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Posts Tagged ‘Fairness’

How To (And How To Not) Call Time on Excessive Pay.

Monday, January 16th, 2017

The city of Portland in America, which has recently passed a law raising taxes for businesses whose CEO-to-workers pay ratio is over 100-1.

If you watched the news last week you can’t have helped but have noticed the furore that the Leader of the Labour Party kicked off when he suggested that there should be some kind of cap on high earnings.

Excessive pay is more than an economic problem. At a time where salaries and job prospects for those on the lower end of the scale are getting more precarious by the day it becomes a moral problem as well. I agree with Corbyn insofar as he says that inequality, especially income inequality, is harming our society and our public services. It’s no secret that levels of pay at the top of business and industry have skyrocketed far beyond anything resembling sanity. The High Pay Centre, an independent think-tank, estimate that FTSE 100 CEOs are now paid 130 times more than the median pay of their staff, compared to 45 times more two decades ago.

Where I disagree with Corbyn is on what should be done about it. I am, and continue to be, against a hard cap on earnings. It’s a crude and blunt instrument, the financial equivalent of performing heart surgery with a sledgehammer. It also runs the risk of incentivising behaviour such as hiding pay through share options and payments-in-kind.

I’ve always made it clear that I have no issue with people reaping the rewards if they work hard and are successful. What has happened in recent years is that CEOs and executives are receiving colossal pay packets for just getting by or, in some cases, even failing completely. The example I highlighted the last time I wrote about this subject was Bob Dudley, the chief executive of BP, who received a 20% pay rise last year despite the company recording the biggest operating loss in its history under his watch. When we also start seeing massive pay ratios between workers and executives the question has to be asked if their performances could ever justify it. You could potentially make an argument that a top notch chief executive is, say, responsible for 20 times more than an average employee and therefore deserves to be paid 20 times more, but can you make the same argument for 50, 100, 150 times more?

So if I think something needs to be done but I’m against a hard cap, then where does that leave me?

Luckily we already have a way to move money around society to benefit us all, a way that has been proven to work for centuries across the world. It’s called the tax system. That’s why I’m interested in an experiment conducted by the city of Portland in America, which is introducing tax increases of 10% and 25% for business whose CEOs are paid more than 100 and 250 times more than the median employee respectively. This “inequality tax” would help pay for basic public services in the city, such as housing and police/firefighter salaries. If Portland can pull off a long-term shift in cultural change towards executive pay while raising money for public services at the same time, then why can’t they do the same thing here in the UK? Its questions like this that I’ll be asking the Prime Minister over the next year.

Inequality is not inevitable, but it will take serious action to turn around a ship that has been allowed to get out of control for far too long. The fightback must start here. A fair society is a stronger society, and I will do everything in my power in Tameside Council and in the Greater Manchester Pension Fund to make it happen.

So Much for the End of Austerity

Monday, November 7th, 2016


With everything that’s gone on in the past few months it’s not surprising that quite a few things, many of which would have been big news had they happened at a quieter time, have slipped under the radar. One of these happened today, as the lowered benefit cap came into force across the country.

It seems like a lifetime ago since it was announced, so allow me to refresh your memory. One of the first policies of the coalition government back in 2010 was to reduce the total sum people could receive in benefits to £26,000 a year for couples with or without children and lone parents. After the General Election in 2015 a further reduction was announced, bringing the cap down to £23,000 a year for families in London, and £20,000 a year for families outside. It is this second cap that takes effect today.

You might ask what difference this will make. The answer is “Quite a bit”. Research by Shelter shows that unless you lived in one of the more expensive bits of London, you would probably not have come up against the 2010 benefits cap. Renting a two bedroom property was still affordable in 94.1% of England for a couple with two children, and if you were a single parent with two children you could afford the same in 96.1% of England.

That isn’t the case as of today. Under the reduced benefits cap areas that nobody would describe as super-expensive have suddenly become unaffordable. That includes pretty much the entire south of England and chunks of Manchester, Leeds and Birmingham. All in all, it’s estimated that 57.9% of England will be off-limits. Remember as well that we’re not talking about this affecting tabloid-press caricature families with seventeen children; we’re talking about this affecting couples or single parents with one or two children. That’s a lot of families who woke up this morning facing a struggle to keep a roof over their heads and food on the table.

More broadly, this policy is a relic from a previous government. We knew what Cameron and Osborne wanted; balancing the books at any price. May and Hammond claim that fairness is their watchword. Where is the fairness in children being denied basic essentials such as food, shelter and heating because it’s been decided that their parents have too large a family, or that they live in the wrong part of the country? Where is the fairness in families from Tameside and elsewhere in the country continuing to pay the price for an austerity that not even the government believes in anymore?

Of course, the main concern of the government is getting people off the welfare bill and saving money, but even here the evidence suggests that, so far, the benefits cap has failed on both. Only 5% of those affected by the previous cap moved into paid work (and, despite what some might think, I’d be willing to bet that for a lot it wasn’t for lack of trying). In terms of savings, the previous benefit cap was estimated to save £65 million last year, but much of these savings went straight back out again through the costs of housing support grants, homelessness and providing skills support. When you look at the big picture, it’s difficult to argue with the IFS’ judgement that any savings from the reduced benefits cap will be “trivial”.

So, to sum up, we have a policy that will cause undue suffering and hardship, which will probably not achieve its goals, and was created to reach a target that no longer exists. On this day, isn’t it time we took a step back and wondered if this is really the kind of country we want to be?

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