Members present:

Mr Michael Fallon, in the Chair
Mr Nigel Beard
Mr Jim Cousins
Mr John McFall
Kali Mountford
Mr George Mudie
Dr Nick Palmer
Mr James Plaskitt
Mr David Ruffley


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.


  1. Mr Cook, welcome back to the Committee. Perhaps you could identify yourself and your colleagues for the benefit of the shorthand writer.
  2. (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.

  3. The Treasury told the Committee during our inquiry into general parliamentary accountability that departments' spring reports would give a full picture of each department's organisation, aims and objectives, performance and use of resources. Are you satisfied that your spring 2002 departmental report can meet those criteria?
  4. (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.

  5. Let us just stick with this report if we can for the moment, not the 500. Could you turn to page 33 where you list the various performance indicators in annex C? There you simply put alongside most of the performance indicators the comment "Monitored and reported quarterly". What does that mean? It does not tell us what happened.
  6. (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.

  7. What is the point of listing performance indicators with a commentary if it does not tell us what happened? What is the point of the commentary?
  8. (Mr Cook) When you come to our annual report, of course, it contains -----

  9. Let us stick with this report. What is the point of the commentary if it does not tell us what happened?
  10. (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.

  11. In future years we would like to see some outturn properly reported here. Turning to your annual report, one of the key activities of course was the 2001 census and you devote some four pages to this. You do not refer to our report on the census. Why is that? This is your report, Mr Cook, pages 7-11. It does not make any reference to our own report or recommendations. Why is that?
  12. (Mr Cook) I was not aware that we had not, Mr Chairman.

  13. You are aware presumably of the Government's response to it.
  14. (Mr Cook) Very much so.

  15. You do not refer to that either. Are you not taking this Committee's report seriously?
  16. (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.

  17. But you do not refer to it at all.
  18. (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.

  19. Turning to the census results itself, your preliminary results show that the population was about a million less than you had previously forecast. Was there a methodology wrong with the interim census? What went wrong here? Were you surprised about this? How did we lose a million people?
  20. (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.

  21. You can count them all in but you cannot count them all out; is that right?
  22. (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.

  23. Getting the forecast wrong by a million is not very good, is it?
  24. (Mr Cook) It is 0.1 per cent a year.

  25. It is a million people you were wrong by.
  26. (Mr Cook) When you accumulate 0.1 per cent a year for ten years it comes to just on a million, yes.

  27. Why do you think migration has been significantly under-counted?
  28. (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.

  29. Are you going to get this better for the next census? Are you going to remedy these deficiencies in terms of migration?
  30. (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 Mudie

  31. How are you going to get better if we do not record people coming into the country and whether they leave or not? Short of doing the American system where, when you come in, they take your name and they tie it up when you go back out so that they know who has come and who has gone, how are you going to do it? I do not see how it is possible to do it so the inaccuracies will remain.
  32. (Mr Cook) It is most likely that we will have to use some modelling methods and a series of approaches -----

  33. So you will guess?
  34. (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 Cousins

  35. Can I ask how these problems with the international passenger survey statistics affect our internal population figures? For example, if we have been losing 100,000 more people than we thought, and by that I do not mean that we have been losing100,000 in that sense but they have been choosing to do whatever it is they want to do with their lives, where have they been coming from inside Britain? What knock-on effect does that have for population figures for various parts of Britain?
  36. (Mr Cook) We do have more means of measuring internal migration flows.

  37. I am not talking about internal migration flows. I am talking about the impact on urban regional populations of losing an additional 100,000 people a year. You are not attributing that loss, for example, of 100,000 a year to wherever in Britain Heathrow Airport happens to be recorded?
  38. (Mr Cook) No.

  39. That would be perverse.
  40. (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.

  41. Yes, but if you are losing an additional 100,000 people per year that must have a knock-on consequence for wherever in Britain it was that those people were living.
  42. (Mr Cook) Yes.

  43. How do you attribute that?
  44. (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.

  45. I am not really getting to what I want. Let me put the question a different way. You began by saying that the million people we appear to have lost were never there in the first place.
  46. (Mr Cook) Yes.

  47. This question therefore sounds a bit odd but you will understand why. Where in Britain were the million people we did not have living?
  48. (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.

    Kali Mountford

  49. I am getting more and more confused here. One the one hand you seem to be suggesting they did not exist in the first place, and then you went on to say that there were problems with measuring people leaving, and you went on to talk about European countries. It seemed to me from your answer that you could have been suggesting that there was an inter-European balance going on with some people coming here and some of our people going there, but because we were measuring people coming here from wherever in Europe we knew about them but we do not know about ours leaving, and that would be more significant because they are much more likely to go through ordinary channels in Customs and not be recognised by your survey. Is that what you are telling us and, if that is what you are telling us, can both situations be right?
  50. (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.

  51. But that suggests that the million did exist at some point. If it is true that people have gone and we have lost them and we did not know that they had left, then they must have existed at some point or the 1991 census was wrong and we over-estimated. There must be some balance between the two and if you are suggesting that we have this problem particularly in the European nation states what is your suggestion that we can use within the whole of Europe to get this balance right, because if it is affecting us it is affecting them?
  52. (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.

  53. I hope you are going to tell me what progress you are making.
  54. (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.

  55. Which new year are you talking about?
  56. (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.


  57. You are not going to count people who were never here?
  58. (Mr Pullinger) We are not going to count people who were never here.

    Mr Beard

  59. How do you know that this is the source of the problem though, the immigration/emigration? How do you know that it is not just that you under-counted by two million or that two million escaped the census instead of one million?
  60. (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.

    Dr Palmer

  61. Jim Cousins asked you about how the additional migration which you reckon to have discovered is attributed to the local authorities basically. You very kindly said you could provide detailed figures. As you probably are aware, there is considerable debate in Parliament at the moment about the standard spending assessments according to, among other things, local population and I know my borough council is in dispute with the authorities on how many people live there. How confident are you that the attribution of the migration statistics to this correction has been taken account of in the SSA debate? Are you aware whether it has or not?
  62. (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.

  63. That is the statistics you are now putting forward but the current debate is based on the figures from last year and those will not have the correction yet, will they?
  64. (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.

  65. The current SSA debate, you are saying, or the current debate on the census? I am sorry; we may be talking of two different things.
  66. (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.

  67. How do you feel ideally that the definition of the retail price index should be set? Who should set it? What would command most public confidence?
  68. (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.

  69. How does that differ from what we do here?
  70. (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.

  71. In commenting on the code of practice the Statistics Commission called for the special arrangements for the Chancellor's involvement in the RPI to be spelt out and for a public register to be maintained of those occasions on which ministers are consulted about proposals which impinge on government policy. Have you been asked to comment on these proposals?
  72. (Mr Cook) No.

  73. May I invite you to comment now?
  74. (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.

  75. So what you are telling us - I do not want to put words in your mouth - is that there have been no secret communications from the Chancellor or Treasury of their views on the RPI?
  76. (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.

  77. Do you feel that the current definition of the RPI is reasonable up to date or is it time for a review?
  78. (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.


  79. Could we turn now to the classification of Network Rail? Perhaps I could begin by asking you why it has taken so long to get this joint statement hammered out with the NAO.
  80. (Mr Cook) Firstly, it was developed during the holidays.

  81. You promised a statement in July. It is now October.
  82. (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.

  83. Was part of the delay the argument with the Department of Transport statisticians themselves?
  84. (Mr Cook) The Department of Transport statisticians were not involved.

    Mr Ruffley

  85. And you and the Comptroller and Auditor General had taken different views on the classification of Network Rail. It hardly inspires confidence, does it, with the public?
  86. (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 Ruffley

  87. That is the issue and the public, if I may say so, Mr Cook, could be forgiven for thinking that these are fiddled figures. Your job is to inspire confidence in the way that statistics are presented and I can only repeat Mr Fallon's question. You have a duty to be clear about these things. Are you saying that the Comptroller and Auditor General is happy with this separate view that he expresses from you? Do you think there should be a more unified view which the public can have faith in?
  88. (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.

  89. There is a piece in the joint statement which I would consider almost in the nature of a get-out where you say that they are not therefore alternative views on the same issue but fundamentally different activities undertaken for separate purposes and hence can lead to different conclusions. Is the Comptroller and Auditor General happy with this state of affairs?
  90. (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.

  91. Do you think the International Convention should be modified in some way? Would you lobby for it to be changed?
  92. (Mr Cook) No.

  93. Why not?
  94. (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.


  95. Can I just get this straight? I asked you about this and you said it was not relevant, but you said in your joint statement that the head of accountancy at the Department of Transport said these were contingent liabilities.
  96. (Mr Cook) Yes.

  97. I will just try to summarise this in popular jargon. You have ruled that a contingent liability is not actually a financial liability unless it is called on, and therefore is nothing to do with you, but are you not, as the senior statistician in the country, obliged to make some kind of judgment as to whether or not it is likely to be called on, and when we are dealing with Network Rail presumably it is quite likely to be called on?
  98. (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.

  99. Is that not self-validation? You are supposed to be checking on this. You asked him what he thought it should be.
  100. (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 Ruffley

  101. According to the joint statement, your decision principally rests on who exercises control over the ability to determine general corporate policy. Can you explain to us how you concluded that this rests with the board of Network Rail when the Comptroller and Auditor General, as I understand it, considers that the controls available to the SRA are consistent with those of a parent/subsidiary relationship?
  102. (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.

  103. So what does the Comptroller and Auditor General think? The fact that he takes that view and you take another one?
  104. (Mr Lynch) There is no disagreement between our positions, but they are positions for different purposes using different systems.

  105. You are saying that you are arguing from different premises but at the end of the day the Comptroller and Auditor General just does not agree with you, does he? Why do you not just come out and admit it? You talk about transparency at this committee. Why do you not just say he does not agree with you instead of trying to represent this joint statement as everything in the garden is rosy and he is a happy bunny, because he is not?
  106. (Mr Lynch) There is no disagreement between us.

  107. I am speaking to Mr Cook now.
  108. (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.

  109. Sorry: what does that mean in English?
  110. (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?


  111. He said, "Should liabilities crystallise under the guarantees and stand-by loan facilities the SRA would have to seek funds from Parliament ...". That is what he said. He said, "Contingent liabilities represent the possible obligation that arises from past events ... and whose existence will be confirmed only by the occurrence of one or more uncertain future events ... not wholly within the entity's control." It is not a private sector accounting matter, is it?
  112. (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.

  113. You do not disagree with it?
  114. (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.

  115. You represent the taxpayers. What we want to know is whether the contingent liability falls on the public sector or the private sector.
  116. (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.

    Kali Mountford

  117. At what point would they be demonstrated? If the contingency liabilities were called upon would that be a point at which you would put them in the public sector?
  118. (Mr Lynch) Yes.

    Mr Beard

  119. Your argument as I understand it is that the Comptroller and Auditor General has a different role and therefore he is compiling the data in a way that suits his role and you have got to compile the data in a way that suits your role, which I understand. Can you just for clarification say what is the difference between the two roles that you perceive?
  120. (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.

  121. So that explains why, Mr Cook, you and the Comptroller and Auditor General can come together and say, "We are both consistent but we are doing different jobs"? That is essentially what your note is saying?
  122. (Mr Cook) Yes, very much so.


  123. But what I still do not quite get is that you seem to regard your job as ensuring that the rules were followed. You ring up the head of accountancy at the Department of Transport, who have a huge interest in keeping this thing off the Government balance sheet, and say, "Did you follow the rules?", and he rings you back and says, "Yes, I followed the rules", and you say, "That is okay". Surely the issue for us is whether the rules make sense? Why are you not satisfying yourself that these rules actually make sense as to where the contingent liability lies?
  124. (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.

  125. But he is working for the Government. You are supposed to be representing the public interest here, are you not?
  126. (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.

  127. He is working for the department which has an interest in the outcome, in the classification.
  128. (Mr Lynch) Yes.

  129. This is an enormously important question, not just for the Department of Transport but for the Treasury and the Government.
  130. (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.

  131. They have taken a different view from you.
  132. (Mr Lynch) No, sorry. The National Audit Office have also said that it is a contingent liability. It is in the joint statement.

    Mr Beard

  133. But surely the National Audit Office has said, "If I were in your shoes doing your job I would do it your way"?
  134. (Mr Lynch) In so far as they are competent to make that statement, yes, that is correct.

    Dr Palmer

  135. If I understand the difficulty, if you like, it is that it is not that there is a row going on between you and the National Audit Office over whether it is a contingent liability. You agree that it is a contingent liability. The question is (which the Chairman has raised) should contingent liabilities be treated as they up to now have been in the national accounts, and you are saying, if I understand you correctly, that this follows the international accounting practice. Is that right?
  136. (Mr Lynch) Yes.

  137. You do see our difficulty, that if the Government had a 99 per cent probability of incurring some enormous cost, that would still be a contingent liability but we would be reasonably concerned. If it has a one per cent probability we would probably say, "Oh, well, ...". You are saying that the national accounts would treat them both in the same way?
  138. (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 Cousins

  139. I am trying to follow the logic of this. Who appointed the other 11 members of the board of Network Rail?
  140. (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.

  141. The Government appointed a selection panel?
  142. (Mr Lynch) That is correct.

  143. The selection panel then appointed the other 11 members?
  144. (Mr Lynch) The directors of the board.

  145. If the other 11 members they had appointed - the selection panel, that is, - had happened to be, I do not know, consultants in St Thomas's Hospital over the road, would Network Rail have been in the public sector or the private sector?
  146. (Mr Lynch) I think the choice was made of people from the private sector.

  147. No; that was not the question I asked you. The question I asked you was, if the selection panel had happened to appoint 11 consultants from St Thomas's Hospital, who are employees of the NHS, would that have transferred Network Rail from the private sector to the public sector?
  148. (Mr Lynch) In the sense that they are member of the public sector, yes, it would.

  149. So what made Network Rail private sector? Was it the employment of the people who had been appointed to the board?
  150. (Mr Lynch) What makes them private is the membership, and the membership are responsible for appointing the directors.

  151. Do forgive me. This is quite intricate and I am having difficulty with this. You have told me quite clearly that the reason Network Rail is in the private sector is that the people whom the selection panel appointed happen to be employed by the private sector, but if they had happened to pick 11 consultants from St Thomas's Hospital instead of 11 whoever they might have been, then it would have been in the public sector because the people would have been employed by the public sector?
  152. (Mr Lynch) That is correct.

    Mr Beard

  153. Could I take up the case of the Department of Transport accountant whom you put this issue to, where the Chairman's observation was that he is an employee of the Government and so he is not an independent party? There are many cases where professionals within government are held responsible for their professional judgment rather than their accountability to the political head. Have you ever in your experience come across an instance where you referred to an official in a professional capacity and you had suspicions that he was not giving you information in a professional capacity but giving you tainted information with a political bias?
  154. (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.

  155. But is it your experience in the National Statistics Office, because you must have to contact people all the time to get opinions, that you are happy with this as a means of getting professional advice, or do you have a feeling on many occasions that you are not?
  156. (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.

  157. Is that your experience too, Mr Cook?
  158. (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.

  159. And he agreed that it was good advice?
  160. (Mr Cook) He agreed that it was a contingent liability.

  161. That it was good advice?
  162. (Mr Cook) I presume so. The implication of that must be that, yes.

    Mr Cousins

  163. But the decision to place those contingent liabilities in the private sector rather than the public sector was yours.
  164. (Mr Lynch) The contingent liability is with the Government. The Government owns the contingent liability.

  165. The decision to classify these liabilities as private sector liabilities was made by you when you decided that because of the way these people had been appointed and who they happened to be, therefore this was not a public sector entity.
  166. (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.


  167. Sorry to interrupt here. Had the 11 of them been directors of the London Underground would that have meant they were then public sector?
  168. (Mr Lynch) If they were there in their capacity as directors of London Underground, yes, they would.

    Mr Plaskitt

  169. I am really doubtful about this. This cannot be right. I just want to ask you to have a little think about this. It surely cannot be the case that an outfit is defined as to whether it is public or private by the background of the people appointed to its board. What has happened to the articles of association for this outfit? Surely they define its status?
  170. (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.

  171. But this is important, is it not, because it shows that there is a step back behind the decision as to who to appoint. The decision as to who to appoint is driven by the definition put down in the articles of association. It is not an accident -----
  172. (Mr Lynch) No.

  173. ----- as you implied in your answer to Mr Cousins.
  174. (Mr Lynch) Did I? Sorry; I did not mean to imply that. It is not an accident.


  175. So had the articles said that no more than four must be appointed from London Underground and a further three from the Department of Transport itself and so on, that would have made it a public sector organisation?
  176. (Mr Lynch) We would have had to examine that case and determine whether the majority was from the private or public sector.

  177. You have made this ruling on the evidence. Is there a comparable example you can give us where you have done this elsewhere?
  178. (Mr Lynch) We make classification decisions all the time.

  179. Give me a comparable example.
  180. (Mr Lynch) Welsh Water is another example whereby most of the members of that board come from the private sector.

    Mr Cousins

  181. It is not where they come from that counts.
  182. (Mr Lynch) Most represent the private sector. I am not quite sure what you mean.

    Mr Beard

  183. They are appointed as being in the private sector?
  184. (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.


  185. Just for the sake of the argument, and I hope my colleagues will not take offence at this, supposing the Secretary of State happened to appoint 11 former Labour Members of Parliament. Would you still say this was a private sector organisation?
  186. (Mr Lynch) If they were appointed in their personal capacity, yes, that would be private sector.

  187. Eleven former Labour Members of Parliament would be private sector? No relationship with the Secretary of State or the Government?
  188. (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 Cousins

  189. But there must be principles that underpin this.
  190. (Mr Cook) There are principles and what we deal with is actual cases that are presented -----


  191. This is not hypothetical, Mr Cook. The nature of the railway authority has changed in the last two years. It is not hypothetical.
  192. (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.

    Kali Mountford

  193. Are we not being misled a little here? Is not the answer really what is in the articles? Who was then selected? We have been taken down a winding lane often into the realms of mystery here that I really would rather have avoided. It seems to me it is the articles. They are there; they are matter of fact. What relationship is it to that? Is that what you took account of, or did you go and investigate the background of these people? What did you actually do?
  194. (Mr Lynch) The articles, of course, the articles.

  195. Perhaps we should stick with the articles.
  196. (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 Plaskitt

  197. I want to talk to you about productivity but just before I do that there is an interesting section in your annual report where you talk about modernising the ONS. I just want to read you part of paragraph 53: "The implementation oft he re-engineering projects (REPs) will ensure that existing activities are migrated to the new information management environment. Each REP will help bring the IM infrastructure to life and extend it as necessary to meet the needs of ONS. ... the Neighbourhood Statistics programme ... is a pathfinder for the infrastructure and will be a key enabler ... in driving forward the creation of the infrastructure." I could not find a translation of that anywhere in the report. Can you tell me what it means?
  198. (Mr Cook) What we are doing is creating a common information management environment for the Office for National Statistics.

  199. What is a "common information management environment"?
  200. (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.

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

  203. That will be a bit clearer than some of the verbiage that is in this report.
  204. (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

  205. 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?
  206. (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

  207. 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?
  208. (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.

  209. 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?
  210. (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.

  211. 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?
  212. (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.

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

  215. This is important. So you do not think it has changed the picture of productivity yet?
  216. (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.

  217. 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?
  218. (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.

  219. 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 also 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?
  220. (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.

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

  223. I understand that.
  224. (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.

  225. 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?
  226. (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.

  227. 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?
  228. (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.

  229. That is helpful. About three years?
  230. (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.

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

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

  235. 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?
  236. (Mr Cook) Certainly we can do that, yes.

    Mr Beard

  237. 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?
  238. (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.

  239. The 105 billion figure, what was the base figure?
  240. (Mr Cook) Sorry?

  241. The revision was 105 billion, what was the total it was a revision of?
  242. (Mr Cook) It was 760 billion.

  243. Of the order of 15 per cent.
  244. (Mr Cook) It was 100 billion on 260.

  245. So it was of the order of 15 per cent of the total?
  246. (Mr Cook) Yes.

  247. What sort of decisions might that have influenced?
  248. (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.

  249. They would have had too rosy a picture?
  250. (Mr Cook) They would have had a very different picture from what we presented, yes.

  251. There was another change. The Times on 22 October reported that following an investigation by the ONS the estimated value of pension contributions for last year has been reduced from 86.4 billion to 43.7 billion, almost half. You had an investigation I believe which showed the original Government figure for new investment included billions of pounds of pension transfers. Can you explain this to us?
  252. (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 Beard

  253. Which should it have been? Should it have been the net flow?
  254. (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.

  255. I am getting confused. What was the table meant to be: two gross flows?
  256. (Mr Cook) Two gross flows, yes.

  257. Is that what these figures I quoted were?
  258. (Mr Cook) The 85 million was a gross flow, yes.

  259. The 84 million was gross?
  260. (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.

  261. This figure of 86.4 billion was a gross flow and that gross flow then reduced to 43.7 billion, that was the nature of the gross flow after revisions?
  262. (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.

  263. How do you end up with an error of this magnitude? Does anybody have a reality check on this? Do people calculate figures to three decimal places and find out by a factor of two?
  264. (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.

  265. Lightening seems to have struck the same part of your organisation twice, does it not, one error in 1999 and the other in 2002? Is there something wrong with the pensions area in the statistics they cover?
  266. (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.

  267. Pensions have moved to the centre of the political forum now. There is a lot of attention put on them. How reliable are national statistics on different aspects of pensions? Will they bear the weight of so much attention?
  268. (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.

    Kali Mountford

  269. It seems to me that first of all we had a million missing people and now we seem to have billions of pounds worth of money which never existed either. From what you have just told us the money was never there. I would be interested to see what your wealth survey tells us but perhaps meanwhile, when we put similar questions to Sir John Kingman, he said to us "... we are trying to get to the bottom of the series of mistakes that occurred there which seem to be somewhere around the interface between the Department of Work and Pensions and the Office for National Statistics. What we are going to do is to challenge the National Statistician to take hold of the statistics in the Department of Work and Pensions and to make sure that department operates to the highest standards..." Are there weaknesses there and what are they?
  270. (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.

  271. He put to us that he thought there was a cultural problem in the Department. If there is a problem in the culture of developing and using statistics in the Department of Work and Pensions that would have a significant effect on policy. Are you aware of such a culture?
  272. (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.

  273. You are satisfied entirely that the interface between you and them is of the highest professional standard and we are getting absolutely spot-on information and we can all go away and sleep easily in our beds tonight knowing that our pension funds are safe in their hands?
  274. (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.

  275. These differences you have just alluded to, would they affect these outputs?
  276. (Mr Cook) No.

  277. So the next time a minister makes an announcement on pensions we can be confident that the figures he is using are absolutely right?
  278. (Mr Cook) If not you should be coming back at me.

  279. I am sure I will.
  280. (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.

    Chairman: Billion.

    Mr Mudie

  281. Yes, billion.
  282. (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 Beard

  283. They all say that.
  284. (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 Mudie

  285. You are still in your job. You severely embarrass a minister on a major item of policy by releasing a figure that is 100 per cent wrong and you are still in your job. You are a lucky man.
  286. (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.

  287. It was 43 billion out. Mr Cook, the key element of pensions at the moment is how much money is going in. Right?
  288. (Mr Cook) Yes.

  289. There is a difference between 43 billion going in, that is slightly up on the year before, and 84 billion which suggests all the Government's problems and all the country's future problems on pensions are solved. You came out with the 84. This is why you are Teflon, you did not really come out with it, did you? You slipped out a press release on 10 October not mentioning your error. You covered it up in best spin doctor fashion with a review and you did not mention the fact that it had been done so badly.
  290. (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.

  291. Who gave The Times on 22 October the story? When did you put out a press release on this? The press release we have got is 10 October and it does not mention this. It does not mention the amounts. I am just asking. You said you came out and told everybody, well when did you tell them? What date was the press release?
  292. (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?


  293. He has not.
  294. (Mr Cook) Firstly, I disagree that I have got away with anything.

    Mr Mudie

  295. You are still in your job, you are still receiving a six figure salary. What more do you want? Have you been disciplined? Have you been admonished?
  296. (Mr Cook) I have been abused, certainly.

  297. We will not go into those sorts of things, Mr Cook. Right. Shall we go on to GDP, regional development. What is happening with you and the Statistics Commission over the question of regional figures? Do you have concerns about the quality of regional data? Do you think it is sufficient? Do you think it fits the purposes for which it is used? I will give you a second question but they are all matters which the Statistics Commission is not very happy with, so what do you say in response?
  298. (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.

  299. I have read that.
  300. (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 .

  301. Mr Cook, I specifically asked you did you have concerns about the clarity of the regional data. Does that answer mean yes, you do have?
  302. (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.

  303. This Committee is looking at regional GDP etc and we are very concerned about that so we share the concern.
  304. (Mr Cook) Can I say, the regional GDP we produce is of a similar standard to the European data.

  305. I am coming on to that. The second question I asked you, so you share that concern, do you think the regional data is fit for the purpose for which it is used?
  306. (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.

  307. For the record, for us, for the Treasury, for the DTI and for the Statistics Commission, which area do you admit it is deficient in?
  308. (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.

  309. Now, as I understand this note, the Statistics Commission undertook a short study and they said they identified five topics they wanted to be covered in an ONS review of regional accounts. You agreed four but not the fifth. Now why are you jibbing at the fifth? There is some question of resources. Having said that I notice you are happy to put resources in when Number 10 asks you to do something at a neighbourhood level but when other people want something done on regional you are crying no resources.
  310. (Mr Cook) Number 10 was able to provide the resources for the work on neighbourhood statistics.

  311. Just on Number 10, can you tell the Committee are you looking at doing a 2006 Census?
  312. (Mr Cook) No, we have come to the conclusion ---

  313. You have looked at it?
  314. (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.

  315. As I understand this now, looking back at this, the fifth issue you will not touch, the Department are doing it themselves, but the Statistics Commission wanted you to do that. Now are you still adamant you are not going to do it, the effects of GDP deflators?
  316. (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 Beard

  317. Following on George Mudie's question, one of the aims of Government economic policy is to bring up productivity in different regions and if we do not have the GDP deflators, that is the fifth one Mr Mudie has been talking about, how can we measure reasonably productivity in different regions?
  318. (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.

  319. The Statistics Commission, as Mr Mudie said, do not believe that is an adequate way of doing it.
  320. (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.

  321. Can we rely on the estimates of regional productivity as you produce them now?
  322. (Mr Cook) For the purposes for which they are used, yes.

  323. That is a cop out, what does that mean? We are talking about productivity meaning a reflection of the improved economic efficiency of the region.
  324. (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.

  325. Yes.
  326. (Mr Cook) For those purposes we believe we produce measures which meet the requirements.

    Mr Cousins

  327. You referred to this issue in the course of our discussions earlier but just to be clear about it, the vacancy statistics which as you rightly say you have suspended - I have no quarrel with that suspension, it seems to me to be entirely well founded - you have promised the new vacancy statistics will be published in this year.
  328. (Mr Cook) Yes.

  329. On a quarterly basis?
  330. (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.

  331. An undertaking has been given that it will begin later this year?
  332. (Mr Cook) Yes.

  333. Which for the purposes of the record is 2002.
  334. (Mr Cook) Yes, and there is no intention to change what this year means.

  335. I am very relieved to hear it. You have a new career, I think, in Have I Got News For You.

(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.