Wage and Salary Increases: Policy (Hansard, 15 January 1986)

§ Lord Grimond
My Lords. I beg leave to ask the Question standing in my name on the Order Paper.

§ Lord Brabazon of Tara
My Lords, pay for everyone, including these groups, should depend on what their employers can afford and what is necessary to recruit, retain and motivate staff of the right calibre to do the work effectively.

§ Lord Grimond
My Lords, does the noble Lord the Minister not agree that there were very clear statements from the Government that various settlements should remain below the rate of inflation? May I ask the Minister directly whether the Government intend to apply that policy to those people for whom they are themselves responsible? If the Government are expecting the lower paid to show restraint, surely it is for the well paid to show an example.

§ Lord Brabazon of Tara
My Lords, what we are interested in is not low pay but low unit costs. Therefore, if a company or employees of that company can justify salary increases through increased productivity and profitability, that is all well and good. As regards the workers for whom the Government are responsible, the Top Salaries Review Board reported and its recommendations have been taken into account in stages. The Top Salary Review Board was started in 1971 and it has been the policy of successive governments since that time to apply its recommendations.

§ Lord McCarthy
My Lords, does the noble Lord not agree that there is a basic inconsistency in what the Government are saying? In general terms they say that real wage improvements destroy jobs—that is what the Chancellor is saying all the time—but in particular cases the Government give increases which are far above increases in the cost of living. Very significant real wage increases are given to people at the top of the scale and then we are told that it does not destroy jobs. Where is the consistency, and how can the Government reconcile the inconsistency?

§ Lord Brabazon of Tara
My Lords, real wage increases will destroy jobs and real improvements in productivity will increase jobs. A 1 per cent. change in the average level of real earnings will, the Treasury estimates, in time make a difference of up to 1 per cent. in the number employed. As regards the people whom the Government employ, obviously, as I said in my original Answer, we must take into account what is necessary to recruit, retain and motivate those staff.

§ Lord Walston
My Lords, does the noble Lord consider that the Government are at the moment able to recruit, retain and motivate the teachers in their present jobs? Is he satisfied that the Government's policy is achieving their objectives in this respect?

§ Lord Brabazon of Tara
My Lords, I think the teachers' dispute is somewhat outside the terms of the Question on the Order Paper and it is certainly not something into which at the present time, while the two sides are at ACAS, I would wish to be drawn.

§ Lord Nugent of Guildford
My Lords, is my noble friend aware that the Government have a problem and they cannot get out of it by just quoting what they do for their own employees? Is he aware that very big salary or remuneration increases given to some of the heads of industry—sometimes 20 per cent., 30 per cent, or 40 per cent, increases in a year—really do shake public opinion, especially the opinion of their own employees?
Is my noble friend further aware that we all understand that there is an international market for this top talent, and that unless top people are paid in accordance with that then they may go abroad to America, Germany, or elsewhere? Is my noble friend also aware that, unless the Government take a view of this in talking to the heads of industry and ask them to restrain the very big increases that come from tune to time, they are undermining their policy of trying to keep wage claims at a lower level?

§ Lord Brabazon of Tara
My Lords, I tend to agree with my noble friend in much of what he says. Of course, many of these increases are as a result of links to the profitability of the companies involved. In those cases I should have thought that it is the shareholders of those companies who must decide whether their managements are being properly rewarded.
On the other hand, management must take into account that increases which they receive themselves, if they are of that order, will be taken into account when their own workforce puts in its pay claim.

§ Baroness Seear
My Lords, does the Minister agree that in fact it is not so much the payments in industry, high though they are in some cases, but quite extraordinarily high salaries that are being paid, often to very young people—relatively young people, at any rate—in the City of London, which are having an extremely disruptive effect on higher levels of pay throughout the Civil Service and industry?

§ Lord Brabazon of Tara
My Lords, the noble Baroness is quite right when she mentions the very high salaries which are being paid at the moment in the City of London. I think that this could be covered 1071 by what I said in my original Answer, which concerns the need to recruit, retain and motivate staff in that field. Whether, after all the changes that are due to take place in the City of London in the next year or so, all those salaries will continue to be affordable is anybody's guess.

§ Lord Williams of Elvel
My Lords, may I perhaps help the noble Lord by putting some figures on the categories that the noble Lord, Lord Grimond, has mentioned in his original Question? Inflation is at 5.5 per cent.; chairmen and directors, according to the Institute of Directors, up 11.1 per cent.; top management up, depending on whether you believe Charterhouse. Inbucon or Hay-MSL, between 11.5 per cent. and 15.6 per cent.; and the Top Salaries Review Board up 12.2 per cent. in the light of these figures, can the noble Lord perhaps give a more considered reply to some of the questions that have been raised in this House this afternoon; or are we to be told again that the top people can have their bread but the peasants are invited to eat cake?

§ Lord Brabazon of Tara
My Lords, that is not what I have tried to say in my replies at all. I have made it quite clear that the Government would like to see lower unit costs throughout industry, and through that an increase in profitability and productivity, and through that an increase in jobs. As I have said, it is the responsibility of the companies themselves to decide whether it is worth giving their top employees large salary increases and what effect it will have upon the rest of their workforce.

§ Lord Boyd-Carpenter
My Lords, are not the figures given by the noble Lord on the Front Bench opposite a trifle misleading, inasmuch as they ignore the fact that in the case of the people concerned at least 60 per cent. of these increases are then taken away in taxation?

§ Lord Brabazon of Tara
My Lords, my noble friend is quite right. I would also say, as I said to my noble friend Lord Nugent, that a lot of these increases are of course linked directly to the profitability of the companies concerned.

§ Lord Mackie of Benshie
My Lords, can the Minister say, in view of his desire for lower unit costs, what the Government are doing to motivate the workers who can promote lower unit costs and what measures they are taking to spread the profit-sharing schemes which have had such a big effect in improving efficiency in so many companies?

§ Lord Brabazon of Tara
My Lords, this Government's record in encouraging profit-sharing schemes and employee share ownership is second to none. I believe that at the time when we came into office in 1979 there were about 30 companies with employee share ownership schemes; and I think I am right in saying that there are now about 1,000.

§ Lord Grimond
My Lords, since wage and salary restraint is said by the Government to be absolutely central to their economic policy, will they consider giving rather more positive advice to these people in 1072 industry who are taking increases of anything up to 100 per cent.? Can they give a rather more definite indication of what they themselves intend to do for the salaries for which they are directly responsible? Are they to be limited to inflation or are they not?

§ Lord Brabazon of Tara
My Lords, I think I have already made clear what the Government's views are on this matter. As regards the salaries for which the Government are responsible, they must of course be limited to what the taxpayer can afford, and if one pays more than the rate of inflation then inflation will continue to go up.