In autumn 2020 we consulted, as we are legally required to do in the year after a general election, on the mechanism for making periodic changes to MPs’ salaries. In doing so we reviewed and confirmed the principles that guide our decisions in relation to MPs’ pay in order to ensure fairness to both MPs and taxpayers. We decided that MPs’ pay should remain unchanged in April 2021 given the extraordinary impact of the pandemic, but we did not decide to make any change to the mechanism we use for determining MPs’ pay in future years. Since 2015 that mechanism has been based on a statistical series showing changes in public sector pay, called AWE KAC9. In our March 2021 report on the consultation, we set out some factors we would consider for the future and indicated that this could lead to a further consultation.
We launched this further, targeted consultation in July 2021. The consultation was about the mechanism IPSA should use to periodically update MPs’ pay at the appropriate time. We proposed that for the next three years we should have some bounded discretion to depart from the AWE KAC9 figure if that was the right thing to do and explained how we would make that judgement at the relevant time.
An important reason for this proposal is that, as the Office for National Statistics and other commentators have pointed out, the effects of the pandemic have resulted in both structural changes in the economy and technical effects on the statistical series, from "compositional" and "base" effects. These changes mean that the average earnings statistics, which are primarily designed to measure the overall pay-bill in the economy, are a less reliable guide than in normal times to changes in individuals’ salaries.
Having considered the responses, we have decided to go ahead with the proposed temporary, bounded discretion. We have accordingly amended our determination on MPs’ pay and on additional pay for committee chairs, which formalise this mechanism.