NATIONAL AND SECTOR BALANCE SHEETS IN THE UNITED KINGDOM

Although national and sector balance sheets have long been regarded as part of the national accounting framework, for a variety of reasons their compilation by official statisticians has been the exception rather than the rule. A programme of balance sheet work in the United Kingdom Central Statistical Office has recently been completed and the results published. The theoretical and practical problems arising in the course of this work are described and discussed. Summary results are given together with an interpretation of the main changes in the sectoral composition of national wealth between 1957 and 1975.     

THE USES OF NATIONAL BALANCE SHEETS

The now urgent problem in the field is to translate into practice the theoretical agreement, slowly reached over the past two decades, on the need for and feasibility of sectorized national balance sheets.
The paper discusses the five main uses of national balance sheets, viz. (1) the study of the relations among assets and liabilities at one point of time in one country, particularly the position of financial institutions; (2) the analysis of changes in one country's financial structure between several balance sheet dates; (3) the comparison of balance sheet structure at one date among two or more countries; (4) the comparison of the financial development of several countries for at least two but usually more numerous balance sheet dates; and (5) the use of selected balance sheet items, e.g., reproducible tangible assets or liquid financial assets, in econometric models.
Examples are presented of the first three uses, viz. for (1) an eleven sector balance sheet matrix for the U.S. as of the end of 1962; for (2) an unsectored national balance sheet of the U.S. in 1900, 1912, 1929, 1939, 1945 and 1958; and for (3) a comparison of condensed unsectored national balance sheets for a dozen countries (USA, UK, France, Germany, Belgium, Norway, Italy, Japan, Israel, Mexico, India and the USSR) for a date in the neighborhood of 1960.     

CURRENT COST ACCOUNTING: IMPLICATIONS FOR THE DEFINITION AND MEASUREMENT OF CORPORATE INCOME

This paper is in 7 sections. Section 1 gives as background a chronological account of the steps taken in the United Kingdom, from 1974 to late 1977, towards the development of a new system of accounting in company reports which would allow for the effect of changing costs and prices on the measurement of profit and of capital employed in the business. Section 2 discusses the main features of the system, known as current cost accounting, as it is seen in the United Kingdom. Section 3 surveys the relationship between current cost accounting and the national income and expenditure statistics, and the likely implications of the introduction of current cost accounting upon the quality of macro-economic statistics, including estimates of national and sector balance sheets. Section 4 describes some of the problems of implementing current cost accounting, particularly in special situations, and outlines the solutions which were proposed in the "Exposure Draft" published in 1976 by the accountancy profession in the United Kingdom. Section 5 considers the definition of distributable profit in relation to the need to maintain capital, considering the concept of gain, the system of valuing assets and liabilities, and the enterprise's capacity to take on additional debt as a means of financing its assets. Section 6 briefly surveys the implications for taxation, price control and price setting. Section 7 concludes by surveying the scene at the end of 1977 and by looking at likely future developments.     

THE DISTRIBUTION OF PUBLIC EXPENDITURES AND TAXES AMONG HOUSEHOLDS IN THE UNITED KINGDOM*

This paper presents an analysis of the distributive impact of public expenditures and taxes in the United Kingdom. The analysis uses household level microdata from the 1971 Family Expenditure Survey, with tax and expenditure aggregates drawn from the national accounts. The analysis is the first to allocate all taxes and public expenditures for the United Kingdom, and the results are compared to those from the more restricted analyses carried out by the U.K. Central Statistical Office. Results are presented for individual taxes and benefits as well as for overall net benefits and they describe distributional effects with respect to income class, household size, number of earners and housing tenure. A final section of the paper compares the results to those from a similar analysis for the United States which were reported in the previous issue of this review.     

SURVEY OF COUNTRY PRACTICES IN COMPILING BALANCE-SHEET STATISTICS

From a survey of the 150 members of the United Nations it appears that only one country could at present provide the full range of balance-sheet statistics called for in the United Nations guidelines on this topic. Seven countries could compile balance sheets confined to conventional types of assets and liabilities–excluding assets like consumer durables and mineral deposits. A further 31 countries presently publish some statistics on certain balance sheet items, but as the data have generally not been collected with a view to constructing national balance sheets they tend to be deficient for such purposes both in coverage and valuation. In other countries only rather trivial kinds of balance-sheet data are available, such as certain banking statistics collected by the central monetary authority for purposes of bank regulation.
A review of sources and methods shows that for financial assets and liabilities extensive use is made of company accounts and enterprise surveys. The estate multiplier method is used in several countries for measuring household assets and net worth. As regards producers' fixed assets, countries with centrally-planned economies generally take direct surveys of assets, while in countries with market economies the perpetual inventory method is preferred.
It is noted that many of the purposes for which balance-sheet statistics are used can be adequately served without constructing a complete set of accounts. To date balance-sheet statistics have therefore tended to be developed in a piecemeal fashion with priority going to those parts of the accounts whose uses for economic analysis are most obvious. Chief among these are statistics on the financial assets and liabilities of corporate enterprises and statistics on the stock of producers' fixed assets. These two areas also predominate in countries' plans for the future development of balance-sheet statistics.     

Alternative Approaches to Commercial Property Price Indexes for Tokyo

The paper studies the problems associated with the construction of price indexes for commercial properties that could be used in the System of National Accounts. Property price indexes are required for the stocks of commercial properties in the balance sheets and related price indexes for the land and structure components of a commercial property are required in the balance sheet accounts for the calculation of the Multifactor Productivity of the Commercial Property Industry. The paper uses a variant of the builder's model that has been used to construct Residential Property Price Indexes. Geometric depreciation rates are estimated for commercial offices in Tokyo using assessment data for REIT. The problems associated with the decomposition of property value into land and structure components are addressed. The problems associated with depreciating capital expenditures on buildings and with measuring the loss of asset value due to early retirement of the structure are also addressed.     

THE ROLE OF FINANCIAL ACCOUNTS*

This paper reviews some of the ideas that have been expressed regarding the development of national financial accounts. It concludes that a consensus is emerging that a set of sector financing statements and balance sheets, based on a monetary survey and incorporating liquidity criteria, can contribute to the understanding of the operation of an economy.     

THE SOCIAL ACCOUNTS FROM A CONSUMER'S POINT OF VIEW

After a short introduction, the first part of this paper (section 3 through 9) provides an outline of the revisions proposed to the System of National Accounts (SNA) of the United Nations which are now under discussion. These proposals were considered by an expert group at the end of 1964 and were accepted by the Statistical Commission of the United Nations in 1965 as the basis for further work on the extension and revision of the SNA. The aim of the revision is to provide a fully integrated system of accounts and balance sheets in which input-output, flows-of-funds and sector balance sheets are incorporated in a generalised accounting framework. Whereas the real side of the economy has been studied analytically in many countries (input-output analysis, demand analysis and so on) much less experience is available on modelling the financial side of the economy, apart from econometric work on saving behaviour, which is fairly widespread. Accordingly, the second part of the paper (sections 10 through 14) contains a discussion of financial model-building in which a number of possibilities are explored. The final topic discussed (section 15) is demographic accounting, by which is meant a framework for recording and analysing human, as opposed to economic, flows and stocks. The development of such a system arose out of the emphasis placed by the expert group on the integration of demographic and economic information.     

THE ACCOUNTING TREATMENT OF HUMAN INVESTMENT AND CAPITAL

Defining investment as outlays that increase income- and output-producing capacity, the author presents estimates of human investment in the United States 1929–69, comprising rearing costs, education, training, health, safety and mobility outlays. He develops an economic accounting framework to accommodate human investments and research and development in national and sector capital accounts, with appropriate adjustments to the current accounts to provide consistency. The associated balance sheets and wealth statements are also developed.
The wealth and corresponding income estimates are used to compute rates of return on human, non-human, and total capital. In the business economy the average net rate of return on total capital was 10.6 percent in 1969, compared with 10.0 percent in 1929. The average and marginal rates of return on human capital were generally somewhat higher than on non-human capital throughout the period.     

Financial amplification of foreign exchange risk premia

Theories of financial frictions in international capital markets suggest that financial intermediaries' balance sheet constraints amplify fundamental shocks. We present empirical evidence for such theories by decomposing the U.S. dollar risk premium into components associated with macroeconomic fundamentals, and a component associated with financial intermediary balance sheets. Relative to the benchmark model with only macroeconomic state variables, balance sheets amplify the U.S. dollar risk premium. We discuss applications to financial stability monitoring.     

The economic and trade effects of the UK–Korea free trade agreement on the United Kingdom,Korea, Japan,China, and the European Union

We explored a comparative static computable general equilibrium model with six regions and 12 sectors to estimate the impacts of the recent UK–Korea free trade agreement (FTA) along with the European Union (EU)–Korea FTA. The empirical results provide quantitative evidence of the impact on national GDP, national exports and imports by sector, and the changes in exports or imports among the United Kingdom, Korea, Japan, China, and the EU. The UK–Korea FTA, along with the EU–Korea FTA, increases GDP and welfare for the United Kingdom and Korea; moreover, there is a large increase in automobiles, transport equipment, and machinery exports between Korea and the United Kingdom. The GDP and welfare level of non-member countries such as Japan and China will slightly decline. Exports from the United Kingdom and Korea to non-member countries are also expected to decrease in most manufacturing sectors. The UK–Korea FTA will lead to increases in imports between the United Kingdom and Korea due to mutual trade creation effects and trade diversion effects. However, non-member countries such as Japan's exports are expected to experience a large decline in automobiles to the United Kingdom and in most manufacturing products to Korea due to the negative impact of the UK–Korea FTA.     

THE ECONOMICS AND THE NONECONOMICS OF THE WORLD WAR INDUSTRY

The world war industry is defined as the part of human income-earning activity devoted to producing, maintaining, and sometimes utilizing means of destruction. Most of the industry consists of what is purchased with national states' military budgets, which are spent by unilateral national defense organizations. These organizations are basically noneconomical, in the sense that they do not have a balance sheet, do not show a "bottom line" or net worth, and therefore there is no way to estimate their profitability. They have economic aspects in terms of decisions that balance marginal benefits against marginal costs. The benefits, however, are mainly psychological in the minds of the decision makers. Wars of conquest, especially those resulting in empires, have not paid off very well for the conquering power. Military defeat often leads to cultural and economic development. Nuclear weapons and long-range missiles have made national defense essentially obsolete and the greatest enemy of national security. Military leaders may respond to this development as they recognize their traditional culture of courage, heroism, and fighting has been replaced by child roasting and perhaps universal destruction. There seem to be few economies of scale in the national state, and perhaps we should look forward to a world of 500 national states in stable peace with a very limited, functional world government.     

NEW ESTIMATES OF GROSS NATIONAL PRODUCT FOR THE UNITED KINGDOM 1830–1914

This paper presents a new annual series for United Kingdom gross national product, at current and constant prices, calculated from the expenditure side. These results differ significantly from previous estimates in that they go back to the beginning of the railway age on an annual basis and also in that the constant price estimates involve a detailed deflation of the main components of expenditure on consumption and capital formation. The implications of the new results are summarised, with particular reference to rates of growth and relative price changes, and an appendix describes the sources of the estimates.     

THE SIZE DISTRIBUTION OF PERSONAL WEALTH IN FRANCE (1977): A FIRST ATTEMPT AT THE ESTATE DUTY METHOD

This paper reports upon the first official application of the estate multiplier method of estimating the wealth distribution to French data. It is based upon a sample of estate duty returns filed during the period September-December 1977. The sampling rate was 5 percent for estates under one million francs, and 100 percent for estates over this level, giving a total of 5031 records. The data available did not permit a breakdown by type of asset. It did, however, permit classification of estates by age, sex, and occupation of decedent. Experiments were conducted using five different sets of mortality multipliers. The set of mortality multipliers judged most appropriate leads to an estimate of aggregate net wealth that is 77 percent of that given in the national balance sheet of the national accounts. Comparison of the distributions of wealth derived in these estimates suggest that the figures are consistent with those found in other countries.     

PERSONAL SECTOR WEALTH IN THE UNITED KINGDOM, 1920–56

In the United Kingdom there is a wide range of sources which make it possible to construct a series for components of personal wealth for the period 1920–56. The data are consistent with contemporary estimates produced for specific years in the 1920s and 1930s. They indicate that a stock-market boom and the effects of deflation and low interest rates on the nominal value of the national debt took the wealth/income ratio in the mid-1930s to a level not seen again until the housing boom of the 1980s.     

PUBLIC SECTOR STATISTICS FOR THE UNITED KINGDOM

This paper describes the composition of the public sector in the United Kingdom and traces the development and contribution to the economy of the three main sub-sectors-central government, local government and public corporations—over the past thirty years. Relevant data for output, employment, fixed capital formation and national wealth set the public sector into perspective with the economy as a whole and illustrate how its share of human and other resources has changed over the years. While all four measures show the public sector share of the total to have been around 30 percent in 1980, historically the changes have moved very differently. The slow, but fairly steady, increase in the share of employment and output contrasts with very marked changes in the other two measures. Although public sector fixed investment nearly doubled in real terms between 1950 and 1980 its share of total investment declined from 48 to 31 percent, a much smaller share being taken by dwellings, electricity supply and the railways. In terms of the share of national wealth the public sector moved from a state of indebtedness to the rest of the economy in the fifties and sixties to a position of holding nearly one third of the value of tangible and financial assets in the late seventies. A small part of the paper considers the international dimension, but because few other countries use the concept of a public sector, this section examines only the relationship between total tax revenue and GDP in a number of countries and employment in general government. The problems of determining the boundary of the public and private sectors occurs most frequently at the interface between public corporations and private enterprises; the rules for deciding classification are set out in so far as they can be specified. The last sections of the paper put the statistics into their policy context and consider the value of public sector aggregates. The conclusion is that a general case cannot be made to justify assembling public sector aggregates for all countries; the need will be determined by the economic policies being pursued in a particular country. Although the United Kingdom gives considerable prominence to a public sector financial aggregate, the Public Sector Borrowing Requirement, the functions of the public corporations and the rest of the public sector are so disparate that consolidated accounts for the public sector are no longer prepared.     

IMPACT OF THE MINIMUM WAGE ON THE INCIDENCE OF SECOND JOB HOLDING IN BRITAIN

The advent of any earnings boost, such as provided by the introduction of a minimum wage, might be expected to reduce the supply of low‐paid individuals wanting to hold a second job. This paper uses difference‐in‐differences estimation on a panel of individuals matched across successive Labour Force Surveys around the time of the introduction of the national minimum wage in the United Kingdom in order to estimate the impact of the minimum wage and its subsequent upratings on second job working. There is little evidence to suggest that the extra pay provided by the introduction of the minimum wage was sufficient to affect the incidence of second job holding significantly. However, hours worked in the main job by second job holders may have risen relative to those not covered by the minimum wage; and hours worked in second jobs may have fallen for those whose second job was initially below the minimum.     

SOCIAL INTERACTIONS AND THE DEMAND FOR SPORT: AN ECONOMIC ANALYSIS

This paper explores the decision to participate in sports activities in the United Kingdom and the subsequent frequency of participation. The paper draws links between economic and other theories of social interaction to motivate the discussion and links these theories to assessing policy initiatives in the United Kingdom. Cluster analysis is combined with a Heckman analysis to examine the empirical evidence provided by the General Household Survey in 2002. The results suggest that social and personal capital are of paramount importance in determining sports participation, and consequently, it is these features that policy should focus upon. However, the legitimacy of policy activism requires philosophical justification. ( JEL B41, C2, D11, D12)     

NATIONAL AND SECTOR BALANCE SHEETS IN CONCEPT AND IN PRACTICE

National and Sector Balance Sheets are playing an increasingly important role in economic analysis. This article reviews the actual and potential applications and considers whether there is a case for modifying SNA practice and recommendations to increase the value of the contribution that balance sheets can make to analytical work.
The major sections of the article relate respectively to financial and non-financial items in national and sector balance sheets. In the context of financial items, there is discussion of the perception of what constitutes an individual's total financial portfolio and therefore which items should be included or excluded when assessing the financial assets of the household sector (e.g. various forms of pension entitlement and life assurance). The relevance of marketability is considered as is the possibility of attempting to identify a separate domestic households sub-sector. The other main topic considered in relation to financial balance sheets is the relevance of adopting a single approach to valuation; alternatives are considered in relation to the stock of public sector debt.
So far as non-financial assets are concerned, difficulties arise with the national accounting practice of treating the acquisition of consumer durables and military assets as current expenditure. While it is considered, on balance, best to continue to treat the purchase of consumer durables as current expenditure, though recording the value of the stock of durables outside the main body of balance sheets, it is recommended that "non-fighting" assets such as transport ships and aircraft and hospitals should be treated as capital assets. The treatment of sub-soil assets and the valuation of fixed assets is also discussed.
Reconciling balance sheets with flows data is an essential step if balance sheets are to be fully exploited; some comments are offered on the UN guidelines on this topic.