The UK economy continues to recover, albeit at a slower pace, the latest official figures show. But how well does this reflect how people are feeling?
GDP measurements only provide part of the picture and so the Office for National Statistics will soon reveal details of a new set of supplementary indicators on economic well-being. It follows a pledge by the prime minister, David Cameron, in 2010 to make the UK one of the first countries to officially monitor happiness.
The inaugural release including how households are doing, how well-off people feel and other insights into well-being will be published just in time for Christmas on 23 December.
Bhutan is the real trailblazer in this area. The tiny nation to the east of the Himalayas has long been renowned for its focus not on GDP – gross domestic product – but GNH (gross national happiness). In other words, what matters to Bhutan more than upping production and improving productivity is whether its citizens are happy. It’s a measure the remote south Asian nation has been using since the early 1970s, well before the rest of the world began to realise that wealthier does not necessarily translate into happier.
The ONS says its new regular well-being release will help businesses, households and policymakers in the UK make better-informed decisions by providing a whole “dashboard” of indicators on the state of the economy.
Confirming the new measure recently, ONS chief economic adviser Joe Grice said:
While it’s right that GDP plays a central role in monetary and fiscal policy, it has long been recognised as presenting an incomplete picture of how our society is doing. The UK will be one of the first countries to bring together official statistics on other measures that will tell us, for example, how households are doing, including how well off people are feeling.
In the meantime, we consider what various indicators can already tell us about economic well-being in the UK.
1. Overall well-being is relatively high
The Organisation for Economic Co-operation and Development (OECD) has been working on ways of measuring economic and more general well-being with it’s How’s Life project, or Better Life Initiative, that analyses indicators including income, jobs, housing, health, work-life balance and education. Its latest snapshot of the UK summed up how the country fares well relative to other nations in the largely rich OECD group.
Summarising the UK’s position, the OECD says:
Compared with other OECD countries, Brazil and the Russian Federation, the United Kingdom performs well in many of the 11 dimensions ... that the OECD considers as essential to a good life. The United Kingdom ranks above the average of the 36 countries in the dimensions of personal security, environmental quality, civic engagement, social connections, health status, income and wealth, jobs and earnings, housing, and subjective well-being, but below average in education and skills, and work-life balance.
2. GDP per head is below its pre-crisis peak
While GDP is now above its pre-crisis peak, the UK’s population has grown faster than the economy. So measured per person, GDP this year will probably be around 1% below of its pre-crisis level, economists say.
This line charting quarterly GDP per head clearly shows the lost ground left to make up.
3. Household incomes have been falling
GDP measures the production in a country and therefore also the income generated from that production. But there is a growing awareness that household incomes are just as important, if not more so, to gauge economic well-being.
The ONS highlights the significance of median real household income, the income that the middle household receives if all households are ranked from highest to lowest (or the reverse) in terms of the income they receive. Using a median, rather than a simple average, gives a better picture of how available resources are distributed across people and households.
As this chart shows, median real household income held up during the first phase of the recession but it declined as GDP itself began a slow recovery, as shown on the second chart.
4. Britain’s stock of wealth has stagnated
GDP measures the flows of output or income but not the UK’s corresponding stock of wealth and net assets. As the ONS points out, that means it is possible for a nation to be increasing its output and consumption while running down its assets, but this output and consumption would not be sustainable. Or the reverse might be the case and GDP would then underestimate the true position in regard to sustainable future consumption and thus well-being. So it is important to look at the wealth held in a country.
This ONS chart of UK physical and financial capital shows this measure of wealth rising fairly steadily in real terms in the years to 2007, then falling against the backdrop of financial crisis and recession. It recovered somewhat but by 2012 had not returned to growth.
5. Household wealth has fared better
Household wealth measures help to show how much money people have available to spend, before considering changes in incomes, and so offer another insight into well-being.
This chart from the ONS shows that there was an increase in household wealth from 1997 to 2007, driven mainly by rising house prices. The onset of the recession in 2008 recorded a drop in net worth of households but in 2012 it recovered.
6. Making ends meet is tough for one in five
A theme of the crisis and recovery has been the financial pain felt by many households from falling real wages (pay after inflation) and government cuts. The UK is by no means alone in feeling the effects of austerity and this chart ranks it relative to other European countries.
A fifth of households in the UK in 2012 reported great difficulty or difficulty in making ends meet, lower than the estimated EU–28 average of 27.7%, the ONS said in a European comparisons of well-being report in June.
7. Pay has plunged and the prospects for rises are shaky
Pay rises have failed to match inflation and so wages have been falling in real terms for years. Despite the recovery and rising employment, many people are worse off.
This first chart shows how inflation has outpaced wages. The second shows how median pay appears to have become de-coupled from productivity growth, a trend highlighted by labour market expert Professor Paul Gregg at the University of Bath. This begs the question: If productivity recovers will wages for the typical worker really follow?
8. Job quality varies but is better than European average
Work is where many people spend a large part of their time and so, says the OECD, gauging working environments is key to measuring well-being. The thinktank looks at control over decisions, support from managers, earnings, job security and other factors.
Its How’s Life report on the UK noted that in 2010, 18% of British workers reported being in a poor working environment, a share slightly below the average in European countries. This chart shows how low job quality damages the physical and mental health of workers.
So how are we feeling?
The UK fares better than many other developed countries when it comes to economic and other measures of well-being. But there are plenty of reasons why many households are still finding things tough six years after the crisis kicked off. Real wages are falling, household incomes have dipped and GDP per person is still some way off its pre-downturn peak. Expect the official happiness report in December to paint a mixed picture.
