Corbyn’s maximum wage proposals criticised
Jeremy Corbyn, the leader of the UK Labour Party, has been criticised for suggesting that the country might benefit from a "maximum wage cap". Analysts including Oliver Parry, head of corporate governance at the Institute of Directors, and economist David Blanchflower, have said the idea could never work. Corbyn argued that government contracts should only be open to bids from companies where executive pay was limited to 20 times that of the lowest-paid worker. Stefan Stern of the High Pay Centre commented that a focus on pay ratios could help to combat inequality.

Jeremy Corbyn’s idea for a maximum wage cap has been branded unworkable, but the Labour leader’s focus on tackling the pay gap between bosses and workers was given a warmer reception by campaigners against inequality.

Major companies are on alert to attacks on boardroom pay after Theresa May put the issue on the agenda during her campaign to become Conservative party leader and prime minister in the wake of the vote for Brexit. A consultation paper published in November, however, was criticised for not taking bold enough action to clamp down on boardroom excess.

The intervention by the Labour leader is an indication that the issue remains on the agenda, experts said.

Oliver Parry, head of corporate governance at the Institute of Directors, said: “Boards must see today’s suggestion as a warning of things to come if they do not show they can moderate directors’ remuneration.”

But, he said, Corbyn’s suggestion for a maximum pay cap was a “non-starter”.

“Politicians simply do not know the right level of pay for the heads of multinational companies, and no successful economy operates with this level of intervention by government,” he added.

David Blanchflower, who used to advise Labour and is a former member of the Bank of England’s monetary policy committee, said the idea was “totally unworkable” and a “lunatic idea”.

After raising the idea of a “maximum wage cap” in an interview on BBC Radio 4’s Today programme, Corbyn later turned his focus to other ideas to tackling pay inequality.

Corbyn said company bosses wanting to be eligible to bid for government contracts should have their pay limited to less than 20 times that of their lowest-paid worker. This would put a cap on the pay of the chief executives of such companies at £262,000 if measured against the £13,104 national living wage.



Stefan Stern, head of the High Pay Centre, said a general focus on pay ratios helped tackle the issue of inequality.

Data from the High Pay Centre shows that leading bosses now typically earn 129 times more than their employees. Stern has tried to work towards a “40 times club” of FTSE 100 companies, in which executives earned no more than 40 times the average salary of their employees. But Stern said finding companies where the pay ratio was this low, closer to where it was in the 1990s, was difficult.

Vast numbers of companies bid for government contracts from consultancies – such as Deliotte which was embroiledin a row over its warning over Brexit last November – and major outsourcing companies such as G4S and Capita.

G4S, whose chief executive received more £2m last year, pointed out that contracts from central government contributed to only around 5% of its overall sales.



“Our pay rates reflect the global nature of our business, with over 85% of revenue generated outside the UK,” said G4S, which runs prisons and runs services to house asylum seekers in the UK.

The fund management industry – which gets a vote on executive pay – has also been considering ways to tackle ballooning boardroom remuneration. Leon Kamhi, head of responsibility at fund managers Hermes, said remuneration committees at individual companies should set out a maximum possible pay for their chief executives.

Mark Littlewood, director general at the Institute of Economic Affairs, a free market thinktank, said Corbyn’s ideas had moved from “misguided to simply muddled” and branded the idea for a maximum wage cap to tackle inequality as “dangerous and, for all intents and purposes, a 100% income tax rate”.

“Pay ratios are sector discriminatory. A 20:1 ratio would have much less of an effect at a hedge fund than it would on a regular company, which is doubtful the intended consequence. Controlling wealth accumulation is a race to the bottom – the Labour leader would do better to focus on poverty alleviation rather than pay intervention.”

The Adam Smith Institute, which also promotes unfettered markets, was also dismissive. Sam Bowman, executive director, said: “A maximum salary cap would hurt British firms and ultimately ordinary British workers. If you’re a worker for a FTSE 100 firm, this is bad news: your job security and wages will suffer if your company isn’t led by the best people in the world.

“If you’re saving for a pension, this is bad news: the value of your savings will suffer as British firms become less productive, starved of global top talent. If you rely on the NHS or other public services, this is bad news: tax revenues will fall as these highly-paid executives move abroad.”