Monday, 8 February 2010

The Pareto Distribution

There was another fine example of The Pareto Distribution, aka the 80/20 rule in the newspapers today:

Investors took a dismal 15 per cent cut in UK dividends on the chin last year, a survey by Capita Registrars shows. The figures, from Exchange Data International, reveal that £57 billion was paid out by [UK] companies- £10 billion less than 2008. The news will hit shareholders hard, as receiving and reinvesting dividends is by far their biggest source of return in the long term.

That £57 billion is paid out after corporation tax, so the pre-tax equivalent is about £79 billion. Conversely, total wages and salaries in the UK appear to be about £640 billion (pre tax); of which three-quarters were paid in the private sector = £480 billion. So that's more like 14/86 than 20/80, but a lot of the salaries paid out to senior managers are more like dividends (i.e. profit share) than reward for hours worked, so it's not far off 80/20.

Furthermore, "Almost half (47 per cent) of all dividends were paid by the Big Five - BP, Shell, HSBC, Vodafone and GlaxoSmith-Kline", so I wouldn't be surprised if eighty per cent of dividends were paid out by the biggest one-fifth of companies as well.

4 comments:

James Higham said...

about £640 billion

I wouldn't mind a miniscule portion of that.

TheFatBigot said...

In addition to Corporation Tax having been paid prior to the dividend being doled out, the dividend itself is taxable in the hands of the recipient. How this plays-out in terms of total tax paid depends, of course, on the position of the recipient. But it does make me ask whether it is right to compare the notional value of dividends pre-CT with the pre-IT & NI value of wages and salaries, seems a bit apple-and-orangeish to me.

I suppose it all depends whether there is a point to the exercise other than finding a way to find a 20-80 pattern.

Mark Wadsworth said...

TFB: "In addition to Corporation Tax having been paid prior to the dividend being doled out, the dividend itself is taxable in the hands of the recipient."

a) The overall tax burden on employees is higher than on corporate profits.
b) Only higher rate taxpayers (the highest income tenth) pay further tax on dividends.

There is no 'point' to the exercise. It is just to point out when people slag off 'the shareholders', that their overall share of the spoils is not unduly high.

Lola said...

There's another pattern that I treasure. Set out in General Horrock's memoirs. He says, 'That in any squad of ten men there are two who lead, seven that follow, and one that'd rather be somewhere else completely different'. He goes on to say that the two leaders generally become casualties, but that after replacements are found the same pattern repeasserts itself.

Look aroud you 'co-workers' (yuk). Horrocks is right isn't he?