HC Deb 23 July 1998 vol 316 cc1247-9
6. Mrs. Anne Campbell (Cambridge)

What assessment he has made of the effects of the current level of pay rises among senior business executives. [50492]

The Chief Secretary to the Treasury (Mr. Alistair Darling)

Pay in all sectors and at all levels must be related to what is affordable in the medium term. Senior business executives are no exception. It would be the worst of short-termism for senior executives or anyone else to pay themselves unsustainable pay increases today at the cost of higher interest rates, fewer jobs and slower growth tomorrow.

Mrs. Campbell

Does my right hon. Friend agree that large pay increases that are not related to productivity can only make firms less competitive and lead to inflationary pressures in the economy?

Mr. Darling

My hon. Friend makes an important point. Boardroom members who are telling others to pull in their belts and accept reasonable and affordable pay increases must show a lead. Our productivity record is not very good compared with other countries. Management has a role to play. I repeat that for anyone—senior executive or not—to pay themselves unsustainable pay increases today would bring the worst possible results, with fewer jobs and slower growth. Everybody—boardrooms in particular—should take the lead on that.

Mr. Geoffrey Clifton-Brown (Cotswold)

Does the Chief Secretary agree that the issue is not the amount that chief executives are paid, but their calibre and the performance of their companies, particularly their investment in infrastructure and the fact that consumers' bills since privatisation have been held at incredibly low levels? We all remember the times when nine out of 10 public telephones did not work and every high street in the country was being dug up by a different utility. The utilities are very different today. We need world-class companies such as British Telecom and other privatised utility companies.

Mr. Darling

I am not sure where the hon. Gentleman has been for the past few years. Many hon. Members can name many high streets that are still being dug up by the utilities. I am not sure when he last received a water bill, but many people's water bills have increased substantially.

The important point is that all boardrooms, particularly those of the monopoly utilities, should show an example—some restraint. The hon. Gentleman is right to say that calibre of boardroom members matters. Those of calibre should reflect on the fact that what they do is seen not only by those who work for them but by everyone else. I would have thought that it would be an example of calibre to show some degree of restraint in order to ensure that pay increases are affordable and that some of this year's increases, which, frankly, are very difficult to justify, are not repeated.

Mr. Dennis Skinner (Bolsover)

Does my right hon. Friend agree that expecting bosses, especially of the public utilities, to adopt the moral tone that the Government might encourage, and asking them to occupy high moral ground on their own pay, is not likely to work? They have never been prepared to respond in the past. As the Government have something to do with regulators and can propose public utility price levels, should they not take the opportunity to work in that direction? Should not the people whom the Government appoint to quangos—I do not like quangos, but the Government do, and they appoint thousands of people to them every year—impose conditions on bosses' pay? If we go down that road—it is public intervention for sure—we might get a better result than by merely preaching.

Mr. Darling

My hon. Friend makes an important point, particularly in respect of directors of monopoly utilities, who make their profits, to a large extent, because of their monopoly. He will know that the Government are considering action to ensure some degree of restraint in those boardrooms. I repeat that it is up to everyone, particularly senior executives, to show some responsibility and to set an overall example.

Miss Anne McIntosh (Vale of York)

Will the Chief Secretary comment on the future of pay review bodies apropos public sector pay increases? Does he share my view that it is more appropriate for consultants, doctors and nurses to receive a larger increase than public sector executives?

Mr. Darling

The hon. Lady will know that pay review bodies, some of which were set up more than 20 years ago, will remain. We have enhanced their responsibilities by asking them to have regard not only to recruitment, retention and motivation but, crucially, to affordability in order to ensure that whatever they award is consistent with Departments' obligations to achieve the targets set out in last week's review.

Pay review bodies must also have regard to the Government's inflation target. Although such bodies are of course independent and will come to their independent views, most people realise that, if we start to pay ourselves unjustifiable and unaffordable awards, we shall embark on the spiral that we saw far too often in the past, in which any gains from a pay increase that public service workers and others received were swiftly eaten away by inflation. We shall not return to those days.