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5 July 2013: Sir Ian Kennedy – Opening remarks on trust and remuneration in Westminster – IPPR – 5 July 2013

There’s never a good time to do anything about MPs’ pay. The pressing issues of the moment always make it a bad time.

This is the sad history of attempts to introduce changes in the way MPs are remunerated. It’s a history that goes back centuries. It’s a history punctuated from time to time by some long overdue catch-up or some kind of fix.

There was even a time during the Middle Ages when each community paid its own MP. A number of cunning plans emerged - some communities paid their MPs in fish or local produce so as not to have to find the money.

And, of course, there was always the subtext: should MPs be paid at all. In 1839, the Chartists made pay for MPs one of their six ‘key points’. By contrast, John Stuart Mill campaigned against pay, saying that, if MPs were paid, being an MP ‘ would become an object of desire to adventurers of a low class’. Even when Lloyd George introduced an annual payment for MPs in 1911, he couldn’t bring himself to call it a salary, far less pay. As he put it:

‘It is not a recognition of the magnitude of the service, it is not remuneration; it is not a recompense; it is not even a salary. It is just an allowance.’

Well, nothing has changed over the last hundred years to make talking about MPs’ pay any easier. As I speak, commentators are piling in to say how very ill-advised, and worse, it will be to give MPs what has come to be labelled a “massive” pay rise.

Of course, IPSA hasn’t made any announcement yet. And when it does, on July 11, it will be to publish a Consultation Document asking for views on a package of recommendations. We will not be publishing any decisions because we have not reached any. But in the excitement of the moment this may appear a little pedantic!

It may appear even more pedantic to remind everyone, including leading politicians, that IPSA was created by Parliament to effect a clean break with the past. That past, as regards pay, was a frequent rejection by the Government of the day, with MPs, often reluctantly, falling into step behind them, of external bodies’ recommendations that MPs’ pay be increased. This rejection was coupled with a gradual engorgement of a system of “allowances”. It was inevitable that such an approach would end in tears. The only hope for successive Governments, all of whom knew that things were a bit dodgy, was that when the balloon went up, it would not be on their watch. The balloon duly went up in the summer of 2009.

In a froth of self-abasement, MPs fell over themselves to say that they should never again be involved in setting their allowances or their pay. And, to be fair, most MPs had believed this for some time. Indeed, the task of setting pay had for 20 years or so been handed over to the external and independent SSRB. But, there was one snag. The SSRB only recommended. The last word rested with MPs, or, in effect, with the Executive.

So, as I have said, the SSRB proposed but the Executive disposed, and did so routinely by rejecting the advice or failing to implement it in full. And, “allowances” took the strain.

So, the Parliamentary Standards Act (2009) and its close relative, the Constitutional Reform and Governance Act (2010) were passed. A new independent external regulatory body was created - IPSA. Its first task was to deal with costs and expenses in the wake of the scandal. Accountability and transparency were the new watchwords: already familiar to anyone else claiming expenses.

Business costs and expenses, of course, were only the first part of the journey. The bigger and more difficult part was to set MPs’ pay and pensions.

And, by way of a reminder, the legislation that gave us this responsibility is quite clear: the power to set the pay and pensions of MPs rests with IPSA alone. MPs do not get to vote. The Government does not get to pick and choose. There is no opting in or out.

We have been working on the issue for 18 months. We have listened to as wide a range of opinion as possible. We have talked to MPs, the public, specialists, technical experts (for example, in relation to pensions) and we published an initial Consultation Paper last autumn. Informed by the responses and further work, we will now publish a second Consultation Document on July 11, next Thursday.

There is nothing in our governing legislation that requires us to consult the public, by the way, but we consider it unthinkable not to do so. Doing so is right in itself, but it also forms part of our contribution to a larger discourse about the roles and responsibilities of MPs.

I am not going to set out today any details of the Consultation Document. Instead, I’m going to describe one or two factors lying behind our thinking. In doing so, I remind everyone that we aim to introduce the new package after the election scheduled for 2015. The aim is for a new beginning.

We have taken as one of our guiding principles that MPs play a crucial role in our democracy and that that role should be recognised. The role of MPs sits at the heart of our democracy. It is in all our interests that this role is performed effectively. Having a Parliament accessible to all, one which does not deter the less well-off from seeking election, one which does not require MPs without independent means to seek patronage, is crucial to the continuing health of our democracy.

We have also been guided by two further principles: that, when it comes to remuneration, MPs should be treated as professionals; and that any new package of remuneration should be modern in outlook and application.

The Consultation Document will present a package: a package of recommendations. We will be seeking views on the package as a whole, and on the constituent elements. Pay is one part of the package, but only one part.

As regards each part, we have taken a view as to what we think is right and then ensured that it fits well within the package as a whole. This point is crucial. There is no trading of this for that. Each element of the package is in our judgement right in itself.

We are absolutely aware of the circumstances of austerity in which we are all living. We are also aware of our commitment to bring in a new settlement, to take heed of the lessons of history, and settle things once and for all. Of course, this is not a good time to be talking about the pay element of the package, save to notice that in the public sector pay increases are limited to 1% a year. But, given that there has never been a good time, this is as good a time as ever.

Moreover, we know what happens when the element of pay is pushed aside as being simply too hard – the ‘nods and winks’ school of public financing emerges, and ultimately we end up with circumstances like 2009. No-one wanted the system that brought Parliament to its knees in 2009 to come into being, but it was the inevitable result of hard decisions deferred.

The way forward on MPs’ pay is difficult. It has been for centuries. We will not to shirk our responsibility to make a determination simply because the task is difficult.

It is one thing to say that we have to address what pay MPs should get, it is another to devise some way of doing so which at least has a grounding in reason and argument. We began our work with the somewhat obvious proposition that there is no killer argument, no scientific formula which will give us the answer. If there were, the solution would be in place already. We accepted that we are in the realm of judgement, and that, of course, judgements can legitimately differ. What we needed was enough supporting evidence to supply a context on which we could base our judgement.

Early on, we rejected the most commonly used device, the comparator, as providing “the answer”. Comparators have significant drawbacks. As they have been used, they are teleological – they entail the answer to the question. If you say an MP should earn the same pay as, for example, a Colonel in the Army, as some do, the question immediately arises: why choose a Colonel? The answer is that he or she earns that amount of money which you think an MP should get. By the same token, you do not choose a Corporal as your comparator. In other words, the comparator follows the judgement, rather than the other way around. Secondly, comparators tempt you into mechanistic calculations, whereby you decide to track a particular rank or status, and it either disappears or becomes seriously out of line with what was the reason for choosing it. And, thirdly, if what MPs do is, as is frequently said, unique, then no comparator can do the trick.

That said, though they don’t offer “the answer”, comparators current, historical and international - do have an important use: they provide us with the context for our decision-making. They help us check our deliberations against the real world.

Moving on from pay, the biggest other item in the package is the pensions enjoyed by MPs. The benefits are considerable, more than those enjoyed by most. The cost to the tax-payer is also considerable. And, it should be said, the MP contributes considerably more than the average person.

The landscape of pensions in the public sector has been changed by the Lord Hutton’s Report. It would be unthinkable not to seek to take account of this change. Working out the details is complex. Pension schemes are complicated beasts: one false move and the system collapses, potentially harming taxpayer, MPs and MPs’ families. So, we have proceeded carefully, requiring considerable advice to make sure that what we recommend is not only right but fit for its purpose.

In addition to pay and pensions, there are other matters on which we will be seeking views. They include so-called “resettlement allowances”, the indexation of pay, and a number of other things.

In this brief introduction, may I refer to one of these: indexation. The argument goes that without some device to take account of shifts in the wider economy, IPSA would be forever revisiting and tinkering with MPs’ pay. It would remain a political football, serving as a distraction and a clarion call in equal measure.

Previous reviews have recommended that the appropriate index for MPs’ pay should be movements in public sector pay. We feel, however, that the unique nature of their role as representatives of the whole community means that a broader index is required.

We are impressed by the idea that MPs’ pay should move in line with the fortunes of those they represent, such that MPs’ pay would be indexed to movements in national average earnings. If the average wage goes up, MPs’ pay would go up. If the average wage falls, MPs’ pay would fall.

So, our aim is to settle pay and pensions once and for all, to take away the need for the regular political dogfights that have historically accompanied it. Our governing legislation requires us to revisit the issue at the beginning of each Parliament. This gives us a chance to do something if it is really needed. But, if we do our job well, this will not be an elaborate exercise – the recommendations we bring forward should remove the need for the regular political battles of the past.

This is a brief overview of the background to IPSA’s work on MPs’ remuneration. The Consultation Document will allow all those interested to express their views. When you see the package, and the analysis and argument that lie behind it, you may decide that it provides good value to the taxpayer, a sound new start for MPs, and good news for our democracy.

My hope is that, as the discussion is joined, political leaders will accept that we have a job to do which they gave us. If they do really believe that pay and pensions should never ever again be the business of MPs, they should enter the debate with care and accept that external, independent regulation means what it says: that you don’t tell the regulator what to do. It also means that you trust the regulator to have a vision for the future that does not ignore the present.