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ONS Economic Forum Contact: [email protected] 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 3 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 Index nos, 2008Q1=100 105.0 100.0 95.0 90.0 85.0 GDP Output/Hour Hours 80.0 75.0 70.0 1997 Q1 1999 Q1 2001 Q1 2003 Q1 2005 Q1 2007 Q1 2009 Q1 2011 Q1 2013 Q1 6 Contributions to productivity changes Contributions to change in output per hour since 2008Q1, % points 3 Allocation Effect Manufacturing Other Services Total 2 Agric., & Non-Manuf. Prod. Financial Services Construction 1 0 -1 -2 -3 -4 -5 -6 -7 2008 2009 2010 2011 2012 2013 7 Dispersion in estimates of GDP growth Real GDP, index nos, 2010=100 108.0 106.0 Average Expenditure 104.0 Income Output 102.0 100.0 98.0 96.0 8 9 Q3 2013 Q1 Q3 2012 Q1 Q3 2011 Q1 Q3 2010 Q1 Q3 2009 Q1 160 Q3 170 2008 Q1 Q3 2007 Q1 Q3 2006 Q1 Q3 2005 Q1 Q3 2004 Q1 Q3 2003 Q1 Q3 2002 Q1 Q3 2001 Q1 Q3 2000 Q1 Q3 1999 Q1 Q3 1998 Q1 Q3 1997 Q1 Manufacturing output and hours 180 Index nos, 2010=100 Output Hours 150 140 130 120 110 100 90 80 Sectoral balances 12 10 8 Corporations Government Household & NPISH ROW 6 4 2 0 -2 -4 -6 -8 -10 -12 10 Current account balance % of GDP 4 3 2 1 0 -1 -2 -3 -4 -5 -6 1997 Q1 1999 Q1 Current account Goods & services Income Transfers 2001 Q1 2003 Q1 2005 Q1 2007 Q1 2009 Q1 2011 Q1 2013 Q1 11 Inflation and earnings growth Per cent changes on a year earlier 6 4 2 0 -2 Public sector Total pay whole economy -4 Consumer Prices Index Private sector Nov-Jan 2009 Nov-Jan 2010 Nov-Jan 2011 Nov-Jan 2012 Nov-Jan 2013 -6 Feb 2014 12 Goods and services inflation CPI, % changes on a year earlier 7.0 Goods 6.0 Services 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 1994 Jan 1996 Jan 1998 Jan 2000 Jan 2002 Jan 2004 Jan 2006 Jan 2008 Jan 2010 Jan 2012 Jan 2014 Jan 13 Business investment price deflators 135 125 115 105 95 85 75 2005=100 65 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Business investment Transport equipment (13%) Other machinery and equipment (38%) Other buildings and structures (29%) Intangible assets (20%) 14 Self-employment (% of total) 15.0 14.5 14.0 13.5 13.0 12.5 12.0 11.5 11.0 1993 Q1 1995 Q1 1997 Q1 1999 Q1 2001 Q1 2003 Q1 2005 Q1 2007 Q1 2009 Q1 2011 Q1 2013 Q1 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 16 How does the LFS sampling work? Jan Feb Mar Apr May Jun Jul Aug Sep 80 % of the same people Jan-Mar Feb-Apr Apr-Jun May-Jul 17 Single month estimates • • • • • Based on one month’s sample Weighted separately Seasonally adjusted Benchmarked to three-month estimates But… Greater sampling variability Can reflect characteristics of sample in a particular month 18 Single month unemployment 19 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 Adviser Graeme 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 22 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, AprilJuly • List to be published shortly • Seminars 23 NSQRs - Background Quality Continuous Improvement NSQRs ran from 2002 – 2008 Postponed when UKSA established Assessments NSQRs Re-launched 2012 Two NSQRs since relaunch • Labour Force Survey • NA & BoP 24 ToR – Scope and Priorities NA, BoP and related outputs Broad scope: • Users (issues, uses, priorities) • Strengths and weaknesses of current data, systems, methods and processes • Progress check against previous reviews Be helpful and realistic 25 Main Topics Covered Stakeholder engagement and communication Quality Assurance Balance of Payments International flows Corrections policy Data Collection (Surveys) Regulatory Requirements Governance and decision making SUT to QGDP process Business Register Sector & Financial Accounts Regional Accounts Flow of Funds Gross Fixed Capital Formation Public Sector Finances Administrative Data Capital Stocks Deflators and deflation Systems and Processes Revisions policy 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 28 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 29 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 30 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 31 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 33 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 35 Email: [email protected] Twitter: @ONS #ONSeconomy. 36 Public sector finances Iain Bell, Head of Public Sector Finances and Households David Bailey Peter Gittins ONS Economic Forum 7 April 2014 37 Impact of ESA 2010 on Public Sector Finance Statistics Review 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 Finances Peter 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 2012/13 2011/12 2010/11 2009/10 2008/09 2007/08 2006/07 2005/06 2004/05 2003/04 2002/03 2001/02 2000/01 1999/00 1998/99 1997/98 Impact on PSNB ex (ex RM/APF) 200 150 100 £ Billion PSNBex ex RM/APF 50 0 PSNBex ex RM/APF ESA10 -50 2012/13 2011/12 2010/11 2009/10 2008/09 2007/08 2006/07 2005/06 2004/05 2003/04 2002/03 2001/02 2000/01 1999/00 1998/99 1997/98 Impact on base PSNB ex 200 150 100 £ Billion PSNBex 50 PSNBex ESA10 0 -50 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 Statistics David 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 at Presentation and dissemination issues The 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 Review Presentation • 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 Finances Ex-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? An accepted and trusted set of National Statistics to help people understand and monitor national well-being. The ‘triple bottom line’ Economy Social Environment Limitations of GDP • GDP has known weaknesses as a measure of economic welfare or well-being • GDP does not consider: Changes in population Depreciation of assets Distribution of income National and household wealth Non-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) 140 GDP 130 GDP per Capita 120 110 100 90 80 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 UK NDP and GDP per capita (2010 prices) £ 28,000 26,000 24,000 22,000 20,000 18,000 GDP per capita 16,000 NDP per capita 14,000 12,000 10,000 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 UK Real Net National Disposable Income and GDP per capita (2010 prices) £ 28,000 26,000 24,000 22,000 20,000 18,000 16,000 GDP per capita 14,000 RNNDI Per capita 12,000 10,000 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 UK net financial and produced assets (2010 prices) £ Billions 8000 7000 6000 5000 4000 3000 2000 1000 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 UK Real adjusted household disposable income and GDP per capita £ 30,000 25,000 20,000 15,000 10,000 RAHDI per capita 5,000 GDP per capita 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 UK median household income, average household disposable income and GDP per head 1997 = 100 140 130 120 110 GDP per capita 100 Median income RHDI per capita 90 80 Real Household Wealth (2010 prices) Residential wealth £ Billions Other non-financial assets Net financial assets 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 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: [email protected] Twitter: @ONS #ONSeconomy. 82