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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