Time for action on fat cat pay

On the day most workers in Scotland returned to work, FTSE100 CEO’s had already been paid more than the average worker will earn this year.

Fat Cat Tuesday is a useful way of highlighting just how far corporate pay has spiralled out of control. The average FTSE100 CEO pay is now almost £5m, a ratio of 183 times the pay of the average worker. As the High Pay Centre director Stefan Stern said: “‘Fat Cat Tuesday’ again highlights the continuing problem of the unfair pay gap in the UK. We are not all in this together, it seems. Over-payment at the top is fuelling distrust of business, at a time when business needs to demonstrate that it is part of the solution to harsh times and squeezed incomes, and is promoting a recovery in which all employees can benefit.”

This isn’t just a matter of fairness – it has negative consequences for the workplace. The CIPD has recently published a poll on what employees think about high pay. It shows that workers don’t buy the inspiration argument and feel high CEO pay demotivates them and damages their organisation:

• 71% agree that CEO pay levels in the UK are generally too high (while only 5% disagree). 
• 64% disagree that CEO pay levels in the UK inspire employees to work hard (while only 8% agree). 
• 60% agree that CEO pay levels in the UK demotivate employees (while only 13% disagree). 
• 54% agree that CEO pay levels in the UK are bad for an organisation’s reputation (while only 11% disagree). 

Not for the first time the gut reaction of workers is spot on. There is little evidence that paying more results in better management.

One solution is to make it a requirement that organisations publish their pay ratios. This would automatically integrate pay at the top into an organisation’s formal pay scale. Peter Marsland explains how this can be done in the High Pay Centre’s recent publication ‘Pay Ratios – Just Do It’. He demolishes the standard arguments against this approach – it’s too difficult, to onerous. This is data employers should have, and calculating the ratio ought not to challenge anybody with a decent pass in National Grade maths. 

Peter doesn’t go as far as recommending a particular ratio, arguing that all organisations are different. The primary aim is transparency and even in the free market USA, the Securities and Exchange Commission supports this approach. Those organisations who have adopted a ratio have taken pretty high figures. For example, at John Lewis it is 75:1, at the TSB 65:1.

Just before Christmas, the Scottish media reported that there are at least 64 employees in the Scottish Government, its quangos and other public bodies being paid a minimum of £100,000, according to statistics obtained by the Scottish Greens. 

In fairness, most of these senior staff manage large organisations and their pay ratios are well below their private sector equivalents – a 10:1 ratio wouldn’t cause much pain at the top of the Scottish public sector. Even so, there have been efforts to copy the private sector in recent years with the introduction of bonus systems. The voluntary sector has come under similar scrutiny.

The evidence that staff are less productive in organisations that have big gaps between top and bottom pay and where decisions on pay are felt to be unfair also applies to the public sector. Interestingly, the CIPD survey asked respondents about ratios of 5:1 and 10:1 – far removed from the private sector norm.

The Hutton report for the Treasury on public sector pay found that: “A wide range of academic studies [...] suggest there is a strong correlation between narrower pay dispersion within an organisation and improved organisation performance [...] wide gaps between top and bottom pay within an organisation harm performance [...] there will be gains to morale and productivity in organisations where everyone is seen to be paid according to their contribution” 

The growing problem of high pay reflects the damage inequality does to our society. It also damages organisational performance and the reputation of organisations. Improved transparency through the publication of pay ratios is an important starting point. However, while one size shouldn’t fit all, maybe it is time for the Scottish public and voluntary sector to lead the way by establishing pay ratios. Perhaps something the Fair Work Convention should be considering?

Working poor lose out from tax and benefit changes.

It's the working poor that will take the biggest hit in government changes to tax and benefits despite increases in minimum wage.

New research published by the TUC shows that the poorest working households will lose on average £460 a year by 2020 due to government changes to tax and benefits, despite the Chancellor’s minimum wage increase. However, the richest working households will be made £670 a year better off.

The research analyses the combined impact on annual incomes in 2020 of changes due to be made to universal credit, benefits, the minimum wage and tax allowances. It also includes gains from the Chancellor’s planned increases to the minimum wage. This type of distributional analysis was included in every Budget across the last parliament, but it was excluded from the Chancellor’s July Budget. Now we understand why!

The difference between the top and the middle shows up even more starkly in the decile analysis for all households, which shows that the average annual gain for the top decile in 2020 (£780) is twenty times the average gain for the fifth decile (£40).

The TUC says that the research shows that the government’s tax and benefit policies will redistribute from the poorest to the richest. This will worsen inequality and poverty – especially in-work poverty. TUC General Secretary Frances O’Grady said:

"Even after the extra help from a larger tax allowance and a higher minimum wage, low paid families will still be made more than £8 a week worse off on average by 2020. David Cameron needs to explain to low paid families why he is cutting their income by the same amount as a whole year of school dinners, but he’s giving the richest a cash boost worth a bottle of champagne every week. Not only is this unfair, but it’s bad economics. We need more money in the pockets of low paid families so that they can get out and spend it in their local businesses."

And it's not just pay and benefits - it's prices as well. People living in poverty pay around 10% more than average for essential goods and services. Citizens Advice Scotland’s Poverty Premium report found that people with low incomes end up spending more on services such as metered utilities because they are unable to take advantage of cheaper pay in advance deals or direct debit discounts across a range of services and utilities.

The lack of internet access or a landline telephone creates extra costs. Around a fifth of all households in Scotland lack an internet connection, with the lowest income groups least likely to have one. This means low income households are paying up to £112 a year more for their energy due to a lack of ability to take advantage of switching or finding cheaper tariffs.

The report said: "When the poverty premium impacts people on very marginal incomes it can leave them destitute and in need of emergency assistance such as help from food banks. The poverty premium does not just make life more expensive for the financially less well off, it often pushes them over the edge and into crisis."

This often leads low income households to use pre-payment meters (PPM) for their energy supply. Action by energy regulator Ofgem to address price discrimination against PPM users has done little to tackle this. Also, a lot of cheaper tariffs require a bank account for direct debits and paperless billing, again needing the Internet.

These two reports show that the UK government is redistributing wealth from the working poor to the rich. More unequal countries do less well on almost every measure, so Britain is going in the wrong direction.

 

 

Health Inequalities - We need an end to austerity

Austerity and what is wrong with it has been leading the news thanks to the Syriza victory in the Greek elections.

This blog regularly highlights our opposition to austerity and the damage being done to families and particularly young people and the most vulnerable members of our society.

One of the cruel scandals of the wide and unfair health impacts is that too often people in poverty struggling with ill-health are attacked for unhealthy lifestyles by the wealthy and the powerful suggesting these problems are simply self-inflicted.

But in New Scientist magazine Scotland’s former chief medical officer Dr Harry Burns has reiterated that job loss and social breakdown, NOT smoking and bad diet, is at the root of the country’s infamously high rate of premature death.

He points out that from 1950-1970 Scotland had one of the lowest rates of death from alcoholic liver disease, but by 2005 it had the highest.

Dr Burns said: “It may be that what we are seeing in Scotland is the consequence of austerity in the 1970s and 80s, when social change and joblessness led to a breakdown in family life and a cycle of alienation...What we have seen in Glasgow may become evident in southern Europe over the next two decades.”

Women are shut out of the economic recovery

Women, especially those on low pay, are firmly shut out of the economic recovery.

That’s the conclusion of a new report - The changing labour market 2: women, low pay and gender equality in the emerging recovery’, published by the Fawcett Society.

The key findings include:

Since the start of the crisis in 2008, almost a million (826,000) extra women have moved into types of work that are typically low paid and insecure. Since 2008, female under-employment has nearly doubled (to 789,000) and an additional 371,000 women have moved into self-employment, which is typically very low paid. 1 in 8 low paid women now describe themselves as on a zero hours contract.

The increasing levels of women in low paid work, along with the declining value of low pay, is contributing to the widening inequality gap between women and men. Last year the gender pay gap increased for the first time in five years and now stands at 19.1 per cent for all employees.

Low paid women are feeling the cost of living crisis sharply: nearly 1 in 2 say they feel worse off now than five years ago; nearly 1 in 10 have obtained a loan from a pay day lender in the last twelve months; nearly 1 in 12 low paid women with children have obtained food from a food bank in the past twelve months

This report is published on the same day as the Prime Minister announces that all government policies must pass the ‘family test’. You might therefore expect some action on the issues highlighted in the Fawcett Society report. You will be disappointed. The initiative focuses on age ratings for music videos and a throwing a few pennies at the counselling service Relate. Not a mention of the impact of welfare cuts on the family, the closure of sure start centres or the consequences of his austerity economics.

The Fawcett Society report sets out the harsh reality of a Britain the Prime Minister simply doesn’t understand.

No recovery in living standards for working people

There is no recovery in the wages and living standards of working people since the rich and powerful crashed our economy.

A number of reports have analysed the latest data on household incomes and wages. The Scottish Government's paper highlights that the number of people living in poverty in Scotland increased to 820,000 last year. The 2012-13 figure, which accounts for 16% of the population, was 110,000 more than in the previous year. The number of children in poverty rose by 30,000 to 180,000.

The figures indicated:

• 16% of people (820,000) were living in relative poverty in 2012-13 - 110,000 more than the previous year and an increase from 14%.
• 19% of children (180,000) were living in relative poverty in 2012-13 - 30,000 more than the previous year an increase from 15%.
• 15% of working age adults (480,000) were living in relative poverty in 2012-13 - 70,000 more than in 2011-12.
• 15% of pensioners (150,000) were living in relative poverty in 2012-13, 10,000 more than the previous year and an increase from 14%.
• Typical income in Scotland in 2012-13 was £23,000, equivalent to £440 per week.

For some real stories behind the statistics you can read a survey, commissioned by UNISON's NHS Greater Glasgow branch. Nearly a third of respondents said they constantly struggled to pay household bills, with 11% falling behind on mortgages or rent. 17% were behind on council-tax bills, 15% on hire purchase payments and 20% on credit-card payments. Borrowing from family was common and 16% of workers used credit unions. 4% had used payday loans. 58% said they could not meet an emergency expense of £500.

The Scottish Parliament research unit (SPICE) has produced an interesting analysis of long term trends in Scottish household income. There is a lot of discussion about how wealthy Scotland is in the referendum debate. However, this tends to focus on GDP rather than the incomes of people that actually live in Scotland. This paper shows that the average level of disposable income per head in the UK is £16,791. Scotland comes in just below this at £16,267. However Scotland is catching up since devolution. Between 1997 and 2012 household income in Scotland increased by 27% as against 24% in the UK as a whole. Within Scotland we still have significant inequality. Glasgow City has the lowest level of disposable income with just over £14,000 per head, compared with just over £19,000 per head in Edinburgh.

Official UK figures from the ONS still show median and mean incomes in 2012-13 6% and 9% below their 2009–10 peaks respectively. This follows a period of slow income growth that began in the early 2000s. The net result is that the official measure shows both measures of average income no higher in 2012–13 than in 2001–02.

In 2012–13, 10.6 million individuals in the UK (17%) had a household income below the official absolute poverty line (e.g. below £272pw for a childless couple, net of taxes and inclusive of benefits). This is actually a poverty rate no higher than before the recession. However, when incomes are measured after deducting housing costs, the number below the poverty line (e.g. below £235pw for a childless couple) rose by about 600,000 in 2012–13 to 14.6 million (23%). This is about 2.0 million higher than in 2007–08.

Of course not everyone is suffering. The bankers in the City and their friends in the media may not have noticed growing poverty, because the share of post-tax income captured by the richest 1 per cent leapt from 8.2% to 9.8% in 2013/14.

There may be a modest economic recovery, but the official data shows that household incomes have not recovered, except for those who caused the crash. And they won't, until we see real wage growth.

 

 

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Childcare Costs Higher Than Mortgages

Lots to read on supporting Scotland’s children this week: A new reporting highlighting the costs of childcare and then two reports focusing on education early years and inequality from The Scotland Institute and the Jimmy Reid Foundation.

For many childcare charges mean that in the short term there is very little financial advantage to working. Twenty-five hours in a nursery now costs on average £102.04 a week in Scotland and an after school club £49.54. For an increasing number of families childcare costs now outstrip their mortgage payments. The high cost of childcare is therefore acting against both UK and Scottish government programmes to tackle poverty and inequality and support mothers into work.

We agree with the institute when it states that local authorities should become the providers of childcare. What this cannot become though is just starting formal school earlier. Early year’s education is very different from formal schooling and must remain so. We need to develop the best early years provision suited to the needs of our children not force them into a school system that doesn’t meet their needs just because buildings have space. Local authorities will be the most cost effective method of provision. They already employ the best qualified and most experienced childcare workers and are therefore best placed to expand their workforce while maintaining a high standard. We need to introduce a requirement that, at a minimum, local authorities are responsible for identifying the demand for childcare in their authorities as soon as possible. It will be very difficult to improve and expand childcare without out knowing what demand is for the service. This duty exists already the case in the rest of the UK.

The new Common Weal education report rightly highlights the transformation that has taken place in Finland where they top the international rankings regularly for excellence and equity. The Finnish system doesn’t start formal learning until 7, before that children learn through play. Excellent parental leave also gives babies much more time with their parents before entering into childcare.

A publicly funded and delivered early years service via by local authorities offers the best way forward. Transforming childcare will cost money, we can’t pretend otherwise but it will both generate more tax by directly creating jobs and by supporting women to return to work after maternity leave. There will be a short term return on that investment. We will also make savings if we invest in getting it right in the first place rather than the high costs we currently pay to overcome the effects of poverty and inequality. These reports show why we need to get on with investing in childcare and the benefits we will gain from that investment.

No more NEETs

The IPPR has published a paper that sets out a strategy for radically increasing the proportion of young people who are learning or earning, by establishing a distinct work, training and benefits track for those aged 18–24. This approach is underpinned by two new initiatives: a youth allowance, to keep young people out of the adult welfare system, and a youth guarantee, to ensure they stay in touch with the labour market.

There are over a million young people who are not in education, employment or training (NEET) in the UK, equivalent to almost a fifth of all 18–24-year-olds. Just 4% of 15–24-year-olds in the Netherlands and 7% in Denmark are NEET, compared to 14% in the UK. This is a huge waste of individual potential and imposes large, long-term costs on society.

There are three key planks to the plan:

1. A youth allowance should replace existing out-of-work benefits for 18–24-year-olds and provide financial support for young people who need it, conditional on participation in purposeful training or intensive job-search. Access to inactive benefits should be closed off for all but a very small minority. To pay for this substantial expansion of financial support for young people who are currently NEET or in further education, the youth allowance should be paid at a standard rate and be means tested on the basis of parental income until the young person is over the age of 21. This would mirror the rules for access to the higher education maintenance grant. There should also be a presumption that young people are housed by their parents until they are over 21, with exceptions for those with a child, a disability or in employment.

2. A youth guarantee should be established that offers young people access to further education or vocational training plus intensive support to find work or an apprenticeship. For those not learning or earning after six months, paid work experience and traineeships should be provided, with no option to refuse and continue receiving the youth allowance. The youth guarantee would ensure that young people can complete their initial education and gain practical employability skills, while not drifting into inactivity. To pay for this substantial expansion of provision for young people, expenditure on 18–24-year-olds in the Work Programme should be re-directed, along with adult skills and apprenticeship funding for over-24s. In addition, parents’ entitlement to child benefit and child tax credit should cease at the end of the school year after their child has turned 18, when their entitlement to youth allowance begins.

3. The government should set national objectives and priorities for the youth guarantee, but the leadership of local areas should be mobilised to organise and deliver it. Decentralisation should start with London and the eight ‘core cities’ in England taking on resources and responsibility for their young people. These cities should establish strong governance arrangements, including a central role for employers, along with plans for commissioning a diverse network of local providers. In other parts of England the youth guarantee should be commissioned nationally and delivered through existing agencies and providers (with local input wherever possible). In every area, the personal adviser model should be paramount and data on performance against headline national objectives should be regularly published. To increase opportunity and drive employer engagement, large firms that do not offer apprenticeships for young people should pay a ‘youth levy’ to train and prepare the future workforce.

There are devolved aspects of this plan that would need to be agreed by the Scottish Parliament. It also fits in well with suggestions that Scotland’s cities should take responsibility for welfare to work programmes.

Commission for Developing Scotland’s Young Workforce

Having had, an admittedly quick, read of the Wood Commission’s interim findings it’s a bit disappointing that there are no recommendations to tackle gender segregation in workplaces and modern apprenticeships or low employment rates for people from BME communities and people with disabilities.

Wood Commission’s interim report offer recommendations on the “educational offer to young people“ with the next session on employer’s support still to come. The recommendations are somewhat predictable, schools and colleges to develop better links with local businesses, and more focus on economic development. Nothing new here: businesses want the public sector to ensure young people are ready to become workers.

What is disappointing though, is that tackling inequality does not appear to be core to the commission’s thinking. The foreword says that “An appropriate title for our school/college vocational initiative would be ""attainment for all", enriching school education with clearer and more open routes for all young people,” but we will have to wait for the second half of the study to find out their the results of their plan to “look to make meaningful recommendations to improve employment outcomes in relation to gender, disability and ethnicity.” The issues Scotland’s people face from discrimination on the grounds of gender, disability and ethnicity should have been central to this report. Allowing discrimination to prevent people reaching their potential and so contributing most to our society and economy should have been to use the jargon “mainstreamed” into the commission’s work.

The fact that the interim report only mentions gender in order to park it for another section does not fill me with much confidence about their recommendations. Equalities issues need to run through all of the work done to improve workforce development; they are not a separate issue.