Official Report: Minutes of Evidence

The Deputy Chairperson (Mr Stewart): I welcome Tom Davies, who is the deputy director for the public service division of the Office for National Statistics (ONS), and Mrs Suzi Robertson, who is the head of the parliamentary and public affairs office in the Office for National Statistics. You are very welcome to the meeting.

Members, can I seek that agreement that the evidence session be recorded by Hansard?

The Deputy Chairperson (Mr Stewart): Thank you very much.

Tom, I hand over to you. Thank you for coming along today and for giving us a presentation. We will then open it up for members to ask questions.

Mr Tom Davies (Office for National Statistics): Thank you very much for the opportunity to provide some evidence today. I will start by setting out the role of the ONS and what I can and cannot talk about today.

The ONS is an independent, non-ministerial Department that is responsible for producing trusted statistics about the UK economy and society. We make sector classification assessments to decide, for example, whether or not an organisation sits in the public sector, purely for the purpose of compiling economic statistics and maintaining the UK national accounts. The ONS makes those decisions independently, in accordance with the Statistics and Registration Service Act 2007 and international statistical guidance, in order to ensure that there is consistency and comparability across the world. We understand that there are consequences, for example, for Budgets and borrowing, from certain classification decisions, but the role of the ONS is to ensure that classification decisions are robust and consistent with the international guidance.

While I can provide general advice relating to sector classification decisions and the processes that we follow, I cannot comment on specific government policy or legislation, or on how an organisation should be structured, as that could compromise the independence of the classification process. While I am not able to comment on the potential classification of Northern Ireland trust ports, given the planned changes to the Harbours Bill, I can talk about the process that will follow and how we previously classified Northern Ireland trust ports.

I hope that my opening remarks clarify the evidence that I can provide and the limits of what I can comment on. I welcome the opportunity to assist the Committee, and I look forward to your questions.

The Deputy Chairperson (Mr Stewart): Thank you, Tom. That was really useful to hear. We appreciate your taking the time to brief us as part of our scrutiny of the Bill. I will make a couple of points to begin with, if I may. I appreciate what you can and cannot go into. May I ask you to talk us through the reclassification that occurred in Scotland back in 2015 and the process that was involved, including the length of time that you spent and the engagement that you had during that process? You may be able to give us a heads-up from the experience of others who have gone through reclassification.

Mr Davies: Yes. Shall I talk, first of all, generally about the classification process, before I talk about what happened with Scotland?

The Deputy Chairperson (Mr Stewart): Yes, that would be useful.

Mr Davies: I will start with a bit of context, and then I will outline the process that we follow. We produce robust classification decisions that are needed in order to produce quality national accounts and public-sector finance statistics that are consistent and comparable across the world. In order to do that, we follow international statistics guidance. We follow three international manuals: the 'United Nations System of National Accounts (2008 SNA)', the 'European System of National and Regional Accounts (ESA 2010)' and the 'Eurostat Manual on Government Deficit and Debt 2022'.

The process comprises four broad stages. The case is raised, prioritised and assessed, and then a decision is reached. I will go through each of the stages briefly. When a case is raised, it will come to the UK Parliament through the Treasury, but in Northern Ireland, it will come through the Department of Finance, which would raise a case with us. We will prioritise that case, broadly by way of its impact on major statistics or via the views of stakeholders — the Department of Finance in the case of Northern Ireland.

The assessment of the case takes up most of the time. I have a team of analysts in my area who review the information that is supplied to us about the organisation, including information that is not publicly available but is shared by colleagues from the Department of Finance. We will then work through the relevant statistical guidance that we need in order to make a decision. A case paper is produced, and the ONS works with Departments, through the Northern Ireland Department of Finance to check the factual accuracy of the case before the paper is presented to the ONS's economic statistics classification committee, which is a panel of national accounting experts. That committee makes decisions as to whether the organisation is a unit in its own right, whether or not it is part of the public sector and whether it is a market or non-market body.

The final stage is the decision itself, which is made by my boss, the director of macroeconomic and environment statistics and analysis, and based on the committee's recommendation. Those are the four stages that we go through.

You asked specifically about what happened with Scotland. In 2016, the ONS reviewed the classification of Scottish trust ports, which, at that time, were classified as non-financial corporations within the public sector. The Scottish Government had passed the Harbours (Scotland) Act 2015 to repeal sections of the Ports Act 1991, with a view to removing public-sector control of Scottish ports.

For example, there was a removal of powers to compel privatisation. Following that new legislation and the review that we conducted, we concluded that the Scottish trust ports were no longer classified as public sector but were in the private non-financial corporation sector.

The Deputy Chairperson (Mr Stewart): OK. That was really useful, particularly to have you talk us through those four stages, Tom. That reclassification aspect is quite niche, but will be vital to the success of the Bill. In your experience, is there anything that would be worth learning? One thing about coming late to this is that, potentially, we can learn from best practice and what has gone wrong in the past. In preparing for that, do we need to be aware of anything, whether it would be for the Department for Infrastructure or the Department of Finance, that would speed up the process and make it less burdensome during those four stages?

Mr Davies: Thank you for the opportunity to provide that information. I have two overall thoughts here. First of all, engage with the Department of Finance as soon as possible and use its knowledge from previous cases that it will have presented to us. Secondly, we try to be as transparent as possible. We have some publicly available guidance on our classification process and, in particular, what determines whether an organisation is in the public sector. We would be very happy to share that with the Committee so that it can see the specifics of how we go about the process and make those decisions.

The Deputy Chairperson (Mr Stewart): That would be really useful.

I have two more quick questions. I know that the process is done case by case, but are you able to give us a range of time frames for how long, realistically, that will take once the process has begun?

Mr Davies: Yes. When we get the information that we need, in your case, from the Department of Finance, we say that it will take roughly three months to make a decision. I say "roughly" because it does depend on certain factors, such as the complexity of the case and the information that is available, and other priorities as well, such as other cases that we might need to take at the time. Our rough time frame for making a decision is three months.

The Deputy Chairperson (Mr Stewart): OK. That is really useful.

How does the ONS balance considerations around independence with arrangements for public accountability?

Mr Davies: How do we balance independence and public accountability?

The Deputy Chairperson (Mr Stewart): Yes.

Mr Davies: Can you give me a bit more context on why you are asking that question, so that I can answer it as well as possible?

The Deputy Chairperson (Mr Stewart): We are looking at trust ports and their oversight. There may be the narrative that we are looking at privatisation. That is not the case, but people want to be sure that accountability on ports here through reclassification would still exist. When it comes to that process, I am keen to tease out how you would balance those two aspects when that reclassification happens.

Mr Davies: OK. Thank you for explaining that. Might it be helpful here if I say a little bit about the criteria that we consider when deciding public-sector control?

The Deputy Chairperson (Mr Stewart): Yes.

Mr Davies: The fundamental question that we are trying to answer is whether the Government exercise significant control over the organisation's general corporate policy. In the guidance, there are quite a few indicators that we look through. I will go through them. The first three are enough by themselves to establish public-sector control. They are the right to appoint, veto or remove a majority of the board of directors; the right to appoint, veto or remove a majority of appointments for key committees; and ownership of the majority of the voting interest. Those three by themselves would be enough to establish public-sector control.

Then, we look at other indicators; for example, rights to appoint key personnel, such as the chairperson; rights to control via excessive regulation, contractual agreement or special shares; rights to control from agreements or commissions to borrow, and then other statutory powers that might exist that might limit the activities or operation of an entity, for example, by restricting whether that entity could wind down or sell its assets.

As for independence, depending on how that manifests itself, we would look at criteria such as the majority of the voting interest and the appointment of key personnel on the board.

The Deputy Chairperson (Mr Stewart): OK. Thank you, Tom. That is all from me at this stage. I will open it up to members.

Mr McMurray: This is similar to the Deputy Chair's point, but it is on a slightly different tangent. To what extent do community representation and public appointments' processes or requirements affect classification decisions? How does community representation affect reclassification?

Mr Davies: Thank you for your question. So that I understand the community representation angle, do you mean community representation on the key committees or on the board of the organisation?

Mr McMurray: The board of the trust port.

Mr Davies: Thank you. What we are looking at is public-sector control, so we look at the Government's role in appointing the board of directors of the governing body and the people on the key committees, as well as the voting interest. Those are the three key indicators. Depending on the sort of community representation and what that entailed, we would look at that versus wider Government influence on those key criteria.

Mr McMurray: Thank you. Has the Department for Infrastructure liaised much with you on the reclassification, or maybe that is a by-the-by thing to do.

Mr Davies: We received some initial information from the Department before this Committee meeting. As I say, we encourage the Department for Infrastructure to work through the Department of Finance when the documentation is ready to be put to us so that we can assess it through the process that I outlined.

Mr McMurray: You said that it takes three months. I am just conscious of timelines, given that we will reach the end of the mandate in a couple of months. If the Bill is passed, that would be OK, and in the three months after the Bill has passed, you have to decide whether a port meets the criteria and should be reclassified, is that right?

Mr Davies: Yes. It may be worth outlining at this point that we also offer something called a policy proposal process. In advance of a policy being finalised, we can give an indicative view. I will expand on that a little bit more. We will get the information on what a policy will look like from the Department of Finance, and we can give an indicative view. That is to ensure that we do not get drawn into compromising the classification decision. We do not get involved in policy development or advise on what that should look like. However, once we receive the policy proposal, we can give an indicative view of how it will be classified. What is important about that indicative view is that it is provisional. When we send that back, we say that it is provisional and depends on the proposal being implemented as described.

It is also important to say that we consider only one version of the policy proposal. That is to ensure that there is not an iterative back and forth of our commenting, because that would essentially be policy development, which would infringe on our independence. That is an option before everything is finalised with the policy that I wanted to make you aware of.

Once the Bill has received Royal Assent, we will do the formal classification to make sure that everything is as it was set out.

Mr McMurray: Thank you, Mr Davies.

Mr Stewart: That is a really interesting point. I was not aware of the policy proposal process and that one opportunity. It is the Department of Finance that engages with you on that. It therefore strays outside the remit of the Committee. The Department for Infrastructure is the lead Department in taking forward this legislation. The two Departments will need to take a collegiate, collaborative approach to engaging with you through the Department of Finance in order to make sure that the process happens. I want to get that on the record so that we can follow up on it.

Mr Boylan: Just a quick question: Tom, when the classification has taken place, what is the next stage? Is there a review process, or are things left at that? What mechanism is there?

Mr Davies: Once the decision has been made, it is implemented in our statistics. The economic statistics will reflect the classification. There is a process of appeal to the National Statistician in the Office for National Statistics, so, if the organisation or the Department was not happy with the decision or felt that we had not followed the international statistics guidance properly, it could appeal. I should say that, before that happens, we will make sure that our methods and decisions are transparent. We will notify the organisations of the outcome and will also publish the outcome and the process that we followed. We will also be happy to talk the organisation through the evidence that we used and the way in which we made the decision.

The Deputy Chairperson (Mr Stewart): Do members joining us online or other members have any further questions? No.

Tom, you will be glad to know that that completes the Committee's questions. I thank you and Suzi again for making yourselves available today and for giving us clarity. It has been really useful to get that from you, so I appreciate it. We may need to come back to you during the process. The Clerks will be in touch, and we know that you will make yourselves available. Thank you again. I wish you all the best for the rest of the day.

Mr Davies: Thank you for the opportunity.

Mr Stewart: No problem. Thank you very much.