A charter for fair pay
A guest post from Luke Hildyard, Director of the High Pay Centre
This is a guest post from Luke Hildyard, Director of the High Pay Centre and author of Enough: Why It's Time to Abolish the Super-Rich
Raising incomes and living standards is a priority for any government, and since the election of the Labour government in July there has been considerable interest in its plans to this effect.
Levels of prosperity across a country depend on aggregate wealth and how that wealth is apportioned. This latter point is particularly important in Britain. The OECD ranks the UK as one of the most unequal of 40 major economies (in terms of income inequality).
Recent research from the Resolution Foundation illustrates what this means in practice. They found that UK households at the 90th percentile of the income distribution (those richer than 90% of the population) are richer than those at the 90th percentile in countries including France, Belgium, Sweden, Finland and Ireland. However, median incomes in those countries are all higher than in the UK. If our economy distributed the wealth that it generates more evenly, in line with our neighbours, people in the middle and at the bottom would be a lot better off. There is also plenty of evidence that a more equal economy would be less prone to the public health and social problems that are exacerbated by painful and glaring differences in income, living standards and opportunity.
Progressive taxation is generally seen as the antidote to inequality, and the more effective taxation of wealth and of income from wealth should be a priority for the new government. But policymakers also need to think about how we can stop such stark inequalities emerging in the first place, by redirecting more of the money flowing to those at the top to the rest of the population without needing to tax and redistribute.
This has always been part of the policy toolkit for raising living standards. From the legalisation of trade unions (helping ordinary workers to win a greater share of the spoils of the industrial revolution from Victorian factory owners), to the introduction of the minimum wage (directing a greater share of business revenues to low-earning workers since the turn of the millennium), improvements to general prosperity have regularly involved interventions to win a greater pre-taxation share of aggregate wealth for those at the bottom and in the middle at the expense of those at the top.
The new government has made some positive steps in this direction. An Employment Rights Bill has already been put to Parliament and will be enacted next year following a period of Parliamentary scrutiny and public consultation. The King’s Speech of July 2024 also announced plans for a draft Audit Reform and Corporate Government Bill.
These measures could form the basis for a fairer, more democratic, more socially sustainable economy. Last week the High Pay Centre published a Charter for Fair Pay, setting out how the measures above could be implemented most effectively. The report argues that the focus should be on creating a more participatory business culture, more aligned with the interests of wider society, where workers are more empowered to influence their pay levels and other aspects of their working lives. Fairer pay and better work would result organically from changes to the corporate governance and industrial relations framework, rather than from direct attempts to mandate them through restrictions and regulations.
Specifically, the Charter calls for policy changes across the following four themes:
Employment rights – including full implementation of the Employment Rights Bill, prohibition of ‘union busting’ practices and a stronger, clearer right for workers and trade unions to be consulted on key business decisions where they request it
Corporate Governance – via representation for worker directors on company boards, and revision of directors’ legal duties to promote accountability to all stakeholders
Investment stewardship – including greater accountability from pension funds regarding the socio-economic impact of their investment and stewardship practices, and voluntary targets for worker share ownership to apply to large companies
Pay transparency – by reforming pay ratio reporting to apply consistently and in greater detail across all major employers, and empowering workers with a right to more detailed information on their position in the employer’s pay distribution
Many of these measures have also been proposed or already apply in other countries. For example, most European countries operate some kind of mechanism for worker voice at boardroom level. The European Participation Index, which measures worker involvement in workplace decision-making across different countries, ranks the UK 26th out of 28 in Europe. Bipartisan legislation in the US has proposed prohibiting practices like forcing workers to sit through lengthy anti-union presentations prior to votes on union recognition.
Similarly, other proposals refine or imitate existing UK practice. The targets for gender diversity on listed company boards, and the Mansion House compact that sets out commitments by pension funds to invest in unlisted UK companies, provide precedents for voluntary targets on worker share ownership. Changes to the pay ratio regulations would simply combine, and consistently apply, rules that already operate for listed companies and public and voluntary sector employers.
Beyond their effect on pay and inequality, these measures would also improve business decision-making by facilitating participatory governance models incorporating greater cognitive diversity and frontline business experience. They would strengthen employee engagement and wellbeing through stronger consultation rights and access to information. And they would align business practice more closely with the wider socio-economic interest, by encouraging boards and investors to reflect on the holistic impact of their decisions.
In this way, the proposed policies would not only contribute towards a fairer and more equal country but also one that is more prosperous and productive. Ensuring that the government’s legislative programme delivers on these lofty ambitions should be a key priority for progressive campaigners.
This is a guest post from Luke Hildyard, Director of the High Pay Centre and author of Enough: Why It's Time to Abolish the Super-Rich
In case you missed it: On Thursday the Resolution Foundation published a report on the changing shape of wealth inequality in the UK. Will was a panellist at the launch event, talking about the impacts of and solutions to wealth inequality. Below is a recording of the event.