Regional gross value added (income approach) QMI

Regional gross value added (GVA) is a legal requirement of the EU statistical body, Eurostat. Estimates are compiled in compliance with the European System of Accounts 2010 (ESA 2010) and are consistent with the standards set out in the United Nations System of National Accounts 2008 (SNA 2008).

Regional GVA is the value generated by any unit engaged in the production of goods and services. It is measured at current basic prices, excluding taxes (less subsidies) on products. GVA plus taxes (less subsidies) on products is equivalent to gross domestic product (GDP).

The regional GVA estimates in this publication are measured using the income approach (GVA(I)), which involves adding up the income generated by individuals or corporations in the production of goods and services. It is calculated gross of deductions for consumption of fixed capital, which is the amount of fixed assets used up in the production process in any period.

The GVA(I) estimates cover the UK as a whole and are broken down to Nomenclature of Units for Territorial Statistics (NUTS) regions. NUTS is a hierarchical classification of spatial units that provides a breakdown of the EU’s territory for producing regional statistics, which are comparable across the EU. Regional GVA(I) estimates are compiled at three levels of NUTS geography:

• NUTS1: 12 regions – Wales, Scotland, Northern Ireland and the nine English regions can be collectively referred to as regions, and there is a 13th region known as Extra-Regio, which accounts for economic activity that cannot be assigned to any specific region; for UK GVA(I) this consists mainly of oil and gas extraction on the continental shelf and the activities of UK embassies and armed forces overseas

• NUTS2: 40 sub-regions – mainly groups of counties and unitary authorities

• NUTS3: 173 local areas – principally individual counties and unitary authorities

National totals are allocated to regions using the most appropriate available regional indicators. A regional indicator is a dataset that provides regional proportions, which in turn, are used to allocate national totals. They can be acquired from administrative sources and structural surveys. The national totals are consistent with those in the latest published UK National Accounts Blue Book.

Estimates are produced annually in December and are published on our website in the form of a statistical bulletin. The Regional GVA(I) statistical bulletin can be downloaded for free at 9.30am on the day of publication. These GVA(I) estimates are then delivered to Eurostat at the end of December.

This report contains the following sections:

• Output quality

• About the output

• How the output is created

• Validation and quality assurance

• Concepts and definitions

• Other information, relating to quality trade-offs and user needs

• Sources for further information or advice

This report provides a range of information that describes the quality of the data and details any points that should be noted when using the output.

We have developed Guidelines for Measuring Statistical Quality; these are based upon the five European Statistical System (ESS) quality dimensions. This report addresses these quality dimensions and other important quality characteristics, which are:

• relevance

• timeliness and punctuality

• accuracy

• coherence and comparability

• output quality trade-offs

• assessment of user needs and perceptions

• accessibility and clarity

More information is provided about these quality dimensions in the following sections.

Relevance

(The degree to which the statistical outputs meet users’ needs.)

Current price estimates are published at Nomenclature of Units for Territorial Statistics (NUTS) regions, at NUTS1, NUTS2 and NUTS3 levels for the variables:

• total gross value added (income approach) (GVA(I)) pounds sterling (£) million

• GVA(I) growth pounds sterling million

• GVA(I) per head pounds sterling

• GVA(I) growth per head of population

• GVA(I) per head index

• nine components of income

GVA(I) per head of population is not, however, a measure of regional productivity as the population estimates used to calculate it include the economically inactive population. GVA(I) per head of population is a useful way of comparing areas of different sizes and is an important indicator for both domestic and European policy purposes.

Data for nine components of income are available at all three NUTS levels:

• compensation of employees (CoE)

• mixed income (MI)

• rental income

• non-market capital consumption

• holding gains

• gross trading profits

• gross trading surplus

• taxes on production

• subsidies on production

Before 2014, publications contained estimates published on both a workplace and residence basis at NUTS1 level, to reflect the impact of commuting. Conceptually, GVA is produced in the workplace. Residence data were initially used due to a lack of workplace source data. Due to the improvement of the workplace measure of GVA(I), this is no longer the case and the residence measure is no longer published. As in 2014, subsequent publications contain estimates on a workplace basis only.

Regional GVA estimates are published using the Standard Industrial Classification 2007 (SIC 2007), in keeping with EU regulations. For workplace estimates at NUTS1 and NUTS2 levels, data are provided for 20 industries plus 13 manufacturing sub-sections. At the NUTS3 level, GVA(I) data by 10 industries (plus manufacturing total separately) are available.

The annual provision of regional and sub-regional GVA at NUTS3 level is an EU requirement. The statistical body of the EU, Eurostat, collates regional GVA from all member states, which is used in the allocation of Objective 1 structural funding. The structural funds account for approximately one-third of the EU budget.

Regional GVA(I) estimates are used by the UK government and the devolved administrations of Northern Ireland, Scotland and Wales to formulate and monitor economic policy and allocate resources.

These statistics are used in the compilation of business survey statistics in Northern Ireland. They are also used in the production of the Northern Ireland Composite Economic Index (NICEI) – a short-term output measure of the Northern Ireland economy that is used to inform the Economic Strategy and Northern Ireland Budget. The regional accounts estimates are also currently used in the development of experimental Supply and Use tables, which form an important basis for economic statistics for Northern Ireland.

The Scottish Government uses regional GVA estimates in the production of Supply and Use tables and other related economic statistics, including Quarterly National Accounts Scotland. Regional GVA per head is also used by the Scottish Government to monitor the relative economic performance of countries and regions over time.

Regional GVA estimates are one of the Welsh Government’s eight important indicators in measuring the Welsh economy.

The Department for Business, Energy and Industrial Strategy (BEIS) uses regional and sub-regional GVA estimates in monitoring regional economic performance.

Local authorities and regional observatories use these statistics to facilitate evidence-based policy making and economic intervention, for example, assisting Local Enterprise Partnership (LEP) applications and regional growth funding bids. These figures also provide local authorities with a context for their economic strategies and lobbying activities.

The GVA statistics inform the general public about the state of the economy and provide insight into the relative economic positions of local areas and issues such as the “north-south divide”.

The House of Commons Library produces a standard note about these statistics and they are frequently the subject of parliamentary questions raised by Members of Parliament.

Meeting future needs

A Regional Accounts Government User Group (RAGUG) is held biannually to discuss the needs of stakeholders in the devolved administrations and other government departments. At the last meeting of the group, held in January 2017, the following needs were raised as areas of interest:

• short-term indicators

• regional prices

• regional data showing the cost of living

Several users also expressed interest in having an increase in the level of component and industry breakdown available.

Reviews and changes

UK Regional Accounts were subject to an assessment by the UK Statistics Authority in 2011. The regional GVA(I) publication was awarded National Statistics status as a result of this review (143) and the actions taken following the recommendations of the review.

The UK, along with all other European Union member states, has begun a programme of work to introduce the changes to data and methods required by the new ESA2010. These changes are many and varied, and will be implemented in the UK National Accounts over a number of years. The UK Regional Accounts aim to implement any relevant changes (those requiring a different treatment to be implemented to allocate the national total across regions of the UK) in the first regional publication, following their introduction to the National Accounts. Information on the changes made due to ESA 2010 is included in the statistical bulletin.

The UK National Accounts have included for the first time in Blue Book 2016 the Crossrail business rates supplement (BRS). This is a tax on production that has been levied from April 2010. The tax is collected on behalf of the Greater London Authority (GLA) by the 32 London Boroughs and the City of London Corporation. This tax has been included in estimates of regional GVA(I) from December 2016. A regional indicator has been compiled using data published by the GLA of estimates of income from Crossrail BRS by London Boroughs.

UK National Accounts made a change to the treatment of Owner-Occupied Imputed Rental in Blue Book 2016. This had a large impact on the national figures for GVA, which has resulted in large changes to regional GVA(I) estimates.

Other changes

A change has been made to show subsidies on production separately. In previous releases, subsidies have been included in mixed income and profits, and allocated (that is, subtracted) from the profits of each of the sectors (households, public non-financial corporations and private non-financial corporations). In this release, each of the separate subsidies has been regionalised independently, in the same way that taxes on production are processed.

We have carried out a review of the way we measure the manufacture of coke and refined petroleum industry (SIC Sub-section CD) in regional GVA and have made some changes to improve consistency with the reality of the industry. A discrepancy was found between the conversion to SIC 2007 in GVA(I) compared with the production measure (GVA(P)), with the GVA(P) conversion found to be the better of the two. The GVA(I) series has been re-converted, bringing the two measures closer together. Alongside this, extensive industry research has been carried out to influence adjustments made to the raw data to reflect reality as accurately as possible.

In the December 2015 release, there was a change in the average house prices used to calculate the regional allocation of imputed rental of owner-occupied dwellings. The new data used median house prices from ONS instead of mean house prices, which reduces the impact of the most expensive houses and improves the consistency of estimates over time. The exception at the time was Northern Ireland: mean house prices were used for Northern Ireland as median house prices were unavailable. However, we have now been able to source median house price data for Northern Ireland consistent with the rest of the UK regions and countries. This has had an impact on GVA estimates for real estate activities (Standard Industrial Classification (SIC) 2007 Section L) in Northern Ireland.

Main data sources

The primary input datasets for the compilation of regional GVA(I) are listed in Table 1. They include administrative data and data from structural surveys. The data are acquired from both internal (ONS) and external sources.

Timeliness and punctuality

(Timeliness refers to the lapse of time between publication and the period to which the data refer. Punctuality refers to the gap between planned and actual publication dates.)

We currently publish estimates of regional GVA(I) at NUTS1, NUTS2 and NUTS3 levels annually in December. All estimates are constrained to the latest UK National Accounts Blue Book.

At NUTS1, NUTS2 and NUTS3 levels, estimates of the main variables (total GVA(I), GVA(I) per head and GVA(I) per head indices, growth in GVA(I) and GVA(I) per head, GVA(I) by industry) and nine components of income (CoE, MI, rental income, non-market capital consumption, holding gains, gross trading profits, gross trading surplus, taxes on production, and subsides on production) are published around 12 months after the end of the reference period.

The availability of datasets in the production process is a factor in the publication timetable. For example, HMRC self-assessment data usually becomes available at the end of October. The availability of balanced Blue Book UK totals dictates the provision of industrial estimates published 24 months after the reference period. As a result, the most recent year’s data (2015) have not been through the Supply and Use balancing process, so are subject to the income statistical discrepancy and are marked as provisional.

For more details on related releases, the UK National Statistics Publication Hub is available online and provides 12 months’ advance notice of release dates. In the unlikely event of a change to the pre-announced release schedule, public attention will be drawn to the change and the reasons for the change will be explained fully at the same time, as set out in the Code of Practice for Official Statistics.

The production of regional NUTS3 gross value added is a legal requirement of Eurostat.

A detailed description of the methodology used to compile regional GVA(I) estimates can be found in the Regional Accounts Methodology guide.

Regional GVA(I) estimates are produced at current basic prices and measured using the income approach. This involves adding up the income generated by individuals or corporations in the production of goods and services. It is calculated gross of deductions for consumption of fixed capital, which is the amount of fixed assets used up in the production process in any given period.

The main components of income-based GVA(I) are:

• compensation of employees

• gross operating surplus (the sum of self-employment income, gross trading profits and surpluses, non-market capital consumption, rental income less holding gains)

• taxes (less subsidies) incurred as a result of engaging in production, independently of the quantity or value of goods and services produced (for example, business rates)

The UK regional GVA(I) estimates are constrained to the latest published UK National Accounts Blue Book totals. The Blue Book is our annual publication of UK National Accounts.

Data sources used as regional indicators are collated, analysed and validated. Outliers are identified using graphical analysis and quality adjustments are assigned where necessary. Where appropriate, issues are referred back to the suppliers. The resulting validated datasets are then subject to a peer review process so that their effect can be assessed, prior to their inclusion in the compilation of GVA(I).

The remaining datasets are fed directly into the output production system following analysis and validation. The production system then creates “near final” output estimates (including published variables and components), which are submitted to peer reviewers for feedback, prior to the publication phase. Any changes resulting from this feedback are implemented via further production runs.

National totals

National aggregates (national control totals) for components are split and allocated to NUTS1 regions using appropriate regional indicators. The control totals are consistent with those in the latest published UK National Accounts. They are supplied to Regional Accounts branch by our National Accounts branches. Industry totals are obtained from UK Supply and Use tables (except for the latest unbalanced years, which are obtained from the output measure of gross domestic product (GDP(O)) published tables). These estimates are then revised in the following year’s publication.

The national aggregates are split and re-allocated to regions using the most appropriate regional indicator available. A top-down approach is used whereby the national total is allocated to the NUTS1 regions, then NUTS1 totals are split and allocated to NUTS2 sub-regions, and finally NUTS2 totals are split and allocated to the NUTS3 local areas.

Accuracy

(The degree of closeness between an estimate and the true value.)

All regional gross value added (GVA) estimates are constrained to the UK National Accounts Blue Book totals. Below the UK level, NUTS1 to NUTS3 estimates are constrained to sum to the UK totals.

As mentioned in the “How the output is created” section, national totals for GVA components (consistent with the latest Blue Book publication) are collated and allocated to regions using the most appropriate regional indicators. Consistency checks are built into the processing system to ensure that regional aggregates tally with national totals.

The main regional indicators are acquired from published administrative data and structural business surveys. These data are subject to a rigorous validation process that entails a peer review process and a mechanism for referral back to data suppliers where appropriate.

Sample sizes can vary. These variations are unavoidable in the collation of reliable time series data for the calculation of gross value added (income approach) (GVA(I)). Improvements in the GVA(I) methodology or changes in administrative source data allows for reviewing the available sources for higher quality datasets or more timely publications. This is an ad hoc and continuous process that does not include major revisions to the methodology of GVA(I).

The vast majority of source data are updated annually; however, some datasets are published biennially or on an ad hoc basis. These missing values are imputed, using other available information. As with sample size, potential improvements to the methodology are reviewed whenever new data become available or when significant changes to the source data affect the final values. Where no recent estimate is available, the previous year’s data may be used. It is important to note, however, that these issues are rare because of the completeness of the main source data.

The quality assurance process

Input datasets are compared to the data received for each variable in previous years’ deliveries. Large fluctuations against previous years are investigated using regional intelligence compiled within the branch, supplemented by information received from peer reviewers. Following this investigative procedure, any anomalous data that remain unexplained are followed up, where appropriate, with the relevant data providers for clarification.

The regional accounts team then make adjustments to the source datasets where necessary. These are discussed with the peer reviewers. The regional knowledge of these statisticians can help to explain or contest deviations from trend within their particular regions. The output variables for publication are subject to rigorous scrutiny, including looking at growth and shares, graphical depictions and comparisons with previous data. These data are then sent for peer review. Resulting queries are investigated and rectified where necessary. Feedback from this process is documented on the regional accounts database and any actions implemented within the results.

The regional accounts team have developed links with the peer reviewer network. This includes the devolved administrations of Northern Ireland, Scotland and Wales, Her Majesty’s Treasury (HMT), the Office for National Statistics (ONS) London regional presence stationed at the Greater London Authority (GLA), and an ONS regional economist. Regular dialogue has resulted in significant refinements to the peer review process. Regional intelligence is shared and we are able to keep peer reviewers informed of any significant developments.

A Regional Accounts Government User Group (RAGUG) was established in June 2014 and meets biannually. This group consists of experts from devolved administrations and government departments and the regional accounts production team. Its remit is to review the work of regional accounts production (including GVA production approach (GVA (P)) and gross disposable household income (GDHI)) and to offer feedback on our work and on future developments and improvements.

Revisions

The complex process by which the GVA estimates are produced means that it is not currently possible to define the accuracy of the estimates in terms of detailed statistical properties, for example, through their standard errors. Therefore, the reliability of the estimates is measured by the extent of revisions. UK estimates will be affected by revisions to the UK National Blue Book control totals, while revisions to NUTS1 and lower-level estimates will come from revisions to the data used to apportion the UK GVA(I) estimates and revisions to the Blue Book.

The Regional Accounts Revisions Policy mirrors that of UK National Accounts Blue Book, where national totals are subject to revision in “open” years. The whole time series is open to revisions from the Blue Book. In addition, revisions to the regional indicator datasets will impact upon the regional GVA estimates.

In UK National Accounts Blue Book 2016, the totals for national GVA by industry were revised as far back as 1997 and included methodological changes to meet the European Commission’s definition of gross national income and the new European System of Accounts (ESA 2010). These changes led to larger than usual revisions in the regional estimates, which are constrained to sum to the national figures. More information about these changes can be found in the “About the output” section of this article.

It is important to note that there are other aspects of accuracy, which revisions analysis cannot attempt to measure. A value can be reliable (as in, not revised) without being accurate.

Regional accounts also publish comprehensive revisions triangles for NUTS1, NUTS2 and NUTS3 estimates of regional GVA(I).

Coherence and comparability

(Coherence is the degree to which data that are derived from different sources or methods, but refer to the same topic, are similar. Comparability is the degree to which data can be compared over time and domain, for example, geographic level.)

Coherence

Estimates of approximate GVA are also published as part of the Annual Business Survey release. These estimates are used in the production of annual Supply and Use tables for the compilation of the UK gross domestic product (GDP). The ABS GVA estimates differ from the UK Regional Accounts estimates in a number of ways:

• UK Regional Accounts GVA(I) estimates are constrained to National Accounts Blue Book totals

• UK Regional Accounts GVA(I) estimates are analysed and produced as a time series

• ABS estimates represent the UK business economy, which is around two-thirds of the UK economy but excludes agriculture, public sector and financial sector

A paper has been published elaborating on these differences.

The Welsh Short-Term Indicators (WSTI) team is responsible for producing, on the behalf of the Welsh Government, quarterly estimates of Welsh market sector output growth. These estimates are presented as short-term output indices. Estimates are not currently produced for the agriculture, forestry and fishing, and the public administration, education and health sectors. These indicators at present cover 67% of the Welsh economy. The methodologies used for these indicators are different from those used to compile regional GVA. The main difference is that the WSTI are constant price indicators (deflated to remove the effects of price inflation) whereas regional GVA is a current price measure.

Alongside the GVA(I) publication, our regional accounts team publish experimental estimates of regional real gross value added, compiled using the production approach (GVA(P)). Estimates of both current price GVA(I) and constant price GVA(P) (deflated to remove the effect of inflation) were published in December 2016. Although conceptually identical, the different methods and data sources used to produce the GVA(I) and GVA(P) measures inevitably result in differences between the estimates. Where there is a marked difference between the current price GVA(I) and GVA(P) estimates, users are strongly advised to use the GVA(I) estimates. These are National Statistics and have satisfied the UK Statistics Authority requirements for quality and adherence to the National Statistics Code of Practice. The GVA(P) estimates are experimental and should therefore be considered less reliable. In the longer term, a regional GVA balancing project will consider the viability of producing a single balanced measure of regional GVA. We are committed to deliver estimates of real GVA growth rates to Eurostat from 2017, in accordance with EU legislation.

Comparability

GVA estimates published in December are available on a consistent basis at all NUTS levels back to 1997 on a Standard Industrial Classification (SIC) 2007 basis. Data are available to download on a SIC 2003 basis covering years 1989 to 2009. Prior to 1989, data are not comparable as they do not meet the European System of Accounts (ESA) 2007 or ESA 2003 accounting rules, resulting in conceptual and methodological differences.

Geographical boundaries have also changed meaning these figures cannot be compared with the current time series.

The production of regional GVA is a legal requirement under the European System of Accounts. The sub-regional (NUTS2) estimates are used to inform EU structural funding decisions. GDP is calculated in the currencies of the member states and converted initially into euros and then into an artificial common currency called the purchasing power standard (PPS). This makes it possible to compare the purchasing power of different national currencies.

The resulting GDP per inhabitant estimates (expressed in terms of PPS) provide a measure of the total economic activity in a region and may be used to monitor and compare the economic development of regions over time. Since international standards such as ESA 2010 are used in the production of the regional accounts, the figures should be directly comparable with the regional accounts of other EU countries. However, the revisions policies of these countries should be examined before comparing data for historic periods.

It should also be noted that the UK produces estimates of GVA using the income approach (along with Ireland). All other EU countries use the production approach. This is measured by calculating total production in the economy and the total costs of that production (except labour costs), and subtracting the latter from the former.

(Concepts and definitions describe the legislation governing the output, and a description of the classifications used in the output.)

Regional gross value added (GVA) is a legal requirement under EU law and supplied to Eurostat consistent with the standards set out in the European System of Accounts 2010 (ESA 2010). The sub-regional NUTS2 estimates are used to inform EU structural funding decisions. GVA income approach (I) estimates are produced at current prices, which do not allow for inflation.

From December 2011, regional GVA(I) estimates have been published using Standard Industrial Classification (SIC) 2007, in keeping with EU regulations.

The GVA(I) estimates cover the UK as a whole and are broken down to Nomenclature of Territorial Units for Statistics (NUTS) regions. NUTS are a hierarchical classification of spatial units that provides a breakdown of the EU’s territory for producing regional statistics, which are comparable across the EU. Regional GVA(I) estimates are compiled at three levels of NUTS geography:

• NUTS1: 12 regions – Wales, Scotland, Northern Ireland and nine English regions can be collectively referred to as regions, and there is a 13th region known as Extra-Regio, which accounts for economic activity that cannot be assigned to any specific region; for the UK this consists mainly of oil and gas extraction on the continental shelf and the activities of UK embassies and armed forces overseas

• NUTS2: 40 sub-regions – mainly groups of counties and unitary authorities

• NUTS3: 173 regions – principally individual counties and unitary authorities; also known as local areas

Output quality trade-offs

(Trade-offs is the extent to which different dimensions of quality are balanced against each other.)

Gross value added (GVA) provisional results are published 12 months after the reference period. The time lag between publication and the period to which the data refer is the minimum required to produce estimates of a high enough quality to meet all user needs. These results are revised 24 months after the reference period and can be considered more reliable in that they include balanced Blue Book figures, which were not available for the provisional release.

Further information on release dates can be found in the “Timeliness and punctuality” section of this article.

Assessment of user needs and perceptions

(The processes for finding out about uses and users, and their views on the statistical products.)

In July 2011, the UK Regional Accounts team met with Eurostat as part of a quality initiative aimed at encouraging harmonisation of compilation methods for regional statistics. Regional accounts have participated in a Eurostat Task Force of Member States, to develop a regional accounts methodology manual, which is now complete and published. The team regularly communicates with Eurostat.

The regional accounts team has developed links with the devolved administrations of Northern Ireland, Scotland and Wales, the Office for National Statistics (ONS) London regional presence stationed at the Greater London Authority (GLA), and an ONS economist. As previously mentioned, these are some of the main domestic users of the regional GVA statistics along with central and local government departments.

A Regional Accounts Government User Group (RAGUG) is held biannually to discuss the needs of stakeholders in the devolved administrations and other government departments. At the last meeting of the group, held in January 2017, interest in short-term indicators; regional prices; and regional data showing the cost of living were mentioned. Several users also expressed interest in having an increase in the level of component and industry breakdown available.

Accessibility and clarity

(Accessibility is the ease with which users are able to access the data, also reflecting the format in which the data are available and the availability of supporting information. Clarity refers to the quality and sufficiency of the release details, illustrations and accompanying advice.)

The Regional gross value added (income approach) (GVA(I)) statistical bulletin and the ONS Data Explorer tool make datasets available for download after 9.30am on the day of publication.

The Regional GVA(I) statistical bulletin conforms to the standards set out in the Code of Practice for Official Statistics for the protocol on release practices.

For queries on the regional GVA(I) series, compilation methods, quality information, or if you are experiencing difficulties in finding the latest figures, contact the regional GVA team by email at regionalaccounts@ons.gov.uk or by telephone on +44 (0)1633 456878.

Our recommended format for accessible content is a combination of HTML web pages for narrative, charts and graphs, with data being provided in usable formats such as CSV and Excel files. We also offer users the option to download the narrative in PDF format. In some instances other software may be used, or may be available on request. Available formats for content published on our website but not produced by us, or referenced on our website but stored elsewhere, may vary. For further information please contact us via email at regionalaccounts@ons.gov.uk.

More information regarding conditions of access to data is available:

• Terms and conditions (for data on our website)

• Copyright and reuse of published data

• Accessibility

Useful links

In addition to this quality and methodology information, basic quality information relevant to the GVA publication can be found in the Regional GVA(I) statistical bulletin.