Research by two thinktanks, Common Wealth and the Institute for Public Policy Research (IPPR), showed investors had benefited from a boom in dividend payouts since the Covid pandemic at a time of meagre growth in workers’ pay. The value of dividends paid to shareholders in UK-listed companies has returned to 2017-18 levels after a drop during the Covid pandemic, without an equivalent increase in wages for workers.
Chancellor Kwasi Kwarteng is pushing ahead with a multimillion pound tax cut for wealthy individuals with a reduction in the rate of income tax on dividends. Dividend tax will be reduced by 1.25 percent.
Chris Hayes, a senior data analyst at Common Wealth, who wrote the report, said: “It is a shame that the chancellor’s U-turn does not extend to his tax cuts on dividends, which benefit the very wealthy and are already subject to very generous treatment. For two decades, shareholders have been enjoying ever greater payouts that could have been invested productively or paid to workers. Further tilting the balance in favour of shareholders will not unleash economic dynamism. It will only deepen our stagnation.”
Among firms currently listed in the FTSE All Share index dividends steadily climbed in value at a faster rate than employee earnings during the decade from the 2008 financial crisis up to the Covid pandemic, up from £17.3bn in 2014 to £28bn in 2019.
Share buybacks, an alternative form of corporate payout whereby companies purchase shares from their investors to raise the price of the stock, have also risen sharply. The research showed share buybacks more than doubled from £3.4bn in 2015 to £8.2bn in 2019, and have since more than quadrupled from 2015 levels to reach £16.2bn in the second quarter of 2022.
George Dibb, head of the Centre for Economic Justice at the IPPR, said the rise in dividend payments and share buybacks since the pandemic showed companies were prioritising shareholder payouts over productivity-boosting investment and higher wages for workers.
“It raises serious concerns for the prospects of increasing the UK’s low levels of investment. Companies engage in share buybacks when they are unable to identify investment opportunities better than driving up their own share price. This is a symptom of an economy where firms don’t lack funds to invest – they lack the stable environment to invest in."
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