Examination of Witnesses (Questions 220-239)
Mr Robin Lynch and Mr Simon Humphries
16 JANUARY 2007
Q220 Lord Blackwell: Do you think
it represents any kind of failure that the initiative did not
come from Eurostat or the Committee to review matters in advance?
Mr Lynch: I think the initiative did come from
Eurostat and they brought it to the Committee and everybody agreed
that they should do what they suggested. As usual, I think the
process is there.
Q221 Chairman: There were outstanding
Eurostat reservations on previous Greek numbers?
Mr Lynch: There would be. I do not know for
a fact but usually countries have reservations. This was not an
existing reservation that reared its ugly head; this was a new,
large revision.
Q222 Chairman: Can you remind us
of the scale of the upward Italian revision in the 1980s?
Mr Lynch: I am sorry, I cannot. There are always
different ways of measuring economic activity, the income approach,
the output approach or the expenditure approach and I think the
Italian economy moved over to looking at employment more as an
indicator of level rather than simply depending on the gathered
expenditure statistics. So there was a big change in their method
and the GNI Committee looked at it and thought that seems like
a reasonable thing to do, and that is how it happened, as I remember,
but it is a long time ago and I am sure I was not there at the
time.
Q223 Lord Blackwell: Is it inherent
in the way these figures are calculated that there will be, from
time to time, revisions genuinely because the structure of the
economy has changed, or if we have the rules established now should
we be able to look forward to more consistent numbers?
Mr Lynch: I think the world is becoming an increasingly
complex place and fraudulent traders, to name an example, cause
me a lot of trouble. If people are determined to hide their activity
from the law, statisticians have a really hard job trying to measure
the associated activity. You can have a time when we have common
standards and excellent process, but I am sure there will always
be figures to look at and the need to use that process to check
on our figures.
Q224 Lord Steinberg: Mr Lynch, can
I come in on what you have just said about fraudulent transactions
causing you a lot of trouble at the moment, and I presume it is
this carousel fraud we have been hearing so much about recently.
Various enormous figures have been mentioned, one of which I read
in the weekend Press was that it is costing the UK something like
eight billion. Rather interestingly one of these apparent carousel
traders is now suing Customs & Excise for the return of their
apparently inappropriate VAT. Can you give us some indication
of what impact this is having on the figures and what methods
you believe could be used to try and stop it? I know that France
has been trying to cooperate but it seems that because Britain
is the principal prompt payer of these things that we are carrying
the can for most of these misdemeanours.
Mr Lynch: I can certainly tell you about the
statistical aspects of that problem. We work very closely with
Customs & Excise and they have a large project to identify
and to track down these traders and they share with our statistical
colleagues in the HMRC what they get. We are told by our fiscal
colleagues in HMRC the extent of the problem, and that is extremely
difficult for them to tackle but they are doing their very best,
and we work with our statistical colleagues in HMRC to make estimates
of the missing imports. In terms of the GNI Committee, the danger
would be we capture the exports but not the imports, so if we
are not careful we will be over-estimating value added GNI for
the economy. So we must make sure we know which bits are fraudulent
in the exports so we can bump up the imports to match; or to take
them both down—it depends which one you want to do. But
we must make sure that imports and exports are measured on a consistent
basis.
Q225 Lord Steinberg: Thank you for
that. This figure of eight billion that has been banded around
in the Press, would you care to have a stab as to whether that
is in the region of your understanding, because if it is it is
a very huge figure as part of the economy.
Mr Lynch: My colleague has just shown me the
official figure that I can sign up to because it is part of our
presentation of our figures, which says that the impact on VAT
receipts was published alongside the PBR on 7 December 2006 with
a range of £2 billion to £3 billion on the VAT receipts.
Of course, the VAT receipts are 17.5 per cent of the value that
we would observe as traded goods and services in the trade figures,
so the value of missing trade will be around six times as large—say
£12 to £18 billion.
Q226 Chairman: Do other Member States
similarly make a correction to their import numbers?
Mr Lynch: Not that I am aware of.
Mr Humphries: No, we are the only country at
the moment that is making this change.
Mr Lynch: We have certainly been to Europe,
we have presented on this position—not to the GNI but to
the Balance of Payments Committees—and we have certainly
let people know what we are doing. Of course, we cannot tell them
exactly what we are doing because our colleagues in HMRC tell
us things which are based on illegal activities, so it is quite
difficult to cooperate with other countries in this particular
area. But we are certainly very open about the estimates we have
made and how we have done them.
Q227 Chairman: I appreciate that,
but should there not be a common strategy, approved by the GNI
Committee, to be followed by the Member States in making adjustments
of the kind you are describing, to take account of the problem
that Lord Steinberg raised?
Mr Lynch: Yes, I think that is fair comment.
Q228 Chairman: It is not the case
now, but you agree it would be an improvement if it became the
case?
Mr Lynch: Yes.
Q229 Lord Cobbold: Do you make estimates
for the black economy beyond, though?
Mr Lynch: In the UK accounts we have been quite
conscientious, I would say, in measuring things like drugs and
smuggling. We have included estimates for that in our accounts.
Mr Humphries: Only smuggling; we only include
smuggling and MTIC[1]
fraud in terms of illegal activity and, like all other Member
States, we make estimates for the hidden economy, if you like.
But in terms of illegal it is just smuggling and MTIC fraud.
Mr Lynch: This is where the power of the GNI
Committee comes in. We are all doing at least the same thing;
it is not completely exhaustive but it is the best that we think
can reasonably be done in the circumstances.
Q230 Lord Inglewood: Arising out
of this and also out of some remarks you made earlier, I am sure
we can all appreciate the way in which the economy evolves, and
the slightly different approaches taken in the way in which various
elements in it are measured. But, having said that, do you consider
that there is integrity and a homogeneity taken across Europe
in the actual way these things are done? For example, I gather
that under the European Statistics Code of Practice that Member
State statistical organisations are required to self-certify that
they are meeting its Code. Does this actually have the effect
of ensuring that what is going on is statistically proper, because
that not merely has an impact on the figures per se, because
if you listen to a lot of the critics of what is going on, one
of the principal cornerstones of their argument is that all the
statistics are bogus? If that is correct it is a very severe indictment,
but if it is not correct then much of the argument placed on it
is in fact misleading and unhelpful.
Mr Lynch: In 2005 the European Statistics Code
of Practice was passed and since then a questionnaire has been
sent to every Member State asking for, as you have correctly described,
self-assessment, and the UK has filled in that questionnaire.
That is as far as it has gone so far. I presume that the results
of self-certification will be made available, and that is the
start of a long road. I think once they are made available, once
they are published, if we are doing something dramatically different
from every other Member State in Europe, I guess people will take
notice and ask why is that? People like you will say, "Why
is the UK the only one?" So the more there is public exposure
of the way we do things the more we will be persuaded to be upstanding
members of society.
Q231 Lord Inglewood: Are you very
confident that, first of all, as you say, we have worked through
the consequences of the self-certification, but does the self-certification
merely take the form of the body telling the rest of the world
how it approaches problems? Does it actually commit itself to
having performed in a particular way and, as part of that, are
you satisfied that political pressure cannot be put on any of
these organisations in order to produce the result that the government
of the country wants?
Mr Lynch: I think the answer is the second part
of your question. I wish I had brought it with me, the questionnaire
is a very large document and it asks you very specific things
such as how long in advance of the release of economic statistics
do Ministers get to look at the figures? That is a very specific
question to which you can only give a very specific answer, and
that is the style of the questionnaire, which was devised in Committee
by people from the UK helping to devise what we consider to be
a very effective instrument—at least it has the potential
to be a very effective instrument. I was quite impressed by the
fact that it continually asked questions of fact that you could
not really get round—who do you report to; who do the national
statisticians report to; how long is the tenure; do they get renewed;
do you have any examples of people leaving before their end of
tenure? These are the kind of questions that are being asked,
to which you cannot really make up the answers, you have to answer
in fact. I am quite sure that when the results of that exercise
are exposed we will work out better ways to do it. But I think
it is a good start.
Q232 Lord Inglewood: I put it to
you that you are looking at it, perhaps, through slightly rose-tinted
spectacles. We have rules in this country about this sort of information
now, but when I was a Minister I managed to release the unemployment
figures 24 hours early by mistake on the floor of the House of
Lords. Things go wrong, and there are things that go wrong for
a genuine mistake, and there are things that go wrong because
somehow or other they always seem to go wrong, and that is the
thing I think we are all concerned about.
Mr Lynch: As a statistician all I can tell you
is that I believe the process that has been put in place is a
good step along the right road to exposing in public the way we
run statistics in each Member State, and that is as far as one
can reasonably expect statisticians to go.
Q233 Lord Inglewood: Over time you
feel the statisticians will win?
Mr Lynch: I think over time I can look back
over the European system and consider where we are now with our
common standards, the documentation for the availability in public
and that is a long way along the road, and this is another step
along a similar sort of road. We are not at the end of the road
but in the right direction, I am sure.
Q234 Chairman: We have been reading
a Court of Audit report from 2000, which was in part quite a sharp
critique, and that report told us that some members of the GNI
Committee thought then, in 2000, that there was quite a lot more
work to be done to improve reliability and comparability. How
much of that prospectus of work would you say has been done? Can
you reassure us that the picture is better than the one that the
Court of Auditors described in 2000, and that progress is being
made, and can you identify any areas where progress is not being
made?
Mr Lynch: I can certainly reassure you that,
of course, progress is being made. The auditors visited the UK
in 2003 and 2005.
Mr Humphries: And last year, 2006.
Mr Lynch: So they are regular visitors to us
and they certainly examine us minutely. So in the sense that that
is taking place and we have had to answer all their questions
we came out of it relatively well—of course the auditors
examiner process rather than the figures—in the sense that
that kind of investigation is going on in every Member State.
The process is getting better all the time. If you say to me,
"Absolutely, are the numbers better?" things change—we
have new Members joining the European Union, and one minute you
have one level and then new people come in and the development
it has to carry on with new Member States.
Q235 Lord Steinberg: And are those
new Members likely to cause you any problems about which we not
already know?
Mr Lynch: In the sense that they are more developing
than developed countries then there will be aspects of their accounts
which might require more scrutiny than others, I suppose. I feel
quite brave just to say that, so I really would not have a strong
opinion on that. There is a lot of training and a lot of help
for the accession countries, the ones that have just joined, in
terms of statistics. Simon, where did you go?
Mr Humphries: I spent some time in Romania and
also the Czech Republic to help them develop their GNI inventories,
so these countries get help from other experts within the Community
to produce documentation that is consistent with the old Member
States as well.
Q236 Lord Inglewood: From looking
at the material you have seen issued by the Czech Republic, can
you see your imprimatur and the imprimatur of your colleagues
who are doing this on what is now coming out compared to what
was there before?
Mr Humphries: To be honest, the Czech Republic
systems were very good when I went there and I am not sure I made
much difference actually!
Q237 Lord Inglewood: What about Romania?
Mr Humphries: Romania, I have never seen the
outcome.
Q238 Chairman: Since 2000, of course,
one thing that has certainly happened is that the budgetary significance
of accurate GNI statistics has grown, as this tap on the resource
side, the revenue side of the EU budget, has become more important.
I realise that this is not your specific remit, but do you feel
that there is sufficient broad comparability between the GNI processes
in the Member States to make the fourth resource, the GNI-based
resource, a reasonable means of financing the European Union?
Mr Lynch: Yes.
Chairman: Thank you very much.
Q239 Lord Cobbold: Is it sufficiently
transparent?
Mr Lynch: I think it is a great example in terms
of process, a marvellous example of how to do things in a transparent
and public manner so that you are held to account to your public.
Chairman: I think that we have really completed
asking our general questions on methodology on GNI. We are very
grateful to you, Mr Lynch. There is another issue that we did
want to raise with you, which is one that Lord Steinberg wishes
to pick up. Lord Steinberg please go ahead.
1 Note by Witness: MTIC or Missing Trader Intra-Community. Back
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