Education Information

6. The problem is that profits are too high

Sometimes economic phenomena can have very simple explanations. If prices are rising rapidly, but most people’s incomes – whether wages, pensions, or benefits – are not going up so quickly, someone must be taking the difference. It is not hard to work out who that is. The difference between much higher prices but incomes failing to keep up has been taken as greatly increased profits, especially by big companies. Profits for the 350 biggest companies listed on the London stock exchange are 73% higher than they were in 2019, just before the pandemic. For some, like oil 21 and gas companies, the increases in profits have been spectacular. Shell and BP 22 between them made £40bn profits on their global operations last year – more than the £19bn increase in domestic energy prices. British Gas has just announced an incredible five-fold increase in its half-yearly profits. 23 It is these profit increases, not increased wages that account for rising prices. If we add up the total amount by which prices have risen in Britain since October 2021 and compare it to the increase in profits, then the increase in profits accounts for nearly 60% of the increase in prices; over the same period, the total increase in wages accounts for just 8%. 24

Unite the Union, Unite Investigates: Corporate profteering and the cost of living crisis , June 2022. 21

As was argued powerfully by Lord John Hendy QC, “A transfer of wealth from labour to capital 22 unparalleled since the 1930s”, Morning Star, available at https://morningstaronline.co.uk/article/f/transfer wealth-labour-capital-unparalleled-1930s See the reports in Noor Nanji, “British Gas owner Centrica and Shell see profts soar as bills rise”, BBC, 23 28 July 2022, available at https://www.bbc.com/news/business-62330190 These fgures are from a report by Unite the Union, Unite Investigates: Corporate profteering and the 24 cost of living crisis, June 2022. Unite looked at the O ff ice for National Statistics aggregate fgures for “Gross Operating Surplus” (meaning profts) and found that they account for 58.7% of the increase in the amounts paid for goods and services since October 2021. The increase in “unit labour cost” (meaning wage and salary costs, plus any additional benefts paid by employers) accounted for only 8.3%. See: https://www.unitetheunion.org/media/4757/unite-investigates-corporate-profteering-and-the-col-crisis.pdf

30