Tuesday, 18 August 2009

The impeccably New Labour case for scrutiny of top pay

Tom Harris is worried about calls for action on top pay, fearing we are on the slippery slope to repudiating New Labour.

This seems to be driven by Harris's specific worry that "I imagine the so-called High Pay Commission would have the aim of setting a national maximum wage".

I think that is very unlikely and almost certainly unworkable. (I wrote about that a few months ago, when Kevin Maguire pitched a 10-1 ratio to the Fabian dragons at our New Year Conference. The Compass proposal is also to consider maximum ratios within organisations. As David Aaronovitch grumpily but correctly observed at the Fabian conference, there is little inherently fair about the tea lady or receptionist at Manchester City being paid oodles more than at Altrincham FC. And there was an impeccably Brownite objection from the conference floor: 'what public services will you cut to replace the lost revenue).

But a maximum wage is not the only way to address top pay, especially as the explosion in pay at the top was more about shifting social norms than it was about legislative change.

But I fear that Tom may be forgetting an important part of the history of New Labour - which was concerned from the start about unfair rewards and social responsibility at the top - and so overlooking an impeccably New Labour case for scrutinising top pay too.

Yes, he is right that the minimum wage was a New Labour policy, because it was part of the argument that social justice and economic success were not incompatible, and one of the measures introduced (with tax credits) to "make work pay". But New Labour also voiced anger at "rewards for failure" and "undeserved rewards" at the top. We heard a lot about fat cat Cedric Brown, and the "windfall tax" was adopted on the fairness grounds that privatised monopolies had been guaranteed an excessive return, and that part of this windfall should support social inclusion.

If New Labour always opposed 'rewards for failure' and unearned rewards, it has considerably more reason to do so not just on the fairness grounds that one can not privatise gains and socialise losses; but also because the entire economy has been sharply affected by mistakes made in the financial sector.

Harris worries about 'raising a few cheers by depriving some bankers of their bonuses'. But that risks sounding like a defence of whatever institutions decide to do or individuals can get away with, whatever the consequences. In which case, why do we have financial regulation at all? The evidence set out by Deputy Bank of England Governor Andrew Haldane in this speech is compelling. Robert Peston offers a useful summary of how the historic explosion in pay and bonuses in the financial sector was not based on creating wealth yet created systemic risks for the financial system and entire economy.

So reform of bonuses is needed not for cheap political crowd-pleasing but to uphold Tom's New Labour principles of financial stability and ensuring rewards are earned. More scrutiny might have led to social and political pressure on institutions to adopt safer practices. It might help to embolden shareholders to have challenged the patent absurdity of contractually "guaranteed bonuses earlier. (And there is a broad consensus on that - "Certainly, the Masters of the Universe need their wings clipping, but the way to achieve that is through effective regulation", writes David Blackburn of The Spectator today).

Peter Mandelson bemoans the fact that his critics do not acknowledge that his intense relaxation about people getting filthy rich had a condition - "as long as they pay their taxes". Tom's New Labour principles of "something-for-something" and "rights and responsibilities" legitimise a strong scrutiny of tax avoidance as of

And Roger Liddle - who was co-author with Peter Mandelson of one of New Labour's founding texts 'The Blair Revolution' before 1997 - set out several good social democratic and rather New Labour reasons to worry about income inequality and unearned rewards at the top in a Policy Network paper, which also also called for a Top Pay Commission in January 2008.

A Top Pay Commission to match the Low Pay Commission that would scrutinise pay awards to top executives in the private as well as public sector, with a remit to expose unnecessary excess and create a more open debate about just and proportionate rewards.

Tom is right that New Labour was worried about being seen to "level down", as Liddle acknowledges. For this reason, even though it adopted very clear policy commitments to reduce inequality, it shied away from describing them as such. Tony Blair committed in 1999 to reducing and eradicating child poverty. The government, of course, defined poverty in relative terms; something which the Conservatives now accept too, but there was a reluctance to acknowledge what logically followed: that the government's strategy was to reduce income inequality; this was reflected in its 'progressive universalism' approach to redistribution, though in practice this proved an exercise in 'running up the down escalator': sharply rising inequality was curbed; it was not reversed.

In fact, inequality within the middle 90% of the income range has been reduced; but the Gini coefficient has gone up because inequality has increased at the very top.

So Liddle seeks a New Labour response to this, which is more explicitly able to discuss inequality at the top while noting that was always part of the new Labour argument:

What is needed in the UK is a change in political culture and discourse about questions of income and wealth. In The Blair Revolution published over a decade ago, I wrote “New Labour should use the tax system to attack unjustified privilege, without
weakening incentives for risk-taking and hard work.” In crude and simple terms, we need to move from a society that is afraid to ask “How much have you got?”, to one that is prepared to question “How did you get it?” This was how Winston Churchill as a radical Liberal sought to turn the political argument in defence of Lloyd George’s redistributive 1909 budget.

In the early 20th century it was landowners who were seen to enjoy gross excesses of income and wealth, for which in Neville Chamberlain’s wonderful use of Biblical language “they toil not, neither do they spin”. The gross excesses of 21st century Britain are in different social categories: directors whose compensation packages have little or no justification in terms of their
contribution to the profits and success of the companies they lead; investors who take advantage of Britain’s generous capital gains tax provisions but are not genuine risk takers, building a business from scratch through their own hard work; individuals who owe their comfortable circumstances to inheritance rather than their own efforts. What is needed in the UK is a change in political culture and discourse about questions of income and wealth

I don't know if Tom would think that is the "politics of envy" - but these are now sentiments expressed, if with differing degrees of emphasis and sincerity, across the political spectrum.

It is not surprise that Iain Dale champions Harris' concern that scrutiny of top pay would be to retreat to a 'core vote' strategy.

However, I do not think that either of them have any evidence for this claim. Certainly, there is much solid evidence, including in the recent Fabian study for the JRF that the centre-ground of public opinion is wants considerably more scrutiny of the 'how did you get it' question, and from a deep-rooted sense of fairness rather than an envious motivation.

This reminds me of all of those arguments that New Labour was 'abandoning the centre-ground' with its new top rate, when two-thirds of the electorate back it. Funny centre-ground that.

Meanwhile, David Aaronovitch in today's Times does not want a Pay Commission but goes rather further. He would like tax returns made public.

This Swedish style pay nudity policy would break a considerable Anglo-Saxon taboo. It seems unlikely to me. A pay commission could, however, examine what the international evidence suggests as to what effect transparency has on issues like gender pay gaps and levels of inequality, perhaps suggesting other routes to bringing more sunlight to the issue of pay and renumeration in organisations, without necessarily adopting Aaronovitch's full monty suggestion.

Certainly, there must be ways to improve a woefully underinformed public and media debate about what the facts about incomes and inequality in Britain are, despite the valiant efforts of the TUC to set out where the real middle is - and that the median income is £20,000 - are woefully underinformed about this.

As Aaronovitch summarises today, discussing the Fabian research.

£120,000 per annum puts you in the top 1 per cent of salary earners, £60,000 in the top 5 per cent, £32,000 in the top 25 per cent. And £25,000 makes you average — if you’re a full-time worker.

Across the income range, participants in the Fabian/JRF research workshops believed that they were around the middle.

Everybody does - from people on the poverty line to Alan Duncan on his parliamentary rations.

And then there is the astonishing ignorance of top earners who think the poverty line is at £22,000, that median earnings are twice that, and who believe that 10% of us earn over £162,000, according to the focus group with the best and brightest captains of business, finance and the law held for the Polly Toynbee and David Walker book.

Some of our own rather less super-rich participants also simply refused to accept the claim that an income of £42,000 was 10% from the top and challenged that as a mistake. But then I have often had that experience speaking to national newspaper journalists about what the income distribution actually is.

So anything which creates a more informed public debate about the basic facts of the society we live in has to be worth considering.


stuart.white said...

Sunder: I think you are right that asking tough questions about top pay is entirely consistent with a philosophy that wants to link reward to real contribution. In practice, New Labour has applied that philosophy vigorously at the lower end of the income distribution and pretty much ignored it at the top. There has been a large gap between theory (at least as et forth by Roger Liddle)and practice. It would be something if, very late in the day, New Labour could start to put this right.

Sunder Katwala said...


Thanks. I imagine we might also be able to think of some less New Labour arguments for such an approach too. But New Labour does not need to veto the dicussion, if it turns out it has also made arguments itself of this kind before forgetting that it did so.

The Whitean point I left out as was already overlong is that Harris seems v.worried about being seen to have any claim to private wealth for fear of being anti-aspiration (he mostly means income). again, there are some New Labour arguments for recognising asset inequalities as important, which could even be pro-aspiration

Michael said...

''New Labour always opposed 'rewards for failure' and unearned rewards''

And yet it increasingly appears that New Labour often neglects to apply this very same principle to the benefits system. As is nearly always the case with the left, the (perhaps justified) outcry against the unearned wealth of the richest is drowned out by the deafening silence toward the unearned wealth of the not-so-rich. This is where the allegation of 'politics of envy' comes from. For example, and speaking from experience, if an individual works full-time and yet, at the end of the month, is only marginally better-off (if at all) than another individual who remains on state-benefits for years at a time, then how is this any more just (or why should one feel any less angry) than the apparent unfairness of the unearned wealth of the rich?

Fairness is a two-way street, and is not solely defined by economic outcome.

Nick said...

I have to say that I have struggled to detect any New Labour outcry against the rich, or silence on supposed benefits cheats, if that is to whom you refer. Quite the opposite - though obviously if you rely on, say, the Daily Mail or right-wing blogs for your news then you are obviously going to inhabit a strange bubble of disinformation.

You seem to think that people who do not earn - pensioners, disabled people and so on, should be refused enough to live on so as to "make work pay". As a left winger, I would prefer to do that by pushing up the earnings (and working conditions) of low paid workers.

Still, that's difference between left and right I suppose...

Michael said...


I absolutely do not subscribe to the view you outlined, though I understand that it probably allows you to caricature my objection as right-wing and therefore dismiss it ad hominem. My argument, in fact, has nothing to do with the relative wealth of 'benefits cheats' and low-paid workers, and how that division should be policed. Rather, my argument was that the notion of fairness in relation to 'unearned wealth' is something that cuts two ways at once, and that the intellectual left are often more vociferous in challenging the one than they are the other (exhibit A: this article): this makes phrases such as 'New Labour always opposed "rewards for failure" and "unearned rewards"' only half true, for it all too often is concentrated solely on the economically priviliged, and in so doing forgets that the principle is true irrespective of economic-status (exhibit B: this article).

As such, my point was, and still is, that unearned wealth can be perceived as unfair irrespective of the wealth of the individual to whom it accumulates, because justice is not always economically conditioned. Or, to put it in a different way, principles of fairness and equality cannot only be reached, or understood, through an economic prism, but are rather much more nuanced than this.

Still, that's the difference between left and right I suppose...

Sunder Katwala said...


Thanks for your comments and joining the discussion. This is a live, though sharply contested, debate within the left as well as across the political spectrum.

The argument which you make for a reciprocity approach to apply across society is in several ways similar to that recently made by John Denham, in a Fabian speech responding to our research about public attitudes to these issues of need, merit, effort and so on. There is a post with various links on that here and there was a lot of discussion in the media, on this blog and other political blogs (though some of the controversy was because it was misreported).

Anyway, Denham said:

"What the research shows is that popular sentiment supports a tough, hard headed, but at the end of the day, compassionate version of fairness. One that does not turn its back on those in great need, but one that also insists that effort should be rewarded, and that society should be fair to those who play by the rules.

This sense of fairness is based on the idea that there is a set of obligations and opportunities that should underpin British society. When people say 'it's not fair' it is usually because they believe that the balance of duties and rewards, of right and responsibilities, has been upset".

Some claimed Denham was 'selling out' equality and fairness. His argument was that this was the correct principled argument for the left, rooted in its own history, but also the only approach capable of winning public support. Certainly, that is an approach which reflects the way most of the public think about these issues, though the research identifies different clusters of opinions about this.

In discussion of Denham's argument, several responses, such as Stuart White's, took the opposite argument to yours - saying that this was all very well in principle, but New Labour had quite a lot of focus on 'rights and responsibilities' at the bottom, in welfare reform, the New Deal and so on, and had been pretty muted about applying that principle higher up. (On yr "exhibit B" point, this post is partly premised on that longer on-going discussion about these issues). Though your argument is one which has a good deal of public resonance.

This highlights a political challenge, even if the broad argument for reciprocity is accepted. Some people then think there has been too punitive an approach at the bottom, and others that there is free-riding going challenged. Some think there has been no attention to scrutinising the better off; others that taxation is already very high and that any move here is the 'politics of envy'. The attitudes research shows that a 'fairness' argument might be accepted if it applies across society; there is some chance that trying to do that could mean pleasing nobody.

Michael said...


Thank you for response. Just one quick rejoinder, if I may; whilst I was not particularly arguing for a reciprocity approach, it does throw up the interesting question of whether or not there is a tendency in any such approach to confuse the contexts in which the unearned wealth question must be framed, and therefore how notions of fairness are shaped.

So, the unearned wealth of an individual who is fortunate enough to receive a large inheritance, or to have profitable investments etc, is rather different from the unearned wealth of the - for example - benefits claimant that has done between little and nothing to find a job (I am not saying all benefits claimants fall into this category, or even the majority; but to note that the system is occasionally abused is hardly a controversial statement). The difference is that the former receives his 'unearned wealth' outwith the state, whilst the latter receives it directly from the state - a benefit paid for by other working members of the state. Does this not introduce the need for further nuance in the application of any reciprocity argument, and further, the understanding of fairness upon whcih it might be based? (I apologise if Mr. Denham has already touched on this subject). A quick anecdote; I lived and grew up on an undesirable council estate in NE England - the drug dealer on the corner claiming incapacity benefit rankled much more with my father than when the chap down the street had a lottery win.

Nick said...

"My argument, in fact, has nothing to do with the relative wealth of 'benefits cheats' and low-paid workers"

But your complaint was that it was unfair for someone who worked to earn only marginally more than someone on state benefits. I'm afraid that is very clearly an argument about their relative wealth of these groups of people.

I'm afraid that I regard things like the state pension as being neither wealth nor unearned so the point hardly applies.

As for the drug dealer on IB, I don't know why you think that would be ok for anyone on the left. And I'm perplexed if you really think that "New Labour" has not rhetorically targeted either drug dealers or abuse of welfare benefits, as it has done so fairly continuously since its inception.

Michael said...


'But your complaint was that it was unfair for someone who worked to earn only marginally more than someone on state benefits.'

No it wasn't. I used this an example to demonstrate the central point I was trying to make - that notions of justice and fairness can cut both ways, and to avoid the allegation of 'politics of envy' this must be recognised (and it is the perception of some that this is not always the case).

'I'm afraid that I regard things like the state pension as being neither wealth nor unearned so the point hardly applies.'

I completely agree. But then not everybody on state-benefits is a pensioner. Nor disabled, for that matter, to echo your previous post.

'As for the drug dealer on IB, I don't know why you think that would be ok for anyone on the left.'

I never said it would. I, again, used the example to demonstrate the point that - in terms of the reciprocity debate Sunder talked about - there is a difference between that 'unearned wealth' that comes from the state, and that which doesn't. Everybody would be angry about the drug dealer -the point I was trying to make is that the reciprocity argument applied to him is different in kind from that applied to someone for whom 'unearned wealth' accumulates independent of the taxpayer.

At the risk of flogging a dead horse, I'll leave it there. Thanks for your comments.