It can be difficult to appreciate the scale of public funding utilised to support the UK economy during the pandemic.

The numbers rung up by the Bank of England’s Asset Purchase Facility, which ultimately financed government programmes such as the furlough scheme, peaked at £895bn towards the end of 2021. This is equivalent to six years of NHS England resource spending.

Not all of this went directly to businesses. Nonetheless, Treasury support represented an unprecedented peacetime transfer of capital from the public to the private sector.

The vexed question of how this cash passed through the economy – who came out ahead and who lost out – is one that we have been trying to answer during 18 months of in-depth research. In the first instance, we focused on trends in executive pay, dividends to shareholders, and differences in pay between company bosses and ordinary employees.

What we found provides a fascinating window on to how our economy is organised: who it rewards and who it leaves behind.

Government messaging consistently justified efforts to prop up the economy with appeals to general interests, such as “protecting jobs and livelihoods” and helping to “ease the financial burden for businesses and the UK population”. But the problem with such abstract, universal goals is that they can gloss over the effects of large injections of money, tax relief and loans on an economic system that is effectively structured to concentrate wealth.

For example, take government-supported loan schemes. These underwrote private bank loans to businesses, effectively protecting banks against losses if borrowing companies default. The sums lent under the schemes were huge. But while there has been a lively debate on the eventual bill to the Treasury, few have given much thought to how the schemes baked in existing economic imbalances between smaller businesses and major banks.

Here, it’s useful to look at the costs and benefits on each side of the loan arrangement. For the banks, schemes tailored to support small and medium-sized businesses covered lender fees and interest payments in the first year of the loans at a combined cost of £1.5bn. They also protected major banks from an existential surge in bad debts, allowed them to profit from new streams of interest payments, and reduced the impact of growing loan books on the amount of capital they have to keep in reserve under international rules. This makes more money available for senior bankers’ pay and dividends to shareholders.

On the other side of the loan, the outlook is significantly less rosy. Borrowers remain fully liable for their debts. Predictably, debt among smaller businesses has increased significantly, which partly explains the steep rise in companies going bust. In the second quarter of 2022, total company insolvencies in England and Wales reached their highest quarterly level since the third quarter of 2009, 81% higher than the second quarter of 2021.

Government support to businesses will, on balance, compound prevailing economic inequalities if nothing is done to address disparities in bargaining power, and the laws, systems and institutions that underly existing transfers of wealth.

Executive pay

This compounding inequalities effect is arguably best illustrated by contemporary trends in senior directors’ pay at FTSE 350 companies. At one level, executive pay followed a predictable pattern, falling in 2020/21 during the peak of the pandemic, and then picking up again in 2021/22 once the economy had begun to open up. Most people missed that this uplift in pay took average awards beyond their pre-pandemic level, reversing a pre-pandemic trend in executive pay, which had been declining since 2016/17.

So, across all large companies, the pandemic has provided cover for a culture of restitution in executive pay, where companies across the FTSE 350 have sought to make good the losses in senior directors’ pay experienced during the peak of the pandemic.

But what’s really striking is that our research reveals that this bounce-back in executive pay has been particularly strong at companies that took government support. Chief executive officers (CEOs) at FTSE 100 companies that accepted money in order to furlough workers, for example, enjoyed significantly higher increases in total pay than those at other FTSE 100 companies, even when profits and other relevant variables affecting executive remuneration are taken into account.

The clawback effect is reflected in yawning pay differences at companies that took government support. On average, FTSE 250 companies that furloughed workers, deferred taxation and enjoyed business rates relief have seen steeper increases in the pay gap between CEOs and ordinary workers.

These effects have primarily come about through annual bonuses, the application of which is typically determined year-to-year. In the financial year following the peak of the pandemic (2021/22), average bonus pay for CEOs at FTSE 100 companies was 51% higher than that paid out in the year before the pandemic.

In some cases, bonus pay-outs were specifically adjusted to reflect the increased difficulties executives faced in meeting financial targets under more challenging economic conditions. F Scott Fitzgerald wrote that “the rich are different from you and me” – and certainly the institutional arrangements for costing their labour seem more benign.

At one level, this is an issue of policy design, with schemes such as those that supported furloughed workers and offered business rates relief allowing larger and less scrupulous companies to enrich owners and senior executives with public money. Few schemes contained restrictions on executive pay or capital distributions to shareholders, and those restrictions that were included were limited, subject to exemptions, and characterised by weak enforcement mechanisms. This ‘weak conditionality’ effectively handed companies discretion in determining where to draw the line between private gain and public losses.

Some companies voluntarily repaid furlough grants and business rates relief, even though there was no requirement to do so. In fact, many companies that retained government furlough money – which allowed them to save on large direct and indirect costs of redundancies – made large profits, paid out large sums in dividends to shareholders, and awarded board executives large pay rises.

There is a large discretionary element to executive pay and dividends from year-to-year, although shareholder approval of final dividends at company AGMs can tie companies into payments even when circumstances change dramatically. Despite this, some companies cancelled dividends in the first year of the pandemic, only then to resume big payments to shareholders in the following year.

Take the owners of Primark, British Associated Foods, for example. The group kept hold of furlough money received in the first year of the pandemic, as well as all business rates relief for the duration of the scheme. In its annual report for 2020, the company reported that it would not pay dividends, but then in 2021 paid out an interim, final and special dividend to the tune of £380m.

Further, in its latest annual report the company indicated that it would not only declare a sizeable final dividend, but would also commence a share buyback programme of £500m, which, all things being equal, will boost the value of outstanding shares.

It’s sometimes said that we needn’t worry too much about large payments to shareholders, as British listed companies are owned by big institutions, among which domestic pension funds predominate. However, the proportion of UK-domiciled companies owned by overseas investors has increased substantially in recent decades.

The five companies that reported the highest dividends and held on to grants under the furlough scheme received in the first year of the pandemic (1 April 2020 to 31 March 2021), at a total value of £352m, recorded cash outflows of £1.3bn to shareholders in their annual reports for that year. A large proportion of the shareholdings of these five companies are owned by overseas investors.

As at February 2023, non-UK ownership of traded shares in Compass Group (£427m to shareholders in 2020/21), Tui (£289m to shareholders in 2020/21) and EasyJet (£174m to shareholders in 2020/21), for example, was at least 52%, 42% and 27% respectively.

There is a similar pattern in the case of business rates relief, which covered companies in the retail, leisure, and hospitality sectors. Five companies that accepted the relief in 2020/21 between them reported cash outflows to shareholders of £540m in that year. Once again, overseas investors own a big chunk of the tradable shares of these companies. This is money flowing not just from the public purse to private shareholders, but from UK taxpayers to the rest of the world.

Embedded inequalities

At another level, this goes beyond poorly designed funding support schemes. Instead, it requires us to think about a deeper constellation of inequalities between employees and those who own or control key assets, manifested as disparities in bargaining power at work and within markets.

These inequalities are embedded in the UK’s economic model and the political thinking and institutions that sustain it. Since the 2008 financial crisis, economic policy has focused on protecting the value of assets at the expense of wages, exacerbating wealth inequalities. According to ONS data, real median gross annual earnings in 2015 constant prices were about 3% lower at the start of the pandemic than in April 2008.

For a brief moment, government claims that we would ‘build back better’ appeared to hint at a new policy broom, which might address widening inequalities in wealth and stagnating real wages.

However, despite recent reports of a wage-price spiral, real wages fell again by 3% in 2022, exacerbating the effects of real-terms cuts to many public services.

Setting the findings of our research against this data suggests strongly that billions of pounds of public money has effectively been spent to prop up an economic model that is progressively entrenching wealth and income inequalities.