There is a pressing question here in Britain that’s posing a real dilemma to politicians: how do we share the economic recovery more equally across all of society?
So much is made in the media of the expanding super-rich and their houses and yachts, when for the vast majority just owning their own small home is a big challenge.
The quiet insistence that this inequality be comprehensively addressed can only grow as anger about it festers.
For some of us lifelong Conservatives, it is also prompting a painful question. Is the free market we cherish and nurture distributing its spoils in a morally defensible way?
Capitalism is supposed to cascade wealth down, so why does it seem to be cascading up?
To make my point, the typical FTSE company chief executive now makes 183 times more than their average employee, and some take home even more.
But it hasn’t always been like this. The ratio of FTSE 100 chiefs’ pay to that of average workers has jumped significantly since the millennium turned. In 1998 the multiple was only (if ‘only’ can be the right word) 47 times. And these ‘average’ employees are themselves typically paid up to four times what the office cleaners get.
These chief executives are, of course, few in number. They would argue they do a skilled job and the companies they run would add that if they didn’t pay so much, they couldn’t hire the top talent to drive companies forward to create jobs and prosperity.
It’s also true that under capitalism, over the long term, we’ve almost all got much richer. Capitalism has delivered us technology and medical breakthroughs that were only fantasies to our predecessors.
Of course, this is all well and good, but now society rightly finds grotesque such disparities of income so lavishly displayed. People simply won’t stand for it and all politicians, are going to have to take that as a given.
So, what to do to address this dilemma? Well, since 2010 there has been some progress in closing the gap. We saw a reduction in inequality in the wake of the financial crisis, driven by large income falls at the top.
More encouragingly, we have seen a recent return to wage rises and, crucially, faster earnings growth of the lowest incomes. These earnings increases, combined with swift rises in employment, have meant income gains for the bottom outpacing the top. The new National Living Wage is also something that will start to improve the situation over the long term.
But the ratio of typical workers’ pay to chief executives in most large companies and some public sector organisations is still difficult to explain by market forces alone.
And it’s not something unique to Britain. In America, the average CEO makes 354 times more money than the average employee. In Germany, CEOs make a comparatively reasonable 147 times more money than workers.
I don’t know how people in those countries feel about the situation, but I hope Britain may soon be a beacon of hope when it comes to excessive executive pay.
The recent news that BP shareholders voted against the huge pay rise of their CEO is welcome and builds on the so called “Shareholder Spring” of 2012 where a number of large British firms were similarly challenged about pay.
Back in 2014 Vince Cable gave shareholders more power over executive pay. I firmly believe it’s time the Government revisited shareholder power and gave them more tools to help them exercise it.
Requiring all FTSE 100 companies to report on top-to-bottom as well as top-to-median earners’ pay scales would be a good start, and lead to transparency that has been lacking.
When large employers were asked to tackle another type of inequality, that of gender pay gaps, a similar approach was used and is beginning to have a good effect.
So this CEO/employee pay inequality is a bellwether of how things should not be because the high skills, high pay economy opportunities must be open to all.
It makes it clear we must shape future growth so that the vast majority see their living standards rise in line with the nation’s economic growth because that is vital to delivering a One Nation Conservative government.
Published in The Western Morning News on 16th June 2016