From the TUC

The curious case of yesterday’s living standards ‘good news’

01 Apr 2015, by in Economics

Right from the off yesterday, ONS statistics triggered a celebration of rising living standards.

Yet you were hard pushed to find exactly the reason for that celebration.

In the newly-issued National Accounts, real household disposable income per head in 2014 fell by -0.1 per cent compared with 2013, and was still down -2.4 per cent on the peak in 2010.This measure was previously described by the Chancellor in his Budget speech as “The most up-to-date and comprehensive measure of living standards which is real household disposable income [RHDI] per capita”. In the Budget the OBR had expected this to rise by 0.7 per cent into 2014.

The answer was instead found in the quarterly ‘Economic Well-Being’ release, which included a brand new measure: RHDI excluding NPISH (non-profit institutions serving households, which covers charities, religious organisations and labour organisations, like the TUC). On an annual basis the story doesn’t look greatly different, up 0.1 per cent on the year and down -1.7 per cent compared to 2010 [left hand chart]. But on a quarterly basis the figure for the latest quarter nudges marginally ahead of the position in 2010Q2 [right chart].

 peston_v2_1

The BBC went for it, opening the six o’clock news:

Tonight at six: the last official economic figures before the election show that we are slightly better off than when the coalition took power. Livings standards higher than in 2010.

To the backdrop of the Chancellor helping out in a Pizza Restaurant kitchen:

The Chancellor said that his recipe [geddit?] for the economy had been vindicated.

Statistically, the claim is on very thin ice.

First there is the appearance of this new measure almost overnight. It was not mentioned in the Budget, or in the OBR’s Economic and Fiscal Outlook, and certainly not forecast by the OBR. On closer inspection of the well-being release, it was apparently launched on March 6th in an article ‘Measuring Real Household Disposable Income’.  I am not sure what the UK Stats Authority make of it.

Nobody is going to say that RHDI is a wholly meaningful measure of well-being (even in spite of the Chancellor’s endorsement in the Budget), but issues go way beyond the inclusion of NPISH (e.g. some think imputed rent distorts the picture).  A far more useful service would be for the ONS to address this issue fully rather than piecemeal. 

Then there is the use of quarterly figures. As above, the claim only holds up on quarterly figures, and this relies on a fortuitous dip in 2010Q2 and perhaps an excessively buoyant latest figure. On annual figures, generally the better guide, there is still a long way to go to get back to the previous peak on present form of miniscule growth.

But then there is the wider evidence that living standards are down across the Parliament. IFS figures the other week showed living standards up only for pensioners, and down for people of working age (by -2.5% for those aged 31-59, and -7.6% for those aged 22-30).

Lastly there is the wider context: whatever the precise figure, living standards should not just scrape by over a parliament. The norm has been an increase of over 2 per cent a year (see blog). The OBR illustrated the feeble gains (and that was before yesterday’s weaker figures) in their March Economic and Fiscal Outlook with a nice chart:

peston_OBR3

For the second day of the election campaign, the prominence afforded to this ‘story’ seems highly inappropriate.

2 Responses to The curious case of yesterday’s living standards ‘good news’

  1. Nile
    Apr 2nd 2015, 8:34 am

    Why do we never, ever see these GDP and household income statistics broken down by income?

    Could it be that the income received by 5%, or 1%, or 0.1% of the population – as few as sixty thousand people! – has increased by so much, that the tiny statistical blip that we have hailed as ‘growth’ went entirely to them – and, more than that, their gains were so vast that everone else is experiencing a recession?

    Everyone else, who consumes and recycles a significant portion of their income so as to circulate cash in the economy?

    Everyone else – dare we say it? – in a shrinking middle class who used to have income left over to invest, funding productive activity and economic growth instead of purchasing rents?

    Do, please, feel free to lecture us all about a modern economy being so much better than the zero-sum game of feudalism: and do, please, leave out all mention of inequality, as if massive gains for the few outweigh losses for the many.

    These days, I find it necessary to point out that economics isn’t a spectator sport: we are all participants, cheering on our teams while watching the edited highlights on the BBC and Sky and listening to a very carefully edited commentary.

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