Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 100-119)

MR LEN COOK, MR JOHN PULLINGER AND MR ROBIN LYNCH

WEDNESDAY 30 OCTOBER 2002

  100. What is a "common information management environment"?
  (Mr Cook) A common database with a common set of tools that is used in the same way regardless of the statistical data set that we are dealing with so that we have one basic way of managing all our information and a single set of tools that we use to get at it. At the moment we have several hundred quite different survey processes that can be on different computers, different software, operated with quite different programming languages, and we have huge difficulty bringing together the data that we have in the Office.

  101. Is that described as standardised data?
  (Mr Cook) It will be standardised processes that we would be using.

  102. That will be a bit clearer than some of the verbiage that is in this report.
  (Mr Cook) When you read it out it is quite obscure.

  Mr Plaskitt: It certainly is.

  Chairman: We will have to leave it there and suspend the sitting for ten minutes because there is a division in the House.

  The Committee suspended from 6.04 pm to 6.14 pm

Mr Plaskitt

  103. I think the only point I would like to make on the languages is if you will undertake to look at clearer English when you do your next report. There are bits of it which are incomprehensible. Now moving on to productivity, you have been carrying out an extensive programme, you say, to improve the quality of statistics on productivity. In your view how bad were our productivity statistics before you reviewed them?
  (Mr Cook) I think it is not so much a matter of how bad they were but it is how much do statistics on productivity in all countries need to adapt quickly for what is essentially the unravelling of a new economy which is driven by shifts, for example, to e.commerce, a huge increase in the services sector and the creation of very different infrastructures such as the internet than what has traditionally been the business. What we are seeing, for example, with new information technologies is the writing off of capital much more quickly, huge difficulties in measuring the price change of computers. So we have a collection of projects, most of which are pretty well linked in to the international statistical community, often in the European Union but many in the United States and Canada, which are part of an international move to adjust official statistics as quickly as possible

  104. Productivity statistics which are lagging behind changes in the real economy will be bad productivity statistics, will they not, because they are not measuring the right things?
  (Mr Cook) One of the areas where we have got a very major project under way, for example, is the measurement of capital stock so that we can measure productivity from the point of view of not only labour productivity but the impact of capital changes on our measures of labour productivity. In the past measures of value added worked out simply according to per head of the labour force, for example, were relatively crude compared with the more refined ways that we can measure now the output, adjust it for capital stock changes which we expect to but also to have more refined measures of the labour input which is one thing that we have been successful in improving.

  105. Is this an ongoing project or have you made some changes in the way productivity is measured and those changes are in the system now or are you midstream with all this?
  (Mr Cook) This is going to be a project which is going to dominate a lot of the things we are doing for at least the next five years because it involves not only macro economic based estimates of productivity but a lot more micro economic studies of productivity. For example we have a major project under way in our office with a number of academics to take our business surveys and link them over quite a long period of time to measure the impact of technology change on productivity and doing it on a firm by firm basis.

  106. Where you have put the changes in methodology into effect so far, what impact has it had on productivity data? Has it changed the story or the picture of UK productivity?
  (Mr Cook) Really I am not able to give you a particularly thoughtful response to that off the cuff of how we have changed productivity.

  107. Can anyone?
  (Mr Lynch) I think we have yet to see the benefits. It is an ongoing developmental thing, yes.

  108. This is important. So you do not think it has changed the picture of productivity yet?
  (Mr Lynch) I am not qualified to judge either.
  (Mr Cook) Can I do you a note on that? For example, if we take hedonic indexes, looking at the way we measure the prices of computers, what we know when we try and reproduce work ourselves which is done elsewhere, in fact the option costing methods that we have used for quite a long time in the UK RPI have actually resembled the methods of hedonic adjustment more than we thought. In fact there will not be as much of a shift in price change and hence output changes as we might have assumed say two years ago. That is an example of where we would see less change. Where we refine measures of labour, and we are working much more to measure labour in terms of hours rather than days, then clearly the increased use of part-time workers is going to mean that now we will be measuring more exactly measures of labour input in terms of measuring it by the hour rather than the day so we would have ended up with a bias on how we measured labour input if we continued to simply measure by the day because of that trend in part-time work.

  109. Who are you working with in this review of the way we measure productivity? In particular, how closely are you working with officials in the Bank of England?
  (Mr Cook) We work mostly with the Bank of England, the Treasury and the Department of Trade and Industry. They are involved in the steering group of the project which we have employed collectively a number of British academics to work on.

  110. Is there hope for us in terms of ever getting to the point where we think we have reliable accurate productivity statistics? I tell you why I ask that because when we have the Bank of England in front of us and members of the Monetary Policy Committee, especially the Bank Governor and his staff, one of their constant refrains is "We do not know the true story of what is happening to productivity in the UK economy because we do not know how to measure it". That is a pretty significant confession because it is a major variable that you need to get right in order to know where you should set monetary policy and all the other things. It is really important that we get to a point where we do think we know what is happening to productivity, we know how to measure it and we can trust in the data. Now do you think we are getting nearer to that point?
  (Mr Cook) My first answer to that is my expectation is within a very short number of years the work that we do in the United Kingdom should be very little different from the best work done in the United States and other countries. For example, we had a conference recently of some 300 people in the United Kingdom—a lot of Americans, including Dale Jorgenson who is the key American thinker on productivity—part of which was providing a much clearer focus on the work that we are doing with respect to the new economy itself. What was quite important there, I think, was the huge amount of work that we are doing in the UK that is keeping us very much at the forefront of the thinking elsewhere. I guess my best answer to you is I would expect that over the next two to three years our key achievement will be that we will be doing nothing less than was done elsewhere.

  111. That is not an answer to my question.
  (Mr Cook) It is not quite the answer because productivity is a very difficult thing.

  112. I understand that.
  (Mr Cook) We come at it both from a macro sense in terms of the economy wide measures that are derived out of the production aggregates that we produce and the aggregate measures of labour input and capital stock which are refining both those measures and also micro economic studies. Our ability to carry out micro economic studies is improving quite considerably. By the end of this year or early next year when this project is over we will have a very rich database and be in a position to inform productivity estimates based on micro economic studies much more effectively than we have ever been.

  113. Is it a case of running to stand still because the structure of the real economy out there is changing fast? Are we able to catch up with those changes as we review the way we measure productivity or are we always lagging behind and will there always be doubts about our productivity statistics telling us the real story?
  (Mr Cook) I think there is a huge impetus coming particularly from the Bank but also from the Treasury and DTI to give priority to work in measuring productivity which I suspect may not have been the case in the previous decade.

  114. My question is do you think we are going to get to the point where we will have the Bank coming in front of us and saying "We are now pretty sure we know how to measure productivity and we are now pretty sure we know what is happening to productivity in the UK economy". Do you envisage you are going to get to a position where they can say that on the basis of the work you are doing?
  (Mr Cook) My goal would be that over the next three years we get to a stage where there are not statistical problems but more conceptual problems in the measurement of productivity which would limit the quality of what we do.

  115. That is helpful. About three years?
  (Mr Cook) That is the sort of time. We have developed already, for example, a very comprehensive index of services in the United Kingdom so we have got quite effective direct measures of pretty much all output in the United Kingdom. We have published recently independent measures of public sector outputs directly measuring outputs that cover pretty much two thirds of public sector output. So we have made quite a few gains in that area. We have put a lot of work into the measurement of labour, as I mentioned. We are involved, also, in measures of labour price. For example, in the European Union we are doing a study for them. The new economy itself, most of our major statistical surveys have been modified and are continuing to be modified for our understanding. We have produced recently two large surveys on the impact of information technology for example.

  116. I think I would welcome particularly a note from you itemising the particular changes you have made in measurements of productivity already.
  (Mr Cook) Yes.

  117. And the bits which are ongoing.
  (Mr Cook) Yes.

  118. If you have it, also, an approximate timetable as to when that might be complete. I do not want you to go into huge detail and I would like you to keep the English clear but if you could do that for me I would welcome that and I suspect other Members of the Committee might as well. Can you do that for us?
  (Mr Cook) Certainly we can do that, yes.

Mr Beard

  119. Moving to pensions. Your annual report refers to problems with the dataset on self-administered pension funds where there was some doubt about the validity of a revision in 1999 and when a revision of £105 billion had been made to the dataset. You went to investigate it so could you tell us about it? How did a revision of that magnitude come about in the first place and how did it get knocked out in the second place?
  (Mr Cook) The revision in the first place was quite a significant and serious error in my office. It came about because the statistics in the first year were recorded in two separate environments, one was the environment where it was actually calculated and prepared, all the individual results were aggregated, and secondly in our statistical database where we record economic time series and store them. When the second year was produced the first year that was produced in 1999 was found to differ in the database from the calculation which was prepared and the person responsible for that assumed it was wrong and simply changed it. That person did not go through our processes for managing revisions otherwise there would have been a process of validating a change, particularly a change of that magnitude. It did not happen, the person thought they were correcting an error in a publication. Let me come back to the basic cause. Firstly, our systems in that area simply do not flow together so there was an excessive amount of manual transcription. Part of our development strategy is to create standard tools for estimating for delivering data and that is very much at the heart of the programme that we have been funded for in this year's spending review. We have changed our processes for validating revisions in the office to make them extremely rigid. Secondly, in fact after this change had been made and before the error was found, we had altered already our methodology for quality assuring changes to systems. Finally, we store centrally now all documentation on statistical surveys. One of the problems which we concluded out of this was in fact the work area had different practices from other parts of the office. We have a very standard approach now.


 
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