This is a technical article to explain the impact of developments affecting Household Final Consumption Expenditure (HHFCE) estimates for 1997 to 2011 released in the Blue Book 2013 data set. Readers are encouraged to contact the authors if they would like more background information.
Article authors: Hugh Skipper and Rachel Williams, Office for National Statistics.
Contributions from: Peter Gittins, Gareth Clancy, Richard Wild, Office for National Statistics.
This article explains the impact of developments affecting Household Final Consumption Expenditure (HHFCE) estimates for 1997 to 2011 released in the Blue Book 2013 data set. Details of the impact on HHFCE estimates for 2012/2013 are included in the 2013 Q1 Consumer Trends release, published on the same day as this article.
Changes in the treatment of owner-occupiers’ imputed rentals and expenditure on maintenance and repairs of dwellings.
Improved data on expenditure on internet subscriptions.
Improved data on volumes of smuggled alcohol and tobacco.
Updated balancing of HHFCE estimates against data for other sectors of the economy (Supply and Use balancing), including removal of balancing adjustments on gas data.
The article also highlights a number of potential future HHFCE developments.
There are upward revisions to the level of total annual HHFCE (national concept) in all years from 1997 to 2011. The largest revisions, of just under 2% of total HHFCE, are in 2008 to 2011.
Revisions to annual growth rates between 1998 and 2011 are no more than 0.5% in any year (see Figure 1).
Revisions to annual data up to 2011 (see Table 1) are mainly driven by the changes in the treatment of imputed rentals and maintenance and repairs of dwellings, however there are smaller impacts from other improvements such as:
Improved source data for internet subscriptions.
Improved volume data for smuggled alcohol and tobacco.
Updated data for Financial Services.
Supply and Use balancing.
There are also revisions due to updates to existing source data (including benchmark data from ONS’s Annual Business Survey).
Changes to Imputed Rentals and Maintenance and Repairs of Dwellings
|Total Revision from Imputed Rental & Maintenance & Repairs||Revision from Imputed Rental||Revision from Maintenance & Repairs|
|£ million||£ million||£ million|
Throughout the year a large development project has taken place to change the treatment of 'Imputed rentals on owner-occupied dwellings' and ‘Maintenance and repairs of the dwelling’, both of which are within COICOP 04 (‘Housing, water, electricity, gas and other fuels’). These improvements are to comply more fully with ESA95 (the current national accounting guidelines for EU member states) and address a Eurostat reservation.
The work required a review of existing sources and methods used within COICOP 04. Until Blue Book 2013, owner occupiers’ imputed rentals (i.e. the amount an owner-occupier would pay to rent their own home) were presented in the UK National Accounts with owner-occupiers’ estimated expenditure on maintenance and repairs removed. ONS had considered this the correct treatment of imputed rentals, however, to ensure full adherence with ESA95, this has been reviewed. The outcome is that the imputed rentals on owner-occupied dwellings within COICOP 04.2.1 are now presented on a gross basis (that is, including the estimation of maintenance and repairs which was previously deducted).
Alongside this, estimated expenditure on maintenance and repairs by owner-occupiers is now excluded from HHFCE in the ‘Maintenance and repairs of the dwelling’ category (COICOP 04.3). Under ESA95 this is the correct treatment because this expenditure is not considered part of households’ final consumption expenditure. Instead, it is considered to be part of owner-occupiers’ costs (intermediate consumption) as providers of owner-occupied dwellings.
Previous estimates of maintenance and repairs by owner-occupiers were based on a historic percentage. From Blue Book 2013, estimates are more precise. They are now based on expenditure patterns for the relevant quarter, taken from ONS’s Living Costs and Food (LCF) survey.
As can be seen in Table 2 above, the net effect of the new method is not zero for total UK HHFCE (or for GDP). This is because the increase in imputed rentals expenditure is larger than the reduction in maintenance and repairs.
Further details on imputed rentals are available on request.
Source data for ‘Financial Services n.e.c.’
From Blue Book 2013, HHFCE data for ‘Financial services n.e.c.’ (COICOP 12.6.2) include improved estimates from the Bank of England for the commission paid on foreign exchange and derivatives purchases. The latest estimates make use of updated data on banks’ margins in these transactions.
The revisions to COICOP 12.6.2 are relatively small in recent periods but are more significant in 2000 to 2005. The impact on total HHFCE is small in all years as there are offsetting changes to other products, after Supply and Use balancing.
Improvement to Internet Subscriptions data
ONS identified that the data from ONS’s Living Costs and Food survey (LFS) used for COICOP 08.3 (‘Telephone and Telefax services’) under reported HHFCE on internet subscriptions between 1997 and 2010. The improved estimates introduced in Blue Book 2013 incorporate new source data from OFCOM. The result is little change in more recent years - LCF and OFCOM broadly match from 2011. However HHFCE data has been revised from 1997 to 2010. The new data source is robust and OFCOM delivers to ONS on a quarterly basis.
Smuggling – Alcohol & Tobacco
For Blue Book 2013 new data on volumes of smuggled goods have been made available by Her Majesty’s Revenue and Customs (HMRC). ONS has also obtained updated data on prices. The consequent revisions affect COICOP 02 and 11 (‘Alcoholic beverages and tobacco’ and ‘Hotels and restaurants’) but have minimal impact on total HHFCE.
There is a larger impact on the components feeding into ONS’s Trade in Goods estimates. The revisions to these appear in the 2013 Pink Book. ONS’s Pink Book is released alongside the Blue Book and shows the UK balance of payments accounts, which contain detailed statistics including: trade in goods and services, current and capital transfers, transactions in UK external assets and liabilities, and levels of identified assets and liabilities.
Supply and Use balancing takes place annually to ensure that estimates of UK gross domestic product (GDP) are balanced across the Production, Income and Expenditure approaches. Further details are given in Annex A but, in essence, Supply and Use balancing reconciles the estimates from each of the approaches, taking into account the relative strengths of each. Supply and Use product balancing takes place at Classification of Products by Activity 2008 (CPA 2008) level and the estimates produced are matched to Classification Of Individual Consumption by Purpose (COICOP) products, reallocating total balanced HHFCE across COICOP categories.
In Blue Book 2013, Supply and Use balanced estimates of GDP for 1997 to 2010 were revised and data for 2011 went through the process for the first time.
For 1997 to 2010, there was a reassessment of the balancing adjustments to take account of improvements to sources and methods. These included long-run improvements to data for financial service activities (COICOP 12.6.2/CPA 64).
As part of the Supply and Use balancing process, ONS worked closely with the Department for Energy and Climate Change (DECC) to review the HHFCE data for consumers’ expenditure on gas (COICOP 04.5.2/CPA 35.2-3). Previously published HHFCE estimates diverged from the source data from DECC, due to large Supply and Use balancing adjustments beginning in 2004. These historic balancing adjustments were a result of confronting data for expenditure on gas with data for gas production. The adjustments were completely removed during the Blue Book 2013 balancing process as the expenditure estimates have been confirmed as the better source.
In addition, for 1997 to 2007, the mapping of all product data between the 2002 and 2008 Classification of Products by Activity (CPA) was reviewed. The 2008 CPA classifications were first implemented in Blue Book 2011. Re-mapping the CPA classifications has impacted on the HHFCE data at component and aggregate level.
Revisions to quarterly current price aggregate HHFCE values are largely driven by the annual changes explained in the previous sections. In particular, some of the revisions from Supply and Use balancing have resulted in shifts in annual HHFCE between COICOP categories with different quarterly paths. This has impacted on the quarterly path of total HHFCE.
The revisions to imputed rentals, maintenance and repairs of dwellings, financial services, internet subscriptions and smuggling of alcohol and tobacco have also affected quarterly paths.
A comparison of Blue Book 2013 and previously published quarterly seasonally adjusted growth for total HHFCE (national concept) is shown in Figure 2.
In Blue Book 2013, the reference year for chained volume measures has been updated from 2009 to 2010.
Substantial changes to deflation methodology (i.e. the way we move from current prices to chained volume measures) were integrated into the HHFCE estimates in Blue Book 2011. Since this methodology has not been changed for the Blue Book 2013 data set, changes to quarterly and annual growth in chained volume measures are driven by the developments affecting the current price data, outlined earlier in this article.
Annual changes in current price terms generally impact on the chained volume measures for total HHFCE directly (as with the changes to imputed rentals etc. detailed above). Changes to current price data can also have an indirect impact on the chained volume measures. This is because the weighting patterns for the chained volume measures are based on current price data.
ONS plans a number of developments to the HHFCE statistics over the next few years. Many of these are to ensure compliance with the new ESA10 national accounting guidelines for EU member states, which ONS will implement in Blue Book 2014. To underline its commitment to this programme, ONS has set up a separate team, dedicated to the development of economic and financial statistics for households.
Planned developments include:
A review of the adjustments applied to ensure the exhaustiveness of ONS’s economic statistics. This review is to meet a Eurostat reservation. These adjustments include estimates for economic activity not readily captured by statistical or administrative data, such as undeclared payments for building/decorating work done in the home. Some improvements to sources and methods are expected to be implemented in Blue Book 2014, with others following later.
Improvements to the estimates of expenditure on purchase of motor vehicles (COICOP 7.1). These include updates to price estimates to better reflect new car discounts and will be implemented in Blue Book 2014 to meet a current Eurostat reservation.
Coverage of illegal activities in the National Accounts, which is required under the new ESA10 guidelines. For HHFCE, this will entail the introduction of a new COICOP classification for expenditure on illegal drugs and prostitution. ONS has completed the development work for this. The next step is to agree an implementation timetable with other EU member states.
Publication of detailed historic HHFCE data. For Blue Book 2013, ONS will publish consistent time series for HHFCE components at current prices and volume measures, back to 1995. For Blue Book 2014, series will be extended back to at least 1990. In both cases, this is to bring ONS into line with Eurostat requirements.
Improvements to the source data for the HHFCE estimates for education. Implementation is planned for Blue Book 2014.
Improvements to the sources and methods for actual rentals and further improvements to the sources and methods for imputed rentals. These developments will affect both the expenditure and income components of the National Accounts. The aim is to implement the improvements by 2015.
This technical article sets out the improvements introduced into the HHFCE dataset as part of Blue Book 2013 production.
It has shown that the revisions to current price annual estimates for total HHFCE (national concept) for all years are mainly driven by the improvements in the sources and methods for owner-occupiers’ imputed rentals and repairs and maintenance of dwellings.
It has given an overview of the impact of other changes to sources and methods and the Supply and Use balancing process. Revisions to chained volume measures were not covered in detail since they are largely driven by developments affecting the annual and quarterly current price data.
The article also set out some important HHFCE developments planned for Blue Book 2014 and beyond.
For information about the content of this publication, contact Hugh Skipper or Rachel Williams
Tel: 44 (0) 1633 45 6407/6065
This article does not cover the historic (pre 1997) total HHFCE national concept data released in the Quarterly National Accounts, Q1 2013. These current price and chained volume measure data (seasonally adjusted) is available annually from 1948 and quarterly from 1955.
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: firstname.lastname@example.org
Previous HHFCE Blue Book articles.
Correspondence table: COICOP 1999 – CPA 2008
Definition of Classification of Individual Consumption by Purpose
Supply and Use tables provide the framework for ensuring supply and demand estimates in the National Accounts system are consistent. They are compiled annually at current prices and use data from the Production, Expenditure and Income approaches to GDP (Gross Domestic Product), taking account of the relative strengths of each. The aim of Supply and Use balancing is to produce a coherent and balanced estimate of GDP in current prices.
The Supply tables explain how products are supplied in the domestic economy. The Use tables explain how products are consumed in the form of intermediate and final expenditure by sector. They are compiled based on two identities which together state that total supply in the economy is equal to total demand in the economy. As a component of the expenditure approach, HHFCE estimates, along with other expenditure components, are “balanced” so they equal the production and other supply side estimates.
Supply and Use tables are produced for each industry and for each product within the economy. The 2013 Blue Book data publishes the National Accounts consistent with the UK Standard Industrial Classification of Economic activities 2007 (SIC 2007) and the Classification of Products by Activity 2008 (CPA 2008).