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53 RECOMMENDATIONS TO IMPROVE MEASUREMENT OF PUBLIC SERVICES OUTPUT AND PRODUCTIVITY

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LEN COOK WELCOMES ATKINSON REVIEW FINAL REPORT AND OUTLINES THE WAY FORWARD...
LEN COOK WELCOMES ATKINSON REVIEW FINAL REPORT AND OUTLINES THE WAY FORWARD

National statistician Len Cook has welcomed the final report of

the Review of the Measurement of Government Output and Productivity

for the National Accounts. He said:

'I am very grateful to Sir Tony Atkinson for his report, published

today. Like the interim report in July, it explains complex technical

issues with great lucidity, grounded on economic principles and

international guidance. It is a major contribution in its field, both

domestically and internationally, and will be widely regarded as

such.'

Mr Cook went on to say that it was already clear that a critically

important agenda lay ahead:

'The recent discussion on measures of public sector activity, and the

conclusions of this report, confirm my own view that key statistics

that measure public sector activity have a sensitivity in public life

in the UK that is comparable with that of the retail prices index. I

want to provide an outline of what actions the report will lead to,

and I hope this note will provide an indication of the broad

direction I expect that it will take.

'I am already clear that the broad way forward that Sir Tony Atkinson

recommends, with the cautious approach he has advised, is the right

one. The way ahead is to build carefully and steadily on the first

generation methods ONS has already put in place. I want to begin now

to meet the challenge posed by Sir Tony Atkinson's report, but I

recognise the breadth of engagement and collaboration necessary to

advance with the caution needed.

'To provide a way of both concentrating and delineating our work in

this sensitive area, we will create a new UK centre for the

measurement of government activity within the Office for National

Statistics. It will work to coordinate and drive forward the work

that is now needed, in combination with experts in government

departments and public services in all of the countries of the United

Kingdom, and with experts outside government.

'We are seeking to have the centre become one of a few European Union

centres of excellence on statistical matters, so that the wider

interests of EU statistics are recognised, as well as the pooling of

expertise on an issue all the countries share concerns about.

'This report reinforces the international guidance on national

accounting, maintained and promulgated by the United Nations, OECD,

Eurostat, the IMF and the World Bank, by making much more transparent

the current limitations in practice, method and concepts with which

we work. These need to be resolved, in order for the UK to meet the

international obligations we face, especially the requirements

embodied in the European Commission Decision of 17 December 2002.

'I fully agree that it is essential that the work that this report

inspires for the UK National Accounts methodology in respect of

public services has to remain firmly within this international

guidance on national accounting. Indeed, much of the new thinking

will need to build its credibility through application in other

statistics, such as satellite accounts, before being incorporated in

the National Accounts themselves.

'Confidence in the condition of the UK economy rests in part on a

variety of decisions taken in monetary policy by the Bank of England,

in money and commodity markets, and by global investors, in response

to what the National Accounts tell us. It is essential for the

National Accounts of the UK and for the international framework for

national accounts, that they retain their authoritative status and

wide acceptance.

'I would always want to reinforce Sir Tony Atkinson's emphasis, in

chapter 7 of his report and elsewhere, on the need for proposed

changes to methodologies not only to be conceptually well based, but

also to be implemented carefully and transparently, and only after

rigorous scrutiny.

'The report was initiated by me. I did so because of my concern that

there were a variety of constraints on the level of analysis that we

could draw from the National Accounts about government activity.

Constraints on the availability of relevant information and access to

it, perceived limitations in existing methods, and the absence of an

international or EU consensus about the application of practices that

would be needed to meet our obligations under the European Commission

Decision of 17 December 2002, had become particularly important.

'In his report, Sir Tony Atkinson has amplified and enriched our

understanding of those concerns, and has set out a context for them.

It has not only outlined the scale of activity, and a path for their

resolution, but the review process itself has generated solutions

that have had immediate application. We have a path to extend

continually the quality, range and depth of analysis of sector

specific measures of government activity, and to demonstrate their

relationship with other published measures.

'The National Accounts can never give a fully comprehensive and

detailed account of government performance, neither in aggregate, nor

for individual sectors and institutions. A comprehensive and detailed

assessment of public sector performance would have to include many

facets that will never be included in how the national accounts

measure the activity of government.

'Any comprehensive and detailed account would in practice include

information which is essentially both managerial in nature, and

reflects aspects of targets and commitments of ministers. These are

never likely to be embraced in international frameworks such as

national accounts, which have to meet conflicting needs of

international comparability and national relevance.

'Critical in delineating the current boundary between what the

national accounts measure in practice and what they should measure in

theory, and the scope of any comprehensive account of public sector

performance, is an ongoing assessment of the change in quality of

government services, in either direction.

'Sir Tony Atkinson's report has enriched our understanding of the

various forms of quality change, enabling us to better understand and

anticipate the tensions between policy and methodology. We face very

different issues in methods, and of confidence in the selection of

methods, when we consider quality change involving individual

services, from when we assess the impact of changes in several

services on the quality of outcomes experienced by the public. We are

now more able to plan and explain changes in the first; in the

latter, we will need first to proceed outside of the National

Accounts.

'It has long been the practice that statistical experts, in the light

of the international guidance, resolve decisions regarding technical

issues in the National Accounts. Accordingly, it is my responsibility

as national statistician to uphold the continuing integrity and

acceptance of the National Accounts. That is a fundamental duty

applying across the accounts as a whole.

'However, it is clear that the methodology and statistics relating to

the public services are of such sensitivity that some additional

means are needed to underline and buttress their integrity. It is my

job to establish these, with the appropriate consultation in doing

so.

'To that end, I have already announced, in my letter of 21 December

2004 to David Rhind, the chairman of the Statistics

Commission, the procedure I intend to adopt in respect of this year's

Blue Book, consistent with the National Statistics Code of Practice:

* Where changes are proposed which amount to incremental improvements

to existing methodologies, they will be subjected to ONS's normal

rigorous quality assurance process. Proposals that pass the quality

assurance process will be published with full details of the

methodologies and the associated data. The National Accounts

themselves, however, will be changed only at the time of the

publication of the annual Blue Book, in the summer, in accordance

with normal procedures. The sort of changes that would be considered

in this way for the Blue Book of 2005, released in June 2005, are at

most likely to involve the list given. I have today written again

to Professor Rhind with further information and details.

* Proposed improvements which represent more radical changes to the

current methodologies will be treated under a different procedure. In

such cases, I would expect the proposals to be published so that they

can be subjected to public scrutiny and expert debate. Only after

this would proposals, amended as necessary in the light of that

debate, be put to the normal quality assurance process. If and as

appropriate, such changes could then be incorporated into the

National Accounts at the time of future Blue Books.

'In addition, to enhance my capacity to discharge my responsibilities

to decide on complex and/or contentious issues relating to the public

services, I will be appointing a professional advisory board

consisting of acknowledged experts of the first rank, alongside the

leading national accounts experts already preparing UK National

Accounts. The advisory board will give the new ONS Centre on the

Measurement of Government Activity support from expertise of the

highest professional calibre. It will be able to offer challenge and

guidance in what is both a technically difficult and politically

sensitive area.

'I will also be considering whether there are other ways in which my

own independent assurance can be enhanced so that the confidence in

the integrity and professional basis of methodological choices that

exists in other areas of the work of ONS is seen by all major

interest groups as continuing in this more politically sensitive

area.'

BACKGROUND NOTES

1. The Atkinson Review was commissioned by the National Statistician

in December 2003. Its terms of reference were published in an ONS

Press Notice of 4 December 2003.

2. These include a requirement to publish an interim report in July

2004 (actually published 19 July 2004) and a Final Report in January

2005. Sir Tony's report published today meets that requirement.

3. The review was commissioned by the National Statistician, as a

professional matter, not by the government. Sir Tony's report is

accordingly addressed to the National Statistician and it is

similarly for him to respond to it.

4. Sir Tony's report sets out the principles he recommends should

underpin future work in the measurement of government output and

productivity. It makes specific proposals for improving ONS output

measures in health, education, public order and safety and social

protection. It also recommends broad approaches for developing the

measurement of the output of public services which will improve the

accuracy, coverage and interpretation of figures, with publication of

methods and figures to ensure transparency and debate on ways of

achieving further improvements.

5. Len Cook wrote to Professor David Rhind on 21 December 2004

setting out the procedure he intended to adopt in respect of this

year's Blue Book. Mr Cook has written to Professor Rhind again today

with further details. These letters are available at

http:www.statistics.gov.uk/about/other_letters/default.asp.

6. Joe Grice, deputy head of the government economic service and

executive director of the Atkinson review team, will be the executive

director in ONS of the new Centre for the Measurement of Government

Activity.

ATKINSON REPORT ON MEASURING GOVERNMENT OUTPUT AND PRODUCTIVITY PUBLISHED TODAY

'Public accountability requires measures of what is achieved by

spending on public services', Sir Tony Atkinson said today,

publishing his independent report on measurement of public services

output and productivity. 'We cannot simply assume that outputs equal

inputs in such a major part of the economy. ONS has taken the right

route, but needs to develop further, under a principled framework.'

The report, commissioned by national statistician, Len Cook in

December 2003, makes 54 recommendations on how to improve the

measurement of public services output and productivity, which is a

fifth of total GDP. These include nine principles to provide the

framework for methods to measure public services.

Sir Tony stressed the importance of a principled approach to

measurement of output and productivity in this sensitive and

important area. 'In that way', he said, 'we can take a coherent

approach to the difficult methodological issues involved, while at

the same time providing a defence against unwarranted political

intrusion into technical measurement issues. Many of our

recommendations set out a clear process for documentation, expert

review and transparency, so that development work is made public and

the limits of official measures are clearly understood.'

Sir Tony said: 'The method of measuring government output can make a

considerable difference to the recorded growth rate of the economy.

The UK growth rate 1995 - 2003 would have been about 1/4% a year

higher if the old input method had been used, and this would have

halved the gap between the UK and the USA - who don't use output

measures. But the UK methods are better - we don't capture the value

of services to people who use them if we only count what is spent.'

Sir Tony commented on key points from the Report:

'The traditional Output=Input convention, from which ONS has properly

moved forward in recent years, does not capture the complex workings

of the public sector and the UK cannot return to using this

convention. We have also set out the shortcomings in current input

measures and recommended improvements. We want senior officials to

understand the importance for the National Accounts of accurate

measures of public spending.

'Direct measures of output should be used. There is an intrinsic case

based on public accountability for seeking to measure what is

achieved by spending on public services. We cannot simply assume that

outputs equal inputs in such a major part of the economy. To fail to

measure the output would be to miss the essential complementarity

between public services and private economic growth.

'There is a need for major improvements in indicators used to measure

public service outputs. Current indicators have been too limited in

their coverage of activities, have been aggregated at too high a

level and have often used data from England, not the whole United

Kingdom. In some cases they have been misclassified or affected by

changes in the machinery of government. They often use information

with a substantial time lag.

'Measurement of government output, should, as far as is possible,

follow methodology parallel to that appropriate for the private

sector. In essence, what we are trying to measure is the same for

both sectors.

'The measurement of quality is central to our concerns. We are firmly

of the view that measures of output growth should take account of

quality change. Quality has many dimensions, and some will prove

elusive, but there are several possible ways forward. If quality

adjustments cannot be comprehensive, they should be representative of

the range of dimensions. This will not always be straightforward and

may take some time.

'Productivity change is extremely complicated to measure. No single

number, however carefully constructed, can fully capture the

performance of complex public services with multiple objectives.

Productivity change should be interpreted in the light of a range of

other information - the triangulation principle.

'This review is part of a dynamic process. We fully support the

significant revisions to the health indicators carried out by ONS in

June 2004, and work is well under way in other fields. While our

remit was for the UK, we strongly urge joint learning and development

with other countries, to underpin international comparability of

economic statistics.

'We urge ONS and departments to be transparent, engaging the

substantial expertise of academic and regulatory bodies, and others

with a legitimate interest. It would be highly regrettable if

objective study of a matter of public importance were to be inhibited

by misunderstanding and public criticism of figures that are clearly

interim.'

Sir Tony's report also includes specific recommendations for the way

forward in the key areas of health, education, social protection, and

public order & safety. In each case, these build on work currently in

progress and on what has been achieved so far. Main proposals are:

Health

* Better measures for primary care

* Movement towards measuring whole courses of treatment

* Ideas for measuring quality change in health care

Education

* Measure pupil attendance not pupil numbers

* Update the quality measure for schools as an interim measure

* Develop new extended quality measure, which might include measuring

the value of education through increased earnings

* New measures for output of initial teacher training and publicly

funded nursery places

Public order and safety

* More detailed measures for the criminal justice system, with

possible quality adjustment to reduce the value accorded to

overcrowded prison cells

* Measure fire output on basis of weights which reflect the cost to

the community of fire

* Further development of measures of the output of the criminal

justice system as a whole

Social Protection

* Wider and more detailed coverage in the measure of adult social

services output

* Extension of the children's social services output measure

* Development work on quality adjustments for social services

* Update the index for social security administration, including

adjustment for accuracy and timeliness

Background Notes

1. The independent review of the measurement of government output in

the National Accounts was commissioned by National Statistician, Len

Cook, in December 2003, with a final report to be produced by the end

of January 2005. An interim report was published on 19 July 2004.

2. The terms of reference of the review set out by the National

Statistician were:

'To advance methodologies for the measurement of government output,

productivity and associated price indices in the context of the

National Accounts, recognising:

* the full scope of government outputs;

* differences in the nature and quality of these outputs over time;

* the relationship between government outputs and social outcomes;

* the need for comparability with measures of private sector

services' output and costs;

* the existing work of the Office for National Statistics (ONS); and

* the appropriate measurement of inputs, including quality and the

distinction between resource and capital, so that, together with the

measurement of output, light can be thrown on developments in

government productivity.'

3. Sir Tony Atkinson has been Warden of Nuffield College Oxford since

1994. Previously he was Professor of Economics successively at Essex

University, University College London, the London School of Economics

and Cambridge University. His main research interests are welfare and

public economics on which he has published extensively. He served as

a member of the Royal Commission on the Distribution of Income and

Wealth, the Pension Law Review Committee, and the Social Justice

Commission. He was a member of the Retail Prices Index Advisory

Committee between 1984 and 1990.

4. Sir Tony has been supported by a team of staff from the ONS, the

Treasury, Department of Health and the Bank of England, directed by

Joe Grice, Deputy Head of the Government Economic Service, and Aileen

Simkins of the Department of Health. The team consulted extensively

with ONS National Accounts Group and worked with officials in the

spending Departments, Devolved Administrations, and the Treasury. The

review team also consulted international statistical bodies, other

national statistical offices who are working actively on measurement

of public service outputs for national accounts, and with a wide

range of other experts and stakeholders.

5. The Final report benefited extensively from comments received on

the Interim Report published in July.

6. International guidelines on the measurement of government output

are set out in the United Nations System of National Accounts (SNA)

and the European System of Accounts (ESA). This review will

consolidate the UK's position at the forefront of government output

measurement, and its conclusions will influence the future shape of

the SNA and ESA.

7. Announcing the review on 4 December 2003 [ref], National

Statistician Len Cook, said:

'The UK is a world leader in the measurement of government output. It

is one of very few countries to follow best practice as set out in

international guidelines. In 1998 we began the task of measuring

output directly, rather than from the amount of money spent on

producing it, that is from the inputs. The review will take this work

forward taking account of changes in economic and social structures,

technology, institutional arrangements and analytical techniques that

have taken place in recent years.

'Since 1998, the amount of resources allocated to public services has

increased. Delivery and management mechanisms have developed and are

more complex. There is an increasing emphasis on the quality of

service for the customer. As a result there are greater demands on,

and expectations of, measures of government output. This is reflected

in increased interest in government performance indicators more

generally.

'It is essential that National Accounts measures keep up with these

developments and that the UK continues to be at the forefront of

measurement issues. I am delighted that Tony Atkinson, one of the

world's leading economists, has agreed to help us do this and

establish the future strategic direction for statistics in this

area.'

The full text of the announcement can be found at

www.statistics.gov.uk/pdfdir/nsr1203.pdf

Press release from the Scottish Executive follows:

The final report of the Atkinson Review examining the measurement of government output and productivity was published today.

Public service reform minister Tom McCabe said it will make a significant contribution to the accurate measurement of public sector productivity in the UK and Scotland where the Executive participated fully.

Mr McCabe said:

'The Executive is committed to improving the delivery of public services and ensuring we spend taxpayers' money wisely.

'We are already making progress in measuring what we and the wider public sector do and this process will continue with our Efficient Government initiative.

'This report will undoubtedly make a significant contribution to the measurement of public sector output and productivity in the UK. The Scottish Executive has been working closely with Sir Tony and his team throughout the whole review process and this features in his final report.

'It is important we play a full part in this work that is going on at the UK level. The UK National Accounts should fully reflect activity the Executive is undertaking here in Scotland and we will continue to work with the Office of National Statistics to ensure that happens.

'Drawing on this work, we will aim to introduce enhanced measures of public sector activity specifically for Scotland. I completely support the view of the report that any statistical methods we use have to be robust and implemented in a transparent way after rigorous scrutiny.'

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