Introduction of a Maximum Wage — [Mr Gary Streeter in the Chair] – in Westminster Hall at 2:30 pm on 10th February 2015
Posted on 17 Feb 2015 under Latest in Parliament
Iain Wright Shadow Minister (Business, Innovation and Skills) 3:00 pm, 10th February 2015
May I begin by saying how good it is to see you in the Chair, Mr Streeter? I am very pleased to have you presiding over our proceedings this afternoon. I particularly want to thank my hon. Friend Mr McKenzie for securing the debate, and also my hon. Friend Mr Cunningham and Jim Shannon for their contributions. I also thank the hon. Gentleman for his usual courtesy in telling us about his commitments elsewhere on the parliamentary estate.
I pay my commiserations to the Minister for having to deal with this debate at the last possible moment, having had it transferred at the 23rd hour from Treasury Ministers. Presumably Ministers at the Treasury are
recovering today from their £15,000-a-table black-and-white fundraising ball—nothing to do with Newcastle United, I understand—where lucky recipients had the chance to bid to go shoe shopping with the Home Secretary or for a meal at the Carlton club with the Culture Secretary. Personally, I would rather go for a pint with the Culture Minister who is in the Chamber today. Alternatively, perhaps Treasury Ministers are engaged with tackling the issues of HSBC and the collusion with its clients over tax evasion.
I deliberately make those two points, not for cheap party political point scoring, but because they touch on an important theme in today’s debate, namely a growing inequality in society. As my hon. Friend the Member for Inverclyde said, how can it be either morally fair or economically efficient that there is a widening gulf between working people in Inverclyde, Strangford or Hartlepool, who have seen their pay cut and living standards fall, and people at the top of business—often financial backers to the Conservative party—who have seen their rewards grow exponentially and disproportionately and their tax bill fall over the lifetime of this Parliament?
Since this debate started 33 minutes ago, the average FTSE 100 chief executive has earned £297. That seems an astonishing amount of money in such a short time. In 1980, the median pay of directors in FTSE 100 companies was £63,000. At that time, the median pay across the country was £5,400. The ratio of executive pay to the average wage some 35 years ago was 11:1. In 2013, that ratio had moved to 130:1. Despite the Government’s reforms—to which I will refer later, as will the Minister, no doubt, in his response—the annual Manifest/MM&K directors’ total remuneration report estimated that pay received by the average FTSE 100 chief executive increased from £4.1 million to £4.7 million in the year following the reforms.
In contrast, as was touched on very well by my hon. Friend, one in five workers—that is, more than five million people—earn less than a living wage, up from 4.8 million in 2012 and 3.4 million in 2009. Almost a quarter of north-east workers—I speak as a proud north-eastern MP—and nearly half of all part-time staff are not being paid a living wage. Regrettably, my constituency has the largest proportion of jobs paying less than the living wage in the north-east, at 34.7%. More than 5 million people do not earn a decent wage. People are trapped in low-paid, insecure jobs; of employees earning the minimum wage for five years, one in four—the highest proportion since records began—have been unable to move out of that low pay for all of that period.
It is striking that the people most likely to be in poverty in Britain in the 21st century are those in work. No one can honestly suggest that the economy is working well or as productively as it could be when that is the case. This country will not achieve our vision of a highly skilled, well paid and innovative work force, ensuring that the benefits of economic growth are enjoyed by all in work, if we continue down the present path. My hon. Friend hit the nail on the head when he said that trickle-down economics is a fallacy. The taxpayer is having to subsidise, through tax credits and other parts of the welfare state, the failure of many firms to pay a decent wage. It is estimated that the cost to the Exchequer, in terms of spending on in-work benefits and lost tax revenue, is almost £3.25 billion a year. The loss of the real value of the minimum wage over the lifetime of this
Parliament has cost taxpayers an additional £270 million in extra public spending. That cannot be right. The state should not be paying for the failures of the corporate world.
The Government introduced new regulations for executive pay in 2013, and no doubt the Minister will want to talk about those. Shareholders now have a binding veto over company executive pay policy. The regulations require companies to provide greater transparency—for example, by reporting the ratio of average percentage change in employee pay compared with the percentage change in the chief executive’s pay. However, I would question whether the Government’s reforms are having the intended effect.
It is true that several companies, such as Burberry, Kentz and BG Group, have had to revise executive remuneration in the face of shareholders’ votes, but will the Minister confirm that less than 1% of all relevant companies have seen shareholders reject pay proposals? No doubt the Minister might respond to that point by saying that that proves the system is working, because it encourages companies to talk in advance about their remuneration packages to their shareholders, thereby promoting greater dialogue. However, I would question that argument. Professor Peter Wright—no relation of mine—of the university of Sheffield, in a report, “CEO pay and voting dissent before and after the crisis”, concludes:
“The government has promoted shareholder activism as a key mechanism for restraining corporate excess and securing the long- term health of the UK’s biggest firms. But our results suggest that any expectations that the recent changes to give shareholders a binding vote on directors’ pay will have a big impact may be sorely disappointed.”
The Minister must be concerned that, as the economy improves, the practices and trends of the past 30 years will be entrenched once more, so that executive pay continues to runs out of kilter, at odds with the performance of the company and far in excess of the remuneration of the rest of the work force. As my hon. Friend rightly said, I do not think anybody is suggesting that talent is not required to run a big company, and if the chief executive, along with the board and all the rest of the work force, produces good results, those benefits should be shared. However, the pay of chief executives is now out of kilter with the performance and share prices of big companies. It cannot be right that pay and performance is so misaligned.
On that basis, given this important debate, will the Minister pledge to go further, not only on the narrow issue of executive pay, but on the fundamental matter of corporate governance? How will he ensure that the rules of the market and companies are aligned to ensure that we see companies creating value for the long term, not extracting value for an immediate boost at the expense of long-term productivity gains? Will he pledge to ensure that employees have much more of a say in the strategic direction and corporate governance of a company by, for example, ensuring that workers sit on remuneration committees to scrutinise and hold to account the pay packages of top bosses?
Will the Minister also ensure that low pay is tackled? I fully agree with the hon. Member for Strangford—who has now gone to fulfil his Bill Committee responsibilities—that we need to tackle wage inequality, but ensure that we do not bring executive pay down at the expense of
low pay. We need to make sure that lower pay is boosted, so that the situation for low-paid workers is enhanced. Will the Minister agree to our proposal of a “make work pay” contract, so that firms that sign up to become living wage employers in the first year of the next Parliament will benefit from a 12-month tax rebate of up to £1,000 for every low-paid worker who gets a pay increase? Will the Minister agree with Labour’s proposals to bring the minimum wage closer to average earnings, setting the Low Pay Commission the target of boosting it to 58% of median earnings? That would mean that it was £8 by the end of the next Parliament, ensuring that workers on low pay got a £60 per week boost, or £3,000 more a year.
This important debate relates to what companies do, how they act in society and what makes them successful. Britain is great, and we have some of the most creative and hard-working people anywhere in the world, but it cannot be right, in a moral society or a productive economy, that the rewards for the few at the top are distorted at the expense of the majority, while far too many workers cannot have a secure, dignified job that pays the bills.
I respect the Minister, who often has to respond to debates that are not part of his brief, but he must accept that the Government’s response in this Parliament to wage inequality has come far too late and been far too lacklustre. In their remaining days in office, I hope he will address that, set out where his Administration have gone wrong and acknowledge that we will need a Labour Government in 85 days’ time if we are to tackle wage inequality.
Full text of the debate can be found here: http://www.theyworkforyou.com/whall/?id=2015-02-10a.213.0&s=poverty#g220.3