Economic statistics sector classification - classification update and forward work plan: June 2017

Please note, from July 2017 the forward work plan will be reviewed and published on a monthly, rather than quarterly, basis.

Our economic statistics are produced in accordance with international rules and guidance. Central to this are the legally binding rules set forth in the European System of Accounts 2010 (ESA 2010) and accompanying Manual on Government Deficit and Debt (MGDD). These include rules on classifying statistical units (organisations or bodies) and the transactions they engage in. A summary of these, and our approach to their application, can be found on our economic statistics classification page.

This forward work plan sets out the units and transactions that we expect to assess and classify in the coming 12 months.

There is high demand for classification assessments and at any one time we are progressing with a number of active cases. These include confidential assessments of government and devolved administration policy proposals (as explained in our classification process); we do not announce or discuss such policy proposal assessments as a matter of course to afford policy-makers the space to develop policy. At such a time that a policy is implemented we will publish a classification decision.

As such, this forward work plan does not cover all cases that will arise over the coming year; furthermore, minor cases (with smaller statistical and policy impacts) will be assessed as resources allow. The cases scheduled below have been prioritised due to:

• the significant impact they will have on important statistics (an impact of at least £1 billion on the government deficit or £10 billion on government debt)
• their importance to public policy
• their priority for Eurostat

Therefore, this work plan provides an up-to-date list of the cases we expect to classify over the coming year.

In this section, approximate potential impacts on fiscal and/or national accounts are given.

The fiscal aggregates are:

• public sector net borrowing and public sector net debt for the UK
• general government consolidated gross debt and general government net borrowing for European measures

The impact would occur if a unit is classified into the public sector or reclassified from public to private. Transactional classifications can also impact the fiscal aggregates.

For indicative impacts on fiscal aggregates, the following definitions are used:

• small: less than £100 million change
• medium: between £100 million and £1 billion change
• large: more than £1 billion change

The main national accounts aggregates include gross domestic product (GDP), gross national income and household savings ratio.

Impacts on national accounts aggregates (for example, GDP) are roughly classified as:

• small – an insignificant or minor impact on aggregates
• large – a significant or noticeable impact on aggregates

As announced in the March 2016 forward work plan, this work plan includes an “update” section within each classification or case. An update is only included if the case has been listed in a previous forward work plan but the expected completion date has changed.

3.1 Pensioner Bond Scheme

Current classification: not classified
Reason for assessment: issuance of new government bonds
Potential impact on fiscal aggregates: large
Potential impact on national accounts: small
Expected completion: July 2017

The government, through National Savings and Investment (NS&I), has made available £10 billion to £15 billion of 65 plus Guaranteed Growth Bonds. These are lump sum investments that earn a fixed rate of interest over set 1-year or 3-year terms. These bonds bear interest at above-market rates. We will establish how these bonds should be recorded in economic statistics.

Update: completion was originally expected in April 2016. Due to resource issues and competing priorities the assessment is still ongoing but is expected to reach completion in July 2017.

3.2 Friendly societies

Current classification: not yet classified
Reason for assessment: new detail required as part of ESA 2010 non-profit institutions serving households (NPISH) and household split
Potential impact on fiscal aggregates: none
Potential impact on national accounts: small
Expected completion: within 12 months

Friendly societies are mutual organisations in the UK that provide financial services for their members. They offer members a wide range of affordable savings, investments, insurance, pensions and specialist annuities and provide other help when needed. This assessment will confirm the classification of such organisations in the context of the rules laid out in the European System of Accounts 2010 (ESA 2010) and whether they should be classified as NPISHs or as a different kind of unit.

Update: completion was originally expected in August 2016. Due to resource issues and competing priorities the assessment is still ongoing but is expected to reach completion in July 2017.

3.3 Grants paid to private registered providers of social housing in England

Current treatment: capital transfers
Reason for assessment: to clarify the correct statistical recording of government payments to registered providers
Potential impact on fiscal aggregates: medium
Potential impact on national accounts: small
Expected completion: within 12 months

Private registered providers receive “grants” from the Homes and Communities Agency (central government body) to develop or purchase properties to be used for social housing.

Providers fund their developments using a combination of commercially obtained loans or long-term bonds and the Social Housing Grant (SHG) or Housing Action Grant (HAG).

If a provider subsequently disposes of a property, the outstanding amount of SHG or HAG must either be reinvested into new affordable housing or repaid to the Homes and Communities Agency.

Update: this assessment was included in the June 2016 forward work plan with completion brought forward to September 2016 from November 2016 so that it could be done alongside the assessment of private registered providers of social housing in Scotland, Wales and Northern Ireland. Due to competing priorities the assessment is still ongoing.

3.4 Universities

Current classification: almost all universities are classified as non-profit institutions serving households (NPISH); tuition fee payments (where relevant) are classified as transactions not at economically significant prices

Reason for assessment: policy – significant increases in tuition fee maxima and other changes in funding sources
Potential impact on fiscal aggregates: not applicable
Potential impact on national accounts: medium
Expected completion: within 12 months

We will review the classification of universities in the UK based on the European System of Accounts 2010 rules, in particular rules for assessing whether institutional units are “market” or “non-market” producers.

3.5 Lifetime ISA

Current classification: not classified
Reason for assessment: introduction of new government bonds
Potential impact on fiscal aggregates: large
Potential impact on national accounts: small
Expected completion: within 12 months

The government, through the 2016 Budget has announced the introduction of new bank accounts that can be opened by 18- to 40-year-olds and will allow savers to contribute up to £4,000 a year. The government will pay a 25% bonus on each pound paid into the accounts up to an annual cap of £1,000 until the saver’s 50th birthday. We will establish how these payments should be recorded in economic statistics.

Update: this assessment was included in the March 2016 forward work plan with completion expected in April 2016. However, it was found that there was insufficient detail available about the practical working of the scheme at that time and so the assessment will recommence once such detail becomes available; this is expected in 2017.

3.6 "Minor" trust ports

Current classification: varies (central government, private non-financial corporations)
Reason for assessment: requests from units
Potential impact on fiscal aggregates: small
Potential impact on national accounts: small
Expected completion: within 12 months

Trust ports are independent statutory bodies each governed by their own, unique, statutes and controlled by a local independent board. In October 2013, we announced that "major" trust ports (those that exceed the revenue threshold set out under Section 11 of the Ports Act 1991 – £9.0 million in July 2012, with this threshold adjusted for Retail Price Index (RPI) inflation between periods), will continue to be treated as public corporations. This is because of the power of the relevant government sponsoring body to choose to enforce their sale (that is, privatisation) under Section 10 of the aforementioned Act and its right to a legally defined share of the proceeds from such a sale.

At the same time we undertook to consider trust ports with annual revenues below this threshold ("minor" trust ports) on a case-by-case basis. We have been contacted by a number of such trust ports requesting classification reviews. We plan to begin considering these cases in 2017, subject to the demands of higher-priority cases.

3.7 Pension Protection Fund

Current classification: Public Insurance Corporations and Pension Funds (S.12501)
Reason for assessment: new rules in the 2014 Manual on Government Deficit and Debt (MGDD)
Potential impact on fiscal aggregates: small
Potential impact on national accounts: small
Expected completion: within 12 months

The Pension Protection Fund was established to pay compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer and where there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation. In the 2014 MGDD, new rules on the treatment of “protection funds” were introduced; we are reviewing the classification of the Pension Protection Fund in accordance with those rules.

Update: this assessment was included in the December 2015 forward work plan with completion expected in March 2016. However, in order to complete this assessment, input is awaited from Eurostat on a separate case which will provide clarity on the correct interpretation of the new rules around protection funds in the MGDD.

3.8 Energy Companies' Obligation (ECO)

Current classification: not classified
Reason for assessment: policy, developing rules from Eurostat
Potential impact on fiscal aggregates: not known
Potential impact on national accounts: not known
Other impacts: statistics on taxation
Expected completion: within 12 months

Energy Companies’ Obligation (ECO) was introduced in 2013 as a package of measures aimed at helping to improve the environmental efficiency of UK residential buildings. It requires large energy providers to offer financial support for efficiency measures such as improving insulation or installing a new boiler. It also requires companies to provide assistance to low-income and vulnerable households.

The international guidelines on treatment for such schemes are unclear and this has been discussed on several occasions internationally. The issue is that, while in the real world financial transactions flow directly from energy providers to consumers, these redistributive transactions would not occur without government impetus. One view is that such flows should be routed via government from energy firms to consumers, to reflect the tax-like nature of the situation. The re-routing of flows to reveal the economic reality of the transactions is an accepted practice in the European System of Accounts 2010.

However, there is international variation in the treatment of such transactions and this impacts the comparability of statistics on the tax burden in different countries.

Update: in March 2016, Eurostat published a new version of the Manual on Government Deficit and Debt (MGDD), which included a new section with guidance on some situations where transactions should be rerouted. These are not readily applicable to UK schemes such as ECO but Eurostat has committed to further work to provide guidance on other situations where transactions should be rerouted. As such, we need to await the outcome of this work.

If you wish to hear more about any of the cases outlined in this work plan, or our other work, please email the Economic Statistics Classifications Team at econstats.classifications@ons.gov.uk.