EXPRESS
While ordinary Brits struggle BP and Shell shareholders celebrate Putin-war pay-day
Today BP announced it had made £7.1bn in profit over the last three months. Tagged onto their profit figures was the announcement that the oil giant would initiate a new round of share buybacks totalling $2.5 billion.
By DR GEORGE DIBB
Share buybacks, which involve a company repurchasing its own stock to artificially boost its overall share price, were illegal in the UK until 1981 because they were considered a form of market manipulation. Last week, Shell also announced it would spend nearly half of its $9.5 billion profits on a bumper $4 billion buyback programme for shareholders. At the same time, the oil multinational revealed it hadn’t paid a single penny of the windfall tax in the UK.
In the case of BP and Shell, buybacks are a direct cash transfer away from households struggling to pay their bills to already-wealthy shareholders through the profits of oil and gas companies.
Recent analysis by Common Wealth shows that the richest one percent of households overwhelmingly dominate the direct ownership of UK shares. By comparison, Britain’s main pension funds own less than 0.2 percent of shares in Shell and BP.
Oil and gas companies aren’t the only companies doing this: Britain’s largest firms are transferring profits to their shareholders at record rates.
Cash transfers through dividends and buybacks are now 30 percent higher than their previous peak in 2018, having rebounded three-fold since the pandemic.
FTSE 100 companies have already announced £46.9 billion of share buybacks so far in 2022. When shareholders receive these payouts, they are taxed at lower rates than our income tax thresholds. Meaning hard-working families pay higher rates of tax than shareholders.
Companies channelling windfall profits to their shareholders at the expense of households should face extra taxes to raise important revenue and boost investment.
President Biden has recently introduced a one percent tax on share buybacks to help alleviate the cost-of-living crisis in America.
IPPR and Common Wealth estimate that an equivalent tax on UK-listed companies could raise £225 million in a single year.
Alternatively, a “windfall” tax on buybacks, levied at a higher rate, could raise up to £11 BILLION in a year. At the same time, a higher tax would disincentivise buybacks and encourage companies to channel their surplus cash into more productive investments.
Simultaneously, it is essential that the government brings tax on dividends in line with income tax rates. This measure alone would raise £6 billion a year and close one of the loopholes which allows asset owners to accrue wealth while paying less tax than workers.
- Dr George Dibb is head of the Centre for Economic Justice at the Institute for Public Policy Research
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