The Public Sector Rich List- a couple of thoughts


by Gracchi    
6:16 am - November 29th 2007

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The Taxpayers’ Alliance published a couple of weeks ago a public sector rich list. Its a really good political ploy from an alliance whose main cause is the reduction of taxation but what is interesting is that the implications of compiling such a list actually tend to go in different directions to those in which the Taxpayer’s Alliance wishes to push British politics.

Firstly its noticeable that on their website, they claim the need for this survey because these public sector workers are paid so much more than teachers, soldiers and policemen. The politics of envy resurfaces and is evident in many of the comments! Such an argument presupposes a commitment of some kind to equality- and acknowledges the injustice of directors of the Royal Mail sitting in plush offices earning millions whilst soldiers sit in Basra risking their lives earning thousands. I’m not sure how that sits with the reductions in taxation that the TPA advocates elsewhere- nor am I sure that the only inequalities are within the public sector.

Secondly they argue that the salaries of public officials should be justified- and they are right. Lets take Adam Crozier, chief executive of Royal Mail. He is paid a ridiculously vast amount of money, but he was recruited from being Chairman of the FA- and before that was a leading advertiser. If the TPA believe in the efficacy of private markets setting wages then Adam Crozier is probably being paid at about the market rate for a chief executive- and so are many others amongst these fat cats in the public sector. Ultimately the cause of the pay of the public sector fat cats is the pay of the private sector fat cats. If you want to get your hands on these types of people you have to pay these types of salaries. So if you want to take a look at public sector people being paid too much for these jobs, perhaps you have to either settle for rubbish directors (of which more in my third point) or you have to think about private sector pay scales.

Thirdly, ah says my Taxpayers’ alliance friend- but the question is whether they have any impact on their organisations. But again that presents him with an ideological problem. Generally researchers for the TPA believe in hierarchy and hence in differentiated pay. There is lots of evidence, just have a look at Chris Dillow’s blog, that company directors don’t necessarily have an impact on their company stock’s performance- and its quite possible that the same thing applies in the public sector but again all the arguments in favour of or against hierarchy apply similarly in both sectors and hence all the arguments for and against large pay differentials and packets!

The ultimate problem with this kind of Daily Mail politics is that in order to establish that well paid bosses don’t make the public sector any better off, the Taxpayers’ alliance would have to accept that well paid bosses don’t have any positive impact on any organisation. Otherwise they are arguing for poorer public services! (Or perhaps that equality is a moral good which trumps efficiency, but again is that a unique truth for the public sector!) All these arguments seem to me to rebound upon their owners.

In a sense this isn’t important- the list they did didn’t really make the national media. But I think its worth thinking about. Partly because of what it tells us about the fact that even for the right-wingers in the Taxpayers’ alliance, equality is a moral good- the fact that teachers are paid a fraction of what the fat cats get matters to them in this context- so you have to ask why it doesn’t matter in other contexts. The other thing about it is that the Taxpayers’ Alliance ends up arguing that large salaries are unnecessary to promote efficiency and that they should be justified by results- again there is nothing necessarily limiting those insights to the public sector- those insights could be applied to the private sector. The thing is that as soon as you examine the logic of what the Taxpayers’ Alliance are saying you end up with politics far closer to the tradition of George Orwell than that of Margaret Thatcher.

I’m not sure that was what their intention was.

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About the author
'Gracchi' is a regular contributor to Liberal Conspiracy. He started a blog last year which deals with culture and politics and history, where his interest lies. He is fascinated by all sorts of things including good films and books and undogmatic discussion of ideas. This seems like a good place to do the latter... Also at: Westminister Wisdom
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Reader comments


A good post. I always find it funny when right-wingers go on about well-paid government officials or MPs. After all, surely they are the side of the political spectrum that are supposed to believe in paying ‘the market rate for the job’ and in the justifiability of large inequalities?!

2. Margin4 Error

Of the top ten on the list, six cost the tax payer nothing at all.

Network Rail, Royal Mail, BNFL, and Channel 4 are not parts of the civil service. They are public owned market bodies. They earn their revenues from business activities, and they pay their from those revenues.

So what do they have to do with the tax payer’s alliance?

We could halve their wages and it would not hep us cut tax. Likewise we could nationalise those bodies and we’d pay no less tax except from the one off boost to public finances of reciepts from the sale of shares.

Of course Network Rail and Royal Mail benefit from some public finance for specific activities. But so does Airbus, BAe and many other private sector companies. And privatisation of the railways has hardly seen a shift away from public subsidies for rail operators.

So this really is a petty rant driven by a belief in privatisation rather than cutting tax.

The issue with public sector pay for me is that they operate, in the most part, either legally enforced monopolies or are paid by the taxpayer. There is no option to reject their inefficiencies or have their capabilities properly tested by the market, i.e. someone else comes along and does it better.

I have no idea whether the TPA has any views on market efficiency – though as you say it probably does.
However, how the (pace Chris Dillow) argument that FTSE CEO’s are overpaid somehow negates the argument that many public sector managers are overpaid I am not quite sure.
On a more general point, whould it not behove a liberal left site, rather than just assuming the moral case for higher taxes out of thin air and/or simply asserting that higher taxes are always better, to look at the evidence as to how so much of recent spending has been wasted?
Nothing is more damaging to your case in the long run than such waste.
Leaving aside the fat cats, average public sector pay is now higher than the private saector without even accounting for pensions.

This is another false parallel. It is indicative of the way the public sector borrows the form of private sector provision without the function or pricing structures. Wandering past the BERR (apparently the new name for the DTI) you can see it in practice. A wonderful glass and steel building to match any bank, but one which houses hundreds of civil servants all working to slow down business and capital! But it must be good and progressive because it looks like it is part of a prosperous system. “Cargo cult capitalism” would be one possible phrase to apply.

I don’t pay the CEO of Marks & Spencer’s salary, I just choose to buy their goods when they are what I want for the best available price. I don’t have a right to vote on their salary. If I did want something like that – I could shop at and become a member of the Co-op instead. Of course, there are gross inefficiencies in every large company (and top level management is probably part of it), and the rewards for any company that can cut out an inefficiency and thereby increase profits while lowering prices are immense.

By contrast, I must contribute towards public sector salaries whether I would use their services or not and so do have an interest in how much they get paid. It is terribly galling to consider that with all the people in my company dutifully paying their taxes, it won’t even cover the salary of, for example, Sir Al Ainsley-Green!

The Taxpayers Alliance makes the contrast between these sort of quangocrats and service providers such as nurses, teachers and doctors who we are aware will have to be paid under whatever system we have.

So it is not hierarchical organisations that the TA rallies against but parasitic organisations that rely on coercion from their taxpaying hosts to get their funds.

6. Margin4 Error

nick

so the Tax Payers Alliance wants to close Airbus, GSK, BAE Systems, Rolls Royce, etc, as parasitic organisations that rely on coercion from their taxpaying hosts to get their funds?

I ask because like BNFL, Network Rail, Channel 4 and Royal Mail (six of the top ten execs work for those three), those are also market operated organisations that benefit from public cash. They just happen to also be owned (in whole of effectively) by the state. (Channel Four’s CEO for example, is paid by advertisers not the taxpayer).

chrisc

The point about private CEOs earning ‘too much’ (and I dispute what constitutes ‘too much’ when a man like Stuart Rose has shown leadership to rescue billions of pounds of economic activity at M&S) is that the market sets the wage.

The state can’t expect to get good managers for its organisations while aying a 100th of what private companies pay.

and surely paying peanuts for rubbish managers would massively increase waste?

ps – the liberal left doesn’t always think higher tax is best. I certainly don’t. But since the NHS makes that list too, I certainly think higher taxes for improved healthcare is worthwhile, and we have seen that happen in recent years.

it is also a lot better than paying less in tax but far more again in private insurance that doesn’t even provide good health care – like in the USA.

“so the Tax Payers Alliance wants to close Airbus, GSK, BAE Systems, Rolls Royce, etc, as parasitic organisations that rely on coercion from their taxpaying hosts to get their funds?”

Well I can’t speak for the TPA but I would say yes, none of these companies should rely on public funds. But if a company does benefit from a monopoly enforced or commissioned by the state, their profits are of public interest in the same way quangos are.

The Tax Payers’ Alliance is, as you say, an organisation that wants to cut taxes as much as possible, rather than just getting good value for money. While it is true that the latter could give rise to the former, I don’t believe that this is what the TPA intend. By constantly bashing the public sector, they present themselves as more than a little Daily Mail-esque.

Ultimately, the liberal-left has to embrace what the TPA purports to stand for; as, generally, we would raise and spend more in taxes, we should be even more concerned that it is spent wisely. With the emphasis on the liberal part, we must also not be seen to allow the state to become overweening.

9. Margin4 Error

nick
so you feel the state has no moral role in supporting research and development projects that benefit the UK as a whole? (medicines, defence and engine technologies in these examples)

That is of courese a perfectly reasonable thing for you to think. But I can’t help but think most people would accept a state involvement in promoting public good where practical. And I certainly don’t have any cause to believe the TPA backs your position, which makes their position somewhat inconsistant.

The issue here is that Gordon Brown has gone to great lengths to tell public sector workers that their pay must stay low to help inflation, yet apparantly this doesn’t tally with the executives who, as the OP says, earn private sector rates.

I am not sure I agree with the idea that the top dogs in the public sector should get paid less if that is the market rate for doing the job…perhaps there is scope for discussion on why that market rate is what it is however…but no government should be able to tell it’s main working body that they can’t even get pay rises in line with inflation while defending the pay of chief executives and the likes.

“so you feel the state has no moral role in supporting research and development projects that benefit the UK as a whole? (medicines, defence and engine technologies in these examples)

That is of courese a perfectly reasonable thing for you to think. But I can’t help but think most people would accept a state involvement in promoting public good where practical. And I certainly don’t have any cause to believe the TPA backs your position, which makes their position somewhat inconsistant.”

Well I think thats the difference between conservatism and libertarianism: consistency. And TPA, though often associated with libertarian ideas, seems to be a conservative animal. I think the state does have a role in supporting research and development by leaving it alone as much as possible, or perhaps at most putting in legal frameworks that allow and encourage private individuals to contribute.

I am not saying that tax can only ever be spent badly. If it is taxed and spent locally and democratically, then you will cut down significantly on the inefficiency of a large system with lots of money sloshing around. Many on the liberal left point to the high tax regions of Scandinavia as an example of efficient spending on welfare and development. And they are right that it is a model which (with some well deployed free market mechanisms) can be made to work. But too often they fail to note that these are already countries with small populations, allowing more democratic accountability at the national level, and much more powerful local government institutions. You couldn’t really get much different from the instinctively centralist drive of the mainstream (even liberal) left in this country.

13. pommygranate

As a committed fan of the market myself, i have to reluctantly agree with Gracchi that if we want decent managers running public companies, then we will have to pay them a competitive wage. For instance, i notice that John Tiner of the FSA is paid just 650k. This is considerably less than most of the traders his organisation regulates.

I think the TPA have gone after the wrong targets. Most of these CEOs are not paid much compared to the private sector. The real scandal is the insane number of extremely well paying non-jobs (Diversity Officers and Wellness Officers for example) with virtual job-for-life guarantees and index-linked pensions.

There are a couple things I don’t understand about CEO pay whether private or public. Firstly can it really be considered a competitive market? If as is constantly claimed there is an extreme shortage of ‘talent’ which is able to run large corporations then surely they have a monopoly status and therefore can charge over what is economically beneficial for the company. This shows up in their wages but perhaps most crucially in their severance packages which seem to negate any financial incentives to perform well. By making the issue of talent one based on reputation the CEO stata of managers have managed to create significant barriers to entry for others joining them because there are a limited number of ways for new talent to establish a reputation (usually by having high up jobs in similar blue chips). As a result even CEOs whose records aren’t that great are in a better situation to claim a new top CEO post then young untried talent. And so you get people who are not necessarily being paid what they are worth but what convention believes ‘talent’ is worth.
Secondly, and I say this from a position of great ignorance of labour economics so please put me right, it seems to me that in individual cases of pay the market is not the only significant factor. Attitudes and relationships between employer and employee make a big difference. Are the employees willing to kick up a fuss if they don’t get what they want. Are the employers willing to hold their ground. The fact that most CEO’s pay rises pass through due to absent shareholders might have as much to do with their value as ‘the market’.
But if both or either of these points are true then the public sector has a duty to buck that trend. That is they should be more active is spotting new, cheaper talent and they should stand tall and not let an inflated and uncompetitive market in CEOs dictate their deals. In particular they should never bow into giving their top managers massive golden parachutes.

15. Margin4 Error

Nick

The Swedish healthcare system is indeed a fantastic example of public spending done well. And in fairness Britain has moved that way over the last few years. Localising control and encouraging non state bodies to provide what is still state healthcare.

And you are right, the left in particular tends then to backlash against the postcode lottery that local decision making must by nature create. And that leads to greater centralisation. Although in Britain the right seems to do so just as much.

Lee

Gordon Brown doesn’t pay most of those wages listed. They are paid by the market since most of the public posts listed are with market operated (though partially or wholly state owned) organisations like Channel Four or Royal Mail.

The highest paid individual paid through simple taxation and directly an employee of government was Mr Tiner of the FSA, and he is earning a very very low wage for some one in his sector.

Nick Humfrey

Can I suggest that CEOs are a bit like footballers. There is no shortage of footballers. But the need to compete drives up the value attached to those who are marginally only a small amount better than the rest, since not having them means failing to compete.

Sadly for the working man, one competent welder is as capable of serving his firm as another, and being 10% better than the rest doesn’t yield much value. Being marginally worse as a CEO than the CEO of your main rival means being a failure, even if you are in fact the second best CEO in the world.

15. I wasn’t referring specifically to individuals on the list, and you can’t deny that there are individuals that are earning those salaries that are paid through our taxes. Although Mr Tiner may earn less than someone in his sector (though not by comparison with others in the list), what about the rest? Just because the highest earner isn’t earning as much as he could in the private sector doesn’t mean than other wealthy earners aren’t earning what they’d expect elsewhere. In fact I would assume that it is the “middle management” types that are more likely to get the wages they’d expect outside the public sector?

My position is very much the same that unless it can be said that the majority of workers in organisations paid for directly are earning less than they would in the truly private sector (though I have to say the TPA’s assertion that while the Royal Mail etc are working on private business principles the taxpayer is guaranteeing these organisations does hold some weight here to include them too) it is somewhat hypocritical to tell teachers and such that they can’t have a pay rise.

Great post Gracchi.

Ultimately, the liberal-left has to embrace what the TPA purports to stand for; as, generally, we would raise and spend more in taxes, we should be even more concerned that it is spent wisely. With the emphasis on the liberal part, we must also not be seen to allow the state to become overweening.

Dave Cole, I agree completely.

18. Andreas Paterson

The Taxpayers Alliance is a Tory propoganda organisation intent on doing nothing more creating the impression that we are an overtaxed nation wasting our tax money on beaurocrats. I do not believe they are the kind of organisation that should be allowed to dictate the agenda.

On the subject of public sector execs, the question to ask is whether their renumeration packages would be quite so bloated if private sector sector pay packages had not gotten quite so ridiculous. Where the private sector led, the public sector has followed.

19. Margin4 Error

Lee

if government standing as gurantor justifies individuals making the list then what about Michael Geoghegan? Or do we believe that the UK government would allow major private banks to go bankrupt in this day and age? So clearly its a ludicrous justification to add figures not paid by the tax payer to exagerate their weak point. Nothing more.

however

And you are right that people fret about waste in public services. But this report is only evidence that the men at the top of public owned bodies earn much less than their private sector peers.

It does not indicate that middle managers have benefited from big wage rises or that they are inneficient at their work. It doesn’t even suggest they earn more than in the private sector.

And lets not forget that this focus on effiency has come about because (as the tories point out) NHS spending has increased a lot but has been eaten up by wages instead of more operations (though granted numbers of opperations have risen too).

Well now, while paying a basic grade nurse £20,000 per year (now) instead of £12,000 per year (1997) is very inneficient of the public sector, I’m quite comfortable with that inneficiency despite not being a (much better paid) nurse.

Did anyone actually read the TPA’s response posted at #11??

m4e – “I certainly think higher taxes for improved healthcare is worthwhile, and we have seen that happen in recent years.”

Yes – it may be worthwhile, but only inasmuch as the improvement is vaguely proportionate to the increase in spending – which it has not been.

19. I definitely agree that the list is misleading at best, and overall I agree with the OP here…but you’re correct in what you’re saying with…

“It does not indicate that middle managers have benefited from big wage rises or that they are inneficient at their work. It doesn’t even suggest they earn more than in the private sector.”

That is my point also, in that we can’t argue either way about the inefficiencies of where our tax money goes if we don’t know the fuller picture. Simply posting a list of the top 10 earners, especially given the nature of some of their employment, was never going to prove that our money was being “wasted”. That is precisely why I put in the point about middle managers and my interest in how well they were doing by comparison :)

On the subject of nurses, I think of all public sector workers they are the ones that have the least ground to stand on regarding lack of pay, but that doesn’t mean that other workers in other fields haven’t felt the crunch of poor salaries by comparison in the last decade.

Yes – it may be worthwhile, but only inasmuch as the improvement is vaguely proportionate to the increase in spending – which it has not been.

Maybe, but how are you measuring improvement?

23. Margin4 Error

chrisc

but are you comparing today’s improved healthcare only to what the NHS was in 1997, or to what it would have been by now had its rapid decline and massive growing staff shortages of 1997 not been reveresed?

if spending has doubled, we should expect twice the service in 2007 as we would have had in 2007 under the 1997 arrangements. It seems plausible we have just that. (waiting lists have shrunk, but what would they have grown by without more money?)

And of course twice the service is not twice the number of operations. It can be better hospital food, greater privacy on wards, more accurate diagnostic equipment, and so on.

Lee Griffin

to be fair, I often point out to those who highlight poor nurse wages that they in fact start on £20k now, which is much better than a hospital porter gets (closer to £10k) and is hardly comparable to teachers (£22k?) who are all qualified effectively to the level of a masters degree.

And while public sector pay has risen a lot in recent years, there are plenty who benefited less than nurses who are to be hit harder in the ‘crunch’

And I completely agree with you that taxpayers deserve to know that all those working in the public sector are paid a fair wage for a hard days work, not a relatively high wage for incompetence.

But I can’t see how we could provide regular reports on the pay and performance of all 6million or so public sector workers.

I’ll try to find the reference, but I recall seeing data that suggested that NHS output had risen in real terms by 20-30% versus the real doubling in expenditure.

*Nobody* believes that the improvement has been in line with the spending.

That result is consistent with other data I recall seeing which suggested that NHS inflation had averaged at least 6% over the past 10 years.

It is hardly surprising that if you throw money at an inflexible bureaucracy that the ratio between inflation/wastage and real results is not likely to favour the latter.

http://www.economist.com/world/britain/displaystory.cfm?story_id=9803938&CFID=27516062&CFTOKEN=12036813

Looks like I was being a little harsh – only 43% of the money has been swallowed by NHS inflation.

The September 2007 Wanless review can be found at the King’s Fund website.

If the TPA believe in the efficacy of private markets setting wages then Adam Crozier is probably being paid at about the market rate for a chief executive

What happened to that public sector ethos I remember being told about, that people who worked in the public sector did so in order to benefit the public, unlike selfish businessmen who work only to benefit themselves?

Am I to assume that the public sector is run by people as self-interested as those who run the private sector, and if so what incentive do they have to run things in a way that benefits the public?

“what incentive do they have to run things in a way that benefits the public?”

They have no such incentive.
Indeed, quite the opposite.
Everyone acts in his/her own interests.
Both public and private sector agents act in their own interests.
The private sector however has a clear incentive to act in customers’ interests, subject to making a reasonable profit the rate of which is normally – not always of course, but normally – limited by competition, otherwise customers will go elsewhere.
Where can the public sector’s “customers” go?

Have you heard of public choice theory??
(Chris Dillow is very keen on it!)
http://en.wikipedia.org/wiki/Public_choice_theory

28. Margin4 Error

chrisc

Imagine if that 43% inflation had happened without a doubling in spending.

imagine instead all that had happened was spending rose by that 43% to keep things the same.

in 1997 the NHS was getting worse not better, so the status quo would have mean the staff shortages growing, the waiting times growing, the conditions of buildings further deteriorating. etc.

Granted had spending been that low we’d have seen lower inflation. We;d have seen fewer expensive MRI scanners bought, fewer expensive drugs provided to the sick, and lower pay rises for nurses to help ensure more people chose to work for the NHS and plug the gaps.

hence why the ‘inflation’ issue is a misnoma in that it pretends to quantify the unquantifiable and largely hopes ignorant people will imagine that the NHS was static at 1997 and thus a useful base year.

the NHS may in fact be three times better now than it would have been in 2007 had 1997 methods and funding continued. Not because the NHS improved threefold in that time, but because in part the NHS would have been far worse now than it was in 1997.

I suggest you read the report!

30. Margin4 Error

Chrisc

I have read the Kings Fund report and spoken to some of those who wrote it, and you seem not to understand it.

http://www.lga.gov.uk/Documents/Agenda/Community%20Wellbeing/141107/item%204.pdf

Those involved with it point out that “Sir Derek’s answer is that the taxpayer has got poor value for money” is a gross distortion on the part of the economist and the rest of the press at the time. (And yes I read that article too, way back when it was published).

In fact the report made clear that many of the intended benefits of that spending were cumilative and still growing.

John Appleby explained to me (and others at a meeting) that much of the benefits had not filtered through yet for two reasons.

Firstly he noted that new staff and equipment take time to hire/train and buy, and new facilities take a long time to build. Since the spending splurge only really took off in 2000, he suggested that there were in effect only a couple of recent years on which to judge the results of all that. (doctors take seven years to train, nurses take three years, and hospital buildings typically take more than five years to construct and equip.)

Secondly (and this is crucial) the early part of that funding was focused more on solving acute problems than on improving care. So raising training places to overcome staff shortages, buying MRI scanners to cut waiting times for people needing scans, etc.

Only in the last couple of years have some of those acute problems been finally overcome. nurse shortages are now very rare, and the NHS now has enough equipment to not just meet annual demand but also do slightly more and thus bring down waiting times. (waits for care effectively constitutes a backlog from past lack of capacity).

Once the backlog is clear, that releases capacity for improved care, since it can be dedicated to this year’s demand for services instead of backed up demand from past years. Likewise once accute problems have been fixed, planning and management become more effective since a degree of stability can be secured.

that stability took a step back a couple of years ago with the mismanagement of the introduction of the new funding system that left some trusts well out of pocket and some trusts rolling in cash. (It should have been staggered over five years, not introduced at haste in big bang style).

But assuming ludicrous mistakes like that are avoided in future (no guarantees there of course) the Wanless report suggests things are set for a fair course with good productivity gains ahead.

What appears to be implicit in this discussion is that all CEOs, non-executive directors and so on do provide great value for money in their jobs. There appears to be a class of rolling top level management who can go from one company to the next regardless of the condition in which they have left the previous firm and face none of the consequences of their actions,


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