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National Accounts Classifications, Forward Workplan, March 2015

Released: 27 March 2015 Download PDF

Abstract

The ONS assesses bodies and transactions against international guidance to decide how they should be treated in the National Accounts. A small secretariat team gather and analyse the information required to enable the National Accounts Classifications Committee (NACC) to reach a decision on the appropriate accounting treatment. There is high demand for assessments as well as a considerable volume of ad-hoc requests for advice on policy proposals and other issues. Meanwhile, the secretariat are initiating improvements to products such as the classifications information on the ONS website and the Public Sector Classifications Guide. This update lists the cases that ONS expects to assess in the coming year (Q2 2015 to Q1 2016). These cases have been prioritised on the basis of the impact they will have on key statistics (an impact of at least £1bn on the government deficit or £10bn on government debt), their importance to public policy, and their priority for Eurostat (the statistical body of the European Union which oversees member states' compliance with the European System of Accounts and other rules under which the UK statistics are produced). However, this list does not include other cases with smaller impacts which may be assessed in this period.

Introduction

National Accounts provide a framework for describing and analysing what is happening in national economies. They are compiled according to internationally agreed definitions and standards, and in accordance with guidance issued by Eurostat (the statistical body of the European Union). The ONS is responsible for the production of the UK National Accounts and Public Sector Finance statistics and hence for applying and interpreting the guidance to the UK situation.

In these accounting frameworks, it is a fundamental principle that the economy is composed of a large number of 'institutional units' such as businesses, government bodies, universities, hospitals, charities, and households; and that these individual units are classified into groups according to their characteristics for analytical purposes. One of the main classifications systems puts units into 'institutional sectors' according to the different economic incentives they face. For example, businesses exist to make profits while some other units do not (such as government bodies, charities, and households), so this is one reason why these each belong to different institutional sectors.

Additionally, each unit engages in financial transactions, paying out and receiving money for reasons such as buying and selling goods and services, paying taxes, or collecting tax revenues. These transactions are also classified within the statistical system.

In the majority of cases the classification of units and transactions is straightforward, but in some cases detailed investigation is required to ensure the economic reality is reflected in the statistics. The ONS National Accounts Classifications Committee (NACC) exists to consider such cases and recommend the appropriate statistical treatment. A published formal process is followed to agree the most appropriate classification of each unit and transaction. Decisions are authorised by the Chair of the NACC, or by the Director of National Accounts and Economic Statistics, depending on the nature of the decision and size of the impact on key statistics such as the government debt or current deficit. More information on the classification process is available on the ONS website.

Common decisions include:

  • whether a body is in the private or public sector,

  • for public sector bodies, whether they are government bodies or public corporations

  • whether certain transactions count as taxes or service fees

Classifications are particularly pertinent in the areas of public expenditure, revenues, borrowing, debt, and tax burden. This applies both domestically, and within the European Union where statistics based on the 'European System of Accounts' (ESA) are used in:

  • the Maastricht Treaty 'Excessive Deficit Procedure' measures, particularly for estimates of government debt and deficit, where they determine the 'convergence criteria' for potential entrants to the monetary union, and performance against the Growth and Stability Pact for Eurozone members; and

  • the measurement of Gross National Income (GNI), one of the main determinants of member states' contributions to the European Union's budget.

It is a legal requirement for European Union countries to compile specified statistical returns on the basis of the ESA. From September 2014 onward, statistics are now compiled in accordance with the 2010 ESA (which replaced the 1995 ESA). The 2010 update is consistent with the 2008 revision of the System of National Accounts (SNA 2008) and is accompanied by updates to the Eurostat 'Manual on Government Deficit and Debt' (MGDD). Under these new guidelines, information on classifying units has been extended and strengthened. Changes to the guidance have driven the inclusion of several cases in this Forward Work Plan and the ONS will apply these latest guidelines going forward.

Since 1997, the UK fiscal policy frameworks have also been based on the National Accounts; fiscal policy objectives are described in terms of National Accounts aggregates and as a result key fiscal targets are dependent on National Accounts definitions and classifications.

There is high demand for classification assessments and at any one time ONS is progressing a number of active cases. This forward work plan highlights only those cases which will be prioritised due to:

  • the significant impact they will have on key statistics (an impact of at least £1bn on the government deficit or £10bn on government debt)

  • their importance to public policy

  • their priority for Eurostat

As such, this forward workplan does not cover all cases which will arise over the coming year; further minor cases (with smaller statistical and policy impacts) will be assessed as resources allow. ONS often has to respond to external developments - including developments in government policy; such developments, and unanticipated complexity of the cases being assessed may lead to delays in reaching final classification decisions. Where possible, reasons for delays compared to previous published timescales will be highlighted.

The published classification process allows Government Departments to seek classification advice on policy proposals during their development. As a result, a considerable volume of ad-hoc requests for advice on policy proposals and other issues are also received. These are not included in any published workplan unless details of the proposal are already in the public domain.

Given all of the above, this workplan provides an up-to-date list of the cases ONS expects to classify over the coming year.

Format of the Work Plan

The following section gives an overview of the cases ONS expects to decide over the next 12 months, in order of when they are expected to be completed. For each case the following are listed:

  • Current classification

  • Reason for assessment - i.e. impact on key aggregates, policy needs, guidance changes, Eurostat request

  • Impact on Fiscal Aggregates - estimated scale of the potential impact of the decision on the UK or European Fiscal Measures (Public Sector Net Borrowing and Public Sector Net Debt for the UK, General Government Consolidated Gross Debt and General Government Net Borrowing for European measures). These are roughly classified as:

(i) small: less than £100m change

(ii) medium: between £100m and £1bn change

(iii) large: more than £1bn change

  • Impact on National Accounts aggregates (e.g. GDP), roughly classified as:

(i) small - an insignificant/minor impact on aggregates

(ii) large - a significant/noticeable impact on aggregates

  • Period of expected completion

Cases scheduled for assessment

1. Visit England

Current classification: not classified

Reason for assessment: changes in governance

Impact on Fiscal Aggregates: small

Impact on National Accounts: small

Expected completion: April 2015

Visit England is the country’s national tourist board. Its role is to grow the value of tourism by working in partnership with the industry to deliver inspirational marketing campaigns, and to provide advocacy for the industry and visitors to England. ONS will establish how the body should be recorded in Economic Statistics.

 

2. Social Transfers In-Kind

Current classification: D.631/2 Social Transfers in Kind

Reason for assessment: new detail in ESA10

Impact on Fiscal Aggregates: none

Impact on National Accounts: small

Expected completion: May 2015

The UK government and Non-Profit Institutions Serving Households (NPISHs) provide various goods and services to households free of charge. ESA10 distinguishes between 'Social Transfers in Kind - general government and NPISHs non-market production' (D.631) and 'Social transfers in kind — market production purchased by general government and NPISHs' (D.632); ONS will establish which of these two categories the transactions recorded in the National Accounts and Public Sector Finances belong to.

 

3. Dead-lock Joint Ventures

Current classification: private sector

Reason for assessment: requirements in ESA10

Impact on Fiscal Aggregates: small

Impact on National Accounts: small

Expected completion: June 2015

ESA10 introduced new guidance on 50-50 joint ventures where control is precisely equally shared. This may have implications for some ventures between public and private partners such as the Manchester Airport Consortium which is currently recorded as a private non-financial corporation. The ONS will establish the correct treatment of such arrangements in light of this new guidance.

 

4. Social Security Funds (General Government sub-sector)

Current classification: Central or Local Government

Reason for assessment: new detail in ESA10

Impact on Fiscal Aggregates: none

Impact on National Accounts: no impact on key aggregates but involves isolating a fourth sub-sector within General Government

Expected completion: June 2015

EU Member States are required to report a breakdown of the 'General Government' (S.13) institutional sector which isolates the following sub-sectors:

S.1311 - Central Government

S.1312 - State Government

S.1313 - Local Government

S.1314 - Social Security Funds

Currently, ONS only identifies Government units as Central- or Local- Government. Through this work, ONS will establish whether there are units which should be classified as Social Security Funds and hence recorded separately in the National Accounts and Public Sector Finances.

 

5. East Coast Mainline Company Limited

Current classification: Public Non-Financial Corporation (S.11001)

Reason for assessment: new franchise arrangement

Impact on Fiscal Aggregates: small

Impact on National Accounts: small

Expected completion: June 2015

On 1st March 2015 the East Coast Mainline franchise was taken over by Virgin East Coast - a consortium of Stagecoach and Virgin Trains. It had previously been operated by 'Directly Operated Railways', a Public Non-Financial Corporation. ONS will examine the new operating company to establish whether it is a public or private corporation.

 

6. Diverted Profits Tax

Current classification: not classified

Reason for assessment: new tax

Impact on Fiscal Aggregates: medium

Impact on National Accounts: small

Expected completion: June 2015

In the budget announced on Wednesday 18th March 2015, HM Government confirmed that a new 'Diverted Profits Tax' (DPT) will be introduced from 1st April 2015. ONS will assess the new tax against ESA10 rules to ensure it is correctly recorded in economic statistics.

 

7. Government non-market output

Current classification: P.131/2 Non-market output, market output

Reason for assessment: new detail in ESA10

Impact on Fiscal Aggregates: none

Impact on National Accounts: small

Expected completion: June 2015

ONS intends to implement a further disaggregation of 'non-market output' (P.13) in accordance with new guidance in ESA10. 'Payments for non-market output' (P.131) consists of various fees and charges paid to non-market producers (at prices which are not 'economically significant') and 'non-market output, other' captures non-market output provided free of charge. In implementing this disaggregation for the government sector, ONS will review items of secondary market output (P.11) of government to ensure that no output sold at economically insignificant prices is being classified as market output and is instead classified to P.131 'payments for non-market output'.

 

8. Miscellaneous Pension Schemes

Current classification: pension funds

Reason for assessment: ESA10 guidance

Impact on Fiscal Aggregates: large

Impact on National Accounts: small

Expected completion: Quarter 3 (July - September) 2015

ESA10 provided new guidance on pension administrators, pension managers, pension funds, and multi-employer pension schemes. ONS will evaluate a number of pension schemes against this guidance including the Railway Pension Scheme, Transport for London (TfL) pension scheme, and Local Government pension scheme.

 

9. Pension Protection Fund

Current classification: Public Insurance Corporations and Pension Funds (S.12501)

Reason for assessment: new guidance in the 2014 Manual on Government Deficit and Debt (MGDD)

Impact on Fiscal Aggregates: none

Impact on National Accounts: small

Expected completion: Quarter 3 (July - September) 2015

The Pension Protection Fund was established to pay compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer and where there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation. In the 2014 MGDD, new guidance on the treatment of 'protection funds' was introduced; ONS will review the classification of the Pension Protection Fund in accordance with this guidance.

 

10. Revenue Scotland

Current classification: not classified

Reason for assessment: new body

Impact on Fiscal Aggregates: small

Impact on National Accounts: small

Expected completion: Quarter 3 (July - September) 2015

Revenue Scotland has been established as the tax authority responsible for the administration of Scotland’s devolved taxes. ONS will establish how Revenue Scotland, and the taxes it collects, should be classified in economic statistics.

 

11. Jisc

Current classification: not classified

Reason for assessment: policy priority

Impact on Fiscal Aggregates: small

Impact on National Accounts: small

Expected completion: Quarter 3 (July - September) 2015

JISC is a non-departmental public body which supports post-16, education, higher education, and research by providing leadership in the use of information and communications technology (ICT) in learning, teaching, research and administration. ONS will establish how the body should be recorded in Economic Statistics.

 

12. Pensioner Bond Scheme

Current classification: not classified

Reason for assessment: issuance of new government bonds

Impact on Fiscal Aggregates: large

Impact on National Accounts: small

Expected completion: Quarter 3 (July - September) 2015

The government, through NS&I (National Savings & Investments), has made available £10-15bn of '65+ Guaranteed Growth Bonds'. These are lump sum investments that earn a fixed rate of interest over set 1-year or 3-year terms. These bonds bear interest at above-market rates. ONS will establish how this issuance is correctly recorded in economic statistics.

 

13. Community Infrastructure Levy

Current classification: not classified

Reason for assessment: new levy

Impact on Fiscal Aggregates: small

Impact on National Accounts: small

Expected completion: Quarter 3 (July - September) 2015

Local authorities in England and Wales can choose to charge community infrastructure levy on new developments in their area. ONS will establish whether this is best recorded as a tax on products (D.21) or tax on production (D.29).

 

14. Transactions between Households and Non-Profit Institutions Serving Households (NPISH)

Current classification: various transfers

Reason for assessment: changes to National Accounts sector breakdown requirements under ESA10

Impact on Fiscal Aggregates: not applicable

Impact on National Accounts: large

Expected completion: Quarter 3 (July - September) 2015

From Blue Book 2016 onwards, ONS will be required to identify Households and NPISHs as two separate sectors in the National Accounts as part of the developments required under the ESA10. There are a large number of transactions between these sectors which are consolidated out in the current presentation. Additionally, transactions between the current, consolidated sector must be split to identify transactions between Households, NPISH, and other sectors separately. This will include social transfers in kind from NPISH to households. The review will establish how these transactions can be treated appropriately in the National Accounts.

 

15. Corporation Tax Relief Schemes

Current classification: payable/non-payable tax credits

Reason for assessment: requirements in ESA10

Impact on Fiscal Aggregates: none

Impact on National Accounts: small

Expected completion: Quarter 4 2015 - Quarter 1 2016

The UK government operates a number of tax relief schemes which reduce the amount of corporation tax paid by firms undertaking certain activities (such as R&D or video games development for example). ESA10 changed the treatment of tax credit schemes, differentiating between 'non-payable' schemes (where the amount of tax credit is limited by the size of the relevant corporation tax liability) and 'payable' schemes (where tax credit exceeding the corporation tax liability is paid out to the beneficiary). ONS will assess UK corporation tax relief schemes in the context of this new guidance.

 

16. Energy Companies Obligation (ECO)

Current classification: not classified

Reason for assessment: policy, developing guidance from Eurostat

Impact on Fiscal Aggregates: not known

Impact on National Accounts: not known

Other impacts: statistics on taxation

Expected completion: Quarter 4 2015 - Quarter 1 2016

ECO was introduced in 2013 as a package of measures aimed at helping to improve the environmental efficiency of UK residential buildings. It requires large energy providers to offer financial support for efficiency measures such as improving insulation or installing a new boiler. It also requires companies to provide assistance to low income and vulnerable households.

The international guidelines on treatment for such schemes are unclear and this has been discussed on several occasions internationally. The issue is that, while in the real-world financial transactions flow directly from energy providers to consumers, these redistributive transactions would not occur without Government impetus. One view is that such flows should be routed via Government from energy firms to consumers, to reflect the tax-like nature of the situation. The re-routing of flows to reveal the economic reality of the transactions is an accepted practice in the European System of Accounts.

However, there is international variation in the treatment of such transactions and this impacts the comparability of statistics on the tax burden in different countries. Further international guidance is therefore being sought.

 

17. "Minor" Trust Ports

Current classification: varies (Central Government, Private Non-Financial Corporations)

Reason for assessment: requests from units

Impact on Fiscal Aggregates: small

Impact on National Accounts: small

Expected completion: Quarter 4 2015 - Quarter 1 2016

Trust Ports are independent statutory bodies each governed by their own, unique, statutes and controlled by a local independent board. In October 2013, ONS announced that "major" Trust Ports (those which exceed the revenue threshold set out under Section 11 of the Ports Act 1991 - £9.0m in July 2012, with this threshold adjusted for RPI inflation between periods), will continue to be treated as Public Corporations due to the power of the relevant Government sponsoring body to choose to enforce their sale (i.e. privatisation) under Section 10 of the aforementioned Act and furthermore have the right to a legally defined share of the proceeds from such a sale.

At the same time ONS undertook to consider trust ports with annual revenues below this threshold ("minor" Trust Ports) on a case-by case basis. ONS has been contacted by a number of such Trust Ports requesting classification reviews. ONS plans to begin to begin considering these cases in the last quarter of 2014, subject to the demands of cases of higher priority.

 

18. Universities

Current classification: Transactions not at economically significant prices.

Reason for assessment: policy - significant increases in tuition fee maxima

Impact on Fiscal Aggregates: not applicable

Impact on National Accounts: medium

Expected completion: Quarter 4 2015 - Quarter 1 2016

From September 2012 the maximum tuition fees which could be charged by universities in England and Wales were increased from around £3,500 to £9,000. ONS will review the treatment of these fees in light of this change; in particular, whether tuition fees are now charged at 'economically significant prices'. This is relevant when assessing whether universities are 'market' or 'non-market' producers.

Background notes

  1. Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: media.relations@ons.gsi.gov.uk

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