Capital stocks and fixed capital consumption, UK: 2016

The UK’s net capital stock was estimated at £4.2 trillion at the end of 2015, increasing by 1.3% compared with 2014.

The underlying pattern in net capital stock is one of growth, growing by an average of 1.6% per year between 1998 and 2015.

In the period prior to the economic downturn, net capital stock increased on average by 2.1% per year, slowing to an average of 1.0% per year since 2008.

Consumption of fixed capital for the UK was estimated at £240 billion in 2015, an increase of 1.3% compared with 2014. This is the weakest growth in consumption of fixed capital since the downturn.

Services industries held an estimated 76.7% of total net capital stocks at the end of 2015. The construction industry held an estimated 9.2% and manufacturing held 5.9%. Other production industries accounted for the remaining 8.1% of net stocks held.

In line with other national accounts outputs and tables, estimates for 1995 and 1996 have been derived and introduced into this dataset. This increases the length of available time series as well as meeting international requirements. We have been unable to fully implement all of the changes for 1995 and 1996 data for Blue Book 2016 and as a result, this bulletin only analyses the data from 1997 onwards. Further details about this and other changes since the previous publication are available in the background notes section.

This release includes estimates of gross capital stocks, net capital stocks and consumption of fixed capital. The glossary of terms explains each term in more detail. The estimates are available by institutional sector, asset and industry. Further information on these classifications can be found in our publication of concepts, sources and methods.

All data referred to in this bulletin are annual estimates of chained volume measures (CVM) unless otherwise specified. These are time series where the effect of price changes has been removed. The CVMs in this publication are referenced to 2013. Please note, the components of capital stock and the consumption of fixed capital may not always add to totals due to rounding or because CVM data is not additive before the reference year.

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

Gross capital stocks

Gross capital stocks tell us how much the economy’s assets would cost to buy again as new, or their replacement cost.

Figure 1 shows gross capital stocks were estimated at £7.3 trillion at the end of 2015, an increase of 41.0% since 1997 and equivalent to 1.9% growth per year. In the period prior to the economic downturn, gross capital stocks increased on average by 2.3% per year. This slowed to 1.6% per year during 2008 and 2009, and to 1.5% per year during the period 2010 to 2015, remaining below rates seen prior to the downturn (Table 1).

Net capital stocks

Net capital stocks show the market value of fixed assets. They account for the depreciation in assets, so both the level and the rate of increase in the net capital stock will be lower compared with gross capital stock.

Figure 1 shows net capital stocks were estimated at £4.2 trillion at the end of 2015, an increase of 33.0% since 1997 and equivalent to 1.6% growth per year. The average annual growth in net capital stocks slowed between 2008 and 2015 to 1.0%, compared with 2.1% prior to the downturn (Table 1).

Consumption of fixed capital

The consumption of fixed capital is the decline in the value, or depreciation, of fixed assets in the economy over a time period.

In 2015, the consumption of fixed capital was estimated at £240 billion, an increase of 59.1% since 1997 (equivalent to an average of 2.6% growth per year). The increase of 1.3% between 2014 and 2015 was the weakest growth in consumption of fixed capital since the downturn. This was mainly due to transfer costs remaining roughly the same in both 2014 and 2015; between 2010 and 2014, transfer costs had an average annual growth rate of 11%.

In contrast with the gross and net capital stock estimates, capital consumption showed negative growth during the economic downturn. The level of consumption of fixed capital peaked in 2007 at £233 billion before the downturn, but fell by 6.7% and 2.4% in 2008 and 2009 respectively to £212 billion in 2009. A sharp fall in household transfer costs (costs associated with buying and selling dwellings) was the main contributor to this decrease. The decrease in household transfer costs can be attributed to the adverse impact of the downturn on the housing market.

Growth in the consumption of fixed capital subsequently picked up, albeit at a slower rate compared with the pre-downturn period. In 2015, the level of the consumption of fixed capital was 3.0% (£7 billion) higher than the 2007 peak (Figure 2).

Net capital stocks estimates have been used for this analysis as they are a measure of the market value of fixed assets (what these assets were worth at the time).

The percentage share of net capital stocks owned by the institutional sectors remained relatively stable between 1997 and 2015. At the end of 2015, non-financial corporations (NFCs) were estimated to have held the largest share of total net capital stock at £1.7 trillion (41.1%), followed by households and NPISH (non-profit institutions serving households) sectors which held an estimated £1.6 trillion (38.2%) of assets. NFCs held the largest number of assets in "other buildings and structures", at £0.9 trillion (51.4% of total net capital stock held by NFCs). Households and NPISH primarily held assets in dwellings (excluding land), at £1.5 trillion (93.9%) of total net capital stock held by households and NPISH).

Figure 3 and Table 2 show that all institutional sectors experienced growth in net capital stocks between 1998 and 2015, albeit at different rates. In percentage terms, general government was the sector that experienced the strongest growth at 76.1% (equivalent to 3.2% on average per year), followed by financial corporations at 36.2% (equivalent to 1.7% on average per year), and NFCs at 29.3% (equivalent to 1.4% on average per year). Households and NPISH increased by 21.0% (equivalent to 1.1% on average per year).

Table 2 shows that the economic downturn during 2008 and 2009 affected the growth of net capital stock to varying degrees by institutional sectors. Growth in net capital stock held by NFCs was adversely affected by the downturn, falling from 1.9% on average per year in the pre-downturn period, to 0.2% in 2008 and 2009. In contrast, growth in net capital stock held by general government increased during the downturn to 4.7% on average per year, returning to a level slightly below its pre-downturn rate in the following years, at 2.5%.

In the period 2010 to 2015, only general government has seen the annual growth of net capital stock return to near its pre-downturn level.

Figure 4 highlights the contribution that each institutional sector made to annual net capital stock growth between 1998 and 2015. During the downturn, a strong rise in general government net capital stock growth partially offset slower net stock growth for households and NPISH, NFCs and financial corporations.

Figure 5 shows that at the end of 2015, the largest share of assets was accounted for by the asset "dwellings", at £1.7 trillion (41.1%) of the total net capital stocks. "Other buildings and structures" accounted for the second largest share, £1.5 trillion (35.4%), while "information and communication technology (ICT), other machinery, equipment and weapons systems", "intellectual property products", and "transport equipment" followed with £0.7 trillion (16.1%), £0.2 trillion (4.6%) and £0.1 trillion (2.5%) respectively.

During the period 1997 to 2015, the asset "ICT, other machinery, equipment and weapons systems" experienced the strongest percentage growth increasing by 55.8% (2.5% per year), followed by "other buildings and structures" which increased by 39.6% (1.9% per year).

Table 3 shows the economic downturn between 2008 and 2009 affected the pace of net capital stock accumulation by varying amounts across the assets. The asset ‘dwellings’ experienced the weakest average annual growth at 0.4% following the economic downturn, the same average annual growth rate experienced between 2008 and 2009.

The consumption of fixed capital for the asset "ICT, other machinery, equipment and weapons systems" increased by 67.9% and grew by 2.9% on average per year, between 1997 and 2015. The asset "intellectual property products" increased by 63.1% and grew by 2.8% on average per year over the same period. Within this asset, the largest average contribution to annual growth came from "computer software and databases" at 6.2% on average per year, followed by "research and development" at 1.4% on average per year.

Figure 6 presents annual net capital stock growth between 1998 and 2015, according to the contribution to growth made from the assets (Table 3). The largest contributions to net capital stock growth between 1998 and 2015 came from "dwellings" and "other buildings and structures". During the economic downturn, "other buildings and structures" continued to make positive contributions to annual growth, while the contributions from most of the other assets decreased.

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 4 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 to T) held an estimated £3.2 trillion (76.7%) of total net capital stocks at the end of 2015. Construction industries (section F) held £389 billion (9.2%); "other production" industries (sections A, B, D and E) £343 billion (8.1%) and manufacturing (section C) £249 billion (5.9%).

Over time, the percentage share of these industry groupings has been relatively stable. Services and "other production" industries have increased their share by 2.4 and 0.2 percentage points respectively since 1997, while the manufacturing and construction industries have reduced their share by 2.2 and 0.1 percentage points respectively (Figure 7).

In current prices, the types of fixed assets held as stock varied across the industries of the economy in 2015 (Table 5). The services industries held the majority of their total net capital stocks in "dwellings" (51%) and in "other buildings and structures" (29%).

The construction industry held 73% of its assets in "other buildings and structures" and 23% in "dwellings". "Other production" industries held the majority of their total net capital stocks as "other buildings and structures" (67%) and "ICT, other machinery and equipment and weapons systems" (27%).

In contrast, the manufacturing industry was the only industry group which held the majority of their capital stocks in "ICT, other machinery, equipment and weapons systems" (52%), followed by "other buildings and structures" (34%).

The growth in net capital stock varies across the industries (Table 6). Net capital stocks held by manufacturing industries fell during the economic downturn, by 2.2% on average per year in 2008 and 2009, before continuing to fall by 1.2% per year between 2010 and 2015. In contrast, growth in the net capital stock held by "other production" industries increased to 2.8% per year during the downturn from 0.2% per year in the pre-downturn period and has increased further in the most recent years to 4.0% per year. The main contributors to the increase in the average annual growth between 2010 and 2015 were the "electricity, gas, steam and air conditioning supply" and "mining and quarrying" industries.

Between 2010 and 2015, the average annual growth in the construction industry was around half of the average annual growth rate seen in the pre-downturn period. Over the same period, the average annual growth in the services industries was less than half of the average annual growth rate seen in the pre-downturn period.

Figure 8 shows that the services industries consistently made the largest positive contribution to annual net capital stock growth between 1998 and 2015. The main contributors to the increase in the average annual growth between 1998 and 2015 were the "real estate activities" and "transportation and storage" industries.

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 those goods and services consumed as inputs by the process of production, excluding fixed assets whose consumption are recorded as the consumption of fixed capital. Estimates of GVA are taken from the Quarterly National Accounts: Quarter 1 (January to March) 2016 publication.

All else being equal, if there is a higher level of capital stock in the economy, firms 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 9 shows that using this measure, the most "capital intensive" industry in 2015 was "real estate activities" – holding the majority of assets in dwellings. This interpretation should be used with caution. The output associated with owner-occupied dwellings has no labour input associated with it, and therefore is fully capital intensive.

The industries traditionally associated with infrastructure, such as "electricity, gas, steam and air conditioning supply" are the most capital intensive excluding "real estate activities". This fits in with prior expectations, as the majority of assets are buildings and heavy machinery in these industries, which are typically highly valuable and long-lived. In contrast, service and high-tech industries, such as "professional, scientific and technical activities", are below average on this measure. Due to their nature, these industries typically require the intensive use of labour relatively more than capital and as such, they are less capital intensive than the "heavy" industries.

Figure 10 shows that industries have different net capital stock to output ratios over time. It indexes ratios for broad industry groups to 2010=100. An increase in the line shows that the ratio has increased.

Construction has notable increases in the index in 2009 and 2012; both of these are a result of decreases in GVA for the construction industry in those years.

The net capital stock per employee is calculated by dividing capital stocks estimates by the number of employees. 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 compared with gross capital stocks. Estimates of employees are taken from the Labour Market Statistics: June 2016 publication.

Figure 11 shows the annual growth in net capital stock per employee for the period 1998 to 2015.

In 2009, the relationship spikes upwards in response to the sharp fall in employment which occurred over the early part of the economic downturn (Figure 12). As employment recovers in the years following 2009, the ratio stabilises and begins to fall as the growth in employment becomes greater than the growth of the net capital stock.

The periods of negative growth after 2011 imply that businesses may have shifted their resources away from capital and more towards labour inputs.

Capital stocks

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, such as software.

Economic assets

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

Fixed assets are non-financial items which are used repeatedly in the process of production for more than 1 year. For example, a machine on a production line or software used in production.

Gross capital stocks

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

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 with 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

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 in their own right, 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)

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.

Calculating capital stocks and consumption of fixed capital

Figure 13 shows how gross capital stocks are calculated using the perpetual inventory method (PIM). The cumulative sum of net investment in assets (GFCF), that is, 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 13: Gross stock calculation

Source: Office for National Statistics

Download this image Figure 13: Gross stock calculation

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Figure 14 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.

Figure 14: Net stock calculation

Source: Office for National Statistics

Download this image Figure 14: Net stock calculation

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The consumption of fixed capital is an estimate of a "flow". It represents the change in the value of assets during the year. Figure 15 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.

Figure 15: Consumption of fixed capital calculation

Source: Office for National Statistics

Download this image Figure 15: Consumption of fixed capital calculation

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The Capital Stocks Quality and Methodology Information document contains important information on:

• the strengths and limitations of the data and how it compares with related data
• users and uses of the data
• how the output was created
• the quality of the output including the accuracy of the data

Note that the methods used to compile these estimates have changed significantly since this document was last updated. This bulletin provides an updated description of the methods and sources.

What quality assurance has taken place?

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

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

• review of the linking of pre-1997 (“historic”) GFCF estimates
• review of deflator linking between 1996 and 1997
• thorough dataset analysis, ensuring that the data are correct at the lowest level of detail
• publication analysis – detailed checking of all published tables for accuracy and to better tailor the material to serve the 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

Methods

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). Estimates of GFCF and its breakdowns by sector and asset are published separately in the quarterly business investment statistical bulletin.

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 (that is, 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 Office for National Statistics (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 institutional 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. 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 Improving non financial balance sheets and capital stocks

Future work plan:

The production of estimates for general, central and local government using a new methodology

As a consequence of timetable constraints, we have been unable to fully implement the new methodology to produce estimates using the PIM 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 onwards have been forecast for these sectors based on historic trends. A main 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. Due to other development priorities, it has not been possible to improve the methods for calculation of these sectors. We have included these improvements in our future development plan and will keep you informed as this work progresses.

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

We have 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) due to the requirement for additional quality assurance of the asset breakdowns. We have included these improvements in our future development plan and will keep you informed as this work progresses.

Fully introducing new data for non-profit institutions serving households (NPISH) and public non-financial corporations

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; they have been forecast since. Public non-financial corporations data from the PIM model was fixed following the Blue Book 2014 publication and forecast since this time. Therefore these institutional sectors are inconsistent with outputs for other non-government sectors and updates to gross fixed capital formation (GFCF) for these sectors are not reflected in this release.

Fully implementing the changes for 1995 and 1996 data

The addition of the years 1995 and 1996 has resulted in a noticeable increase in the estimates in 1997. This increase is most evident in the institutional sectors public non-financial corporations and NPISH although there are also impacts in the institutional sectors of local government and central government. This is because we have been unable to fully implement all of the changes for 1995 and 1996 data for Blue Book 2016 in these institutional sectors. We intend to fully implement these changes in Blue Book 2017 at which time the increases between 1996 and 1997 will reduce.

We have included these improvements in our future development plan and will keep you informed as this work progresses.

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 19th century for some long-lived assets such as buildings and dwellings. The PIM uses constant price investment estimates.

Estimates of GFCF and its breakdowns by sector and asset are published separately in the quarterly business investment statistical bulletin.

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 our 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.

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 sourced from UK’s Insolvency Service on an annual basis.

A review on the life lengths of assets is currently under way. We will update you 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 5 years, for example, are assumed to leave the PIM after 5 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.

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

You 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.1311) in 2005. This is due to the reclassification of British Nuclear Fuels Limited (BNFL) 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). 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 you 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, you should ensure that they are comparing figures in the same currency and that there are no definitional differences noted.

Comparisons with other data sources

These estimates are consistent with the 2016 UK National Accounts Blue Book.

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.

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 2 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.

We have not published an article on the stand-alone capital service also known as VICS (Volume Index of Capital Services) since Appleton and Wallis 2011. However capital service estimates have been produced for multi-factor productivity (MFP), the latest paper being Field and Franklin 2014. You should note that these estimates are highly experimental. The Volume Index of Capital Services’ latest publication was released in March 2016.