Annex C: The Current Classification of Functions of Government (COFOG) Structure

C.1 The Classification of Functions of Government: ONS Recommendations

There are currently several areas of the United Nations (UN) Classification of Functions of Government (COFOG) that the Review thinks could be improved to better support accurate measurement of Government expenditure. This would enable improvements to the granularity and quality of economic statistics derived from HM Treasury’s system for recording government expenditure, the Online System for Central Accounting and Reporting (OSCAR). These expenditure data are fundamental to the measurement of public services productivity.

This Annex summarises key potential areas for COFOG improvement that the Office for National Statistics (ONS) has recommended to the UN review of COFOG. That review is expected to report in 2027.

C.2 Tax Administration

As part of the Public Services Productivity Review, an experimental productivity statistic for Tax Administration has been developed. This relies on the availability of government spending data to construct accurate input metrics, as well as the availability of measures for output. Government spending on Tax Administration is currently entirely captured within financial and fiscal affairs, COFOG 1.1.2, which also includes management of public funds and public debt as well as other functions. It is therefore not independently identifiable or measurable, despite being an essential service undertaken in some form by almost all governments, often by a distinct body with responsibility for tax collection alone (rather than wider public finance management).

Current structure

Division: 01 – General public services

• Group: 01.1 – Executive and legislative organs, financial and fiscal affairs, external affairs
  • Classes
    • 01.11 Executive and Legislative Organs
    • 01.12 Financial and fiscal affairs (including tax admin)
      • Administration of financial and fiscal affairs and services; management of public funds and public debt; operation of taxation schemes; operation of the treasury or ministry of finance, the budget office, the inland revenue agency, the customs authorities, the accounting and auditing services; production and dissemination of general information, technical documentation and statistics on financial and fiscal affairs and services.
      • Includes: financial and fiscal affairs and services at all levels of government. Excludes: underwriting or flotation charges and interest payments on government loans (01.7.0); supervision of the banking industry (04.1.1).
      • 13 External Affairs (CS)

To enable accurate input measures to underpin a productivity statistic, the Review recommends developing an extra class within group 01.1 which separately identifies spending on Tax Administration.

Alternative approach

• 01.11 Executive and legislative organs
• 01.12 Financial and fiscal affairs
  • Administration of financial and fiscal affairs and services; management of public funds and public debt; operation of the treasury or ministry of finance, the budget office, the accounting and auditing services; production and dissemination of general information, technical documentation and statistics on financial and fiscal affairs and services.
• 01.13 Administration of taxation
  • Operation of taxation schemes; operation of the inland revenue agency, the customs authorities; public information schemes and communication related to taxation. Includes: activities related to counter-fraud and prosecution of tax evasion and smuggling.
• 01.14 External affairs

C.3 Defence

Currently, military Defence spending is categorised by a single COFOG group (2.1.0). To improve the way the inputs for Defence are measured from a productivity perspective, it would be advantageous to be able to split this out further, to cover at least the operation of land, air and sea forces individually. This would also reflect the more straightforward nature of recording this spend in comparison to other areas of Defence.

It may also be useful to see nuclear, cyber and space disaggregated too at the lower levels, however this Review’s overall priority is to at least have the military defence classes split by land, sea and air. Whether this division is made at the second level or third level of the classification, the Review is happy to discuss further. Initially, the Review suggests being led by the demand for this change within the UN.

Current structure

Division: 02 – Defence

• Group: 02.1 – Military defence
  • Class: 02.1.0 – Military defence
    • Administration of military defence affairs and services; operation of land, sea, air and space defence forces; operation of engineering, transport, communication, intelligence, personnel and other non-combat defence forces; operation or support of reserve and auxiliary forces of the defence establishment.
    • Includes: offices of military attachés stationed abroad; field hospitals. Excludes: military aid missions (02.30); base hospitals (07.3); military schools and colleges where curricula resemble those of civilian institutions even though attendance may be limited to military personnel and their families (09.1), (09.2), (09.3) or (09.4); pension schemes for military personnel (10.2).

Alternative approach

Division: 02 – Defence

• Group: 02.1 – Military defence
  • Class: 02.1.1 – military defence of which contains operations of land forces
  • Class: 02.1.2 – military defence of which contains operations of air forces
  • Class: 02.1.3 – military defence of which contains operations of sea forces

C.4 Preventative Health Spending

Currently only COFOG 7.4 explicitly covers prevention activities as “public health services”, however it also includes the administration of public health services, epidemiological data, family planning etc, while many preventive care activities are likely to be delivered by a provider that fall under other COFOG categories, such as hospitals (COFOG 7.3). This does not allow the separate identification of preventative public health spending, and therefore assessment of its long-term impact on improving the productivity of the Healthcare public service.

Current structure

Division: 07 – Health

• Group: 07.4 – Public Health Services

07.40 PUBLIC HEALTH SERVICES (IS) Provision of public health services; administration, inspection, operation or support of public health services such as blood-bank operation (collecting, processing, storing, shipping), disease detection (cancer, tuberculosis, venereal disease), prevention (immunisation, inoculation), monitoring (infant nutrition, child health), epidemiological data collection, family planning services and so forth; preparation and dissemination of information on public health matters.

Alternative approach

To better represent spending on preventive care activities, the COFOG classification could report expenditure based on the System of Health Accounts (2011) framework’s definition of Healthcare function (ICHA-HC), either at the second- or third-digit level. This would represent a shift away from the current reporting practice, which is more tailored towards recording spend by provider organisation (for example hospitals as COFOG 7.3, outpatient providers as COFOG 7.2). This would be advantageous to identifying preventive Healthcare services, as these services are not just provided by specific public health bodies (for example the UK Health Security Agency) but also within other Healthcare settings such as general practice, dentistry, hospitals, etc. One advantage of using the IHCA-HC definitions of preventive care spending as a basis for further disaggregation within COFOG is that this is an already well-established set of internationally standardised definitions.

Based on the Health accounts framework that identifies primary and secondary preventive care (not tertiary prevention), a proposed alternative COFOG structure is:

Division: 07 – Health

• Group: 07.4 – Public Health Services
  • Class 07.4.1 Information, education and counselling programmes (e.g. healthcare information campaigns, smoking cessation programmes, antenatal classes)
  • Class 07.4.2 Immunisation programmes
  • Class 07.4.3 Early disease detection programmes (e.g. screening programmes)
  • Class 07.4.4 Healthy condition monitoring programmes (e.g. health check-ups, antenatal care, etc)
  • Class 07.4.5 Epidemiological surveillance and risk and disease control programmes
  • Class 07.4.6 Preparing for disaster and emergency response programmes
  • Class 07.4.7 All other Public Health Services

C.5 Education

Currently it is challenging to determine what expenditure is attributed to the Further Education (FE) sector. Education expenditure is captured under COFOG 9 and follows the structure:

Current structure

Division: 09 – Education

• Group: 09.1 – Pre-primary & primary education
• Group: 09.2 – Secondary education
  • Class: 9.2.2: Upper Secondary Education
• Group: 09.3 – Post secondary non-tertiary education
• Group: 09.4 – Tertiary education
• Group: 09.5 – Education not definable by level
• Group: 09.6 – Subsidiary services to education
• Group: 09.7 – R&D Education
• Group: 09.8 – Education N.E.C

Currently, expenditure for FE is captured under COFOG 9.2.2 ‘Upper Secondary Education’. COFOG 9.2.2 captures expenditure relating to the second (final) stage of secondary education which prepares students for tertiary education or providing skills relevant to employment across a range of subject options and streams. COFOG 9.2.2 disaggregated figures from COFOG 9.2 are not currently available, but this is likely due to the approach by which OSCAR records the data.

This COFOG structure could benefit from structural changes that allow for visualisation of FE inputs, and to make it clearer where expenditure is related to FE. For example, in the UK, the FE space is typically termed as education for 16 to 19-year-olds, but the current naming ‘Upper Secondary Education’ does not make this immediately clear. Other countries will not follow this 16 to 19-year-old referral, but it may be worthwhile considering an internationally recognised term for FE to be clearly stated within the COFOG structure. For example, ‘Post-Secondary Education’ could potentially be more appropriate. Furthermore, granular figures for FE are not available within the current structure, therefore the system may benefit from restructuring in such a manner that FE inputs are clearly visible for users.

It must also be acknowledged that the method of recording the data is also relevant in this case. The approach by which the data are recorded in OSCAR may be a mechanism that does not allow for obtainment of disaggregated figures from COFOG 9.2.2. Therefore, some structural changes, in addition to the method of recording, should be considered when evaluating education. Such changes might include:

Alternative approach

Division: 09 – Education

• Group: 09.1 – Pre-primary & primary education
• Group: 09.2 – Secondary education
• Group: 09.3 – Post Secondary education
• Group: 09.4 – Post secondary non-tertiary education
• Group: 09.5 – Tertiary education
• Group: 09.6 – Education not definable by level
• Group: 09.7 – Subsidiary services to education
• Group: 09.8 – R&D Education
• Group: 09.9 – Education N.E.C

This would allow FE to be included in its own sub-COFOG (0903 in the example).

C.6 Net Zero and climate change mitigation government expenditure

Under current measures, spending on climate change mitigation measures are not adequately captured. COFOG division 5 covers environmental protection but is mainly focused on broader environmental activities such as waste management, nature conservation and pollution reduction. While these will cover aspects of climate change adaptation, mitigation activities will largely be included within 4.3 Fuel and Energy, and 4.5 Transport, along with other activities associated with housing and communities that are captured in other COFOG categories.

As Governments worldwide respond to, and mitigate, climate change, having a dedicated Net Zero and climate change mitigation COFOG would allow for closer measurement of expenditure related to this area, in turn facilitating the evaluation of its effectiveness. This might include:

• Investment in renewable energy (currently bundled up with in 4.35 Electricity)
• R&D linked to climate change mitigation projects
• Transition assistance for households and businesses (eg subsidies for insulation or heat pumps)
• Electrification of transport vehicles and networks
• Flood defences

C.7 Policing and immigration

Policing and Immigration expenditure are currently both covered by Police services (COFOG 3.1). Substantial changes in expenditure for either service make spending look volatile overall. Disaggregated public expenditure data are available using ‘HM Treasury-defined sub-functional divisions’ and the Review proposes that this is substantively reflected in the structure through the creation of a second level COFOG to cover ‘Immigration and Citizenship’ (i.e. 3.2 – immigration). COFOG 3.1 would remain and be limited to Police services. This would support developing separate productivity series for both policing and immigration.

Current structure

Division: 03 – Public order and safety

• Group: 03.1 – Police services

Alternative approach

Division: 03 – Public order and safety

• Group: 03.1 – Police services

Includes: anything in the current definition not related to immigration

Excludes: Immigration

• Group: 03.2 – Immigration

Includes: all immigration services removed from 3.1