A few mandarins in need of a squeeze

Civil servants who want top-flight pay must take bottom-line responsibi lity, says Graham Mather

Why was it such a surprise that Whitehall's permanent secretaries turn out - on figures from the Organisation for Economic Co-operation and Development - to be almost at the top of the international pay league for state officials?

Compared to private sector chief executives in Britain and around the world, for example, they usually appear underpaid. It has taken Professor Christopher Hood's pioneering OECD research to highlight the fact that the simple comparison with corporate achievers is not the right measure.

The figures have, of course, been disputed by Elizabeth Symons, general secretary of the Association of First Division Civil Servants. She argues that the pay of top French and US officials is not comparable because they are more often political appointees, not career civil servants. She insists that the better comparison is with pay in the private sector.

It is, though, much fairer to compare Whitehall's highest level officials with their counterparts around the world.

Civil servants are not subject to the same risk as company executives, at least not the way Whitehall is now organised.

But if the results of the OECD survey have come as a surprise, not least to the civil servants themselves, what implications should be drawn for pay policy? If Britain's Grade 1 officials appear not to be underpaid compared to their French or German or US counterparts, should ministers limit them to cost of living rises in the future?

In my view that would be a mistake. The correct policy lesson from the new evidence is to examine precisely how we decide on pay for top officials. Here the picture shows a sharp divergence. Britain now has two types of senior official: agency chief executives and traditional permanent secretaries. The first class are frequently appointed in open competition, on fixed-term contracts, and at individually negotiated rates. They often have explicit performance assessment built into the package.

Permanent secretaries, by contrast, tend to be appointed within Whitehall, with indefinite tenure and on standard scales. Performance pay does not apply to them. The problem is that the permanent secretaries show no signs of wishing to move to a more modern pay system. They fought to keep fixed-term contracts, which have been successfully established in New Zealand, out of the Government's latest civil service White Paper.

They have also resisted the other key reformist idea, that ministers should agree policy targets with their departments, and that the heads of department should then be publicly accountable for delivery. It is a system that already, through framework agreements, applies to agency chief executives.

A new rubric therefore prevails in Whitehall: "One civil service with two systems". Under it, the permanent secretaries have managed to apply all the modernising reforms to the agency chief executives who report to them, and none to themselves. Now ther e are signs that modernisation will apply lower down in core departments - but still not to the Sir Humphrey class of Grade 1 mandarin. Until this position changes, it would be imprudent to give them a significant pay rise.

Yet such an increase looks to be on the cards. With a new pay regime due to begin in April, permanent secretaries have decided again that the new pay systems applied to their juniors are not suitable for themselves.

In the future, Grade 2 to 5

officials can expect decentralised pay under the control of their department rather than the centre, linked to performance assessment. To this should be added downsizing of numbers, which is already affecting senior Treasury officials and is likely overall to reduce the Civil Service from more than 530,000 to perhaps 400,000 over the next few years.

No wonder that permanent secretaries have decided that this tough package is not for them. Permanent secretary pay, by contrast, will be set on a new pay scale to be agreed in April by the Senior Salaries Review board. Another remuneration committee willestablish the place of each permanent secretary on the scale.

It would be too cynical to expect that the new scale will be much higher than the current £95,000 for permanent secretaries and £118,000 for the Cabinet Secretary. Nevertheless, sources close to the Cabinet Office told the Economist this year that Sir Robin Butler, as Cabinet Secretary, might be worth nearer £180,000 than £118,000.

There can be no objection to senior civil servants being properly remunerated. If agency chief executives are prepared to accept fixed-term contracts, performance pay, and responsibility for their delivery service outputs, then they well deserve six-figure salaries.

It would be quite wrong, however, to establish one system for them, and something similar for their Grade 2 to 5 colleagues in core departments, while allowing permanent secretaries to take the rewards of the new system without the risks.

Even the most cursory review of recent performance of the machinery of government - in economic and education policy, in the prisons, in child support, in the behaviour revealed over Matrix Churchill - shows how desperately Britain needs a more robust system of ministerial and official accountability and responsibility.

Britain's topmost officials can hardly be happy wth this record. Indeed, the wide-ranging changes announced in the Treasury suggest that in some parts of Whitehall there is a determination to modernise the machinery in which officials operate. Elsewhere,however, senior mandarins still decline to face the reality that the traditional doctrine of ministerial responsibiliy no longer describes the way modern departments work.

In future, ministers must set targets and permanent secretaries - better renamed chief executives - deliver the results. Each must accept a proper and distinct responsibility. Policy disasters for which no one will take the blame will end only when the boundaries of ministerial requirements - and officials' duty to deliver - are set out in clear, public agreements.

For the price of a plane fare, New Zealand can show how this can be done without violence to the British constitutional tradition. Once clear policy agreements are in place, and permanent secretaries are on proper fixed-term contracts, they should receive new rewards in terms of pay. Not only will they then deserve them, but they will manifestly and openly be seen to merit them.

The writer is Conservative Member of the European Parliament for Hampshire North and Oxford and President of the European Policy Forum.

Robert Winder returns next week.