Corporate profits soar to 30% higher than pre-pandemic levels

Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.

Corporations make obscene profits by squeezing household budgets and workers’ pay to enrich a few executive and shareholders who have no loyalty to any place, product or people. Money is their only God and they have no qualms about sacrificing lives, the environment and social cohesion.

This week, Unite published its report into profiteering by UK corporations. The report looked at the profit margins of 17,000 companies and found that their average profit margins have soared by 30% compared to the pre-pandemic period. Electricity and Gas supply companies were the worst culprits as they increased their profit margin by 363%. With nearly 7.74m unfilled NHS appointments patients have turned to private hospitals for treatment and companies have excelled at fleecing people. Profit margins in health and social work increased by 118%. Altogether, companies made £156bn additional profit over 2021 and 2022, compared to if margins had stayed at 2018 levels. That’s equivalent to £5,500 extra spent by every UK household. Their profit is the main source of inflation and people’s never-ending cost-of-living crisis.

Companies exploit people because they enjoy monopolistic and oligopolistic power in almost all sectors, and are indulged by the state. Oil/Gas and energy company profit margins increased from 8.5% to 16.5% enabling them to rake in an extra £64bn in profit. In 2023, BP, Shell, Chevron, ExxonMobil and TotalEnergies and have handed $100bn (£79bn) to shareholders in dividends and share buybacks. Meanwhile, UK households are struggling to pay energy bills and 6m people are trapped in fuel poverty.

The patronage of the state helps the finance industry to make excessive profits in other sectors too. Big four banks Barclays, HSBC, Lloyds and NatWest control 85% of UK business accounts and 75% of current accounts between them. They have the best of all worlds. They are rescued from their financial follies by the state, which also boosts their profits. For example, the government’s anti-inflation policy requires people to hand over their savings and wealth to banks in the forms of higher interest rate charges. Inevitably, they make record profits. Bank profit margins have increased by nearly 50% compared to their pre-pandemic average. They reported £45bn profits in 2023 compared to average of £25bn  in 2018/19, an increase of 75%. Some £27bn has been paid to investors in 2023. Meanwhile, since 2015 more than 6,000 bank branches have been axed resulting in inferior services for many. Banks are quick to hike interest rates and also to pass on the benefit of higher rates to savers. Buying a  home is an impossible dream for millions.

A plethora of anti money laundering laws has not dulled the finance industry’s appetite for illicit financial flows. This week, the Deputy Foreign Secretary said that 40% of the global dirty money resulting from bribery, corruption, theft, narcotics, human trafficking, smuggling, sanctions busting and tax dodges is laundered through London and UK Crown Dependencies. UK regulators have long been adept at turning a  Nelsonian eye to crime in the finance industry. Accountants, lawyers, banks and financial services experts are central players in the global tax avoidance industry, but rarely face any prosecutions. To appease public concern about corporate tax dodges the government rushed out the Criminal Finance Act 2017 to tackle tax evasion but to date not even one company has been charged.

Big supermarkets have increased their profit margins by 19% and made an extra £17.4bn in profits. Tesco, Sainsbury’s, Asda, Morrisons and Waitrose hold a combined market share of around 70% of the grocery market. This week Tesco announced that its pre-tax profits rocketed from £882m to £2.3bn, a 159% increase. It hiked dividends by 11% and handed £1bn to shareholders in share buybacks. CEO’s remuneration rocketed from £4.5m to £9.9m whilst most of Tesco workers toiled at between £12.02 and £13.15 an hour. CEO collected more than the combined total of 421 workers wages. Thousands of supermarket workers rely upon food banks and social security benefits to make ends meet.

England’s water and sewage companies have a long history of exploiting people. Since privatisation in 1989 they have boosted profits by dumping raw sewage in rivers and seas and failing to plug water leaks. Customer bills have been hiked by over 360%, which is more than 60% in real terms. Companies have paid out over £85bn in dividends but have not built any new reservoirs. Despite the public disquiet, they have increased their profits margins by 43% since the pandemic. They are holding the people to ransom by withholding investment until the regulator approves a 56% price increase and the government hands them a bailout.

The PR spin on profiteering is that this somehow increases investment in productive assets and facilitates higher wages. Such claims rarely withstand scrutiny. The Unite research shows that since the pandemic net investment by FTSE350 companies fell from £37bn per half year in 2018 and 2019, to £9bn between 2022 and 2023. The UK private sector has long been a laggard in making investment in productive assets. In the OECD league table of investment by the private sector, the UK is ranked 27th out of 30 countries. Companies succumb to pressures from shareholders to prioritise dividends over investment. Over the course of 2022 and 2023, the total value of shareholder payouts was £275bn compared to £227bn in the pre-pandemic period of 2018/19, an increase of nearly 21%.

Profits are generated by the brawn, brains, sweat, blood and tears of workers, but companies continue to squeeze labour. With anti-trade union laws and erosion of worker rights, employee share of the gross domestic product in the form of wages and salaries has shrunk from  65.1% in 1976 to less than 50% by March 2024. Zero-hour contracts, fire and rehire on inferior working conditions are rife. Companies like P&O Ferries have openly flouted employment law to fire workers to boost profits.

Workers have not benefitted from the economic growth since the financial crash of 2007-08. The average real wage of workers in March 2024 was less than in 2008. The median pre-tax wage of £28,104 a year is utterly inadequate for an acceptable standard of living. A typical FTSE100 CEO collects more than that in less than 3 days. To prevent workers from taking strike action to secure equitable share of income and wealth, the Strikes (Minimum Service Levels) Act 2023 bans millions of workers from taking strike action even though they meet all the requirements for a legal ballot.

The social consequences of corporate profiteering are all too visible. Over 12m people, including 4.3m children, live in poverty. Work does not pay enough for essentials and people rely upon charity and benefits for survival. 38% of the people on Universal Credit are in employment. This week the Trussell Trust announced that last year it handed out 3,12m  emergency food parcels, the highest ever, to desperate people including 1.14m children and 179,000 pensioners.

Social housing has been sold off by the government and not replaced. UK builds fewer homes than the vast majority of other developed countries. A house purchase is beyond the means of many workers and private sector rents have spiralled. Tenants typically asked to pay rent of  £2,633 a month in London and £1,291 outside. Bailiff evictions of tenants evictions are at a six-year high. The UK alone accounts for more than 80% of the homeless people in OECD countries. The number of English households living in temporary accommodation has increased from 48,000 in 2010 to 112,000 in 2023.

Corporate profiteering has reduced people’s access to good food, housing,  education, healthcare and pensions. Due to poverty, healthy life expectancy in England is 62.4 years for males and 62.7 years for females; 61.1 years for males and 60.3 years for females in Wales. Some 28% of over-55s have no other pension saved apart from the state pension. Nearly 32% of Britons are unable to save for a pension due to low incomes Around 93,000 Britons die each year in poverty. Hardship, insecurity and premature death are the human costs of corporate profiteering.

Yet political intuitions are cowered by the power of corporations and no party wants to tackle their excesses. The social costs of poverty, misery and premature death are considered to be just another externality of corporate operations. Just this week, parliament voted to oppose a law which would  have criminalised water companies that fail to tackle sewage dumping. Instead of protecting people from corporate abuses, governments protect corporations from the outrage of the people by enacting laws to ban strikes and protests.

No major party wants to democratise corporations by putting worker-elected directors on the boards of large companies; customer elected directors on the boards of utilities, banks and insurance companies, or empowering customers and employees to vote on executive pay and secure equitable distribution of income and better services, or holding corporations responsible for the social cost of their excesses. Inevitably, disenchantment with the political system and possibilities of social instability will grow.

Comments are closed.