Labour plans to lift 1% cap on civil service pay increases

Party would also introduce 20:1 pay ratio across Whitehall

By Richard Johnstone

02 May 2017

Shadow chancellor John McDonnell

Labour has confirmed that it will end the 1% cap on pay increases for all public sector workers, including civil servants, and would introduce a maximum pay ratio of 20:1 between highest and lowest paid staff in Whitehall.

Setting out the plans as part of the party’s wider employment policy agenda, shadow chancellor John McDonnell said these policies would “underpin the values we want to see in the British economy”.

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The 20-point plan also set out how Labour would use public spending power to drive up employment standards, for example by only awarding public contracts to companies which recognise trade unions. It also proposed banning zero hours contracts and rolling out sectoral collective bargaining.

The 1% pay cap has been in place since 2012 following a two-year freeze. Labour's announcement to scrap the cap for all public sector workers comes after shadow health secretary Jon Ashworth said last week it would be scrapped for NHS staff.

McDonnell said the cap, which under current Conservative government policy would be in place until 2020, needed to end because “public sector wages have fallen and our public sector workers deserve a pay rise”.

The maximum pay ratio in the public sector, and for companies bidding for public contracts, would set a cap based on a ratio of 20:1 for Whitehall and the wider public sector. Labour said that such a measure was needed “because it cannot be right that wages at the top keep rising while everyone else’s stagnates”.

A 20:1 ratio was first recommended by management guru Peter Drucker but few large firms meet this, according to a September 2015 review by the High Pay Centre. For example, John Lewis,caps CEO pay at 75 times the salary of its lowest earners, while the bank TSB has a ceiling of 65:1.

However, a government commissioned review by Will Hutton in 2010 said there was a strong case for public sector organisations having to comply with, or explain why they do not comply with, a maximum pay multiple, such as 20:1.

According to Hutton’s final report in 2011, a 20:1 maximum pay multiple would impact on relatively few individuals. Using the National Minimum Wage as the multiple’s base at that time, the most stringent definition would produce an earnings limit of £228,186, he highlighted. This would have affected only around 300 public sector executives at that time, while the base pay level is likely to have increased subsequently due to the introduction of the National Living Wage, which is currently set at £7.50 an hour for those aged 25 and over.

Welcoming the announcement, the Public and Commercial Services trade union said the 1% cap has been disastrous for all public sector workers, and lifting it would give all civil and public servants a long overdue pay rise.

There is an overwhelming and unarguable case to end the public sector pay cap, general secretary Mark Serwotka said.

"Labour's pledge to end the pay cap is welcome news for PCS members. It is clear that the commitments to improve collective bargaining and strengthen employment rights announced by Jeremy Corbyn and John McDonnell are in our members' interests.”

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