Britain’s biggest companies handed out almost half a trillion pounds in dividends and share buybacks in the years before the coronavirus crisis struck, according to a report warning that the scale of the payouts has undermined their resilience.
According to research from the Common Wealth thinktank, around £400bn was paid in dividends and £61bn of cash returned to investors in share buybacks between 2011 and 2018 by the 100 biggest UK companies.
Calling on the government to undertake a radical shakeup of company rules and to attach tough conditions to any taxpayer-funded bailouts of struggling firms during the Covid-19 crisis, the thinktank said businesses needed to be made more resilient and sustainable for a post-crisis future.
Led by Mathew Lawrence, an academic with close ties to Labour who helped the party devise its manifesto policy to give people shares in the firms they work for, Common Wealth said burgeoning dividend payouts had fuelled rising levels of inequality and left companies weak going into the crash.
Analysing dividends for the 100 largest non-financial, UK-domiciled firms on a database managed by the credit ratings agency Moody’s, it found that payouts had steadily risen since 2011 and were equivalent to 68% of the companies’ net profits.
The study also found that 700 executives at 86 of the companies held a collective £6bn in shares at their firms, representing nearly £8.5m per director.
Companies across Britain are under pressure to shore up their finances as the coronavirus pandemic pushes the world into the worst recession in a century.
Growing numbers of UK firms have been forced to halt their dividend plans this spring amid the unfolding economic crisis, including British Gas, Saga, the over-50s insurance and holidays group, the outsourcing firm Serco and the publisher and exhibitions group Informa. The Bank of England has already told Britain’s biggest banks to scrap dividend payments and not pay cash bonuses.
However, Tesco came under fire earlier this month for pressing ahead with a £635m dividend payment while accepting a similar-sized tax break from the government’s emergency coronavirus support package.
Government critics have warned that workers could suffer the brunt of the economic fallout amid widespread job losses and cuts to wages. Common Wealth called on ministers to attach tough conditions to any bailout packages for firms to prevent inequality rising further.
It said the government needed to take an equity stake in firms receiving financial support, while job security guarantees should be made. Ministers could also impose bans on dividends and share buybacks, maximum pay caps for top executives, and assurances that companies pay their taxes fairly.
The measures would echo similar plans elsewhere in Europe as governments around the world respond to the crisis, after it emerged that the EU’s emergency state share-buying programmes will bar rescued firms from giving out dividends and executive bonuses.
Common Wealth said long-term reforms to company laws were also required, including putting workers on company boards, giving staff voting rights in their firms, and embedding net-zero carbon emissions targets.
Lawrence said: “Shifts in ownership and company rules have turned the corporation into an engine of wealth extraction for senior management and shareholders. Companies have become less resilient and more unequal as a result.
“But how the company operates isn’t ‘natural’ or set in stone. We can design new rules and transform ownership to make business democratic and sustainable – and build a better post-crisis economy.”
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