National Statistician’s Committee for Advice on Standards for Economic Statistics – Minutes 9 October 2023

Attendees

Committee

Martin Weale (Chair)
Robert Heath (Deputy Chair)
David Caplan
Ian McCafferty
Paul Mizen
Rebecca Riley
Mairi Spowage
Nick Vaughan

Apologies

Thomas Viegas (see end of minutes for comments received after the meeting)

Office for National Statistics (ONS)

Jessica Barnaby
Ed Bailey
David Beckett
Will Brooks
Steve Drew
Paul Dunstan
Grant Fitzner
Chloe Gibbs
Jez Halton
Richard Heys
Janine Jenkins
Rosie Maslin
Sophie Peabody
Tristan Pett
Mark Pont
Simon Rigby
Matt Rogers

Additional Attendees

Philip Wales

Minutes

1. Approval of minutes from previous meeting and Declarations of Interest

Committee members approved the minutes, and no interests were declared.

2. Overview and status of actions from last committee meeting

The Committee was presented with a document outlining the actions from earlier meetings. The Chair invited the Committee members to flag any concerns or questions.
Robert Heath raised a concern over contingent liability data. He thanked the ONS for the publication of the Hinckley Point note and understood that the ONS does not include the Hinckley Point contingent liabilities in the published data because the ONS was following EU legislation. With estimates suggesting the Hinckley Point contingent liability could reach over 1% GDP, he questioned whether EU legislation should be followed.
Robert reaffirmed his concern over the contingent liability of the central government to the Bank of England which was first discussed in April. He noted that the Financial Times had reported this guarantee could cost up to £150 billion in the next 10 years, which could have consequential impacts for government borrowing. His primary interest was in how ONS treated this contingent liability.
The Chair raised the issue of how ONS treats quantitative easing and the cost of quantitative easing to the taxpayer more generally. He added that the cost of the national debt would always have been different if the maturity structure had been different and that asset purchases were only one influence on the maturity structure. The Chair invited further discussion on this topic under Any Other Business and suggested whether the Committee might want to raise questions on the presentation of the assets and liabilities associated with quantitative easing.
He added that users might request information on how much in flow terms the asset holdings were costing the taxpayer, but this fed into a general question of how much the ONS ought to produce data based on one set of assumptions about the future rather than another. He suggested that it might be valuable to devote a substantive item to this topic at the next meeting and Jessica Barnaby agreed to bring a paper in January if the ONS had sufficient resources.
Nick Vaughan suggested that there were likely to be existing papers on the Asset Purchase Facility (APF) already in the public domain, and that these would provide a useful context for the Committee. Philip Wales raised that there was substantial correspondence in relation to the classification of the APF and the transactions between the Bank of England, the Treasury and how they were reflected in the public finances. He noted that discussion of the existing treatment would be helpful in the first instance and that the question of how the indemnity would impact on the accounts was considered at the time of the classification decision. He emphasised that should the Committee revisit this topic, members needed to be aware of the historical correspondence and consideration.
The Chair thanked Phil for this information and noted it would be helpful to understand the process behind ONS’ position.
The Chair requested that, as a general point, the action log include, where relevant, more information on what has been done to complete each action.

Action: Michael Davis’ paper to be shared.
Action: Secretariat to make the Log of Actions more informative
Action: Secretariat to liaise with Jessica to address how Quantitative Easing could be brought to the Committee.

3. National Statistician’s Decision on Recent Recommendations

The Chair confirmed to the Committee that the National Statistician had accepted all recommendations so far.
David Caplan noted that it would be useful to see a further column on timetables to show the implementation of the Committee’s recommendations to maintain transparency and to understand how decisions were being taken through the ONS.
Mairi Spowage commented on the decision on public sector output. She noted that ONS have since accelerated their work. She stated it would be useful to be more involved and kept up to date. She also requested that ONS should not treat English data as representative of the UK except where absolutely necessary.
Richard Heys confirmed that the ONS could provide a paper on public sector productivity as the workstreams developed. The Chair suggested that a paper be brought to the Committee in January, instead of waiting for the annual review which would take place in April.
Richard confirmed that enhanced spending on public sector productivity measures would allow the UK to make improvements in a timelier fashion than originally planned. Richard reaffirmed that the ONS was evaluating what could be done in this area. The Chair asked Richard to address concerns from members of the committee that English data would be used to represent the whole of the United Kingdom in the January paper.

Action: Add an additional column on timetable where a clear timeline is available.
Action: PSP to be included in January.

4. Measuring Environmental Assets and Impacts: An outline of Subtopics to be presented to NSCASE, and an introduction to the first sub-topic of “Negative Asset Values”

The Chair invited Adam Dutton to present the paper.
Adam outlined that there were two parts to the paper. The first part provided an overview of the future topics that ONS would like to bring to NSCASE. The second half of the paper focused on the options related to the presentation of negative asset values within the environmental accounts. In particular the paper focused on the System of Environmental Economic Accounts (SEEA) and where the UK was not in alignment. He noted that this may have wider implications for the accounts. Key changes were expected in four types: (i) emissions trading and pollution taxes; (ii) natural asset recording; (iii) classifications; and (iv) provisions.
Adam noted that issues on taxes and trading revolved around the way that environmental permits and environmental emissions permits were treated in the National Accounts as they were treated like taxes. He outlined that an emissions trading tax would treat the atmosphere into which the emissions are poured as an asset where the access to that asset it paid for through a tax. In terms of biological assets this had become an impactful area because of non-cultivated assets. The definition had widened to include oil, gas and minerals.
There would be some changes in the classifications system, the largest being ISIC. Adam outlined that there were some interesting changes such as subsidies and there were a number of classifications that want to develop a good definition of environmental subsidies.
Adam highlighted that SNA wanted to change how restoration and compensation for damage was accounted for. Of particular interest was a gas field in the Netherlands which was causing damage to people’s homes and properties.
Adam discussed issues around negative assets values in SEEA. He outlined that the UK emitted more carbon from the environment than was sequestered. The UK wanted this to be presented as a negative asset in the National Accounts. The guidance suggested that reductions down to zero could be allowed, but once countries passed below zero, assets were valued at zero. The benefit of this was that countries did not need to calculate negative values for volcanoes or mosquitoes.
Robert clarified that the SNA did allow for negative assets, under 2008 SNA 10.161.
The Chair had concerns over some of the details and suggested ways in which the paper could become clearer. He added that noting the differences between accounting prices and market prices would be beneficial to the reader. Accounting prices reflected the costs of society and valued activities that damaged the environment, which could easily lead to negative asset values. The paper could also be clearer on regulatory activities and damage to the environment. The focus of the latter was on the consequences of human activity. The Chair added the issue of Kuwait. It could sell its oil wells to an oil importing country. If this was a territorial sale and not just a user sale, then the user country would lose the revenue from the oil but benefit from the income from investing the proceeds of the sale. The framework currently treated the two as different while in overall terms they should be expected to be equivalent. He acknowledged that the paper wasn’t best placed to address the problem but noted it should be addressed in some form. He added that this might affect countries which would be unwilling to see large falls in their NDP.
The Chair sought clarity on the reference to productivity going up if there was an oil spill. He added that it missed how economies were normally constrained by supply. He asked that the point be made clearer. Adam asked whether an annex clarifying these issues would be sufficient and requested guidance on goods and values and not regulation in relation to ‘clean up’. Adam broadly thought using the example of oil that if Country A’s oil on its way to Country B, crashed off the coast of UK, there was no UK output involved in that process, just damage. The damage itself wouldn’t show up but activity within the UK would be paying for the clean-up. The Chair added that he thought that would be neglecting the fact that resources would need to be taken from elsewhere in the economy to do the clean-up. There wouldn’t be a line in the accounts that outlined this but perhaps there should be. The Chair added that it was a crowding out argument and, he thought, an appropriate way of analysing the issue.
Nick suggested drawing a distinction between GDP and productivity.
Adam brought the discussion back to the SNA and added that the changes focussed on regulatory spending so the taxes would be set at what the government was comfortable with and wouldn’t necessarily reflect the damage that was caused to the environment so the ‘good’ or ‘bad’ was not being reflected in the main SNA. In the ecosystem accounts, that was reflected and there was an attempt to reflect social damage. As such, an ideal world would see a line reflecting this in the National Accounts.
Richard added that, although they are referred to as market prices, the concepts described in the paper are trying to identify market equivalent prices. If a market equivalent price was calculated by incorporating all the externalities associated with an economic occurrence, then it is equivalent to calculating an accounting price. He acknowledged that these externalities were difficult to calculate. He added that the ONS might want to investigate this to understand to what degree it might be making things more complicated. He outlined that there was a need to understand if there was a material difference between the market equivalent price which goes into the National Accounts or the evaluation that was seen in the SEEA. The Chair asked if that could be brought out in the paper.
Adam noted that the aspiration was for the National Accounts to reflect better what these things were supposed to be doing even though they wouldn’t fully capture environmental damage.
Cliodhna Taylor mentioned that equivalent market prices are used in national accounts where prices are not economically significant.
Adam referred to the third option where nations didn’t take the aforementioned approaches. He used the example of a nation that used purely command and control options; then environmental damage and the costs of the policies to limit this were not reflected in their National Accounts. He noted that comparability issues existed in this area.
The Chair supported Adam’s comments but raised that they had not been historically followed in the National Accounts. When countries had quotas instead of tariffs, the implicit tariffs associated with the quotas would not be reflected in the National Accounts. Similarly, credit rationing implied shadow interest rates higher than market rates.
Nick was satisfied that the market price was set in National Accounts, notwithstanding that there were large environmental damages that could be located somewhere else. Adam added ONS intention was not to change the accounts but that they may create experimental estimates.
Paul Mizen brought the conversation back to who evaluated the data. Could we assume that other areas of government would determine the appropriate tax or set the process in the emissions trading scheme? He asked how much that determined the prices and how much work was left for the ONS to do in order to calculate the residual. Adam noted that the aggregate tax was originally set the cost of the damage that was caused by aggregate. ONS already did a lot of the work around the challenge of aggregating costs of damage. The UK government was committed to conducting cost benefit analysis and the Treasury had been very heavily pushing inclusion of environmental values. Adam added that difficulties arose around looking at the physical impacts. Another challenge also sat with estimating the social cost of carbon.
Rebecca Riley spoke on the importance of experimental statistics as the SNA might not go far enough. Rebecca flagged the OECD paper that was circulated which noted the limitations and concerns around ‘greening’ and recognised that there were limitations to what they could change in the SNA. In that context, Rebecca flagged that it would be useful to have worked examples showing what the difference was. She noted that a lot of research was going on in this area and advised making use of it. She asked what other NSIs were doing in the space.
Richard noted that challenges existed around the assumptions that lay in the National Accounts. Once an NSI was using a certain set of market prices, countries either have to remain consistent with them or stretch further. He added that the full application within that principle only goes so far. The SEEA exists as an SNA equivalent to provide a different perspective of the true costs and benefits associated with the environment. Richard noted that countries had to be cautious when considering what was possible for the SNA to digest. As such, he raised that one of the largest challenges could be on public perception of SNA revisions which may be out of kilter with how far SEEA can stretch. Richard noted that the ONS have engaged with other countries. Some countries have not had the resources to consider the issue; the US announced this year to that they were going to spend on the topic. Norway had done significant thinking on the issue.
Adam highlighted that the Dasgupta review was published in 2021. It advised on the ‘greening’ of GDP and what policy makers would do with those numbers. It looked at how they could feed into monetary policy or if there would need to be fiscal rules in place to make impact on decisions. Adam added that when he had engaged with other countries it has been on SEEA and that there was a broad desire to expand it. The US had recently started building their own version. China was also spending a lot of money on the topic as was Chile. Adam expressed the view that the SEEA might not value negative impacts. Rather it was interested in aligning environmental impacts with the accounts. It was possible to see spending on environmental protection and carbon emissions by sector, but the SEEA didn’t provide information on the cost of air pollution to the economy.
Nick spoke on negative asset values and supported Adam’s proposal that the UK should continue to show negative asset values and also recognised the difficulties surrounding it. He asked why other NSIs had not reached the same conclusions. Adam noted that often it was because countries hadn’t developed their accounts as much and that there were multiple disciplines influencing the agenda.
Ian McCafferty sought further clarification on what was included and excluded. He raised hybrid cases such as a forest fire occurring without human intervention. He added that through time, things might develop that then became human intervention and comparing statistics through time may be beneficial. How this might be dealt with could be worth thinking about.
Adam highlighted that the guidance was to present the net figure. In the case that Ian raised, the emissions from the forest fire would be captured if the net figure did not become negative. SEEA recognised that carbon naturally fluxes, and the guidance advised countries to present the measure as gross or net but not if it was negative.
Robert was interested to learn how non-cultivated biological assets would be measured. He was also interested in how migrating species would be handled.
Richard acknowledged the difficulties that animal migration gave rise to.
Robert expressed interest in a table in the annex detailing provisions of non-financial assets and asked how the ONS was going to implement it whilst recognising that it would be a lot of work. He raised concerns on emissions permits and was interested in the ONS view as in his opinion they shouldn’t be treated as a government financial liability, so as debt, given that, according to the annex table, at redemption the government receives tax revenue. In other words, how could a financial liability result in revenue for the debtor. He added that after the 2008 SNA was finalised, the issue came to the fore and his recollection was that emissions permits were treated as non-produced, non-financial assets. Richard Heys, added that, as that stage, not much movement had been witnessed. Robert requested the ONS view for the Balance of Payments Committee happening October 2023. Richard Heys added that ONS raised the way emissions permits were treated as an issue in the last significant SNA paper that went out for consultation. Adam offered to consider bringing a paper to the Committee outlining how the ONS might approach it.
Richard outlined that the Advisory Expert Group (AEG) and Balance of Payments Committee (BOPCOM) met in October 2023 when recommendations would be made to the editorial team. The relevant chapter would then be prepared and issued for consultation which was when the UK would be able to submit views. Richard noted that UNSC were to provide the final endorsement in 2025. The UK could then make the final decision on whether they would comply with the chapters.
The Chair brought the Committee back to the initial questions they were asked. He referred to points 4.a. to 4.d of the paper and asked if the Committee would find papers on the topics listed valuable. David noted how it would be beneficial to see how the ideas were articulated through the accounts.
Richard highlighted that before 2025, 39 chapters of the SNA needed to be approved, NSACSE would look at the ones where there was sufficient clarity for views on implementation and interpretation of guidance.
The Chair concluded that the Committee would value having sight of chapters in the lead up to SNA25 and if appropriate, advise ONS on potential changes and accepted the offer of two further papers over the next year. He further concluded that the consensus of the meeting was to continue to use negative asset values where appropriate. Finally, the Chair requested that the ONS make the principles clearer on what impacts of human activity were included and which were excluded.

Action: Additional detail to be added to the presented paper before publication.
Action: Adam to investigate bringing the committee a paper outlining how ONS might approach emission permits differently.

5. Globalisation: Merchanting and Factoryless Producers; Clarifying Negative Exports in Merchanting; and Merchanting of Services – Synopsis

Roger Smith presented a paper on the Handling of Factoryless producers and Merchanting of Services. He explained that papers were being presented to the Committee early to air considerations and give time for future development. This would mean seeking direction that was not based on the final information. Guidance notes have been produced but there was no confirmation on what was contained within BPM7.
The paper was split into two topics: The Future Treatment of Factoryless Goods Producers (FGPs) in the National Accounts and Balance of Payments, and The Future Handling of Merchanting of Services. The paper was in response to a guidance note led by the IMF globalisation task team and was presented to the group by the Advisory Expert Group on National Accounts.
Roger explained that BPM6 states that FGPs should be treated as a merchant with any goods that are acquired being recorded as a negative export, shown in reporting as net export of goods. He outlined that the UK record any identified FGPs as Merchants under wholesale with output recorded in gross terms, but that there was work to be completed to add in an adjustment to the related activity as a net export with work planned to be completed as part of the Blue Book 2025 improvements.
Roger added that BPM 7 suggests that FGPs should be treated as manufacturers rather than merchants, which would mean their output would be recorded in gross terms. This has had international agreement and was expected to be approved. He outlined that the challenge for the UK and partner countries would be the ability to identify and record the activity of FGP’s correctly, which required good quality data. Businesses might not hold or understand these data.
The options presented in the paper were to align with BPM6, or to move to align with BPM7. The global trade and investment division’s opinion was that the latter was more favourable as it would provide international comparability and for conceptual reasons of being more aligned to manufacturing than merchanting. Roger mentioned that there was still work to be done to understand the full complexity.
Roger noted that merchanting of services was treated in the same way as subcontracting services and the UK was fully aligned with BPM6, but that it was recognised as being conceptually incorrect and not an accurate representation of the activity. This is because a subcontractor is in a bilateral relationship between two parties, a principal, and a contractor, whereas merchanting of services reflects a trilateral relationship between producer, intermediary, and consumer. The guidance note recommended that BPM7 should separate service intermediaries from servicing contracting.
Roger highlighted that there was strong international support for the approach and mentioned that challenges remained on data availability, quality of the data, and whether it was possible to separate the intermediary fee from the servicing fee. The options presented in the paper were to continue under the current practice or to move to align with BPM7.
The Chair thanked Roger for the presentation and the paper and asked for any questions or comments from the Committee.
Robert supported option two on the FGP proposal as recommended but expressed doubts over the services recommendation. Robert explained that when finalising the treatment of merchanting in BPM6, key issues focused on change of ownership and ensuring the current account transactions tied in with the related financial transactions. He explained that while merchanting was presented as net in BPM6, the gross figures were also presented. He made the point that BPM6 did not explicitly address factoryless production as it was not an issue that came up until after BPM6 was finalised and this should be mentioned in the paper.
Robert disagreed with the proposal that suggested that the service payment from the consumer should be re-routed to the subcontractors. He added that it was a contradiction to what was being suggested for FGPs, which was that if a company subcontracted an activity to another company who then provided a final service to a consumer, the intermediary would regard that as intermediate consumption. He believed that in paragraph 59 of the guidance note, which stated that services could only be intermediated by a third party against a fee, was wrong, and gave a couple of examples to justify his view.
Richard raised that a lot of the process had taken place in countries with less developed statistical systems and there could be a threat that the propensity for trade asymmetries may be increased if they struggle to record their exports in the correct way. He asked if there had been a discussion on this subject and how the international community was thinking about implementation.
Roger thanked Richard for raising the point and mentioned that there was a consultation which would be useful to refer to. He thanked Robert for his comments. Roger added that his team would provide greater clarity to the final paper.
Nick agreed with the proposal on FGPs. He asked if there would be an intermediate change to comply with BPM6 for net and BPM7 for gross measures. He asked if it might be sensible to wait for BPM7.
Roger agreed that it was relevant to consider the benefit of the change given the work it required, and that they were going to look at how much FGPs would account for to inform their thinking.
Nick added that on merchanting of services the IMF had a relevant paper referenced in the paper for NSCASE debating the treatment of tour operators. He added that in ESA 10 bundled packages provided by tour operators are recorded as one product in national accounts but that other guidance recommends it be unbundled such as BPM6.
Phillip asked how much of this sort of activity might be happening in regular manufacturers in the economy as a whole, where there might be mixed model producing items domestically and selling them abroad.
Roger explained that the work that had been done so far concentrated on a few large businesses. This would be extended to other large businesses. He believed in the overall context of decision the definition would apply to whichever route they took. He added they could collect merchanting detail on the international trade and services survey, but if FGPs didn’t follow that route, ONS should look at other information.
Paul M asked about the practicalities of implementing the guidance. He asked about the extent to which ownership materials depends on multinational corporations wishing to profit shift and managing their financial position. Could this increase volatility of the data due to arbitrary decisions made by firms? On services, he asked if ONS knew if fees were broken down to any extent within companies that they could observe separately. He recognised that there might not be sufficient granularity in the data to establish the intermediary fees.
Rebecca raised that the paper contained a section on UK specific issues which detailed the need to understand international business structure and practices. She did not think it was a UK specific issue and that it was likely to be difficult to collect good quality data on these. She added that ESCoE did some research to quantify the extent of FGPs in the UK and US and resorted to web-scraped evidence to try to do this. She asked about the international discussions being undertaken around changing practices, and if there was any guidance on how this information might be collected. She also asked what the implications of BPM7 might be for the industry figures. For example, would we observe less of a decline in manufacturing than was previously thought to have taken place.
Roger thanked Rebecca for the points she raised and added that ONS would consider them as research continued. He added that ONS were in close contact with the Bank who were represented on BOPCOM. He believed there would be minimal impact on GDP, but more of an impact on trade. It would come down to the volume that FGPs account for and he recognised it was an important consideration to take on board.
Phillip raised that one UK specific factor would be the impact that EU Exit might have in making manufactures look like FGPs by virtue of their new legal arrangements and cross boarder supply chains. He added that it might mean that there were more than expected because of the new arrangements. He also noted it would be worth considering the presence of Irish border and encouraged the team to think carefully about the geography as there might be some interesting situations arising.
Mairi asked what the ramifications would be moving towards BMP7 and asked if there was an option to not align. She wanted to understand more about the scale of the issue and the impact on industry level figures. She explained that the paper did not give a feel for how large or important the issue was.
The Chair echoed Mairi’s comments and expressed that he found the paper opaque and would have found the worked examples very helpful to give an indication of what the expected scale would be.
Robert asked if there was a compilation issue in UK. He explained that merchanting in BPM6 was on a gross basis and net basis. Some countries could only do net but if the data are available, gross and net could be published. He understood FGP would be on a gross basis as well.
Roger confirmed that was an issue with processing rather than with the data.
The Chair requested to have a set of data from previous years set out using the two systems to give the Committee a sense of what it meant in terms of scale and the potential differences.
Roger agreed to take away and explore a worked example for the Committee outside of this series of papers seeking advice on Globalisation issues.
Ian raised issues regarding own brand products which could lead to one of the big retailers becoming categorised as a manufacturer.
Robert stated that he believed it should be straightforward, in theory, to implement what was proposed for FGPs but the issue might be distinguishing between an FGP producer and a goods for processing manufacturer. He thought it might come down to knowing who purchased the raw materials.
Roger agreed with challenges of collecting the data and thanked the Committee for the points they had raised.
The Chair thanked Roger for the paper and found the consensus in the room was that the Committee was reluctant to come to a decision without more information. He suggested that the Committee would find a supplementary paper with worked examples showing the effects of changes in treatment useful. Ideally this would show comparisons starting with how the figures show at present, then showing BB25 targets and what ONS expected BMP7 to be showing.

Action: Provide more worked examples in future papers brought to the committee if possible.
Action: Check references to the guidance note in the paper are correct.
Action: Explore the geographical impacts of Brexit and the Irish boarder and the potential effect on the status of FGPs.

6. Treatment of Non-Monetary Gold in the UK National Accounts

The Chair invited Steve Drew to present the final paper of Non-Monetary Gold (NMG).
Steve outlined how gold was a unique item with a range of treatments. He specified that where it was held as a reserve asset by the monetary authorities, it was classified as a financial asset and designated as monetary gold. Outside of this, it could be held in allocated or unallocated accounts. Allocated gold outside of gold held by monetary authorities as reserves was classified as a non-financial asset classified as a valuable and referred to as non-monetary gold. International guidance suggested that it was valid to include NMG in Balance of Payments. However, the SNA framework included the concept of production which was where the issue lay.
Steve noted that the UK treated NMG consistently across Balance of Payments and National Accounts. He presented two options to the Committee:
Option 1: Revise the current treatment of NMG so that it was excluded from both net trade and acquisitions less disposals of valuables and left as a balance sheet change, effectively reflecting a change in the asset composition. This approach was consistent with other counties such as USA, Japan, and Australia which were also affected by gold trade. Changes of ownership of NMG between residents and non-residents should be recorded in the non-financial balance sheet. However, the UK did not compile balance sheets for valuables.
Option 2: Maintain the current approach of allowing NMG data to feed into net trade and valuables, but also look at producing gross capital formation estimates excluding NMG.
Two follow up items covered (a) whether the Office for National Statistics (ONS) should research an alternative method of accounting for NMG given the UK’s unusual situation as an international gold hub; or (b) whether ONS should align with the 2008 SNA guidance, should the ONS research show the feasibility of including valuables in the non-financial balance sheet, where currently valuables were not included.
It was noted that the international guidance was ambiguous and that it could be argued that both options offer interpretations which are consistent with the guidance. It could be considered that there was some degree of inconsistency across the different guidance documents.
The Chair raised a procedural point on option 1 and asked what the time scale for the further work proposed under option 1 was. He was reluctant to vote for a change now if further changes would be made as a consequence of further research and updates to SNA 2025.
Richard confirmed that the ONS would not want to bring forward another recommendation until SNA 2025 had been published. He added that the ONS would probably move away from SNA only if there was something equally suitable and more consistent with other assets. He referred to the current proposal to treat crypto assets without corresponding liability as non-produced, non-financial assets with treatment similar to that of NMG. Other considerations that could affect timelines included considering NSCASE recommendations on other SNA chapters and inclusion of work into a Blue Book. He added that if the Committee were comfortable with option 1 which does not change top level GDP, then the issue would be less concerning.
Robert agreed with Richard that gold and crypto align. Robert did not support option 1. Although he agreed that gold should be excluded from net trade and investment for the reasons given in the paper, he asked if there could be a simpler way of doing it. He did not agree that option 1 was the international standard and said option 2 was the international standard. He added that the paper was not clear about how to how to deal with gold imports used in production or sales held as inventories. He was reluctant to support a discrepancy between BPM and SNA on trade but recognised that other countries did it and there would need to be a good public explanation. Robert was most concerned about the ONS creating a statistical discrepancy between the net borrowing/lending figures above and below the line in the sector accounts: the financial transactions in gold captured but not the gold transaction above the line. He was also concerned that a proposal to exclude significant transactions in gold from the national accounts was inconsistent with the latter providing a comprehensive measure of economic activity. Robert suggested that international comparability was more mixed than suggested by the paper. He asked how many countries exclude only NMG. He wondered whether the presentational issue could be approached through a classification approach where NMG was included in the sector accounts but not in net trade and investment for the expenditure categories of the National Accounts.
The Chair asked Robert if the same issues that concerned him about net acquisition of financial assets would arise with any valuable. Robert added that it would but if they were not significant to the accounts, then their exclusion on de-minimis grounds could be justified.
Richard outlined that many countries did not align with the international standard. ONS had been in a difficult position where meeting the international standards did not support international comparability. He mentioned that the net lending and borrowing point from Robert could be substantive.
Nick supported option 1. He asked whether the gross flow and the net flow were quite small and what was the net position.
Richard responded that net trade flows may be small compared to gross trade flows, but when set against Gross Fixed Capital Formation – to which the net trade flows of non-monetary gold contribute – the size of the net trade flows can be quite large.
Nick was happy to treat NMG as a financial asset.
Steve added that the SNA did not cover the issue explicitly. Where the countries were affected by it, they had not followed the guidance. He agreed with the point made on uses of production. He mentioned that in theory, the ONS/ UK should be identifying what is going to be treated as an asset. Richard thought that the ONS had data on use of non-monetary gold for dentistry, microchips, and the Royal Mint. Steve thought that they may need more detail. Steve moved the discussion back to other countries. He highlighted that a full research study would be required with large engagement with other countries.
The Chair requested a decision from the Committee. Since there was no consensus, he asked individual members which option they supported.
Nick and David supported option 1 as they thought it best represented economic reality of NMG as a productive asset and that option 2 was not a full recognition of that.
Robert supported option 2 because he could not support option 1 and reiterated his suggestion to consider taking NMG out from the expenditure measure items while keeping NMG in the sector accounts, like other items in the capital account that do not feed into the expenditure measures. Following the meeting, Robert provided a short note that could be sent to the National Statistician along with the minutes.
Ian supported option 1. After listening to the discussion, he had two points: (i) he questioned the benefit of the UK moving towards an international framework if other countries had departed from it and (ii) clarity on what was included, particularly around industry and gold for store of value purposes.
Richard responded on Ian’s first concern, noting that the UK is the largest single player and had the opportunity to demonstrate to the international community that it was possible to capture NMG in line with the international guidance.
Rebecca supported option 1 and noted that it was a pragmatic solution that better reflected the economic reality. Rebecca added that it would be possible to revisit the issue at a later stage.
Mairi supported option 1. She added that it was important to make it clear that option 1 was not consistent with international guidance but that the international guidance was not clear. Mairi also requested clarity on treatment.
Paul supported option 1. He stressed that it was important that the UK was consistent in its treatment of NMG with other things such as crypto assets. He supported including Robert’s points in the recommendation to the National Statistician.
The Chair stated that he supported option 1 and concluded that the Committee had agreed on option 1 by a majority of seven to one. He said it was important that Robert’s views were communicated to the National Statistician along with the majority advice.
The Committee agreed that the ONS should set a timetable for a review following the 2025 SNA.
Richard thanked the Committee for all their work on this topic and for their time in coming to a resolution.

7. ISIC Update Synopsis

Jez Halton and Janine Jenkins provided a presentation on the UK’s adoption of Industrial Classifications, Jez explained that following the UK’s exit from the EU it was no longer required to use Nomenclature Statistiques des Activités Economiques (NACE). He explained that the International Standard Industrial Classification (ISIC) and NACE had both been recently revised.
For these reasons there was a public consultation that went live on 31^st October which engaged widely with Standard Industrial Classification (SIC) users and other stakeholders and invited wider UK SIC users’ views on the impact of the classification changes. This ensured that international comparability was maintained and make it possible to understand how the current classification framework was used and the impact a revision could have on users.
Jez explained the key differences between the two systems to the Committee and how possibilities on granularity and disaggregation could have an impact on the time required to implement due to the extent of required changes to systems, documentation etc.
Jez presented the Committee with several options that they were consulting on. These were:
1. Using ISIC revision 5;
2. Using NACE revision 2.1;
3. Using either of the previous two with additional UK bespoke disaggregated groups and classes; or,
4. To continue to use a UK bespoke fifth digit despite there being no internationally comparable groups at that level.
Jez explained that any change would mean systems that referred to those data would need to be updated and could have multiple implications depending on where the change sat in the framework. Any variation of either ISIC or NACE could be potentially difficult as many changes could be required for simple adaptations. Changes would also need to be identified through the creation of bespoke corresponding tables between previous versions and other related classifications. He also noted that any trained auto-coding algorithms would require training data to be clerically recoded which could also factor into the time required to implement within autocoding systems.
Janine explained that the ONS continued to represent the UK Government Statistical Service (GSS) at the UN ISIC task team which formed part of the revision process. She added that as the UK was no longer part of the European Union it did not have influence within the Eurostat NACE revision process. She explained that the ONS classifications team, as custodians of the framework, provided unbiased representation of all users. ONS Economic Statistics also have representation ensuring national accounting issues feed directly into the discussion.
Since the last NSCASE update, ONS responded to the UN consultation on the final structure of the revised ISIC. Both UN ISIC and Eurostat NACE have been endorsed by their respective statistical commissions with their current work focussed on the completion of correspondence tables between previous and current versions, as well as between other frameworks in the international family of classifications, and an explanatory note documentation that provides guidance on the methodology and interpretation of the framework’s inclusions and exclusions. Activities that were not resolved in time for the revision would be added to a research list to be reviewed by a new permanent UN revisions taskforce.
Janine went on to explain that Eurostat regulations required member states to report their statistics in the new version of NACE from 2025, with the UN stating that they hope ISIC to follow in line with Eurostat timeframes on NACE. Though draft plans indicated adoption of national classifications in 2026 and adoption of ISIC rev 5.0 into business registers, National Accounts and surveys in 2027. NACE regulation details the agreed timeframes for NACE rev 2.1. Internationally, some countries referred to ISIC or NACE while others have classifications derived from ISIC or NACE with some having bespoke additional levels. All can be aggregated up to ISIC’s two-digit division level for international comparability.
Janine outlined that the consultation would start on the 31^st of October and would be a formal twelve-week consultation. After its conclusion there would be an evaluation phase lasting three months leading up to a report published in April which would include an update on the next steps. A closure report would then be brought back to NSCASE detailing the findings of the consultation.
David C said that options 3 and 4 were similar in that they led to the same level of granularity in the classification. He asked if there had been any feedback to say that the bespoke approach wouldn’t work.
David Beckett offered his perspective as a stakeholder and chair of the ESEG committee. He explained that there was no real appetite to adopt either NASE or ISIC in their entirety without making any changes, nor was there a desire to start creating something completely distinct for the UK and so the question came down to whether they favoured an adapted version of either NASE or ISIC. David explained they found NACE provided more comparability with those EU countries which are most similar to the UK, but the categories had not been defined necessarily to describe the UK economy better rather than the EU. ISIC by comparison could be used to create categories that were a better fit for the UK economy. However, international comparison with EU economies using the NACE system would be more difficult. This key trade-off between describing the UK economy better and better international comparability was at the heart of the revision and consultation process.
Ian expressed that he would like to learn more about merits of different proposals that had been listed and asked for breakdown of the pros and cons of each proposal in the paper.
Mairi noted it would be helpful to highlight more detailed examples of the options put forwarded including the UK’s five-digit breakdowns and where changes to that might cause issues in in the UK economy.
Paul M asked if during the consultation it could be asked if there were areas that were not well covered or activities that were allocated to a high-level category that were no longer appropriate. He noted there may be examples of businesses migrating from one type of activity to another over time.
The Chair thanked Jez and Janine for the paper and looked forward to a more detailed paper for decision coming back to the Committee following the consultation.

Action: List of relevant pros and cons of each option to be provided to the committee in the July recommendation paper.
Action: Make a clear difference between papers providing information and those requiring a decision.

8. Forward workplan. Three quarter span of forthcoming topics to NSCASE

Following the substantial discussions in the meeting, the Chair recognised that there may be some additions to the January agenda, such as contingent liabilities and how the Bank’s asset purchase guarantees from HMT were treated in the National Accounts.
The Committee had no comments on the workplan.
The Committee received the workplan and the Chair thanked the Secretariat and colleagues in ONS for their work.

9. Review of website and content

The Chair offered a revision to paragraph 9 of the text pointing out that NSCASE made recommendations about decisions on the guidance to be used in the compilation of statistics; it did not support ONS decisions. He sought to clarify that NSCASE supported the UK statistical system, but its fundamental role was to make recommendations.
Paul Dunstan highlighted that there might be circumstances where ONS requested advice from the Committee, without needing a decision. The Chair therefore suggested revising the wording to include that the ‘Committee supports the UK statistical system by making recommendations and providing advice.’
The Committee approved the proposed changes.

Action: Secretariat to update the content on the website.

10. Any other business

The Chair thanked the ONS for bringing quantitative easing, quantitative tightening and the split between the central government and Bank of England to the attention of the Committee and looked forward to further discussion of this.
The Chair thanked ONS colleagues for the templates which have been helpful for reviewing papers. Paul D added that authors also found the template useful to collect their thoughts but raised that he had received comments on the flow of the template and asked the Committee for their thoughts on this.
The Committee agreed with the Chair that the template had been very useful but asked that a detailed executive summary be consistently included at the beginning of all papers.
The Committee asked that the executive summary clearly outline whether the paper was for decision or for information.
The Chair thanked the Committee and ONS colleagues for attending the meeting and confirmed that the next meeting would be held on the 22nd of January.
The Chair concluded the meeting.

Action: Executive summary to be included at the beginning of all papers.

Comments received following the meeting from Committee Member Thomas Viegas:

4.6: Thomas Viegas noted that Point 29 in the paper states “However, we believe that decision to be arbitrary” referring to the UN SEEA decision. He believed it was important to clarify if it was based on UN SEEA conversation or only interpretation of reading. If the latter, I thought SEEA should be consulted for their view.

4.8: Thomas agreed and added that it should draw on the explanation of the Dasgupta review.

4.19: Thomas agreed with Rebecca.

4.21: Thomas pushed back on what the review recommended and signposted towards page 75 of the following: The Economics of Biodiversity The Dasgupta Review: Abridged Version

He quoted “Standard economic measures such as GDP can mislead. If the goal is to protect and promote well-being across the generations (i.e. social well-being), governments should measure inclusive wealth (a measure of societal means). Inclusive wealth is the sum of the accounting values of produced capital, human capital, and natural capital. The measure corresponds directly to well-being across the generations (Review, Section 17): if a change enhances social well-being, it raises inclusive wealth; if the change diminishes social well-being, it reduces inclusive wealth. Social well-being and inclusive wealth are not the same object, but they move in tandem. There lies the value of inclusive wealth in economic accounts. Natural capital accounting is a necessary step towards the creation of inclusive wealth accounts. It enables us to understand and appreciate the place of Nature’s services in our economies, including the services that are usually overlooked; it enables us to track the movement of natural capital over time (a prerequisite for sustainability assessment); and it offers us a way to estimate the impact of policies on natural capital (a prerequisite for policy analysis). Frameworks for natural capital accounting and assessment are being developed, in many cases through the UN’s System of Environmental and Economic Accounts. Countries are beginning to incorporate natural capital and ecosystem services into national economic metrics of success. China’s Gross Ecosystem Product, and New Zealand’s Living Standards Framework are examples (Review, Chapters 12 and 13).”

He also commented that per point 35 in the paper, he thought that a number of other countries were aligning with SEEA and the implications for X-comparability and usefulness, is needed.

4.22: Thomas added that it would be worth the ONS consulting with other NSIs and providing a readout on their views.

The papers that informed this Committee meeting are attached as a PDF document for transparency. If you would like an accessible version of the attached papers, please contact us at nscase@statistics.gov.uk