Leading Article: A silly season squabble over fat cats' pay

THE APPEAL by the Chief Secretary to the Treasury, Stephen Byers, for restraint on the part of the so-called boardroom fat cats is as futile as it is Silly-Season-predictable. The Government is, it seems, upset about how quickly boardroom pay has been rising. But then they always get upset about fat cats when there is a need to deflect attention away from more substantial issues or when, as now, there is a dearth of political news to keep the spin doctors busy. Should we take any notice?

There are a couple of reason why we should take Mr Byers' remarks slightly seriously. First is his status; this is the apogee of New Labour speaking, a man who is the nearest thing New Labour has to a Taliban chieftain with his dedication to shining the true path of the Third Way. So what he says matters; what he says also betrays some confusion about economics.

One essential element in the theology of the Third Way, and one of New Labour's most fervent ambitions, is to replace the Conservatives as the "party of business". Hence, the appointment of the likes of Lord Simon (of BP), Lord Sainsbury and Gus Macdonald to ministerial jobs. However, their influence in terms of helping their new colleagues understand how business works is obviously still to be felt.

There is no necessary reason why boardroom pay should move in line with other pay, any more than a plumber's wages should move in line with those of a taxi driver. In a dynamic market economy, of the kind that New Labour is supposed to be comfortable with, you can expect large divergences in income and the rate of change in people's income.

While some of the talk about comparing executives with star footballers or entertainers is overdone, it is still true that there is a relatively small pool of talent in this field, and that the best can easily command high rewards. It is surprising that even Mr Byers still seems unable to get the hang of the idea of a market rate for the job.

The second reason we have to take Mr Byers seriously is that he is making some threatening noises. He says that unless there is what he calls "a more positive approach" by all companies, shareholders should be given more power over directors' pay and, in the case of utilities, he wants to see a "clear link" to be established between boardroom pay and "service standards".

Of course company law should be framed in a way that balances the interests of those who own companies and those who run them. But the fundamental point remains; that shareholders - and we are mostly talking here about the large ones - do have ways of making their views known to boards, and there are procedures to bring directors to account and, if needs be, to sack them. It may well be that the balance is not quite right in this respect. But this is a matter of good corporate governance which should be tackled irrespective of the current state of directors' pay.

Mr Byers' point about the utilities is more firmly based. But, when he was asked on the BBC's Today programme about which utilities he had in mind, Mr Byers conceded that firms such as BT were now in a fiercely competitive market, and was only really willing to round up the water industry's boys for a whipping. He may be right about them, but it is a fairly narrow and industry-specific point, and not an economic policy.

The public have no great affection for the fat cats, and may or may not use the pay rises that they think bosses are getting to justify increases for themselves. They may be unwise to do so and, as a politician of the bygone era of pay policy once put it, one man's inflationary pay rise is another man's lost job. But exhortation to restraint by government is unlikely to be heeded. Mr Byers, we suspect, is just the latest in a long line of politicians who have overestimated our facility for listening.