Ed Miliband eyes executive pay reforms

Ed Miliband speaks at the launch of a new Engineering award today (PA)

Workers should help set top bosses' pay, Ed Miliband said today.

The Labour leader demanded a staff member sit on remuneration committees deciding how much executives of big firms should receive.

Speaking to the Social Market Foundation in London, he said: "This simple reform would help forge a new compact between workers and employers, building trust that salaries at the top are deserved, that long-term decisions are being made."

He said the move would spark "a revolution in transparency about pay for those at the top so shareholders and others can come to view about what is justified".

Mr Miliband said during a wide-ranging speech that the Archbishop of Canterbury Dr Rowan Williams and Barclays chief executive Bob Diamond had addressed economic themes he raised in his speech to Labour's annual conference seven weeks ago.

In a reference to anti-capitalist protestors camped outside St Paul's Cathedral in London, the Labour leader said: "It shouldn't surprise us that people are looking for new answers because we live at a time of unprecedented uncertainty and insecurity.

"But today I want to argue that this is not simply because of the more obvious moral case, that has rightly stirred people's anger, but also an essential economic case.

"That our argument for a new, more responsible, productive capitalism is hard-headed - not soft-hearted.

"It is based on how we pay our way in the world, build long-term wealth and deliver rising living standards for the majority of people."

Mr Miliband attacked rules which he claimed helped people and firms get rich through "short-term returns" rather than "the productive creation of long-term value".

He said they encouraged over-reliance on banking, meaning that when the financial crisis and credit crunch took hold in 2008 Britain was badly affected compared with outer countries.

Criticising regulations which "led to a distribution of rewards increasingly skewed between those at the top and the rest", he said: "That inequality did not just have bad consequences for our society; it had real consequences for our economy as well.

"The struggle to maintain living standards for people became too dependent on higher levels of personal debt."

Mr Miliband claimed ministers would fail to eliminate the budget deficit over the course of the current Parliament because of falling tax receipts, low growth and a rising welfare bill thanks to climbing unemployment, meaning an incoming Labour Government would have to act.

He admitted: "Resources will have to be focused significantly on paying down that deficit.

"Therefore if the next Labour government is to tackle the challenge of social injustice, reform of our economy will be vital: creating good jobs at good wages, with sustainable long-term business models.

"A better, more responsible, capitalism would mean the taxpayer does not have to pay the price for financial failure by bailing out the banks or paying the welfare costs of spiralling unemployment."

Mr Miliband called for a longer-term approach from shareholders, urging them to abandon their hunger for short-term dividends.

He cited the takeover of British chocolate producer Cadbury by food giant Kraft as an example of "speculating shareholders" eyeing "short term profit".

He said politicians needed to examine whether shareholders should have equal voting rights as soon as they bought into companies and whether the tax system could be used to discourage quick profits at the expense of a firm's long-term health.

"The short-term approach to finance has held back investment for years," he claimed.

"In the new economy we need to see a finance sector, the success of which isn't measured simply by short-term profits made and taxes paid, but by whether those profits are sustained by fulfilling its role as the beating heart of the economy."

He wanted banking to become "part of the solution to our economic future, not part of the problem".

Referring to today's announcement Northern Rock would be sold to Virgin Money for £747 million - leaving taxpayers with losses of at least £400 million - he said: "There will be serious questions asked about the deal done to sell Northern Rock today, and in particular about the losses to the taxpayer.

"But whatever the right decisions about the timing of that - and we will scrutinise it - there does need to be greater competition in the market."

Mr Miliband also called for "better-quality jobs" to "reverse the decline of middle-class incomes", with a more equal spread across sectors to protect the UK from outside shocks.

He said a Labour government would only award major spending projects to companies offering apprenticeships.

And he returned to his "producers versus predators" theme, saying tighter laws may be needed to tackle firms which "let down" industry and the nation.

He said: "The old view that we should let predatory behaviour continue unchecked has let down our country and business.

"Vested interests - predators that do long term damage - are bad for our business and our economy.

"They raise prices, exploit consumers and lead to inefficiency.

"Government has a responsibility, on hard-headed economic grounds, to use its power to break up vested interests.

"This will sometimes require regulation, sometimes require the strengthening of markets."

Mr Miliband said it was a "myth" that the bond markets would panic if the Government took his advice and changed course.

He said: "That is what the Government would have you believe. Basically it is a myth that they have been talking about.

"It was the Governor of the Bank of England who said, I believe in 2010, that it's completely wrong to compare us with Greece.

"Greece has a history of debt default, Greece has significantly higher short-term financing need. It's a totally different economy.

"Market confidence comes from a sustainable path for your deficit. How do you get the deficit down sustainably? You need economic growth."

He added: "Their plan isn't working, not just for growth and jobs, but for actually managing down, sustainably, the deficit as well."

Liberal Democrat president Tim Farron said: "If Ed Miliband is so determined to make capitalism responsible, why did he let the banks run wild on his watch and let the gap between executive pay and workers' wages grow into a chasm?

"We do need a more responsible capitalism that means employees and shareholders know the truth about pay at the top of their companies and have a say in it.

"That's what the Liberal Democrats proposed months ago and why Liberal Democrats in Government are arguing for exactly that. Ed Miliband clearly has no original ideas.

"The Liberal Democrats are determined to deliver a dynamic, innovative economy that has fairness at its heart."

PA