Sunday Thoughts: Wage Regulation?

Sunday, August 16th, 2009 - politics, sunday thoughts

Sunday Thoughts: Wage Regulation?

View from the Gherkin

There is a lot of politically driven banter in the Sunday newspapers this week of regulating the wages of bankers. It is clearly a typical August holiday slow news weekend, so the editors pick up on anything and everything: anyone seen a juggling badger story yet?

But as even Westminster is dead at this time of year, were it not for Alan Duncan dragging MP’s expenses back to the front page, the current pre-2010 election banter is about wage regulation for bankers.

It started on Friday with the Conservatives shadow Chancellor George Osborne stating he would cap bankers wages, and has followed through in features and editorials written by Chancellor Alistair Darling saying he is already doing so. Some of the more business orientated publications have also picked up on the issues that: six Barclay’s workers are due to split a £30M bonus in the next few weeks; that the 70% UK Government owned Royal Bank of Scotland is head hunting a rivals corporate banker with a £7M golden hello; or that total banking bonuses paid out so far in 2009 amount to £7.6Bn

Where does this all end? In failure is my thought.

Wage Regulation

Wage regulation focuses on how, and how much people are paid. Until the rightful introduction of the minimum wage – effectively below a certain level, what we are really saying is that the state is happy to directly subsidise industrial activity through state benefits: not what Nye Bevan had in mind at all; wage regulation focused on the structure of what came out of your wage packet in what order and to whom it was paid: tax, national insurance, pension, extra.

The first change in modern UK wage regulation was in effect the result of the Maxwell affair, which stated how long companies could hold pension contributions before they were passed to what form of independent body. He may not be popular, but the litigious Maxwell’s legacy on UK plc is wide and generally good: we learnt with hindsight from the bad, and made not just right, but better. The second development was the National Minimum Wage Act of 1998, which was decried by certain employers as job destroying, but in actual fact has created jobs. There are still unfortunately regular court cases, normally associated with certain sectors including Gang Masters where the debate is focused around those infamous “legitimate” deductions, but they are getting rarer.

Maximum Wage?

The difference in the current debate in on the maximum possible wage, and specifically on one sector: bankers. Yes, the banks did wrong and caused much of the recession and need banks need regulation, but I think individual wage capping is a poor precedent, and here’s why:

  1. Where individuals are paid by private companies and organisations, should we publicise wages? Rightfully pay disclosures have to be made by all employers to HMRC, but should it be every citizens right to know everyone else’s income? It is in effect a human rights issue
  2. Setting maximum earnings in one sector will lead to maximum wage regulations in other sectors. It’s bank now, why not company directors next? In an international world, simply unless regulation is universal, then companies and individuals can take flight and go some where else. Maximum wage regulations and high taxes simply make moving to sunnier climates look more acceptable credible
  3. What does a maximum wage regulation say to the public at large, let alone entrepreneurs? I think it says: don’t work, get to a level then go somewhere else

Political Wage

I don’t think the answer to the problem here is wage regulation, I think its the politically right answer right now to a closer question: who wins the 2010 UK election.

The regulations Darling was originally proposing have been so watered down in discussion with the banks, that they are paper thin: they don’t describe maximum wages, they just allow him to write a Sunday newspaper feature which says they do. In actual fact they are focused now not on individuals, but on the banks themselves and how they will pay their employees: a better choice for longer term national stability. As Maggie Thatcher learnt with the pole tax, regulating individuals is almost impossible; companies, much like houses, are fewer and slower moving targets. So just manage and regulate them properly.

The problem here is, and hence why Osborne is taking the attack, is that the Government fluffed to put it slightly the controls they put in place to manage their investments in UK banks. They wanted stakes and hence control in all five main UK banks, they got control of one and a big stake in another: and even with those, they can’t seem to manage to get Bank of England money through to high street lending to revive the economy.

Maximum wage regulation will never work: unless its global, individuals will flight. But Sunday newspaper headlines can presently be grabbed by bashing the Porsche driving City banker set. Do I want the future of my country defined by a political skirmish, associated with political posturing to win an election to decide who makes the cuts in national services; or do I want a real debate about jobs, investment and economic revival?

In starting such a debate, one party probably proves their Chancellor designate is not right to live in Number 11 Downing Street; in countering the debate, the current Chancellor shows he really just a politician. The rest of us just shake our heads and wonder what either of them will do when unemployment rises above 3million. That’s the real world question, and when 20% of sub-25’s are unemployed, where I want the real employment debate now, and through the next government.


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