Taxpayers to fund massive City bonuses

CITY EXECUTIVES are to be paid large salaries and bonuses at the taxpayer's expense to persuade companies to invest in schools and hospitals.

Alan Milburn, Chief Secretary to the Treasury, will this week announce plans to privatise the Government unit responsible for getting private money into the cash-strapped public sector.

City high-flyers will be given performance-related pay packages, which could total millions of pounds, to act as brokers for deals under the controversial Private Finance Initiative.

The move will infuriate Labour left-wingers and trades union leaders who are already angry about the Government's willingness to "sell off" parts of the National Health Service, education system and prisons infrastructure. There are also concerns that there could be a conflict between the public interest and the financial incentive. "The city slickers are cashing in," one MP said.

However, ministers are determined to recruit the best executives from the City to sit on the board of the management company, in which the Government will have a large but minority stake.

Ministers hope that the establishment of a professional organisation, which will give legal and financial advice to the public sector, will help to avoid recent problems such as the Passport Agency computer fiasco. Salaries will be met from commissions charged to the Whitehall department or local authority which will benefit. Treasury insiders said the pay levels would similar to those in the City, where individual bonuses can be worth hundreds of thousands of pounds.

The company will be based on the existing 12-strong PFI taskforce headed by Adrian Montague, who is paid a basic salary of pounds 160,000.

"We will pay whatever is necessary to attract the best people," a senior Treasury source said. "This is not a fat cat bonanza for the sake of it but we have got to get some guys working for us who are up to negotiating with the private sector on their terms."

The plan comes as ministers move to clamp down on excessive boardroom pay in the private sector. Stephen Byers, the Secretary of State for Trade and Industry, will unveil proposals to allow shareholders to veto company directors' remuneration packages if they believe they are too generous.

The Government is determined to improve the link between pay and performance in the City, following a DTI survey which found that only 7 per cent of companies demonstrate a short-term numerical link and only 5 per cent relate performance measures to long- term company objectives.

A consultation paper will be produced shortly, urging companies to hold annual votes on remuneration packages and proposing that it should be made easier for shareholders to put forward a motion on pay at the annual general meeting.

Mr Milburn will also announce the establishment of a government agency responsible for buying equipment across Whitehall departments. The Office for Government Commerce, which will have a staff of 1,000 and a pounds 13bn budget, will be charged with saving pounds 1bn on purchases in the next three years.

The Treasury intends to recruit a heavyweight figure from business to run the agency, who will also be eligible for performance-related bonuses.