Gordon Brown and Alistair Darling rail against bankers’ bonuses. But, says Ross Clark, the really appetising salaries, perks, expense packages and pensions are to be found in the public sector. A terrible reckoning lies ahead for the last fat cats
Imagine for a moment that you are a banker in one of the bailed-out banks. You have seen a few of your colleagues disappear into the lift with a bin bag and every time you wander past a pub you have had to endure the thought that there may be drinkers inside demanding you be sentenced to cruel and more unusual punishments. Yet, for all the angst of the past year, you may be just beginning to wonder: will life in the public sector really be so bad after all?
Ministers may bark at the size of your salary and bonuses, but it is has taken a week of national outrage for them to force action on bonuses out of the Royal Bank of Scotland, and even then many will receive them, or will receive salary increases to compensate for the loss of a bonus. The most telling comment to come from the government was not from a minister, however, but from an unnamed Treasury official who told the Daily Mail that some bonuses couldn’t be cut because ‘it wouldn’t stand up in the European Court if Human Rights. We can’t come along and say we’re legislating to override someone’s employment rights.’ Oh, and then there was Harriet Harman’s complaint that female bankers are receiving bonuses that are too small.
Thank heavens for the public sector, where the pay is still great but where you can enjoy security too. You think you couldn’t find a more extravagant bonus culture and an even more absurd system for rewarding failure than exists at the banks? Just look at the public sector. In fact, let’s start by looking at the public sector employee who was charged with the task of monitoring the banks to ensure they didn’t get into trouble. That man was Clive Briault, managing director of retail at the Financial Services Authority.
Having failed completely to detect anything wrong at Northern Rock, he resigned last April. That is as it should be, except that far from falling on his sword, Mr Briault appears to have been allowed to run off with it and melt it down and use the silver to augment his pension. The FSA’s annual report reveals that he left with £356,452 of compensation for lost salary and bonuses, £36,000 of pension contributions and £202,500 for ‘compensation for loss of office’.
Hang on, let’s just get this right. An employee resigns because he failed to do the job demanded of him — and he still gets paid a bonus, plus compensation for suffering the ignominy of having to resign. His case is not a one-off. Take Rose Gibb, who left her £150,000-a-year job as chief executive of the Maidstone and Tunbridge Wells NHS Trust just before the publication of a critical report by the Healthcare Commission into an outbreak of Clostridium difficile in which 345 patients died. To see her on her way, the Trust offered her a £250,000 severance package. Only £75,000 of this was pay in lieu of her notice: the other £174,573 was, as with Mr Briault, ‘compensation for loss of office’.
Although, after an outcry, the Health Secretary, Alan Johnson, tried to block the payout, he later backed down and allowed Ms Gibb her £75,000 in lieu of notice. Even so, she has gone to the High Court to claim the full whack.
What kind of an employment contract is it that ends up paying you more for being booted out for failing than it would have done had you worked out your notice? The sort of employment contract which is all too common in the public sector, that’s what. The government no longer offers jobs for life; it now just offers payment for life, whether you manage to hold on to your job or not.
Senior public sector workers did extraordinarily well out of the boom years. They negotiated themselves huge salary rises on the basis of comparisons with the private sector. They started calling themselves directors and chief executives instead of town clerks and under-secretaries. They eagerly adopted the concept of guaranteed bonuses and big pay-offs. But with private sector workers losing their jobs fast, or suffering cuts in salary, public sector workers suddenly see less need to ape the ways of the private sector.
There will be no pay cut, you can be sure, for Ian Coucher, chief executive of Railtrack, who was paid £1.244 million in 2007-08. That was a 51 per cent increase on the year before and included a £306,000 bonus in spite of the fiasco of overrunning engineering works in January 2008 which caused havoc on the West Coast Mainline. There will be no pay cut, I bet, for David Higgins, chief executive of the Olympic Delivery Authority, whose £624,000 pay packet in 2007-08 is itself one of the reasons the bill for the Games just keeps soaring. There will be no pay cut, either, for Kim Ryley, chief executive of Hull City Council, who was paid £213,162 in 2007-08 — a year when thousands of the city’s residents were left mopping up thanks to flooding from inadequate drains.
At least 88 quangocrats now earn in excess of £250,000 a year. At least six councils pay their chief executive more than £200,000 a year. But you don’t need to be chief executive to be coining it in as a local government employee. Flintshire Council pays an ‘occupational physician’ £105,725 a year. Knowsley District Council pays eight officers more than £100,000 a year, including an ‘executive director of neighbourhood delivery’ who pulls in £120,780 a year — a pretty good whack for what sounds like a postman’s job. Northamptonshire pays a ‘director of customers and strategy’ [sic] £145,000, while its director for human resources pulls in £135,000. Trafford Council even has a ‘corporate director of prosperity, planning and development’ on £106,417 a year. He has certainly achieved his objective in terms of his own income. Wandsworth has 18 staff on salaries of over £100,000, including the borough valuer and borough planner.
And so it goes on. No doubt all these officers would argue that they need to be better paid else they’ll be off to even better-paid jobs in the private sector. But where, exactly, when the country is deep in recession? And even if there wasn’t a recession, where would Thurrock’s director of sustainable communities (£113,812 a year) take whatever transferable skills being a sustainable communities champion gives you? In fact, what the hell does he have to do to sustain a community? Presumably, each year he will achieve his objective, and therefore qualify for his bonus, until such time as Thurrock is abandoned.
The TaxPayers’ Alliance, which has extracted a lot of the above information by painstaking means of freedom of information requests — often repeatedly rejected on the spurious grounds of privacy and human rights, in spite of the fact that public companies are under obligation to publish the salaries of their directors — offers the following comparisons for any public sector top brass who think they could do better in the private sector. The average chief executive of a small company (up to 50 employees) is paid £65,000 a year and the average chief of a medium-sized company (between 50 and 200 employees) is paid £122,000. The recent attacks on the TPA by certain left-wing commentators, instinctive defenders of the public sector, reveal how close to the bone the TPA is cutting.
Direct comparisons of salaries and bonuses, however, are not entirely instructive due to the huge, obscured benefit of belonging to a public sector final salary pension scheme. Most of these are hugely subsidised by the taxpayer with the result, according to the Institute for Fiscal Studies, that a public sector salary is effectively worth 12
per cent more than a private sector salary of the same nominal amount. This is not a figure, unsurprisingly, which seems to figure greatly in the negotiation of public sector pay deals.
And then, of course, there are the incredibly lax expenses arrangements for many public sector employees, epitomised by the £24,000 a year Jacqui Smith claims to run a ‘second home’ when her ‘main home’ is a house she shares with her sister. MPs’ expenses claims are on the point of losing their ability to shock. The passion with which MPs can defend arrangements which, if attempted in the private sector, would have the perpetrators instantly out on their ears is bizarre. I can’t get out of my head the memory of a red-faced Sir Nicholas Winterton complaining about the ‘obscenity’ of a proposal, a few years ago, to restrict the mileage allowance of large-engined cars like his own.
At least we can take revenge on Sir Nicholas and Jacqui Smith at the ballot box. Not so the chief executives and other high-paid staff of the dozens of quangos which are gradually taking over the government’s work and which have the freedom to set their pay and rewards way above the remuneration levels of the more accountable civil servants who used to do the job. Neither, save for the case of the mayor in London and a few other cities, can we vote against the high-paid executives who run councils. These executives are, in theory, held to account by elected councillors. But herein lies another story of public sector excess.
Traditionally, councillors were unpaid. But since allowances for attending meetings were introduced in the 1970s, being a councillor has itself gradually morphed into a profession. In Birmingham, for example, all councillors are now paid £15,148 a year and the leader of the council £52,080 a year. That’s a heck of a lot a year for someone who is theoretically a volunteer.
If they really were volunteers, the sheer number of councillors wouldn’t matter. But when a council like Kirklees (which covers Huddersfield and Dewsbury) pays £12,272 a year to no fewer than 69 councillors, you start to think how many teachers or binmen could be employed for the same money. On top of these payments, of course, come generous expenses. Kirklees councillors whose cars have engines larger than 1200cc (i.e. most of them) can charge 58.7p for every mile they travel on business. Given that Her Majesty’s Revenue & Customs will only allow employees to claim 40 pence per mile for business trips made in their own cars, it is puzzling why Kirklees councillors should be allowed to claim so much more. It would appear that they can make a nice little earner simply by driving round and round in circles to inspect their patch.
This incentive structure hardly seems to fit with the environmental platitudes which appear on the council’s website, such as: ‘Climate change is happening and together in Kirklees we have the power to do something about it.’ But then the environmentally conscious have opportunities to make money too — in common with many other councils across the country Kirklees allows councillors to claim 14 pence for every mile they walk or cycle.
One could go on: from million-pound salaries at Network Rail to mileage claims for pedestrian councillors, there is not exactly a shortage of examples of extravagance on the part of public employees. But it is verging on the futile to complain about it all as long as Gordon Brown is in charge. Of course public sector salaries and benefits will not be cut: in Brown’s warped, neo-Keynesian imagination every bonus, every bicycle claim is helping to stimulate the economy by forcing miserly taxpayers to open their gnarled claws and hand over their money to people who can be relied upon to spend it.
There may be some hope in David Cameron’s green paper on town halls this week, which proposes that councils be forced to publish more details on pay and perks and which also paves the way for more directly elected mayors — unlike with chief executives, taxpayers could at least take revenge on them at the ballot box. But I am not holding my breath. I suspect the clamps are more likely to come down on council waste when the government pathetically calls upon the IMF to bail us out and, as happened in the 1970s, the great public sector spending party is finally stopped on orders from our emergency bankers. In spite of the national humiliation which will result, part of me can’t wait.