What we found
ES.1 ONS is one of a few National Statistical Institutes (NSIs) that produces estimates of Profitability and Gross Operating Surplus (GOS) directly. Many countries implicitly produce GOS data as a residual balancing item of the Gross Domestic Product (GDP) income components. The countries that explicitly compile annual estimates use both administrative sources and survey data on company profits (to ensure coherence of results), with a series of adjustments to align such estimates to National Accounts concepts. The challenge of finding reliable and timely data sources to estimate Profitability and GOS statistics means that few NSIs produce quarterly estimates of these statistics using data inputs. Users told us they relied on ONS’s quarterly GOS estimates to forecast fiscal and monetary policies.
ES.2 ONS needs to work with data suppliers to understand the quality of data sources used to compile Profitability and GOS estimates. ONS uses many data sources to adjust the administrative data sources and some of these adjustments have remained unchanged since 2010, despite changes to tax rules over the years. Except for HM Revenue and Customs (HMRC), ONS does not have regular or direct contact with its non-ONS data suppliers, indeed for some sources, data are taken directly from a website. Therefore, ONS has little information on how these data sources are quality-assured when they are compiled and this has led some users to question the quality of the statistics. During our review ONS reached out to HMRC to better understand how it adjusts gross trading profits data.
ES.3 We found that the production processes don’t facilitate sufficient interaction between suppliers and end users of the data. For example, several data suppliers we spoke to within ONS were not fully aware of the source of their data or that their outputs were being used to compile estimates of Profitability and GOS. To help with this, the production team would like to bring in technical expertise to review the system and processes and we support this view.
ES.4 ONS must better document quality information and communicate quality information to users. Users we spoke to were not sure about the concepts, sources and methods used in the production of the statistics, or the adjustments that were applied to GOS estimates as part of producing the statistics. During our review, ONS updated the Quality, Methods and Information report on the Profitability of UK companies (November 2023). Additionally, ONS published annual GOS growth rates including and excluding balancing adjustments, which supports users in making well-informed decisions when using the statistics. This is a positive first step in communicating quality information, but ONS should go further still, for example by explaining the wide variety of adjustments and quality assurance carried out on Profitability and GOS estimates and their impact on final GOS estimates.
ES.5 ONS should ensure sufficient knowledge transfer and documentation to ensure business continuity is maintained to minimise the risk of loss of intelligence. In doing so, ONS should improve the resilience and knowledge management of the team and support staff to develop a strong understanding of the statistics they are producing. Meeting the significant demands of ONS National Accounts quarterly production cycles, coupled with a loss of experienced and knowledgeable staff, has resulted in gaps in the GOS statistics team’s understanding of the quality of source data and system processes carried out to produce the statistics.
ES.6 ONS should engage with users outside of ONS to better understand their needs. Users expressed a need for more-granular industry breakdowns of GOS, similar to those published in ONS Supply and Use tables and Capital stocks and fixed capital consumption Users would also benefit from whole economy estimates of GOS and mixed-income industry breakdowns that ONS supplies to the Organisation for Economic Co-operation and Development (OECD). Some users told us they purchase data from private databases, which use company account information from Companies House. Whilst ONS is aware that some users have demands for additional products that cannot currently be offered by ONS, ONS must be transparent and clear with users, so users understand the reasons why their needs cannot be met.
ES.7 We have identified five requirements for ONS to fulfil to improve the quality of the statistics to the standards required by the Code of Practice. In order to assure users that action is being taken to improve the quality of the statistics ONS should publish a development plan by January 2024 that includes short-term, medium-term and long-term priorities for improving the statistics. To enhance transparency and provide sufficient reassurance to users about its understanding of the sources and methods used to produce the statistics, ONS should make significant progress on requirements 1, 2 and 3 by June 2024. ONS should complete these recommendations and carry out the remaining improvements (requirements 4 and 5) by December 2024.
List of Requirements
To improve the quality of the statistics, ONS should ensure that it has a good understanding of the quality of the data used to produce the statistics and focus on establishing good relationships with data suppliers. ONS should use our Quality Assurance of Administrative Data (QAAD) guidance to help with its understanding of the data sources and methods used to produce the statistics. To reassure users on the quality of the statistics, ONS should communicate to users its findings on the quality of the data sources and publish these.
As part of improving the quality assurance of the statistics, ONS should ensure that production processes facilitate sufficient interaction and information sharing on source data quality. ONS should review its production processes and identify how it can accommodate changes such as incorporating new data sources and processes or changes in users’ needs.
To enable all users to make well-informed decisions on the use of Profitability and GOS statistics, ONS should better document quality information and communicate to users: the methods and data sources used; any limitations and uncertainties in the statistics; and quantification and explanation of revisions.
To reassure users on the quality of the statistics, ONS should demonstrate to users that staff have a strong understanding of data sources, methods, production processes and how the statistics align with users’ needs. In doing so, ONS should review its knowledge transfer process and support business continuity during staff changes, so ONS is reassured staff can respond confidently to users’ queries.
ONS should engage with users of these statistics and seek regular feedback to better understand their requirements and the extent to which the current statistics meet their needs. ONS should use the findings from this ongoing engagement to develop these statistics so that they meet as many key users’ needs as possible. Where users’ needs cannot be met ONS should be transparent about the reasons for the decisions made and any constraints.