HC Deb 03 February 1978 vol 943 cc983-92

Motion made,and Question proposed,

That this House do now adjourn.—[Mr. Graham.]

4.2 p.m.

Mr. R. A. McCrindle (Brentwood and Ongar)

It may at first be thought that the matter I propose to raise affects no more than about 100 men who are at the top of our nationalised industries, but I shall submit that the ramifications of the subject matter of this debate go very much wider and affect many more people.

I start by quoting an extract from the editorial leader in The Times of 17th December 1977 under the heading No rise since 1972: and now 5 per cent. The leader continued: Mr. Callaghan's decision on pay increases for nationalized industry chairmen and board members is the culmination of bungling and ineptitude of the first order. Its timing—24 hours before the Christmas recess and with no prior consultation with or warning to those concerned—is scandalous. I repeat that, although only a handful of people are concerned, a substantial injustice continues to be perpetrated, and this is leading to reduced morale which cannot be good for any of us. After all, millions of pounds of our money are involved in the running of these State industries, and the dissatisfaction of the present incumbents and the difficulties of recruiting replacements must put in doubt the efficient running of these vital and basic industries.

It may not be especially popular—it may even appear insensitive—to raise this issue now. Perhaps to plead on behalf of men earning five-figure incomes will never be timely. Yet I suggest that the treatment to which these men have been subjected over a considerable period is—and I choose my words with some moderation—little short of a national scandal. Whether it is by comparison with men occupying similar positions in private industry or whether it be by reference to the real value of their incomes compared with say, five years ago, the men on whose behalf I speak this afternoon have been treated appallingly.

If proof is needed, I suggest that the fact that 50 vacancies still exist in posts of the order of which I speak this afternoon is one eloquent testimonial. But another, and perhaps even more eloquent, is the statement by a former Secretary of State that he interviewed 13 applicants before he could persuade one of them to accept the chairmanship of a nationalised board. It is, I think, not unfair to deduce that that board is probably now run by the thirteenth best man available for the job.

Finally, in the catalogue of reasons for the bitter feelings among the people on whose behalf I speak there is the devastating effect of taxation on their incomes today by comparison with 1972. Although I know this is something from which we all suffer, I shall seek to prove to the House that these people have suffered disproportionately.

Turning to specifics, I deal first with the effect of taxation and inflation on the salaries of, first, a chairman and, secondly, a board member of a nationalised undertaking, taking 1973 and 1977 respectively. In 1973 a chairman's gross salary was £27,750 and his net salary after tax was £11,642. Four years later, his gross salary had risen by £350 to £28,100 and his net income had fallen to £10,203.

Of course, that takes no account of inflation. If the story were left there, it could be contended that such people had suffered no greater diminution in their standard of living than had most of us. But if the changes in the retail price index are taken into the equation, then, from a net income of £11,642 in 1973, the real net income of that same individual today is £5,451.

Nor can this position be said to be restricted to the chairman. I take now a board member in a nationalised industry receiving £17,250 in 1973, which was a net of £8,849. On the same basis, that man also is receiving £350 more in 1977, with a net income on the face of it of £8,167. But, applying again the changes in the retail price index, his net income is now £4,363.

Therefore, inflation has halved the real incomes of the people about whom I speak. Substantially increased incomes will be necessary to restore even partly the standard of living of these people. All of us have been affected in past years by a reduction in our standards of living, but it appears to me that no one—certainly not people in the Civil Service, certainly not comparable people in private industry, and not even, dare one say, Members of Parliament—has suffered the devastating fall in the standard of living to which I have just referred. These people have seen their differentials shrink, and the total increase in their pay, which I pinpointed as £350 over that time, has been substantially surpassed by the amount by which every one of their employees has had his income increased in the same period.

I speak on behalf of little more than 100 men—chairmen, deputy chairmen and members of boards, very important people in the running of the economy of this country, and employing 2 million people. They have been the subject of a sufficient fall in their standards of living that there is now a total lack of motivation. I suggest that something must be done.

The last straw was the Government's decision to give a 10 per cent. increase to those earning less than £13,000 and a niggardly 5 per cent. increase to those above that level. This has resulted in a further shrinking of differentials. To use the vernacular, the game of being a board member of a nationalised industry is not worth a light.

There are many examples of board members on salaries less than those of officials in their departments who are their juniors. Appointments are being advertised on a 1974 pay level. I can only deduce that the people who would be expected to apply are expected to have an exaggerated sense of public service.

Can we be surprised that people are leaving the nationalised industries? Can we be surprised that these men have been forced to form the most exclusive of trade unions, the Association of Members of State Industry Boards?

It is not enough to call for a substantial reduction in taxation, although in their interests, as in the interests of all of us, that is necessary. A whole new system is required if the nationalised industries are not to grind to a halt. Therefore, I want to put a double proposal to the Minister.

As for people other than chairmen, I believe that one part only of their salary should be decided as a fee for board membership and that that part of the salary should be set by the Government; but I believe that the remainder should be left to the decision of the board itself, and the decision should be taken by a joint committee of, say, the chairman and the non-executive members of the board. I believe that the way to take care of the chairman's remuneration is to go about it in the same way but to have a percentage factor that one adds to the deputy chairman's salary, arrived at in the fashion I have described.

I do not pretend that this is an exclusive solution. I put it forward in the genuine belief that something must be done if we value our nationalised industries and want to see them run properly and economically.

I end as I began with a quotation from the editorial in The Times of 17th December: The Government may live to regret its decision. First, by this action, it will forfeit the trust of the men and women on whom it relies to run the state sector of industry wisely and efficiently; secondly, it may well lose, through resignations, people whose skills will not be easily replaced; thirdly, it may find that the general public, far from being impressed by the Government's resolve to discriminate against the higher paid, may in fact see it as a shabby example of the politics of envy. I believe that if we wish to retain the people we have, and if we wish to recruit those without whom the nationalised industries cannot continue, the time is now to evolve a new system. That new system must be devised and it must be devised quickly.

4.13 p.m.

The Minister of State, Civil Service Department (Mr. Charles R. Morris)

I have no wish to sound patronising in any way. The hon. Member for Brentwood and Ongar (Mr. McCrindle) has made an impressive and persuasive case on behalf of those for whom he has spoken. I am grateful to him for the opportunity that it gives me to put forward the Government's position on this issue.

I should say at the outset that the Government fully recognise the crucial contribution to the running of these important industries that chairmen and individual board members continue to make. Equally, I am mindful that they have seen their salaries depreciate in real terms relatively more than those of others at similar levels. We recognise and understand their strong feelings in this regard. That this group has suffered a heavier burden than most is a serious anomaly that the Government accept they must begin to correct as soon as they can.

It says much for the loyalty and forbearance of present chairmen, deputy chairmen and board members that there are currently relatively few vacancies. The hon. Gentleman suggested that there were 50. I consulted my officials and confirmed that there were only about 10 at present. With the greatest good will, I think that the hon. Gentleman has probably confused the statutory complement and the working complement.

The Government are grateful for the service given by chairmen, deputy chairmen and board members at a time when the needs of the nation as a whole must come first, but we also recognise that this anomalous situation cannot continue in the longer term without adverse effect on the industries as well as on the morale of individuals. The hon. Gentleman rightly referred to the question of morale.

I should like now to outline the background. The hon. Gentleman referred to the editorial in The Times under the heading "No rise since 1972…". Both The Times and the hon. Gentleman recognise that the starting point when we consider the background is the sixth report of the Review Body on Top Salaries submitted to my right hon. Friend the Prime Minister's predecessor at the end of 1974. This was the Review Body's first substantive report. Before that it had made interim recommendations while the review was taking place, but the sixth report contained the first substantive recommendations. They were for substantial increases.

The Government recognised at the time that the salary rates recommended were appropriate rates on the principles upon which the review had been conducted. But the recommendations had to be considered at a time of a rapidly worsening economic situation. Hon Members will recall that this worsening economic situation led in July 1975 to the introduction of strict measures to control pay increases in order to counter the serious inflationary situation which had developed. We are now, as a nation, beginning to see the fruits of that action.

The Review Body recommended substantial pay increases. Most were below £6,000 per year, but those for chairmen and deputy chairmen in the major nationalised industries were appreciably higher:—16,900 a year for the Chairman of the Post Office;—11,900 a year for the chairmen of the coal, gas, railway and airways industries and the Electricity Council; £13,900 and £9,900 a year for the deputy chairmen. These increases were recommended by the Review Body as appropriate to bring the salaries up to date at January 1975.

The Government felt that the Review Body's recommendations raised wider questions about the absolute size of income at chairmen and board member levels in private industry from which comparisons were derived. The social justification for the very high incomes and considerable fringe benefits in private industry was open to question. In the economic circumstances of the time, when people on much lower incomes were being asked to show restraint, increases of the order proposed were particularly diffcult to justify. It was the essence of the social contract at the time that, if those who were least well paid were to improve their relative position with the resources available, the most highly paid should accept the need for extreme restraint.

While, therefore, the Government accepted that in the Review Body's judgment chairmen and board members of major nationalised industries were earning lower salaries than their counterparts, these wider considerations led to the announcement in December 1974 that the Government proposed to postpone decisions on the Review Body's recommendations for chairmen and board members of nationalised industries to permit further consideration of the group in the light of the report of the Royal Commission on Income Distribution and Wealth and of any decisions by the Government following that report. At the same time, we called upon those in the private sector—and elsewhere in the public sector—to exercise the greatest degree of constraint in relation to salaries at these top levels.

Following that decision, as I have already noted, very strict measures were necessary to control inflation in the national interest. During the period of pay policy, from July 1975 to August 1977, the Government nevertheless considered, fully and sympathetically, whether anything might be done to begin to correct the anomaly in board members' pay. Technically this might have been possible because the anomaly arose before the stricter policy was introduced. But the Government felt bound to have regard to wider considerations. Pay increases beyond the guideline levels to such a relatively highly paid group would, in our view, have been difficult to justify in principle, and seriously damaging in practice at a time when the community in general was being asked to accept severe restrictions on the level of pay increases.

Moreover, it was inherent in the policy which they were being asked to accept that such resources as were available should be distributed in favour of the lower paid. We reluctantly concluded that for these wider reasons the time was not right to make a start to remove the anomaly and that all that could be allowed were the pay increases permissible under the guidelines.

Mr. McCrindle

Even if we accept the argument that the Minister is eloquently putting to the House, may I ask why it was thought necessary to allow a 10 per cent. increase for those earning under £13,000—because £13,000 in all conscience is hardly thought of as being a low salary—and only 5 per cent. for those earning over £13.000? Was this not, as the editorial in The Times implied, the politics of envy?

Mr. Morris

I cannot accept that this was an illustration of the politics of envy. It was a recognition of the scale of salary earned by those at the top and by those on the boards of nationalised industries.

I emphasise that the Government's first priority was to establish these guidelines for the current pay round and to maintain them. We accept that present salaries in the boards of the nationalised industries are out of line and should be adjusted when this is possible. But it is also true, as I have already shown, that substantial absolute sums of money would be needed to redress this situation.

As my right hon. Friend the Prime Minister made clear in answer to a Question from my hon. Friend the Member for Walsall, South (Mr. George) on 15th December, the Government could not ignore the measures which are still being taken to control inflation in the national interest and which still demand considerable restraint from all sections of the community. We had to take account, not only of the scope for pay adjustment, but also how the absolute sums relate to what the community as a whole is being asked to bear.

The Government concluded that to allow substantial increases at the present time would not be consistent with the restraint on pay which they are asking from the community as a whole. Because of these wider considerations, the Government decided that at the present time, for these higher pay levels—£13,000 a year upwards—the most that could be allowed was a 5 per cent. increase. I know that the hon. Gentleman objects, but we believed that the 5 per cent. and 10 per cent. distribution was the most equitable in the circumstances.

The Government recognise that their decision makes little impact on the comparative position. It still leaves the pay of board members significantly out of line with that of their counterparts and, as my right hon. Friend the Prime Minister stated, the Government will be looking at the way forward when the Review Body makes its next recommendations.

I am grateful for the forbearance of hon. Members while I have sought to put the problem in its historical perspective. However, I would not wish them to think that these decisions have been easy for the Government or that we are not sympathetic and sensitive to the position of the nationalised industry chairmen, deputy chairmen and board members.

The Prime Minister has stressed the importance of the Review Body's next report for the Government's longer term decisions. The Review Body has given the Government valuable assistance in the past and it is important that it should continue to do so.

The Government hope that, despite the disappointment it must feel over the events since its sixth report, the Review Body will be able to provide up-to-date information on the appropriate pay rates for its next report at an early date so that the Goverment can decide how best to begin to remedy the particularly anomalous position over the pay of this group.

While the Government must maintain their progress in containing serious inflation in the interests of all the community, I assure hon. Members that we shall continue to look for ways of improving the situation.

Question put and agreed to.

Adjourned accordingly at twenty-six minutes past Four o'clock.