WEDNESDAY 30 OCTOBER 2002
Mr Michael Fallon, in the Chair
MR LEN COOK, National Statistician, MR JOHN PULLINGER, Head of Social Statistics, and MR ROBIN LYNCH, Head of National Accounts, Office for National Statistics, examined.
(Mr Cook) I am Len Cook, Registrar General of England and Wales; John Pullinger, who is the Executive Director of Social Statistics in the Office of National Statistics, and Robin Lynch who is the Head of our National Accounts Division.
(Mr Cook) I think it provides quite a comprehensive view much more of where we are going and I would expect it to have more detail in future years. We have put a lot of effort into basically changing the strategy of the Office and improving very significantly the Government's documents, for example, the National Statistics Plan, the second one this year, the business plan for the Office, and I suspect with the new service delivery agreement that we are negotiating with the spending review for 2002 there will be a much more comprehensive framework than I believe we have at the moment. This reflects the quality of the SAR 2000 service delivery agreement which I would not think embraces as much as I want the 2002 one to embrace. It is also important, just to conclude, to recognise that a huge part of our performance analysis of course comes through delivering on the basic statistics programme. We publish well over 500 reports a year and the actual delivery of those on time is a hugely significant share of the accountability we have to deliver the performance of the Office.
(Mr Cook) No. This could have more detail and I have got much more detail, for example, in the background material that we used to prepare this.
(Mr Cook) When you come to our annual report, of course, it contains -----
(Mr Cook) The body of the report has provided quite a comprehensive statement within it of the huge number of things that are going on in the Office but I certainly accept the criticism.
(Mr Cook) I was not aware that we had not, Mr Chairman.
(Mr Cook) Very much so.
(Mr Cook) On the contrary, we do take it very seriously and we have regarded our response to you as a very serious piece of the direction of the work of the Office.
(Mr Cook) The contents of the report have played a very significant role in the business plan. I believe that we have properly taken account of your report much more in the prospective work of the Office than the reporting of the year 2001/2002. What I can promise is that the annual report for 2002/2003 will provide a clear distillation of what we have done in this year for that, which is in fact the year where most of the action on your recommendations will have taken place.
(Mr Cook) We never had them in the first place because the population estimates that we produce in the intervening years, in the ten years between the census, are based first on the previous census, in which we now believe we made an error in assuming was less correct than it was. We believe that we over-adjusted for missing people in the 1991 census, and I can come on to that, for the same reason that we believe we over-counted in the estimate for 2001, which is simply that whereas we can measure births and deaths in the United Kingdom with a high level of accuracy, because we believe we have a highly effective birth recording system and a highly effective death recording system, we can measure migrants into the UK with a level of precision that we believe we can improve somewhat on but which we believe is of a reasonable degree of accuracy but we have real difficulty in measuring the outflow from the United Kingdom. We believe that we are able to use a lot of administrative information to confirm the estimates that we are able to make of people coming into the United Kingdom from administrative sources and surveys such as our labour force survey. When people have left the United Kingdom we do not have information that can confirm whether they have gone or not and we have no way of validating estimates of the outflow of people from the United Kingdom. We have the disadvantage of being on the one hand an island state but we do not have the border documentation that smaller island states have and we do not have the registers that landlocked countries have to measure population flow in the United Kingdom, so it is very difficult to measure, with the level of precision that we need for these estimates, the migration flows in the UK. We estimated 250,000 departures a year between 1991 and 2001 and we now believe that there were just on 300,000 departures a year.
(Mr Cook) We do not have the ability to do so. We do not have the methods for doing that and as migration has been more significant our ability to measure population change is less than it was, say, 20 years ago.
(Mr Cook) It is 0.1 per cent a year.
(Mr Cook) When you accumulate 0.1 per cent a year for ten years it comes to just on a million, yes.
(Mr Cook) The process by which we measure migration is a survey of international passenger arrivals and departures at Heathrow and other airports and it is a sample which is designed and has been traditionally designed to measure with sufficient reliability the balance of payments flows of United Kingdom citizens and of people coming into the United Kingdom. We also use it for visitor arrivals and it is extending its effectiveness to use it as we do for migration flows. We currently have an investigation under way to look at alternatives.
(Mr Cook) It is probably one of the most important things that we need to do in official statistics at the moment. It is a significant activity in my office at the moment, to look at alternative means. We had started to do that about a year ago but the significance of it obviously has changed.
(Mr Cook) It is most likely that we will have to use some modelling methods and a series of approaches -----
(Mr Cook) ----- some of which mean that we look at other countries. For example, the problem that we face is not much different than exists in other European countries. One of the things that we have been discussing in the European Union Statistical Offices is, is there a common solution to this, just as you will be aware there is with foreign trade, where each of the countries in the European Union follows the Intrastat trade process where we can measure from either country the trade flows between countries, and so with an attempt to find a European-wide solution one of the things we know is that we can measure inflows into countries better than we can measure outflows. If we were able to measure the inflows of United Kingdom citizens into other countries with a degree of accuracy we could use that to compute part of the movement, for example, on outflows. That is not saying that that is the solution but there is a set of second order indirect approaches to measuring that we would look at using.
(Mr Cook) We do have more means of measuring internal migration flows.
(Mr Cook) No.
(Mr Cook) When it comes to people arriving in the United Kingdom we allocate that according to what they tell us on their international passenger card. When it comes to leaving we use the information that we get from people who are leaving to tell us where they have come from.
(Mr Cook) Yes.
(Mr Cook) We attribute the flows from in and out to the international passenger survey. We then can work out how people are moving within the United Kingdom through changes in addresses and National health Service registrations.
(Mr Cook) Yes.
(Mr Cook) We can give you an analysis of each of the 376 local authorities and tell you what was the population estimate as at June 2001 and we can tell you what was the census basic estimate for that period and c an give you an analysis of each of the local authorities if you wish. I can send that to you.
(Mr Cook) No. What I was saying was that when it comes to measuring people coming into the country we get an estimate from the international passenger survey. There is other information that we can get from our labour force survey, from registrations into administrative services such as the NHS, that gives us confirmatory information of those flows. The only confirmation we have of the flows of people going out comes from looking at other countries' migration statistics. One of the few that we have that can give us good information, for example, is Australia where we discovered that we had 50,000 more people from the United Kingdom go to Australia than we had assumed in our own analysis from the international passenger survey.
(Mr Cook) Can I answer your last question first? We have not completed the work that we are doing. We have got a small team of people looking at the whole range of options that we have. If we were to look to a solution similar to that used for foreign trade then it would require work within Europe to get some agreement on how we proceeded. A good many of the European countries have the same problem as we do and therefore getting an agreement is not starting from a completely fresh position because the issue has been discussed quite a few times in the European statistical forums.
(Mr Cook) We have really only made significant progress in the last four months in that we time beforehand has been much more about investigating options. We have now got some very able people working on the problem full time and we expect to have a report in the new year.
(Mr Cook) Perhaps I can get John Pullinger to be more precise.
(Mr Pullinger) The census gives a new benchmark of who is here so it is because we found in the census that growth in the population was a million lower than we had thought that we now need to do this investigation. We knew there was a problem with migration statistics anyway for the reasons that Mr Cook has identified, and we had already commissioned a national statistics quality review of the sources of information we could use to monitor migration and how we might improve them. It is that which we will report on in the new year and that will give us a much better fix, we believe, on how we can capture these flows both into the country and out of the country. The key problem that we have identified with the census is that we are confident that there is a bias in our current method for estimating the people who are leaving here. Those people were never here in the sense that the population was never a million higher, so it was never 59.9 million. What we are saying now is that growth in the population was 0.1 per cent lower each year over the last ten or 15 years.
(Mr Pullinger) We are not going to count people who were never here.
(Mr Cook) When we look at the certainty that we can have of the various sources of information that we have got, births, deaths and the census, and the effectiveness of the census coverage survey - we have in the United Kingdom a very large census coverage survey which gives us the ability to measure for each of the 376 local authorities separately and independently of the census, an estimate within five per cent of what the population was - we can be quite sure that the majority of the problem lies within the migration statistics that we have got.
(Mr Pullinger) Obviously the precise calculation of the standard spending assessment is a matter for the Deputy Prime Minister's office but as far as the statistics are concerned the numbers that we are now putting forward are the census numbers which provide the new benchmark of the numbers of people who were here. They do not rely on correctness or incorrectness of migration attributions.
(Mr Pullinger) The current debate is about the difference between the figures that were produced, which are the mid-year estimates for the year 2000 which is last year, and what we are now finding from the census. Inevitably in some local authorities the numbers are lower, in some they are higher.
(Mr Pullinger) The calculation of standard spending assessments for next year is being informed by the census information which has now been released. That was one of the things that was driving our timetable for the release of the census information so that it would be available in time for this debate.
(Mr Cook) In most countries it is set by the National Statistician, often informed by a committee, in some cases set up by the minister. In the case of the small country where I used to be it was the responsibility of the Government Statistician but the Government Statistician was advised by a committee set up and appointed by the Minister for Statistics and the advice that that committee gave was presented to Parliament and therefore the Government Statistician had a very clear accountability of explaining if he were not responding according to that committee's preferences.
(Mr Cook) In practice it has not differed at all to the extent that in 1993/1994 there was a committee chaired by the then Director of the Central Statistical Office, Bill McLennan. That committee was appointed by the Chancellor and it contained about 20 people; I have forgotten the exact number but it contained a large number of people. It presented two alternative views as to what the RPI in the United Kingdom should look like. The Director of the Central Statistical Office provided a way ahead for that and that was accepted by the Chancellor.
(Mr Cook) No.
(Mr Cook) I would expect, if I were given a direction on the RPI, that it would be naturally a matter in the public domain. Certainly it would be very unlikely that the National Statistician would be expected to act on a direction that was not in the public domain. It would certainly give me incredible difficulty if that were the case.
(Mr Cook) There have been no secret discussions on the RPI of the United Kingdom that involved me or my Office. Certainly during the time I have been here there have been odd discussions, whether it is with the Bank of England or Treasury economists, and there is the odd exchange of views, but it is certainly no different than I would have experienced in my previous post or would happen in any other country.
(Mr Cook) I think the Bank of England Act has altered the nature of the way in which we would treat individual major statistics. For example, in the national accounts there is an expectation that quarterly GDP should be able to be measured with greater reliability than we might have expected before that because of the very significance of the decisions, the indexation almost of interest rates to GDP and RPI changes. I think there is a greater likelihood that a future RPI would be focused much more on the measurement of inflation rather than the mix of an outlays approach to inflation measurement as it exists in the United Kingdom. That is a trend which is happening in pretty much every other country in the world. If we were not to follow that trend (which we might not) we would obviously have some good reason for not doing so.
(Mr Cook) Firstly, it was developed during the holidays.
(Mr Cook) That holiday period did create some problems and in the end it involved a fair amount of exchange at a working level. Robin Lynch was very much involved in that and then Sir John and I both personally ended up wanting to be content with what was written, so it did take a lot longer than one might have expected, but the fact that a huge part of the time was included in the summer break did not help.
(Mr Cook) The Department of Transport statisticians were not involved.
(Mr Cook) The Auditor General has not taken a different view on the national account treatment of Network Rail, which I think is by far the most important element of this. For those things which the Auditor General is responsible for he has very clearly asserted his explanation of why he has taken that position, and for the national accounting definition, which I am responsible for, that is quite clear. The explanation of why they are different, the key elements, the different treatments of those two elements, contingent liabilities and control of directors, is explained in the statement and how they relate to both definitions.
Chairman: I am sorry to interrupt, Mr Ruffley, but what the public want to know is whether this is a public body, in the sense that the taxpayer stands behind it, or not.
(Mr Cook) Firstly, the production of national accounts is quite different from the production of accounts of the accountability of government and in the public accounts the accounting process that we have. With regard to the national accounts, the rules for that come firstly from the United Nations system of national accounts. In the European Union it is the European system of accounts established by the European Union. The European Statistical Office has endorsed the classification that we have applied to National Rail. It is very difficult to get a more significant authority for that We are also accountable in the international statistical community in terms of other bodies, such as the International Monetary Fund, the OECD. In terms of professional endorsement of what we do, that is abundantly clear. There is a huge issue with something as complex as national accounts in being able to explain in quite simple terms what we have done. I think one of the real difficulties that exists is that it is much easier to explain commercial accounting to people in terms which they intuitively can relate to than the national accounts can be explained. What I will be happy to do is to ask Robin Lynch, if you wish, to explain how we come to that position.
(Mr Cook) Very much. We have had no difference. He has signed the report. He has agreed on a joint report. I think it is a remarkable precedent in fact in government that two independent authorities with some comment and criticism of their views have been able to come together and prepare a joint statement, so quite the contrary. I should have thought that should provide confidence in the work at my Office very particularly in an area where there is a huge amount of criticism, I appreciate. I think what people are getting confused about is criticism of the public policy of the Government which is not for me to comment on or judge, but my job is classifying activity which is the outcome of that.
(Mr Cook) No.
(Mr Cook) Why would I? I am not sure why. We did not find, given the rules that existed, that this was a particularly arbitrary decision. It was a clear-cut conclusion given the nature of the enterprise that was set up for national accounting purposes. Could I make one comment? Some of the criticism of the decision of my Office rests on transparency. This is a completely transparent decision. It was made public when it was made. The actual reasoning is there. There is no hiding of the figures of this transaction. They are available in the public accounts. They are quite clear. The fact that it does not appear in the national accounts in the public sector side but in the market side is something that basically every commentator in the United Kingdom knows about and would have known. One of the concerns I have is that a huge amount of criticism exists on transparency and I would argue that that is totally false.
(Mr Cook) Yes.
(Mr Cook) Can I ask Mr Lynch to give you the reasoning of how we use those probabilities in coming to the conclusion?
(Mr Lynch) We measure the national accounts using the European standard and in the standard there is a paragraph that says that if something is a contingent liability it shall not be scored in the national accounts. We believe the best person to determine the particular nature of the Government support for Network Rail is the Chief Accountant of the Department of Transport, so we wrote a letter to him, and he wrote a letter back to us saying that in his opinion as an accountant this support was a contingent liability.
(Mr Lynch) We asked him as head of accounts of the Department of Transport in his professional judgment what was the nature of that Government support and he said it was a contingent liability which the National Audit Office agrees with. I think that is good enough for us.
(Mr Cook) It is the Auditor General's view that that is also a contingent liability and because it is a contingent liability the national accounts determine that it meets one of the criteria, because there are others to meet, to be in the private sector.
(Mr Lynch) If I could rephrase that, the contingent liability is not scored in the national accounts. The national accounts record an integrated picture of the economy and record transactions as they occur. A contingent liability has not yet been realised.
(Mr Lynch) I can explain the national accounting part of that very clearly. In the national accounts we believe that units are classified to sector according to who is in control. If you examine the articles of association of Network Rail and how it has been set up you will find that the majority of members by the articles of association are from the private sector and of the 12 directors 11 of them are from the private sector. It is by majority voting how they do their business; therefore I can say from the national accounts conventions that this is controlled by the private sector and therefore I shall classify it in the national accounts as in the private sector. I find that very straightforward using my rules to be able to say that. Then you asked me to comment on what the National Audit Office say and I move out of my realm of competence in that I am not a certified accountant. They are using a system of accounting in order to come to their conclusions. They are using something called GAAP. I can understand why they have come to that decision but I am certainly not qualified to verify to you that they have come to the correct decision. That is not my field of competence.
(Mr Lynch) There is no disagreement between our positions, but they are positions for different purposes using different systems.
(Mr Lynch) There is no disagreement between us.
(Mr Cook) In the two and a half years that I have worked in the British Government I think it would be unlikely, if the Comptroller and Auditor General disagreed, that that would not be quite clear.
(Mr Cook) If the Comptroller and Auditor General had a contrary view on my work and he thought it were material then he would express it. I have no doubt about that.
Mr Ruffley: But he is expressing it, is he not?
(Mr Cook) It is true of the national accounting situation. If all those liabilities are called on then this becomes a government entity.
(Mr Lynch) If I can rephrase it more accurately, we do not disagree with that statement.
(Mr Lynch) No, I think it is a correct statement. We are using different systems for different purposes and we want to classify this unit correctly according to the national accounts conventions. He wants to show the correct true and fair position of the relationship of this unit to its parent, and he calls it a subsidiary. I am sorry; I am outside my realm of competence here. I am trying to help here.
(Mr Lynch) The contingent liabilities in the national accounts are not recorded and therefore, as we use the national accounts to classify units between public and private, I am telling you that in the public sector according to the national accounts you will not find Network Rail and you will not see the debts on the Government because they are contingent liabilities.
(Mr Lynch) Yes.
(Mr Lynch) The difference in the two roles is that it is our duty to present the picture of the economy with the units in that economy classified according to the rules of national accounts according to a picture of the whole economy that makes sense to the economists and the policy makers and that is articulated in a coherent manner. That is the game that we are in. Therefore, we have to show, for example, that for every transaction there is a party and a counter party. You may record things, for example, once in our set of accounts. I am now jumping over the fence to try and explain what they do. They present the accounts to show a true and fair value of the financial accounts of units. The reason they do this is to let people make a judgment as to whether they are financially solvent and how they are likely to be in the future. They can therefore come to a different conclusion on the same facts. For example, in Network Rail there is one director that belongs to the SRA. He is appointed by the SRA; he cannot be dismissed. The SRA has one director that is always there. They see that as symptomatic of a parent/subsidiary relationship. In the financial sense they believe that he will have an influence on the financial affairs of that company. According to our rules he is one member out of 12 and he can be overruled by the majority of private sector members - same facts; different view for a different purpose.
(Mr Cook) Yes, very much so.
(Mr Lynch) The head of the accountancy profession at the Department of Transport is a professional accountant whose actions are audited by the National Audit Office.
(Mr Lynch) I am telling you I cannot say how he acted. I am saying he is a professional accountant and we asked him in his capacity as a professional accountant. I am a professional statistician.
(Mr Lynch) Yes.
(Mr Lynch) That is why it is important that the National Audit Office, whose job is to stand outside all of this and to see whether people are drawing true and fair accounts, have observed that classification.
(Mr Lynch) No, sorry. The National Audit Office have also said that it is a contingent liability. It is in the joint statement.
(Mr Lynch) In so far as they are competent to make that statement, yes, that is correct.
(Mr Lynch) Yes.
(Mr Cook) I think a huge part of the confidence that people expect to have in the work of my Office is based on its conformance to standards and practices, either standards that we have developed locally or international standards. In this case one of the really difficult issues that we have is the capacity to explain intuitively what we have done and why that differs from commercial accounting practice, and I think the sheer hugeness of the decision and the intuitive difficulty in that in explaining why something which government ultimately has accepted a residual contingent interest in is not in the public sector is something that has been difficult to present and explain.
(Mr Lynch) They were appointed by a selection panel which was chosen by - when you establish these things you create a circle. First of all, the Government started all this off and they created a selection panel which then selected directors and members.
(Mr Lynch) That is correct.
(Mr Lynch) The directors of the board.
(Mr Lynch) I think the choice was made of people from the private sector.
(Mr Lynch) In the sense that they are member of the public sector, yes, it would.
(Mr Lynch) What makes them private is the membership, and the membership are responsible for appointing the directors.
(Mr Lynch) That is correct.
(Mr Lynch) All I can say is that I have no reason to believe that the Department of Transport official did anything except act in his professional capacity as verified by the National Audit Office whose job it is to check out that they are acting to the highest standards of their profession.
(Mr Lynch) In my experience I get good professional advice from professionals that act to the highest standards of their profession. That is my personal experience.
(Mr Cook) I believe so, yes. Can I say that in the case of the transport accountant's advice I decided that it would be necessary to have the Comptroller and Auditor General's opinion before we moved on that as part of the protection for that person as well.
(Mr Cook) He agreed that it was a contingent liability.
(Mr Cook) I presume so. The implication of that must be that, yes.
(Mr Lynch) The contingent liability is with the Government. The Government owns the contingent liability.
(Mr Lynch) Can I clarify one thing? I have been advised that it is not people's employment that determines which sector they are in; sorry, I misled you. Householders are part of the private sector, so if you had appointed the consultants as householders that would have been private sector.
(Mr Lynch) If they were there in their capacity as directors of London Underground, yes, they would.
(Mr Lynch) The articles of association determine the make-up of the membership and the make-up of the board. The articles of association shall say that 11 out of 12 members of the board shall come from the private sector. If that is what it says in the articles of association the people on the board will be there in their own personal capacity, or perhaps a private sector organisation such as the Campaign for Accidents on the Railway.
(Mr Lynch) No.
(Mr Lynch) Did I? Sorry; I did not mean to imply that. It is not an accident.
(Mr Lynch) We would have had to examine that case and determine whether the majority was from the private or public sector.
(Mr Lynch) We make classification decisions all the time.
(Mr Lynch) Welsh Water is another example whereby most of the members of that board come from the private sector.
(Mr Lynch) Most represent the private sector. I am not quite sure what you mean.
(Mr Lynch) In their personal capacity, for example, as a representative of a charity, these people would be from the private sector. If they were appointed to the board as a director of London Underground, that would be from the public sector.
(Mr Lynch) If they were appointed in their personal capacity, yes, that would be private sector.
(Mr Cook) I think, Mr Chairman, you are moving us into the realms of hypothesis. Our job is to make classification decisions about practical options presented, whether it is by ministers or the private sector, for organisations. I think that it is quite wrong to draw inferences about what this entity is like and the nature of its control by hypothetical examples which may not exactly take place, because you may come to the wrong conclusions based on different ways in which you interpret those attributes.
(Mr Cook) There are principles and what we deal with is actual cases that are presented -----
(Mr Cook) No, but I do not believe it is appropriate for us to give you answers as to hypothetical mixes of board members for situations that would not actually in practice be presented.
(Mr Lynch) The articles, of course, the articles.
(Mr Cook) If people that were appointed were in contradiction to the articles that would lead us to question the very basis of an intent, so discussing the appointment of people who are inconsistent with the articles is moving us into the realms of hypothesis where I do not think we could give you answers that could be helpful.
(Mr Cook) What we are doing is creating a common information management environment for the Office for National Statistics.
(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.
(Mr Cook) It will be standardised processes that we would be using.
(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 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
(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.
(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.
(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.
(Mr Lynch) I think we have yet to see the benefits. It is an ongoing developmental thing, yes.
(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.
(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.
(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.
(Mr Cook) It is not quite the answer because productivity is a very difficult thing.
(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.
(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.
(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.
(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.
(Mr Cook) Yes.
(Mr Cook) Yes.
(Mr Cook) Certainly we can do that, yes.
(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.
(Mr Cook) Sorry?
(Mr Cook) It was £760 billion.
(Mr Cook) It was 100 billion on 260.
(Mr Cook) Yes.
(Mr Cook) It did not influence the national accounts because our national accountants took the data and validated it against other sources which were not part of the survey. There has been no change to national accounts. What it would have influenced, I have no doubt, is anyone looking at the performance of the pensions industry.
(Mr Cook) They would have had a very different picture from what we presented, yes.
(Mr Cook) That error was a result of labelling which was not precise in a statistical table which had been prepared accurately itself, and the statistics were accurate, but the labelling did not make it clear that it was dealing with gross flows into pension schemes and out of them rather than netting off the flows which go from one pension scheme to another.
Chairman: Double counting.
(Mr Cook) No, it was reporting on the information available from those inquiries so it was reporting on the gross flows. Net flows were not estimated in that survey. It should have been more effectively labelled. It had been labelled for well over 20 years with a footnote at the bottom of the table of what it was actually rather than being very clear in the actual table heading.
(Mr Cook) Two gross flows, yes.
(Mr Cook) The £85 million was a gross flow, yes.
(Mr Cook) Yes. In fact, the net flows are obtained from other information that we gather so when we produce again the national accounts side of the office, another source of information is obtained which estimates the netting out that goes on in the insurance industry. This particular survey did not collect that netting out.
(Mr Cook) When you took the flows between pension funds, yes. When you derive net flows from the gross flows figure by using other information about the transfers between pension schemes, the net inflows into pension schemes becomes £46 billion.
(Mr Cook) What will rectify this failure more significantly is the production, which we will produce now, of a table which takes this information and works right through to national accounts and brings in each of the alternative sources in pensions so you can see the complete flow of individual sources of information right through to the final net flow into pension funds which is the aggregate that we publish. The problem with this was that we were publishing an entirely separate survey and yet its effective use required the bringing together of other information and that was not clear.
(Mr Cook) I think it is an area in which we believe we have not responded quickly enough to the significance of the statistics which are used in terms of the materiality of the debate on the numbers rather than reflecting the effort needed to produce the statistics. The systems which have been used have been quite old. We have inherited this work from other organisations.
(Mr Cook) One of the most important elements of pensions policy, of course, is population estimates and projections. I think there we do a huge amount of work with Government actuaries and with other organisations and we have very high quality and very analytically rich pensions statistics. We have quite a comprehensive set of income measures which tell you about the income position of people both in retirement and near retirement. We have very effective savings information. We have proposals for a survey of wealth which will give us information about the wealth holdings of people before and after retirement. This area of pension funds is one part of the whole picture of the information that is needed in the pensions policy but what I can assure you is that the broader mix of statistics that we have is an area of considerable concern to my office and one that I think we are able to perform very effectively in. The United Kingdom has an incredibly rich amount of work and understanding about the income and position, for example, of its retired populations which provides a very informed amount of public policy in a debate on its pensions. The area I think where we have more vulnerability is understanding the wealth position of people who are retired and coming to retirement age and there we have got quite a comprehensive proposal for a wealth survey that we are very keen to proceed with.
(Mr Cook) I am not aware of the weaknesses that Sir John was talking about. In terms of our work with Work and Pensions we rely hugely on benefits data, for example, which is a significant driving force of neighbourhood statistics. What I can say there in terms of information management is they are probably one of the leading departments in the public sector in the effectiveness of the use of administrative data and statistics.
(Mr Cook) No, I am not. My Department has enacted occasionally a vigorous relationship with the Department of Work and Pensions but it is one where on a professional basis it is a very productive relationship.
(Mr Cook) I ceased recently the production of vacancy statistics, for example, some nine months ago because with the change to Employment Direct the registered vacancy statistics had a somewhat different coverage than they have had traditionally. I regarded it as inappropriate to regard that as a time series that meant the same thing after Employment Direct came in as it did before so I ceased producing that. That is a decision I have made but that is not a criticism of the professionalism of the Department of Work and Pensions, it is saying that one of their administrative sources has changed its quality. We have a considerable variety of debates and discussions of that sort but certainly we have an effective professional relationship. We have had, as you might have noticed in the media, occasional differences in other ways but on a professional basis I would have no concerns, it is similar very much to the other relationships we have.
(Mr Cook) No.
(Mr Cook) If not you should be coming back at me.
(Mr Cook) With further criticism.
Chairman: We will, do not worry.
Mr Mudie: Just on pensions, your middle name must be Teflon really because you cannot get away with just brushing it aside. This is one of the hottest issues in politics in this country, the amount of money going into pensions. The opposition spokesman has been going on for months that it is more than the figure the Government has been given.
Chairman: He is right.
Mr Mudie: Yes, he turns out to be right. You turn out to release a figure that is 43 million out. You just brush it away.
(Mr Cook) Firstly, can I say I do not seek great comfort from your comment I am Teflon, I think I am the most abused civil servant in the United Kingdom.
(Mr Cook) In fact the comments that come out of this, those which are more ignorant and offensive, are not ones that I enjoy at all particularly. You can rest assured that if I was made of Teflon I would probably be more comfortable.
(Mr Cook) Can I be clear the figure was quite correct. The precise statement of the figure was contained in a footnote to a table rather than the heading of it and it had been that way for 20-odd years.
(Mr Cook) Yes.
(Mr Cook) I can disagree with that. I produced a report that was announced well in advance. I stated that I would produce a report which came out. It was quite a clear analysis of the problems. It was a very open statement of what we got wrong. I am sorry, I think you have a very clear assessment of the problems that arose, why they arose, the impact and the way ahead in terms of what we were proposing to do.
(Mr Cook) The whole report was released. The report was released, it may have been 10 October, I cannot tell you. Sorry, it was 10 October. The whole report was released then with a comprehensive table.
Mr Mudie: I bet it was thick and buried away was the £40 billion. You shake your head. Tell me where in your press release did you admit that you were 40 billion out? Nowhere. Mr Teflon Cook, I suggest, how do you get away with it?
(Mr Cook) Firstly, I disagree that I have got away with anything.
(Mr Cook) I have been abused, certainly.
(Mr Cook) The demands for regional statistics in the United Kingdom have increased probably every couple of years more significantly than before. For example, the existence of devolution in Wales and Scotland has created a shift in interest in producing country wide measures of things which traditionally we did not produce. For example, we produce regional GDP measures annually and Scotland and Northern Ireland produce quarterly GDP measures also based on industrial outputs. There is an interest in Wales in doing the same. The other aspect to it is the neighbourhood statistic project, the urban renewal activities.
(Mr Cook) In that respect there is a large amount of work put into increasing the quality of regional statistics. Underneath it all there has been a major shift in statistics to create a more effective, consistent long term geographic framework for statistics of the United Kingdom. At the moment we have well over 160 different areas in the UK, there are pretty much no administrative areas which are the same. What we have developed in the 2001 Census is a common geography for the United Kingdom that we want to carry through for at least the following two Censuses which will bring together data from a large variety of sources into common areas. In each of the Census output areas there are roughly 200 households. That will be a common geography which will try and tie together the statistical data we get from administrative survey sources .
(Mr Cook) I think we have to do more, yes. I think we have to produce more and there is a large amount of work in my office in producing more. Demands have increased, yes.
(Mr Cook) Can I say, the regional GDP we produce is of a similar standard to the European data.
(Mr Cook) I cannot speak for all uses. The data that we produce is responding to increased demands and I think that for what we have now, for what those needs are, we have to produce more detailed information. Can I give you an example. Our labour force survey at the moment produces estimates for regions at quite a highly aggregated level. There is a demand for us to produce it for territorial local authority areas and, rather than collecting more information, what we are doing is we are modelling other administrative sources to be able to take that data down.
(Mr Cook) I think the area we will be doing the most work is in the area of economic statistics. That is where, for example, we would look in the future to use text data as a source to drive more detailed information rather than statistical surveys.
(Mr Cook) Number 10 was able to provide the resources for the work on neighbourhood statistics.
(Mr Cook) No, we have come to the conclusion ---
(Mr Cook) We looked at the issue and decided that there were other things we could do which would substantively meet the needs of a 2006 Census given the cost of a 2006 Census. If we do a 2006 Census it will mean over a ten year period there will be nearly 40 per cent of the British budget on official statistics as it comes into my Department which will be allocated to two Censuses.
(Mr Cook) Firstly, we believe that we can improve the accuracy of regional GDP more by other things we can do in terms of the current value of GDP and its allocation to regions. In terms of the value for money that we have, we believe we can continue to improve regional GDP in that way. Secondly, there is a huge amount of regional prices which are essentially national prices, and that is increasing in terms of our ability to measure price change not price level. The third point, we are seeing as administrative data in private sector data the ability for us to get price data more and more cheaply over time. We expect that the same developments which are giving us more cost effective access to administrative data will allow us over time to get ready access to quite rich price databases. The whole economics of that question is going to change over the next five years.
Chairman: Mr Cook, we are moving towards the end now. We have two final questions.
(Mr Cook) At this stage the gross domestic product measure that we provide is based on the GDP of the United Kingdom allocated by income shares to the different regions. That is a method that is in common with other European Union countries.
(Mr Cook) In both Northern Ireland and Scotland and also in Wales, and I have no doubt in the regions that are proposed in the UK, there will be an expectation I am sure that we can produced a balanced set of national accounts as opposed to one side. The impact of that will mean that we will have to do a lot more work to produce production based output statistics for those countries at as comparable a level of accuracy as we do for the UK in total. That will require more action in our survey taking to achieve that. There are more steps than simply price deflators in achieving what is required.
(Mr Cook) For the purposes for which they are used, yes.
(Mr Cook) The key measure at the moment, am I not correct, is measures of GDP per capita in terms of looking at the relative economic well-being of regions.
(Mr Cook) For those purposes we believe we produce measures which meet the requirements.
(Mr Cook) Yes.
(Mr Cook) Yes, and I can confirm the date of publication. It is imminent. The progress of those statistics for our establishment based survey of vacancies has proceeded as expected. I cannot tell you the date off the top of my head but I can give you a note with when precisely they will come out.
(Mr Cook) Yes.
(Mr Cook) Yes, and there is no intention to change what this year means.
(Mr Cook) I would like to think I will keep my current one for a while.
Chairman: Right. We will leave it there. Thank you very much indeed.