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Produce and Prosper is a policy paper written by Stephen Bush and provided to UKIP in his role as chairman of the UKIP policy group on Jobs, Enterprise and the Economy.  Stephen Bush is now UKIP’s national spokesman on Business, Enterprise and Skills.

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Public Sector Salariesbw2-015

The recent disclosures of the expenses of senior BBC executives are of great importance, not only for some of the expense items themselves (presents for people doubtless presented to the recipients with a round of applause at a taxpayer funded dinner), but also the sheer extravagance of the salaries being paid. People are entitled to query for instance a basic salary of £400,000 per year for one Jana Bennett with the job title “Director of Vision”. All organisations have a reasonable need from time to time to explore ideas about their future – the sort of thing private sector companies do for a couple of “away-days” with senior staff every two or three years or so. One would hope that the same staff would be thinking about their aims and hopes for their part of the organisation in between times. But how do you spend complete years doing “vision”? Do BBC executives suffer from poor eyesight?

How do you judge success or failure in such a job and how do you go about fixing a salary for it? Was it advertised to all staff in the BBC and to the outside world?

The Thursday edition of the Guardian newspaper is full of public sector non-jobs like this, even or should we say, especially in these cash-strapped days in the personal and private business sectors which have to pay for it all. Besides the BBC, local authorities are also well-known for paying extravagant salaries to senior staff, especially to those who used to be known as “Chief Clerk”, but are now referred to as “Chief Executive” in imitation of the title used in private sector businesses.

Coupled with the pay and bonuses for bankers, the BBC and local authority pay rates raise the question as to how salaries in general are determined.

Minimum hourly rates are set by law, but the rest are set chiefly by expectation thinly disgused as the “market”. Rates are mediated only by the ability of the employer to pay. But what defines the “market”? The answer is that each employment group defines its own market, confident that gardeners (say) on £10 per hour won’t undercut lawyers on £200.

Within such service groups, competition, where it exists, is actually to put rates up, not down, exactly the opposite of what happens in the goods sectors. Why should this be?

Where service activities like law have until very recently been essentially all labour, there is absolutely no point in lowering fee rates by (say) 10% to obtain more business because you would have to work 10% just to keep your income the same – and nobody wants to do that.

Location affects fee rates however. Small town lawyers in general charge less than city centre practices because their client base has less money to spend, being predominantly small businesses and private individuals, so their fee expectations are lower.

By contrast, for goods, price pressure is always downwards, international and independent of who is buying and where. The production of goods is driven by human ingenuity and capital, which together can increase output by several orders of magnitude over time, while labour and raw materials costs move upwards very much more slowly because they have to be contained within a cost structure set by the international price pressure.

Granted that none of these price pressures operate on public sector jobs, how should they be determined? Certainly not by the present method which applies to local authority senior staff. Here we have a system whereby an “independent” panel advises elected politicians of the “going rate”, i.e. senior staff expectation. And who make up the “independent panel”? Why the very recruitment people commissioned by the local authority to fill the post. Since recruitment firms charge a fee proportional to the salary offered to the appointee, they have every incentive to push salaries up.

What could introduce some downward price pressure into filling public sector jobs? The simplest method would be to follow the practice of the public sector in getting work done by outside contractors – that is to put jobs out to tender. So we could see (say) the job of the Chief Executive of Suffolk Council (recently filled at a salary around £212,000) being offered to whomever was judged to offer the best value – a judgment which would include the salary for which the applicant was prepared to do the job. Of course some applicants would be unsuitable, however little they offered to do the job for, but my guess is that quite a few, from anywhere in the country, would do the job for £100,000 on a sealed bid basis.

Likewise, the BBC’s “vision” job mentioned at the beginning, currently costing over £0.5 Million per annum, would attract many sealed bids at a quarter of this figure or less.

Given that public sector costs are 75% staff salaries and the top posts set the scales for all the others, we have here a powerful weapon to make a real impact on Britain’s huge £175 Billion public sector deficit. And there is a lesson here for private sector board-room pay as well.

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