EXPLANATORY MEMORANDUM ON MOTIONS STANDING ON THE ORDER PAPER IN THE NAME OF THE LEADER OF THE HOUSE OF COMMONS: MEMBERS' SALARIES

1. The motions in the name of the Leader of the House of Commons on Members Salaries respond to the Review from Sir John Baker CBE on Parliamentary Pay and Pensions Salaries (SSRB) (Cm 7416), a copy of which was laid before this House on 17 June 2008. The Review follows the decision of the House on 24 January 2008 which endorsed the proposal that Sir John Baker should be invited to make recommendations on both the comparator and the mechanism for setting MPs pay.

2. As a result of that decision, the House agreed to await the report from Sir John in order to inform decisions on a new pay mechanism for MPs, in particular one which would remove the need for final decisions on salaries to be subject to approval by the House of Commons.

The Motions before the House

3.  The Government has tabled Motions enabling the House to approve the proposals put forward by Sir John Baker in his review of Parliamentary Pay (Opinion Motions No1 and No3) or an alternative proposal which represents the policy announced by the Government in the Written Ministerial Statement of 17 June (Opinion Motion No2). There are two Motions in respect of Sir John Baker's proposal because the issue of the proposed 'catch-up' payments of £650 over three years has, for the convenience of the House, been separated out from the main proposal providing for uprating of pay in future years. In accordance with the practice of the House, two Motions are necessary for each alternative-the 'expression of opinion' Motions are open to amendment by the House, while the Motions with the Queen's Recommendation (the 'effective' Motions) are necessary to give effect to the proposals put forward in the opinion motions (and are only amendable to the extent that they do not increase expenditure). There are thus 6 Motions in total.  The opinion motion on the Government proposal (Opinion Motion No2) provides a high level description of the Government's proposal while the Queen's Recommendation Motion No2 includes the detailed mechanics of how Members' salaries would be increased.

Providing for an independent pay mechanism

4. Both Motions provide for the mechanism for the settling of Members' pay to be independent of the House and the Government, so that Members will not in future have to vote on their own pay. The mechanism to achieve this is reflected in paragraph (4) of the Opinion No1 Motion and in paragraph (4) of the Opinion No2 Motion. Under this provision the Senior Salaries Review Body (SSRB) will report to the Speaker each year the figure for Members' pay produced by the linkage formula (see paras 7 to 11 below) and from any periodic review (see paras 7 to 9 and 12 below) and on notification to the Speaker of this figure it will take effect by virtue of the Resolution agreed by the House.  The Speaker will lay before the House the annual notification and any Report from the SSRB following a review.

Increases for 2008/09 (and 2009/10-2010/11)

5. Opinion Motion No3 provides for an additional 'catch-up' increase for Members' pay.  This 'catch-up' would be £650 per year for each year from 1 April 2008 to 1 April 2010 inclusive.  This increase would be above and beyond any increase which was delivered by the mechanisms set out in Opinion Motions No1 or No2.

6. Opinion Motion No1 would provide a salary of £63,984 for 2008/09, excluding any 'catch-up' element.  Opinion Motion No2 would deliver a salary of £63,211 for 2008/09, again excluding any element of 'catch-up'.

Basis for future increases

7. Both Opinion Motions No1 and No2 provide for continued future increases through the operation of the relevant formulas.  Both also provide for regular reviews by the SSRB.  As a result of these reviews the SSRB can decide that Members' salaries will be increased without the need for any further votes in the House. 

8. The SSRB will also be able to amend the formula used for the annual increase to Members' salary.  There is a difference in the SSRB's freedom to amend the formula between the two proposals.  Under the Opinion Motion No1 the SSRB will be able to amend the formula in any way they see fit to ensure that the future level of salary remains adequate to ensure that pay does not become an obstacle to individuals seeking to become Members of the House and that the level of salary remains reasonable in relation to the total package for jobs of similar weight and responsibility in the public sector.  The Opinion Motion No2 allows adjustments to be made by the SSRB to the groups forming the basket of public sector groups used in the formula.  It does not allow the SSRB to change the formula itself. 

9. Under both Opinion Motions No1 and No2 the Government will have no role in implementation of the changes proposed by the SSRB.  There will not need to be any vote by the House to give effect to the recommendations, which will simply be enacted once the SSRB Chair has informed the Speaker of their conclusions.

10. The Opinion Motion No1, providing for the formula proposed by Sir John Baker, would increase Members' salaries by the percentage change in the three month average Public Sector Average Earnings Increase (PSAEI, LNNE series) for January each year. The change in the PSAEI reflects the mean average increase in the earnings, including bonuses, of an Office of National Statistics sample of Public Sector workers.

11. The Government formula set out in brief in Opinion Motion No2 and in full in the Queen's Recommendation Motion No2 would increase Members' salaries by the median increase of the settlements for a wide range of Public Sector employment groups.  Rather than provide a link to the change in the average earnings received, this formula delivers the basic settlement increase received by the relevant group.  So for the Police, Local Government and the majority of the groups covered by Pay Review Bodies the increase for each group is the basic, headline, increase applied to pay scales and the points within those scales.  If the increase is not identical within a group, the increase applying to the largest number of individuals will be used.  For the Senior Civil Service the relevant figure is the increase in money available for base pay awards (excluding the money described as "recyclables" - i.e the money available to be redeployed within the system following the departure of highly paid staff and their replacement with new recruits who command a lower salary).  And for the Civil Service (outside of the SCS) the figure used will be the average percentage increase in the basic award of the staff within that department.  By taking the median figure from the range of increases the distorting effects of a particularly low or high settlement in one part of the Public Sector is removed.

Review and Terms of Reference

12. Under both proposals reviews of MP's pay will be carried out in the first year of each new Parliament.  If such a review has been carried out within the last two years, then no new review will be undertaken.  This is to ensure that the SSRB is not being continually asked to carry out reviews of Parliamentary pay with insufficient time in-between each review for any impact from the previous review to become apparent.

13. The Terms of Reference for the SSRB on Members' salaries will have to be updated, as Sir John Baker intimated, in the light of the decisions taken by the House.  This update will reflect those decisions whether the House decides on the Government proposal or that of Sir John Baker. The attached draft Terms of Reference at Annex A reflect a possible way of delivering the Government's proposal.  Final decisions on the Terms of Reference will be taken following the decision of the House and after consultation with the Speaker.

OFFICE OF THE LEADER OF THE HOUSE OF COMMONS
26 JUNE 2008
 
Annex A

DRAFT TERMS OF REFERENCE FOR THE SSRB IN RESPECT OF MPs' PAY

The SSRB's current terms of reference read "The Review Body also advises the Prime Minister from time to time on the pay and pension of Members of Parliament and their allowances; and on the pay, pensions and allowances of Ministers and others whose pay is determined by the Ministerial and Other Salaries Act".

In respect of pay this sentence would be replaced by the terms of reference below.

"The role of the SSRB in relation to MPs' pay is primarily determined by the Resolution of the House of 3 July 2008.

The Chair of the SSRB shall accordingly, in March each year, notify the Speaker of the adjustment in MPs' pay dictated by the linkage mechanism and following any Review under the terms of that Resolution. This adjustment will have effect from the succeeding 1 April.

Further, the SSRB shall, within the first three months of the commencement of each new Parliament, begin a review of MPs' pay for the purposes set out in the Resolution, unless such a review has taken place within the preceding two years. In reaching its conclusions at a Review, the Review Body is to have regard to the considerations set out in the Resolution, namely:

(i) the Government's public sector pay policy, in particular its policy that pay awards should reflect recruitment and retention in the relevant workforce, should be affordable and represent value for money, and should support macroeconomic stability and the maintenance of low and stable inflation at the target level;

(ii) the need to assess salary relative to jobs of similar weight elsewhere in the public sector;

[Note: the precise wording of the preceding indents will depend on the decisions of the House on 3 July.]

and also to have regard to:

(iii) the value of MPs' pensions, benefits in kind and terms and conditions relative to those for comparable, similarly-weighted public sector jobs;

(iv) the need to consult and seek evidence from MPs, their representative bodies, political parties, the Government and the House of Commons Authorities;

(v) any changes in the role and responsibilities of MPs; and

(vi) the need to maintain the confidence of MPs and the public.
 
The Chair of the SSRB shall report the outcome of any such Review to the Speaker within twelve months of the commencement of the Parliament in which the review began."