The Debate: Should MP salaries be linked to GDP?
As MPs receive an inflation-busting five per cent pay rise, we ask if it’s time to better incentivise politicians by linking their pay to economic growth. We hear the case for and against in this week’s debate
YES: In the private sector pay is not determined by a quango but by performance
Over the course of a typical 12-year parliamentary career (the median length of service for MPs leaving the Commons in 2019), an MP will receive well over £1m from taxpayers. This is set to rise even further by the end of the parliament, with a planned 17 per cent increase over the next four years meaning MPs will soon reach the £1m mark in less than a decade.
The Independent Parliamentary Standards Authority (Ipsa) justified this pay rise in part by benchmarking MPs to senior managers and directors in the public and private sectors. Leaving aside the obvious conflict of interest created by basing MP pay on public sector wages, the comparison with the private sector is incomplete. In the private sector pay is not determined by a quango but by performance.
Yet despite poor performance on nearly every metric – from the ballooning national debt to falling public sector productivity to the record high tax burden – MPs will still receive a guaranteed pay rise. This is far from the reality for taxpayers who are facing a personal recession for the second time in five years, defined as two consecutive quarters of falling GDP per capita.
Behaviour is fundamentally shaped by incentives. Linking MP pay to GDP per capita would ensure that politicians feel the consequences of their decisions like everyone else. The only way to make themselves better off would be to actually make the country better off.
If politicians are truly committed to economic growth and believe they are comparable to senior managers and directors in the private sector, they should put their money where their mouth is and tie their pay to GDP per capita.
Shimeon Lee is a policy analyst at the Taxpayers’ Alliance
NO: When a measure becomes a target, it ceases to be a good measure
At first glance, the idea has an intuitive appeal. If the economy grows, politicians benefit. If it stagnates, so do their pay packets. Align incentives, reward success. Simple. But simple incentives often produce complicated distortions.
This is a textbook example of Goodhart’s Law: when a measure becomes a target, it ceases to be a good measure. GDP was designed as a rough indicator of economic activity; it cannot effectively be used as a compensation scheme for legislators. Once politicians’ salaries depend on it, the incentive shifts from fostering genuine prosperity to boosting the number itself.
GDP is remarkably easy to inflate on paper. Governments can increase spending, accelerate public investment or shuffle activity across accounting lines to temporarily push the figure upward. None of this necessarily reflects meaningful improvements in living standards or productivity. But if MPs’ pay rises with GDP, the temptation to pursue short-term statistical gains rather than long-term economic health becomes obvious.
More perversely, linking salaries to GDP would simply push politicians to seek compensation elsewhere. Parliamentary expenses already exist, with their own scrutiny, to cover the costs of doing the job, but they are also one of the most politically sensitive features of Westminster life. If salaries are allowed to fluctuate in a pyramid scheme-like way, MPs may respond by leaning more heavily on expenses to stabilise their personal finances.
Hence, a policy intended to incentivise politicians and recalibrate their interests with national prosperity could instead produce creative accounting and rising expenses.
MPs should be paid transparently and independently, not through a crude macroeconomic target. Otherwise, we risk turning GDP into yet another political game – one taxpayers will ultimately end up funding.
Joanna Marchong is head of communications and external affairs at the Adam Smith Institute
THE VERDICT
This month, the parliamentary watchdog announced its latest pay rise for MPs, with basic annual salary set to rise almost five per cent to £98,599 from this April. The jump, outstripping inflation and amid a national personal recession, has naturally attracted scrutiny, with think tank the Taxpayers’ Alliance calling for MP salaries to be linked to GDP per capita.
The rationale is tempting: certainly, it would be difficult to find many Brits who think the current crop of MPs have been doing a particularly good job. But it is also misguided. As Ms Marchong points out, such an incentive is more likely to motivate spin than actual growth, with MPs having little direct influence over annual GDP figures. Furthermore, in public service, economic growth is not always the best value indicator – during the pandemic, or other global crises, for example. Linking pay to GDP is more likely to reward (or punish) MPs for the work of their predecessors, if not global events completely out of their control. What motivation is that?