Shell and BP windfall tax on share buyback profits could raise £4.8bn

Taxing BP and Shell's buyback profits could help raise billions to help households and the economy. Photo: Reuters/Henry Nicholls
Taxing BP and Shell's buyback profits could help raise billions to help households and the economy, according to a study. Photo: Reuters/Henry Nicholls

Implementing a windfall tax on share buyback profit transferred by Shell (SHEL.L) and BP (BP.L) to shareholders could raise £4.8bn ($5.6bn) a year, a new analysis suggests.

The Institute for Public Policy Research (IPPR) and Common Wealth have suggested several alternative taxes which the government could adopt to help UK households.

The think tanks argue that some companies have raked in big profits as families struggle with an energy and economic crisis as the cost of living surges.

They suggest that businesses that are "channelling" profits through dividends and buybacks should face extra taxes to raise "important revenue and boost investment".

The report notes that Britain's biggest firms are transferring profits to their shareholders at record rates.

Cash transfers through dividends and buybacks are now 30% higher than their previous peak in 2018, having rebounded three-fold since the pandemic.

FTSE 100 (^FTSE) companies have already announced over £40bn of share buybacks so far in 2022.

Read more: Families still trying to save for next generation despite cost of living crisis

Joseph Evans, researcher, at IPPR said: "Since the calamitous mini-budget there has been increased talk of cuts and efficiency savings, but there is an alternative.

"Some companies have been channelling record profits to their shareholders. It would be only fair, during this cost of living crisis, to implement a modest tax on dividends and buybacks to give the government increased revenue to fund our public services.

"The introduction of such a tax would also encourage companies to change their behaviour: instead of taking money out of their business and handing it to shareholders, they might consider investing in the future to grow the economy, or reduce prices for customers to help tackle inflation."

Read more: Cost of living: Prices of pasta and tea soar as inflation bites

The IPPR and Common Wealth set out a four point plan to show how taxing buybacks and dividends could benefit the UK:

  • Economic justice — windfall profits are transfers of wealth away from households, via companies, to wealthy shareholders. A tax would "fairly redistribute" this by funding public services or the energy price guarantee.

  • Raising tax revenue — raising tax revenue for the Treasury in a "progressive way", which could fund vital public services and support for vulnerable households this winter.

  • Boosting growth — if instead of channelling money to shareholders, companies invested profits into new opportunities, their staff, or innovation, the economy as a whole would benefit.

  • Decreasing inflation — with lower transfers to shareholders, firms could instead "pass cost reductions to consumers" by reducing prices.

In August, US president Joe Biden introduced a 1% tax on stock buybacks to help alleviate the cost of living crisis in America.

"In normal times, ending the preferential tax treatment of shareholders relative to workers is a no-brainer," Chris Hayes, senior data analyst, at Common Wealth said. "But in a time of crisis, when large companies are enjoying windfall profits and shovelling record buybacks to their shareholders, instead of investing productively or passing the benefits on to their customers, it is a matter of urgency."

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