A mix of deep recession and high inflation has left national wellbeing in Britain more than 13% down on its level before the global financial crisis, according to new government data.
The Office for National Statistics said the hit to real living standards caused by the worst downturn of the postwar era had been almost double the fall in national output as measured by gross domestic product (GDP).
Data released in the report on wellbeing showed that net national income per head (NNI) – considered the best guide to real living standards – held up in the early stages of the recession but has continued to drop as a result of the squeeze on family budgets from rising prices.
The ONS said that NNI per head fell by 13.2% between the first three months of 2008 – when the economy peaked – and the second quarter of 2012.
Over the same period, GDP per head fell by 7%. According to the study, the decline in living standards has been more pronounced and longer lasting than in the UK's two previous recessions in the early 1980s and early 1990s.
NNI dropped by around 6% in the slump of the early 1980s but was back to its pre-recession peak within three years.
In the early 1990s, the decline was a more modest 4% fall, and the lost ground had been recouped in two-and-a-half years.
The figures highlight that the political battles over the "squeezed middle" will continue in the runup to the next election.
Even if the data is adjusted to include the welfare state – especially important in Britain with the NHS – it still reveals a bleak picture. This figure, known as real household actual income per head, dropped in the second quarter of 2012 by 2.9% below its peak in the third quarter of 2009.
"This was partially a result of unemployment not rising to the same extent as in the previous recession, and historic low interest rates reducing mortgages payments for those on tracker mortgages," the ONS said.
"In contrast to the recovery from the 1990s recession, however, as the economy emerged from the contraction that started in 2008, real household incomes began to fall; a downwards trend that continued to the start of 2012.
The cause of this fall was primarily due to an increase in prices, such as fuel, utility bills and food.
The increase in prices eroded the growth of household incomes, meaning real household actual incomes fell and therefore incomes would not stretch as far as they would previously."
The data release marks a significant shift in how Britain sees how economic changes affect people's wellbeing.
Since 2008, when a report for the French government by three eminent economists – Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi – argued that when evaluating people's "wellbeing", governments should look at people's income and consumption rather than at production to assess progress, countries have begun to use such measures to size up a nation's happiness.
As the ONS admits: "GDP was not designed as a measure of individual or national wellbeing … Living standards are more closely aligned with net national income (NNI) (the total income available to residents of that country) as GDP can expand at the same time as incomes decrease and vice versa."
One more controversial aspect of the ONS work is the inclusion of national debt as a measure of happiness. At the end of 2011 this was in excess of one trillion pounds, the first time on record, and equivalent to 65.7% of GDP.
The Stiglitz-Sen-Fitoussi report does not mention this measure but only says that some countries lack decent "balance sheets" – timely and complete sets of wealth accounts. This, most economists agree, does not apply to Britain.
However, sources at the ONS say the figure was included because in surveys people's awareness of the "sustainability" of Britain's finances had been heightened by the current political debate.
"People understand that it is a transfer across generations … that taxpayers in the future pay for what was incurred now," said the source.
The report comes before the latest quarterly GDP figures due out on Thursday. These are expected to show that national output grew in the third quarter, bringing to an end the UK's double-dip recession.
The ONS said real living standards were more closely aligned to NNI than to GDP, which was designed as a yardstick of output and not wellbeing. NNI takes account of income flows to and from other countries and capital depreciation.
The ONS said it was possible for GDP to be rising when net national income was falling.
guardian.co.uk
The Office for National Statistics said the hit to real living standards caused by the worst downturn of the postwar era had been almost double the fall in national output as measured by gross domestic product (GDP).
Data released in the report on wellbeing showed that net national income per head (NNI) – considered the best guide to real living standards – held up in the early stages of the recession but has continued to drop as a result of the squeeze on family budgets from rising prices.
The ONS said that NNI per head fell by 13.2% between the first three months of 2008 – when the economy peaked – and the second quarter of 2012.
Over the same period, GDP per head fell by 7%. According to the study, the decline in living standards has been more pronounced and longer lasting than in the UK's two previous recessions in the early 1980s and early 1990s.
NNI dropped by around 6% in the slump of the early 1980s but was back to its pre-recession peak within three years.
In the early 1990s, the decline was a more modest 4% fall, and the lost ground had been recouped in two-and-a-half years.
The figures highlight that the political battles over the "squeezed middle" will continue in the runup to the next election.
Even if the data is adjusted to include the welfare state – especially important in Britain with the NHS – it still reveals a bleak picture. This figure, known as real household actual income per head, dropped in the second quarter of 2012 by 2.9% below its peak in the third quarter of 2009.
"This was partially a result of unemployment not rising to the same extent as in the previous recession, and historic low interest rates reducing mortgages payments for those on tracker mortgages," the ONS said.
"In contrast to the recovery from the 1990s recession, however, as the economy emerged from the contraction that started in 2008, real household incomes began to fall; a downwards trend that continued to the start of 2012.
The cause of this fall was primarily due to an increase in prices, such as fuel, utility bills and food.
The increase in prices eroded the growth of household incomes, meaning real household actual incomes fell and therefore incomes would not stretch as far as they would previously."
The data release marks a significant shift in how Britain sees how economic changes affect people's wellbeing.
Since 2008, when a report for the French government by three eminent economists – Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi – argued that when evaluating people's "wellbeing", governments should look at people's income and consumption rather than at production to assess progress, countries have begun to use such measures to size up a nation's happiness.
As the ONS admits: "GDP was not designed as a measure of individual or national wellbeing … Living standards are more closely aligned with net national income (NNI) (the total income available to residents of that country) as GDP can expand at the same time as incomes decrease and vice versa."
One more controversial aspect of the ONS work is the inclusion of national debt as a measure of happiness. At the end of 2011 this was in excess of one trillion pounds, the first time on record, and equivalent to 65.7% of GDP.
The Stiglitz-Sen-Fitoussi report does not mention this measure but only says that some countries lack decent "balance sheets" – timely and complete sets of wealth accounts. This, most economists agree, does not apply to Britain.
However, sources at the ONS say the figure was included because in surveys people's awareness of the "sustainability" of Britain's finances had been heightened by the current political debate.
"People understand that it is a transfer across generations … that taxpayers in the future pay for what was incurred now," said the source.
The report comes before the latest quarterly GDP figures due out on Thursday. These are expected to show that national output grew in the third quarter, bringing to an end the UK's double-dip recession.
The ONS said real living standards were more closely aligned to NNI than to GDP, which was designed as a yardstick of output and not wellbeing. NNI takes account of income flows to and from other countries and capital depreciation.
The ONS said it was possible for GDP to be rising when net national income was falling.
guardian.co.uk
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