Pay deals for public sector fat cats need justifying, say MPs

All-party committee recommends commission to scrutinise highly paid posts

Local councils and other public bodies who overpay their most senior staff should be "named and shamed", a committee of MPs has recommended.

The all-party Public Administration Committee wants the Government to set up a new Top Pay Commission with the expertise to analyse salaries at the top end of the market to ensure that taxpayers get value for money.

Councils, NHS trusts and other public bodies are increasingly presenting the argument that they have to pay six-figure salaries to hold on to the senior staff because skilled executives can easily find better paid jobs in the private sector.

There are now more than 300 executives in the public sector who are paid more than the Prime Minister, who is entitled to a salary of £197,689. Some, such as the heads of the Royal Mail, Channel 4 or the BBC, are paid more than three times Gordon Brown's salary.

Ed Richards, who once worked as Gordon Brown's political adviser, now earns twice his old boss's salary as head of the media regulator, Ofcom.

But in defence of Mr Richards's salary, the MPs point out that Ofcom was created six years ago by merging five different regulators, and the combined salaries of their five chief executives was way above what Mr Richards is paid.

In their report, Top Pay in the Public Sector, the MPs criticised the lack of imagination shown by many councils when they recruit senior staff.

"There is little to discourage those taking local decisions on senior pay from paying over the odds for a candidate who is a 'safe bet', and very little to incentivise them to appoint someone who might represent better value, possibly internally, who is of potential but with less experience at the top level," the MPs warned.

The MPs agreed that putting an arbitrary limit on the top salaries in the public sector could cost taxpayers a lot more money than it saved, by creating badly run public services where staff morale was low.

They argued that there should be a new Top Pay Commission with a "broad remit" to collect, analyse and publish information about all highly paid posts in the public sector, and on what people doing comparable jobs in the private sector are being paid.

They would then publish principles which all public sector employers would be expected to follow, and would have the power to investigate and expose those who are not following them.

"Set against the stratospheric pay increases seen at the top of the private sector over the past 10 years, the public sector has got excellent value from many of its top people," the committee chairman, Dr Tony Wright, said.

"However, we do not believe that the ever-growing gulf between average earnings and top pay is sustainable or desirable – especially in a time of recession. Our Top Pay Commission would ensure that public sector pay setters would have to justify top pay deals and set them in the context of pay at lower levels and the state of the public finances."