Dividends could be banned for companies who take government coronavirus loan
Dividends are regularly paid by companies to their shareholders out of profits, however, this could be disrupted with potential government plans. Large companies who receive government loans throughout the coronavirus crisis could face being barred from being able to pay out, potentially affecting many who have invested in this way. Organisations borrowing money under the Coronavirus Large Business Interruption Loan Scheme (CLBILS) could be stopped from providing payouts.
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Bankers also told Sky News ministers could take another step, and limit executive pay and bonuses claimed at companies affected.
It appears the government wishes to dissuade the practice of wealthy companies using public money to assist shareholders and bosses during the crisis rather than their own.
The Sunday Times Rich List showed 63 of the UK’s wealthiest people had utilised the scheme to pay their staff during the crisis.
This has been widely frowned upon due to the fact the scheme is backed by the state.
If the government considerations were adopted, they would be a significant intervention into business decision making.
Coronavirus has had a severe impact on many businesses, both in the UK and internationally.
However, there could be a significant impact on savings and pension funds in the form of dividends.
Recent analysis from AJ Bell showed significant dividend cuts which could have a severe impact.
According to data from the Link Group’s Dividend Report, dividend payments last year stood at £98.5 billion, however the organisation sees dividends falling to £61.4 billion in 2020 in a ‘best-case’ scenario analysis.
In its worst-case estimate, over a two year period from 2020 to 2021, investors will receive £84.5billion less in income than they would have at 2019 levels.
Payouts have been cut at all major UK banks, and popular companies for savers such as BT, Shell and Centrica – the owner of British Gas.
Many savers choose to invest in companies to provide payouts later down the line, sometimes in the form of pension savings.
However, the impact of both the crisis, and the potential government measures could be widespread.
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If adopted, the changes could soon be put into place, with it being understood the British Business Bank (BBB) has also been briefed on this possibility.
The Coronavirus Large Business Interruption Loan Scheme was put into place to support larger businesses, who report an annual turnover of over £45million, and these loans can be paid back over a maximum of three years.
CLBILS has been made available through a series of accredited lenders on the BBB website.
Eligible businesses must be based in the UK, and be able to self-certify they have been adversely affected by coronavirus.
There have already been restrictions on dividends built into the CLBILS scheme – loan recipients are only allowed to pay dividends if they are confident of being able to repay the loan.
But these new restrictions could be more stringent if imposed.
However, those worried about dividend reductions can be reassured, as moves to slash the payouts are likely to be temporary.
This means pension funds and savers should be protected in the long-term.
Claire Trott, Head of Pensions Strategy at St James’s Place, said: “Market volatility is normal, as is the feeling of being overwhelmed by the value of your investment portfolio moving up or down.
“But it’s worth remembering that market rises and falls are part of investing. No one likes to lose money, but history suggests that selling is usually an inappropriate response to unfolding events.”
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