Reducing the Income and Regional Gaps.

Many people voted to LEAVE the EU in the referendum because they felt impoverished and left behind. A more technical way of expressing this is that the income and regional gaps have widened considerably since globalisation, the single market and the opening of our borders. Whilst most of the electorate may not understand the technicalities, it is important we can answer the question “How” if we say we will tackle this problem. So here are six critical policies designed to achieve a reduction in both the income and regional gaps thereby directly addressing the referendum result. There was little about this in our 2015 manifesto so we do now need to address it more clearly.

1. Measure them!
Speaking as an experienced management consultant, if you want everyone to focus on a problem produce regular statistics on it. In this case we should get the ONS to produce statistical series calculating the Standard Deviation of Incomes around the Mean, and also the Standard Deviation of Unemployment Rates by Post Code around the Mean. People will soon understand that if the numbers go up the gaps are getting wider and vice-versa. That’s all they need to know.

2. Establish Reliable Unemployment statistics.
To the best of my knowledge the current unemployment statistics exclude under-employed self-employed people, part-time employment and zero-hours contracts, and people sanctioned off benefits. Partly this is because these details are difficult to collect. I therefore advocate setting up an Online Self-reporting of Employment Status system in combination with Welfare Self-assessment for the Self-employed, payable weekly or monthly on receipt of the online employment returns. These could be cross-checked on a sample basis. Not only would this ensure that self-employed people are not overlooked by the benefits system, but also we would get much more detailed information on under-employment levels. It would bring the welfare system into line with modern employment patterns, and these statistics could then be fed into regional policy (see below).

3. Controlling our borders.
I put this in here for completeness. We all understand wage compression.

4. Shareholder Supervisory Boards.
Reducing the income gap means we must tackle the issue of executive pay just as much as the issue of low pay. This is not about the politics of envy; it is simply to ensure that an open competitive market is operating for the executive labour market. At present it is not for two reasons, the first being that shareholders are not in control.

Only the other day the shareholders of a company, Crest Nicholson, voted 70% to 30% to reject a proposal from their directors for a pay increase. Yet the directors simple ignored it on the grounds that such votes are only advisory. This is not acceptable.
Further, during the banking crisis, it was the directors who were playing “Masters of the Universe” not the shareholders who indeed lost their money. If the shareholders had been in control the more extreme practices and takeovers could have been averted.

Nowadays shareholders are not little old ladies and retired vicars as in Victorian days, which was when their powers were limited, but highly trained and expert fund managers such as those at your pension fund and mine. These fund managers are more than capable of making these decisions on our behalf.

I therefore advocate that Shareholder Supervisory Boards be required for all publicly quoted companies. These could comprise the six largest shareholders on the register at the time a meeting is called plus the Chairman, Chief Executive and one Non-Exec. They would determine what motions would be put to the AGM regarding executive pay, takeovers and mergers, capital reconstructions and the appointment of the auditors. And of course henceforth AGM decisions must be binding on the directors.

5. Cheapest Competent Candidate.
Both for publicly listed companies and throughout the public sector this procedure should be mandatory for the appointment of senior executives and professional staff.
What is needed for executive pay is not a cap (crude, interventionist and redolent of envy) but an open competitive market.

At present senior executives are recruited by head-hunters behind closed doors and pay increases likewise by remuneration committees. Invariably the head-hunters cover their backsides by finding just one candidate who has done virtually the same job at the same level before. This person then realises he is the only one in the frame and demands the earth. Yet large organisations are no different to the armed forces where we have all heard the adage that you end up with more admirals than ships and more generals than tanks. They recruit well, train well and promote well so you get a great tsunami of talent surging up into the little pinnacle at the top with nowhere to go. Their claim that there are only a few people who can do these jobs is demonstrably false.

There is no shortage of talent at all, so we must force head-hunters and recruiters to dip their toes much deeper into the pool of talent by a legal requirement to put at least five names on each short-list. You then simply ask the short-listed candidates to bid for the job, just as you would with a contractor.

I would allow Shareholder Supervisory Boards to choose any resulting candidate since the process itself will have moderated demands, but the pure public sector should always appoint the lowest bidding candidate.

6. Regional discounts on Income Tax and Business Rates.
Previous governments have tried to address regional policy though a range of expenditure programmes. These invariably have been either ineffective or soon forgotten and discontinued. We need a permanent structural solution, and the most potent approach would be through the tax system.

I therefore advocate discounts for both income tax and business rates proportional to local rates of unemployment post code by post code across the country (see above). These will allow residents to retain more of their earnings, much of which they will spend locally thereby reducing unemployment. The cost will be largely cyclical, but the £25bn of import tariff revenues a clean Brexit will produce will underwrite it. A strong regional policy will also leave the SNP dead in the water as well as replacing the Barnet Formula.


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