Capital stocks and fixed capital consumption QMI Quality and methodology information for the annual estimates of the value and types of non-financial assets used in the production of goods or services within the UK economy and their loss in value over time. Contact: Release date: Next release: 2 January 2018 To be announced [email protected] +44 (0)845 6041858 Table of contents 1. Methodology background 2. Important points about capital stocks data 3. Overview of the output 4. About the output 5. How the output is created 6. Glossary of terms 7. Data sources 8. Other information 9. Sources for further information or advice 10. Useful links Page 1 of 11 1 . Methodology background National Statistic Survey name Business Investment Frequency Annual How compiled Perpetual Inventory Method (PIM) Geographic coverage United Kingdom Last revised 2 January 2018 2 . Important points about capital stocks data There are three measures of capital stocks: gross, net and capital consumption; these measure replacement value, current value and depreciation. Data come from a combination of sources including surveys such as the Annual Business Survey and Trade in Services and administrative data such as government expenditure (including central and local government). Data are available from 1995 onwards and are Blue Book-consistent. Results are published annually around 4 to 5 weeks after Blue Book. 3 . Overview of the output Outputs are estimated using the Organisation for Economic Co-operation and Development (OECD) (PDF, 2.11 MB) definitions of the main measures of capital stocks and capital consumption and are published around 8 to 10 months after the end of the reference year, in the annual publication of UK National Accounts: the Blue Book. These estimates are re-published with more detailed breakdown in the Capital stocks, capital consumption and non-financial balance sheet publication. Data are published for both current prices (CP) and chained volume measures (CVM). Capital stocks and capital consumption estimates are produced annually. They are used internally by Office for National Statistics (ONS) in the national and sector accounts, public sector finances and the Blue Book, and externally by the Bank of England, the Office for Budget Responsibility and Her Majesty’s Treasury (HMT). These organisations use the estimates to monitor economic performance and inform monetary and fiscal policy decisions. These estimates are also used by the business and research communities, education, the media and the general public. Capital consumption is used in various ways in the national accounts, in particular: Page 2 of 11 for all sectors, capital consumption is used to convert the gross-based estimates, such as gross domestic product or gross operating surplus, into the net estimates such as net national income for the non-market sectors (central and local government and non-profit institutions serving households), capital consumption forms part of the sectors’ contributions to the economy as measured using gross value added and is the only component of gross operating surplus for these sectors, leaving the net operating surplus as zero A trade-off of cost over potentially better-quality data is made by using a perpetual inventory method (PIM) to model capital stocks and capital consumption data instead of conducting a survey to gather this information direct from companies. However, the use of PIM model data is internationally recognised as the preferred method of measuring capital data with the assumption that little accuracy is lost by use of the model, since much of the data companies could provide would not meet national accounts standards and definitions. The OECD Manual Measuring Capital (PDF, 2.11MB) supports the use of a PIM over survey data. Output quality This report provides a range of information that describes the quality of the output and details any points that should be noted when using the output. We have developed Guidelines For Measuring Statistical Quality; these are based upon the six European Statistical System (ESS) quality dimensions. This report addresses these quality dimensions and other important quality characteristics, which are: relevance timeliness and punctuality comparability coherence accuracy output quality trade-offs assessment of user needs and perceptions accessibility and clarity More information is provided about these quality dimensions in the following sections. 4 . About the output Relevance The degree to which statistical outputs meet users’ needs. Page 3 of 11 Capital stocks and capital consumption estimates are produced annually. They are used internally by Office for National Statistics (ONS) in the national and sector accounts, public sector finances and the Blue Book, and externally by the Bank of England, the Office for Budget Responsibility and Her Majesty’s Treasury. These organisations use the estimates to monitor economic performance and inform monetary and fiscal policy decisions. These estimates are also used by the business and research communities, education, the media and the general public. Capital consumption is used in various ways in the national accounts, in particular: for all sectors, capital consumption is used to convert the gross-based estimates, such as gross domestic product or gross operating surplus, into the net estimates such as net national income for the non-market sectors (central and local government and non-profit institutions serving households), capital consumption forms part of the sectors’ contributions to the economy as measured using gross value added and is the only component of gross operating surplus for these sectors, leaving the net operating surplus as zero Additionally, capital stocks and capital consumption estimates are also used in the calculation of quarterly profitability estimates of UK companies. Timeliness and punctuality Timeliness refers to the lapse of time between publication and the period to which the data refer. Punctuality refers to the gap between planned and actual publication dates. Capital consumption and capital stocks estimates are published around 8 to 10 months after the end of the reference year, in the annual publication of the Blue Book. These estimates are re-published with more detailed breakdown in the Capital stocks, capital consumption and non-financial balance sheet publication. For more details on related releases, the GOV.UK release calendar is available online and provides 12 months’ advance notice of release dates. In the unlikely event of a change to the pre-announced release schedule, public attention will be drawn to the change and the reasons for the change will be explained fully at the same time, as set out in the Code of Practice for Official Statistics. 5 . How the output is created Outputs are estimated using the OECD (PDF, 2.11MB) definitions of the main measures of capital stocks and capital consumption. These are as follows: gross capital stocks represent the value of all fixed assets still in use when a balance sheet is drawn up; it is valued at the actual or estimated current purchasers’ prices for new assets of the same type irrespective of the age of the assets net capital stocks measure the sum of the written-down values of all the fixed assets still in use when a balance sheet is drawn up (that is, the value of the capital stocks after depreciation) consumption of fixed capital represents the reduction in the value of the fixed assets used in production during the accounting period resulting from physical deterioration, normal obsolescence or normal accidental damage These measures are consistent with international best practice and are produced by Office for National Statistics (ONS) using a perpetual inventory method (PIM) by asset, industry and sector. Page 4 of 11 A PIM is an economic model that enables balance sheets (or stocks) to be calculated from the associated flows; a PIM separately models the stocks levels of various assets owned by different industries. The ONS PIM takes gross fixed capital formation (GFCF) data by industries and uses it to form estimates of the value of capital stocks in use in the UK. Assumptions about the life of these capital stocks are used to ensure that they are withdrawn from the model when they are no longer economically useful. For estimates of capital consumption and net capital stocks these assets are written down over their lifetime. For gross capital stocks, the asset is valued at its new replacement cost until such time as it is retired. At any given point in time, the PIM estimates the constant price value of capital stocks still in use by summing the original investment data for these assets over their lifetimes. For example, some buildings have life-lengths of a hundred years, so the PIM will aggregate those hundred years of investment data to measure gross capital stocks. To measure net capital stocks, each vintage of investment is adjusted to reflect capital consumption (depreciation). In the ONS PIM, straight-line depreciation is assumed, so that the stock of each vintage decreases each year by a constant amount, falling to zero at the end of the asset’s life-length. This is a depreciation profile based on a constant annual amount of capital consumption over the service life of the asset. This service life is the total period during which the asset remains in use or ready to be used, in a productive process, even if the asset has more than one owner. The depreciation of each asset and industry within each year is aggregated to provide the capital consumption measure. Assumptions are made in the PIM about the average life-length of different assets across industries. While an asset might have an average life length of 10 years that does not mean that all such assets are retired exactly 10 years after being purchased. In fact it is likely that these assets will be retired over a period of a few years, with 10 being the average.