Capital stocks and fixed capital consumption, UK: 2014

Annual estimates of the value and types of non-financial assets used in the production of goods or services within the UK economy and their loss in value over time.

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Release date:
14 November 2014

Next release:
12 November 2015

1. Main points

  • This is the second publication of capital stocks estimates since 2010. Estimates of capital stocks and consumption of fixed capital are now produced using a new methodology. Users are advised to read the detailed articles about these changes published in June and July 2014 as well as the background notes of this release

  • The estimates in this release cover the period 1997 to 2013. All data referred to in this bulletin are annual estimates of chained volume measures (CVM), unless specified otherwise

  • The United Kingdom’s (UK) net capital stock was estimated at £3.9 trillion, at the end of 2013. Between 1998 and 2007, average annual growth was 1.9% but this fell between 2008 and 2013 to 1.1%. Since 1997, estimates of net capital stocks increased by £875 billion (29%)

  • Consumption of fixed capital for the UK was estimated at £219 billion in 2013, an increase of £64 billion (41%) compared with 1997. However, the 2013 estimate remains £8 billion (4%) below the 2007 peak for this series, having fallen during the economic downturn period between 2008 and 2009

  • Services industries held an estimated 79% of total net capital stocks at the end of 2013

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2. Overview

This is the second publication of capital stock estimates using the methodological changes as detailed in methodological changes to the estimation of capital stocks and consumption of fixed capital and impact of the methodological changes to the estimation of capital stocks and consumption of fixed capital articles published in June and July 2014. The background notes of this release contain further information on understanding and using these data. Users may also find the definitions in the 'key terms' section useful.

The estimates in this release cover the period 1997 to 2013. Estimates for 2014 will be published in the next release in August 2015. Estimates for periods before 1997 are not yet available. ONS plans to begin the work to re-instate these estimates to provide users with a longer time series during 2015.

All data referred to in this bulletin are annual estimates of chained volume measures (CVM). These are time series put in real terms by computing the volume of each year in the prices of the preceding year. The data are then chained together to obtain a time series of production figures from which the effect of price changes have been removed. The CVMs in this publication are referenced to 2011. Current Price estimates are available in the tables and time series dataset.

This bulletin is split into five main sections:

  1. Background
  2. Key terms
  3. Changes to methodology
  4. Capital stocks and consumption of fixed capital in detail
  5. Background notes
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3. Background

Capital stocks and the consumption of fixed capital are estimated using the Perpetual Inventory Method (PIM). The PIM models capital stocks and capital consumption from estimates of gross fixed capital formation (GFCF). The PIM is described in greater detail in the background notes of this release.

Estimates of GFCF and its breakdowns by sector and asset (from 1997) are published separately in the quarterly Business Investment Statistical Bulletin.

Figure 1 shows how gross capital stocks are calculated using the PIM. The cumulative sum of net investment in assets (GFCF), i.e. the capital stock, is calculated by adding investment this period to the capital stock in the previous period and subtracting the value of assets which have reached the end of their useful life or that have been scrapped as a result of bankruptcy. The PIM replicates this process for each industry and asset combination for every year of data in the model.

Figure 2 shows how net capital stocks are calculated. This is also a 'stock' measure and estimates the value at the end of the year. The same process that is used for the estimation of gross stocks is used; however, an additional component for depreciation (for example, from wear and tear) is subtracted from the gross value. This can be thought of as the quantity of assets 'used up' in a year. At the end of an asset's service life, its whole value has been 'used up', and it no longer contributes to the net (or gross) stock level.

The consumption of fixed capital is an estimate of a 'flow'. It represents the change in the value of assets during the year. Figure 3 shows that it is made up of the sum of transfer costs (costs associated with purchasing or disposing of an asset) from GFCF, the depreciation or loss in value of assets due to usual wear and tear as well as the value of assets lost when companies go bankrupt. This value is calculated for each year within the model.

Further explanations of the terms used are available in the key terms section of this release. Capital stocks and the consumption of fixed capital estimates are produced annually and used by ONS in the compilation of the UK National and Economic Accounts and Public Sector Finances. They are also used by the Bank of England (BoE), the Office for Budgetary Responsibility (OBR), Her Majesty's Treasury (HMT), the Department for Business, Innovation and Skills (BIS), the Statistical Office of the European Union (Eurostat), business and research communities, educational communities, the media and the general public. These estimates are used to monitor economic performance and inform monetary and fiscal policy decisions, as well as for international comparisons.

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4. Key terms

  • Capital stocks represent the value of all fixed assets used in production in the economy that are still in use, such as machinery, dwellings and intellectual property products, formerly intangible fixed assets, such as software

  • Economic assets are a store of value representing the benefits the economic owner will get by holding or using the asset over a period of time

  • Fixed assets are non-financial items which are used repeatedly in the process of production for more than one year. For example, a machine on a production line or software used in production

  • Gross capital stocks tell us how much the economy’s assets would cost to buy again as new, or their replacement cost. All of the fixed assets in the economy, that are still productive and in use, are added up to calculate this, regardless of how old they are or how much they may have deteriorated since they were first used. This measure shows the value at the end of the year. This is mainly calculated as an intermediate step towards net capital stocks but individually provides a broad indicator of the productive capacity of an economy

  • Net capital stocks show the market value of fixed assets. The market value is the amount that the assets could be sold for, which will be lower than the value of gross capital stocks. This reflects the fact that the assets will have had some wear and tear compared to a new asset. This measure shows the value at the end of the year. This measure is used in preference to gross capital stocks as it provides a valuation of assets in the economy after the removal of depreciation

  • The consumption of fixed capital is the decline in the value, or depreciation, of fixed assets in the economy over a time period. The decline in value can be due to wear and tear, assets no longer being used, or normal accidental damage. It can also be described as the quantity (or value) of the capital stocks which is used up in that period. Whilst these data are interesting, their primary purpose is to move from various gross measures of economic flows to the corresponding “net” variable, in particular for production and income (net domestic product, net value added) and a number of demand variables such as net investment

  • Gross fixed capital formation (GFCF) is the acquisition less disposals of produced fixed assets; that is assets intended for use in the production of other goods and services for a period of more than a year. Acquisition includes both purchases of assets (new or second-hand) and the construction of assets by producers for their own use. New buildings and dwellings, and major improvements to buildings and dwellings are included in GFCF, but the acquisition and disposal of existing buildings and dwellings are not

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5. Changes to methodology

There have been a number of improvements and key changes to the methodology for estimating capital stocks and the consumption of fixed capital during 2014.

The most significant changes were incorporated into the Capital Stocks and Consumption of Fixed Capital, 2013 publication and can be summarised as:

  • changes to the estimation of GFCF

  • the inclusion of cultivated biological resources

  • new data sources, changes to the Standard Industrial Classification (SIC)

  • changes to the level of detail in the PIM, changes to the methods for estimation of breakdowns by institutional sector

  • changes to the deflation methodology

A full explanation of these changes, including assessments of impact are available in the articles methodological changes to the estimation of capital stocks and consumption of fixed capital and impact of the methodological changes to the estimation of capital stocks and consumption of fixed capital.

Estimates in this release have been compiled under the European System of Accounts 2010, for the first time, in compliance with the UK's legal obligations in producing the National Accounts. Other changes have also been implemented in this release, which is consistent with the UK Annual National Accounts (Blue Book) 2014. The estimates in this release have been revised from Q1 1997 to the latest period.

The key changes to the compilation of the estimates are:

  • the capitalisation of research and development (R&D), which for the first time has been recorded as GFCF instead of intermediate consumption

  • the inclusion of military weapons systems

  • improvements to the treatment of the cost of decommissioning production plants such as nuclear power plants

  • improvements to the estimation of own account construction in GFCF

  • the inclusion of small tools used in production within the GFCF definition

As a result of the expansion of the definition of GFCF, both GFCF and capital stocks have increased in level, compared with estimates compiled under ESA95. Research and development adds between £39 and £62 billion annually (in CVM) between 1997 and 2013. It accounts for 1.6% for the total economy in 2013.

The inclusion of military weapons systems has also had an impact on capital stock levels. It has added £29 to £45 billion per year in CVM, between 1997 and 2013. Weapons are a component of the asset ‘ICT, machinery, equipment and weapons systems’ which was previously titled ‘other machinery and equipment’.

Note that under ESA10, intangible assets have been renamed 'intellectual property products' (IPP). Research and development is a component asset of IPP.

As previously announced in the July 2014 publication there are still areas or improvement to be implemented. These include:

  • the production of estimates for General, Central and Local Government using a new methodology
  • restoring consistency between the estimates of consumption of fixed capital, gross capital stocks and net capital stocks
  • providing an asset breakdown for institutional sectors S.11001 and S.11PR
  • fully introducing new data for Non-profit Institutions Serving Households (NPISH)

Further information about these changes is included in Section 4 of the background notes.

Consistency with other publications

These estimates are consistent with the 2014 United Kingdom National Accounts (Blue Book) and produced using Blue Book 2014 GFCF data (see Explaining UK Investment Estimates: past, present & future). These data include European System of Accounts (ESA) 2010 changes.

What do you think?

ONS are striving to improve this release and its associated commentary. We would welcome any feedback you may have, and would be particularly interested in knowing how you make use of these data to inform your work. Please contact us via email: gcf@ons.gov.uk or telephone Wesley Harris on +44 (0)1633 455250.

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6. Capital stocks and consumption of fixed capital in detail

Estimates of capital stocks and the consumption of fixed capital tend to follow a relatively smooth path over time, because they are recorded as accumulated balances. Nevertheless, in cases where the asset price or GFCF have changed significantly, changes in the rate of increase or decrease in the capital stock can be observed.

Although the level of fixed GFCF investment fell sharply during the economic downturn, by 4.7% in 2008 and 14.4% in 2009, capital stock growth remained positive during these years. This was because despite a sharp fall, the level (or flow) of fixed GFCF investment remained positive and above the level of depreciation in the capital stock. This meant that both gross and net capital stock continued to grow in 2008 and 2009, albeit at slower rates compared with the decade prior to the downturn.

Estimates of gross and net capital stocks, and the consumption of fixed capital are available in both current price (CP) and CVMs in the accompanying time series dataset and in the publication tables.

Gross capital stocks

CVM of UK gross capital stocks was estimated at £6.6 trillion at the end of 2013, an increase of 35% since 1997 (equivalent to 1.9% growth per annum). In the decade prior to the economic downturn, gross capital stock rose on average by 2.1% per annum, however this slowed to 1.5% per annum between 2008 and 2009, and declined further to 1.3% growth in 2011. In subsequent periods, gross capital stock growth increased, but, on average, remained below rates seen prior to the downturn (see Table 1).

Net capital stocks

Net capital stocks account for the depreciation in assets, so both the level and the rate of increase in the net stock will be lower compared with gross stock (Figure 4). CVMs of UK net capital stocks were estimated at £3.9 trillion at the end of 2013, an increase of 29% since 1997 (equivalent to 1.6% growth per annum).

As with the gross capital stock estimates, net capital stock growth also slowed over 2008 and 2009, to an annual average growth rate of 0.9% compared with 1.9% annual growth prior to the downturn. Growth in subsequent years has remained comparatively subdued. Net stock rose by 1.2% and 1.4% in 2012 and 2013 respectively.

Consumption of fixed capital

At the end of 2013, UK consumption of fixed capital was estimated at £219 billion, an increase of 41% since 1997 (equivalent to 2.2% growth per annum). The capitalisation of research and development was the main reason for the upward change to consumption of fixed capital since the previous publication.

In contrast with the gross and net capital stock estimates, capital consumption is a flow variable and showed negative growth during the economic downturn. The level of consumption of fixed capital peaked in 2007 at £227 billion, but fell by 6.0% and 2.3% in 2008 and 2009 respectively to £209 billion in 2009. This was caused by a sharp fall in household transfer costs (costs associated with purchasing or disposing of an asset), which can be attributed to the adverse impact of the financial market shock on the housing market. Growth in the consumption of fixed capital subsequently picked up, albeit at a slower rate compared with pre-downturn rates. In 2013, the level of the consumption of fixed capital was 3.5% (£8 billion) lower than the 2007 peak (see Figure 5).

Also published as part of this release are estimates of the gross capital stock, net capital stock, and consumption of fixed capital at an institutional sector, asset and industry level. Further information on the detailed classification of these three areas can be found in the ONS 'concepts, sources and methods' publication.

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7. Analysis by institutional sector

The percentage share of net capital stocks owned by the institutional sectors remained relatively stable between 1997 and 2013. The net capital stocks estimates have been used for this analysis because they are a measure of the market value of fixed assets, that is, what these assets were worth at the time. Users will notice a large change in estimates of ‘ICT, other machinery and equipment and weapons systems’, in non-financial corporations (S.11) and central government (S.13) in 2005. This was due to the reclassification of British Nuclear Fuels Limited (BNFL) in April 2005 - more information is available in the background notes.

At the end of 2013, non-financial corporations’ (NFCs) were estimated to have held the largest share of total net capital stock at £1.6 trillion (42%), followed by households and NPISH sector which held an estimated £1.5 trillion (38%) of assets.

NFCs held the largest number of assets in ‘other buildings and structures’, at £0.9 trillion (53% of total net capital stock held by NFCs). Households and NPISH primarily held assets in dwellings (excluding land) at £1.4 trillion (93% of total net capital stock held by households). This percentage has decreased since the previous publication as research and development assets have been included in this sector’s total.

Figure 6 and Table 2 show that all institutional sectors experienced growth in net capital stocks between 1997 and 2013, albeit at different rates. In percentage terms, general government was the headline sector that experienced the strongest growth at 64% (equivalent to 3.1% per annum), followed by financial corporations at 33% (equivalent to 1.8% per annum), and Households and NPISH by 25%, or 1.4% per annum. NFCs increased by 23% (equivalent to 1.3% per annum). These percentages have changed since the previous publication as new assets have been included.

Table 2 shows that the economic downturn (2008-2009) affected the growth of net capital stock to varying degrees by institutional sectors. For example, growth in net capital stock held by financial corporations was adversely affected by the downturn, falling from 2.2% per annum in the pre-downturn decade to 0.7% in 2008 and 2009. In contrast, growth in net capital stock held by general government rose during the downturn to 4.0%, before returning to a level above its pre-downturn trend rate in the following years.

Figure 7 highlights the contribution that each institutional sector made to annual net capital stock growth between 1998 and 2013. It shows that during the downturn, a strong rise in general government net capital stock growth partially offset slower net stock growth for households and NFCs (which accounted for a relatively higher share of the total stock over the 1997-2013 period).

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8. Analysis by type of asset

Figure 8 shows that ‘dwellings’ accounted for the largest share of assets in 2013, at £1.6 trillion (41% of the total net capital stocks in 2013). ‘Other buildings and structures’ accounted for the second largest share at 36% (£1.4 trillion in 2013), while ‘ICT, other machinery, equipment and weapons systems’, ‘ intellectual property products’ and ‘other assets’ followed with 16%, 5% and 3% respectively.

Figure 8 and Table 3 show that net capital stocks of ‘intellectual property products’ was the only asset to decrease between 1997 and 2013, falling by 0.7% per annum on average over the entire period. The asset that experienced the strongest growth was ‘other buildings and structures’, which increased by 45% over the entire period (or 2.3% per annum), followed by ‘ICT, other machinery, equipment and weapons systems’, which increased by 39% since 1997 (2.1% per annum).

Table 3 shows that the economic downturn (2008-2009) affected the pace of net capital stock accumulation by varying amounts across assets. For example, the average annual growth of ‘other buildings and structures’ fell from 2.6% pre-downturn to 2.0% in the downturn period, whereas growth in ‘dwellings’ fell from 1.7% in the pre-downturn decade to 0.6% during the downturn.

Figure 9 decomposes annual net capital stock growth between 1998 and 2013, according to the contribution made from the headline assets cited in Table 3. The largest contributions to net capital stock growth between 1998 and 2013 came from 'other buildings and structures' and 'dwellings'. This reflected the strong growth of the 'buildings and other structures' asset and the large share of 'dwellings'. During the economic downturn, 'other buildings and structures' continued to make positive contributions to annual growth, while the contributions from 'other machinery and equipment' and 'dwellings' fell and has remained low since.

Asset and sector estimates for all measures of capital stock and capital consumption on current price and CVM basis are available in the accompanying time series dataset and in publication tables.

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9. Analysis by industry

Estimates of capital stocks and the consumption of fixed capital can be analysed by industry using the UK Standard Industrial Classification 2007.

The share of the net capital stock held by the four broad industry groupings (Other production; Manufacturing; Construction and Services) reflects the relative shares of these industries in Gross Value Added (GVA) terms. Table 4 shows that the services industries (Sections G-T) held an estimated £3.1 trillion (79.0%) of total net capital stocks at the end of 2013. Other production industries (Sections A, B, D and E) held £312 billion (8.0%); construction (Section F) £260 billion (6.6%), and manufacturing (Section C) £246 billion (6.3%).

Over time, the percentage share of these industry groupings has been relatively stable. Services industries increased their percentage shares by 3.6% since 1997, while the ‘other production’, manufacturing and construction industries all reduced their percentage share by 0.2%, 1.2% and 2.1% respectively.

The types of field assets held as stock varies across the industries of the economy. In 2013 services industries held the majority of their total net stocks either in ‘dwellings’ (£1.5 trillion at current prices (CP) or 48%), or in ‘other buildings and structures’ (£1 trillion at CP or 33%).

Other production industries also held the majority of their total capital stocks as ‘other buildings and structures’ (£210 billion at CP or 67%), however they also held a significant proportion of capital stocks as ‘ICT, other machinery and equipment and weapons systems’ (£82 billion at CP or 26%).

Not all industries held the majority of their capital stock in buildings. For example, manufacturing industries held the majority of their capital stocks in ‘ICT, other machinery, equipment and weapons systems’ at (£132 billion at CP or 54%) in contrast to ‘other buildings and structures’ which accounted for a relatively smaller proportion (£77 billion at CP or 31%).

As with the institutional sector and asset breakdowns, growth in net capital stock showed variation across the industries (Table 6). For example, the net capital stocks held by manufacturing industries fell during the economic downturn, by 1.1% on average per annum in 2008 and 2009, before continuing to fall by 0.4% per annum between 2010 and 2013. In contrast, growth in the net capital stock held by 'other production' industries rose by 1.7% per annum during the downturn from 0.7% per annum in the pre-downturn decade, and has risen further in the most recent years. The average annual growth rate for other production has reduced for all periods as a result of an upward change in the level of the net capital stock resulting from a review of the methods used in the 'mining and quarrying' industries. See section 2 of the background notes for further details.

Figure 11 shows that services industries consistently made the largest positive contribution, to annual net capital stock growth between 1998 and 2013.

Estimates by industry for all measures are available in the accompanying time series dataset and in the publication tables.

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10. Capital output ratio analysis

The capital output ratio is calculated by dividing capital stocks estimates by gross value added (GVA), to obtain a measure of the capital intensity of each industry. GVA is the value of output less the value of intermediate consumption. Intermediate consumption consists of the value of the goods and services consumed as inputs by the process of production, excluding fixed assets whose consumption are recorded as consumption of fixed capital.

This measure has been calculated on both a gross and net capital stocks basis in the publication tables back to 1997.

All else being equal, if there is a higher level of capital stock in the economy; workers should theoretically be able to produce a greater quantity or quality of output using the same quantity of labour input. This higher level of productivity arises because workers have more (or better) tools or facilities at their disposal.

Figure 12 shows that using this measure, the most ‘capital intensive’ industry in 2013 was real estate – holding the majority of assets in dwellings. In contrast, professional, health and ‘other services’ industries showed smaller rates of capital intensity.

Industries have different capital output ratios over time, as shown in Figure 13, which indexes ratios for broad industry groupings to 2010=100. An increase in a line shows that the capital output ratio has increased. This could occur either from a decrease in GVA or an increase in capital stocks.

Between 1997 and 2009, the 'other production' industry became more capital intensive whereas the three other main industry groupings experienced a decrease in their capital intensity.

With the onset of the economic downturn, all industries became more capital intensive, however in most instances this reflected a sharp fall in GVA, that was more than offset by a slower reduction in capital stock growth during this period.

Since the economic downturn there has been a mixed picture between industries, with the ratio of capital stock to output decreasing in 'other production', the ratio remaining constant in services, and both construction and manufacturing becoming more capital intensive. This has not fallen to pre-downturn levels.

Capital output ratio estimates by industry for all measures are available in the accompanying time series dataset and in publication tables.

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11. Net capital stocks per employee

It is also possible to analyse the level of capital stock per employee. Net capital stocks are used in this calculation because they provide a better estimate of the value of capital stocks at a point in time than gross stocks. Estimates of employees are taken from ONS Labour Market Statistics. This analysis differs from the previous publication, where ONS used a ratio per employed person which included the self-employed. The ratios in this publication only include data on employees.

Figure 14 shows the annual growth in capital stock per employee from 1998 to 2013. Between 2007 and 2009 there was a sharp rise, which reflected a sharp fall in employees that more than offset slower capital stock growth during this period. In the most recent years, this ratio has risen at a far slower rate – and even fell in 2011 – suggesting that firms may have been diverting resources away from capital and more into labour inputs.

Capital stocks per employed ratio estimates by industry for gross and net stocks are available in the accompanying time series dataset and in publication tables.

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12. International comparison

The profile of net capital stock growth has moved in line with other major economies since the turn of the century, as shown in Figure 16. Net capital stock growth is shown to fall across all the selected economies during the economic downturn, with Germany, the United States and Italy experiencing comparatively weak growth. This is in contrast to the UK which has seen an increase in the growth rate since 2011.

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.Background notes

  1. What's new?

    These estimates are consistent with the 2014 United Kingdom National Accounts (Blue Book and estimates include European System of Accounts (ESA) 2010 changes.

    There have been a number of improvements and key changes to the methodology for estimating capital stocks and the consumption of fixed capital during 2014.

    The most significant changes were incorporated into the Capital Stocks and Consumption of Fixed Capital, 2013 publication and can be summarised as:

    • changes to the estimation of GFCF
    • the inclusion of cultivated biological resources
    • new data sources, changes to the Standard Industrial Classification (SIC)
    • changes to the level of detail in the PIM, changes to the methods for estimation of breakdowns by institutional sector
    • changes to the deflation methodology

    A full explanation of these changes, including assessments of impact are available in the articles methodological changes to the estimation of capital stocks and consumption of fixed capital and impact of the methodological changes to the estimation of capital stocks and consumption of fixed capital.

    Due to deliveries required to meet the Blue Book timetable, the consumption of fixed capital estimates were fixed at an earlier stage of the production process compared with the gross and net capital stocks estimates. Consumption of fixed capital estimates have not, therefore, been re-calculated since this time, and are inconsistent with the outputs for gross and net stocks. ONS plans to remove this inconsistency in accordance with the National Accounts revision policy. This would change the data by between £14 billion (12%) and -£5 billion (-2%) each year at current prices.

    There has been an improvement to the methodology of the calculation of annual gross and net stocks in this release. In the previous publication, annual gross and net capital stocks were calculated using an average of the four quarters which make up a year. In this publication, gross and net capital stocks have been calculated using the fourth quarter estimate of gross and net capital stocks, the closing position for the year. The impact of this improvement is detailed in Figure 15 below and shows that both gross and net capital stocks have increased. Gross capital stocks increase by up to £60 million (1.3%) a year and net capital stocks increase by up to £37 million (1.2%) a year. This improvement has no impact on the consumption of fixed capital calculations.

    The series in this release cover the period 1997 to 2013. Estimates for 2014 will be published in the next release in August 2015. Estimates for periods before 1997 are not yet available. ONS will be working to re-instate these estimates and provide users with a longer time series. As soon as feasible ONS plans to commence work on the historic time series in 2015.

    Correction to 2013 estimates

    An error has been identified in the publication of Capital Stocks, Consumption of Fixed Capital, 2013 - Table 2.5.2 Net Capital Stock to Output Ratio by Industry at Chained Volume Measures and in the associated Figure 13. ONS apologises for the inconvenience this error may cause and will correct it as soon as possible. This publication includes corrected estimates.

  2. Revisions

    There are revisions to the estimates for 1997 to 2009 for the assets ICT and other machinery equipment and weapons systems. These are in line with the National Accounts revisions policy as the whole series was revised for Blue Book 2014. This is the result of taking on improved changes to GFCF estimates since the previous publication, Capital Stocks and Consumption of Fixed Capital 2013.

    A number of link factors were reviewed and updated in this release to better link pre-1997 estimates with post 1997 GFCF estimates for industries 06 extraction of crude petroleum and natural gas and 09 mining support service activities. This improvement has restored the gross and net capital stocks estimates for the respective industries for the asset 'buildings and other structures' between the periods 1997 to 2012. The method of linking pre and post 1997 GFCF is described in the article Impact of the methodological changes to the estimation of capital stocks and consumption of fixed capital (720.5 Kb Pdf).

    A full explanation of the National Accounts revisions policy is available on the ONS website (43.3 Kb Pdf).

  3. Use of the data

    Capital stocks and the consumption of fixed capital estimates are produced annually and used internally by ONS in the UK National and Economic Accounts and Public Sector Finances. They are also used externally by the Bank of England, the Office for Budgetary Responsibility, Her Majesty's Treasury, the Statistical Office of the European Communities (EUROSTAT), business and research communities, educational communities, the media and the general public. These estimates are used to monitor economic performance and inform monetary and fiscal policy decisions, as well as for international comparisons.

    The consumption of fixed capital is used in various ways in the National Accounts, in particular:

    • for all sectors, consumption of fixed capital is used to convert the gross-based estimates, such as gross domestic product or gross operating surplus, into the net estimates such as net national income
    • for the non-market sectors (central and local government, and non-profit institutions serving households) consumption of fixed capital forms part of the sectors' contributions to the economy as measured using gross value added, and is the only component of gross operating surplus for these sectors, leaving the net operating surplus as zero

    Additionally, capital stocks and capital consumption estimates are also used in the calculation of quarterly profitability estimates of UK companies.

  4. Methods

    The aims of the Quality and Methodology Information (QMI) report are to provide users with a greater understanding of ONS' statistics, their quality and the methods that are used to create them. A Quality and Methodology Information (88.9 Kb Pdf) report for this publication can be found on the ONS website; however the methods used to compile these estimates have changed significantly since it was last updated. This bulletin provides an updated description of the methods and sources, along with methodological changes to the estimation of capital stocks and consumption of fixed capital and impact of the methodological changes to the estimation of capital stocks and consumption of fixed capital articles published in June and July 2014.

    A revised QMI report will be published on the ONS website in 2015.

    Changes to methodology

    • the production of estimates for General, Central and Local Government using a new methodology

    As a consequence of Blue Book 2014 timetable constraints, ONS has been unable to fully implement the new methodology to produce estimates for the central and local government sectors. As a result, the sector totals used in the previous publication in 2010 have been maintained and the estimates for 2010 to 2013 have been forecast for these sectors based on historic trends. A key input to the estimates of capital stocks and the consumption of fixed capital are gross fixed capital formation (GFCF) investment estimates, which come from sample surveys and administrative sources. This means that any updates to gross fixed capital formation (GFCF) for these sectors are not reflected in this release. All other sectors have been produced using the new methods. ONS will aim to resolve this issue in time for the publication of Blue Book 2016.

    • restoring consistency between the estimates of consumption of fixed capital, gross capital stocks and net capital stocks

    Due to deliveries required to meet the Blue Book 2014 timetable, the consumption of fixed capital estimates from the PIM model were fixed at an earlier stage of the production process compared with the gross and net capital stocks estimates. Consumption of fixed capital estimates have not been re-calculated by the PIM since this time, therefore they are inconsistent with the outputs for gross and net capital stocks. ONS plans to remove this inconsistency in accordance with the National Accounts revision policy allows.

    • providing an asset breakdown for institutional sectors S.11001 and S.11PR

    ONS has been unable to provide an asset breakdown of non-financial corporations (S.11), into public corporations (S.11001) and private non-financial corporations (S.11PR). This was also due to the constraints of the Blue Book 2014 delivery timetable and the requirement for additional quality assurance of the asset breakdowns. ONS will aim to resolve this issue in time for the publication of Blue Book 2016.

    • fully introducing new data for Non-profit Institutions Serving Households (NPISH)

    In these estimates and for Blue Book 2014, ONS has implemented the new methodology to produce estimates for the non-profit institutions serving households (NPISH) sector. NPISH includes for example charities and trade unions. However, the NPISH data from the PIM model were fixed at an early stage of the production process between 1997 and 2012 due to deliveries required to meet the Blue Book 2014 timetable. NPISH estimates have not been re-calculated by the PIM since this time, apart from the year 2013, therefore they are inconsistent with the outputs for other non-government sectors. ONS plans to remove this inconsistency in time for the publication of Blue Book 2016.

    Data sources

    Estimates of capital stocks are calculated using the Perpetual Inventory Method (PIM).

    The input data for the PIM are at a low level of aggregation with industries classified using the 2007 version of the Standard Industrial Classification (SIC2007). The main input data sets entering the PIM are given below.

    i) GFCF (investment) estimates

    The PIM uses a long run constant price time series of GFCF estimates (investment in capital assets) classified by SIC2007 industries. The series extend as far back as the nineteenth century for some long-lived assets such as buildings and dwellings. The PIM uses constant price investment estimates at 2011 prices.

    Estimates of GFCF and its breakdowns by sector and asset (from 1997) are published separately in the quarterly Business Investment Statistical Release.

    ii) Price indices (deflators)

    The capital stocks system uses, from 1997 onwards, the same deflators used to deflate GFCF; prior to 1997 consistent deflators are used. The GFCF asset deflators are constructed from product based Producer Price Indices (PPIs), Services Producer Price Indices (SPPIs), construction price indices and some Gross Domestic Product (GDP) implied deflators. The product-based deflators are weighted to assets using estimates from ONS' annual Business Spending on Capital Items Survey (BCIS). BCIS collects detailed data on GFCF by product, which informs the weight of each product in each asset. The same deflator is used for each asset, regardless of the industry it is in. ONS is planning a full review of the GFCF deflators, as part of the National Accounts programme of continuous improvement.

    iii) Life lengths and premature scrapping

    Each asset is assumed to have a life length during which it is economically productive. This will differ between assets, with buildings typically having a longer life length than computer software for example.

    Bankruptcy series are used in the PIM to model firm closures, and it is assumed that half the ICT and other machinery and equipment assets of insolvent firms are prematurely scrapped. Bankruptcy data are provided to the ONS by the UK's Insolvency Service on an annual basis.

    A review on the life lengths of assets is planned during 2015. ONS will update users on progress and any changes to estimation when this review has been completed.

    iv) Other data

    Retirements of assets are assumed to be normally distributed around the mean asset life length. That is, not all of the stocks of an asset which lasts five years, for example, are assumed to leave the PIM after five years – rather, the retirements are spread around this date. To model this, the parameters for the distribution of asset retirements are entered into the PIM. This is called the coefficient of variation for each asset.

    Understanding the data: perpetual inventory method (PIM)

    A PIM is an economic model that enables balance sheets (or stocks) to be calculated from the associated flows. In this case, the PIM uses GFCF estimates to model the value of capital stocks in use in the UK. Assumptions about the life of these capital stocks are used to ensure that they are withdrawn from the model when they are no longer economically useful.

    For estimates of consumption of fixed capital and net capital stocks, assets are written down (i.e. decrease in value) over their lifetime. For gross capital stocks, the asset is valued at its new replacement cost until it is retired.

    In the ONS PIM straight line depreciation is assumed. This is a depreciation profile based on a constant rate for the consumption of fixed capital over the service life of the asset. This service life is the total period during which the asset remains in use or ready to be used, in a productive process, even if the asset has more than one owner.

    The main measures produced by the PIM are gross capital stocks, net capital stocks and consumption of fixed capital by asset, industry and sector. The PIM calculates all the series at constant prices and then uses appropriate price indices to produce (reflate) current price estimates.

    The PIM uses GFCF at constant prices for low-level assets and industries across the whole economy. It estimates the capital stocks and consumption of fixed capital series at constant prices at this level. It then applies proportions to sectorise these across the economy based on the historic pattern of capital stocks across sectors of the economy. These series are then reflated using deflators to give current price estimates.

    Further information on PIM can be found in the following articles:

    UK capital stocks developments in coverage and methodology (446.3 Kb Pdf)

    Improving non financial balance sheets and capital stocks (609.9 Kb Pdf)

    International reporting standards

    The International Financial Reporting Standards (IFRS) were introduced from 2005 onwards in the UK. IFRS is the legally-required financial reporting framework for the consolidated accounts of EU listed groups of companies. IFRS differs in some respects from the UK financial reporting standards.

    The impact on the capital stocks and consumption of fixed capital estimates is difficult to assess as the impact of the transition to IFRS varies by company. Work by ONS provided little evidence that material differences would occur as a result of the transition. Furthermore, the Quarterly Capital Expenditure Survey, which is the source for around 50% of GFCF estimates, asks respondents to record their investment data without any allowance for depreciation. On this basis, the transition to IFRS should not prevent time series analysis of the capital stocks and consumption of fixed capital dataset.

    Further information on methodology

    Users will notice a large change in estimates of 'ICT, other machinery, equipment and weapons systems', in non-financial corporations (S.11) and central government (S.13) in 2005. This is due to the reclassification of British Nuclear Fuels Limited (BNFL) (414.3 Kb Pdf) in April 2005. As part of this classification change, nuclear reactors were transferred from British Nuclear Fuels Limited (BNFL) to the Nuclear Decommissioning Authority (NDA). BNFL is classified as a public corporation in National Accounts and the NDA as a central government body. The estimates in this release reflect this transfer from the public corporations sector. The value of the transfer was -£15.6 billion. The negative value reflects the fact that the reactors are at the end of their productive lives and have large decommissioning and clean-up liabilities.

    International comparisons

    The UK is legally required to produce the capital stocks and consumption of fixed capital estimates in line with the European System of Accounts (ESA). This is the first publication on an ESA2010 basis.

    The PIM used to calculate capital stocks and consumption of fixed capital is utilised across the world and is in line with international guidance. The way in which the PIM and its assumptions are implemented will differ between countries. This will reflect the differing circumstances in different countries. This means that users can compare estimates between countries but should be aware that differences in methods may contribute to differences in estimates.

    Both Eurostat and the OECD hold internationally comparable estimates for capital stocks and the consumption of fixed capital. When comparing between countries, users should ensure that they are comparing figures in the same currency and that there are no definitional differences noted.

    Eurostat currently have a reservation in place concerning the average life length of roads in the UK. The UK PIM uses an average life length of 75 years, whereas European guidance states that it should be in the range of 50 to 60 years. By reducing the average life length of roads this asset will live for a shorter period. Therefore the consumption of fixed capital for this asset will increase. Reservations are used to bring greater consistency and compliance with regulations across member states. ONS is working to lift the reservation.

    Comparisons with other data sources

    National balance sheet (NBS)

    There are links between the net capital stocks estimates and the estimates shown for AN.11 Fixed assets in the non-financial section of the NBS. In the NBS, estimates are taken directly from the current price net capital stocks dataset for assets 'machinery, equipment and weapons systems' and 'intellectual property products' for all sectors except central and local government.

    For all other assets, estimates are made based on a wide range of data sources of asset values in the economy. For this reason, these two data sources will show different values. The biggest difference is the valuation of dwellings. The capital stocks estimates use investment data over time in new dwellings and major improvements to dwellings only and not the land. The NBS is calculated using property market data and also includes the value of land. As a result, the valuation of fixed assets in the NBS are higher than in the net capital stocks dataset.

    Capital services

    Capital services are the flow of services into the production of output that are generated by the capital stock, as opposed to the stock of capital itself. Capital services are a measure of capital input that is more suitable for analysing and modelling productivity.

    The fundamental difference between capital stocks and capital services is that whereas capital stocks are a wealth-based measure of the total amount of capital within the economy, capital services are a measure of the flow of services derived from net stock. Capital services weight together the different assets by their relative productivity, measured by a derived rent function. The rent function, otherwise known as the user cost, is essentially how much the user is willing to pay to use the asset. As a user is willing to pay up to what an asset will give back, the rent function can be seen as measuring the difference in the additional returns between assets. The rent function is important because assets such as computers and software have become cheaper over the last decade, meaning a wealth measure like capital stocks does not truly reflect the return to those assets.

    The ONS has not published a paper on the stand-alone capital service also known as VICS (Volume Indices of Capital Services) since Appleton & Wallis 2011. However capital service estimates have been produced for Multi Factor Productivity (MFP) the latest paper being Field & Franklin 2014. However users should note that these estimates are highly experimental.

  5. Quality assurance

    These statistics were reinstated into publication as National Statistics, endorsed by the UK Statistics Authority in 2014. Prior to this, they were withdrawn from publication in 2011 after standard ONS quality assurance checks raised issues with the quality of the data. As explained in a progress update published on 17 January 2013, ONS identified two main issues which prevented publication:

    • the transition from the Standard Industrial Classification 2003 (SIC2003) to the Standard Industrial Classification 2007 (SIC2007)
    • the series break in 1997

    The detailed breakdown of industries on a SIC2007 basis varies greatly from the previous SIC2003. There was a series break in 1997 (the first year of national accounts central system processing) which also led to processing issues. This was due to post-1997 data having already been collected on/converted to a SIC2007 basis and pre-1997 data being on a SIC2003 basis.

    To address these concerns, the estimates in this statistical bulletin and all associated outputs have been extensively quality assured in line with the Code of Practice for Official Statistics.

    What quality assurance has taken place?

    Quality assurance checks have included detailed analysis at all levels of the data, to guarantee integrity and consistency.

    In terms of detail, the process has involved analysing all data being entered in to the system, and every process involved in the calculation of capital stocks estimates to ensure that the outputs are correct according to our specified methodology.

    The quality assurance process has also included economic analysis of the estimates, to confirm that the data are changing in a plausible manner, and that expected changes over time (for example, the recent economic downturn) can be seen and explained.

    To summarise, the quality assurance process for the July 2014 publication included:

    • a review of the deflators used within the capital stocks system, to maintain consistency with other deflators and to keep in line with National Accounts methodology
    • a complete system review, to ensure integrity and consistency throughout the process

    The quality assurance of both the July 2014 and the November 2014 publication included:

    • thorough dataset analysis, ensuring that the data are correct at the lowest level of detail
    • publication analysis – detailed checking of all published articles and tables for accuracy and to better tailor the material to serve the citizen user
    • economic analysis, to review what the data are showing at a macroeconomic level and to see how the proposed estimates compare with existing economic figures

    Who carried out the quality assurance?

    This extensive quality assurance process has been carried out by:

    • the ONS capital stocks and gross capital formation (GCF) team
    • ONS economists from the Office of the Chief Economic Advisor (OCEA)
  6. What do you think?

    We are striving to improve this release and its associated commentary. We would welcome any feedback you may have, and would be particularly interested in knowing how you make use of these data to inform your work. Please contact us via email: gcf@ons.gov.uk or telephone Wesley Harris on +44 (0)1633 45455250.

    There is a Business and Trade Statistics community on the StatsUserNet website. StatsUserNet is the Royal Statistical Society's interactive site for users of official statistics. The community objectives are to promote dialogue between users and producers of official business and trade statistics about the structure, content and performance of businesses within the UK. Anyone can join the discussions by registering via either of the links above.

  7. Publication policy

    Details of the policy governing the release of new data are available from the Statistics Authority or from the Media Relations Office email: media.relations@ons.gov.uk.

  8. National statistics

    The United Kingdom Statistics Authority has designated these statistics as National Statistics, in accordance with the Statistics and Registration Service Act 2007 and signifying compliance with the Code of Practice for Official Statistics.

    Designation can be broadly interpreted to mean that the statistics:

    • meet identified user needs
    • are well explained and readily accessible
    • are produced according to sound methods
    • are managed impartially and objectively in the public interest

    Once statistics have been designated as National Statistics it is a statutory requirement that the Code of Practice shall continue to be observed.

  9. Social media

    Follow ONS on Twitter and receive up to date information about our statistics.

    Like ONS on Facebook to receive our updates in your newsfeed and to post comments on our page.

  10. Government Statistical Service (GSS) business statistics

    To find out about other official business statistics, and choose the right data for your needs, use the GSS Business Statistics Interactive User Guide. By selecting your topics of interest, the tool will pinpoint publications that should be of interest to you, and provide you with links to more detailed information and the relevant statistical releases. It also offers guidance on which statistics are appropriate for different uses.

  11. Special events

    ONS has published commentary, analysis and policy on 'Special Events' which may affect statistical outputs. For full details visit the Special Events page on the ONS website.

  12. Release policy

    All data in this release can be downloaded free of charge from the ONS website. Here are the instructions to obtain a full time series of data from the statistical bulletin or release pages:

    select 'Data in this release'select 'View datasets associated with this release'
    select the latest release
    select 'Select series from this dataset'select the reference table of interest
    select 'View series'
    select the series of interest (Hint: for a custom download you can use SHIFT to select a range of series or CTRL to select multiple individual series)
    select 'View selection'
    select 'Download'

  13. The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gsi.gov.uk.

    This document is also available on our website at www.ons.gov.uk.

  14. Next publication date

    August 2015

  15. Media contact:

    Tel: Media Relations Office 0845 6041858

    Emergency on-call (limited service) 07867 906553

    Email: media.relations@ons.gov.uk

  16. Statistical contact:

    Tel: Wesley Harris +44 (0)1633 455250

    Department: Office for National Statistics

    Email: gcf@ons.gov.uk

    Website: www.ons.gov.uk

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

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Contact details for this Statistical bulletin

Wesley Harris
gcf@ons.gov.uk
Telephone: +44 (0)1633 455250