The first thing I would like to do is to thank Tony Blair, whose timing could not be better in accepting a 41 per cent pay rise only days before we call for a maximum wage.
Francis Bacon said "Money is like muck, no good unless it be spread." But globally we are getting worse at spreading money around. In fact the gap is growing. Between the top and bottom fifth, the gap has grown from 3:1 in the early 19th century, to 30:1 in 1960, to nearly 80:1 now.
Let me give you some words from a surprising source: "The widening gaps between rich and poor within nations, and the gulf between the most affluent and most impoverished nations, are morally outrageous, economically wasteful and potentially socially explosive? Poverty will undermine the fabric of societies through confrontation, violence and civil disorder." That came from Michel Camdessus, last year in his retiring speech as head of the International Monetary Fund.
The gap between rich and poor grew in the late 1990s, despite the raft of government policies to increase the incomes of poor families. And, there is a dramatic acceleration of pay towards one important symbolic threshold. This year, average pay for chief executives in the FTSE 100 is heading to break the £1m mark for the first time.
Our proposal would complete a policy circle. The minimum wage was one of the key achievements of New Labour's first term. The Government could take this opportunity to tackle income inequality from the other end, and help to prolong their second honeymoon.
The maximum wage will empower stakeholders to keep a lid on excessive wage demands from executives. We propose a maximum wage of £1m a year. New data specially commissioned by the New Economics Foundation from the Inland Revenue reveals that only 3,200 people in the UK earn over £1m in total income. Of this total, only 169 directors of FTSE 350 companies are earning over the magic million. It starts to look politically feasible as well as morally and socially desirable. Today, a high-paid director in the city can make up to £2m. To earn the same in 12 months' time, someone on the minimum wage would have had to start work in the year 1789.
Initially we are proposing a set of flexible voluntary options to encourage innovation and discover what system works best, set within a strong framework. If you already earn surplus income, we propose that anyone already over the magic million should be allowed to set up a private trust fund, accelerating a process that many wealthy people already undertake later in life.
This measure is not a direct attempt at income redistribution. It will not increase government tax take. Indirectly, it will mean some redistribution from the top as companies should pass savings back to shareholders and consumers, and to lower-paid staff.
Instead, this is a measure for social cohesion. It empowers investors, employees, regulators and consumers to take an active interest in performance rather than worrying about carpet-bagging at the top, whether it involves a corporate executive or a football star. As a result, directors will be free to use their skills more in the long-term interest of the company than manoeuvring for their own short-term gain.
The New Economics Foundation wants executive pay to be scrutinised by investors and other stakeholders as seriously as Manchester United fans are beginning to scrutinise the performance, and reject the claims of footballers demanding in excess of £50,000 a week.
A maximum wage is the bare minimum control on executive excess the Government will have to consider if it wants the public to trust the private sector anywhere near public services. The next challenge is to break the stranglehold that self-seeking shareholders have over business more generally, and reshape the way companies are run by using stakeholder boards instead.Reuse content