sector is defined (similar to the questions raised by Freedom of Information legislation, whose remit the coalition government is pledged to increase) and how factors such as pensions, bonuses and overtime are tackled.

There is also the question of how the boundaries for the calculations are drawn up. For example, is the maximum pay in the NHS determined in relation to minimum pay in the NHS, or is maximum pay within a particular trust determined by the minimum pay in that trust?

Despite the simplicity of the 20:1 ratio becoming blurred as you work through these details, it does provide a clear principle to use when working through them.

Crucially too it provides a fair pay benchmark which campaigners, pressure groups and the public can use more widely. Whatever is decided to be the formal extent of its applicability, there is nothing to stop people pushing for its wider adoption and there is good evidence that pay at the very top of the private sector has got out of control, increasing far faster than profits, turnover or other performance would justify. Partly because of the number of firms who set their top pay saying that it must compare well with the rest of the sector, there has been a self-reinforcing upward spiral in pay as everyone pushes up everyone else’s top pay.

A 20:1 ratio would still allow for generous top pay, but stop that cycle – if it ends up applying more widely. Whether or not that happens is not just a matter for central government. For example, even if the government holding the majority of shares in a bank does not mean the 20:1 ratio applies to that bank, that doesn’t stop a campaign to introduce such a ratio. The use of the 20:1 ratio across large parts of the economy will provide a clear benchmark that will make those sort of wider campaigns more effective.

It’s easy to see how over time the 20:1 ratio could become a standard applied to suppliers to the public sector, by ethical investment funds, by good corporate practice lobbyists and more.

So as I said, a quiet fair pay revolution may be on its way – and whether or not that transpires won’t be up to someone sitting in Whitehall to decide. It’ll be up to the rest of us and whether we campaign well or not.