F Missing Trader Intra-Community Fraud

In document "Last quarter’s GDP growth rate revised up by O 3pp": a typical revision? (Page 70-72)

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disaggregated by commodity and country of origin. This was quite a different matter. I judged at that time that in order to avoid creating uncertainty, we would not make any public comment until we were in a position to quantify the impact of the fraud on all the key statistics affected. The Protocol on Release Practices states that “for market sensitive statistics the process of release of revisions, must not itself create uncertainty”. For the same reason I decided not to pre-announce our intention to make the revisions.

By early 2003 we had identified a possible method for estimating the impact of the fraud and in April actual estimates of sufficient quality were available. Given the magnitude of the sums involved, I regarded it as essential to ensure that the methodology, and resulting estimates were subjected to rigorous quality assurance. This involved not only assessing the methodology and estimates in their own right, but evaluating the estimates against other data as a coherence test. This latter process involved assessing the estimates in a wider National Accounts context. The estimates, published today, are still subject to uncertainty, but I am satisfied that they are fit for purpose.

As required by the Release Practices and Revisions Protocols, the revisions have been published as soon as possible consistent with not creating uncertainty for these market sensitive statistics. This latter consideration led me to decide not to publish estimates of the impact on imports without at the same time also giving some quantitative indication of the effect on GDP. Given the magnitudes involved, it was not possible to do that without drawing on the ONS’s annual Supply and Use analysis which was not completed until towards the end of June. The Supply and Use analysis is an integral part of the production of each year’s Blue Book estimates of national income and expenditure. The Supply and Use analysis looks at supply and demand of 123 products and is particularly useful in the present context as it meant we could analyse explicitly supply and demand for those products most prone to the fraud. We will not, however be able to incorporate the revisions into the National Accounts, until all the analysis undertaken for the Blue Book has been completed and the results published on 30 September. At that time other new information will also be incorporated. However I have attempted to minimise the uncertainty this would otherwise have caused by making available now an approximate estimate of the effect on GDP of the import revisions and by giving some guidance on the effect of other revisions to be made on 30 September.

Throughout this year the published estimates of GDP have been the best available at the time. One consequence of publishing the revisions as soon as possible is, however, that there will be a temporary inconsistency, until 30 September, between the published estimates for foreign trade and the published estimates for the National Accounts including the expenditure components of GDP.

As these revisions potentially impinge on government policy, Treasury ministers were informed at an early stage, consistent with the Protocol on Consultation with Ministers. In December 2002 Treasury ministers were alerted to the fact that the

fraud had a potential effect on the measurement of imports. This was followed up in January this year, by a confidential briefing by the ONS and Customs for a restricted number of officials from the Treasury, Department for Trade and Industry and the Bank of England. At that stage no estimates of the impact of the fraud on imports were available. On 25 February the ONS wrote to Customs about the quality assurance process, also including preliminary estimates of the MTIC fraud adjustment. This letter was copied to two Treasury officials on a personal and confidential basis. A copy was also sent to a Bank of England official for the Monetary Policy Committee. On 16 April, once estimates of the impact had been finalised and I had decided on the publication timetable, Treasury ministers were informed of the timetable and size of the revisions. They were advised that the revisions were market sensitive statistics, and that they should treat the information as strictly confidential and personal. On 2 July they were briefed on the ONS’s assessment of the effect of the revisions on GDP.

Privileged early access to the revisions and supporting material has been strictly controlled. Annual estimates of the revisions were communicated to Treasury ministers on a confidential basis in April as just noted. The UK Trade First Release and other material published today were circulated to the list of ministers and named officials at 9.00 am on 7 July, eight hours earlier than usual. I decided that somewhat earlier access was appropriate given the exceptional nature of the revisions and the volume of additional material we were publishing. Two named officials at the Bank of England were added to the list at the request of the Governor so that the Monetary Policy Committee, which meets this week, could be fully briefed as soon as the First Release was published. In addition one Treasury official was added to the list. These additions were for one month only.

In view of the likely degree of public interest in these revisions, I am sending a copy of this letter to the Treasury Committee and making it available on the National Statistics website.

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In document "Last quarter’s GDP growth rate revised up by O 3pp": a typical revision? (Page 70-72)