It is not the job of Government to condemn private sector pay increases, otherwise it would deter investors and skilled workers, Lord Digby Jones said yesterday.
Lord Jones of Birmingham, the former director general of the Confederation of British Industry, said offering public advice on wage constraint would discourage people investing in the UK.
The Department for Business, Enterprise and Regulatory Reform Minister, who is not a member of the Labour Party, told peers at question time: "I would distinguish the difference between advice and condemnation.
"I think it is the role of the Government to advise and actually to work with the private sector in getting them to go that way (towards pay restraint).
"It is not for Government to condemn the private sector."
He added: "If we want a big sign put up over this country saying we don't want people to be paid a great deal of money, just go and do it in Germany or France or America then we are going the right way about it if we start giving public advice where it is not welcome."
Lord Jones said much of the advice the Government provides to the private sector is done in private.
Liberal Democrat Lord Razzall asked: "Do you not accept that it is the role of the Government to provide some form of moral leadership in condemning the often obscene salary increases that go to increase the gap between the poor and the rich?"
Labour peer Lord Wedderburn of Charlton said: "In 2007 a record 1,445 company directors received a salary of more than £1 million.
"That is 40 per cent more than in 2005. Do you think that this annual contribution to rising social inequality by corporate executives who sit on one another's remuneration committees is suitable today?"
Lord Jones replied: "Every day people remind the private sector of their responsibilities to set an example to include everyone in this society, every day they are aware of their responsibilities, but please do not let us put a sign over UK PLC that people can't aspire for the sky."
Tory Lord Hamilton of Epsom asked Lord Jones to "enlighten the House about what you find so abhorrent and unacceptable about the Labour Party that you are not prepared to join it while being a member of the Government?"
In reply to the question Lord Jones said: "Firstly that is not relevant to the question and secondly I would just say that's my business."