Rate of UK dividend growth far outstripping wage increases, says report

Workers in Britain would be paid about £2,100 per year more on average if wages had matched a boom in company dividends handed to shareholders over the past two decades, according to a report.

Highlighting a gulf between earnings from work and company ownership, the Common Wealth thinktank said far-reaching reforms were needed to rebalance power amid rising levels of inequality.

Against a backdrop of mounting pressure on workers as wages fail to keep pace with the soaring cost of living, it urged the government to take action to increase workers’ rights and trade union negotiating strength, as well as delivering an increase in care funding and social security benefits.

It comes as ministers face growing pressure to back a windfall tax on energy producers to counteract the cost of living crisis. Following a surge in wholesale oil and gas prices exacerbated by Russia’s invasion of Ukraine, the energy firms Shell and BP are expected to report a sharp rise in profits later this week. Separate research from Common Wealth showed the two companies channelled £147bn to shareholders via dividends and share buybacks over the past decade.

The business minister, Kwasi Kwarteng, has lobbied against a windfall tax, writing to energy companies over the weekend urging them to increase investment to prevent more drastic action being taken by the cabinet.

The chancellor, Rishi Sunak, has signalled that he is considering a windfall tax if Shell, BP and other exploration companies fail to spend excess profits on developing renewable energy projects.

The shadow climate change secretary, Ed Miliband, said: “Kwasi Kwarteng‘s letter is not worth the paper it is written on for millions of families facing the cost of living crisis.

“Families want action to deal with the bills crisis, not a vacuous, insulting piece of political spin,” said Miliband, who added that energy investments were made over five to 10 years and that unplanned, untaxed windfall profits would always be returned to shareholders.

Common Wealth, in a May Day statement alongside a group of other progressive thinktanks, including Autonomy, the Centre for Local Economic Strategies, and the Women’s Budget Group, said the UK’s biggest companies were enjoying booming profits while ordinary people were experiencing an unprecedented assault on their economic security.

The findings of the report, based on Office for National Statistics figures, found that total labour compensation for UK households grew by 25% in total between 2000 and 2019 after taking account of inflation and growth in the UK’s working-age population.

However, dividend payments by UK-based private corporations increased over the same time period by 132%.

Common Wealth said that if the ratio between wages and dividends had stayed the same over the past two decades, then earnings from work would have been 8% higher, equivalent to £2,100 annually per working-age person.

Official figures show that average pay in Britain remains below the pre-2008-crisis peak after inflation is taken into account, after more than a decade of stagnation, in the worst performance for workers’ pay since the Napoleonic wars. Forecasts from the Office for Budget Responsibility, the government’s independent economics watchdog, show that average pay is expected to fall this year after inflation amid the soaring cost of living.

Mathew Lawrence, the director of Common Wealth, said the government could launch a series of reforms to narrow the gap between wealthy asset owners and working people.

“Political decisions on employment law and the rules governing the company have created an economy where power is stacked in favour of capital, and collectively created value is concentrated upwards,” he said.

“What we have built we can reimagine. We can create an economy where working people have a much greater share in the wealth they create. But that will require a fundamental rebalancing of economic power.”