ONS Economic Forum #ONSeconomy Website: involved/events/events/economic-forum/index.htmlhttp:// involved/events/events/economic-forum/index.html 10 July

ONS Economic Forum - Agenda 09.45Introduction 10.00NSQR of NA & BoP 10.30What’s new 10.45What’s next 11.15Coffee break 11.45Recent trends in self-employment 12.30Close 2

Introduction John Pullinger, National Statistician ONS Economic Forum 10 July

National Statistics Quality Review No 2 National Accounts and the Balance of Payments Kate Barker Lead Reviewer July ONS Economic Forum 4

Rationale and Terms of Reference Commissioned by ONS (not UKSA) Time elapsed since last review of this type Terms of reference: - user needs and priorities - basic compilation following Pickford - risks in coverage and collection - existing quality assurance at ONS Not a review of recent data trends 5

People and Process Statistical lead – Art Ridgeway, ex Stats Can ONS: Adrian Chesson, Priya Mistry ONS discussions/UKSA consultation User consultations – city, academics, journalists Messages positive and negative – but also lack of knowledge about ONS and methods 6

Previous National Accounts Reviews Key: Pickford 88/89; Allsopp 03/04; Caplan 03 Pickford – merger of economic statistics, survey improvements Allsopp – improvements to regional data, further survey recommendations Caplan - integrated supply/use framework, common deflators Some recommendations adopted then reversed Positive developments on service sector coverage 7

National Accounts Estimates Urgent reinstatement of Purchases Survey or alternative data source With SUT at PYP develop double deflation Adjust more than services industries to bring output measure into line Consider ways to reduce workload of quarterly estimates and annual benchmarking 8

Other statistical issues Work with BoE on Flow of Funds Support new unit focused on deflation Improve deflators for GFCF Improve the IDBR Improve access to administrative data Importance of systems constraints 9

Quality Assurance and Communication Users complimentary about response to inquiries/press releases Economic Forum and preparation for ESA10 Need to be transparent if QA not adequate Stronger sign-off procedures for outputs Consider all users not just key ones The website

Summary Work of National Accounts inevitably complex and needs to be continuous focus on methods Processes not always well-explained to users Workload pressures with ESA10 and other new demands Overall the National Accounts of a good standard Important that improvements not reversed 11

What’s new Peter Patterson, Deputy Chief Economic Adviser ONS Economic Forum 10 July

Output, employment and hours 13

Contributions to growth in output 14

Contributions to expenditure growth (1)

Contributions to expenditure growth (2):

Hours and potential hours 17

Labour market capacity indicators 18

Net capital stocks = £1.4 trillion, CVM (2010 reference year)

Capital intensity by industry sector 20

Capital stocks per employed person 21

Capital stock and productivity 22

Growth in capital stock & productivity 23

Households’ debt-income ratio 24

Households’ net interest payments 25

What’s next Peter Patterson, Deputy Chief Economic Adviser Graeme Walker, Head of National Accounts ONS Economic Forum 10 July

What’s next Johnson review of price statistics (autumn) Re-weighting of LFS estimates using 2011 Census data (October) – historic data in September Blue Book

Improvements to National Accounts in September 2014 Graeme Walker Head of National Accounts ONS Economic Forum: 10 July

Outline What improvements are being made? Impact on GDP Current price levels Real GDP growths Other impacts Public Sector Finances Sector and Financial Accounts Balance of Payments International experience 29

Improvements New international frameworks (ESA 2010, BPM6, MGDD) Improvements to methods New data (not relevant for period up to 2009) 30

New International Frameworks R&D Weapons Decommissioning costs Pensions BPM6 changes 10 June articles 31

Improvements to methods Review of Non-Profit Institution serving Households units (NPISH) Financial Intermediaries Services Indirectly Measured (FISIM) Illegal Activities New Cars Own-account construction Exhaustiveness adjustments Gross Fixed Capital Formation Inventories 29 May articles 32

Impact on GDP levels (97 to 09) Average revision +3.6% (£43 bn) ESA % (£24 bn) Methods improvement +1.6% (£19 bn) Biggest impacts (average) R&D +£17 bn NPISH review +£9 bn Illegal activities +£9 bn Weapons +£3 bn Pensions +£3 bn 33

Revisions to GDP levels 34

Revisions to GDP levels 35

Real GDP annual growths Average growth still +2.2% still +3.2% stronger than in BB13 but very similar to BB12 Some changes to path 99, 01 and 09 are stronger 00, 04 and 07 are weaker Final analysis of downturn requires quarterly path (to be published early September) Length of downturn looks to be the same Depth of downturn looks to be a bit shallower but similar to BB12 36

Revisions to Real GDP growths 37

Annual Real GDP growth rates in various Blue Books 38

Public Sector Finances PSND increased by around £30bn in recent years all due to the reclassification of network rail to central government PSF only change at this stage due to timing of advice from Eurostat PSNB generally increased by £2bn - £4bn in recent years mainly due to network rail and change in treatment of Local Authority pension schemes Pension scheme impact on GDP already described; network rail is PSF only Change to treatment of receipts from 3G/4G mobile phone licence auctions alter the PSNB profile increase of £22bn in 2000 offset over subsequent years PSF only change due to timing of advice from Eurostat 39

Public Sector Finances Change to treatment of the Royal Mail Pension Plan transfer also alters the profile of PSNB increase of £36bn in 2012 offset over subsequent years current/capital transfers with no impact on GDP Weapons/R&D capitalisation switches spending from current budget to net investment without changing PSNB (GDP impact already described) Changes announced in December/February with detailed article published in June PSF bulletin now includes detailed estimates of ESA10 impact on deficit and debt 40

Comparison of PSND measures 41

Comparison of PSNB measures 42

Sector and Financial Accounts 9 July article NPISH – uplifts both NPISH and household final consumption expenditure (as HHs consume NPISH goods and services) Changes to the reference rates, removal of interbank FISIM and adjustments to FISIM imports will impact all sectors, especially HH Illegal activities will increase HH expenditure, intermediate consumption and mixed income Car list prices will reduce HH expenditure by less than £1 billion per year Exhaustiveness adjustments impact HH expenditure both positively (fuel) and negatively (gambling and digital TV) 43

Sector and Financial Accounts (part 2) Own account construction increases PNFC and HH fixed capital formation R & D impact on gross fixed capital formation will be seen across the sectors Weapons systems capitalisation impact will be seen in the government sector Pensions – new service charge methods and including funded defined benefit schemes for local government and NPISH increases their expenditure and output Detailed impact and changes which only impact on 2010 and later to follow on 12 August 44

Balance of Payments (BoP) Biggest change - measurement basis of direct investment profits for monetary financial instructions changes from an all inclusive (AI) to a current operating performance basis (COP) Other changes include: Revised treatment of non monetary gold Introduction of remote gambling Revised treatment of goods sent abroad for processing Overall impact of BoP changes: Before financial crisis – improvement in current account balance During the financial crisis – deterioration in current account balance 45

International experience Worldwide implementation of SNA 2008 completed for US, Canada and Australia Impacts described by ONS for UK GDP are of the same magnitude and direction as those seen across EU member states and worldwide ONS has already provided more detailed information than most countries Most impacts expressed in nominal terms 46

International Comparisons (Part 2) 47

Publication Schedule 9 July– Summary of impact on Sector and Financial Accounts (SFA) and Balance of Payments, International Comparisons, Layout of Blue Book, Pink Book and UKEA publications 23 July - Impact on GDP components of ESA 2010 and non ESA 2010 changes for 1997 – August (prov) – Detailed impact on SFA and Balance of Payments 48

Publication Schedule (part 2) Mid/End August – 2012 real and nominal GDP annual changes Early September – Reminder of all impacts plus quarterly path of real GDP September – Publication of Quarterly National Accounts and Balance of Payments on ESA 2010/BPM6 basis 31 October – Publication of Blue Book and Pink Book

Questions 50

ONS Economic Forum #ONSeconomy Website: involved/events/events/economic-forum/index.htmlhttp:// involved/events/events/economic-forum/index.html 10 July

Trends in self-employment Nick Palmer, Labour Market Statistics ONS Economic Forum 10 July

Economic Forum 10 July 2014: self-employment Contents 1.Summary of the recent growth in self-employment – based on headline statistics as published 2.Address some questions and perceptions - using supplementary data from the Labour Force Survey 53

Economic Forum 10 July 2014: self-employment Questions related to recent growth in self-employment : Post-recession effects or longer-term structural effects ? Is it in jobs that drive economic growth ? How much of it is part-time/limited hours, (and so low income) ? Are people just taking up self-employment in the absence of other opportunities, or is this a new generation of young entrepreneurs ? To what extent is it more people taking up self-employment and to what extent is it people staying self-employed longer (inflows vs outflows) ? 54

Economic Forum 10 July 2014: self-employment 55

Economic Forum 10 July 2014: self-employment 56

Economic Forum 10 July 2014: self-employment 57

Economic Forum 10 July 2014: self-employment 58

Economic Forum 10 July 2014: self-employment 59

Economic Forum 10 July 2014: self-employment 60

Economic Forum 10 July 2014: self-employment 61

Economic Forum 10 July 2014: self-employment 62

Economic Forum 10 July 2014: self-employment 63

Economic Forum 10 July 2014: self-employment 64

Economic Forum 10 July 2014: self-employment 65

Economic Forum 10 July 2014: self-employment 66

Economic Forum 10 July 2014: self-employment 67

Economic Forum 10 July 2014: self-employment 68

Economic Forum 10 July 2014: self-employment Summary/Conclusions Recent strong growth in self-employment: reflects a mixture of post-recession effects and longer-term structural changes broadly based in terms of industries/occupations and working patterns partly reflects ageing workforce generally and older profile when compared with employees mostly among the longer established / little evidence of increase in “stop- gaps” dominated by long-term self-employed – implying lower outflows “entrepreneurship“/business growth: continues to be just a small factor 69

Self-employment income Mixed income = National Accounts measure of the income of unincorporated enterprises owned by members of households – part of GDP(I). Work by the owner or members of their family cannot be distinguished from the owner's profits as entrepreneur. Mixed income for the household sector is calculated as profits + rental income – holding gains. 70

Mixed income - compilation Profits and rental Rental = income earned through ownership of buildings Annual data source is HMRC data based on self- assessment form – data for 2012/13 will be in BB14 Series extended for later periods using growth in labour market indicators - LFS self employment, average weekly earnings (AWE) Holding gains Gains and losses accrued to owners of assets and liabilities purely as a result of holding them over time. Data supplied as part of estimation of gross capital formation 71

Output of the self-employed ONS Interdepartmental Business Register (IDBR) used as sampling frame for the Annual Business Survey Register includes all UK businesses registered for either value added tax (VAT) or pay as you earn (PAYE) But missing units include self-employed, businesses not registered for VAT/PAYE, businesses without employees, etc. To overcome this issue, IDBR under-coverage adjustments are made as part of annual Supply and Use balancing process An adjustment factor is applied to estimates of market sector output and intermediate consumption at the UK SIC (2007) class level Adjustment factors vary by industry; based on periodic analysis using additional data from HMRC – last formally updated for Blue Book

Experimental estimates of productivity of self- employed No direct information is collected on the output of employees or the self-employed Income approach is used to apportion output, utilising development work from the sectional unit labour costs system. Income weights are defined as (COE+GOS)/GDP(Y) for employees, and one minus this (= mixed income/GDP(Y)) for the self-employed These income weights are consistent with those implied in the national accounts, and are applied to indices of GVA to derive synthetic GVA indices for employees and the self-employed separately System utilises new hours estimates developed to meet ESA requirements, with split between employees and the self-employed Estimates are non-seasonally adjusted, and presented as four- quarter moving averages, based on 2010=100 73

Economic Forum 10 July 2014: self-employment 74 Productivity of Employees and Self-Employed 4 Quarter Moving Average

Economic Forum 10 July 2014: self-employment 75 Productivity of Employees and Self-Employed 4 Quarter Moving Average

Economic Forum 10 July 2014: self-employment 76 Productivity of Employees and Self-Employed - Construction 4 Quarter Moving Average

#ONSeconomy Website: ons.gov.uk/ons/about-ons/get- involved/events/events/economic-forum/index.html 77