The FT makes clear just how good a recession big business is having this morning by reporting:
Dividend payments from listed UK companies rose by almost one-fifth last year, reflecting both the stronger health of company balance sheets and caution about using the cash to embark on large-scale corporate spending sprees.
The research by Capita Registrars put gross dividends paid at £67.8bn in 2011, the highest level in cash terms since the division of the outsourcing specialist began covering this area five years ago.
As I've argued time and again thee are three reasons for this. The first is that because of the incentives in our economy, the opportunity fior tax avoidance, and the shift of the tax burden from big business to ordinary people the cash big business has to enjoy has risen steeply despite the recession and the odd business failure which has served a useful purpose in diverting attention from the underlying growth in cash recserves and even profit in some areas.
Second, business has been sitting as a result on a steadily rising pile of cash that it is clueless what to do with, so it's paying it our as dividends rather than invest it in job creation in the UK which is what we really need. This rise in dividends is the exact reason why we should not expect any increase in net real private sector employment soon - they simply aren't creating any new jobs with their money, they're just giving it back to shareholders.
And third, the engineered pressure on wages resulting from mass unemployment is of course very good for business: there is no wage pressure now at all and so the profits keep on rising. And this is not just true of the UK of course, it is true throughout Europe and much of the US.
The neoliberal business community is laughing itself all the way to the banks we bailed out in this recession. It's the rest who are paying. And all Cameron does is ask them to 'be responsible'. That's like putting the cakes and a pile of carrots on the table at a 5 year old's tea party and asking the kids to eat the carrots first. There's not a hope of it happening, but parents still do it, just as Cameron still asks and both the parents and Cameron just look foolish in the eyes of those looking on.
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dont people get taxed on dividend income though, so isnt this a better answer than the companies sitting on a cash pile and basically paying little corporation tax on the interest income the cash generates?
If the dividends are hidden in tax havens – and many are – distribution achieves nothing
We badly need Advance Corporation Tax back
Hi, ACT was a payment in advance of corporation tax. Large companies now tend to pay corporation tax in advance in another way through payments on account.
How would bringing back ACT in any way impose a tax on dividends paid which is not then credited against the CT due? Or are you suggesting that it would be a good thing to create ACT “mountains” again.
Perhaps what you are suggesting is not to bring back ACT but to impose a new withholding tax when ever dividends are paid (similar to withholding tax on interest), as a number of other countries do. Recipients of dividends would then obtain a credit for the withholding tax deducted and also for a notional amount attributed to the corporation tax already paid.
It would be interesting to think about what would happen when the shareholder was itself a company.
ACT was a withholding tax that forced – as you note- CT payment which would not otherwise be due
And that was its great merit
It also let the credit be reclaimed when appropriate – another merit
This helps to explain why the FTSE100 is so robust in the face of dire economic fundamentals.
I’d suggest a lack of “bankable projects” underlies the dearth of corporate investment (the jobs can’t be created unless productive/profitable activies can be identified.) So this dividend bonanza is unsustainable and surely, in the medium to long term, counter to the holy grail of shareholder value?
Wouldn’t it be great if the cash were to be invested with an eye on the future and more to the benefit of society at large? Seed money for small social enterprises, for example, would pay back handsomely in the longer term because unless there is investment in community enterprise we are looking at a truly barren economic landscape as the depression deepens.
Are there any organisations who work with the large corporates to make the case for targeted investment of this precious capital?
No – greed drives the system – not entrepreneurial spirit!
Fact is the growth in dividends in the FTSE comes from mining and resources companies that operate outside the UK and the largest of which, particularly the new entrants are not headquartered in the UK (nor in a tax haven unless you count Russia as a tax haven), but they happen to have joined the FTSE recently.
Apart from that, spot on. Keep up the good work.
And for all your facetiousness you have not answered a single point I have raised
Why should they use the FTSE and all that goes withit without paying UK tax?
I see Vodaphone is the biggest payer:some of that would be money they did not pay in tax, then. In other words it is not theirs to pay out…
Yet, as ever, you fail to acknowledge the cetnral importance of the concerted labour migration strategy that is ensuring a surfeit of labour, in fact an unlimited supply, keeping unemployment up and wages down.
Until you do, your analysis is just misleading.
Don’t understand this: there is not a fixed amount of work, and the pressure does not come from migration: rather the other way around, I would have thought