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Changes to National Accounts Blue Book 2015: Improvements to Household Expenditure Estimates This product is designated as National Statistics

Released: 30 September 2015 Download PDF

Abstract

This technical article explains the developments affecting Household Final Consumption Expenditure (HHFCE) estimates for 1997 to 2013 released in the Blue Book 2015 data set. The impact on HHFCE estimates for Quarter 1 (January to March) 2014 onwards is shown in the Quarter 2 (April to June) 2015 Consumer Trends release also published on 30 September 2015.

Introduction

This article explains the developments affecting Household Final Consumption Expenditure (HHFCE) estimates for 1997 to 2013 released in the Blue Book 2015 data set. The impact on HHFCE estimates for 2014 Quarter 1 (January to March) 2014 onwards is shown in the 2015 Quarter 2 (April to June) 2015 Consumer Trends release also published on 30 September 2015.

Developments include:

  • improvements resulting from a review of exhaustiveness adjustments pertaining to concealed income or activity and small business undercoverage

  • updated impact of Non-Profit Institutions Serving Households (NPISH) data on HHFCE following a review of data sources 

  • improvements to the treatment of cross-border property income in HHFCE

  • updated estimates for actual and imputed rental after alignment with the Consumer Price Inflation index measure that includes Owner Occupiers’ Housing costs (CPIH)- this is following improvements to CPIH methodology

  • removal of alcohol and tobacco adjustments

  • improved estimates of expenditure on narcotic drugs 

The improvements to HHFCE implemented in Blue Book 2015 fall into 2 main categories:

  1. ESA 1995 changes to ensure comparability in measuring Gross National Income (GNI) across European Union (EU) countries, and,

  2. other changes to meet user needs - these include improvements in the measurement of current price imputed and actual housing rentals.

The article also highlights a number of planned future HHFCE developments.

Blue Book 2015: HHFCE revisions in current price terms

There are upward revisions to the level of headline (national concept) annual HHFCE in all years from 1997 to 2013. Upward revisions to the level average 0.4% with the largest revision of 1.3% in 2013 and the smallest increase of 0.1% in each of the years from 2004 through to 2007.

Revisions to current price annual growth rates between 1998 and 2013 average +0.04 percentage points and range between +0.6 percentage points (in 2013) and -0.2 percentage points (in 2003 and 2010). See Figure 1.

Figure 1: Total annual HHFCE: Revision between Blue Book 2015 and previous estimates (current prices, £ million)

Figure 1: Total annual HHFCE: Revision between Blue Book 2015 and previous estimates (current prices, £ million)
Source: Office for National Statistics

Notes:

  1. Quarter 1 is January to March
  2. Click on image to view a larger version

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The revisions to current price levels are summarised in Table 1. Revisions are mainly driven by:

  • improvements following a review of the concealed income and other undercoverage adjustments - these improvements have been implemented through Supply and Use balancing 

  • improved data for NPISH - these improvements have been implemented through Supply and Use balancing 

  • improvements to cross border property income

There are also impacts from:

  • alignment of rental with CPIH following CPIH improvements

  • removal of alcohol and tobacco adjustments

  • improved estimates of expenditure on narcotic drugs

  • other revisions from the Supply and Use balancing process (that is in addition to those from the evasion/undercoverage and revised NPISH data) - these are included in column h, "Other revisions" in Table 1 

  • revisions due to more minor improvements to sources and methods and due to later data for existing sources (including benchmark data from our Annual Business Survey (ABS)) - these are also included in column h in Table 1.

Table 1: Total annual HHFCE: Revision between Blue Book 2015 and previous estimates (current prices, £ million)

  Contribution to total revisions:
Total revisions to HHFCE Evasion/Under Coverage NPISH Cross Border Property Income CPIH/ Rental Alcohol & Tobacco Narcotic Drugs Other (incl later data)
£ million £ million £ million £ million £ million £ million £ million £ million
a b d e f g h
1997 2,991 3,282 -976 656 0 75 -12 -34
1998 2,556 3,016 -974 832 0 -200 -92 -26
1999 2,661 2,915 -1,063 785 0 1 71 -48
2000 2,660 2,348 -917 828 0 21 516 -136
2001 3,021 2,662 -1,103 868 0 -15 816 -207
2002 2,617 2,821 -1,533 966 0 0 489 -126
2003 1,690 2,790 -2,015 942 0 -1 0 -26
2004 852 2,963 -2,624 1,000 0 -1 -652 166
2005 1,079 3,460 -3,203 1,312 0 -1 -611 122
2006 621 3,632 -3,745 1,430 0 1 -853 156
2007 642 4,023 -4,201 1,903 0 -2 -1,434 353
2008 1,703 4,160 -4,832 2,944 0 1 -841 271
2009 3,528 4,845 -5,242 3,142 0 615 318 -150
2010 1,517 6,047 -6,208 3,313 2,278 906 -591 -4,228
2011 4,985 6,671 -7,909 3,120 4,041 1,367 134 -2,439
2012 7,219 7,479 -6,336 3,091 3,998 222 253 -1,488
2013 13,421 7,887 -6,659 3,186 4,041 0 910 4,056

Table source: Office for National Statistics

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Improvements to sources and methods: further details

This section gives further details of individual developments in the Blue Book 2015 data.

3.1 Exhaustiveness - Concealed income or activity adjustment and Under-coverage of unincorporated small businesses adjustment

The improvements to methods with the biggest impact on Supply and Use balancing were those relating to exhaustiveness of the national accounts, specifically the concealed income or activity adjustment and under-coverage of unincorporated small businesses adjustment. These form part of wider exhaustiveness adjustments that are applied to account for any production, income and expenditure that is not picked up in source data.  These revisions are due to changes from ensuring comparability in measuring GNI across EU countries.

Hidden activity generating concealed income forms part of output and intermediate consumption in the production approach to Gross Domestic Product (GDP), while concealed income itself forms part of Compensation of Employees (CoE), Mixed Income (MI) and Gross Operating Surplus (GOS) in the income approach. No specific adjustments are made to the expenditure approach to GDP prior to balancing, but coherence adjustments are made during balancing to bring this measure into alignment with GDP(P) and GDP(I). The improvements here for Blue Book 2015 are to replace the existing National Accounts concealed income or activity model with a new, more comprehensive model based, in part, on analysis by HM Revenue & Customs (HMRC) of missing corporation and income tax.

Adjustments for the under-coverage of unincorporated small businesses form part of output and intermediate consumption in the production approach to ensure consistency with data already feeding into the income and expenditure approaches. The IDBR provides the sample frame for the ABS, which itself forms the largest source for the production approach to estimating GDP. Enterprises falling below the Value Added Tax (VAT) and/or Pay As You Earn (PAYE) thresholds, by construction, are not recorded on the Inter-Departmental Business Register (IDBR). In Blue Book 2015 these estimates of missing production by unincorporated businesses below the VAT and/or PAYE thresholds will be updated for 2009 and later years using more recent administrative data provided by HMRC.

The combined effect of these revisions is shown in column b of Table 1. These revisions all have a positive impact on total current price HHFCE and have the largest overall impact on total current price HHFCE of all Blue Book 2015 revisions.  Table 2 shows the breakdown between the revisions due to concealed income and undercoverage. The largest impact from concealed income or activity is the upward revision of £4.8 billion in 2012, this equates to an upward revision of 0.5% in the level of total HHFCE.  The average is +£3.5 billion per year. The undercoverage of unincorporated small businesses impacts total level HHFCE only from 2009 and has an average annual effect of +£2.5 billion per year.

Table 2: Concealed Income/Undercoverage breakdown: Revision between Blue Book 2015 and previous estimates (current prices, £ million)

  Concealed income/activity adjustment Undercoverage of unincorporated small businesses adjustment
£ million £ million
1997 3,282 0
1998 3,016 0
1999 2,915 0
2000 2,348 0
2001 2,662 0
2002 2,821 0
2003 2,790 0
2004 2,963 0
2005 3,460 0
2006 3,632 0
2007 4,023 0
2008 4,160 0
2009 3,959 886
2010 4,023 2,024
2011 3,965 2,706
2012 4,809 2,670
2013 3,835 4,052

Table source: Office for National Statistics

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The article “ Methodological Improvements to National Accounts for Blue Book 2015– Exhaustiveness (225.9 Kb Pdf) ” published on 19 May 2015 gives a more detailed description of these changes.

3.2 NPISH improvements

Improved estimates of NPISH activity were introduced in Blue Book 2014, including new estimates of activity within the NPISH sector based on National Council for Voluntary Organisations (NCVO) data.  At the time, the upward revision to output was assumed to be  almost entirely consumed by households resulting in increased estimates of Household Final Consumption Expenditure (HHFCE), while the upward revision to intermediate consumption was met by increasing estimates of market sector supply. The further changes in Blue Book 2015 include a subsequent review of the potential overlap between NCVO data and existing National Accounts production data from the ABS that has led to a reduction in HHFCE. In addition, an assessment of the new offsetting revisions against any coherence adjustments used to align the 3 approaches to measuring GDP in the Supply and Use balancing process has brought about a further reduction in HHFCE.

The revisions are shown in column c of Table 1. The changes have greater impact in the most recent years. The impacts on Total HHFCE from the NPISH changes are all negative and range from a decrease of £0.9 billion in 2000 to a decrease of £7.9 billion in 2011, these equate to a 0.1% and 0.8% downward revision to total HHFCE respectively. This equates to an average annual deduction of £3.5 billion.

At the component level, the COICOP categories most affected include:

  • 09.4.2, Cultural services, which includes theatres, museums and galleries

  • 12.7, Other services not elsewhere classified

  • 07.2.3,  Maintenance and repair of personal transport equipment

  • 12.4, Social protection

  • 09.4.1, Recreational & sporting services

Further details of the improvements to the data for NPISH are given in the article “ Methodological Improvements to National Accounts for Blue Book 2015: Non-Profit Institutions Serving Households (185.9 Kb Pdf) ” published on 19 May 2015.

3.3 Cross Border Property Income

As part of the changes to ensure comparability in measuring GNI across EU countries, we have introduced a change in Blue Book 2015 relating to the measurement of Cross-Border Property Income.

The transactions arising from a household renting a home (the rental, the production and consumption of the associated housing services and the income of the owner) are recorded in the National Accounts. Additionally (in part to account for the fact that different countries have different levels of home ownership) it is important to record the notional values for the housing services that home owners consume while occupying their own home; the so called ‘imputed rental’. In line with international standards, UK National Accounts have included both rental and imputed rental for some years. However, to continue to ensure comparability in an increasingly globalised world it is necessary to review the recording of these transactions for both UK residents owning second homes abroad and foreign residents owning second homes in the UK.

For inward imputed rental (the housing services that non-UK residents consume from their own home in the UK) the change has decreased HHFCE for second homes, as those owned and occupied by non residents had previously been included in estimates of domestic imputed rental. For outward imputed rental (the housing services that UK residents consume from their own home abroad) the change has increased HHFCE. These changes impact the deduction for expenditure in UK by foreign residents and expenditure abroad by UK residents respectively rather than directly impacting COICOP 04.2.1, imputed rental.

This improvement has caused upward revisions to current price annual levels (see Table 1 column d), with larger impacts in later years. The upward revisions range from £0.7 billion in 1997 to £3.3 billion in 2010.

For a detailed explanation of this change see the article published on 19 May 2015: “ Methodological Improvements to National Accounts for Blue Book 2015: Cross-Border Property Income (457.7 Kb Pdf) ”.

3.4 Alcohol and Tobacco

To enhance coherence with relevant HMRC data, adjustments previously applied to HHFCE on alcohol and tobacco have been removed for Blue Book 2015. These historic adjustments were applied to assist GDP balancing for previous Blue Book publications and affected COICOP 02.1, Alcohol and COICOP 02.2, Tobacco.

The impacts on current price GDP range from a decrease of £0.2 billion in 1998 to an increase of £1.4 billion in 2011.

3.5 Narcotic drugs

Further development work following the introduction of narcotics, COICOP 02.3, in Blue Book 2014 has revealed an error in the implementation of the price information. Within the calculation of current price data for HHFCE for narcotics, street prices for each narcotic are measured by the United Nations (UN) World Drug report in dollars. This price series was incorrectly not converted to a sterling value before being used to re-inflate the volume data. This correction will convert the dollar value to a sterling value using an exchange rate conversion calculation. There is a secondary impact from the balancing of Classification of Products by Activity 21 (CPA 21 Manufacture of basic pharmaceutical products) which is absorbed by pharmaceutical products, COICOP 06.1.1.

The impact on current price HHFCE ranges from a decrease of £1.4 billion in 2007 to an increase of £0.9 billion in 2013.

3.6 Improvements to actual and imputed housing rentals  - CPIH

With the publication of the Second Estimate of GDP in Quarter 4 (October to December) 2013, we introduced a new method for deriving rental data for use in the calculation of HHFCE. This was in order to more closely align the annual growth (quarter on corresponding quarter of the previous year) of household expenditure on actual and imputed rentals with the annual growth of comparable CPIH data series – CPIH is a measure of consumer price inflation that includes Owner Occupiers’ Housing costs (OOH).

Following the removal of the National Statistics status of CPIH and the subsequent remit to investigate and improve the method for measuring OOH in this index, improvements from the resulting development work were introduced as part of the February 2015 CPIH dataset. Further details on the change to CPIH methodology can be found in the article “ Revising the weight of Owner Occupiers’ Housing in CPIH (197.4 Kb Pdf) ”, published on 17 March 2015.

This has led to revisions in the comparable CPIH data series for COICOP 04.1.1, actual rentals and 04.2.1, imputed rentals. In order to maintain alignment, revisions to current price estimates of HHFCE on actual and imputed rentals have been made and only impact from 2010 onwards.  The largest impacts on current price HHFCE are in 2011 and 2014 and are upward revisions of £4 billion.

Revisions to current price rental data in this article differ from those published in the article ‘Impact of Blue Book 2015 Changes on Current Price Gross Domestic Product Estimates, 1997 to 2010’, published on 12 June 2015.  There are 2 reasons for this. Revisions presented in the previous article related to imputed rental only.  The impact presented here is the combined impact on actual and imputed rental.  Secondly, during the process of rebasing Chained Volume Measure estimates to a 2012 reference year, small secondary revisions were required to maintain CPIH alignment. This secondary impact has been absorbed during the Supply and Use Balancing process in related products.

3.7 Supply and Use balancing

Supply and Use balancing takes place annually to ensure that estimates of UK gross domestic product (GDP) are balanced across the Production, Income and Expenditure approaches. Further details are given in Annex A but, in essence, Supply and Use balancing reconciles the estimates from each of the approaches, taking into account the relative strengths of each. Supply and Use product balancing takes place at Classification of Products by Activity 2008 (CPA 2008) level and the estimates produced are matched to COICOP products, reallocating total balanced HHFCE across COICOP categories. 

For Blue Book 2015, Supply and Use-balanced estimates of GDP from 1997 to 2012 were revised and data for 2013 went through the process for the first time.

For 1997 to 2010, there was a reassessment of the balancing adjustments to take account of improvements to methods only. For 2011 and 2012, balancing adjustments were reassessed to take account of improvements to methods and later survey data, including updated data from the ABS.

The most significant other revisions from Supply and Use balancing are due to later source data for 2011 and 2012, and to 2013 going through the process for the first time. These other Supply and Use revisions are contained in "Other revisions" (column h) in Table 1.  

Blue Book 2015: revisions to HHFCE chained volume measures

In Blue Book 2015, the reference year for the chained volume measures has been updated from 2011 to 2012. Changes to quarterly and annual growth in chained volume measures are driven by the developments affecting the current price data, outlined earlier in this article. Only 1 methodological change has directly impacted the chained volume measure and this relates to COICOP 02.3, narcotic drugs.

Revisions to annual growth rates of the chained volume measure for total HHFCE are shown in Figure 2. Between 1998 and 2012, revisions average zero and range between +0.4 percentage points (in 2007 and 2012) 0.4 percentage points (in 2003 and 2010).

Figure 2: Annual HHFCE growth rates, comparison of Blue Book 2015 and previous estimates (chained volume measures)

Figure 2: Annual HHFCE growth rates, comparison of Blue Book 2015 and previous estimates (chained volume measures)
Source: Office for National Statistics

Notes:

  1. Click on image to view a larger version

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Further development work following the introduction of narcotics in Blue Book 2014 led to a review and updating of the weights used for each drug in the chained volume measurement methodology.

Table 3: Contribution to revisions to annual chained volume measure growth rates between Blue Book 2015 and previous estimates (%)

   Revisions from narcotic drugs %
1998 0.1
1999 0
2000 0
2001 0
2002 0.1
2003 -0.3
2004 -0.1
2005 0.1
2006 -0.2
2007 0.3
2008 -0.2
2009 -0.1
2010 0.1
2011 -0.1
2012 0.1
2013 -0.1

Table source: Office for National Statistics

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Developments affecting quarterly data in Blue Book 2015

Revisions to quarterly aggregate HHFCE values are largely driven by the developments affecting the annual data explained in the previous sections. 

There has also been a review of the seasonal adjustment of the HHFCE data and this has caused some additional revisions to quarterly seasonally adjusted paths.

Comparisons of Blue Book 2015 and previously published quarterly seasonally adjusted growth for total HHFCE (national concept) are shown in Figures 3 and 4.

The average revision to quarterly current price growth between Quarter 2 (April to June) 1997 and Quarter 4 (October to December) 2012, is zero. Within this, revisions range between +0.5 percentage points in Quarter 4 (October to December) 2012 and –0.5 percentage points in Quarter 2 (April to June) 2007.

The average revision to quarterly chained volume measure growth over the same period is also zero. Revisions to chained volume measure growth range between +0.5 percentage points in Quarter 1 (January to March) 2007 and –0.7% in Quarter 4 (October to December) 2003 and Quarter 1 (January to March) 2010.

Figure 3: Quarterly HHFCE growth rate: Comparison between Blue Book 2015 and previous estimates (current price, seasonally adjusted)

Figure 3: Quarterly HHFCE growth rate: Comparison between Blue Book 2015 and previous estimates (current price, seasonally adjusted)
Source: Office for National Statistics

Notes:

  1. Click on image to view a larger version

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Figure 4: Quarterly HHFCE growth rate: Comparison between Blue Book 2015 and previous estimates (chained volume measure, seasonally adjusted)

Figure 4: Quarterly HHFCE growth rate: Comparison between Blue Book 2015 and previous estimates (chained volume measure, seasonally adjusted)
Source: Office for National Statistics

Notes:

  1. Click on image to view a larger version

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Future plans

We plan a number of developments to the HHFCE statistics over the next few years.

Planned developments include:

  • further improvements to the sources and methods for imputed rental on dwellings in Blue Book 2016 – the improvements will affect both the current price series and volume measures, as well as expenditure, income and production components of the National Accounts

  • further development of the data for prostitution and narcotic drugs following ONS-commissioned independent reviews of our new sources and methods.


     

Conclusion

This technical article provides an overview of the improvements introduced into the HHFCE dataset as part of Blue Book 2015 production and the Supply Use Balancing Process.

It has shown the largest impact on current price annual HHFCE comes from changes introduced to ensure comparability in measuring GNI across EU countries relating to exhaustiveness and cross border property income and a review of NPISH data.

These and other improvements outlined (as opposed to later data for existing sources) are the main driver of revisions in current price terms. Revisions to chained volume measures were not covered in detail since they are largely driven by developments affecting the annual and quarterly current price data.

The article sets out some of the main HHFCE developments planned for Blue Book 2016 and beyond.

Contact information

Suzanne.Ellis@ons.gov.uk

+44 (0)1633 456040

Annex A - The Supply and Use balancing process

Supply and Use tables provide the framework for ensuring supply and demand estimates in the National Accounts system are consistent. They are compiled annually at current prices and use data from the Production, Expenditure and Income approaches to GDP (Gross Domestic Product), taking account of the relative strengths of each.The aim of Supply and Use balancing is to produce a coherent and balanced estimate of GDP in current prices.

The Supply tables explain how products are supplied in the domestic economy. The Use tables explain how products are consumed in the form of intermediate and final expenditure by sector. They are compiled based on 2 identities which together state that total supply in the economy is equal to total demand in the economy. As a component of the expenditure approach, HHFCE estimates, along with other expenditure components, are “balanced” so they equal the production and other supply side estimates.

Supply and Use tables are produced for each industry and for each product within the economy. The 2015 Blue Book data publishes the National Accounts consistent with the UK Standard Industrial Classification of Economic activities 2007 (SIC 2007) and the Classification of Products by Activity 2008 (CPA 2008).


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 our Media Relations Office email: media.relations@ons.gsi.gov.uk

  2. This article does not cover the historic (pre 1997) total HHFCE national concept data released with the Quarterly National Accounts, Quarter 2 (April to June) 2015. These current price and chained volume measure data (seasonally adjusted) are available annually from 1948 and quarterly from 1955.

  3. 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

    These National Statistics are produced to high professional standards and released according to the arrangements approved by the UK Statistics Authority.

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