The Reluctant Armchair Auditor

Sorting spending fact from fiction

Hutton debunks a myth

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A slew of cancelled client meetings because of the weather leaves me free to catch up with the news. My eye has been particularly taken by what he has to say about using the Prime Minister’s pay as a benchmark.

You will probably be familiar with the figure of £142,500. It’s been used as a useful cricket bat to thwack evil public servants. Here’s a typical example from Daily Mail. Ministers have enjoyed themselves with this too.

Those of us with a passing understanding of how to work out the total value of a remuneration package have treated the benchmark with the derision, sorry professional scepticism, it deserves.  About the only thing it had going for it was simplicity. But in my experience simplicity is often simply an excuse for crass reductionism.

Senior public sector managers with whom I come into contact have been grinding their teeth over the PM salary benchmark for ages. For perfectly sensible reasons none of them broke cover. Trying to defend yourself risks getting the treatment that John Ransford got on BBC’s Newsnight. A week later and Mr Ransford got a haircut of over £140,000 on his base salary.

For people like me who like numbers to be materially accurate Hutton has done us all a profound service. Have a look at Box 2E on page 56 of the Interim Report for the detail of the debunking. Suffice it to say he identifies the two flaws with the benchmark.

First, it nowhere near reflects the total value of the PM’s remuneration package. If you add in the salary the PM has chosen – and been able to forego – with the value of his pension, accommodation and so on by any calculation the package is worth more than £500,000. That’s probably right but it’s a rather different benchmark isn’t it?

The second flaw is, of course, that the PM’s remuneration package is not determined in a labour market but rather in a political stock exchange. PMs take a punt on low income yields during their time in office correctly calculating that simply by holding the office they hugely increase their worth. Capital growth of a sort. If you doubt that look at the before and after shots of Mr Blair’s London homes.

Thank you then Mr Hutton but I do not think we should hold our breath for the thundering headline that says, ‘Almost all public sector workers paid less than the PM.’

Reluctantly back to the armchair I must go.

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Written by reluctantarmchairauditor

December 1, 2010 at 10:09 am

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