You asked
An Independent Parliamentary Standards Authority statement stated public sector employees had received a 5% pay rise during the last Government. Information from the Office of National Statistics demonstrated that from around 2008 there were three organisations which were reclassified into the public sector. Which appears to demonstrate where the 5% pay rise was actually invested.
From the information which was sent to me I understand that there was a reclassification of the public sector which meant from around 2008/09 the public sector included Royal Bank of Scotland, Lloyds Bank and also Network rail. I therefore ask the question would an average person reasonably expect these corporations to be included in the classification of the public sector? Was this made public knowledge?
I also wonder why these corporations have been reclassified? is it because they were bailed out using public money?
What category of 'public sector' are these corporations in. I ask this because the public sector are subject to various regulations and have responsibilities such as our statutory duties. Are the public sector authorised to run as a PLC, can they sell shares on the stock market? What about these corporations makes them public sector.
The public sector has just, and in some cases are still being subjected to Job Evaluation and Single Status, have the corporations stated been subject to the same scrutiny?
The Royal Bank of Scotland shares were recently sold off at a loss to the taxpayer. Public sector budgets are routinely monitored, in fact we in the public sector (Local Authority) have had to scale back and create budget cuts because our funding is being cut on an annual basis, this includes pay cuts! Taking this into consideration why then is a public sector organisation allowed to operate and create a loss, when it reportedly received a £45bn investment from public money.
Have they had to change the way they run the businesses because as stated the public sector cannot work in the way that other organisations do, such as with money lending, banking and credit clearing, the consumer credit licences. I believe that the reclassification of the corporations is misleading, if those corporations are not acting in accordance with the way a public sector organisation are required and are operated, then they should have never been placed in the public sector category. I look forward to your response, which I hope will outline why these corporations were reclassified and should identify the way the corporations work, and is it in accordance with the public sector?
We said
The Office for National Statistics (ONS) is responsible for UK Economic Statistics including the National Accounts, Public Sector Finance statistics, and Labour Market Statistics. An underlying foundation of these statistics is the classification of the organisations (“statistical units”) within the UK economy to the institutional sectors prescribed in the European System of Accounts (ESA). The ESA is European Law and the ONS is therefore obliged to follow these rules when compiling the aforementioned statistics.
The ESA defines several institutional sectors which are of relevance here. Firstly, there is the general government sector which includes all central and local government bodies. Then, there are public financial corporations and public non-financial corporations; these are businesses which are subject to government control over their activities.
Although the ‘public sector’ is not an accounting sector in the ESA, it is defined therein as being made up of general government units plus public corporations. This is a longstanding definition which is in the latest 2010 edition of the ESA and was also in the previous 1995 edition.
In accordance with the ESA rules, statistical units are classified to institutional sectors based on their characteristics in each statistical accounting period. The principle characteristics can be described, in broad terms, a
Whether or not the unit is subject to control from government
Whether or not the unit behaves like a business (i.e. aims to make money for its owners)
An important implication of the above is that if a unit’s characteristics change sufficiently, this will lead to a change in the institutional sector that it is classified to.
Regarding the specific units you mentioned:
In 2008-09, the UK government acquired a 78% stake in Royal Bank of Scotland group (RBS) as part of its intervention in the bank during the financial crisis. Under the ESA rules, this large majority shareholding is, on its own, enough to indicate government control. As a result, RBS was reclassified from the Private Financial Corporations subsector to the Public Financial Corporations subsector from that point onward.
In 2008-09, the UK government acquired a 43% stake in Lloyds Banking Group (LBG) as part of its intervention in the bank during the financial crisis. Under the ESA rules, this large minority shareholding, coupled with the other requirements imposed by government, indicated government control. As a result, LBG was reclassified from the Private Financial Corporations subsector to the Public Financial Corporations subsector from that point onward. Later, in 2014, the control over LBG had been reduced – culminating with Government significantly reducing its shareholding in the group; as a result LBG was reclassified back to the Private Financial Corporations subsector from that point onward.
In 2014, the 2010 ESA superseded the 1995 ESA in operational use. This included new rules on government control over Non-Profit Institutions (NPIs) – units which do not have the primary aim of generating and distributing profits for the benefit of their owners (shareholders). Network Rail is incorporated as a company limited by guarantee (rather than shares) and is tasked with investing all money it makes into the UK rail system (ergo it is not owned by shareholders and cannot distribute any financial surplus it might make). As such it is an NPI and the ONS was legally required to review the classification of Network Rail in accordance with the new classification rules in the 2010 ESA. Following this, Network Rail was reclassified to the Central Government subsector – principally due to being predominantly funded by direct subsidies from the Department for Transport and government guarantees over is financial liabilities. Because it was the classifications rules which had changed, rather than the characteristics of Network Rail itself, this reclassification applied both going forward and in accounting periods back to 2002.
The ONS has an established and published process for taking such classification decisions; this is designed to ensure that they are thoroughly analysed and challenged. The ONS approach has been held up as an example of international best practice leading to robust decision-making. Furthermore, due to the high-profile nature of these reclassifications, Eurostat (the statistical office of the European Union, which is responsible for ensuring the ESA is correctly applied in Member States’ National Accounts), also verified the classification decisions - confirming its agreement.
All ONS classification decisions, including those outlined above, are published on the ONS website (in the ‘monthly update’ released on the last working day of each month). In addition, the decisions were further publicised and explained in specific articles relating to the financial crisis and the implementation of ESA10, and also received significant media coverage.
In addition, the ONS made available two versions of key Public Sector Finances statistics; one version which included the impacts of government interventions during financial crisis and a second which excluded them. This enabled users to choose the statistics which were most relevant to their needs. Both sets were available on the ONS website and extensively covered in ONS (and other) publications.
I hope the above explains how ONS classifies these and other statistical units in accordance with EU law. More detailed information on the classification rules and process are available on the ONS website.
Regarding your other questions; although ONS classifications are for the purpose of statistical compilation only, it is the case that some other organisations set rules based on ONS statistical classifications. However, this is a matter for those organisations and I am therefore not able to comment on legal matters pertaining to authorisations to run as a PLC, share sales, scrutiny, or pay.