UK to start using VAT returns to measure GDP

Britain’s official statistics on economic growth will become more accurate and less volatile next year, according to the Office for National Statistics, which plans to start using data from VAT returns to augment its existing methods at the end of this year.

In the last release of gross domestic product figures of 2017 just before Christmas, the statistics agency will implement the first use of turnover data from tax data in the national accounts to give a better picture of the fortunes of different industries.

So long as this innovative use of tax data is successful, the statisticians plan to use it to publish much more detail about economic performance within the nations and regions of the UK and between sectors in the near future.

Nearing the end of a long project to acquire the permission to use data from VAT and then from income tax records in the national accounts, statisticians at their base in Newport, South Wales, see this as part of their drive to get on to the “front foot” in the race to describe the UK economy, following a critical report into UK official statistics undertaken by Sir Charlie Bean in 2016.

Since the report urged a greater co-operation between ONS and HMRC, they have been working to understand and iron out the different messages on economic performance they have received from tax records compared with their traditional paper-based compulsory business surveys.

One of the problems they have faced is that the level of value added tax in small sectors of the economy appears to be different when measured directly in their traditional surveys compared with when statisticians look at the data passed to them from HM Revenue & Customs from quarterly VAT returns.

Because the statisticians talk directly to the largest UK companies to help them fill in the existing monthly business surveys, they propose to keep using traditional methods for big firms, but for smaller companies augment the existing data on the level of value added with information from VAT returns on how much turnover has changed over the past year. There, the data appears much more consistent between the two methods.

In shadow running of new systems, the VAT data gives far better coverage and much larger samples, which will help smooth out some of the monthly and quarterly volatility in the current national accounts, particularly for small companies.

Jonathan Athow, the deputy national statistician for economic statistics, says that genuine economic volatility, such as the increase in retail sales seen in unusually hot months, will continue to be seen in the data, but otherwise it should be smoother from next year.

“There are [currently] movements in the data simply from sample rotation,” he said, pledging the use of VAT data would eliminate this irritation.

The initial release of GDP figures would continue to be based on traditional methods of surveys because the full VAT data are not yet sufficiently timely to change those practices, but two months after the end of the quarter, the data will augmented with tax records, which the ONS hopes will also limit the size of subsequent revisions.

But Mr Athow is clear that the use of VAT is “a test case”. If the statisticians think the data looks weird as it comes in, they can switch off the procedure for any industry. If, as they expect, it improves the data they will extend the use of VAT information to help bring more timely officials figures for household expenditure and sectoral information within regions.

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