Cap excessive pay to tackle UK jobs crisis and inequality, urges thinktank

Caps on excessive salaries should be introduced to save whole industries and redistribute wealth as coronavirus restrictions and changing habits cause large swathes of the economy to shut down, a progressive thinktank has urged.

In a landmark report, Autonomy highlighted the fact that incomes in the UK are the ninth most unequal of the 40 most developed countries, and called for the government to ensure existing resources were better managed to create a fairer economy amid growing poverty. The Bank of England predicts that unemployment will double to 2.5 million people by the end of this year.

A majority of the public – 54% – would support plans for a government-mandated maximum wage, a poll of more than 1,000 people by Survation suggested. Nearly 70% would support wage cap limits at either £100,000, £200,000 or £300,000.

Companies could afford to raise the incomes of 9 million low- and middle-waged workers if wages were capped for the top 1% of earners, who take home more than £160,000 a year, the report says.

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A minimum wage of £10.50 an hour could be implemented if a salary cap of £187,000 was introduced, it calculated. The “national living wage” – the UK’s minimum wage – is £8.72 an hour for those aged 25 and over.

In the arts, entertainment and recreation industries, hard-hit by Covid measures, the top percentiles earn vastly more than the bottom 95%. To provide every worker with a wage of £11 an hour, only 0.64% of earners – 2,000 people – would need to have their pay capped, at £251,760, the report says.

The top 1% of earners in the UK – about 310,000 individuals – account for more than a third of income tax paid to the government, which means there could be a massive shortfall in tax revenue as a result of capping salaries, since increased tax revenues from raising the minimum wage would almost certainly not fill the gap.

However, Autonomy argued that any shortfall would also be made up for in reduced spending on benefits and the possibilities of less wealth hoarding and reduced tax avoidance if wealth was more evenly distributed. Increased taxation would also be considered.

Recent estimates suggest that the top 0.1% of UK earners increased their share of income, including capital gains, by 50% between 1996-97 and 2017-18. According to research, the top 1% now receive about 17% of total income, up from just 6% at the beginning of the 1980s.

Meanwhile, the Chartered Institute of Personnel and Development has suggested that the average FTSE 100 chief executive is now paid about 126 times the average UK worker, compared with 58 times in 1999.

Will Stronge, director of research at Autonomy, said earning more than £100,000 a year was “by most people’s standards extremely excessive” and that fairer income distribution would enable high salaries to coexist with much higher employment and higher average wages.

“After 2008, the 99% were unfairly made to pay for the cost of the crash through austerity but this time round the 1% can and should pay for the crisis, whether it’s through a wealth tax or the introduction of a maximum wage,” he said.

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Luke Hildyard, director at the High Pay Centre, said the maximum salary should be £200,000: “Tolerating the vast gaps between those at the top and everybody else in this country is a far more extremist policy than putting a cap on annual earnings of £200,000 – enough to enable a lifestyle of absolute luxury compared to the vast majority of the population, and a perfectly sufficient reward for doing a difficult or demanding job.

“With the UK economy likely to be much smaller than previously envisaged for the foreseeable future, we urgently need to think about sharing the wealth we do have more evenly.”

However, basic salaries make up only about one-fifth of total chief executive earnings, and dealing with incentive schemes and bonuses would need separate legislation.

Autonomy added that a more divided society can foster resentment of richer groups and fear of poorer ones. “It is not hard to see how this might potentially lead to higher levels of crime, poorer mental and physical health and wellbeing, and lower social mobility,” it said.

A government spokesperson said: “Our immediate priority is to support jobs and the economy through this crisis. That’s why we’ve introduced an unprecedented plan to protect, support and create jobs across the UK.

“We are wholly committed to supporting the lowest paid families and have taken decisive action including investing more than £9bn in welfare since the start of the outbreak, raising the living wage, ending the benefit freeze and increasing work incentives.”