Academic Review of Asset Lives in the UK
In this study, commissioned by the Office for National Statistics (ONS) we provide a comprehensive and independent review of the asset lives’ assumptions used in the computation of the UK national capital stocks. Despite being regarded as one of the key inputs feeding into the Perpetual Inventory Method (PIM), little is known about the actual length of time that assets remain in the UK productive stock, and how realistic the current assumptions are. This research builds on earlier work undertaken by the National Institute of Economic and Social Research around two decades ago (Mayes and Young, 1994; Lansbury et al. 1997).
We implement a PIM model similar to that currently used in the UK for the derivation of capital stocks, and assess the plausibility of using different mean asset lives assumptions. We assess whether the ONS assumptions yield capital estimates that are aligned with economic reality and current macroeconomic conditions, and the extent to which changing asset life assumptions could have a significant impact on existing estimates of the UK’s stock of capital.
Our assessment draws on a variety of information sources. We make use of official National Accounts estimates of Gross Fixed Capital Formation statistics, analysis of depreciation allowances from company accounts, consultation with relevant UK industry experts, and draw comparisons with other countries’ experiences. We aim to provide asset lives recommendations for the range of assets included in the production boundary of the National Accounts, considering, when feasible, differences across all the various sectors of economic activity (industries) and institutional sectors.