A de facto government subsidy for high pay

Last week The Equality Trust released a short briefing note on how the government subsidises high pay by its choice of contractors. That briefing note showed that many of the companies that government contracts out work to pay their executives obscenely high amounts. However there are other ways that government helps protect high pay through its actions other than contracting out services. Sometimes government helps foster high pay by granting monopoly access to a company that pays out millions of pounds each year to its directors.

If you’ve heard of the Motability scheme chances are you thought that Motability was a charity that helped disabled people by using the mobility part of their disability benefit to hire specially adapted cars and other mobility aids. That’s true, but it also misses an element of how Motability operates.

Motability, the charity, contracts out the hiring of these vehicles to Motability Operations, a not-for-profit company, who then sell on the car or mobility aid and use the profit from the sale to help finance the continuing costs of the scheme. The problem with this not for profit company only really becomes clear when you look at their annual report. This company, based in London Bridge just next to the Financial Times, pays out £897,000 a year to its top director and over £3.2m to all its directors. This is considerably higher than the highest reported pay in the charity sector and well over double the pay of the highest paid civil servant.  Those sorts of levels of high pay are much closer to those found in the most unequal of private sector companies. However there is a big difference between Motability and most private companies in that Motability doesn’t have to compete against anyone else.

Motability unlike any other organisation receives benefits transferred directly from the Department of Work and Pensions. Last year they received £18.3m in government grants. This means that Motability face little financial risk, as the rent payments for vehicles come directly from the government, and don’t face any competition as no fresh entrant to the market would get this guaranteed income. As I’ve discussed on this blog before, competition helps drive down executive pay and in areas where this is insufficient competition, executive pay can soar to artificial heights. Motability presents a really simple example of how government can help subsidise high pay by how it uses its funds without directly paying these huge salaries itself. Government needs to take pay inequality and company structures seriously as criteria in how it contracts out services or indirectly subsidises organisations.

Tim Stacey, Policy and Campaigns Officer.