Press notice from Sir
John Baker CBE - Review of MPs' pay and pensions by Sir
John Baker
DEPARTMENT FOR
BUSINESS, ENTERPRISE AND REGULATORY REFORM News Release (Reference:
2008/114) issued by The Government News Network on 17 June 2008
The Government has
today published Sir John Baker's Report on MPs' Pay and
Pensions which he submitted to the Government on 30 May.
In January 2008 the Prime Minister asked Sir John to examine
options and make recommendations for a mechanism for independently
determining the pay and pensions of MPs which does not involve MPs
voting on their own pay. (The terms of reference for the review
are attached.)
Sir John said: "MPs' pay is a highly sensitive and
emotive issue. MPs are likely to be criticised in the media,
often unfairly, when they propose or vote to accept pay increases
for themselves. But if they forgo those increases their pay falls
further and further behind, necessitating large catch-ups which
can then seem even more contentious, particularly when Government
is pursuing a rigorous public sector pay policy. This argues for
taking decisions on MPs' pay and pensions out of the hands of
MPs and Government alike. I believe there is now a real desire on
the part of most MPs and the Government for an independent and
objective means of determining MPs' pay. I believe this
should also extend to their allowances.
"I have therefore made three key recommendations: an
Independent Body to review MPs' pay, pensions and allowances
once a Parliament to keep them in line with the market; a fair
mechanism for uprating MPs' pay each year, without a vote,
between reviews; and a modest, staged increase to MPs'
salaries to bring them closer in line with those of other public
sector workers doing similarly important jobs. The evidence shows
that MPs are paid about 10 per cent less than the average for
similarly weighted public sector jobs."
Sir John's report recommends that MPs' pay be uprated
annually by the Public Sector Average Earnings Index published by
the Office for National Statistics.
He said: "The Public Sector Average Earnings Index meets
all the criteria I have set out in my report. It is easily
understood, independent, authoritative, transparent, linked to the
public sector and sustainable over a number of Parliaments.
"Linking MPs' pay to this index will give MPs the same
percentage increase in earnings as the average public sector
worker received in the previous year. So this mechanism will
provide an annual catch-up for MPs. Their pay increases will keep
pace with those of average public sector workers and cannot run
ahead of them."
Independent Body
Sir John has recommended that the current Senior Salaries Review
Body should extend its role and become the Independent Body which
oversees and determines MPs' pay. The Body should conduct
reviews every four years or so, as far as possible in the first
year of a Parliament, or when requested by the Speaker. The
purpose of such reviews would be to check that MPs' pay was
still at a level to ensure that good quality candidates were
willing to serve as MPs, and to check that the uprating mechanism
was working properly. The Body's findings should be applied
automatically, with no involvement of Government or MPs themselves.
Pay for 2008-09 to 2010-11
The Senior Salaries Review Body submitted a substantial report on
parliamentary pay, pensions and allowances in July 20071. On the
basis of all the evidence available to it, including a job
evaluation of the work of MPs, the Body recommended three annual
increases of £650 for MPs in addition to normal uprating, to move
their total remuneration closer to the average of the public
sector comparators identified by the job evaluation exercise.
Sir John's report endorses the Senior Salaries Review Body
proposal and recommends that the MPs' salary with effect from
1 April 2008 should be £64,634 (i.e. the current salary of £61,820
uprated by the Public Sector Average Earnings Index figure for
January 2008 of 3.5% plus the £650 staged increase recommended by
the Review Body) and that the salary should then increase by the
increase in the index plus £650 on 1 April 2009 and again on 1
April 2010. Thereafter MPs' salaries will be uprated by the
increase in the PSAEI.
MPs' Pensions
Sir John's report notes that the SSRB made recommendations
on MPs' pensions, including a cap of 20 per cent of the pay
bill on the underlying Exchequer contribution, that were accepted
in principle by the Government and MPs in January. Sir John
recommends that the Independent Body should continue to consider
MPs' pension arrangements since they are an important part of
MPs' total reward and therefore need to be considered
together with pay. The Independent Body's recommendations on
pensions cannot be applied automatically, unlike those for pay,
because the pension fund is administered by the Government and the
fund Trustees. Nevertheless, those recommendations should be
regarded as compelling in principle.
MPs' expenses (allowances)
MPs' expenses (often referred to as allowances) were not
part of Sir John's remit. The House of Commons' Members
Estimate Committee is currently considering MPs' allowances
and is expected to report very soon. Sir John's report
acknowledges the current concerns about MPs' expenses and
therefore recommends that the Independent Body should oversee
expenses as well as pay and pensions in order to avoid the risk of
future trade off and confusion between pay and expenses.
Other options
Although Sir John is clear about his preferred way forward, he
has noted the strong concerns expressed by Government that the
public will misunderstand and pay negotiators may seek to misuse
the difference between earnings and settlements. Most
workers' receive increments, performance related payments or
movement up a pay spine which have the result that, on average,
their earnings increase by some 1 to 2 per cent more each year
than the 'headline' pay settlement figure. MPs are a
special case since all those without additional responsibilities
(nearly three quarters of all MPs) are paid the same spot rate
with no possibility for pay progression. For a typical worker, a
settlement of, say, 2 per cent will result in an earnings increase
of 3 to 4 per cent after increments, performance related pay etc.
But for MPs, a settlement of 2 per cent means an earnings increase
of 2 per cent.
Sir John therefore recommends increasing MPs' pay each year
by the same percentage as the increase in average public sector
earnings, so that MPs keep in step with the rest of the public
sector. However, he recognises that this approach may be perceived
as having presentational disadvantages because the figure for the
previous year's earnings increase will appear higher than the
current year's public sector pay settlements. Sir John
therefore offers two other options for MPs and the Government to
consider. One would be for the SSRB to fix predetermined annual
pay increases for MPs' broadly in line with public sector
settlements for the life of a Parliament. The SSRB would then
carry out a review, and most probably award a significantly larger
catch-up increase, in the first year of each new Parliament.
The other option, which would need more work and consultation to
develop, would be to give MPs some form of pay progression, akin
to the increments or performance related pay that some other
workers enjoy. For example, an MP might receive an additional pay
increase each time he or she is re-elected at a General Election.
Terms of Reference
The terms of reference for Sir John Baker's review were
announced by the Leader of the House of Commons, the Rt Hon
Harriet Harman MP, in a Written Ministerial Statement on 23
January 2008. They are:
* to examine options and make recommendations for a mechanism for
independently determining the pay and pensions of MPs which does
not involve MPs voting on their own pay; the appropriate
comparator; and the frequency with which reviews of the use of the
comparator take place;
* to ensure that the independent mechanism takes account of the
Government's policy on public sector pay and its target for inflation;
* to have regard to the need for any independent mechanism to
maintain the support and trust of the public and Members of Parliament.
The review should also seek to:
* examine comparable international mechanisms and the resulting experience;
* address the constitutional framework alongside legal and
legislative considerations;
* consider the range of evidence that should be considered by the
recommended independent mechanism in determining an appropriate comparator;
* consider the membership and remit of any Independent Body that
may be part of the pay setting process;
* give due consideration to consistency with other public service
wage setting mechanisms and wage settlements across the public service;
* outline a recommended timetable for transition to any new
system; and
* report by end May 2008.
Notes to Editors:
1. Sir John Baker CBE is the former chairman of the Senior
Salaries Review Body (SSRB); he retired from the SSRB in March
2008 after six years as chairman. Sir John was asked to undertake
this Independent Review by the Prime Minister in January. On 24
January the House of Commons debated some of the recommendations
from the SSRB's 2007 report of its Review of parliamentary
pay, pensions and allowances on pay by the SSRB.
2. As requested, Sir John submitted his report to the Government
at the end of May and the Government has now published it. The
House of Commons is expected to debate and take decisions on both
the pay and allowances of MPs early in July.
3. Sir John has recommended that, between reviews, MPs' pay
should be uprated by an earnings index, the Public Sector Earnings
Average Index (PSAEI) in January was 3.5%. This is likely to
result in a figure higher than "headline" settlements
across the public sector. However, most workers' earnings
increase each year by more than the pay settlement because they
receive increments, performance pay, bonuses, promotions or other
forms of pay progression. None of these apply to MPs. Of the 646
Members of the House of Commons, some 475 are currently paid the
same, spot rate salary of £61,820 (from 1 April 2008). (Of the
remainder, most are paid supplements as members of the Government
or office holders of the House or the Official Opposition. Members
who have not taken the oath do not receive a salary.) The current
MPs' salary means that there are some 1.5 million workers in
the UK who are paid more than MPs.
4. The SSRB's 2007 review included evidence from a job
evaluation carried out by PricewaterhouseCoopers LLP that
MPs' total reward (including pension) was about 10% below the
average of a basket of similarly weighted public sector jobs (see
paragraph 38 of Sir John Baker's report). The SSRB recognised
that there was no shortage of candidates willing to stand for
election and that there were intangible benefits of being an MP
(status, job interest, possibility of Ministerial or other office
etc) which might compensate, at least to some extent, for a lower
salary. It therefore proposed three staged increases of £650 each
to narrow but not close the gap between MPs' total reward and
that of their comparators.
5. Sir John's report is available from TSO and at http://www.ome.uk.com
1 The Government published the report in January 2008 as Cm
7270. It is available from TSO or on the Office of Manpower
Economics website : http://www.ome.uk.com/downloads/Review%20of%20Parliamentary%20pay%202007%20volume%201.pdf.pdf