Will Hutton’s stealth High Pay Commission

JP Morgan, the man of the 1920s, rather than today’s super-bank, insisted in the 1920s capped executive pay at 20 times the pay of junior bank employees, “arguing that any greater would be harmful to company morale.”

Plato argued that no citizen should be worth four times another. Successful US firms such as Wholefoods and Ben & Jerry’s have had maximum pay multiples of 7:1 and 8:1.

So should we care about pay inequality, the ballooning gap between the salaries of top and bottom earners?

Today’s publication of the Hutton Review of Fair Pay is really quite a remarkable for a government-linked document.

This report is supposed to be about the public sector and the supposed fatcats, but it spends an awful lot of time and space analysing what is happening throughout the private sector too. In fact almost half the report is the first systematic collation of a statistics on the pay gap.

Let’s start with the backdrop: Bosses are obviously not paid the same as a minimum wage worker

A decade ago in the private sector Britain’s big bosses were paid 124 times the salary of their lowest paid workers. By last year that huge gap had grown even larger, with the average FTSE boss paid 202 times that of their minimum wage workers.

Its the huge growth in performance related pay through share options that has driven this growth in executive pay, and the picture we get of the Public sector is very interesting. The public sector is following the private sector, by benchmarking salaries, and the use of recruitment consultants.

This has hugely inflated salaries for the likes of NHS Trust executives, some of whom have used taxpayers money to pay for accountants/consultants to tell them they should be made more, based on spurious comparisons with the private sector.

However though the public sector pay gap is growing it is not by nearly the same extent. Particularly the case with the NHS trust executives (12:1) and the Big Universities (19:1).

What does this mean in practice?

There are 20,000 public sector workers paid more than £117,523 – in the top 1 per cent of UK earners. There are 9,000 paid more than the prime minister on £156,000. Some are managers, many are medics.

The bosses of the Nuclear Decommissionning Authority, Olympic Delivery Authority and Transport for London all earn more than double David Cameron’s salary.

Intriguingly, despite the Hutton Report being commissioned by David Cameron and George Osborne, it critiques the government for exactly this reason. ‘PM’s salary is hardly a valid comparator… its widespread use would risk damaging a wide range of public organisations,’ the report says.

So should anything be done about this? Well the Hutton Review agrees in principle that there should be a limit on the pay multiple – and it gives 20:1 as an example. Now I just showed that the top ratio in the public sector is only 19 — so this risks being rather ineffective.

Mr Hutton argues that the new government’s public sector ecosystem with more autonomy and foundation trusts etc, will lead to pay pressures going up not down. Certainly we stand to see this most evidently in that most controversial of areas: university pay.

Part of the point of tuition fees is to help the UK universities keep and attract the most clever academics in the world. Pay will go up. I’m not sure how that will go down with the youth revolt. So Mr Hutton’s review is designed to catch that.

But reading it, the report goes far beyond its remit. The plan is to set a new social norm, not just for the public sector, but the private sector too. Some irony that this is a Conservative-led government considering this, when Labour were notable for being “relaxed about people becoming filthy rich”.

I await the full report in March with interest.