How Much Should They Get?

MONDAY, MAY 11, 2009

How Much Should They Get?

You'd be a fool not to take it

The MPs' story seems to go something like this:

"We have claimed this money in good faith, fully in accordance with the rules, and all our claims have been thoroughly checked by that bloke in black tights.

As for our £24 grand pa tax-free second homes allowance (equals £40 grand pa grossed up for tax), that is absolutely essential if we are to discharge our duties both at Westminster and in our constituencies. Anyway, even if we do routinely rip the arse out of it, that's down to Michael Foot, because back in the 70s he set up the allowances specifically to get round his government's ridiculous incomes policy. In reality, it's always been part of our pay, and it's no more than we're due.

I tell you in all candour, we are grossly underpaid for what we do, and if it wasn't for our unimpeachable sense of public duty, we could all earn A SHEDLOAD MORE in the outside world."

So what they're saying is that the published MPs' salary of £64,766 pa is only there to fool the public. Their real salary includes their allowances.

As we blogged here, a salary of £65 grand puts you comfortably in the top 10% of earners. If we add on the grossed up second homes allowance, we get to annual pay of £105 grand pa. That puts you in the top 2% (HMRC tax stats). And that's without taking any account of the platinum-plated pension, and all those other allowances MPs get (such as the £100 grand pa staffing allowance that can be used to employ family members).

So how much should they get?

As always, we must start from the market.

Key Market Test - are MPs' present pay levels high enough to attract staff?

Answer - present pay levels are plenty high enough. Unlike the position with say, state school headteachers, there is absolutely no shortage of recruits. Indeed, there's a queue of keen qualified applicants stretching several times round the Westminster block.

Moreover, there is absolutely no evidence of MPs leaving because they are attracted by higher pay elsewhere. Plenty of state school headteachers become MPs (eg John MacFall), but Tyler can't think of a single one who has made the journey in the opposite direction.

As the Senior Salaries Review Body puts it in their most recent - and weighty - report on Parliamentary pay (2007):

"...there is little or no difficulty in recruiting sufficient suitable candidates to stand for election. There does not appear to be a problem of retention. We heard no evidence to suggest that MPs are leaving the Commons because of inadequate pay."

So they are certainly not being underpaid.

The question is rather, are they being overpaid? Since there is absolutely no shortage of suitable recruits, it seems quite likely that they are.

Unfortunately, the proposition has not been tested. Far from pushing down MPs pay, successive governments have moved them smartly ahead. The SSRB has this handy chart (they picked 1990 as the base because that's the first year of the ONS Average Earnings Index, which is now a key benchmark for all salary awards):

They also surveyed MPs' salaries in other major economies, and found that our MPs are positioned in the middle of the pack, almost exactly in line with their French and German counterparts (comparisons on Purchasing Power Parity basis). But their figures take no account of allowances or pensions.

Many MPs say that their real "comparators" are not legislators overseas, still less the great unwashed here at home. Rather they should be compared to high private sector earners like lawyers and bankers, who until recently have enjoyed vastly booming salaries.

Sadly for MPs, the SSRB knocked that one firmly on the bonce:

"...while we take note of the growing discrepancy between MPs’ pay and private sector salaries, we believe MPs are quintessentially public sector workers... the relatively lower salaries at higher levels in the public sector do not on the whole appear to affect adversely recruitment, retention and motivation. We see plenty of evidence of a ‘public service ethos’. Many of those who work in the public sector, especially at more senior levels, appreciate the social value of what they do [no, really - that's what it says down here]."

So the SSRB specifically rejected the contention of many MPs that they should be benchmarked against private sector comparators. Benchmarking will continue to be against the public sector.

But the question is which grade?

Back in Tyler's time as a civil servant, MPs pay was broadly linked to the civil service grade of Senior Principal. That's roughly equivalent in today's civil service to Grade 6, which now pays £52,265- £72,636, putting today's £65 grand pa MPs comfortably above the mid-point.

But more recently, the SSRB has been persuaded that a more appropriate match isSenior Civil Service Pay Band 1, which runs from £57,300 to £116,000. With the suggestion that MPs are somewhat behind.

But even if you accept the SSRB's new benchmark, once you factor in the MPs' second homes allowance - excluded from the SSRB comparisons - they're doing very nicely thank you. £64,766 basic plus £40 grand grossed up homes allowance, and we're on £105 grand pa (yes, yes, OK, they have to live somewhere while in the Smoke, but there's clearly been huge abuse of this allowance).

Then add in the platinum-plated pension - worth 22% of salary according to the SSRB - and altogether we're looking at a seriously cushtie set-up (even withoutconsidering the staffing and other allowances).

Conclusions?

First, the market says our MPs are most definitely not underpaid.

Second, we need pay transparency - it's pointless focusing on their declared salary when most of them draw a further £40 grand under the counter. According to the SSRB, two-thirds of them draw at least 80% of the second homes allowance (the Additional Costs Allowance). And half of them draw at least 90%.

Third, according to the SSRB, their current basic salary is more or less where it should be. So let's abolish the second homes allowance, purchase some of the many unsold flats kicking around central London and offer MPs far from their constituencies the use of these flats free.

Fourth, abolish the final salary pension scheme, and move MPs onto a much cheaper money purchase arrangement - just like the private sector.

PS The good coming out of this scandal far outweighs the bad. We are seeing just what frightful money grubbing people most of these MPs are. Why, they're no better than the rest of us... so WTF should they presume to tell us how to run our lives?