The Scottish Government

UK position

In December 2003, the National Statistician asked Sir Tony Atkinson to undertake a review to advance methodologies for the measurement of government output, productivity and associated price indices in the context of the UK National Accounts. The full terms of reference of the review recognise: the full scope of government outputs; difference 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 of National Statistics (ONS); and the appropriate measures of inputs, including quality and the distinction between resource and capital, so that, together with the measure of output, light can be thrown on developments in government productivity.

Sir Tony was asked to produce an interim report, which was published in July 2004, and a final report by January 2005. The interim report is available using the following link: http://www.statistics.gov.uk/about/methodology-by-theme/atkinson/downloads/atkinson.pdf

The review is important. Government output is a significant element of GDP, accounting for over 20% of GDP in both Scotland and the UK. Measuring this accurately, within the national accounting framework, is therefore an important element in the process of measuring the performance of the economy as a whole. Also, it focuses on establishing a clear and transparent relationship between inputs, outputs and productivity and therefore will assist our understanding of productivity in public services. The review is primarily concerned with establishing sensible indicators of government output that can form part of the national accounts, not systems for auditing government activity.

The report proposes a set of 8 principles to govern the development of the measurement of Government output and productivity, in line with international conventions. The 8 principles are:

Principle A: the objective should be to measure output from government spending in terms of its incremental contribution to individual or collective welfare, in the same way as market output.

Principle B: the procedure of defining direct output indicators within a government function should start by seeking to identify the services provided by government to households and firms, and attempts made to find data to reflect these services as comprehensively as possible (rather than working back from available indicators). Where, initially, it is necessary to apply an indicator from another service, this should be explicit. The coverage of indicators within a function should be reassessed on a regular basis.

Principle C: formal criteria should be set in place for the further extension of direct output measures. Specifically, the conditions for introducing a new directly measured output indicator should be that (i) it covers adequately the full range of services for that functional area, (ii) it makes allowance for quality change, (iii) the effects of its introduction has been tested service by service and (iv) the context in which they will be published has been fully assessed, in particular the implied productivity estimate.

Principle D: measures should cover the whole of the United Kingdom; where systems for delivering public services and/or data collection differ across the different countries of the United Kingdom, it is necessary to reflect this variation in the choice of indicators.

Principle E: the measurement of inputs should be as comprehensive as possible, and in particular, should include capital services; consideration should be given to the split between current and capital spending.

Principle F: criteria should be established for the quality of price deflators to be applied to the input spending series; they should be sufficiently disaggregated to take account of changes in the mix of inputs and should reflect full and actual costs.

Principle G: independent corroborative evidence should be sought on government productivity, as part of a process of 'triangulation', taking account of the timing of inputs and outputs.

Principle H: value should be seen as adjusted for quality; for each service, explicit consideration should be given to the incorporation of quality change as an element of value added; for each spending function, consideration should be given to the extent to which quality change is captured by the changing activity mix, and to the way in which output measures for government should be adjusted for increased real value in an economy with rising real GDP.

Position in Scotland

The review covers productivity measures for the UK as a whole. The overall indicators for the UK will be built up from data provided by various Whitehall departments together with the devolved administrations. Principle D is of particular interest. In Scotland, we shall be considering how best to reflect our own input and output measures in a way that both makes sense to us and fits the UK framework. Careful consideration will be necessary where services are provided in different ways - for instance, we have a very different education system.

Particular methodological issues that we will need to address include: consistent definitions of inputs and outputs (where possible); treatment of quality improvements as part of an output measure, which is important; and where systems for delivering public services and/or data collection differ, how we reflect this variation in the choice of indicators.

At present, in terms of measuring output, Gross Value Added (GVA) in the public sector in Scotland is estimated using employment data as a proxy. To date, this has been considered to be a reasonable proxy for GVA in this sector as the main components of GVA are compensation of employees and operating surplus. This does not mirror the methodology used in the UK where a combination of employment and output indices are used. Work will be carried out to assess whether alternative measures can be used for Scotland as part of our response to this report.