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Index of Services – Industry Reviews March 2012

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Summary

The monthly Index of Services (IoS) accounted for 76 per cent of gross value added (GVA) in the economy in 2008 (2008 weights), with GVA being the value of an output less the value of inputs used in the production process.

It was launched as an experimental output in December 2000 and then designated as a National Statistic in April 2007 due to significant improvements in conceptual appropriateness and the increased availability of monthly data.

However, beneath the overall IoS there were a number of industries which remained classified as experimental as they were under development and had yet to demonstrate their status as National Statistics.

National Statistics is the national standard for official statistics and indicates that the statistics have been produced in accordance with the Code of Practice for Official Statistics.

The Code of Practice requires the statistics to be produced, managed and disseminated to high professional standards. The statistics must be well-explained and meet users' needs.

This article is the first in a series that re-launches the industry review process as part of the future development of the National Accounts. The previous industry review programme 2002-09 undertook a structured review of the sources within IoS which considered whether:

  • data was fit for purpose as an estimator of the change in GVA

  • data were quality assured

  • more monthly data could be made available at an earlier time to support a monthly IoS

This played a significant role in moving IoS to National Statistics status.

Since 2009 further developments in IoS methodology have included the transition to Standard Industrial Classification 2007 (SIC07), deflation improvements which included replacing the Retail Prices Index (RPI) with the Consumer Price Index (CPI) and the use of more detailed product based deflators (see article Deflation Indicators in the UK National Accounts), and implementation of a new IT platform which provides a more integrated framework for the processing of GDP.

With the completion of this significant development work, progress on industry reviews can now be continued. The October 2011 IoS Statistical Bulletin was the first to incorporate the new SIC07.

The transition requires a reappraisal of experimental industries within IoS and this will be a focus for improvement during the industry review process.

This article outlines a work programme for which ONS seeks comment before the release of the next article (see Next Steps) at the time of the 2012 Blue Book.

Current status

The August 2011 IoS Statistical Bulletin was the last to list the industries that remained classified as experimental under the Standard Industrial Classification 2003 (SIC03) and this is reflected in Table 1, representing some 25.6 per cent of IoS under 2006 weights.

Table 1: IoS experimental industries on a SIC03 basis

SIC03

Industry

 2006 Weight

61

Water transport

      0.4

65

Financial intermediation

      6.7

66

Insurance and pension funding

      1.9

67

Activities auxiliary to financial intermediation

      1.5

70 (part)

Real estate activities (fee or contract basis)

      3.1

71

Renting of machinery and equipment

      1.3

72

Computer and related activities

      4.0

73

Research and development

      0.6

85 (part)

Health and social work: market sector

      3.4

91

Activities of membership organisations not elsewhere classified

      0.8

92 (part)

Recreational, cultural and sporting activities: radio and TV, and betting and gaming

      1.3

95

Private households with employed persons

      0.6

It should be noted that classification of a series being experimental or National Statistics is determined by the appropriateness of individual methodologies and these will either remain unchanged or will improve for the vast majority of industries.

Although the changes in structure between SIC03 and SIC07 feature a more detailed view of the service sector, and this will impact on the number of industries which may be classified as experimental, users of IoS data should find that the vast majority of industries retain their National Statistic status.

The ONS review will inevitably concentrate on the twelve industries listed above where it was previously determined that methodologies must improve to be classified as being of National Statistic quality.

Of these, nine effectively have a one-to-one relationship between SIC03 and SIC07 and it seems likely that these industries would retain their experimental classification.

However, three SIC03 industries were not converted on a one-to-one basis as part of the transition process and the outcome of the review for Real estate activities on a fee or contract basis (part of industry 70), Computer and related activities (industry 72) and Health and social work: market sector (part of industry 85) is less predictable. 

Work plan

The previous industry review process was successful in moving a large number of industries to National Statistic status in order for the IoS to achieve its National Statistic status in April 2007.

Since then a total of nine separate reports were released at the time of each Blue Book to update on progress for each industry under review which meant that each industry had been reviewed at least once by 2009.

We plan to begin a new cycle of traditional reviews with Blue Book 2013 covering some two or three industries per year but this may vary with the complexity of industries.

The plan also increases the scope of reviews to include the Index of Production (IoP) which, although classified as a National Statistic with all constituent industries also classified as National Statistics, would benefit from a similar programme of review.

The choice of industry will be guided by a detailed industry matrix approach which is based around the GVA weight of the industry in the latest period (2008 weights) and weighted toward:

  • reviewing experimental industries (50 per cent weight)

  • the degree to which methodology follows international guidance on best practice from the ‘Handbook on price and volume measures in national accounts’ (Eurostat 2001) where appropriate ‘A’ methods score more highly than acceptable ‘B’ methods and inappropriate ‘C’ methods (25 per cent)

  • industry specific knowledge of ONS statisticians which pinpoints areas where there is a prevalence of non-ONS volume data which ONS would wish to review more quickly than ONS sources or where there are issues and assumptions requiring scrutiny (15 per cent)

  • revisions (10 per cent)

Next steps

A further article will follow at the time of the 2012 Blue Book.

The status of individual industries as National Statistics or experimental statistics will be referred to the appropriate ONS governance vehicle for this process (which is currently under review) and a full report will feature in the article.

This will include an analysis of issues highlighted in previous industry reviews which may mean that some additional industries could be classified as National Statistic.

The article will also include a detailed analysis of data sources, updates on progress with the use of data from Services Producer Price Indices, and a view of the agreed industry matrix following consultation with users.

Consultation and engagement is a key aim for the industry review process. We would welcome feedback on this article and the direction of industry reviews generally.

Should the initial emphasis only be on experimental industries, should IoP industries be included, are there particular industries where users believe there is a case for review?

We intend to hold a seminar for users in advance of the next article to invite feedback on these issues and the calculation of the industry matrix.

If you would like to give your views and/or attend a seminar please contact the Index of Services team.

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