Top bankers and public sector pay

Top bankers’ bonuses should be cut or taxed.

Huge City bonuses are wrong after the taxpayer has kept London’s financial system afloat - and seen public debt soar as a result. All political parties now accept this – though there’s a debate over how to make the wealthiest pay their fair share.

The tougher question is how to cut huge public borrowing.

There’s agreement this requires public sector pay restraint: after all, pay is roughly 70% of state spending.

Many in the private sector have lost jobs or seen pay cuts so restraint on public pay seems fair - even if this recession and debt hangover were caused by the global banking crash and not by too much spending on health and education.

But how best to limit public sector pay? There are three options on offer. Labour wants a 1% pay cap up to a ceiling. The Conservatives want a pay freeze, with some exceptions for lower paid workers. Whilst Liberal Democrats propose a maximum rise of £400 a year.

Given they save roughly similar amounts, how should we choose between them? I think the key test is “fairness”.

On this, the Government’s proposal looks the worst, as 1% is worth most to the better paid.

The Tory proposal has the virtue of excluding the lowest paid from the freeze – but it still sees the salaries of millions of teachers, police officers and nurses frozen.

Going for £400 a year max means the lowest paid get the best deal, all employees see a rise, whilst the best paid see the biggest squeeze. For me, it wins the fairness test.