Revealed: How the UNEARNED income of millionaires QUADRUPLED in just four years

  • Unearned payments to people paid more than £1m rocketed between 2010 and 2014
  • Each millionaire made on average £500,000 by sitting on shareholdings in 2013/14
  • Just 11,000 people trousered £5.35 BILLION in income they didn’t even have to work for
  • Rise in riches at the very top contrasts with stagnant middle incomes and food banks at the bottom

By Chaminda Jayanetti

The “unearned” dividend income of millionaire Brits quadrupled in the first four years of this decade, government figures show.

In 2013/14 – the most recent figures available – 11,000 people who made at least a million pounds from all sources (including pensions and salaries) were handed a combined total of £5.35bn in dividends they did not have to work for.

This unearned income was more than double the total dividends paid to millionaires just a year earlier, and fully four times the amount paid in 2010/11.

The figures tell a story of inequality and unearned riches in modern Britain, with a bonanza at the top and hardship at the bottom.

They also show how the fruits of the economic recovery have been siphoned away in Britain’s corporate boardrooms.

While millionaires were raking in rapidly increasing piles of money, middle incomes in Britain barely rose at all during the same four-year period, while the poorest struggled to cope with benefit cuts and casual employment.

The average dividend payment to each individual millionaire in 2013/14 stood at £494,000 – almost half a million in unearned income for each millionaire that year.

This was an inflation-shattering 34 percent rise in just one year – and well over double the average dividend payment in 2010/11 of “just” £211,000.

Dividends box out

The great unearned bonanza

Dividends, unlike salaries, are designated as “unearned” income by the government because they are not paid to reflect a person’s work or performance.

Instead they are payments that a company’s directors make to its shareholders from the firm’s profits or reserve, even though most shareholders contribute no work to a company’s fortunes.

And those dividends are overwhelmingly paid to those with the most money.

For example, in 2013/14 more than 27m people earned up to £50,000 from all sources, but less than one in six of those received any dividend payments at all.

By contrast, 15,000 people earned more than a million pounds from all sources that year, and more than two thirds received some of that as unearned dividends.

The divide becomes even starker when you look at how dividends themselves are distributed.

People earning more than a million pounds from all sources made up just 0.2 percent of everyone who received dividends in 2013/14 – but that 0.2 percent hoovered up ten percent of all dividends that were paid.

In fact, almost 30 percent of the £10bn total rise in dividends payments between 2012/13 and 2013/14 went to the 0.2 percent in the millionaires’ club.

In other words, money begets money.

Not a taxing question

2013/14 saw a sharp rise in the number of people earning more than £150,000, with Chancellor George Osborne bragging that his cut to the 50p top rate of income tax – which took effect that year – had raised an extra £8 billion in income tax payments from the highest earners (an analysis the Institute for Fiscal Studies sharply disagreed with).

Part of the reason for the huge rise in dividends payments at the top in 2013/14 was the sharp rise in the number of people paid at least a million pounds that year – from 9,000 people to 13,000 people in the space of 12 months, most of whom received dividends.

And if the number of people earning more than a million pounds increases, then so will the total money paid to them.

So, on the surface, perhaps this rise in dividend payments was just people cashing in on the top rate tax cut?

Well, no – because dividends are not subject to income tax. They have their own level of taxation, which is actually at a lower rate than salaries – meaning they can be used to legally reduce someone’s tax burden.

For example, whereas salaries above £150,000 are taxed at 45 percent, dividend payments above that level are taxed at just 38.1 percent.

And that is after George Osborne increased the tax rate on high dividends, which takes effect from this month. In 2013/14, the tax rate on dividends paid to the highest earners was just 30.6 percent – well below the income tax rate.

And while the income tax cut for people earning more than £150,000 might have encouraged more pay rises for the rich, there is a sharp difference between what happened to employment income and what happened to dividend income for those paid more than a million pounds.

The table below sets this out. It shows, for each year from 2010/11 to 2013/14, the number of people who were paid more than a million pounds from all sources, and how much on average each of them made in (a) employment income and (b) dividend income.

Dividends table

In both cases, the number of people* paid more than a million rises sharply, particularly between 2012/13 and 2013/14 – when the 50p tax cut took effect. The numerical change, year on year, is exactly the same.

But the income figures are completely different. The average employment income of millionaires barely rose in 2013/14, and actually fell over the four-year period.

By contrast, the average dividend payment has shot up – by 34 percent in the final year, and by 134 percent over the four-year period.

Indeed, the total dividends paid to everyone making more than £150k in 2013/14 rose three times as fast as the total employment income paid to the same people – a 68 percent rise in total dividends, against a 22 percent rise in total employment income. This despite the number of people in each category growing at the same rate.

The reality is that for all the arguments over the 50p income tax rate, the sharpest rise in income came from the source that involves no work at all, and a much lower tax rate altogether – dividend income.

It just so happens to also be the source of income that is concentrated most heavily among the moneyed elite of society.

*There are more people listed under “employment income” than “dividend income” because some people who were paid a million pounds received none of it as dividends.

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