Committee

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

ONS

• Ed Bailey
• Kate Beeslee
• Matthew Corder
• Paul Dunstan
• Richard Heys
• Chris Jenkins
• Riikka Korhonen
• Helen Meaker
• Jonny Mudge
• Sophie Peabody
• Simon Rigby
• Nicola Shearman
• Cliodhna Taylor
• Philip Wales

Apologies

No apologies were received.

1. Welcome and apologies

1. The Chair welcomed members to the third meeting of the National Statistician’s Committee for Advice on Standards for Economic Statistics (NSCASE) and invited those present to briefly introduce themselves.
2. The Chair asked members to allow the meeting to be recorded in order to create more accurate minutes, with the recordings to be deleted afterwards. The Committee agreed.

2. Approval of minutes from previous meeting and declarations of interest

1. No comments were made, and the minutes of previous meeting were approved.
2. There were no declarations of interest.

3. Approaches to the Committee

1. The Chair invited the Committee to consider the response to the letter received from Paul Allin.
2. The Committee were happy with the letter noting that there had been a conversation at the previous meeting which informed the reply and replies to future approaches should be treated in the same way.
3. The Chair invited the Committee to consider the letter received from Ed Humpherson updating the Committee on OSR’s approach to undertake assessments of ONS economic statistics with an emphasis on quality.
4. Nicola Shearman reported that Sam Beckett and the National Statistician have received similar approaches and will be responding and requested a combined approach to all three responses.
5. The Chair asked the secretariat to produce a draft reply in light of these discussions for the Committee’s consideration and approval.
6. Nicola Shearman clarified that a draft response would be produced by the secretariat. She highlighted that the Committee advises the National Statistician on the production of statistics and that OSR have a legal restriction on being involved in the production of statistics. It is important that the separation of the OSR from the production of statistics be maintained.
7. The Chair asked when a draft response to the letter could be expected, noting that it has been a month since receiving the letter. He suggested that he could send an acknowledgement in the meantime with a comprehensive response to follow.
8. Nicola Shearman explained that the bulk of the draft has already been completed, but due to annual leave of some contributors she expected a draft to be with the chair in two weeks’ time. She agreed that an acknowledgement in the meantime would be appropriate.
9. David Caplan raised a concern, related to the letter, on where the scrutiny of decisions on the statistical classification of units and transactions will sit. He noted that Eurostat have previously fulfilled this role but there had been mixed messages on who would now be responsible for this. He said that if OSR do not fulfil this role, there is a gap in the governance framework which needs to be filled.
10. Nick Vaughan noted that the Director General for Regulation reports to the Chair of UKSA. As such, the Chair of UKSA should also make a decision on the issue. He also recognised that the Bank of England was not listed in the letter as a key stakeholder. It was not clear that OSR had the expertise of Eurostat to provide scrutiny to the same level.
11. Robert Heath offered his expertise to the committee, having led and overseen missions on implementing the IMF’s Data Quality Assessment Framework (DQAF) at the IMF.
12. Nicola Shearman thanked the Committee for the points raised and would ensure they are addressed in the response.

Action: Chair to send acknowledgement response to Ed Humpherson.

Action: Secretariat to coordinate response with Private Office and Sam Becket’s team.

4. Review of the treatment of non-monetary gold and its impact on the UK National Accounts

1. Richard Heys provided an update on the paper presented at the previous meeting. He noted that the process was subtly different from other topics and that the standard treatment of non-monetary gold did not work for UK. There was little international pressure to make a change.
2. Richard Heys suggested existing principles should be followed as closely as possible while at the same time finding the most helpful way of presenting transactions in non-monetary gold in the national accounts and balance of payments Richard thanked Robert Heath for his contribution via email to this paper.
3. Robert proposed creating a new category called “financial valuables” inside the capital account, but outside of gross capital formation, and when cross-border transactions take place, outside of the current account. He drew on BPM6, which makes a distinction in chapter five between financial instruments, which have a corresponding claim and those that don’t. “Financial valuables” would comprise financial instruments that are not contingent and do not have any corresponding liability.
4. Paul Mizen asked whether Robert’s proposal would be an alternative or an amendment to the existing proposal.
5. Robert Heath explained his proposal was an amendment that would create a separate category titled “Financial Valuables” within the capital account without disrupting the existing system of accounts.
6. Robert explained how gold traded between financial institutions was comparable to crypto currency without a liability (CCWL) in its status as financial in nature. Transactions in physical gold between financial institutions was not undertaken for capital investment purposes, but for financial purposes, so it was de facto a financial instrument. The same would apply to CCWL. On the other hand, these financial instruments did not meet the definition, nor did they fulfil the economic function, of a financial asset, so therefore needed to be classified outside the financial account. If a financial institution bought gold from outside of a central bank or financial institution it would be a commodity transaction and recorded in valuables, with a reclassification into financial valuables, similar to reclassification into monetary gold by central banks.
7. Richard Heys would use Robert’s suggestion to develop a single consolidated set of options for the Committee to consider. David Caplan asked what the classification of crypto currencies in the National Accounts was currently.
8. Richard Heys explained that conceptually there wasn’t one at present. Work was being done with the Bank of England, who had acquired a data set of crypto-currency assets. The fundamental problem with blockchain transactions was that the transactors are not always clear. Crypto currencies have challenged many of the conceptual considerations and measuring them would become its own challenge. In the first instance, a suitable place to put them needed to be established.
9. Robert Heath observed that present IMF guidance is to classify CCWL as a subcategory of valuables under capital accounts but discussions during the on-going update of manuals shows that views on classification are divided.
10. Nick Vaughan asked to what extent had international guidance weighed in on this, and what was the pace of international guidance on crypto which might impact this decision. Noting there might be a risk this would affect any decision made, Richard Heys observed that progress on crypto currencies had been sporadic. His team had been establishing what the international guidance was, and what the level of ambition was. This guidance didn’t cover gold, which is why it had been brought to NSCASE. He strongly encouraged the Committee to continue its work on this topic.
11. The Chair asked if the production of crypto-currency was treated as adding value.
12. Richard Heys noted that the System of National Accounts (SNA) guidance note had been published which accepts it is not a non-produced asset. Questions remained over whether it was treated as a financial or non-financial asset.
13. The Chair requested a reworking of the paper with the amendment embedded in it to be circulated back to the Committee.
14. Paul Mizen requested that crypto-currencies be referred to crypto-currencies without liability.
15. Richard Heys stated that the definitions will be clearly laid out.
16. Robert Heath suggested disseminating this work internationally.
17. The Chair was happy with the idea and could see obvious benefits of the UK being a leader in the statistical treatment of crypto-currencies while also influencing the gold issue, which was longstanding.
18. The Committee agreed for the work to be put forward to the international community.
19. Richard Heys stated his plan to share it with the UN Advisory Expert Group (AEG) and to have the reviewed paper circulated to the Committee by the beginning of February.

Action: Richard Heys to rework the paper with amendments embedded. It should then be recirculated to the Committee. 

5. Conceptual Methods in Prices and Volume 

1. Riikka Korhonen, Head of the deflator development team, presented to the Committee a paper The Unit Value Method in Price indices (UVIs) – agreeing principles for the use of this method.
2. Riikka explained that two key guidance manuals: SNA08 and the Prices and Volumes (P&V) handbook are used in this context.
3. Riikka asked the Committee to consider advice on whether UVIs were appropriate to use in some cases and what conditions should be set on their use.
4. The Committee was asked to recommend that ONS treat the use of UVIs as “A” method (preferred method) in the compilation of National Accounts deflators when the unit value measure met the principles set out in the paper.
5. Paul Mizen asked if this proposal was the same as the US Bureau of Labour Statistics (BLS) set out and what the BLS proposed to do with these.
6. Richard Heys explained that the Eurostat handbook has a hard line on the treatment of UVI’s, and they were relegated to be a “B” method to prevent their misuse. The BLS is not constrained by this but is trying to recognise the sources that were of a higher quality than could be produced by the survey method. Richard suggested that UVIs could be used for things that have very tight product parameters. This was not an approach to be used for everyday items.
7. Robert Heath suggested that with regards to the principles, the first priority was to take a holistic view that whatever was proposed should ensure consistency and coherence of deflators across the National Accounts as a whole. Everything should fit into this broader context. In his view, the default position should be what was best international practice with UVI only adopted where the best practice was not feasible or where UVI’s coverage, reliability, and relevance of measurement was clearly superior. He was hesitant about relying on the word “quality” as it could be misinterpreted.
8. Robert Heath noted the work of Diewert and others that recommended that the period of reporting should be the same for the UVI as it is for the index itself. For example, a monthly index should require monthly UVIs. This should be added to the principles.
9. Richard agreed that the reporting periods should align, and this would be sensible to add.
10. Robert Heath asked whether there was a plan to make allowance against online and store purchases, as the quality and price can be different.
11. Nick Vaughan noted he had looked at this issue within ONS some time ago and strongly supported the proposal. He added that when looking at quality of deflators, they were incredibly weak in some areas. There was an artificial comparison between the purity of the survey method and the UVIs. There were internationally agreed standards and, when there was a data set for quality of defined products it should be used. There were other sources outside HMRC data for homogenous products that clearly outline the way to go.
12. Rebecca Riley noted that where the existing price index was of poor quality, this was the main motivation for the change. She suggested this raises the question whether resources should be dedicated to improving the survey method instead of switching to the UVI method. The argument of superior or inferior method was not relevant if investment is made to improve the survey method. She added there was the potential to add principles on where UVIs would do the same thing as the survey method, providing more scope.
13. David Caplan noted that the cost of collection was lower for UVIs than for the survey method. The general approach to choosing the recommendation should be based on the item. If a UVI was going to work and measure the right thing, then it should be used. He agreed with Rebecca’s comment that we should not just be judging against the existing price index.
14. Robert Heath added that he did not like the use of the word quality as it could be misinterpreted. Reliability, and relevance of coverage should be considered instead. The best indicator should be used, but there is a need to cross check on whether there is bias or inconsistency in the system.
15. The Chair concluded that the Committee strongly supported the paper’s proposal to use the UVI method as a preferred method in the compilation of National Accounts where appropriate. Richard Heys was to amend the principles outlined in the proposal and circulate to Rebecca and Robert to check that full account was taken of their points. The Committee would then review the revised proposal by circulation.
16. The Chair asked whether deflators in the National Accounts would be applied also to the CPI.
17. Richard Heys noted that households do not generally buy large amounts of gasoline or chemical-based products. Currently the ONS do not breach principle number 3. The UVI from a recognised source which would be a superior data source with the expectation that the PPI side is of a good quality.
18. Nick Vaughan noted there are some instances where, no matter how much resource was put into the survey method, it would never be as good as the UVI.

Action: A summary of updates to paper to be drafted and re-circulated to Committee.

6. New Public Private Partnerships

1. Philip Wales explained that in the context of economic statistics, there was a need for absolute clarity about how we approach Public Private Partnerships. He set out that the UK Policy-making community paid particular attention to the international guidance that the UK used, seeking to understand how the UK made marginal decisions. If there was ambiguity in the body of guidance used, it was likely to make discussions with policy makers more difficult.
2. Helen Meaker, Head of Economic Statistics Classifications, presented to the Committee on Public Private Partnerships: consideration of Eurostat clarification note.
3. Helen explained the clarification note was to supplement the existing PPP guidance, noting the impact on government debt statistics presented on both the ESA 2010 and the IMF’s GFSM 2014 basis. It was recommended the EU clarification note was adopted to ensure a consistent approach, amongst other benefits.
4. Robert Heath noted the classification of PPPs is complex, involves significant judgement and touches on the very political issue of government debt. Robert preferred GFSM 2014 as it was the global standard. He asked why the UK had not adopted GFSM’s approach given that a commitment to this effect was made by HMT in 2017 (HM Treasury Managing Fiscal Risks Report, paragraph 6.10) He asked if both the GFSM and Eurostat models followed the same conceptual standards, why there was such a difference in estimates of government liabilities as presented in the paper. He suggested that following the Eurostat approach may keep some items off the government balance sheet. Robert also asked how frequently the off-balance-sheet data were published. He argued that series following both Eurostat and GFSM should be published. Robert also asked how Hinkley Point C was currently categorised in Public Sector Finances.
5. Mairi Spowage agreed that both series should be published and found the question being asked quite narrow. Mairi stated that the guidance note should be adopted but added that there was a broader discussion to be had which was indicated in the paper.
6. Nick Vaughan recommended accepting the Eurostat clarification note. He asked if this just applied to government and what would happen if someone set up a public corporation for a PPP. He asked where the liabilities of the PPPs appear. He agreed that there was a need to publish both the Eurostat and IMF measures to ensure transparency around the different choices. He asked how timely the IMF guidance was. He agreed with Mairi that broader discussion should take place.
7. The Chair asked whether it was possible to publish using both definitions.
8. Phillip Wales confirmed ONS do currently publish estimates of the public sector balance sheet on both the IMF basis and the narrower Eurostat measure. He drew the Committee’s attention to the measure of net worth that ONS publish on a GFSM basis. On differences in approach between the different kinds of guidance, Philip noted that Eurostat’s guidance is more prescriptive, while the IMF’s guidance contains fewer specific points of guidance. He argued using the Eurostat guidance could be helpful, as it offered clarifying detail which could be used by to policy makers. Philip indicated that he would be interested in a discussion about how stakeholder engagement would proceed if the UK adopted the IMF framework and that a broader discussion would be necessary in the future.
9. Helen Meaker confirmed that the guidance on PPPs did not cover public corporations. She explained that Hinkley Point C was assessed as a concession contract, as the end user paid, and would also therefore not be covered by this guidance. Helen noted that the off-balance sheet data continued to be published on both the IMF and Eurostat bases with the next set published at the end of this month.
10. Nick Vaughan noted ONS currently has a transparent set of statistics, with the UK publishing on a lot of different bases. He argued that the EU guidance is the most relevant. He expressed the view that the UK’s emphasis on public sector – rather than Eurostat’s focus on general government – was a good thing.
11. Robert Heath asked what HMTs views were, given the commitment made in 2017 to follow the GFSM framework. He asked whether they considered publishing the data on both bases to be sufficient.
12. Helen Meaker explained that the Treasury had changed their policy and infrastructure roadmap to 2030. It did not involve PFIs and PPPs. The issue was no longer as important to the Treasury because they had no intention, at present, of making a new PFI / PPI model within their current framework.
13. Philip Wales noted there have been many discussions with the Treasury about this point. They were keen for the Committee to be consulted on this issue as they were looking for clarity so they could engage with their stakeholders.
14. Robert Heath stressed that transparency was important, especially regarding the publishing of data. He encouraged the Committee to adopt the clarification note only if both measures were published on a regular basis.
15. The Committee strongly supported the publishing of both measures on a regular basis.
16. David Caplan was keen on a broader discussion on the overly legalistic approach, which had been adopted by Eurostat and ONS.
17. The Chair noted that the broader discussion on this subject would need to be deferred to a later meeting but acknowledged the Committee’s wish for it.
18. Philip Wales noted that the ONS were expecting new guidance imminently that would contain a lot of valuable points for consideration by the Committee, and discussion would be valuable once the Committee and his team have had adequate preparation time.
19. The Committee agreed that the Eurostat clarification note should be adopted. The Committee felt strongly, however, that data should be published regularly on both a Eurostat basis and on the GFSM basis, as shown in Helen Meaker’s note. Given developments to international standards, the Committee would welcome a wider discussion about the definitions and approach adopted by the ONS at an appropriate time.
20. Robert Heath nevertheless expressed material reservations about the answers to some of the specific questions raised in the Eurostat clarification note. These are summarised in paper NSCASE (23) 03.1. The Committee asked the ONS kindly to address them and respond to the Committee.

Action: An agenda item in a future meeting should be reserved to discuss the classification of off-balance-sheet items and approaches adopted by ONS.

Action: Philip Wales to write to the Committee on:

1. The causes of differences between the ESA and GFSM series;
2. Hinckley Point C and its treatment.
3. Respond to Robert Heath’s specific reservations on the Eurostat clarification note.

7. Treatment of Package Holidays in Consumer Prices 

1. Chris Jenkins from the Prices Division team presented the paper. Chris explained how the current approach to incorporating package holidays was not compliant with HICP (Harmonised Index of Consumer Prices) guidance. Anecdotally, the switch to HICP had not been particularly successful for other countries. Chris Jenkins explained how the calculation of package holidays is different to the basket of goods in terms of how price change is measured.
2. The team recommended option 3 – not fully adopting HICP methodology but including package holidays as part of the wider consumer prices alternative data sources project and making iterative improvements. They did not see the Eurostat method as an improvement or helpful change and noted that iterative improvements to it were already being implemented. Separately, they did not see a case for changing RPI, so had no intention of implementing the Eurostat data approach into RPI. RPI is a legacy measure that continues to be produced for long-term existing users; UKSA policy has been to only make changes to RPI where to not do so would impede the development of our other more robust measures.
3. Paul Mizen questioned why the Johnson review made recommendations to look at this and asked what approach other non-EU countries took.
4. Chris Jenkins clarified that the Johnson review was carried out ahead of the Eurostat compliance visit. The Johnson review was published early 2015 with the Eurostat compliance report published June 2015. There were several inputs into the Eurostat compliance report, the last of which was a meeting between ONS and Eurostat in February 2015. The Johnson review highlighted that package holidays could be measured better, and the Eurostat compliance visit highlighted that the UK’s methodology was not compliant with HICP methodology. He added that, in his view, the Eurostat method would not be an improvement.
5. Robert Heath saw the need for broader discussion on the extent to which Eurostat guidance should be followed. He sought more clarification on the measurement of package holidays. Chris Jenkins explained that holidays were a unique good, and the HICP approach would bring a lot of noise into the index because of seasonality. Package holidays had a weight within CPI, which was updated at the start of the year. Price relatives were calculated year-on-year based on the month (e.g., Jan to Jan, Feb to Feb) and then weighted together. More weight was attributed to holidays in August than in January.
6. Mairi Spowage wished to hear more about the impact this would have on statistical agencies. In response to Robert’s comment on following Eurostat guidance, she stated that the Committee existed to recommend where / if the UK should deviate from Eurostat approaches.
7. The Chair asked how this related to the household cost indices (HCIs) that were computed on the basis that things were counted when they were paid for, not when consumed. Chris replied that HCIs deviated from the normal treatment of goods and services in CPI in a number of areas, such as housing costs where mortgage interest payment is included in HCI but not CPI, but added that any differences between treatment in CPI and HCI are considered on their own merit so package holidays could be considered further if needed and welcomed the Committee’s input on handling these.
8. The Committee agreed to advise the National Statistician to adopt option 3.
9. The Committee discussed the wider implications of following or rejecting Eurostat guidance. Robert Heath saw the need to set out clear principles for deciding when the UK could differ from Eurostat guidance. The Chair agreed to have a general discussion on this topic but pointed out that the decision-making framework set out the considerations that the Committee would make on a case-by-case basis.
10. Nick Vaughan highlighted the value of following international guidance unless it did not make economic sense or if the guidance produced inferior statistics. The Chair concluded that as the Committee’s experience built, it might become possible to identify a unifying structure.

Action: Chair to Advise National Statistician to adopt option 3.

Action: General discussion to be scheduled on Eurostat guidance.

8. Discussion of Framework and Template provided to the Committee 

1. The Chair invited the Committee to provide their views on the decision-making framework NSCASE(23)05.
2. David Caplan noted there was no reference to the users of the statistics in the framework and that it might be useful to know their opinions on the items being discussed.
3. The Committee agreed that stakeholder views are important, and their views should be represented, but the Chair expressed concern that this could become a complex process given the timeframe to produce the papers. The Chair suggested adding an additional item of ‘stakeholder views’ to the framework but emphasised that the Bank of England or Treasury should be consulted only where relevant.
4. David Caplan highlighted that, for example, the Bank of England would have a strong interest in CPI and would help the Committee to make a more informed decision. He pointed out that the Forward Work Programme was already a public document. This document could be circulated to the Treasury / Bank of England for them to indicate where they would like to provide input.
5. Nick Vaughn and Mairi Spowage highlighted the importance of involving stakeholders but expressed reluctance to name specific bodies. Mairi suggested involving Heads of Profession where relevant.
6. The Chair suggested that the work plan be circulated to the Bank of England, Treasury and the devolved administrations. He advocated that only bodies that have a strong and continued interest in the Committee’s work should be involved but also noted that issues might arise which needed to be dealt with on a case-by-case basis.
7. Robert Heath expressed concern of the confidentiality of the documents and how this would affect consulting external stakeholders.
8. Rebecca Riley highlighted that stakeholder views could be represented in the papers. Nicola Shearman agreed and argued that it was therefore not necessary for stakeholders to present to the Committee.
9. There was discussion on how the papers would be circulated to stakeholders for them to input their views. The Chair agreed with Nicola Shearman’s suggestion that, where possible, the stakeholder would see a draft of the paper and could add their views during the drafting stage. The paper would refer to the stakeholder engagement that had been undertaken.
10. The Chair raised the issue of how the Committee would deal with appeals against its decisions. The Committee agreed that since the function of the Committee was to advise the National Statistician, any third parties who disagreed with the decisions of the Committee could write directly to the National Statistician while copying in the secretariat.
11. Paul Mizen stated he would value being able to see the arguments for/against all options presented by each paper, not just the recommended options. David Caplan also noted that quantitative implications were helpful where possible.

Action: Secretariat to put together a list of stakeholders and reach out to on a case-by-case basis.

Action: The Secretariat will make changes to documents NSCASE (23) 06 and NSCASE (23) 05 under section Options for Consideration to reflect the Committee’s opinions. 

9. Discussion of options for papers that have come back to Committee for review

1. The Chair stressed that amendments to papers would be agreed by circulation. In the case of reviewing amendments to papers, if decisions were not able to be reached by circulation, an additional meeting would to be held virtually to allow the Committee to make appropriate comments. NSCASE(23)08

10. Future Work 

1. The Chair asked the Committee for any comments on the Forward Work Programme NSCASE(23)10. Paul Dunstan from the Research Team noted that Philip Wales’ team no longer had the resources to take item 1 forward (assumptions used to estimate pension liabilities) so the Committee would have to consider this at a later date.
2. There has not yet been a Guidance Note published for New Concessions Guidance, so the review of this item has also been postponed.
3. David Caplan expressed concern that papers were being pulled because of lack of resources.
4. Robert Heath stressed the importance of the Committee having access to the papers no later than one week in advance and congratulated the secretariat for meeting this deadline for this meeting.
5. The Committee discussed the potential to review the treatment of crypto-currencies in a forthcoming meeting.

11. Any Other Business

1. The Chair confirmed that Rosie Maslin will continue as the Committee Secretary.
2. The Chair confirmed with the Committee that they were happy with the amount of time available to discuss each substantive item. The Committee agreed that enough time had been provided.
3. The Chair thanked the Committee. The next meeting would take place on 17^th April 2023 with meetings to follow on the 17^th July 2023, and 16^th October 2023.