Should Taxpayers Be Subsidizing Obscene Salaries

An article in the Guardian on bosses’ pay by the director of the High Pay Centre, Deborah Hargreaves, presents the disparity between bosses’ pay and the average wage in the UK thus:

“Chief executives in the FTSE 100 companies took home £4.96m in 2014 compared with average wages of £27,645. And, if anything, the pay gap is getting wider. A typical incentive award for a top boss increased by 50% of salary compared with the previous year, while workforce wages were up by £445. Bosses’ remuneration has risen from around 47 times average wages in the 1990s to around 180 times today.”

The pay gap shown by the above figures will be even wider if the salaries of bosses are expressed as a multiple of the median wage instead of the average wage. The average wage is skewed towards the top, thus most workers will earn below the average. The median wage is a better measure as it means half of the workers will earn below it and the other half above it.

Free-market ideologues would argue that salaries are fixed by market forces, and questioning such a disparity in income is tantamount to the politics of envy and interference in the freedom of markets. Such an argument is not really sustainable.

A company is a joint enterprise, and for it to be successful all its employees need to feel valued and justly rewarded. Such a disparity in income sends the wrong message to the many people who are working hard to make the company successful. It will lead to dissatisfaction and low morale amongst the workforce, and will eventually negatively impact the success of the company. A good boss will not accept such an obscene disparity in income between himself and his employees. Such salaries have become a virility symbol for bosses to compete with each other. It shouts – I am more important than you; just look at the size of my package!

If the wages paid by a company to its poorest employees are so low that it requires the state to top up their wages to provide them with the basics of life, then inflated salaries paid to the bosses are effectively being subsidized by the taxes we pay. It is a transfer of wealth from the many to the very few at the top. How can that be right? Where is the free-market in such practices?

If the income distribution is more equitable, the subsidy by the state to the low paid will be reduced, leaving more money for the government to spend on the NHS, infrastructure, police etc., things that are necessary for a civilized, functioning society.

Surely, then, that gives our elected government the right to enact laws and regulations to fix maximum salaries of bosses as a multiple of the lowest wage in that particular company. This will incentivize the bosses to increase the pay of their poorest employees to increase their own pay. The multiple should be certainly much lower than the figures quoted above.

Our taxation system needs to be overhauled to reflect the huge disparity in incomes; it is too narrowly set. Currently, we have a tax-free allowance of £10,600 and then a jump to 20% up to £42,385 then 40% up to income of £150,000, and a tax rate of 45% on income above £150,000.

A more progressive taxation system would start at a much lower rate and continue to rise incrementally well beyond the 45%. I am not a tax expert, so I leave it to those with the expertise to set the rates in such a way that we as a society ensure that the wealth of the nation is more equitably distributed.

Fairness and justice are the pillars on which successful, happy societies are built. The present system that siphons so much wealth to the top 1% to the impoverishment of the rest is neither fair, nor just. Failure to take action will result in the whole of society becoming the poorer; we will all suffer rich and poor.

Adnan Al-Daini (PhD, Birmingham University, UK) is a retired University Engineering lecturer. He is a British citizen born in Iraq. He writes regularly on issues of social justice and the Middle East. Read other articles by Adnan.