More bluster from Eric Pickles yesterday as he claimed that council chief executives’ pay had risen by 78 percent between 2002 and 2007. He was soon called out on this by, among others, the Guardian and the Local Government Chronicle. The figure he quoted was, in fact, the increase in pay for FTSE 250 CEOs. The corresponding number for council bosses was 34 percent.
Public sector managers’ pay might make for a great media story, or at least it would if ministers could get their sums right, but as a factor influencing the level of public spending it is relatively insignificant. I was going to dig out some figures on this but Patrick Butler has already done it.
Let’s pretend all councils could cut the pay of their chief executives by 50 percent. That would save 0.05 percent of employee expenditure and only 0.35 percent of the savings local government needs to make in the next year alone.
Or try this. Let’s pretend councils could cut their entire senior management pay bill by 25 percent. That would give them a whopping 2.4 percent of one-year’s savings bill.
It’s a similar story in the NHS. As I have said before, management costs in the NHS make up a tiny proportion of its overall running costs. A report by the Commons Heath Committee last month showed that management costs in the NHS have reduced from 5.1 percent of total costs in 1996-97 to 3 percent in 2008-09. All types of NHS organisation have seen the proportion of their spending on management costs fall. Whatever has fuelled the increase in NHS expenditure over the past decade, management costs are clearly not to blame.
And 3 percent of running costs is very low. The NHS needs to save 4 percent per year. If it could sack all its managers it wouldn’t even make its first year’s target.
In the grand scheme of things, then, the level of executive pay is not a significant contributor to overall public spending. As I explained here, most of the public sector’s costs are embedded in its frontline services. Cutting management and back-office costs only saves relatively small amounts. In some circumstances, management and back office cuts could even pile more hidden costs onto the frontline.
Senior executive pay is another of those magic bullets that commentators seize on as a simple solution to a complex problem. It has the added advantage of feeding on a bit of envy and it therefore makes great headlines. All good fodder for ranting politicians and boorish journalists.
But beating up local government managers about their pay will not help to significantly reduce public spending and it will almost certainly discourage talented people from outside the public sector from taking jobs in local authorities and the NHS. Starting a row about managers’ pay is a very silly diversion from the task in hand but it is much easier than trying to understand the complexity involved in reducing public spending. Which is why we will probably hear a lot more bluster and spurious statistics from Mr Pickles and others in his camp.