HL Deb 23 May 1977 vol 383 cc1143-56

6.10 p.m.

Lord BOYD-CARPENTER rose to ask Her Majesty's Government when they propose to take action to deal with the damage and anomalies created by their decision in December 1974 to make none of the improvements in the remuneration of whole-time members of public sector boards recommended by the Boyle Committee while allowing substantial improvements to all other categories covered by the same recommendations. The noble Lord said: My Lords, I beg leave to ask the Unstarred Question standing in my name on the Order Paper. In doing so, I must say two things. First, I must declare a possible interest. As I think a number of Members of the House know, I was Chairman of the Civil Aviation Authority from April 1972 until March of the current year. This is one of the bodies which is very much involved in the Unstarred Question that I am raising. Secondly, I must make it clear that the issue I am raising has nothing whatever to do with the current problems which the Government are facing in respect of pay policy, wage restraint and the like.

This Unstarred Question arises from a report made as long ago as December 1974 and intended for operation on 1st January 1975. In fact, three of the four categories involved were put into operation with effect from 1st January 1975. If that is not sufficiently conclusive, I have in my possession a letter dated 21st July 1975 from which I can quote, although I think the noble Lord the Lord Privy Seal knows of it, from the then Prime Minister and which makes this perfectly clear. The issue relates to the decision of the Government taken in respect of the chairmen and members of public sector boards, including nationalised industry boards—a body of rather fewer than 150 people.

The facts are starkly simple. During the summer and autumn of 1974, the Top Salaries Review Body, presided over, as the House knows, by my noble friend Lord Boyle of Handsworth, took a mass of evidence about the proper levels of remuneration for four categories of people: senior civil servants, senior members of the Armed Forces, the senior Judiciary and the chairmen and board members of public sector bodies. As the House will expect of any body presided over by my noble friend, it took a mass of evidence and produced in December 1974 a well balanced and moderate report. Report No. 6 of the Top Salaries Review Body (Cmnd. 5846) was presented to Parliament by the then Prime Minister in December 1974.

The Government accepted broadly the recommendations in respect of three of the four categories—that is, the senior civil servants, the senior Armed Forces officers and the higher Judiciary—and in considerable measure put them into operation with effect from 1st January 1975. To be precise, they granted them in full where they involved salaries up to £13,000 a year. Where they involved salaries above that level, they put them into effect for an amount half way between £13,000 a year and the amounts recommended, and they undertook to put the rest into effect from 1st January 1976.

It is fair—I am not sure what way—to point out that that undertaking was not, in fact, honoured. What they did—and I think it is of very great importance—was to provide that as from 1st January 1975 the three favoured categories would receive their pensions on the basis of the full Boyle recommendations. As regards the fourth category, the members of the nationalised boards whose case I am raising in this Unstarred Question, there is a very sharp contrast. Apart from one or two minor adjustments, which those concerned as chairmen of these boards fought very hard with Whitehall to obtain, in general they did not receive any of the Boyle increases.

At the time, the Government used the pretext that any decision on them, although not on the other three, must await the report of the Royal Commission on Incomes and Prices, the Diamond Commission. That august body has now reported several times. None of its reports seems to have any particular bearing on the salaries of the members of nationalised industry boards, certainly to no greater extent than they have a hearing on the pay of senior civil servants or Armed Forces officers. The result is that the Boyle recommendations, for just this one category, have been frozen. The result is that, having had no increase since 1972, most members of these boards have, as a result of the combined effect of the freeze, inflation and taxation changes, suffered something of the order of a 50 per cent. cut in their remuneration in real terms.

The consequences are undoubtedly grave. They come under two headings which, for the sake of brevity, I will take very quickly. They are, first, harshness and unfairness to a limited number of individuals and, secondly, loss of efficiency and damage to the public interest. Taking the first point, the question of individuals, there would have been a certain rough logic, although I think that it would have been wrong, if in December 1974 the Government had said that in the then state of the country nobody should have an increase. But they did not say that. They gave the greater part of the increase to the other three categories covered by the Boyle recommendations but discriminated against this limited number of hardworking and responsible men. This discrimination was particularly obvious—I am going to quote it as an example, although I am raising the point generally—in the case of the Civil Aviation Authority with which, as I have told the House, I was until quite recently associated.

Most of the full-time board members of the Civil Aviation Authority were formerly civil servants who transferred to the Civil Aviation Authority when it was set up. There they have been doing, sometimes after promotion, the same kind of work as they did when civil aviation work was carried out inside Government Departments. Now, however, they have an additional responsibility, which they did not have as civil servants: the collective responsibility of a board member who takes decisions, rather than their earlier, lesser responsibility, serious though it was, of advising Ministers. They have seen their former colleagues in the Civil Service—their contemporaries in that Service and their friends, as it were—receiving the increases to which I have referred, while any appreciable increase has been denied to them. The House can understand the feelings of men who, public-spiritedly, transferred from the Civil Service to do this job and who now find themselves treated in this way.

Moreover, the freeze is confined only to those people in the Civil Aviation Authority—and, so far as I know, to those people in the other public sector bodies—who are members of the Board. The staff and officers of the Civil Aviation Authority have, quite rightly, received broadly the same kind of increases as civil servants have had, and the result has been quite astonishing. It has not been a case of the erosion of differentials, of which we hear so much in industry today. It has been a case of the reversal of differentials.

To justify that statement I will quote just one example, although if the Lord Privy Seal were to challenge me I could quote a number more. My example is that of a very able man who performs the duties of controller of safety in the Authority. This is an immensely important job which covers both the operation and the airworthiness of aircraft from the safety angle. That officer was promoted as an officer to membership of the Board a couple of years ago and therefore now falls under the freeze on Board salaries. His successor in the appointment from which he was promoted in the Authority now receives £1,800 a year more than he does, with his extra responsibilities and his Board membership.

The story does not stop there because that successor's successor two grades down now receives £1,200 a year more than the controller of safety himself. That is an impossible situation which must give rise to great feelings of grievance, as it does to another full-time member of the Authority who was recruited on the basis that he would receive a salary equivalent to an Under-Secretary but who has seen Under-Secretaries' salaries raised but his own frozen. It cannot be right to treat men doing very responsible and difficult jobs in this way, and of course the practical consequences the House will appreciate only too well. It is now impossible of course to promote—if I may use the word, and if Hansard will print it in inverted commas—anyone from being an "officer" of the Authority on to the Board because that promotion would cost him anything between £2,000 and £3,000 a year. Indeed I am told that since I left the Authority the man who fills the vitally important job of controller of the national air traffic services, and handles the whole air control of the United Kingdom, has declined to join the Authority Board because to do so would involve the sacrifice of his well-earned salary of several thousand pounds a year.

The result is—and I am told this is true all through the nationalised industries—that there is now a large number of vacancies. They are carrying on, as the Civil Aviation Authority is carrying on, simply by not promoting and putting on their Boards the heads of divisions and departments and thereby not getting the advantage of their combined wisdom and judgment in the decisions that the Board has to make. This is plainly damaging to efficiency. I suggest it is plainly a nonsense. It is difficult to defend in logic, and I do not suppose the Lord Privy Seal will attempt to do it, because he is a most sensible man and an extremely good Parliamentarian, as I know from spending so many years in another place. To say that when a man is performing a very important full-time job the mere fact that he is also a Board member with those additional responsibilities should penalise him to the extent of some thousands of pounds, is quite indefensible.

Before I left the Civil Aviation Authority I warned the Secretary of State for Trade that it would be impossible to fill vacancies. I understand that the chairmen of many nationalised industries have done the same. Hence the vacancies. One cannot offer promotion with a financial penalty; one cannot recruit outside at thousands of pounds a year below the market rate. Therefore, not only because individuals have been treated with really quite peculiar and intense injustice, but also because the efficient working of the public sector Boards responsible for a large and important part of the British economy is being jeopardised, I thought it my duty to seize the opportunity tonight to raise this matter in your Lordships' House, and to beg the Lord Privy Seal and the Government of which he is a member to take remedial action as speedily as possible.

It is perhaps a little ironic that it should he a Labour Government, who created most of the Boards in the public sector, who indeed largely created the public sector, and have taken great and often legitimate pride in their creations, who are jeopardising the efficient working of those responsible for these industries, for a sum of money, payable of course by the Boards themselves, not from public funds, which is utterly trivial in relation to their turnover. I have a feeling that we have only to deploy anomalies so gross to contemplate damage being done for reasons so trivial, that a remedy will be found. It is for that reason that I have sought this opportunity to raise this matter tonight.

6.25 p.m.

Lord TREFGARNE

My Lords, the matter highlighted by this Unstarred Question tonight by my noble friend Lord Boyd-Carpenter is becoming something of a national scandal. As the noble Lord has said, the problem is simply that the salaries paid to full-time public Board members have now fallen so far behind their counterparts in private industry, and indeed, as the noble Lord has explained, the officials who work under them, that the numbers coming forward to serve on these Boards are diminishing to the extent that upwards of 50 vacancies now exist, including part-time appointments, many of which are directly caused by the low or inadequate salaries offered. I foresee a time not too far off when the quality as well as the quantity of the candidates will decline. I would in fact suggest that some recent appointments have been somewhat surprising, so already we are taking a chance about whether the appointments will prove successful.

What is the scale of the problem highlighted by the noble Lord? I think there are just over 100 full-time public Board members at present being paid anything between £10,000 and £32,000 a year. Incidentally the latter figure of £32,000 a year is paid, as far as I can ascertain, to only one chairman, he being quite recently appointed. I omit, of course, the number of part-time members who fall outside the scope of this Question. With a few exceptions the full-time members occupy the most senior positions, so it is not unreasonable to say that upon their efforts depends the success or failure of the enterprises they manage.

As the noble Lord, Lord Boyd-Carpenter, has explained, these people have been singled out for peculiarly unfair treatment by the Government. One cannot but wonder whether the narrow exclusion of these public Board members was because they lacked some industrial muscle and because their salaries (uniquely, I believe) are controlled by ministerial decree. As the noble Lord, Lord Boyd-Carpenter, has said, categories covered by the Boyle Report, except for the ones we are discussing tonight, have all been awarded increases either wholly or partially in line with the Boyle Report. Furthermore, as the noble Lord mentioned, one group at least was granted pension rights relating to the full increase as recommended by the noble Lord, Lord Boyle, although the increase itself was for a while delayed.

It seems to me incredible that this Government, the champion of public enterprise, should have chosen to take steps peculiarly calculated to cause the maximum damage to what the right honourable gentleman the Secretary of State for Energy once hoped would become the commanding heights of British industry. I said earlier that the salaries paid at present range from £10,000 to £32,000 a year. It is difficult, if not impossible, to say by what average percentage these salaries have fallen behind the Boyle recommendations, because the range is so wide, but even to bring the salaries up to Boyle without regard to the inflation which has occurred since 1974 would need increases perhaps as high as 50 per cent. I have said, and I re-emphasise the point, that the present salaries are now so low that many vacancies exist because so many suitable people are disinclined to serve, and indeed some recent appointments have left much to be desired.

What then is to be done? First, I believe that a substantial increase must be agreed forthwith, particularly in those organisations where the Board members have served continuously through a long period of wage restraint, both voluntary and statutory. I should have thought that as a first step a phased increase up to the level suggested by the noble Lord, Lord Boyle, would be appropriate. As I have said, the percentage increases to achieve even these modest targets in some cases would have to be very substantial. It is for that reason that I suggest that the increases up to the level of Boyle should he phased over, say, 12 or 18 months.

Secondly, as and when the 1974 Boyle level is reached, a formula should be devised to bring the salaries up to a proper level for the circumstances then prevailing, bearing in mind that the Boyle recommendations related to December 1974. I recognise that the scale of these increases would appear very substantial, but I would emphasise that the number involved, as the noble Lord has said, is very small, that the cost falls largely upon the revenue of the bodies themselves and not on the public purse, and that in any event a grave injustice is clearly being done.

Having brought the salaries up to a level competitive with the industrial world at large, a method should be found of keeping the salaries in line by a system of regular reviews. It may be that an automatic increase to keep up with inflation would be politically unacceptable, but strenuous efforts must be made to avoid huge discrepancies in future. There are ways by which the political difficulties to which I have referred, and which no doubt stand in the way of the Government, can be ameliorated. They could, for example, extend the period of phased increases while allowing pension entitlements to be immediately calculated on the basis of the Boyle salary levels. I also believe that taxation rules could be altered with advantage in this special area. I think the Government ought to be persuaded to agree to the introduction of a cut-off arrangement by which salaries —that is to say, earned income—were taxed at a rate not exceeding, say, 60 per cent. A great deal of the bitterness caused by these anomalies would thus be avoided. Such an arrangement would be consistent with the rules applying throughout most, if not all, of the EEC.

I want, finally, to counter the argument that the correction of these serious problems would result in an unacceptable increase in public expenditure. I believe that if the board members are properly and fairly remunerated the efficiency, and hence the profits, of the bodies concerned will be greatly enhanced. The gross cost, before allowing for any increase in profits, would, in any event, as the noble Lord, Lord Boyd-Carpenter, has said, be infinitesimal by today's standards. My Lords, the Government must act before our public bodies become the laughing stock of Europe.

6.33 p.m.

Lord PEART

My Lords, the noble Lord used strong language and I regret that he did, because I do not believe, despite whatever arguments are presented to me tonight, they merit it. I would say this to the noble Lord, Lord Boyd-Carpenter: I think the noble Lord put his case fairly, and, as always, clearly, and pleaded for remedial action; so it does give me an opportunity to explain the Government's position on salaries at present paid to the chairmen and members of nationalised industry boards, not only the boards mentioned by the noble Lord, Lord Boyd-Carpenter, connected with the civil aviation industry.

The position in which they find themselves now is, I agree, unfortunately, the product of unforeseeable circumstances. Nor have the Government taken a decision not to implement the recommendations of the Review Body on Top Salaries, as the Question suggests. No decision has in fact been taken, for a variety of reasons. I hope noble Lords will bear with me if I explain those reasons in some detail, since the Government are acutely aware of the difficulties that have been created for individuals as a result of what has happened, and indeed have a good deal of sympathy for them.

I would begin by referring the noble Lord to the Statement, to which the noble Lord referred, made in another place by the then Prime Minister on 20th December 1974. The Prime Minister drew attention to the fact that the increases—which the Review Body recommended for chairmen and members—raised wider questions about incomes at boardroom level in private industry, with which these nationalised industry salary levels are compared. He went on to say that decisions on these recommendations would be postponed until the Royal Commission on the Distribution of Income and Wealth had reported. Mention was made of Lord Diamond, who is chairman of that Commission.

But circumstances have compelled us to delay a decision on the recommendations far longer than we would have wished, or was envisaged at the time of the Prime Minister's announcement. At that time it was thought that the deferment of a decision would not last much beyond July 1975, when it was hoped to have available the report on higher incomes prepared by the Royal Commission chaired by my noble friend Lord Diamond. This did not prove possible, and the report was not submitted to the Prime Minister until December 1975. By this time the Government were no longer able to act freely on the increases recommended by the Review Body. In the previous summer we had had to introduce the voluntary measures proposed by the TUC to restrict salary increases in order to counter inflation. The pay policy introduced in July 1975, as we all know, consisted of a set of simple but tough measures, equally applicable to everyone. A lot of people have objected to this, just as some people object to the Government not cutting down public expenditure, and then say, "We want more expenditure for various reasons", because it is popular to say that.

In theory, the increases recommended by the Review Body could have been paid without technically infringing the policy, as indeed the then Prime Minister indicated to the chairmen of the nationalised boards. The reason for this was that the increases were to have effect from 1st January 1975, before the policy began. However, at the time when the Royal Commission reported in December 1975, the existence of a strict pay policy meant that the Government could not consider the recommendation in isolation, whatever the theoretical merits of the case. They had to consider whether during the first round of a tough pay policy it would have been right to allow very substantial increases—up to almost £17,000 a year—at a time when all those whose earnings were below £8,500 were restricted to increases of £6 a week. These are the hard facts.

Against that background the Government could hardly have contemplated increases of up to £325 a week to chairmen and members of nationalised industry boards. To do so would undoubtedly have jeopardised the continuing acceptance of what was, after all, a voluntary pay policy. We were at that time in the middle of a national economic crisis, and the wider interests of the country had to come first. The measures to counter inflation had to take priority, even though this meant inflicting undoubted injustice on individuals.

The reasons that influenced us during the first round of pay policy are still relevant. The current round, with its maximum increase of £4 a week, is even tougher than the first. Once we had successfully achieved restraint during the £6 pay policy, it would have been folly to risk a reaction against the present round by allowing substantial increases while it is still in operation.

The noble Lord's Question refers also to the fact that part of the Review Body's recommendations were implemented. Higher civil servants, senior Armed Forces officers and the higher Judiciary received an increase. Only the nationalised industry board chairmen and members did not. This was put quite clearly to me this evening, quite rightly, from the point of view of the noble Lord, Lord Boyd-Carpenter. The reason for this was that the size of the increases and the new salary levels in the case of the other three groups covered by the Review Body's report were on a smaller scale than those for the nationalised industries. They did not give rise to the same considerations of the social justification for very high salaries.

Lord BOYD-CARPENTER

My Lords, is it not a fact that the recommendations of the Boyle Committee for most of the bodies, such as the Civil Aviation Authority, were for very comparable figures to those which were recommended for the Civil Service which the Government accepted? Is it not a fact that the noble Lord's remarks apply to only a few of the more spectacular chairmanships, such as the Post Office and the Iron and Steel Commission? Why could not the Government give Civil Service treatment to people who, in many cases, were ex-civil servants?

Lord PEART

My Lords, I have stated the position. It is quite true that there were only a small number of people in the nationalised industries to which that applied and one of the arguments advanced today is about why they were not given the increases. I have conceded that the higher civil servants, the higher Judiciary and Armed Forces officers received an increase. I accept that only nationalised industry Board chairmen and members did not. One can argue about this. I am simply saying that the reason—and it is the reason by which the Government stand—was that the size of the increases and the new salary levels in the case of the other three groups covered by the Review Body's Report, were on a smaller scale than those for the nationalised industries. There is no question about that.

Lord BOYD-CARPENTER

My Lords, will the noble Lord allow me to interrupt again?

Lord PEART

My Lords, perhaps I may complete my remarks. I shall naturally allow the noble Lord to interrupt me. I know and respect him. He said something kind about me when I was in another place and I could say the same about him. He is a very good Parliamentarian. I am not trying to score debating points. This is the information that I have been given. Even so, the increases recommended for these other groups were not paid in full. Where the recommended salaries exceeded £13,000, increases above that figure were halved. The second instalment was due to be paid in 1976. Like the increases for nationalised industry members, it still remains unpaid.

Lord BOYD-CARPENTER

My Lords, I am grateful to the noble Lord for his habitual courtesy in giving way. I should like to put this question to him. If the obstacle in the way of doing anything for these people was that the impartial Boyle Committee had recommended that they should have a bigger increase on the merits than the others, would it not have made some sense to have given them, at the same time, at least what the others received?

Lord PEART

My Lords, as I have said, we could argue about that but the Government decided—rightly or wrongly—to pay as they did. As I have said, like the increases for nationalised industry members, it still remains unpaid.

Nevertheless, these others groups received the first stage of their increases before the counter-inflation policies were introduced. They have, therefore, fared less badly than the nationalised industry Board members. As I have explained to your Lordships, it is the deferment of a decision followed by the introduction of pay policy in 1975 that has so far thwarted any action to bring the groups together again.

The noble Lord, quite rightly, mentioned the many difficulties that have arisen because of the deferment. In particular he mentioned the strain that has been placed on the loyalties of the Board members concerned. The non-payment of the increases was undoubtedly a severe blow to them—I accept that. Nevertheless, they have accepted the position with fortitude and have shown their loyalty to the industries which they manage in a most worthy manner. That is why I do not accept the extravagant language of the noble Lord, Lord Trefgarne.

Lord TREFGARNE

My Lords, may I ask the noble Lord to which aspect of my "extravagant language" he takes exception?

Lord PEART

My Lords, it was the part about being the laughing-stock in Europe.

Lord TREFGARNE

My Lords, I said, "will be".

Lord PEART

I stand by what I said. I hope that extravagant language like that will not be used. In particular I should like to pay tribute to those chairmen who, while championing the cause of the Board members' salaries with vigour and determination, have continued to shoulder the sacrifices they have been asked to make in the cause of the attack on inflation.

Inevitably, the salary situation has caused some difficulties in the recruitment and retention of chairmen and members for the boards of our nationalised industries. Nevertheless, the picture is not all black. Despite the fact that salaries are still at their 1974 levels, the Government have continued to recruit able people of the highest standing to fill the vacancies at chairmen level.

There have, however, certainly been some problems with board member vacancies. The deferment of the 1975 increases, as the noble Lord has mentioned, has meant that the salaries of board members have been overtaken by those of senior officials who have received any increases due in 1975. Quite rightly, the noble Lord mentioned that. Obviously such an inversion of salary relativities is embarrassing to the individuals concerned. It is hard to defend except on the basis of rough justice imposed by the introduction of pay policy. But any pay policy that is both simple and tough is bound to create anomalies through the cancellation or postponement of increases that were in the pipeline. This has happened in several spheres and it is, in effect, what has happened here.

The problems described by the noble Lord, Lord Boyd-Carpenter, are therefore only too well known to my colleagues and to me. We are alive to the need to solve them; they must be solved. The noble Lord pressed me to do it as quickly as possible. My hope is that we shall be able to do so before long. However, for this we shall inevitably have to choose an appropriate time to make the adjustment, and I am afraid that that moment has not yet arrived. I cannot make any specific commitments, any date, for the future, as your Lordships' House will understand, but I can assure all who are concerned with this problem that it really is our desire to resolve it as soon as possible, and I want to do so.