Thousands of UK companies have exploited their corporate power to increase profit margins since the pandemic, redistributing wealth from employees to employers and shareholders, according to the biggest study yet of data since 2019.
A trawl through the accounts of 17,000 companies by the trade union Unite found pre-tax profit margins were 30% higher on average in 2022 compared with the average across 2018 and 2019. Post-tax margins were on average 20% higher.
The findings are likely to further fuel concerns over widespread profiteering during the inflation crisis – triggered by the reopening of economies after pandemic lockdowns and war in Ukraine – with some businesses using the rising cost of living as an opportunity to increase their margins.
Companies of all sizes and from almost all sectors, from banks to shipping firms and veterinary practices, saw pre-tax profit margins rise, even as wages have fallen in real terms and investment has slumped, the analysis shows.
“This is why our economy is broken,” said the Unite general secretary, Sharon Graham. “Because of the choices of executives, investors, and politicians who choose short-term profits and fat dividends over investing in our industries and public goods.”
Electricity generation companies and big banks have benefited most, the study found. Of the 16,600 companies analysed, 9,651 were shown to have increased their profit margins over the period, or roughly 60%.
However, post-tax profit margins in these sectors were tempered by government windfall taxes, introduced to return some of the gains to the taxpayer. The Energy Price Levy increased the windfall tax on energy and gas companies from 25% to 35% in January 2023, while the rise in corporation tax combined with the Bank Levy increased tax on banks from 27% to 28%.
The data also includes overseas profits made by UK registered companies, which would not have been inflationary in the UK.
Some of the more surprising gains came from medium-sized companies, including veterinary practices and car dealerships. The UK competition watchdog is scrutinising the consolidation of independent vets by private equity-backed corporations, which it says may have contributed to more expensive bills for consumers.
Profit margins jumped by 280% at the height of the pandemic for private equity-backed veterinary chains as hundreds of people bought pets to cope with isolation during the lockdowns, the Unite study found. At the six largest vet chains, which control half the market, profits surged to 237% of pre-pandemic levels in 2021 after losses in 2018 and 2019.
Until last year, the Bank of England largely attributed inflationary pressures on companies to wage rises at the behest of workers, appealing to employees to forgo higher salaries to help slow down price rises. But a growing body of evidence suggests that persistent high inflation has come in part from companies setting their own prices rather than passing on the benefit of falling costs in the form of price cuts, a process that has been called “greedflation”.
Studies by the International Monetary Fund and the European Central Bank have concluded rising corporate profits are contributing to higher inflation. In September, the Bank of England acknowledged that rising corporate profits were likely preventing a fall in inflation, after it surveyed a small, 2,500-strong sample of the UK’s 5m-plus companies.
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Unite used a much bigger sample. It added together the sum total of the profits of 16,600 companies, before dividing by the sum total of their turnover.
Isabella Weber, an economist from the University of Massachusetts Amherst, said central banks responded to profit-led inflation by tightening monetary policy, such as raising interest rates, triggering another round of windfall profits at the expense of ordinary people.
Weber said: “Central banks have reacted to sellers’ inflation by hiking interest rates. This has created yet another opportunity for extraordinary profits, since banks reaped higher returns on their assets but did not pass them on to savers. Simply put, the strategy to fight sellers’ inflation and rising unit profits has been to create yet another opportunity for windfall profits.”
A separate analysis published on Wednesday shows that over the past 30 years, the UK’s top 350 listed companies have switched from investing surplus funds to distributing it among shareholders. In the second half of the 1970s, private, non-financial corporations paid out 20p dividend payments for every £1 of gross fixed capital formation, a measure of investment, according to the thinktank Common Wealth. By the 2010s, this figure had risen to 95p before hitting 103p in the last five years.
A government spokesperson said: “This government is backing our world-leading businesses and these profits are a cause for celebration.”