Detailed assessment of changes to institutional sector accounts: 1997 to 2019

• Between 1997 and 2019, the UK’s net borrowing or lending position has changed on average by 0.01% of gross domestic product (GDP), primarily reflecting revisions to the financial corporations and household sectors.
• Households saw an average revision of negative £6.8 billion to net lending or borrowing from the non-financial account, with revisions as a percentage of GDP ranging from 0.0% to negative 1.1%.
• The household saving ratio has been revised by an average of negative 0.8%.

This section discusses the largest methodological improvements undertaken in Blue Book 2021 that affect the non-financial and financial accounts.

Some substantial changes were explained in the Impact of Blue Book 2021 changes on current price and volume estimates of gross domestic product article published on 28 June 2021. These include:

• incorporation of the Financial Services Survey (FSS)
• removal of historic link factors and improvements to household expenditure exhaustiveness
• improvements to trade data
• other improvements affecting non-financial and financial accounts are described in Section 2

Adjustments to debt securities and take on of Wealth and Asset Survey (WAS) data

Before 2017, households (HH) and non-profit institutions serving households (NPISH) were published as one combined sector. However, as part of the introduction of the European System of Accounting 2010 (ESA10), there was a requirement to split out HH and NPISH sectors across the accounts. For Blue Book 21, methods are being introduced to improve the coherence in the calculations of debt securities assets, such as bonds, for these sectors.

Data are being taken on from the Office for National Statistics’ (ONS) Wealth and Assets Survey (WAS), for HH’s stock holdings of:

• debt securities (for example, bonds) issued by UK government and by UK corporations
• debt securities issued by the rest of the world
• shares issued by the rest of the world
• shares issued by UK mutual funds

Along with improved reconciliation of flows and levels, the WAS change comprises revised data for 2013 to 2015, together with new data for 2016 to 2018, replacing previous projections. Coherence of debt securities for the HH and NPISH sectors has been improved in all periods.

The sectors affected by this change are private non-financial corporations, financial corporations, households, non-profit institutions serving households, and the rest of the world.

Pension funds balance sheet

Pensions are provided by two financial corporations sub-sectors: insurance corporations and pension funds. The main liability of pension funds is in the form of pension schemes’ obligations to pay pensions, which are also the pension entitlements (assets) in the HH sector. This is recorded as pension entitlements (AF.63) within the financial balance sheet of both sectors.

Defined contribution (DC) pensions are pensions based on how much is paid into the scheme. They are sometimes called “money purchase” pension schemes. For DC pensions, pension fund liabilities are, by definition, equal to their assets. From Blue Book 2021, the new Financial Survey of Pension Schemes (FSPS) will be the data source used to calculate the DC element of pension entitlements in pension funds. The FSPS data provides an improved coverage of DC pensions, as it includes DC parts of hybrid schemes and very small schemes, unlike the Pension Regulator’s (TPR) publication DC Trust which is currently used to compile these liabilities. FSPS data will be used for 2019 onwards, with a revised historical series back to 1997.

The sectors affected by this change are financial corporations, households, private non-financial corporations, and non-profit institutions serving households.

Multilateral development banks

The UK subscribes to a number of multilateral development banks (MDBs). These are international institutions, created by groups of countries to provide finance and advice with development goals. Membership includes both donor and beneficiary countries, with the UK typically performing a donor role.

When it was introduced, the ESA10 Manual on Government Deficit and Debt offered new guidance on the treatment of payments by national governments into these organisations. For some types of payment this differs from the treatment previously adopted in the UK.

Following a recommendation by the ONS’s Economic Statistics Classification Committee, it was decided that the ONS should re-classify some payments to MDBs from “Other equity” to “Other capital transfers payable”.

The sectors affected by this change are central government, financial corporations, households, non-profit institutions serving households, and the rest of the world.

Reinstatement of Blue Book 2019 change to the income of quasi-corporations

In Blue Book 2019, a new method was introduced for the financial corporations’ (FINCOS) uses and household resources of withdrawals from income of quasi-corporations (D.422) data. This method better reflected the value of gross operating surplus attributed to partnerships in FINCOS and, ultimately, paid back to households as the owners of financial partnerships. During our Blue Book 2020 processing, this new method was effectively reversed because of operational issues.

For Blue Book 2021, we are re-introducing the method first introduced in Blue Book 2019. The reversion means an upward revision to households’ real household disposable income, saving ratio and net lending and borrowing, with the opposite impact to FINCOS’ net lending and borrowing.

Other changes not elsewhere classified

In this article, there are several other improvements that have not been individually identified. A more complete list of changes were described in Impact of Blue Book 2021 changes on current price and volume estimates of gross domestic product article published on 28 June 2021.

In the latter periods, updated data sources can be the cause of revisions that outweigh individual methodological improvements that have also been implemented. This can lead to larger revisions in this “open” period, which for Blue Book 2021 is from 2017 onwards. In some instances, it can lead to a reversal in the direction of the overall revision.

Selected updated data sources for the Blue Book “open” period

HMRC Pay as you earn (PAYE) data

• Primary affected sector: households
• Affected transaction(s): wages and salaries (D11)
• Affected account: non-financial account

HMRC self-assessment data

• Primary affected sector: households
• Affected transaction(s): mixed income (B3g)
• Affected account: non-financial account

Annual Business Survey retail sales estimates

• Primary affected sector: households
• Affected transaction(s): household final consumption expenditure (P3)
• Affected account: non-financial account

ONS estimates of Financial Intermediation Services Indirectly Measured (FISIM)

• Primary affected sector: households
• Affected transaction(s): household final consumption expenditure (P3)
• Affected account: non-financial account

Corporation and income tax accruals

• Primary affected sector: financial corporations, households and private non-financial corporations
• Affected transaction(s): other accounts receivable/payable excluding trade credits and advances (F89)
• Affected account: financial account

Markit iBoxx, Bloomberg

• Primary affected sector: rest of the world, financial corporations, private non-financial corporations
• Affected transaction(s): medium- and long-term bonds issued by UK MFIs and other residents (F32N56)
• Affected account: financial account and non-financial account

Foreign direct investment (FDI) benchmark data

• Primary affected sector: rest of the world, private non-financial corporations, financial corporations, households, NPISH
• Affected transaction(s): loans (F4) and equity (F5)
• Affected account: financial account and non-financial account

Wealth and Assets Survey

• Primary affected sector: rest of the world, private non-financial corporations, financial corporations, households, NPISH
• Affected transaction(s): rest of the world shares and other equity (F519N92)
• Affected account: financial account

This section sets out the estimates for the average indicative impact between 1997 and 2019 of all improvements introduced this year.

Impact on net lending/borrowing

Figure 1 shows the impact on net lending and borrowing as a percentage of GDP. Revisions to the financial corporation and household sectors are the largest drivers of change, averaging revisions of 0.3% and negative 0.4% respectively between 1997 and 2019.

Table 1 sets out the indicative nominal average impact of the changes on the non-financial accounts.

Impact on the household saving ratio and gross disposable household income (GDHI)

Figure 2 shows the indicative revisions of the household saving ratio in Blue Book 2021. The saving ratio has been revised downwards by an average of 0.8%, with the largest single driver being the incorporation of Financial Services Survey data . Revisions to the saving ratio range from negative 0.3% to negative 1.9%.

GDHI has been revised by an average of negative £0.4 billion, with the largest driver being the removal of historic link factors and improvements to household expenditure exhaustiveness change.

Not all sectors’ indicative impacts have been included as there were no or very small revisions. Sectors not included in this section are available upon request.

Private non-financial corporations

Financial Corporations

Central Government

Local Government

Households

Non-profit institutions serving households

Rest of the world

Authors:

Marina Gabriadze & Tom Spencer, Office for National Statistics