ONS Economic Forum

Contact: economic.forum@ons.gov.uk

7 April 2014

1

Introduction

Glen Watson, Director General, ONS

ONS Economic Forum

7 April 2014

2

Agenda

09.45 Introduction

10.00 What’s new

10.45 What’s next

11.10 Coffee break

11.30 Changes to public sector finances

12.00 Economic wellbeing measures

12.30 Close

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What’s new

Peter Patterson, Deputy Chief Economic Adviser

ONS Economic Forum

7 April 2014

4

What’s new

• 2010 input-output analytical tables• Compendium of UK statistics – covering four

countries of the UK• Updated GDP revisions article - including

expenditure components• Article on recent changes to estimates of

business investment

5

GDP and productivity trends

6

Contributions to productivity changes

7

Dispersion in estimates of GDP growth

8

Manufacturing output and hours

9

Sectoral balances

10

Current account balance

11

Inflation and earnings growth

12

Goods and services inflation

13

Business investment price deflators

14

Self-employment (% of total)

15

How do we measure unemployment?

Labour Force Survey:• c. 42,000 households equates to around 100,000

individuals every quarter• Random sample, stratified by postcode• Representative of the whole UK population• Each case weighted by age, sex and geography• 60 million people 100,000 = 600 (average weight)• Therefore each interview is equivalent to 600 people• Complete sample over three months

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How does the LFS sampling work?

Jan Feb Mar Apr May Jun Jul Aug Sep

Jan-Mar

Apr-Jun

Feb-Apr

May-Jul

80 % of the same people

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Single month estimates

• Based on one month’s sample• Weighted separately• Seasonally adjusted• Benchmarked to three-month estimates• But…

Greater sampling variabilityCan reflect characteristics of sample in a particular

month

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Single month unemployment

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LFS NSQR recommendations – single month

• As an improvement to the currently published single month estimates, a new weighting methodology based on that used for the quarterly estimates be developed

• The minor modifications identified by the review be applied to the seasonal adjustment of the single month estimates and that they be subject to more regular review in accordance with the ONS standard seasonal adjustment review

• Continue with the current single month estimates benchmarking method, unless superseded by developments in the weighting

• The single month estimates metadata be improved • The existing project to develop state space models be

continued with a higher level of priority than that which is currently being applied

20

What’s next

Peter Patterson, Deputy Chief Economic AdviserGraeme Walker, Head of National Accounts

ONS Economic Forum

7 April 2014

21

What’s next

• NSQR of National Accounts • Blue Book 2014 • No special events in Q1, despite flooding• Johnson review of price statistics (autumn)• Re-weighting of LFS estimates using 2011

Census data (August)• New data on capital stocks

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National Accounts developments

• Preliminary estimate Q1 2014 to be published on 29 April – no special events

• National Statistics Quality Review to be published early May

• External review undertaken by Kate Barker (ex-MPC member) and Art Ridgeway (retired Head of NA – StatsCan)

• BB14 data released 30 September• BB14 on 31 October• Communications around Blue Book 2014 changes

• Original scoping article 26 November 2013• Further series of articles, including summaries of impact, April-

July• List to be published shortly• Seminars

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NSQRs - Background

Continuous Improvement

Quality

24

ToR – Scope and Priorities

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Main Topics Covered

26

Reporting and Implementation

ACTIVITIES DATE

Ongoing Review investigations & Report drafting

Now – end April 14

Publish NSQR Report May 14

Revised NA Work Plan taking into account NSQR Recommendations

Summer 14

27

Blue Book 2014

• Will contain substantial definitional and methodological changes

• Changes fall into three parts• ESA10 changes• Other changes required by Eurostat• Other methods changes

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ESA10 changes

• ESA is the legal NA framework in the EU

• Updated every 15 years or so• Currently ESA95• From September will be ESA10• ESA10 consistent with SNA08

• Already introduced in some non-EU countries

• Will be implemented across EU from September

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ESA10 changes

• Shorthand for introduction of three new EU manuals

• ESA10; BPM6; MGDD

• Estimated to add 2½ to 5% to level of GDP• Main changes for 2014 are

• Capitalisation of R&D• Weapons• Pensions• Full list in scoping article – 26 November 2013

• Ongoing programme of work until 2017• Changes impacting on GDP planned for 2014

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R&D/Weapons

• Now treated as capital expenditure• Raises level of nominal GDP

• R&D – possibly about £25 billion a year • Weapons – about £3 billion

• Some impact on change• R&D article – April• Weapons article – May

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Pensions

• ESA10 requires inclusion of imputed contributions for funded Defined Benefit schemes

• But not unfunded• Small impact on GDP levels and

growth• Main impact on the savings ratio

• Level shift of around +5 p.p• Article 28 April

Other changes required by Eurostat

• GNI reservations being addressed• Illegal activities• NPISH final expenditure• Full list on ONS website

• Mainly impacting on levels• Illegal activities – up to £10 billion• NPISH – maximum of over £25 billion• Article(s) - May

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Other methods changes

• Inventories• Improved deflation and chain linking

methodology• GFCF

• More detailed quality assurance• 5 yearly rebasing of producer price

deflators• Likely to impact on growth rates• Detailed articles planned

34

Future dates for GDP releases

• Preliminary estimate of GDP – 29 April• Second estimate of GDP – 22 May• Quarterly National Accounts - 27 June

(changed from 26th)• Preliminary estimate – 25 July• Second estimate (output only) – 15 August• Quarterly National Accounts (ESA10 basis)

– 30 September• Blue Book and Pink Book – 31 October

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Email: economicforum@ons.gov.ukTwitter: @ONS

#ONSeconomy.

36

Public sector finances

Iain Bell, Head of Public Sector Finances and HouseholdsDavid BaileyPeter Gittins

ONS Economic Forum

7 April 201437

Impact of ESA 2010 on Public Sector Finance StatisticsReview of Public Sector Finance Statistics

Background• European System of Accounts 2010 will be implemented in

National Accounts and Public Sector Finances in September 2014

• Announced estimates of impact in December 2013 will follow-up and further detail in February 2014

• Launched consultation on the 2013 Review of Public Sector Finances in December 2013 with consultation to end of January

• Announced conclusions in February 2014 following consultation

• All changes being implemented together to ensure managed as single coherent set of changes rather than drip feed revisions

ESA10 impact on Public Sector FinancesPeter Gittins

ESA10 implementation • September 2014 UK publishes ESA10 based National

Accounts and PSF• This means a number of significant changes for PSF

mostly in 2014 but some later• Change can have different impacts for PSF and

National Accounts• We recognise PSF users have specific needs – early

warning of key changes given in December/February• Scale of impact still not confirmed - especially post

2010 since this is still being processed

Main ESA10 Changes for PSF

• Reclassification of Network Rail• Change in treatment of pension schemes• Mobile phone licences• Royal Mail Pension Plan• Capitalisation of new non financial assets

Network Rail

• New guidance in ESA10 makes Network Rail a Central Government body

• PSND raised by around £30bn in 2012/13• PSNB raised by £2.5bn to £3.0bn 2012/13

• Mostly reduces surplus on current budget• Impact similar in all years from the

reclassification in 2004

Pension schemes

• New guidance on treatment of funded, defined benefit pension schemes• Includes Local Government scheme

• Imputed contributions added to cover the entitlements/contributions gap

• The imputed contributions increase wage bill (compensation of employees)

• This is extra current spending which increases current budget deficit

• PSNB raised by £2bn to £2.5bn in 2012/13

3G/4G mobile phone licenses

• New rules on permits to use natural resources • Changes the profile of receipts from sales of

mobile phone licences• Now rent rather than sale of an asset (current

receipts not capital receipts)• Rent is accrued over life of the lease even if

paid up front• 3G licenses recorded as around £1bn per year

over 20 years instead of £22bn in 2000

RMPP transfer to Government in 2012

• New rules on pension scheme transfers • RMPP assets (around £28bn) no longer count

as a one-off capital transfer to government• Now a financial advance for social contributions• Future payments offset by imputed revenue (around £1bn a

year)

• RMPP liabilities/assets gap (around £10bn) now considered a capital transfer to Royal Mail

• Overall impact is to add around £37bn to PSNB in 2012/13

New non financial assets

• New rules on when spending is capitalised • Weapons Systems• R&D• Decommissioning costs

• Different impact than for National Accounts• No impact on PSNB - just changes current

and capital spending ratio• Current spend adjusted for capital

consumption becomes capital spend

Impact Summary

• PSND(ex) around £30bn higher in 2012/13 - all from Network Rail

• PSNB(ex) excl RMPP and APF• Around £5bn higher 2012/13 • Around £2.5bn from Network Rail• Around £2.5bn from local government pension schemes• Reduces net lending in 2000/01 due to phone licences

• Base PSNB(ex) • Also increased by around £37bn in 2012/13 due to

RMPP

Impact on PSNB ex (ex RM/APF)

Impact on base PSNB ex

Conclusions

• Significant change to PSF from ESA10• Range of other smaller changes not covered

here (e.g. treatment of tax receipts)• Additional ESA10 changes through to 2017/18

• Mainly presentational with limited PSF impact• Committed to helping users understand the

changes• More detail available in the published articles• More on detailed impacts before September

Review of Public Sector Finance StatisticsDavid Bailey

Review of Public Sector Finance Statistics - timeline• announced in May 2013 • took forward the recommendations of the UK

Statistics Authority as part of their Review of the Asset Purchase Facility

• ONS-led review looking atPresentation and dissemination issuesThe future of the “ex-measures”

The ownership of the Bulletin• consultation launched in Dec 2013• results of consultation published in Feb 2014

Key findings of ReviewPresentation• improve the presentation of PSF Statistics• increase the availability of data to help users understand

drivers of change in Public Sector Finances• increase the transparency of impacts of financial interventions

and other one-off factors on the Public Sector FinancesEx-Measures• the current guidance for defining “ex-measures” is no longer

fit-for-purpose• replace the existing measure of Public Sector Finances which

excludes financial interventions with a new measure which excludes only the Public Sector Banks;

• bring consistency to the treatment of shares and compensation payments in the Public Sector Finances

The ‘ex-measures’ - conclusion• the existing ex-measure guidance are no longer fit for

purpose• however there is an ongoing need for ex-measures to

exclude the Public Sector Banks• Consulted on new principles for any ex-measures

based around:• Ensuring a measure as inclusive as possible to ensure

transparent reporting of public liabilities whilst allowing exclusions due to size and lack of correlation with the need for Government to issue gilts

• Consistency • between treatments for debt and borrowing• with National Accounts standards• with European System of Accounts standards

New ‘ex-measures’ consistent with these principles

• the Public Sector excluding the Public Sector Banks (defined as Lloyds, RBS and, prior to 2010, Northern Rock and Bradford & Bingley)

• accompanied by details of- impacts of financial interventions on the measure

- separate table showing details on the APF

• No issues raised with either the principles or the proposed measures through the consultation and user discussions

Liquid Assets

Current approach• shares in RBS and Lloyds are currently treated as liquid

assets • the payments made by the Financial Services

Compensation Scheme (FSCS) are in substance long term loans, which are currently treated as liquid assets

New approach• ‘ex measures’ will treat these items consistently with all

other such items – i.e. no longer treated as liquid assets• ONS will publish supporting information – such as impact

of share sales on debt

Impacts – PSNB ex

Impacts – PSNB ex

Impacts – PSNB ex

Impacts – PSNB ex

Impacts – PSND ex

Impacts – PSND ex

Impacts – PSND ex

Impacts – PSND ex

Implementation

• Changes to figures• Initial impacts published in Feb 2014• ‘Shadow table’ showing key aggregates under ESA10 plus

changes from Review of Public Sector Finances will be published from June 2014

• Full transition to ESA10 in September 2014• ‘Shadow table’ showing key aggregates under ESA95 and

old ex-measures will be published until April 2015

• Presentational changes• Some new tables prior to September 2014• Introduction of new presentational framework and related

tables / commentary in September 2014• Further tables introduced after September 2014

Economic wellbeing

Glenn Everett, Head of Measuring National Wellbeing

ONS Economic Forum

7 April 2014

67

Economic Well-being: Background

• GDP inevitably and correctly plays a central role in monetary and fiscal policy

• Traditional measures of progress such as GDP are increasingly considered an incomplete picture of overall economic well-being

• Additional economic, social and environmental measures are needed alongside GDP to provide a complete picture of how society is doing

• UK’s Measuring National Well-being (MNW) Programme was launched in November 2010

Measuring National Well-being: what are we trying to achieve?

Social Environment

The ‘triple bottom line’

Economy

An accepted and trusted set of National Statistics to help people understand and monitor national well-being.

Limitations of GDP

• GDP has known weaknesses as a measure of economic welfare or well-being

• GDP does not consider:Changes in populationDepreciation of assetsDistribution of incomeNational and household wealthNon-market activities

Proposed additional measures

Economy wide• Gross Domestic Product (GDP) per capita• Net Domestic Product (NDP) per capita• Real Net National Disposable Income (RNNDI) per

capita• Real Net Financial and Physical Assets

Households• Real Adjusted Household Disposable Income

(RAHDI) per capita• Real Median Household Income • Real Household Net Financial and Physical Assets

UK GDP and GDP per capita (1997 = 100)

UK NDP and GDP per capita (2010 prices)

 UK Real Net National Disposable Income and GDP per capita (2010 prices)

UK net financial and produced assets (2010 prices)

UK Real adjusted household disposable income and GDP per capita

UK median household income, average household disposable income and GDP per head

Real Household Wealth (2010 prices)

Key Findings

• GDP recovered substantially from the falls in recent years, but GDP per capita has only recovered a little

• Real net national disposable income per capita has continued to fall gently

• Real adjusted household disposable income per capita held up well during the deepest phase of the recession but has been falling gently in the subsequent period

• Median household income and real household income have grown broadly in line with each other in recent years, suggesting no major distributional factors

Way forward

• Regular publication of the additional measures

• Continue to develop and refine additional measures (eg natural capital, human capital)

• Update the ‘dashboard’ accordingly

• Update the Household Satellite Accounts

Closing remarks

Joe Grice, Chief Economic Adviser, ONS

ONS Economic Forum

7 April 2014

81

Email: economicforum@ons.gov.ukTwitter: @ONS

#ONSeconomy.

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