SECTOR ALLOCATION OF DIVIDEND AND INTEREST FLOWS - A NEW FRAMEWORK Alan Mclntyre, Central Statistical Office Summary e made it easier to analyse and validate the estimates of dividend and interest flows, and to see how changes to the estimates for CSO has adopted an improved framework for estimating dividend one sector affect the estimates for other sectors. and interest flows to and from each sector of the economy (personal sector, company sector, etc). The new estimates have been used in The flows involved are large. Table 1 summarises the estimates of the 1992 Blue Book and in the quarterly figures up to the second each sector's receipts and payments of dividends and interest in quarter of 1992 appearing elsewhere in this publication. 1991, and shows that they are important in calculating each sector's income and saving. The new framework is constructed on CSO's standard classification of fmancia1 "instruments" (a term covering all types of fmancial Tables B 1 to B7 at the end of this article show the annual figures for assets and liabilities - bank loans, company shares, government each sector, derived from the new framework, from 1984to 1991. bonds, etc). For most instruments the total of dividends or interest Quarterly figures are available on the CSO Databank. paid in each period is known, but not the separate amounts paid to each sector. Under the new framework, the allocation of the total The sectors between the receiving sectors is estimated using figures on the sectors' holdings of the relevant instrument. The sectors of the economy referred to in this article are the seven that are generally distinguished for income and expenditure analyses The new framework has: in the national accounts. They are shown in Table 1. improved the logical links in the national accounts between e Details about the precise coverages of the sectors are given in the the estimates of each sector's transactions in the various CSO booklet Sector ClassificaJwnfor the NaJional AccoUIIIs. For financial instruments, of their levels of assets and liabilities dividend and interest flows, the personal sector includes life assur­ in these instruments and of their receipts and payments of ance and pension funds. dividends and interest on the instruments; The figures for the overseas sector are consistent with those appear­ e introduced a general methodology for estimating dividend and ing in the balance of payments accounts. However, the transactions interest flows that is common to all sectors; are here viewed from the opposite point of view (for example, UK payments in the balance of payments accounts are here viewed as e made available to users more information on each sector's receipts of the overseas sector), so there are differences in sign receipts and payments of dividends and interest, and in the same between the two presentations. amount of instrument detail for each sector; The previous framework e enabled direct calculation to be made of the personal sector's Before the 1992 Blue Book, the estimates of dividend and interest receipts and payments of dividends and interest for each in­ flows to and from the various sectors were made using a variety of strument- previously only a single series of its net receipts was methods; and were made at levels of instrument detail appropriate estimated by residual; for each sector. Table 1. Saving by each sector of the economy, 1991 £billion Factor Dividends and Other transfers Factor Expend Saving incomes Interest cost -iture Receipts Payments adjust­ Receipts Payments ment Personal sector 422 68 -51 74 -105 -368 39 Industrial and commercial companies 83 25 -57 -17 34 Financial companies and institutions -19 133 -105 -2 8 Public corporations 4 1 -2 2 Central government 1 10 -16 118 -118 78 -74 -2 Local authorities 6 1 -5 56 -8 -47 2 Overseas sector 77 -78 8 -7 5 6 Source: Table A of 1992 Blue Boolc 'Economic Trends' No. 468 October 1992 e Crown copyright 1992 149 Estimates of the receipts and payments of the personal sector were a. the estimates of each sector's transactions in, holdings of and however available for only few individual instruments. Instead of earnings on fiJlllJlcial instruments are now more firmly and estimating complete figures for the personal sector independently, logically linked together; use was therefore made of the fact that the sum of all dividend and interest flows, taken across all sectors including the overseas sector, b. the methods of allocating the flows of dividends and interest must be zero. The net receipts of the personal sector were estimated between sectors now make use of all the available information by residual - that is, as the sum of the net payments of the other -and in a more standard and logical way. sectors. It has also resulted in more information being available to users of As a result of adopting this method, no detail by instrument was the accounts, and in a standard format: available on the personal sector's receipts and payments ofdividends and interest; and the estimates of the net receipts of this sector c. users can now study the flows between sectors of each type of absorbed any inconsistencies in the data or methods used to compile dividend and interest (in a way that was already possible for the estimates for the other sectors. It was therefore difficult to transactions in the underlying holdings); validate or interpret the personal sector series. d. users can now study in a standard format the breakdown of each The new framework sector's dividend and interest receipts and payments between these types; The key to the new framework is the adoption for the estimates of dividend and interest flows ofthe standard classification of fmancial e. in particular, users can now identify the personal sector's re­ instruments used by CSO for compiling estimates of each sector's ceipts and payments of individual types ofdividend and interest; levels of fmancial assets and liabilities. These "balance sheet" estimates appear in Chapter 12 of the 1992 Blue Book. The elements There are also features of the new framework that will help maintain of this classification appear as the rows of Table A at the end of this the quality of the estimates: article. For the majority of instruments, payments of dividends or interest f. it is now easier to ensure that the calculations of the flows are are made by a single sector and the amount paid in each period is consistent and complete (in fact, the work undertaken in de­ known. However, the amounts paid to the various receiving sectors veloping the framework identified a number of discrepancies in are frequently not known. To estimate these amounts, the total the previous estimates, which have now been eliminated); receipts (which of course equals the total payments) are allocated between the receiving sectors pro-rata to their average holdings in g. it is easier to see how changes to the estimates for one sector are the period, as derived from the balance sheet figures. likely to affect the estimates for other sectors, and take any necessary action; A similar method is used for instruments for which there is a single receiving sector, but the amounts paid by various sectors are not h. the increased coherence and standard presentation of the results known. makes it much easier to validate, analyse and discuss the in­ dividual figures and the resulting totals, and to do this within the For some instruments, more detailed or separate information ena­ timescale of preparing the quarterly national accounts. bles reliable estimates to be made of individual flows to or from particular sectors. The balance sheets are then used to allocate the Further details remaining amounts between the other sectors. Where the total flows are not known, the balance sheet figures are Gross or net figures used to estimate interest flows using known or estimated interest rates. For several instruments there are holders in the same sector as the issuers. For example, banks borrow funds from other fmancial A summary of the estimation method used for each instrument is companies and institutions; and central government holds some given in the Annex. sterling treasury bills. Table A at the end of this article exhibits the new framework in The aim has been to include intra-sector transactions in the frame­ tabular form. It shows, for each instrument, which sectors pay and work, as both payments and receipts, whereverpossible. Intra-sector which sectors receive the dividends or interest, and gives the holdings are generally included in the balance sheet estimates, and estimates for 1991. The figures of total receipts (and total payments) it is clearly desirable that the sameprinciple is applied where balance appear in the central column. sheets are used to allocate flows between sectors - for example to check that the implied rates of return are consistent with other The new framework has been used to re-estimate dividend and information. interest flows for each sector from 1984. These estimates have been used in the 1992 Blue Book. and in the quarterly figures in the However, it has not been possible to achieve this aim for all National Accounts article which appears from page 81 in this instruments. For example, sufficient information is not yet available publication. The estimates for years up to 1983 are unchanged. to include payments of dividends from industrial and commercial Improvements companies to other industrial and commercial companies; so the estimates shown of industrial and commercial companies' receipts The new framework has thus improved the coherence of the national on UK company securities covers dividends paid only by fmancial accounts estimates: companies. 150 The treatment of tax Rates of return Inprinciple, it should be possible to derive rates ofreturn by dividing Most types of dividend and interest payment attract tax, which is the dividend and interest flows by average balance sheet levels.