We need a High Pay Commission to examine the myths of and justifications for excessive pay

By Joe Cox / @compassoffice

According to today’s Guardian there is a ‘fierce debate’ within government around how to tackle wealth inequality, with rumours that a High Pay Commission may be established. This is good news for egalitarians that have witnessed growing inequality under this Labour Government with increasing concern. It seems there is now a real possibility that inequality and high pay will be part of the debate (at least within the Labour Party) at the general election.

The explosion of wealth at the top has largely gone unchecked, and has escaped genuine concern under both Labour and Conservative Governments. Under the current Labour Government inequality has decreased within the middle 90% but the richest 10% of society have increased their share of income dramatically to over 30% of total income. Any attempt to make Britain more equal through higher minimum wages or median wages has been undermined by the explosion in wealth at the top.

Large increases in remuneration at the top of society have often been justified by rational market theory. It was believed markets and shareholders could and would effectively set and constrain salaries. Yet the economic crisis has shown that the dominant theories on how the market functions are flawed.

If we accept Richard Wilkinson and Kate Pickett’s thesis from ‘The Spirit Level’ that huge wealth inequality is bad for society and has a myriad of unwanted social effects, then setting pay floors through a Low Pay Commission must be accompanied by Government action to curb the excess at the top.

The case for a ‘High Pay Commission’ touches upon economics, democracy, ethics and the underlying relationship of the individual, the state and the economy:

It is a question of democracy because the state has failed to constrain the market and now underwrites the banking system.

It is a question of economics because of the obvious effects of the financial crash brought on by excessive pay and risk taking in the financial sector.

And it is a question of ethics because we believe that no matter what job a person does and no matter how many hours they work, there is no possible way that an individual’s skill, expertise, intelligence or experience, or luck, can justify the payment of 400 times the wages of the lowest-paid.

It is hugely welcome that the Labour Party are taking this issue seriously and Compass have floated many ideas concerning high pay:

Firstly, we need a High Pay Commission to examine the myths and justifications around high pay; do the highly paid increase long term economic value and what are the social implications of high pay?

Secondly, we need to tackle the over-reliance on, and source of, much of the exorbitant pay with a bank windfall tax or a Tobin tax. This could be used to invest in a Green New Deal, for example, to rebalance our economy and invest in green jobs.