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An end to dizzying pay

Excessive pay at the top encourages massive risk-taking. We need a High Pay Commission to limit casi

It was called a "stranglehold on prosperity" when it first launched. And yet the fear-mongering that accompanied the introduction of the National Minimum Wage, as recommended by the Low Pay Commission, proved to be groundless. Now even the Tories would not dare touch it. Ten years on, one hundred progressives, including myself, have signed a letter calling for a "High Pay Commission". Launched this week by the pressure-group Compass, the campaign calls on the government to fully review "pay at the top" and to consider capping "excessive remuneration".

The financial crisis has highlighted the urgent need to re-balance the pay differentials between the lowest and highest earners. Many economists have pointed out that the current crisis was caused by a culture of greed and risk-taking. It exposed the fallacy of the basic capitalist assumption that remuneration is closely linked to performance, especially at the top. In fact our pay system not only hid deep losses in the financial sector, but failed to penalise executives when their failures came to light.

The current, dizzying pay structure for executives rewards them for making huge short-term profits at the expense of building stable, growing businesses. It encourages them to take massive risks, putting our pensions and the economy at huge risk, and get out when the company crashes.

But the call for a High Pay Commission isn't just about preventing another financial crisis. It is about pushing for businesses to operate in a more healthy way. As the pay-gap between workers and executives grows exponentially, the two groups become alienated from one another. Workers feel they are not sharing equitably in the fruits of the company's success, reducing productivity. This is especially pronounced in a knowledge-based economy where innovation is needed across all levels of companies.

A recent report from Harvard University found that executive pay was eating a larger share of company profits than ever before. A High Pay Commission could also limit bidding wars for executives, which push pay inflation at the top end even higher. Wage-inflation at the top is frequently used by company boards as a reason for why they have to pay so much to attract talent.

The crisis illustrated that there is deep market failure within the financial sector when it comes to linking pay and performance. The market panders to executives while employees have little say in what goes on.

We need to find ways to redress that balance otherwise we'll have an economy continually plagued by boom and bust, which benefits only high-earners. It may seem like a revolutionary idea, and like the Minimum Wage it will attract put-downs from industry. But criticisms for policies aimed at bottom-earners proved groundless; so may those aimed at the top.

Sunny Hundal is the editor of Liberal Conspiracy and Pickled Politics

Sunny Hundal is editor of Liberal Conspiracy.

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Geoffrey Howe dies, aged 88

Howe was Margaret Thatcher's longest serving Cabinet minister – and the man credited with precipitating her downfall.

The former Conservative chancellor Lord Howe, a key figure in the Thatcher government, has died of a suspected heart attack, his family has said. He was 88.

Geoffrey Howe was the longest-serving member of Margaret Thatcher's Cabinet, playing a key role in both her government and her downfall. Born in Port Talbot in 1926, he began his career as a lawyer, and was first elected to parliament in 1964, but lost his seat just 18 months later.

Returning as MP for Reigate in the Conservative election victory of 1970, he served in the government of Edward Heath, first as Solicitor General for England & Wales, then as a Minister of State for Trade. When Margaret Thatcher became opposition leader in 1975, she named Howe as her shadow chancellor.

He retained this brief when the party returned to government in 1979. In the controversial budget of 1981, he outlined a radical monetarist programme, abandoning then-mainstream economic thinking by attempting to rapidly tackle the deficit at a time of recession and unemployment. Following the 1983 election, he was appointed as foreign secretary, in which post he negotiated the return of Hong Kong to China.

In 1989, Thatcher demoted Howe to the position of leader of the house and deputy prime minister. And on 1 November 1990, following disagreements over Britain's relationship with Europe, he resigned from the Cabinet altogether. 

Twelve days later, in a powerful speech explaining his resignation, he attacked the prime minister's attitude to Brussels, and called on his former colleagues to "consider their own response to the tragic conflict of loyalties with which I have myself wrestled for perhaps too long".

Labour Chancellor Denis Healey once described an attack from Howe as "like being savaged by a dead sheep" - but his resignation speech is widely credited for triggering the process that led to Thatcher's downfall. Nine days later, her premiership was over.

Howe retired from the Commons in 1992, and was made a life peer as Baron Howe of Aberavon. He later said that his resignation speech "was not intended as a challenge, it was intended as a way of summarising the importance of Europe". 

Nonetheless, he added: "I am sure that, without [Thatcher's] resignation, we would not have won the 1992 election... If there had been a Labour government from 1992 onwards, New Labour would never have been born."

Jonn Elledge is the editor of the New Statesman's sister site CityMetric. He is on Twitter, far too much, as @JonnElledge.