British economy: faith in the figures

http://www.theguardian.com/commentisfree/2014/apr/08/uk-economy-faith-future-ons

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More than a generation ago, Ronald Reagan asked American voters whether they thought they were better off than they were four years previously. Next year, Ed Miliband will put a similar cost-of-living question at the heart of Labour's general election campaign. Faced with such questions, voters inevitably respond with a mixture of heart and head. In 1980, they gave Mr Reagan the answer he sought because US inflation was then running at an average of 13.5% and the voters felt squeezed. In 2015, British voters may prove a tougher proposition, not least because inflation here is now so low. But Mr Miliband's already hard task has suddenly got harder.

Opinions will differ as to whether the new ways of measuring economic performance that were trailed this week by the Office for National Statistics are the result of a coincidence or a conspiracy. But it seems clear that when George Osborne presents the coalition government's final budget next spring, the new ONS measures will give him an even better story to tell than he has hinted. By adopting new global accounting standards this autumn for measuring key indicators like gross domestic product, public debt and the savings-to-income ratio, the ONS allows David Cameron to go into the election flourishing a strikingly better record than many have expected.

Not everything in the new measures – which will bring the UK into line with the US and Canada – will help Mr Cameron rather than Mr Miliband. By bringing Network Rail's debt on to the UK's books and ceasing to count the public stake in RBS and Lloyds as liquid assets, the ONS will effectively push up the UK public debt by more than £100bn. That will enable Labour to argue that government economic strategy since 2010 has made things worse, though it will simultaneously cramp any hopes of extra Labour spending after 2015.

On the other hand, by allowing research and development, and defence production, to count towards GDP, the ONS is expecting to add between 2.5% and 5% to the size of the economy at the stroke of a pen. That's all over and above the healthy 2.9% growth that the IMF predicted for the UK just yesterday. Meanwhile, the ONS intention to count future pension rights as if they are present income is expected to boost the savings-to-income ratio by around five percentage points. That would double the existing ratio and turn Britain overnight into a continental-style nation of savers without a single household putting a single extra penny into their savings. With figures like those, Mr Cameron may even hope to turn the cost-of-living question to his advantage.

There are sound academic arguments in favour of the ONS changes. They are part of a welcome effort to make statistical measures give a more credible picture of a modern economy, as well as to improve international comparability. But the measures still fall well short of the elusive ideal index of wellbeing that another 20th-century US politician, Robert Kennedy, had in mind when he complained that economic statistics measured everything except that which makes life worthwhile.

More immediately, such changes can also do a disservice to the public by making comparisons over time difficult and reducing confidence in the quality of official statistics. In the past generation, the inflation index has been recast, unemployment measures reconfigured and definitions of poverty redrawn. Just last month, after a prolonged dither about whether to change to representative sample surveys, the ONS committed itself to holding a full census in 2021. Every change or threat of change of this kind makes credible public debate harder, and stiffens the task of holding governments to account.

There has never been more data in the public arena than now, but there has never been less shared confidence in it. Trust in politics is at a low enough ebb without adding to the cynicism by moving, or even by appearing to move, the statistical goalposts, especially just before an election. Are you better off now than you were? It's getting harder than ever to say.