Tories bash the rich

George Osborne's speech to the Conservative Party conference contained a striking number of eye-catching proposals.

What he appeared in the round to be proposing was a programme of national sacrifice to reduce debt and create a culture of saving.

I will leave to Stephanie Flanders and Nick Robinson the analysis of his policies to reduce public sector borrowing and cut government expenditure.

But Osborne's remarks will reverberate through the public sector and the private sector.

In particular, he's made it difficult for anyone at the top of the income ladder in any part of the economy to be awarded a big pay rise in the next year or two.

A Tory government would cut the pay of ministers by 5% next year and then freeze it for the rest of the Parliament.

And anyone "who wishes to pay a public servant more than the prime minister will have to put it before the chancellor".

In theory that implies there'll be big pay cuts for senior directors of the Bank of England (including the governor), the chief executive and others at Royal Mail, the head of Network Rail and a fair number of BBC executives, among others (unless the salaries of the incumbents are grandfathered*).

As for the banks, the shadow chancellor gave them an unambiguous warning that unless they voluntarily reduce bonus payments, he would take steps to curb their take-home pay, including "through the tax system".

In other words, they must either resist the temptation to use any of the state support they've received to enrich their staff or he'll introduce a special, punitive tax on bonuses.

Then there was big stuff on pensions.

He announced a longer-term aim - which won't be implemented in the next Parliament - to restore the ability of pension funds to claim back the tax deducted on dividends (the famous dividend tax credits for pension funds that were abolished by Gordon Brown in 1997).

And he said that no public servant would henceforth be able to draw a pension in retirement of more than £50,000 a year (although existing pension entitlements would be protected).

Finally, he said that because he would force a pay freeze on all public servants earning over £18,000 a year, he could not "even think of abolishing" the new 50p top rate of tax being introduced by the government - though he did not want it to be a "permanent feature" of the tax system.

For the better off Osborne was saying no jam today and maybe - just maybe - there'll be a bit of marmalade for breakfast in a few years.

Update 1336: I've now checked the fine print of Mr Osborne's speech, so here's a bit more detail.

The current governor of the Bank of England and today's chief executive of Royal Mail can breathe easy. George Osborne, if he becomes chancellor, won't be cutting their pay.

Those in public sector jobs already being paid more than the prime minister will have their remuneration grandfathered; they won't be forced to take a pay cut.

But if the Tories are elected, no new appointee to a public sector job would be paid more than the prime minister without the explicit approval of the chancellor - which Osborne implied he would withhold.

Two other things.

The £50,000 ceiling on public sector pensions would apply to all existing members of public sector schemes, not just to future entrants (although those lucky enough to have already earned an entitlement greater than £50,000 will keep what they've accrued).

And Osborne doesn't yet know how or when he'll give pension funds back the cash flow they lost when the dividend tax credit was abolished - but he's signalling that he'll find a way.

Update 15:15: Two further points.

First, it is significant that the most draconian of Mr Osborne's plutocrat-bashing ideas - viz a possible tax on bonuses and a slash-and-burn approach to top public servants' pay - are not firm pledges.

Both, really, are threats to banks and public-sector organisations to show some sensitivity to the public mood on pay, or face a potentially savage lop from Mr Osborne when he's at No 11.

And who can be sure whether he would really be in scything mood, if he became chancellor.

That said, he certainly seems keener to scythe than members of the current government.

Second, he has created something of a recruitment nightmare for local authorities, the BBC, the Royal Mail, the Bank of England, UKFI, the Financial Services Authority, assorted competition authorities and utility regulators, Channel 4, Network Rail, and so on.

They all pay their top people more than the prime minister earns.

So what do they do if they want to recruit someone at a senior level in the coming few months, before the general election?

Do they ignore the revealed wishes of the party that polls suggest will form the next government and pay the successful candidate more than the PM's earnings - and risk alienating future ministers?

Or do they pay what George Osborne has signalled as the new maximum - viz £197,689 (actually presumably it's a bit less than that, since the Tories would impose a pay cut on all ministers)?

But if a newly recruited boss of Royal Mail, or the BBC or the Bank of England were paid less than £200,000 a year, surely all his or her more junior colleagues would also have to see their pay slashed?

It has the potential to create something of a farce - which will be hilariously funny for millions of citizens and very painful for the relevant institutions.

PS. And what about Lord Turner of the Financial Services Authority, who is expected to move to the Bank of England to become a deputy governor as and when the Tories break up the FSA and move the banking supervision bit to the Bank of England?

Would he be expected to take a pay cut of more than 50 %?

* Some people have been in touch to ask what "grandfathered" means. In the words of the OED it is "To exempt from new legislation or regulations, usually because of some prior condition of previously existing privilege." I am using it to mean that individuals currently in post will have their salaries protected, though their successors wouldn't have that protection.