The UK Flow of Funds Project: experimental loans statistics, explanatory notes

The UK Flow of Funds Project: experimental loans statistics, explanatory notes AF.4 Loans 1. Introduction This note explains the sources and methods used in the compilation of the experimental from-whom-to-whom loans statistics. This note provides and update to the explanatory note released in July as part of The UK Flow of Funds Project: introduction, progress and future work release. Table 1 shows the estimates for loan assets by sector, together with the counterparty sector which has the liability, for 2013. This data is consistent with the UK Economic Accounts (UKEA), on a Blue Book 2015 basis, except where explicitly highlighted. Section 2 describes the data sources for these estimates. In Section 3, areas where the experimental statistics differ from what is currently published in the National Accounts are outlined. These anomalies arise where a number of changes to the input data have been identified and implemented in these experimental statistics, following a review of the construction of the time series. The impact of these differences is small, at minus 0.05 % of total loans (assets) in 2013. The Office for National Statistics (ONS) will continue the programme of development and quality assurance of these newly released experimental statistics and any improvements identified in the wider datasets will be integrated within the National Accounts at the earliest opportunity. Differences between these statistics and other known published sources are also explained where relevant in Section 2. ONS welcomes feedback on the data sources and methods outlined in this document. Any feedback on the experimental statistics and accompanying explanatory notes can be sent to flowoffundsdevelopment@ons.gsi.gov.uk. Table 1: from-whom-to-whom balance sheet loans statistics, 2014, billion Liabilities: Assets: PC(a) PNFC MFI OFI ICPF CG LG HH+NPISH RoW Total Unknown PC 0.8 0.1 0.0-0.1 0.5 0.0 0.9 2.3 PNFC 0.7 0.0 47.8-4.7 0.7 0.0 276.9 330.8 MFI 0.2 390.0 628.1 15.7 3.5 10.6 1224.8 935.0 3207.8 OFI - 47.6 3.7 - - 0.2 151.9 11.6 215 ICPF - 79.1 71.4 - - 4.0 25.5 9.9 189.9 CG 1.4 6.6 - - 64.8 120.7 3.2 196.6 LG 4.4 0.1 - - 0.1-8.7-13.3 HH+NPISH - 2.3 13.6 0.5-0.0 2.4-18.7 RoW 1.1 463.4 972.6 41.4 1.3 5.9 30.9 0.0 1516.5 Total 8.6 989.0 1737.2 57.6 9.6 86.6 1564.7 1237.5 Unknown (a) PC = public corporations; PNFC = private non-financial corporations; MFI = Monetary financial institutions; OFI = financial institutions other than MFIs and insurance corporations and pension funds; ICPF = insurance corporations and pension funds; CG = central government; LG = local government; HH+NPISH = households and non-profit institutions serving households; RoW = rest of the world. Key data sources ONS survey Data source external to ONS Estimated or modelled - Assumed to be zero Not possible Cell could be allocated unknown counterparty information 1

2. Data sources by institutional sector Estimates for loans relate to the extension and take up of credit between sectors of the UK economy and with the rest of the world. This includes all components of loans published in the UK economic accounts: short-term loans; loans secured on dwellings; finance leasing loans; direct investment loans; and other long-term loans. All sectors can theoretically issue and hold loans, although lending between some sectors is currently assumed to be zero. MFI loan liabilities are not included in these statistics as they are classified as deposits in line with international statistical standards. Loans from public corporations (PCs) Loans from public corporations (PCs) consist of loans to PCs, private non-financial corporations (PNFCs), central government (CG), local government (LG), households and not-for-profit institutions serving households (NPISH), and the rest of the world (RoW). These data are predominantly sourced from the ONS Public Corporations Survey, with additional data from the Department of Communities and Local Government (DCLG), and the Devolved Administrations. For the Rest of the World, data sources include the Export Credits Guarantee Department (ECGD) scheme, and the US Certified Development Company program. Loans to PCs are an estimate of unsecured loans to public infrastructure companies based on data available in published accounts. Loans to PNFCs relate to unsecured lending are an estimate based on data reported in the public corporations inquiry; a proportion of the loans extended are assumed to be counterpart to PNFCs. Loans to central government are predominantly sourced from data reported on the public corporations inquiry. Between Q3 2003 and Q1 2009 this series also includes London and Continental Railways (LCR) adjustment, relating to the Channel Tunnel Rail Link. These were classified as government borrowing under European statistical regulations. Loans to local government are sourced from the Department of Transport, Local Government and the Regions (DTLR); a proportion of total local government debt is estimated to be from public corporations. Loans to HH and NPISH relate to unsecured lending and are estimated from data collected on the public corporations inquiry. Loans to RoW consist of claims and recoveries on business done under the Export Credits Guarantee Department (ECGD) scheme, as well as loans made under the US Certified Development Company program. Loans from private non-financial corporations (PNFCs) Loans from PNFCs are loans to PCs, other financial institutions (OFIs), CG, LG, households and NPISH and RoW. Estimates are based on a range of sources, including the ONS Financial Services Survey (FSS), the ONS Foreign Direct Investment Survey (FDI), DCLG, the Devolved Administrations, and counterpart information collected on other sectors. Loans include finance leasing loans, direct investment, and unsecured long- and short-term loans. Loans to public corporations are an estimate of the proportion of finance leasing loans extended by PNFCs that will be counterpart to the public corporations sector. Loans to other financial institutions include short term and long term unsecured lending. Data collected from factoring companies on their indebtedness to UK clients in included here as this is all assumed to be counterpart 2

to the PNFC sector. This series also includes data collected on the Financial Services Survey (FSS) relating to OFI borrowing; certain elements of these data are assumed to be borrowing from PNFCs. Loans to central government relate to finance leasing loans and unsecured lending. A proportion of the total unsecured and finance leasing loans extended by PNFCs are assumed to be counterpart to central government. Loans to local government relate to finance leasing loans and other lending, sourced mainly from the Department of Transport, Local Government and the Regions (DTLR). Loans to HH and NPISH constitute credit extended by retailers. These estimates are derived from data on repayments and new credit extended, and adjusted to include charges, all taken from the ONS Retail Sales Inquiry. It is assumed that all credit advanced by retailers is to individual customers and therefore the liability of the household sector. Loans to RoW represent direct investment loans, both on the inward and outward side. On the outward side, the data relate to the balances of UK-owned branches and subsidiaries abroad that are due to the UK parent company. On the inward side, the data relate to balances due to foreign-owned branches and subsidiaries resident in the UK from their parent companies. These data are sourced from the ONS Foreign Direct Investment Survey. Loans from monetary financial institutions (MFIs) Loans from MFIs are extended to all the institutional sectors in the UK economy and the rest of the world and include finance leasing loans, loans secured on dwellings, and long- and short-term unsecured loans. These estimates are predominantly sourced from the Bank of England (the Bank) surveys of MFIs. Prior to 2008, data on loans from building societies were sourced from the Financial Services Authority (FSA) as these institutions were not surveyed by the Bank before this time. There are some differences between these experimental statistics and estimates published by the Bank due to differences in the methodology and data sources used for certain series. The Bank and ONS are currently working in conjunction to review all MFI data with a view to bring the two datasets into line with one another in the future where relevant. Loans to public corporations are sourced from the Bank of England and include unsecured lending and finance leasing loans. This series also includes an adjustment for the reclassification of London and Continental Railways between 2000 Q1 and 2006 Q1. Loans to PNFCs are also sourced from the Bank of England. This includes unsecured loans, finance leasing loans and loans secured on dwellings, where loans to housing associations are included within the PNFC sector. Loans to OFIs are predominantly sourced from the Bank of England. Data are adjusted to remove loans to insurance corporations and pension funds, using data sourced from ONS surveys. Loans to insurance corporations and pension funds are sourced from the ONS surveys of these institutions, where borrowing from banks and building societies is explicitly reported. Loans to central government are based on administrative data sourced from government accounts. Loans to local government are based on data from the BoE and the Department of Transport, Local Government and the Regions. 3

Loans to HH and NPISH are sourced from the Bank of England. This relates largely to loans secured on dwellings, but also includes unsecured lending and finance leasing loans. Loans to RoW are sourced from the Bank of England. These relate to loans to non-resident non-banks as loans to non-resident MFIs are classified as deposits. Loans from other financial institutions (OFIs) Loans from OFIs are loans to PNFCs, OFIs, LG, households and NPISH, and RoW. These include short-term and long-term unsecured loans, loans secured on dwellings, direct investment loans and finance leasing. These estimates come from a number of different sources, including the FSS, FDI, DCLG, the Devolved Administrations and the Bank of England. Loans to PNFCs relate to unsecured loans and finance leasing. These data are sourced predominantly from ONS surveys of securities dealers and other financial institutions. Finance leasing data are obtained from the ONS survey of institutions engaged in finance leasing activities. Loans to OFIs consist of OFIs short-term borrowing from stockbrokers and finance leasing loans. These data are sourced from ONS surveys of financial institutions and institutions engaged in finance leasing activities respectively. Loans to local government include temporary lending by OFIs to local government, sourced from the DTLR; a proportion of local government debt is assumed to be counterpart to the OFI sector. Loans to households and NPISH consist of short-term loans to individuals and loans secured on dwellings. These data are sourced from ONS surveys of financial institutions and the Bank of England survey of specialist mortgage lenders. From 2010 this series includes an adjustment to remove loan books transferred to the central government sector. Loans to RoW include intra-group other investment and direct investment loans. These data are predominantly sourced from the ONS Foreign Direct Investment survey. Loans from insurance corporations and pension funds (ICPFs) Loans from ICPFs consist of loans to PNFCs, OFIs, LG, households and NPISH, and RoW. These include unsecured lending, loans secured on dwellings and direct investment loans. These estimates are predominantly sourced from the ONS surveys of insurance corporations and pension funds, FDI, DCLG and the Devolved Administrations. Loans to PNFCs relate to unsecured lending and are sourced from the ONS surveys of insurance corporations and pension funds, whereby certain elements are assumed to counterpart to the PNFC sector. Loans to OFIs relate to unsecured lending and are sourced from the ONS surveys of insurance corporations and pension funds, whereby certain elements are assumed to counterpart to the OFI sector. Loans to local government consist of local authority temporary lending sourced from the DTLR. Loans to households and NPISH include unsecured lending and loans secured on dwellings. These data are sourced from the ONS surveys of insurance corporations and pension funds. 4

Loans to RoW relate only to direct investment loans, both on the inward and outward side. These data are sourced from the ONS direct investment survey. Loans from central government (CG) Loans from CG consist of loans to PCs, PNFCs, LG, households and NPISH and RoW. These include both short-term and long-term unsecured lending and loans secured on dwellings. Data are sourced predominantly from administrative data from government accounts. From 2010 these series include loans transferred to public ownership. Other data sources include FDI, DCLG and the Devolved Administrations. Loans to public corporations relate to unsecured lending and are sourced from government accounts provided by HMT. Loans to PNFCs relate to government net lending to private sector industry and trade companies. Loans to local government consist of sterling unsecured loans. These data are sourced from the DTLR. Loans to households and NPISH include unsecured lending sourced from government accounts provided by HM Treasury, as well as loans secured on dwellings. The latter relates to loans books transferred to public ownership in 2008/9. Loans to RoW relate to long-term unsecured lending sourced from data collected for use in compiling the international investment position and balance of payments. Loans from local government (LG) Loans from LG include loans to PCs, PNFCs and households and NPISH. These are unsecured lending and loans secured on dwellings. Data are predominantly sourced from DCLG, the Devolved Administrations and the Public Corporations Survey. Loans to public corporations include both short term and long term unsecured lending. These data are sourced from the DTLR and the public corporations inquiry. This also includes finance leasing loans from Transport for London. Loans to PNFCs are sourced from the DTLR and relate to unsecured lending. Loans to central government relate to finance leasing loans from Transport for London. Loans to households and NPISH are sourced from the DTLR and relate to unsecured lending. Loans from households and non-profit institutions serving households (NPISH) Loans from households and NPISH include loans to PNFCs, OFIs, ICPFs, LG and intra-sector loans to other households. These all cover unsecured lending and are sourced from a number of different data sources, including the FSS, ONS surveys of insurance corporations and pension funds, DCLG and the Devolved Administrations. 5

Loans to PNFCs consist of long-term unsecured lending and are estimated based on data reported in the ONS Financial Assets and Liabilities Survey. This estimate is periodically reviewed and may therefore be constant over several quarters. Loans to OFIs consist of short-term loans from individuals sourced from ONS surveys of financial institutions. Loans to ICPFs include a proportion of ICPF borrowing from other UK residents that is assumed to be from households and NPISH. These data are collected on ONS surveys of insurance corporations and pension funds. Loans to local government are sourced from the DTLR and relate to temporary deposits from households and NPISH with local authorities, as well as long-term loans outstanding. Loans to household and NPISH include short-term loans extended and taken up within the household and NPISH sector. This series is estimated based on available information for peer-to-peer lending. Loans from the rest of the world (RoW) Loans from RoW are extended to all institutional sectors of the UK economy and predominantly cover direct investment loans and loans from non-resident MFIs. The former is sourced from the FDI and the latter predominantly from data compiled by the Bank for International Settlements (BIS). The BIS data currently include only a split into loans to MFIs and loans to non-mfis and therefore the further sectoral breakdown here is estimated based on a series of assumptions. From 2014 the BIS data collection includes an extended sectoral split that will be available for use in the future. The methodology here will be reviewed in line with the availability of new data. Loans to public corporations include direct investment loans and other loans UK public corporations. It is assumed that loans from non-resident MFIs to public corporations are zero. Loans to PNFCs relate primarily to direct investment loans and a proportion of the BIS total non-resident lending to UK non-banks that is assumed to be with PNFCs. Loans to OFIs relate primarily to direct investment loans and a proportion of the BIS total non-resident lending to UK non-banks that is assumed to be with OFIs. In currently published SFA data direct investment loans are only separately identified from 2013 Q1; prior to this these data are included within the other long-term loans from the rest of the world. Loans to central government include borrowing from overseas banks in the form of loans and reverse repos. Until 2006 Q4 this series also includes inter-government loans to the UK. Loans to local government relate to short term and long loans from overseas banks and non-banks, sourced from the DTLR. Loans to households and NPISH relate to loans from non-resident MFIs sourced from BIS; a proportion of the total is assumed to be with the household and NPISH sector. 3. Differences between these experimental statistics and the UK Economic Accounts As described in Section 1, there are differences between the experimental loans statistics and the estimates published in the UK Economic Accounts (UKEA) for Q1 2015. Table 2 presents a list of those series for which there 6

are anomalies, along with a brief explanation of the variation. Table 3 presents the impact of these differences on both assets and liabilities by sector. The total impact of these differences is small, at minus 0.05 % of total loans (assets) in 2013. ONS will continue the programme of development and quality assurance of these newly released experimental statistics and any improvements identified in the wider datasets will be integrated within the National Accounts at the earliest opportunity. Table 2: differences between the experimental loans statistics and the UKEA - explanation Asset sector Liability sector Explanation PC PNFC An adjustment has been made to the experimental statistics to remove negative values not seen in the higher-level UKEA aggregates. PC CG An adjustment has been made to the experimental statistics to remove negative values not seen in the higher-level UKEA aggregates. MFI MFI A series relating to inter-mfi lending was included in UKEA estimates, and reclassified to deposits in the experimental series. OFI MFI An estimate of finance leasing was included in UKEA estimates, and reclassified to deposits in the experimental series. The data sources are being reviewed here to include new estimates of finance leasing in the future. OFI LG An adjustment has been made to the experimental statistics to remove negative values not seen in the higher-level UKEA aggregates. ICPF OFI This series has been adjusted to remove a negative value in 2009 Q2. HH and NPISH OFI This series has been adjusted to remove a negative value in 2010 Q2. RoW MFI Some series classified as loans in the UKEA estimates have been reclassified to deposits in the experimental statistics. 7

Table 3: differences between the experimental loans statistics and the UKEA impact, 2014, figures may not sum to totals due to rounding Asset sector Asset difference / % Liability difference / % of sector of total loans of sector of total loans PC 65.36 0.02 0.00 0.00 PNFC MFI OFI ICPF CG LG HH and NPISH RoW Total 0.00 0.00-0.08-0.02-0.00-0.00 100.00 0.05-1.17-0.05 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00-0.74-0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00-0.03-0.03 0.03 0.03 8