Author | Month 2006 Towards longer national account data time series in UK Joint project of the OECD, bank of England and National Statistics

Page 2 Introduction The aim of this project is to fill a gap in the Financial Accounts time series in order to help both practitioners and academics to better understand current trends For the United-Kingdom, the current data, as transmitted to the OECD, cover the period Information on balance sheet figures by sector exists in the annual national accounts (Blue Book) publications and is available for 1975 to Total financial assets and liabilities are given, but the instrument breakdowns are very different compared with the new SNA 93 classification

Page 3 Previous work  Pioneering work on balance sheets in UK, undertaken by the department of applied Economics, Cambridge (DAE) was presented in a book written by Professor Jack Revell.  That work was later extended by Revell and Roe, with CSO and Bank of England sponsorship, to include annual estimates for the period and a summary was published in economic trends in  Provisional balance sheet estimates for the personal sector for 1966 to 1975 were published by the CSO in January  Information on balance sheet figures by sector exists in the annual national accounts (Blue Book) publications and is available for 1975 to  The current data with the SNA93 classification cover the period 1987 to 2006

Page 4 Summary: available financial account data for the all sectors From 1957 to 1966 National balance sheets and national accounting – Revell and Roe From 1966 to 1976 CSO, economic trends for Personal sector For 1966, 1972 CSO, Economic trends, 1980 all sectors From 1975 to 1987 Blue book from 1987 to 1997 From 1987 to 2006 OECD.stat / National statistics Period Sources

Page 5 Reasons for the discrepancy between the two sources :  Classification of institutional sectors and financial instruments –Changes in the definitions of institutional sectors The definition of the UK no longer includes the Channel islands or the Isle of Man The household sector is similar to, but not the same as, the old personal sector. Sole traders as unincorporated businesses continue to be recorded here since their accounts are not separable from those of households. Partnerships are now classified to non-financial corporations (S11) or financial corporations(S12).Life insurance assurance and pension funds’ income and expenditure were previously recorded in the personal sector. They are now recorded with Insurance corporations and pension funds’ sub-sector (S125) The bank of England is included in the sub-sector S121 of the general sector financial corporations –A changes in the definition of instruments

Page 6 From the old classification to the SNA 93 The main changes within SNA 93 refer to the definition of institutional sectors …..

Page 7 From the old classification to the SNA 93 …and to the classification of financial instruments We used this conversion table in order to merge data from the two time series.

Page 8 UK – Personal sector from 1979 to 2006 There is an evident good degree of continuity between the old series and the New time series in the case of both assets and liabilities and in relation of the single instruments.

Page 9 Longer time series allow to have a better insight on wealth … Financial asset as a Percentage of GDP increased in the period under review but not uniformly … We can identify three main periods:  In the first 20 years we witnessed a stable trend in the ratio of financial assets as a percentage of GDP with an average of about 200%  In the second period, from 1972 to 1979, we witnessed an impressive increase in nominal GDP not followed by an increase of household financial assets. The ratio reached the lowest level of 122% in 1979  Starting from the 80’s the ratio have been increasing impressively, with the only exception of 2001

Page 10 …its dynamics within the economy and its allocation Important changes both in per capita terms … … and in the asset mix

Page 11 Strong disparities across countries, each of them shows a specific profile Despite the common trend towards a decrease in safe assets and the switch towards managed and long term assets there are important structural differences among the countries under analysis.  UK presents a high level of long term investment (Life insurance and Pension)  USA is characterised by the importance of direct investments in shares and other equity  safe instruments are still around 40 per cent of the household financial wealth in Italy. As expected, in the US and UK safe assets are less important.  Italians stand out because of the importance of fixed income securities and because of a share of long term products still well below average Source: PGAM estimation on Central Bank data

Page 12 Opportunities arising from the analysis of longer time series:  Longer time series give the opportunity to better analyse many relevant issues such as: –The evolution of the financial structures over the time –The evolution in the liabilities side of non-financial corporation –Correlations between economic cycles and financial cycles –Convergence in the financial structures between European countries, Japan, US and Canada –Measures of wealth effects –Models on the demand of financial assets –Measures of the degree of openness of the different financial markets –The evolution and relative importance of financial institutions

Page 13 Summary: available national account data  ITALYfrom 1950 to 2006Bank of Italy  US from 1950 to 2006Federal reserve  CANADAfrom 1960 to 2006OECD stat  GERMANY from 1970 to 2006 OECD.stat/ golden book  SPAINfrom 1980 to 2006OECD.stat/ golden book  UK from 1979 to 2006Bank of England / CSO  FRANCEfrom 1980 to 2006 OECD.stat  JAPANfrom 1980 to 2006OECD.stat Countries PeriodSources

Page 14 Conclusions  The aim of this project is to fill a gap in the Financial Accounts time series in order to help both practitioners and academics to better understand current trends.  I would like to express on behalf of the research team our warmest thanks to those who have helped us so far and in particular –Mick Tucker of UK National Statistics Office for data support –Stuart Brown and Michael Rizzo of UK National Statistics Office –Chris Wright and to Stephen Sabine of Bank of England