Cable takes aim at top pay as £13bn hole appears in public finances

Vince Cable is out to put a stop to rewards for failure - perhaps he should start at the Treasury, which it seems may have underestimated the deficit by £12bn...

by Andrew Saunders
Last Updated: 28 Oct 2011
It’s LibDem conference time, so no surprises that the party’s most popular minister Vince Cable has a crowd-pleasing target in mind - fat cat pay. TThe business secretary has outlined his plans to stop bosses’ salaries rising inexorably, regardless (as it can often seem) of whether their commercial achievements merit it or not. ‘No more rewards for failure’ as he put it.

Meanwhile a short walk across Whitehall from DBERR to the Treasury, where it seems that the deficit wonks may have been suffering from a bit of under-performance themselves. According to research conducted by the FT over the summer, the UK’s already scarily large structural deficit may turn out to be £12bn larger than previously thought. The research, which replicated the government borrowing model used by the Office for Budgetary Responsibility, suggests that the structural deficit in 2011-2012 now stands at £61bn, instead of £49bn as previously indicated by the OBR in March.

For those whose deficit economics is a little rusty, the structural deficit is the nasty bit. It is the part of the overall deficit that is not gradually eliminated by rising economic growth but requires tax rises and spending cuts to deal with. So the news that it may be some 25% higher is not good, and throws in to severe doubt George Osborne’s key ambition of eliminating the deficit a year early in 2014.

It’s all down to the measure of spare economic capacity, apparently. The OBR figs from March suggest that there is 3.9% spare capacity in the UK economy, whereas the new research suggests that 2.6% is closer to the mark. Why does it matter? The lower the level of spare capacity, the higher the structural deficit and the longer and weaker the recovery will be. Good oh.

Back on executive pay, although he stops short of any kind of cap, some of Cable’s ideas for encouraging restraint and a much less elastic connection to performance will only be slightly more welcome in the nations boardrooms. First off that old favourite, disclosure. Vince wants all directors of firms listed on the LSE to have to state clearly and unequivocally what they are paid - including salary, pensions and bonuses. Further, he wants any firms that have paid bonuses which are not justified by performance to have to explain why. Ouch. Finally, he suggests that shareholders should have an even greater say in pay than they currently do, and that employees from more junior levels should be included on remuneration committees to keep their feet more firmly on the ground. That would not be a job for the faint-of-heart…

The idea he says is to foster a greater sense of shared society and joint responsibility. People accept capitalism’ he said in his speech at lunchtime. ‘But they want responsible capitalism.’ Fair enough, but will his ideas gain any traction with the rest of the government? Vince’s track record on that isn’t great, nor is he by any means the first minister to attempt to tackle pay, so we’ll have to wait and see…

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