Think-tank urges firms to reveal pay inequalities

British businesses should reveal the disparities between their highest and lowest-paid staff, a leading economic think-tank says today.

The New Economics Foundation, which has grown in influence in recent years, says that gross inequalities in income – a feature of virtually every advanced economy in recent decades, but especially in the UK and US – lead to economic inefficiency, add to financial instability and threaten future crises, quite apart from pure issues of "fairness". The NEF is calling for businesses to adopt a new "Charter of Responsible Pay", which would include revealing the pay ratio within the company on the front of their annual reports.

The NEF's report, The Ratio, argues that inequality in the workplace, as well as being inefficient, drives inequality in society more broadly, carrying high costs. It claims that high pay worsens the performance of senior executives rather than being an effective incentive.

It says publicly listed companies should "have to justify high pay inequalities, especially where these are large, such as in banking, and that there are few circumstances in which ratios above 10:1 or 20:1 can be defended on economic and social grounds".

Even that, though, would let large swathes of the economy controlled by family-dominated concerns, foreign subsidiaries and private equity remain outside such new regulations.

Andrew Simms, an NEF fellow and co-author of the report, said: "Transparency about pay ratios can begin to break open the cosy culture of remuneration that benefits a tiny minority."

Vince Cable's Department for Business, Innovation and Skills is conducting a review of corporate governance and disclosure of pay levels. Leading economists have said that much of the increase in disposable income over the past two or three decades in America and Britain has been concentrated among the very rich.