Election 2010: Pay and pensions policies focus on fairness

Political commentator Will Hutton wrote recently that the British “are suddenly discovering a truth that was buried in the New Labour boom years… that fairness matters”. Our political leaders certainly seem to have realised this, and proposals on pay and reward have taken on an unusual prominence in the manifestos from the main political parties.

Pay has come to such prominence for two reasons. First, reducing the public sector deficit depends on controlling this major item of government expenditure: public sector workers’ pay. Labour had already announced a 1% cap on public sector pay increases, which will last for the next three years, along with a freeze on senior salaries.

The Conservatives would save additional billions with a complete freeze in 2011 for all but the lowest paid, extend the use of performance pay, and even introduce a cut in ministerial pay of 5%. The Liberal Democrats would put a £400 cap on pay rises for public sector workers for the next two years and abolish bonuses for senior civil servants.

Public sector pay is also being used as a signal of services that will be protected and valued, with the Lib Dems promising a £6,000 pay increase for our front-line Armed Forces.

Pensions

Public sector pensions represent a huge liability – more than £900bn, according to the CBI – and therefore all the parties are pledging action here. The Labour government has already introduced a series of reforms, extending retirement ages for new joiners, increasing employee contributions, reducing accrual rates, cost capping and cost sharing.

The Lib Dems would set up a commission on public sector pensions, while the Conservatives would cap public sector pensions greater than £50,000. They even propose to close MPs’ own final salary scheme and replace it with a cheaper defined contribution plan.

While all the parties promise to restore the link between the state pension and earnings growth, they all also commit to progressively increase the state pension age, with the Conservatives bringing forward the dates for implementing this to 2016 for men and 2020 for women. All the parties support the removal of the default retirement age of 65.

Fairness

Pay though is, secondly, also being used to reinforce a main theme in all the major parties’ manifestos, which is fairness and transparency. This may perhaps be most obvious in the Labour manifesto, A Future Fair for All, with the new 50% top income tax rate for high earners that has just come in, and the restriction of pensions tax relief to the basic rate on those earning more than £180,000 from April next year, a move also proposed by the Lib Dems.

Labour would require all public sector organisations to comply with the recently published code of practice on senior pay produced by the Senior Salaries Review Body by the end of this year. Their manifesto also pledges that the national minimum wage will rise at least in line with average earnings in future years.

But fairness receives at least equal weight on the cover and in the content of the Lib Dems’ manifesto, with leader Nick Clegg promising to “hardwire fairness into British society”. They pledge that the first £10,000 of UK earnings would be tax free to benefit low earners, “paid for by ensuring the wealthy pay their fair share” – for example, through the proposed ‘mansion tax’ on homes worth more than £2m. They also want public companies to disclose the pay of all those earning more than £200,000.

The banks have borne the brunt of popular criticisms of bonuses, and the Lib Dems would break up the major banks, limit cash bonuses to £2,500 per annum with the excess paid in shares, and force publication of the pay of bankers who earn more than the prime minister. Labour have strengthened the Financial Services Authority watchdog’s powers on pay and would require banks to put their remuneration policies to shareholders for explicit approval. The Lib Dems would implement compulsory equal pay audits and the Tories would impose audits on employers found guilty of gender discrimination.

Transparency

In fact, fairness is a core theme in the Conservative manifesto, with its regular references to ‘unfairness’ under the current government and “the age of irresponsibility” it has overseen. They claim “transparency can transform the effectiveness of government” – and would require public bodies to publish online the job titles of all staff paid more than approximately £70,000 (Senior Civil Service pay band 1 minimum) and the Treasury would have to sign off anyone paid more than the prime minister. In local government, councillors would be able to vote on large salary packages for council officials.

David Cameron has promised to set up a fair pay review across the public sector, which would give consideration to imposing a cap of 20 times the earnings of the lowest paid for top public sector executives. The manifesto also repeats the commitment to let public sector workers buy a stake ‘Co-op-style’ in their employer to help to increase their engagement and efficiency.

So the politicians are recognising the importance of perceived fairness to people’s voting intentions, and many more employers should be recognising its importance to people’s motivation and engagement.

Duncan Brown, director, HR business development, Institute for Employment Studies


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