Economic Well-being 3rd March 2015

Email: economic.wellbeing@ons.gov.uk

Introduction & Welcome 3rd March 2015

Joe GriceChief Economic Adviser

Going Beyond GDP 3rd March 2015

Diane CoyleEnlightenment Economics

Peak GDP

Kuznets vs Keynes

A history of dissatisfaction

A reversal of fortunes

The wedge between GDP and welfare

Beyond GDP?

3 separate concepts, 3 sets of measurements

• Economic activityGDP? Production boundary? Satellite accounts?

• WelfareDashboards or single indicator?

• SustainabilityJudgments/predictions about the futureBut look at balance sheets/’genuine saving’

Economic Well-being 3rd March 2015

Val FenderEconomic Well-being Branch

What is Economic Well-being

• While it is 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.

• Economic Well-being presents a complementary framework to shine light on broader socio-economic measures.

• Economic Well-being recognises many dimensions of well-being are outside the material sphere.

• Regular quarterly bulletin to coincide with QNA.

The Framework for Economic Well-being

Key Points (1)• In Q3 2014, GDP per head increased 0.6% compared to Q2 2014 but remains 1.8% below pre-economic downturn levels. This was a slightly slower growth rate than the 0.7% quarterly increase seen in GDP.• Net National Disposable Income (NNDI) per head, which represents the income for UK residents, has remained broadly flat since Q1 2012 and remains 5.6% below pre-economic downturn levels

Key Points (2)

• In Q3 2014, household income (RHDI) per head decreased 0.2% on the quarter, but remains broadly in line with its pre-economic downturn levels. • However, despite recent improvements, households still consider their financial position to be slightly worse than a year ago.

Key Points (3)

• In 2012/13, median income fell 1.4% compared to 2011/12 to £23,300, its lowest level since 2002/03.

• Between 2011/12 and 2012/13, there was a slight increase in income inequality.

Key Points (4)

• In Q3 2014, household spending per head grew 0.8% compared to the previous quarter – continuing the general upward trend that started in Q3 2011.

Key Points (5)

• In 2013, the wealth position of the economy as a whole increased 4.4% to £7.6 trillion.

• In the same year, household net wealth increased 2.6% mainly due to an increase in the value of dwellings.

Next Release

• Next release of Economic Well-being is 31st March 2015

Wealth 3rd March 2015

Elaine ChamberlainHousehold Assets

Data Sources

Figure 5: Net Financial and Non-Financial CapitalUnited Kingdom

Figure 6: Household (Sector) Net Wealth by Assets TypeUnited Kingdom

National Accounts

Strengths• Long time series• Regular updates

Limitations• Detail• Definitions

Data Sources

Table 1: Median Household WealthUnited Kingdom

Year Median Wealth (£)2006-08 196,700 2008-10 204,300 2010-12 218,400

Source: The Offi ce for National Statistics

Summary facts on WAS

• WAS started in July 2006• Longitudinal survey – with each wave lasting 2 years• Wave 1 – approximately 30,000 households• Wave 2 onwards – approximately 20,000 households• New Cohort introduced every wave from wave 3

onwards• Wealthiest 10% of households over-sampled

What does the survey cover

The survey aims to gather an accurate picture of the economic position of the nation’s households. The questionnaire covers areas including: -•Savings and investments•Saving for Retirement•Debts•Value of personal possessions•Attitudes and behaviours•Economic activity•Income

Wealth and Assets Survey

Strengths• Coverage• Breadth of data from a single source• Distribution of Wealth• Longitudinal

Limitations• Self valuation• Difficult subject matter

How is wealth calculated?

Distribution of Total Household Wealth

Aggregate Total Wealth in Great Britain:

£9.5Trillion

Bottom 50% of households 51 to 90% of households Top 10% of households

The bottom half of households owned less than

10% of overall wealth.

The wealthiest tenth ofhouseholds owned more than

40% of overall wealth.

9.3%

46.4%

44.3%

Wealth Thresholds

Top 10% of householdsBottom 10% of households

Total Wealth < £13,000

Total Wealth > £918,000

Top 1% of households

Total Wealth>£2,507,000

Median Wealth£218,000

Regional Distribution of the Wealthiest Households

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%

Scotland

North West

North East

Yorkshire and The Humber

Wales

East Midlands

West Midlands

East of England

South West

London

South East

Percentage

6.9%

15.5%

Wealthiest 10% Bottom 50%

Breakdown of Total Wealth, by Components

Private Pension WealthNet Property WealthNet Financial WealthPhysical Wealth

56.6%

£742,00025.9%£340,000

12.7%

£123,200

£68,000

4.8%£0

£4,000

30.4%

36.6%

£0

3.8%£400

29.2%

£18,000

Financial Debt

Household Financial Debt

FINAL DEMANDOverdraftStatement

£££

Households with Financial Debt

51%

Average Financial Debt(for households in financial debt)

£3,200

Total £94.7 Billion

1 2 3 4 5 6 7 8 9 10

The Extent of Financial Debt

£1 - £1 - £1 - £1 - £1-100

-80

-60

-40

-20

0

20

40

60

80

100

Total Household Wealth Decile

Percentage

Inheritance

£57bn (76%)

£0.4bn (0.6%)

£1.4bn (1.8%)

£4.4bn (5.9%)

£11.8bn (15.7%)

Distribution of Inheritance over a 2 year period

Wealth and Income

Distribution of total household wealth, by total household income quintile

Wealth and Income

Total household wealth, by total household income quintile

10th Percentile

point

90th Percentile

point

2nd Quartile

MEDIAN 3rd Quartile

Future Developments

• Wave 3 publications• Wealth in Great Britain: Wave 4 (Dec 2015)• User Engagement

• Ongoing Development of user documentation• User meetings

• Long term future of the survey• Wave 5• Wave 6 and beyond

Any Questions?

Wealth.and.Assets.Survey@ons.gsi.gov.uk

Economic Well-being: What’s next? 3rd March 2015

Lee Mallett, Claire Shenton and Richard TonkinEconomic Well-being / Household Income & Analysis

Economic Well-being: What’s next?

• Human, natural and social capital

• Household Satellite Account

• Developments in distribution of income statistics

Human Capital

On-going development

• Continue development in response to consultation• Improvements to timeliness• Continue with improvements to understanding –

release and infographic• Report on feasibility of regional estimates of human

capital

• Improving understanding of links to other ONS outputs

Social Capital

• Social Capital represents social connections and all the benefits they generate.

• It is associated with civic participation, civic –minded attitudes and values which are important for people to co-operate such as tolerance or trust.

• ONS developed a framework and set of measures which went out to public consultation

• 25 measures across 4 key aspects - personal relationships, social network support, civic engagement and trust and cooperative norms.

• Baseline analysis of social capital in the UK, using the latest available data, released January 2015.

Ongoing developments

• Develop and refine social capital measures based on ongoing feedback from users

• Carry out further analysis, in particular to highlight inequalities in social capital

• Valuation? – difficult to value social capital overall: 4 different aspects + largely based on relationships

Natural Capital

• The elements of the natural environment which provide valuable goods and services to people such as sub soil assets, clean air, clean water, food and recreation.

• Valuing nature is necessary so that it is no longer ignored when deciding, for example, where to build infrastructure or whether to invest in pollution saving technology.

Future plans (2015 – 2020)

• Broaden and improve natural capital estimates• Water (cross-cutting)• Recreation (cross-cutting)• Semi-natural grassland• Mountain, moorland and heath• Coastal• Urban• Improve the existing accounts• Explore the link with other capitals

Household Satellite Account

• Household production is all unpaid goods and services produced by households.

• Not taken into account by GDP If they were paid for, they would be included in the

National Accounts Means by which the influence of changing patterns of

unpaid work in the economy can be measured

• HHSA is a separate from but conceptually consistent with the UK National Accounts

Household Satellite Account

HHSA: Work to date

• 5 out of 7 methodologies have been reviewed and updated

• http://www.ons.gov.uk/ons/rel/wellbeing/household-satellite-accounts/index.html

• Nutrition and Housing Services methodologies still under development

49

HHSA Estimates

50

£ billion

Improving the timeliness of statistics on distribution of income

• Effects of Taxes & Benefits on Household Income • Produced since 1961 & examines how taxes and benefits affect the income of

households in the UK • Provides estimates of the average taxes paid and benefits received, for different

types of households with different levels of income• Includes indirect taxes (e.g. VAT) & benefits in-kind provided by state (e.g.

Education, NHS)

Improving the timeliness of statistics on distribution of income

• ETB currently published 15 months after reference period • Very strong user demand for more timely statistics

• Improving timeliness without impacting on quality is challenging • Issues with source data presented early publication for 13/14 data• Currently redeveloping plans for future years

Improving the timeliness of statistics on distribution of income

• Also investigating ‘nowcasting’ key statistics from ETB• Nowcasting involves updating existing data to reflect:

• Changes in earnings, labour market participation, population structure, etc.

• Policy changes, including changes to tax thresholds and benefit rates, as well as more structural reforms

• Potential to provide early estimates within a few months of income reference period• Currently undertaking methodological work – need to ensure

methods robust• Intend to publish initial report on work in Summer 2015

Small Area Income Estimates and Households in Poverty Estimates

• Model based estimates of average weekly household income & the proportion of households in poverty

• Available for middle layer super output areas (MSOAs) in England and Wales

Four income measures: 1. Total income

2. Net income

3. Net equivalised income before housing costs

4. Net equivalised income after housing costs

Poverty measure: • % of households with net

equivalised income AHC below 60% of median

Small Area Income Estimates and Households in Poverty Estimates

• Produced using FRS data combined with Census & variety of administrative data sources.

• Income estimates and households in poverty estimates are usually published trienially

• Next set of small area income estimates to be published in Q2 2015

• Next set of households in poverty estimates will follow after the income estimates

• To provide the closest link to Census data, estimates will be for 2011/12

Future Analysis

• 10th March: Poverty and Employment transitions, 2007-2012 • To what extent is moving into employment associated with

moving out of poverty?• How do people leave in-work poverty?

• Distribution of expenditure• What can we learn about how economic well-being has changed

in recent years for different groups?

• Bringing it all together• Better understanding of overall trends in income and earnings