§ The First Secretary of State and Secretary of State for Employment and Productivity (Mrs. Barbara Castle)
With permission, Mr. Speaker, I wish to announce the Government's decisions on the recommendations in the N.B.P.I. Report 107, which is concerned with top salaries in the private sector and in the nationalised industries.
The Report reviews the application of incomes policy to movements in top salaries in private industry in the last three years and concludes that a measure of restraint has been exercised. However, the Board says that many companies are inclined to over-emphasise the importance of external comparisons when determining pay, with self-defeating results; what is required is the establishment of salary structures… which aim primarily to induce internally the assumption of greater responsibility and, consistently with the structure, to reward performance.The Board considers that the salaries of individuals can be judged properly only in relation to the salary structures in which they are placed.
The Government accept the Board's conclusions. It is clearly vital that full account should be taken of the prices and incomes policy in settling salaries at senior as well as junior levels. My Department will apply the principles suggested when examining proposals for salary increases and will consider, in consultation with the C.B.I. and T.U.C., the reference to the Board of salary structures of individual firms.
I turn now to the recommendations of the Board in relation to top salaries in the nationalised industries. It has for long been recognised that the level of top salaries in the nationalised industries has been too low. This is not just the view of the N.B.P.I. The House's own Select Committee on the Nationalised Industries said in its Report last year:The present rules must be abandned and a new start made toward fixing and paying a proper rate for the job"—and said that it believed… that the proper rate for the job must be significantly higher than that which is now generally paid.660 The Committee added:The State cannot afford to manage its public industries on the cheap. There is too much at stake.The Government fully accept the broad analysis made by the Board of the principles on which top salaries should be fixed in the nationalised sector. They agree that the present top salaries are at a level at which they are likely in the long run to have detrimental effects on the quality of management in these vital industries, particularly since the salaries of board members do not provide sufficient headroom for appropriate pay for senior management. They also accept that there is no need to fix salaries in the nationalised industries simply by reference to salaries paid in organisations of a similar size in the private sector.
The Government are satisfied that the Board's recommendations on the level of these salaries are also right in principle and should be implemented when the requirements of incomes policy allow.
The Government are, however, quite clear that at a time when they are requiring all workers in the country to show restraint in pay increases within the terms of the White Paper it would be wrong to allow increases in top salaries in nationalised industries which might be inconsistent with the prices and incomes policy. The Board iself recognises this in its Report.
The Board, therefore, recommends that, as from 1st April, 1969, the pay of board members should be increased on average by amounts equivalent to an overall annual rate of 2½ per cent. since they were last raised in 1964. Since the 3½ per cent. ceiling is applied to all workers as an annual rate since their last pay increase, the Board's recommendations for this group of salaries fall well within the ceiling.
The Government, therefore, accept the Board's recommendations that this increase on 1st April should be implemented, as it would be within the ceiling.
As the Board itself recognises, however, the further increases in top salaries in the nationalised industries which it recommends will need to be considered in the light of the developments in incomes policy over the next two years. The Government will review the situation in the light of those developments.
661 The Board's other recommendations affecting the nationalised industries will be the subject of further study and consultation with the chairmen of the boards concerned.
§ Mr. Maudling
The right hon. Lady will recognise that this statement is complicated and possibly a little delicate in places and that, therefore, we will wish to study it with considerable care before coming to final conclusions. However, I should like to put one or two points to her. First of all, is it right to draw the conclusion from what she said that the Government accept that the only possible criticism of top salaries in private industry is that companies may, from time to time, have paid too much attention to the need for paying competitive rates to maintain the best people? That appears to me to be what her statement means, and that implies very much also, does it not, to the position in the nationalised industries? In the light of what the P.I.B. has said, can she really assure the House that the Government will be able to obtain and retain people of adequate quality for the top posts in the nationalised industries on this basis? Is her statement really consistent with the recommendation of the Board in paragraphs 93 and 94 of that Report?
§ Mrs. Castle
The way that the right hon. Gentleman put the position in his opening remarks is not correct. I do not think that he has adequately represented the Prices and Incomes Board's own view. It has said quite categorically that it is a self-defeating process to go for high salaries on a competitive basis. The Government accept its view on this and believe that the important thing is for industries to have salary structures which adequately reward performance and efficiency.
With regard to the nationalised industries, clearly the same principles apply, but what we need here is to give some head room for the working out of proper salary structures beneath board level, relating pay and performance very closely and rewarding responsibility. That is why we are prepared to implement an increase on 1st April which will be within the ceiling, but we retain the right to review the further increases which the Board recommends in the 662 light of the developments of the next two years.
§ Mr. Maudling
May I press the right hon. Lady on the first point, on which she said that I had misunderstood? What is the good of paying people something appropriate to their performance if it is not enough to retain their services?
§ Mrs. Castle
Because this is just what the Board points out—that this competitive bidding is in the end self-defeating and is equivalent to the kind of leapfrogging in wage increases lower down the line which we have all spent a great deal of time in the House condemning.
§ Mr. C. Pannell
Will my right hon. Friend understand that, however much she qualifies it, a great many of us on this side will consider this statement completely mistimed and that it would have been far better to hold the statement until she was able to tell us that the prices and incomes policy was at an end? Does she realise that it will be considered in the country that giving way on this is like removing a wedge from a log jam which may affect the whole of industry?
§ Mrs. Castle
I cannot agree with my right hon. Friend. It is appropriate that the principles of the prices and incomes policy should apply universally. If we were to run away from doing this we would get ourselves into a situation which would reduce the efficiency and capacity of the nationalised industries. There are area board chairmen in, for example, the gas and electricity industries whose salaries of £4,500 a year have not been increased for five years. The trade unions in our movement would bitterly Wilson added.—[Mr. Fitch.]
§ Mr. Boyd-Carpenter
Arising out of what the right hon. Lady has said, is not the difficulty in which the Government now find themselves due to their failure to act in this matter for several years? Indeed, have not the nationalised industries suffered severely in terms of efficiency as a result of the compression of their salary structures at the higher level?
§ Mrs. Castle
I agree with the right hon. Gentleman that the compression of salary structures is producing management dangers. The Prices and Incomes 663 Board referred to this and the Government accept it as being a very real problem. It is true, I think, of both sides of the House that there is always reluctance to adjust salaries in this sector. As the Select Committee on Nationalised Industries unanimously pointed out, the result is that we have been running these vital nationalised concerns on the cheap. The Select Committee therefore advocated that this situation should be remedied.
§ Mr. Edwin Wainwright
While accepting that the salaries of nationalised industry chairmen have not, with the exception of one, been comparable with salaries paid in private industry for many years, would my right hon. Friend remember that an increase of 2½ per cent. on the sort of salaries about which she has been speaking is a huge sum of money? Is she aware that increases of this kind will not be looked upon kindly by, for example, members of the brick-workers' union who were refused a 1d. increase? Will she also keep in mind the impact that these increases are bound to have on people throughout the country and the trend for higher wages which will result and which will absolutely abolish the prices and incomes policy?
§ Mrs. Castle
I cannot accept my hon. Friend's conclusions. There are, of course, different pay and salary levels in this country, and I do not believe that any hon. Member has ever advocated uniform wage and salary levels. We must apply the prices and incomes policy fairly and, as I pointed out in my statement, these increases are equivalent to a sum less than the cumulative ceiling since the last increase.
In operating the prices and incomes policy, I have frequently authorised this type of increase. There was the recent Wages Council case in which an increase of 9.6 per cent. was authorised because there had not been an increase for three years. This is the principle on which the prices and incomes policy is operated.
§ Sir G. Nabarro
Is the right hon. Lady aware that in the instance of the Group A nationalised industry chairmen her award of 2½ per cent.—namely, £312 10s. a year—compares with the P.I.B.'s recommendation of an increase of £7,500 a year? Is she aware, therefore, that she is awarding £1 against 664 the £24 increase recommended by the Board? Would she explain how this can conceivably lead to the additional headroom which is so urgently needed in these industries for the lesser executives who are, nevertheless, important members of top management?
§ Mrs. Castle
The hon. Gentleman has misunderstood the position. I am announcing the authorisation of the increase from 1st April of what was recommended by the P.I.B. This represents an average annual rate of 2½ per cent. since the last increase for these chairmen. However, I entirely agree with the hon. Gentleman that this increase on 1st April will represent a rise of only about £400 a year in the net income of those concerned.
§ Mr. Orme
Would not my right hon. Friend agree that her endeavour to fetch these increases within the tortuous criteria of the prices and incomes policy makes absolute nonsense? Is she aware that to talk about a 2½ per cent. increase for people on £12,000 a year, when one thinks of what such an increase represents for people on £10 a week, only adds to the feeling of inequality and resentment in industry today? Is she saying that we must await a further decision about the prices and incomes policy before the second half of the report is made; and when will she make a report to the House? In other words, when will the Government make a clear statement about dropping the prices and incomes policy?
§ Mrs. Castle
The answer to the first part of my hon. Friend's question is that he really is wrong when he says that industry—presumably he means the Trade Union movement—resents the application of the percentage principle under the prices and incomes policy. On the contrary, I am constantly being bombarded by trade unionists about the need to maintain differentials through the application of the percentage system.
We would have a trade union revolt if I were to say that the percentage principle must not apply and if the differentials were narrowed. I am constantly being presented with examples at work level of how, for example, the differentials applying to supervisors have had inroads made in them by wage awards given to the chaps under them. 665 In those circumstances I am asked immediately to widen the differentials. I remind my hon. Friend that the sacredness of the differential was reaffirmed in the Economic Review of the T.U.C. Are we to say that there is some level of salary at which the differential principle should not apply? If so, I would be interested to hear at what point we should draw the line. What we have done in this case by accepting the increases recommended by the P.I.B. for 1st April is not to apply the ceiling equally to these board members and chairmen. On the contrary, it works out at less than 3½ per cent. per year.
The answer to the second part of my hon. Friend's question is, "Yes, that is true." I repeat what I have said previously; that the decision on further increases towards the levels which the Board recommended, and which we think are the right levels, must await developments in the prices and incomes policy in the coming years.
My hon. Friend then asked, thirdly, when we would be discussing this matter with the House. I can only tell him that I hope to be able to do that before too long.
§ Mr. Lubbock
Is the right hon. Lady aware that the 2½ per cent. cumulative which she is giving to the chairmen of the nationalised industries is, as a proportion, much less than lower-paid workers would have received because of the high levels of taxation which the chairmen are already paying? Does she agree that it is virtually impossible to balance the harmful psychological effect that would come from giving too large an increase to these chairmen against the disincentive effect on those on somewhat lower salary levels by not allowing adequate head room? Since we have been extremely fortunate in obtaining for the nationalised industries people of high calibre, is the right hon. Lady aware of the need to pay them properly?
§ Mrs. Castle
I agree with the hon. Gentleman that the boards of these industries have been running into severe difficulties because of the lack of headroom for the drawing up of proper salary structures for those at below board level. 666 This fact must be faced because it is in the national interest, as well as in the interest of those of us who believe in public ownership, that we tackle this problem. Even this increase, on 1st April—which, graduated though it is, looks large—will, for the chairmen, mean an increase in take-home pay of £400 a year.
§ Mr. Higgins
The right hon. Lady's reply to my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) has completely confused the position. She said that the Government accept the Report. Is it or is it not the case that on 1st April stage 1 of the increase as set out on page 28 of the Report will or will not be implemented?
§ Mrs. Castle
I have made it clear that stage 1 will be implemented on 1st April, and stage 1 represents an overall annual increase of 2½ per cent. since the last percentage increase.
§ Mr. Shinwell
Will not the chairmen of the nationalised boards be immensely relieved to learn that they are not to receive £7,500 a year increases, because they are always telling us that it is all absorbed in taxation? For example, Lord Robens said that it only meant a few bob a week to him. In these circumstances, why should we worry about it? Is not the proposition of my right hon. Friend quite satisfactory in the circumstances? But would she now consider, in view of these payments made to those in the top drawer, that she should be a little more resilient about people on the lower level? For example, I.C.I. decided recently to award something like 6 per cent. to 40,000 employees, and it looks as if this is suspended in mid-air. Will my right hon. Friend be a little more resilient about those on the lower level?
§ Mrs. Castle
My right hon. Friend is quite right is saying that the take-home pay is very much lower than the gross figure. This is one of the problems we have presentationally in this field. In regard to the second part of my right hon. Friend's question, half the time I am admonished and told to be more flexible and in the other half I am reproved for trying to drive a coach-and-horses through the incomes policy. The House is very difficult to please in this matter. I can assure my right hon. Friend that we apply the principles of the prices and incomes 667 policy to all those settlements or claims noified to us as fairly as we can under the rules and at the same time imaginatively and with flexibility.
§ Mr. Biffen
Can the right hon. Lady say whether she accepts the recommendation of paragraph 87 of the Board's Report, which suggests that there should be no increase in the pay of top people in the Steel Corporation until stage 3 is realised as intended in paragraph 94?
§ Mr. Sheldon
Is my right hon. Friend aware that she has accepted half the increase recommended for stage 1 for chairmen and deputy chairmen but the whole of the increase for members of boards? Will she say why she did that?
§ Mrs. Castle
No. I have accepted the whole of the increase for stage 1 for chairmen, deputy chairmen and board members. I have repeated this several times. I have pointed out that this is within the ceiling as an overall increase because they have not had an increase since 1964. The permitted average increase in these cases would be 17½ per cent., but the average increase they are granted is 12½ per cent.
Mr. Edward M. Taylor
Does the right hon. Lady realise that her decision will probably remove some of the absurd anomalies whereby recently-appointed members of the Railways Board have more money than the chairman, but does she realise that for stages 2 and 3 to come into force if her norm continues might take many years?
§ Mrs. Castle
I am not sure whether the anomaly will be removed even so. I have not the figures with me. I am aware of the anomaly to which the hon. Member has referred, and that is not the only case. I repeat that we shall have to review the further stages in the light of the developments of prices and incomes policy.
§ Mr. Heffer
Does my right hon. Friend agree that it is a totally "phoney" argument to suggest that differentials of 6d. or 1s. an hour for a supervisor in a factory or on a building site are in any way comparable with the sort of salaries 668 mentioned for top people in this document? Secondly, can she clarify this position, because stage 1, I understand, means that the deputy chairman will get 20 per cent.? Is she saying that a deputy chairman will not get 20 per cent. but merely 12½ per cent.? Can we get this very important point clear, because it is vital even in relation to her own prices and incomes policy which I believe is made a "dead duck" as a result of this decision?
§ Mrs. Castle
I want to make clear that the figures suggested in the Board's Report for stage 1 are being accepted. It is true that for the chairmen and deputy chairmen in some cases it will mean a 20 per cent. rise—[HON. MEMBERS: "Oh."] Certainly, but there is a far greater number of board members for whom the increase is only 10 per cent. One must average it out over the group, as is often done in other cases. I do not know whether my hon. Friend is about to protest that I have not given the board members enough. He cannot have it both ways. The simple fact is that it averages out over the group at 12½ per cent.
§ Mr. Speaker
Order. I must protect the business of the House. It begins with a debate on this very subject. May I remind the opener of the first debate that the first debate will end at 1.15 p.m.?