John Humphrys - Top Pay: Should We Try to Curb It?

January 11, 2017, 3:18 PM UTC

Jeremy Corbyn’s New Year attempt to boost his party’s dismal poll ratings descended into what even some of his own supporters regarded as chaos.

A major speech on Tuesday, preceded by a series of media interviews, was intended to develop Labour’s policies on two major issues, immigration and inequality and so pave the way for a renewed campaign to win the support of more voters. But on both he found himself backtracking before the day was out, leaving everyone more puzzled than ever about where he and Labour stand. Nonetheless, in raising the issue of top pay as a source of inequality he has triggered a debate about whether we should do anything about excessively high incomes. Should we?

The idea behind Mr Corbyn’s relaunch seems to have been the wish to tap into the populist spirit that has been sweeping the democratic world from Brexit to Trump. That spirit has a hybrid nature. Some elements of it are unambiguously right-wing, and so create difficulties for a staunch left-winger like Mr Corbyn. But others are left-wing, providing socialist parties with an opportunity.

Immigration comes very much in the former category. There is no doubt that a strong anti-immigration platform helped Donald Trump to the White House and concern over immigration was a major theme of the Vote Leave campaign, to some extent explaining the high vote for Brexit in long-held Labour areas even as the official party position was to support Remain.

Labour has traditionally been not only pro-immigrant (as would be expected of a party committed to human rights and non-discrimination) but also pro-immigration. This has put it at odds with many of its own voters, and Labour strategists have become worried that the issue could provide UKIP with an opportunity to steal its voters in formerly safe Labour seats.

So Mr Corbyn told me in his Today interview on Tuesday that in trying to make Brexit work for Britain, Labour was ‘not wedded’ to the principle of free movement of people. In other words he was signalling to voters that Labour was no longer as pro-immigration as it had been. By the time he made his speech in the afternoon, however, he apparently felt the need to row back. He said: “We’re not wedded to it [the principle of free movement], but I don’t want to be misinterpreted: nor do we rule it out.” One centrist Labour MP said: “He’s not even a man of principle now.”

When I asked him about the massive pay gap between the highest and lowest paid, he seemed pretty clear where he stood. Another explanation of Labour voters’ support for Brexit has been that many of them have felt left out, especially since the financial crash, as they have seen their own incomes stagnate or actually fall, while top earners’ pay has gone in the opposite direction.

So he told me that something had to be done to narrow the gap between those earning most and those earning least and that he was open to the idea of ‘some kind of earnings cap’. Within hours the idea was derided, even by people sympathetic to him. Professor Danny Blanchflower, a former member of the Bank of England’s Monetary Policy Committee and subsequently an adviser to Mr Corbyn, said it was a “totally idiotic, unworkable idea” that would cause “a huge brain drain, as smart people moved abroad”. And Stewart Wood, who used to be Ed Miliband’s chief policy adviser and who is himself concerned about the pay gap, said that “maximum wage laws are unworkable”.

By the time Mr Corbyn was about to make his speech, his spin doctors were saying that he had “misspoken” and that the speech would suggest other ideas. He ended up saying it would be “probably better” to adopt a different approach to the problem. He suggested there should be a maximum ratio between the highest pay and the lowest pay in any organisation, perhaps a ratio of 20 to 1, which would still allow top executives to be paid around £350,000 a year. Where companies were bidding for public sector contracts, such a ratio might become obligatory. Elsewhere it would be voluntary but there might be a kite mark system to identify companies that abided by it and shame those which didn’t. Corporation tax might be reduced for companies that abided by the ratio.

Mr Corbyn went to some lengths to argue that these weren’t the ideas of some mad, far-left ideologues but had been supported by people who would never describe themselves as socialists. He cited the great American capitalist, John Pierpont Morgan, who refused to invest in companies whose leader earned more than twenty times the average salary of his workers. And he also called a Conservative in aid.

He said: “Another advocate of pay ratios was David Cameron. His government proposed a 20:1 pay ratio to limit sky-high pay in the public sector and now all salaries higher than £150,000 must be signed off by the Cabinet Office. Labour will go further and extend that to any company that is awarded a government contract. It cannot be right that if companies are getting public money that can be creamed off by a few at the top.”

Mr Corbyn also floated the idea of higher rates of income tax than are currently levied on either the top 5% or the top 1% of earners. At the moment the top rate of 45% is levied on those earning over £150,000, roughly the top 1%. So his idea implies a higher rate for them and a higher rate than the current 40% for the top 5% of earners, those paid around £70,000 or more.

Whatever the merits or otherwise of these ideas, some of his critics argue that they are based on a simple factual error: the notion that income inequality has been getting worse in Britain. In fact the opposite is the case. Income inequality did widen in the 1980s, but in recent decades, partly as a result of tax credits paid to those in work but on low pay, income inequality has fallen. The Office for National Statistics produced figures recently to show that last year the incomes of the lowest fifth of workers had risen by £700 on the previous year, while the incomes of the top fifth had fallen by £1,000. The World Bank reported that income inequality fell in Britain between 2004 and 2012 and the OECD produced figures to show between 2007 and 2014, the highest-earning tenth of British workers had seen their incomes fall by 8% and the lowest-earning tenth had seen theirs rise by 10%.

Nonetheless, the gap between the very highest earners and the rest has increased hugely in recent years. In the late 1990s, the average chief executive of FTSE 100 companies was earning 60 times what the average worker in his company was earning. Now that figure is 170 times. Research by Lancaster University shows that there is no correlation between this huge increase in executive pay and returns on investment in the companies concerned.

Mr Corbyn’s basic point is a moral one. He says: “What we cannot accept is a society in which a few earn in two and a bit days what a nurse, a shop worker, a teacher do in a year.”

Is he right? Or is this an example of what has been called ‘socialist envy’? And if he is right, does he have viable ideas for doing something about it? What do you think?

Let us know your views.