ONS Economic Forum Contact: economic.forum@ons.uk 7 April 2014

1. ONS Economic Forum Contact: economic.forum@ons.gov.uk 7 April 2014

2. Introduction Glen Watson, Director General, ONS ONS Economic Forum 7 April 2014

3. 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

4. What’s new Peter Patterson, Deputy Chief Economic Adviser ONS Economic Forum 7 April 2014

5. 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

6. GDP and productivity trends

7. Contributions to productivity changes

8. Dispersion in estimates of GDP growth

9. Manufacturing output and hours

10. Sectoral balances

11. Current account balance

12. Inflation and earnings growth

13. Goods and services inflation

14. Business investment price deflators

15. Self-employment (% of total)

16. 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

17. 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

18. 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

19. Single month unemployment

20. 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ONS standard seasonal adjustment review • Continue with the current single month estimates benchmarking method, unless superseded by developments in the weighting • The single month estimates metadata be improved • The existing project to develop state space models be continued with a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

21. What’s next Peter Patterson, Deputy Chief Economic Adviser Graeme Walker, Head of National Accounts ONS Economic Forum 7 April 2014

22. 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

23. 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

24. NSQRs - Background Quality Continuous Improvement

25. ToR – Scope and Priorities

26. Main Topics Covered

27. Reporting and Implementation

28. 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

29. 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

30. 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

31. 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

32. 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

33. 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

34. 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

35. 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

36. Email: economicforum@ons.gov.ukTwitter: @ONS #ONSeconomy.

37. Public sector finances Iain Bell, Head of Public Sector Finances and Households David Bailey Peter Gittins ONS Economic Forum 7 April 2014

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

39. 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

40. ESA10 impact on Public Sector FinancesPeter Gittins

41. 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

42. 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

43. 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

44. 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

45. 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

46. 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

47. 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

48. 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

49. Impact on PSNB ex (ex RM/APF)

50. Impact on base PSNB ex