Sex, drugs and non-profit institutions serving households: how ONS are revising GDP figures

GDP growth in 2009, the final year of the recession, was not as bad as previously measured, new estimates released today show. A new way of measuring GDP is being introduced this year in the UK and this release provides revised growth figures for 1998-2009.

Over the period 1998-2009, average annual GDP growth is unrevised at 2.2%. However, there are some large differences in individual years. For instance, GDP growth in 2007 is revised down from 3.4% to 2.4%, while it is revised up from -5.2% to -4.1% in 2009. In half of the 12 years that were considered for revision, half were revised up or down by at least 0.5 percentage points.

140630 GDP revisions

These new estimates from the Office for National Statistics (ONS) are preliminary and final estimates will be published on 30 September.

Size of the economy revised higher

The new measurement system also impacts the cash level of GDP (the total value of goods and services produced) of the economy. In 2009, the level of GDP is now estimated to be £1,482 billion compared to £1,417 billion under the old measurement system – an increase of £65 billion or 4.6%. The biggest contributors to this change in 2009 are:

  • Non-profit institutions serving households (£24bn)this sector includes charities and most universities. The change stems from the ONS updating its source for this data.
  • Research and development (£22bn) – for the first time R&D spending will count towards GDP, under the new international measurement system. It used to be counted as ‘intermediate consumption’, consumed or used up in the production process. It will now count as investment.
  • Illegal activities (£10bn) – covering illegal drugs and prostitution. This has not been previously included in GDP in the UK.

This new methodology is seen as a more accurate and internationally-comparable way of calculating GDP.

Changes to public sector finances

Public sector finances statistics will also be affected. The ONS estimates that the new measurement system will add around £129 billion (or 10%) to public sector net debt (excluding banks).

This is due to Network Rail moving to the public sector from the private sector (raising net debt by £33bn); adding in the value of government-owned shares in the banks Lloyds and RBS (£51bn); and including debt of the Bank of England schemes the Asset Purchase Facility and Special Liquidity Scheme (£45bn).

It is estimated that the debt to GDP ratio will rise by around 7 percentage points from 76% to 83% at the end of 2013 following these changes.

Other areas affected

As well as GDP and the public finances, the new measurement frameworks affect a number of other important economic indicators. These include:

  • Gross National Income (and therefore the 0.7% international aid target and EU budget contributions);
  • Investment levels;
  • Balance of payments (including trade data);
  • Treatment of pensions in the national accounts (and therefore the household savings ratio).

Why are ONS making these changes?

The changes to the country’s economic accounts are due to new national accounting standards – called the European System of Accounts 2010 (ESA10) – being introduced across the EU and other parts of the world (via the global equivalent UN System of National Accounts 2008 (SNA2008)). All EU countries are expected to move to this new standard by October, with other countries, including the US in July 2013, having already done so. In addition, some other methodological changes are being made by the ONS.

The ONS has so far published estimates of these revisions from 1997-2009. Revisions for 2010-2012 will be published later by the end of August, with full quarterly data up to the most recent period scheduled for release on 30 September. On 31 October, the UK’s annual full set of economic accounts, the Blue Book, will be published.

Further information

The ONS has presented a series of articles on the impact of the changes. A summary of the changes is available in this May 2014 note. More articles will be published in July and August.

Daniel Harari