Call to investigate 'fat cat' public sector salaries

The House of Commons Public Administration Select Committee said that a growing gulf between the salaries of council and quango chiefs and the average earnings of their staff was not "sustainable or desirable" in a time of recession.

In a report published today, it recommended the publication of the pay of all public servants earning more than about £100,000.

But the committee dismissed calls to cap public sector pay at the £198,000 level of the Prime Minister's salary as "little more than a political stunt" which would be unlikely to deliver better value for money to the taxpayer.

Any highly-paid public servants who fail to perform effectively "should face the very real prospect of losing their jobs without any kind of generous pay-off", said the report.

But the MPs said it would be "particularly damaging" if talented managers left the public sector because of pay reductions that were modest in comparison with the savings they are able to deliver for the taxpayer.

The MPs blamed soaring senior salaries in public bodies in part on "contagion" from the private sector, where massive rises for top executives have become the norm over the past decade.

And they warned that measures to rein in public servants' pay will be effective only if they were matched by similar restraint in the private sector.

Communities Secretary John Denham last week tabled new regulations to require local authorities and other public bodies to reveal the names and salaries of an estimated 300 top staff earning more than £150,000.

Conservatives have said they would give the Chancellor of the Exchequer a veto over any public sector appointment with a salary higher than the PM's.

The moves came amid widespread concern about the generous pay rises that town hall chiefs have secured for themselves while lower earners have endured much tighter settlements.

Today's report said that the creation of a Top Pay Commission would ensure greater coherence to the setting of senior salaries across the public sector.

The Commission could produce principles and benchmarks to guide pay-setters and launch investigations where they were breached.

And it could name and shame public sector organisations paying "excessive" salaries to top officials.

Committee chairman Tony Wright said: "Set against the stratospheric pay increases seen at the top of the private sector over the last 10 years, the public sector has got excellent value from many of its top people.

"However, we do not believe that the ever-growing gulf between average earnings and top pay is sustainable or desirable - especially in a time of recession.

"Our Top Pay Commission would ensure that public sector pay setters would have to justify top pay deals and set them in the context of pay at lower levels and the state of the public finances."

The report also identified weaknesses in current arrangements for public sector pay-setting, warning of a perception that some public servants have been rewarded for failure.

Pay has been driven up because parts of the public sector are competing against each other for a small number of experienced executives, rather than nurturing talent within their own ranks, found the report.

Public bodies should do more to ensure talent is promoted from within and failure is not rewarded, said the cross-party committee.

"We believe that our proposals will save public money in the medium to long term and restrain executive pay across the public sector," said the report.

"More importantly, they will ensure that where large salaries are paid they are seen to be achieving value for money. Ultimately, however, such measures will only be effective in the longer term if senior salary restraint in the public sector is matched in the private sector."

The Taxpayers' Alliance, which campaigns for lower taxes, welcomed the call.

Chief executive Matthew Elliot said: "It is extremely good news that the Public Administration Committee has joined our campaign against top public sector pay.

"Having published the public sector rich list and the town hall rich list for four years now, this is an issue that has long concerned us.

"It is unacceptable that frontline staff get measly pay rises, when those at the top got a 5% rise this year. A Top Pay Commission is a step in the right direction, which we welcome."