Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 120 - 139)



  120. Mr Grice, could I put my point to you in a slightly different way? The Governor in November, and the Deputy Governor yesterday, in front of the Committee, said that they were still uncertain about the reliability of the Average Earnings Index over a 12-month period because the 12 months begins in this period of uncertainty. Does the Treasury, in its own work on forecasting, share that view?
  (Mr Grice) We share the view that the Average Earnings Index, like, indeed, a number of macro-economic indicators and statistics, are not perfect. Measurement error, and so on, occurs. What we know, in the context of the Average Earnings Index, is that some of the improvements which were required would take a period of time to implement, and I think it is true that we are not yet fully through that period of time. So to that extent we would not say "These numbers are absolutely right, we know they are absolutely right", but, actually, that is by no means true of most statistics. We certainly would not put faith in any single indicator.

  121. Coming, then, to a particular point that has occurred and which does give rise to concern, one of the crucial periods of calculation of earnings is, of course, the quarter that ends in December, because that is the quarter in which the City bonuses are fired in, which have an effect upon the Index. In fact, it would appear that these figures, which were released in February, reached the market earlier than the time of formal publication.
  (Miss Johnson) I do not think that is absolutely clear, by any means.

  122. Could you clarify this.
  (Miss Johnson) First of all, ONS has an extremely good record on security arrangements. As you will appreciate because I know you take a keen interest in this, an awful lot of statistics are released and many of them are market sensitive and both Dr Holt and the other senior managers in ONS, and indeed I and the Treasury, take any implication of a lapse in security very seriously indeed. In relation to the point you have raised about the AEI figures, recently we did not find any evidence that was compelling enough to warrant a formal inquiry. Despite that, the Director of ONS has ordered a review of security procedures in order to make sure that the highest standards of security continue to be maintained.

  123. This is specifically as a result of this incident in February?
  (Miss Johnson) Yes.

  124. You are giving the Committee an assurance that despite the fact that the markets appeared to have this information in advance of formal publication—You do not believe that to be the case?
  (Miss Johnson) The thing is analysts are permanently trying to second-guess what the figures will be. In this particular case Dresdner Kleinwort Benson put out a figure of 5.5 per cent which, as you know, was the figure in question on the Friday and any analyst could have taken into account the same factors that ONS are taking into account in arriving at that calculation. They have sophisticated statistical capabilities themselves and could have come up with the same figure. It would be surprising if a figure came out that none of a whole range of analysts who were actually estimating or guessing the figure had got right. So we would expect some people to get this right on the basis of the work that they will do to try and second guess what those statistics are in the run-up to the time at which they are released.

  125. Nonetheless the concern that there was a sudden increase in trades that particular morning was sufficient to cause you or the Director of ONS to at least consider whether there had been a leak?
  (Miss Johnson) Yes, but the markets themselves were of the view that there had not been, that it was simply a rumour in effect that had been put out on the wire an hour or so before the release.

  126. Could I have confirmation of that from ONS themselves?
  (Mr Goldsmith) Obviously we are very alert, we read the papers as assiduously as everyone else, and that rumour was around and because we take them so seriously we check them out, we always have look and we looked at what happened in the market. We did not do that with our own competence, we took advice on that as well from the Treasury and elsewhere, and we were unable to form a conclusive view that there had been any adverse or unusual market movements that would confirm the allegation of a leak. It is at that point in a sense technically and professionally we could have stopped because rumours of leaks and stories in markets are not unusual. As the Minister just said, although we could not substantiate there had been any leaks, nonetheless we take them sufficiently seriously that we are having a look at our own internal processes. That is the confirmation we can offer you professionally and technically that although in this case the evidence is not there nonetheless ratcheting the belt and braces, mixing my metaphors horribly, we are having another look, but it is normal professional concern rather than absolute total evidence or even significant evidence that there had been a leak.
  (Miss Johnson) Can I just emphasise that we do take it very, very seriously and we are very concerned to make sure that the highest security standards are maintained on these things so it is not treated in a light-hearted fashion, even the hint that there may be such a problem, but we believe that it is not substantiated.

  127. Could I then come on to what has become quite a hot topic, the question of vacancies, because you will appreciate that Ministers have been concerned with the particular issue of vacancies just at the moment. Now, as I understand it, the vacancy figures that the Government is using to reach the figure of one million approximately at the present time is achieved by taking the number of recorded vacancies and multiplying that by three—by two, so that 300,000 becomes a million.
  (Miss Johnson) I am not quite following the drift of the question at the moment. Perhaps, Mr Cousins, you could clarify. You mentioned three and then two and then appeared to multiply the figure by three actually.

  128. Can I take you to two specific expressions of this. One is in the Government's publication The Goal: Full Employment which was published to a wider world though, sadly, not actually to Parliament yesterday and it says, paragraph 4, "Record levels of vacancies" is the title of the paragraph: "Moreover for every vacancy at job centres there are around two others in the wider economy, bringing the total number of vacancies in Britain today to around one million." So you are multiplying that by three. By sheer luck, I suppose, I had asked a Parliamentary Question about vacancies and I got the answer from Dr Holt last week and this is how it was expressed there. It was expressed, I have to say, rather more cautiously. "Latest estimates suggest that about a third of all vacancies nationally are notified to job centres. This proportion may vary between regions and between occupations as well as over time."
  (Miss Johnson) That is certainly the information I have on this subject, yes.

  129. That is obviously rather more guardedly suggested than in the more bold and striking terms in which it appears in the document The Goal: Full Employment. I am just a bit concerned about the soundness of taking all the vacancy figures we know and multiplying them by three.
  (Miss Johnson) As indeed happens in many other countries, the administrative data actually provide the only official indicator of vacancies. That data is, in fact, amongst other things, frequent and timely and obviously fairly readily available. But what it provides is some detail, for example, by occupation and local area, and there are not actually any sampling errors in it because it is straight data as supplied, but obviously then there is a question about what level of vacancies are not supplied to the job centres as vacancies, and we know that that is a very high percentage of vacancies and the estimate is about a third are notified to the job centres, as you said, and the remainder are not advertised to job centres but because employers are not under any obligation, as you know, to notify them, but are in fact nonetheless available to the market, they are privately advertised and all the rest of it in the normal way employers deal with vacancies. It is that basic breakdown between those that are notified to job centres and those which are not which provides the underlying arithmetic which leads to the figures you have quoted earlier on. That is the view of ONS and I am not here as a Government Minister to question the basis on which the ONS operates. Alan may wish to comment on that.

  130. That is perfectly proper, I should address my questions here to Mr Goldsmith, quite clearly. Are you satisfied that it is sound to multiply for a period of ten years routinely all vacancies everywhere by three?
  (Mr Goldsmith) I think Dr Holt's answer gave the right signal that the soundness is less than absolute; it is indicative. What we know for a fact is the vacancy numbers, these are administrative data, they exist. As the Minister has just said, we do not know what vacancies are out there that are not notified to unemployment agencies. There are suggestions as to why do we not try and count advertisements in newspapers and people have tried to do that but are unable to add to that particular exercise the right degree of statistical integrity. We are as an office looking at whether we can access the data we get through employer surveys as another way of coming at it. The dilemma there for us is we are very conscious that the more demands we make on people in surveys—but it cannot be absolutely sound. That has to be the answer.

  131. It cannot be absolutely sound. Let me put the question another way then. Why multiply by three, why not by two and a half or four?
  (Mr Goldsmith) Because I think the indications are in so far as statistical methodologies can be applied and a little bit of thumb in the air, that is the order of magnitude, but it is seen to be no more than that and there are appropriate health warnings attached whenever those conclusions are drawn.

  132. That is all very well but in The Independent yesterday we get "Nearly a million vacancies are unfilled in the United Kingdom". There is no health warning there.
  (Mr Goldsmith) No.
  (Miss Johnson) We are not responsible and neither are ONS for exactly what goes into newspapers. If we were responsible for it, it would be a different world. Whether it would be a happier world or not is something individual Members will have their own views about but, indeed, it would be a different world. We are very happy to send you a note on the methodology that goes into the factor of three that you are interested in in essence in this question.

  133. We have had a long night—
  (Miss Johnson) I had forgotten about it, you should not mention it.

  Mr Cousins: People have various ways of passing the time and mine was to look at vacancy statistics.

  Mr Ruffley: You should get out more, Jim!

Mr Cousins

  134. That is what my wife is always telling me. She means of course with her! And so let me share a puzzle with you. One of the sets of vacancy statistics which the Government highlighted in this report was for the North East of England, which is of course the area I represent, and it used the figure 60,000 vacancies, so I look up the vacancy statistics for the North East of England. Let me share with you this puzzle and maybe in the dark watches of night I missed something and you or Mr Goldsmith will put me right straightaway. The number of recorded vacancies in the North East runs at between 10,000 and 12,000 over a period of several years, within that range. In May 1999 there is a sudden increase in the North East of 2,000 in the number of vacancies and the number of vacancies adds in the succeeding months between 1,000 and 2,000 more each month until October when the increase stops by which time the number of vacancies in the North East has doubled—between May and October. That does not seem to me to be quite right, particularly when you are multiplying this doubled figure by three on the sort of rule of thumb that you have got. Mr Goldsmith, tell me, that does seem a bit of a puzzle, does it not?
  (Mr Goldsmith) It is a very significant increase in percentage terms. I would have to come back to the methodology—

  135. If you could explain that I would be extremely grateful because it has a knock-on effect which quite surprised me. The North East is the smallest of the English regions. It contains four per cent of the population of the United Kingdom and at the start of 1999 it had four per cent of the vacancies, but this doubling of the vacancies in the North East alone that occurs between May and October 1999 accounts for a quarter of the total increase in vacancies across the United Kingdom for 1999. Does not that seem a bit odd? You are nodding.
  (Mr Goldsmith) That is a valid point you are making.
  (Miss Johnson) You are raising an interesting question. It is not one to which we can give you an answer this morning especially not after a long night, as I think you described it. But I am happy to write to you about the questions you have raised.

  136. Finally then just because the Committee has been advised about this by the Greater Manchester Low Pay Unit, they went off and did a study of the vacancies that they could find in the job centres and they went round and added up all the vacancies they could find and they could only find 40 per cent of the vacancies that were attributed to the Manchester job centre at that particular time. This is a bit worrying, is it not?
  (Miss Johnson) Can I comment perhaps initially on that. I think ONS does recognise there are difficulties with coverage of some of the local figures. For example, some local figures have been affected by the introduction of central vacancies take by the Employment Service whereby one office acts and takes all the vacancies for an area notified by employers. So in fact, from June of last year ONS ceased to publish the vacancy figures for individual job centres in the regional press releases only and so there are some issues there. I suspect the work done by the Manchester Low Pay Unit may indeed be affected by these kinds of issues. I do not know if you wish to comment further on that.
  (Mr Goldsmith) No.

  137. Perhaps the Committee could be informed about all of this. Clearly there is something quite odd about these vacancy figures both in terms of how they are calculated at the national level, how they are built up at the regional level and how they exist at the local level too.
  (Miss Johnson) We will endeavour to meet your request for more information on this.

Mr Fallon

  138. Can we just come back to the average earnings point just for a moment, Minister. You quoted the Dresdner Kleinwort Benson figure of 5.5 which was the eventual figure but it is true to say, is it not, that the general market forecast was around 5.0 to 5.1?
  (Miss Johnson) It was certainly lower. I cannot comment whether it was that figure but it was certainly lower.

  139. So the rumour was 5.5 at 8.30 in the morning and that turned out to be the correct figure?
  (Miss Johnson) Well—yes. What the nature of this rumour is is something that is not clear. That is why I hesitate to say yes to that.

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