The government loves to tell us that in the last year the UK economy grew by 1.9%. Big deal after 6 years of stagnation! And hardly anything to write home about when the regular annual growth of the economy each year, not just 1 year in 6, used to be 2.5%. And, worst of all, it still leaves Britain’s GDP a full 2% below the level it reached in 2008 – a position far worse than the US, Germany, Japan, and even France. However, even leaving that aside, new evidence has come to light which indicates that this failure even to get back to where we were 6 years ago still understates substantially how living standards have been much more heavily squeezed than the government is admitting and proves that people who feel that things are much worse than reported are quite right.
First, government always uses GDP (gross domestic product) as its measure of national income. A more accurate measure however would be GNP (gross national product) because that includes net income from abroad. Between 2008-12 UK net income from abroad fell dramatically from £33bn to -£2bn. That equates to a drop of 2.4% in GDP during this 4-year period, with a direct consequential fall in UK disposable incomes.
Second, also during 2008-12 government transfers abroad, especially to the EU from the phasing down of the UK rebate and rising EU expenditure, increased from £14bn to £23bn. Since all these extra net payments went went abroad, they did not contribute at all to UK living standards.That equates to a further drop of 0.6% of GDP in terms of incomes available to be spent in the UK.
Then, thirdly, there is the further important factor entirely omitted from the government’s figures, namely the significant rise in the UK population between these two dates 2008-12. The population increased from 61,191,000 to 63,705,000 in those 4 years. This rise in population therefore lowered the GDP per head, as well as the social capital of the country too, by another 4.1%.
The fourth very important reason why families have clearly sensed a much greater squeeze in their living standards than the official figures suggest is because there is a big difference between the cumulative rise in the CPI (consumer price index) as the measure of inflation of 13.4% between 2008-12 and the deflator at 10.8% which is used by the government to measure inflation. If therefore the CPI were used, which measures price increases solely in the marketed sectors of the economy and which most people would therefore regard as the more accurate barometer of their living standards, it would reduce perceived standards of living by a further 2.6%.
The cumulative effect of all these adjustments of inadequate or misleading statistics is to lower living standards by a total of 9.8%. That fits far more closely with what people actually feel is happening to them. It also shows how wickedly distorting government statistical legerdemain can be, and under this government regularly is.
