For example, some of the living wage’s most prominent private sector advocates (KPMG, Barclays, HSBC) are unlikely to have a significant number of low-paid staff who would benefit from the policy and many cleaning and catering jobs are still outsourced. Only when we see organisations with large numbers of low-paid staff implementing the living wage will we know that the movement has truly arrived.

Warner also touches on a problem highlighted by the TUC last year: that an increasing proportion of companies’ money is going to profits, rather than wages. And it seems that the shift from wages to profits is hurting those at the bottom of the income scale much more than those at the top.

We cannot ignore the fact that some Goldman Sachs staff (the subject of Warner’s article) are still set to receive average bonus payments of £250,000. This reflects the findings of last year’s Incomes Data Services Directors’ Pay Report, which showed that the average wage rise for FTSE 100 directors was 27 per cent in 2011. With bank bonus season nearly upon us, there are undoubtedly more stories of astronomical rewards in the financial sector to come.

Meanwhile, at the other end of the income scale, the majority are feeling the effects of real-terms reductions in take-home pay (with 2012 seeing an increase in national average earnings of just 1.6 per cent on 2011). The consequent lack of demand does not bode well for the long term health of the economy and, as an increasing number of academics and commentators have illustrated, it is in fact inequality of income  rather than low pay alone, that leads to so many of the economic and social ills we associate with poverty.

It would be naïve, then, to think that we can negate the effects of income inequality merely by promoting policies like the living wage while turning a blind eye to runaway high pay. In order to tackle the negative effects of income inequality, the welcome enthusiasm to promote the living wage must be met with a willingness to tackle pay at the top.

So how has the current Government fared in tackling income inequality so far? And why does it matter?

A new report by One Society, The Coalition Government and Income Inequality: The half term report, charts some progress by the Government but demonstrates that more must be done. The report kicks off with an important political point: that the Government’s three key priorities of building stronger families, stronger communities and a stable economy cannot be achieved unless income inequality is addressed.

Contributors Stewart Lansley and Kate Pickett pick up on the third of these priorities by exploring how ‘excessive’ levels of income inequality are holding back economic growth and causing instability. Lansley, an economist and financial journalist, argues that the upward redistribution of income in favour of a small elite has restricted consumer spending, encouraged debt and created an economy more vulnerable to financial crises.

Deborah Hargreaves of the High Pay Centre also writes a section which assesses Vince Cable’s efforts to curb high pay in the private sector. So far these have been insufficient to produce any meaningful change.

At the other end of the pay spectrum, the Joseph Rowntree Foundation’s Chris Goulden and One Society’s Sue Christoforou look at action the Government has taken on low pay. While it is encouraging to see the National Minimum Wage (NMW) being extended to apprentices and the adult rate of NMW being paid to those aged 21 for the first time, the below-inflation up-rating of the level of NMW has tightened the squeeze on low-waged employees. The report also includes contributions on how the Government’s policies on tax enforcement, welfare reform and income tax have impacted upon income inequality.

It should be noted that the Government have shown some signs of progress, particularly on pay in the public sector as Duncan Exley, Director of One Society, argues. A recent One Society report, Leading the Way on Fair Pay, demonstrates that as a result of this Government’s Localism Act some local authorities are doing well to narrow pay ratios and are encouraging local employers to follow suit on policies such as the Living Wage. The hope is that this good practice will eventually filter into contractors and the wider private sector.

One Society’s half term report should be read carefully by policy makers and politicians alike. When a nation’s wealth reaches a certain level it no longer matters how wealthy a society is; what matters is how equally the riches are shared. Levels of ill health, social unrest, teenage pregnancy, drug addiction, etc. all soar as the gap between rich and poor widens.

What is more is that policies to address income inequality are becoming increasingly popular with the public. A poll last year showed that 74% of people think income inequality is too high and even CEOs are beginning to recognise they are probably overpaid. Meanwhile No. 10′s favourite think tank recently warned that the Conservative Party are still see as the party of the rich.

Even if this Government’s concerted attempts to restore economic growth and balance the budget are successful, it must do more to tackle income inequality so that the benefits can be felt by all.

It would be easy to get the idea that shareholders are now tackling the soaring levels of executive pay and that robust government action is unnecessary. That idea would be a mistake.

The WPP rebellion was unlike other rejections of remuneration reports that have recently taken place because WPP has actually been performing well. Other rebellions have taken place in companies where performance was seen as substandard.

In other words, votes against remuneration reports have been used as a proxy for discontent about other issues: shareholders have NOT been saying that ever-increasing top pay is a problem.

There is less to the shareholder spring than meets the eye. The vast majority of companies still have their remuneration report approved.

As Robert Peston wrote just before the WPP AGM:

“There have been just four defeats so far of companies in votes on their so-called ‘remuneration reports’, and only one of these companies has been in the FTSE 100 list of biggest businesses. That does not represent an exponential increase in shareholder rebellions”.

The narrative of the shareholder spring is misleading: rebellions get much more coverage than the commentators like Peston and Nils Pratley who point out that “radical reform to the way companies are managed and directors are paid still lies years away”.

It is important to remember why “radical reform” is urgently necessary. On Tuesday, it wasreported that the average FTSE 100 CEO saw their pay increase 12% to an average of £4.8m: approximately 200 times average private sector pay. By contrast, disposable incomes for the rest of us are set to fall for the third year running (pdf).

Even if the so-called shareholder spring does not run out of steam, if it continues at its present underwhelming rate, a few executives may see their pay reduced from levels that are ridiculous to levels that are merely astounding, while the gap between top pay and average employee pay will continue. This soaring inequality is bad for businesses, bad for the economy and bad for society.

At first glance, it may seem intuitive to reduce poverty and stimulate demand by cutting taxes rather than pushing up wages. It would probably be simpler but there are many reasons why it would not be effective.

Prime amongst them is that low pay is effectively taxpayer subsidised. The Institute for Fiscal Studies estimates that sub-living wage pay costs taxpayers £6 billion a year (due to the costs of in-work benefits etc). But this is only a fraction of the real cost.

Once the indirect impacts of poverty and inequality are factored in, the figures are staggering. These include the Joseph Rowntree Foundation’s estimate that child poverty costs the taxpayer £25 billion each year, despite the fact that 57% of children in poverty have at least one working parent.

As for the cost to businesses, recent research by the IPPR and Resolution Foundation suggests that in many sectors it would be minimal. For banking, construction and computing companies, paying staff a living wage would add roughly 1% to the total wage bill (even the notoriously low-paying retail sector would only see a 5% rise).

Some employers, such as the London Borough of Islington, have implemented a living wage without increasing their costs.

In addition, the introduction of a living wage has tended to improve productivity in businesses by reducing absenteeism and improving motivation.

Those who think that decent pay is bad for business tend to forget that business suffers from the reduction in consumption brought on by stagnating wages. As Chris Huhne pointed out yesterday:

The first is a story in the Financial Times (£), reporting that the Business Secretary is likely to back down on his proposal that company pay policies should be backed by a ‘supermajority’ of up to 75% of shareholders.

The only good argument against a 75% threshold appears to be the potential for a small group of investors to wield undue influence. However, it is possible to draft the legislation in a way that takes account of this – by requiring, for example, that those voting against remuneration reports represent a minimum number of shareholders, or a minimum proportion of the total number of shareholders. These are already requirements for investors wishing to propose a resolution at an AGM.

By contrast, there are several good arguments for the proposal. The recent high-profile rebellion at CitiGroup, where 55% of investors failed to back the company’s remuneration report, made the news because it was unusual. As the High Pay Commission’s research found, ‘defeat over remuneration is rare – even at the height of the financial crisis only five companies lost the vote on their remuneration report’.

Most investors are extremely passive in their voting behaviour, which means that most overpaid execs will be able to rest easily, knowing that a majority of investors rebelling against their proposal is very unlikely.

The second worrying story is the widely reported view of the CBI that greater shareholder powers would lead to investors ‘micro-managing‘ companies. I’d like to reassure the CBI that they needn’t fret about that: institutional investors typically have holdings in thousands of companies, and so do not have the time to micro-manage anyone.

The CBI should also consider that investors should, perhaps, be somewhat more assertive. Over the last few decades, executive pay has risen out of all proportion with either company performance or employee pay, which leads to perversely motivated executives and undermotivation in the wider workforce.The CBI says that the IDS research which showed a 49% year-on-year rise in top pay has been ‘misread’, but numerous other studies point in a similar direction.

The CBI says it represents British business. Perhaps it is time to remember that the interests of British businesses, and the interests of their executives, are not always the same thing.

Top pay is a case in point.

RBS chair Sir Philip Hampton, for example, argues recent government rhetoric against excessively high remuneration in the private sector dampens business morale and reduces inward investment:

“We need to recognise that businesses have got to succeed and that when they do so people can get very well paid.”

George Osborne weighed in too:

“At stake are not pay packages for a few but jobs and prosperity for the many.”

And CBI director-general John Cridland has attacked the ‘anti-business’ climate, saying:

“If we don’t reward success, business cannot walk the walk.”

But business success and controlling high pay are by no means mutually exclusive. It is possible to argue against stratospheric levels of pay and be pro-business at the same time.

There is strong evidence that excessive executive compensation is associated with firm under-performance. A US study has shown that executive pay is positively correlated with bad governance, which is in turn related to poorer company performance.

This effect is likely to be strengthened by the tendency for a large gap between highest and lowest paid workers to be accompanied by reduced productivity in the workforce as a whole.

As the Hutton review pointed out, a reduction in the ratio between top and bottom pay tends to bring gains in morale and productivity, as well as improved mental health, physical health and dramatically reduced absenteeism.

Partly for this reason, increasing low pay (yet another issue that tends to be painted with an ‘anti-business’ brush) is in fact also likely to act as a boost to businesses.

Not only would raising lower levels of pay reduce the high pay ratios that act as a barrier to increased productivity but, because incentives tend to be more effective for tasks that involve only effort than for those that include a cognitive element, they tend to be more productive at the lower end of the pay scale.
A growing group of politicians do now recognise that fair pay is good business.

Shadow Business Secretary Chuka Umunna pointed out in a recent speech that:

“Just as relative rewards matter as a basis for social comparison among executives, so they matter to other employees too. They matter for employee engagement, and their sense of identification with company goals”.

Vince Cable has recognised that excessive pay is problematic, and last October the PM himself was questioning the wisdom of excessive remuneration, saying:

“Boards have got to think when they are making pay awards, is this the responsible thing to do?”

Nor should we assume that all business people support excessive pay inequality. Ex-Greggs CEO Sir Michael Darrington said that attacking high pay as anti-business is:

“…a smokescreen and a lot of bollocks – it is the greed of the people [at the top] that is anti-business.”

As Sir Michael said, it is those who are attempting to highlight the negative impacts of excessive pay who are “pro-business and anti-greed”.

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.

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

Local authority policies with regard to their lowest-paid staff are polarising between those who are committing to pay Living Wage and those who are seeking to minimise staff costs in the name of keeping taxes low. However, a recent statement from the Royal Borough of Kensington & Chelsea (RBKC) suggests that the benefit to taxpayers of sub-Living Wage pay may be illusory.

RBKC’s Cabinet Member for Finance and IT, Warwick Lightfoot, explained to the local press that the Borough had rejected a motion to pay staff the London Living Wage (currently £8.30ph) on the basis that “if the council and its contractors did adopt the London Living Wage, it could add anything up to £1m to the council’s costs, equivalent to a 1.% increase in council tax”; but in the same interview, Cllr Lightfoot appeared happy for the taxpayer to subsidise low pay through the benefits system, saying that “it is the role of the national government through the social security system to top up earnings in relation to family circumstances”.

Someone uncharitable might suggest that Cllr Lightfoot is more concerned to appear to reduce costs to taxpayers than actually doing so.

The costs to taxpayers of Sub-Living Wage pay are substantial: the Institute for Fiscal Studies estimates that sub-living wage pay costs taxpayers £6 billion each year. The total cost of low pay goes way beyond the direct costs to taxpayers which the IFS calculated: some idea of the scale of the problem can be seen in the Joseph Rowntree Foundation’s estimates that child poverty costs us £25 billion each year, even though 57 per cent of children in poverty have working parents.

Getting a good deal for taxpayers is a noble ideal, but it is not incompatible with paying an amount which will secure “a minimum acceptable quality of life” (as Boris Johnson described the London Living Wage). For example, the London Borough of Islington has brought cleaning services in-house in order to ensure that Living Wages are paid, without increasing costs (mainly by saving on contractor’s fees).

Local authorities should secure good value for taxpayers, but taking a narrow view of who are taxpayers and what is in their best interests helps no-one.