The British used to be known for their modesty and reticence on pay: it was something we didn't talk about, not like those brash Americans with their bonuses and the extrovert Scandinavians with their shameless full taxable earnings public disclosure. The first week of the general election campaign and now the publication of the political party manifestos has shown just how much this has changed over recent years: pay and reward have become central election issues, for two main reasons.
First, reducing our massive public sector deficit depends on controlling the major item of government expenditure: public sector workers' pay. While the parties have been less than fully honest and open in exposing just when and where cuts in public sector expenditure will take place, Labour had already announced a 1% cap on public sector pay increases and a freeze on senior salaries. The Conservatives would save additional billions with a complete freeze in 2011 for all but the lowest paid and even a cut in ministerial pay of 5%. 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 pa pay increase for our front-line armed forces.
Public sector pensions represent a huge liability and therefore all the parties are pledging action here. The Labour Government has recently introduced a series of reforms, increasing the retirement age for new joiners, upping employee contributions and reducing accrual rates and cost capping and cost sharing. The Lib Dems would set up a commission to recommend on public sector pensions and consider capping high pension payments, while the Conservatives would cap public sector pensions over £50,000 and even propose to close MP's own final salary scheme and replace it with a cheaper defined contribution plan. And 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.
So a cost-driven pay and pensions focus from all the main parties was to have been expected. What is much more of a surprise is the way in which pay is, secondly, being used to reinforce a core 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, though we already knew about 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 over £180,000 from April next year. Following on from the introduction of full private-sector-style top pay disclosure in local government, Labour would force 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. The government has also been encouraging greater tranparency of senior pay levels in the banks, through the Walker Review, and plc's as a whole, through the review of the Combined Code being undertaken by the FRC. The manifesto 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 claiming "only his party have the big ideas for fundamental changes in the way our country works to make it fair...to hardwire fairness into British society". They pledge that the first £10,000 of UK earnings would be tax free to benfit low earners, "paid for by ensuring the wealthy pay their fair share", for example through the proposed 'mansion tax' on homes worth over £2 million. Picking up on the popular and press reaction against bonuses in the City and their role in driving the financial crisis and recession, 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 bank staff who earn more than the Prime Minister. They would also implement compulsory equal pay audits.
And fairness is perhaps most surprisingly 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. "Transparency can transform the effectiveness of government" and so they would require all public bodies to publish online the job titles of all staff paid over approximately £70,000 (Senior Civil Service pay band 1 minimum) and require the Treasury to sign off anyone paid more than the Prime Minister (Labour have already announced this for salaries over £150,000). In local government, councillors would be able to vote on large salary packages for council officials. And last week, David Cameron 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 Co-op-style buy a stake in their employer to help to increase their engagement and efficiency.
Will Hutton wrote recently in The Observer that the British "are suddenly discovering a truth that was buried in the New Labour boom years...that fairness matters". Our political leaders certainly now seem to have realised this, and many more employers need to do so as well.
Duncan Brown is director of reward services at the Institute for Employment Studies
