Nick Clegg’s call today to speed up the process of raising the tax threshold to £10,000 will lift one million people out of income tax. Clegg aims to reduce the UK’s excessive levels of income inequality, which should be welcomed, but there has always been controversy about whether this proposal is the best way to achieve that aim.

For example, as research (pdf) by Tim Horton and Howard Reed, published by Left Foot Forward before the general election found, of the £16.5 billion this policy is expected to cost, 94 per cent would go to those on middle to higher incomes – not those at the bottom.

Since then, the deputy prime minister has explored ways of reducing the extent to which the policy provides accidental benefits to those who least need it.

But some issues remain. While Clegg claims his move to push up the threshold will aid “alarm clock Britain” – his alias for Ed Miliband’s “squeezed middle” – it does little to address the hardship faced by those already earning less than the current threshold.

Overall, according to Horton and Reed, three million households in the poorest quartile of the income distribution would not benefit from this policy at all.

Another problem is that for many people, much of the positive impact of lower taxes will be clawed back (pdf) by reduced benefits. Many will see a reduction in their Income Support, Child Tax Credit and basic State pension allowances as a result of being lifted out of income tax.

Clegg’s proposal would increase the take-home incomes of a substantial number of families, but there may be more cost-efficient ways of achieving similar goals, which should also be considered.

Encouraging employers to pay a living wage, (or raising the national minimum wage), would lift many out of poverty. The government could also seek promote accessible training for, and incentives for employers to create, more skilled and semi-skilled jobs.

This would address the so-called ‘hollowing out of the labour market’ as well as mobilising many of those who find themselves stuck in unskilled, service sector jobs propped up by benefits.

Clegg’s solution goes half way to addressing the problem of working poverty, but it goes no way towards addressing the cause.

That the prime minister had so much to say on the theme of excessive executive remuneration yesterday, both in his Daily Telegraph interview and on the Andrew Marr show, should be welcomed.

Many of Cameron’s proposals should be also be welcomed, but they will be insufficient solutions unless they are supplemented with other proposals that go beyond the usual analysis and the usual solutions, to challenge the misleading myths of excessive pay.

My first concern is that the Prime Minister may believe the myth that shareholders are able and willing to tackle “market failure” (as he correctly calls excessive pay). Cameron told Marr that “empowering shareholders” was the “key” solution.

It is true that shareholders do need to be sufficiently informed and empowered to hold companies to account (rather than given a retrospective , non-binding vote on remuneration, as is the case now), and that some shareholders are assertive about executive pay; but many others see their role as short-term ‘traders’ in shares rather than longer-term ‘owners’ of companies.

The vast majority of shares are held via investment management companies, who typically either do not vote on remuneration (or any other issue), or automatically vote in line with management recommendations.

Even the Investment Management Association warned (pdf) that:

There is concern amongst investment managers that there should not be unrealistic expectations about what they can achieve.

Interestingly, Cameron appeared to dismiss one suggestion by Marr which could prompt investors to take their responsibilities more seriously, namely that they should publish their votes on remuneration, so that the rest of us, whose savings they invest, could hold them accountable.

Cameron said that such information is already known, but the work of FairPensions and others clearly shows that this is not usually the case.

The second concern is that although the Prime Minister rightly refers to the mismatch between directors’ remuneration and that of their employees, his solutions appear not to recognise that the performance of companies depends on the performance of the whole workforce, rather than the myth that performance is all about the people in the boardroom.

Cameron was at best lukewarm about the suggestions by Marr that there should be employee representatives on remuneration committees and that companies should report the ratio between pay of directors and employees, relying on an easily-dismissed concern to reject the latter.

If the prime minister is serious about helping UK companies to perform well, he should recognise that pay-ratio reporting and the inclusion of normal employees on remuneration committees would help companies and their investors to consider whole-company performance.

Cameron should also note the Hutton Review’s point (pdf) that companies with lower pay differentials tend to have better-motivated staff – the idea that we have to choose between performance and fairness is a false one.

Such initiatives would also tend to address public concerns that not only are executive pay levels too high compared with company performance, but that the differentials between top pay and employee pay– regardless of company performance – have now reached obscene levels.

If Cameron is serious about responsibility at the top, he should have accepted these three important steps towards transparency and accountability:

1. Investors should should publish their votes on remuneration.

2. Employee representatives should be on remuneration committees

3. Companies should report the ratio between pay of directors and employees

It has been widely reported that the latest British Social Attitudes Survey found that although three quarters of the British public think the gap between rich and poor is too wide, only 35% thought the Government should engage in redistribution.

This raises a question of how a progressive government could reduce the UK’s high, growing and unpopular levels of income inequality if the public distrusts tax-and-spend solutions.

There are two answers to that question. The first is to recognise that although the public may not be enthusiastic about redistribution in general, they do favour redistribution away from the top 1%. The majority of voters, including Conservatives, support the 50p top tax rate. The popular support for the idea of reversing the rocketing pre-tax levels of top pay has also been recognised in statements by Conservative, Labour and Liberal Democrat politicians.

But progressives should also recognise that inequality at the bottom end of the income scale can be tackled at the same time as seeking to reduce spending on benefits. This could be done by focusing on the huge cost to taxpayers and the wider economy of companies which pay their low-paid staff at such levels that substantial benefit subsidies are required to make ends meet.

The cost of in-work poverty is huge: The IFS estimates that sub-living wage pay costs taxpayers£6 billion each year. If we examine the wider taxpayer cost of in-work poverty, the picture is even bleaker: child poverty costs us £25 billion each year, even though 57% of children in poverty have working parents.

Politicians have been relatively quiet about the Living Wage recently (perhaps distracted by the staggering increases in top-end pay). This is a shame – there are certainly many more companies who can afford to pay a Living Wage than presently do so (we could start by looking at those who can afford to pay their senior staff unusually large amounts).

While some private sector companies pass the costs of their low pay policies onto taxpayers, some public sector employers are also complicit. For example, there is an increasing trend towards local authorities outsourcing services. It would be helpful if public sector employers published an assessment of the full taxpayer cost of major contracts, so that “taxpayer savings” can be scrutinised, to see if they are what they claim to be.

The below is a joint response to the BIS consultation on Narrative Reporting and discussion paper on Executive Remuneration, co-signed by One Society, Ekklesia, Church Action on Poverty and London Voluntary Service Council (LVSC).

One Society’s full responses can be found here.

Joint response to BIS consultation on Narrative Reporting and discussion paper on Executive Remuneration

Executive pay is a subject which has generated widespread attention in recent months and years. It is good that the Government is seeking views on how the setting and reporting of pay in the private sector can best meet the needs of companies and other stakeholders.

We are keen that the Government, companies and investors should consider the financial, economic and social impacts of pay levels across the workforce and not just those in the boardroom:

There is strong evidence that companies which ensure decent pay and conditions for workers at the bottom of the pay scale1 and moderate differentials between highest and lowest earners2 reap benefits in terms of performance (as well as PR).

The decreasing share of income going to those on low and middle incomes reduces the spending power of this group, which reduces the ability of the economy to recover3. In addition, pay that is below living wage levels creates a cost to taxpayers estimated at £6 billion per year4, not including the costs of income related social problems.

There are numerous health and social problems associated with low income and income inequality. These create costs which are borne by the economy and/or taxpayer.

As organisations which are concerned about the impacts of low incomes, we therefore urge the Government to adopt measures which will encourage companies to report on the differences between the pay of directors and employees and consider the views of employees in matters of pay.