Why do businesses pay dividends?

I don’t know about you but I kind of hope that the people who serve our nation as Prime Minister and Chancellor know what they are doing.  So like many I have read with interest what Labour had to say today as they launched their Manifesto.  All gloss.  All nice words.  All seemingly so easy to achieve.  But achieve what?  That's where the clarity breaks down.  That’s where the problems start. 

Paul Johnson, director of the Institute for Fiscal Studies said of the Labour manifesto: “Literally we would not know what we were voting for if we were going to vote for Labour”. 

 

In a way I’m not surprised that the august IFS have come to such a conclusion.  There is a theme of economic illiteracy flowing though Labours core.  Labour really don’t understand how the economy works. They showed that with devastating results under the last administration.  Nor do they understand how businesses work.  And it is businesses that will fund government expenditure either directly though taxes or indirectly through the taxes their employees pay.  

We all know that Ed Miliband is not that sympathetic to the private sector.  But then he has never worked in the private sector, never had to understand what running a business is all about.  One head of a FTSE 100 company was recently given “facetime” with Miliband.  The business leader was reportedly stunned into silence when Ed asked him “Why exactly do you need to pay your shareholders dividends?” 

Now, this was the man who, along with Ed Balls who aspires to be Chancellor, played a big part in crashing our economy when they were last in power.  Borrowed what we couldn’t afford.  Spent what we didn’t have.  And with recent comments like those to the head of a FTSE 100 company, leaves you really wondering if their arithmetic adds up. 

So, should a candidate chance on your doorstep tonight, ask them if they know why companies pay shareholders a dividend.  If they don’t know, don’t let their party anywhere near No 11 Downing St.