10. What steps he is taking to tackle excessive executive pay. (91201)

14. What steps he is taking to tackle excessive executive pay. (91205)

17. What steps he is taking to tackle excessive executive pay. (91208)

The Secretary of State for Business, Innovation and Skills, my right hon. Friend the Member for Twickenham (Vince Cable), yesterday announced a package of proposals designed to address the market failure in setting executive pay. The proposals represent a major step forward in empowering shareholders, reforming remuneration committees and improving transparency in order to give shareholders the tools that they need in order to control unacceptable rewards for failure.

What consideration has my right hon. Friend given to a system of three-year rolling executive pay, in which the worsening of performance in one year would lead to a claw-back of remuneration from previous years? Does he think that putting pressure on companies to adopt such a system would be sufficient, or would it be necessary to legislate?

My hon. Friend makes a good point. That is already part of the Financial Services Authority’s code of practice for banking remuneration. It is particularly important to end the distorting effect of those kinds of incentives in the financial sector, but the additional powers that we are giving to shareholders, which my right hon. Friend the Business Secretary announced yesterday, will allow companies in other sectors to adopt that kind of practice, should they wish to do so.

I welcome yesterday’s announcement by the Government on mitigating excessive executive pay. With regard to the UK honours system, may I seek an assurance from my right hon. Friend that the Government will be more circumspect in regard to the honours that are suggested, unlike the—

Order. I think that the hon. Gentleman might have been groping his way towards order, but he had not quite arrived. We will have to leave it there for today. We are specifically talking about excessive executive pay.

In the forthcoming Financial Services Bill, should we not introduce criminal sanctions for gross negligence at the helm of a systemically important bank, to ensure that no rewards for failure would be forthcoming for those who are masters of nothing?

That was mentioned explicitly in the Financial Services Authority’s report on the failures of the Royal Bank of Scotland. Lord Turner suggested three options for changing the law, and the Joint Committee that has scrutinised the draft Financial Services Bill has recommended that the Government give consideration to the report’s recommendations. We agree with that, and we will be publishing a joint consultation document with the FSA later this spring, which will consider a range of possible measures.

John Hourican of RBS is expected to get in excess of £4.3 million in his remuneration package in share options alone. When RBS was asked about this, it said that he had met his performance targets, but refused to say what those targets were. On the ground of transparency, will the Chief Secretary agree to put in the Library a copy of the performance targets of the chief executive of RBS and of Mr Hourican?

I will certainly look into the matter that the hon. Gentleman has raised, but it was his party that set up the contracts for many of the executives at RBS, and his party that allowed the bonuses to be paid out. It was also his party that awarded Fred Goodwin a knighthood that he should never have been given, so I do not think that we are going to take any lessons on this from him. We have certainly been looking hard at the remuneration proposals for this year, and I can assure him that bonuses will be far, far lower than they were last year.

May I remind the Minister that, when in opposition, the present Chancellor and the present Prime Minister promised a really tough regime to reduce the gap between the high earners and the rest of the people in this country. Yesterday’s announcement showed that they have backed away from that promise, but the people in my constituency want a fair society in the so-called big society.

I am certainly not going to attempt to take responsibility for things the Chancellor and the Prime Minister said in opposition, but I can take responsibility for what the coalition Government are doing. The announcements made yesterday by the Business Secretary on tackling executive pay went far further than anything the hon. Gentleman’s party did during 13 years in government. That alone should give him pause for thought.

Giving more powers to shareholders sounds welcome, but we know that their existing powers on executive pay have not been readily used. Should institutional investors not be made more accountable to the millions of ordinary savers whose money is at stake, and does the Chief Secretary believe that the Chancellor would be ready to exercise his reserve powers to make them disclose to their savers how they vote?

One of the striking things about how the climate of opinion on this subject is changing in recent times has been the change in attitude of institutional investors. The comments of Otto Thoresen, the head of the Association of British Insurers, for example, to the banks in this remuneration round suggests that such investors are interested in and seized of the importance of ensuring that proper levels of remuneration are paid, not unfair rewards for failure.

The Business Secretary’s announcements will give more power to non-exec directors and shareholders to control pay in the private sector. The Government effectively discharge those roles in the public sector, so what measures is my right hon. Friend undertaking to control high pay in the public sector?

Ministerial salaries were cut by 5% and then frozen for the whole of this Parliament. As Chief Secretary, I now personally sign off any new pay above £142,000, the equivalent of the Prime Minister’s pay. That is a vital deterrent to the cycle of ever higher pay at the top of the public sector—so much so that in central Government alone the number of people paid more than £150,000 has dropped by 55 since May last year. When applications come in, I can and do reject them if I think they are too high. In fact, since May 2010 83 like-for-like cases have sought my approval. Pay was lowered in 45 of those cases and frozen in a further 23, saving more than £1 million a year for the taxpayer, including a £100,000 cut in the pay for the new chief executive of Royal Mail.