By Chris Giles
A radical overhaul of the national accounts this autumn will double the official measure of household savings, presenting Britons as a nation of unexpected prudence and undercutting their widely held reputation for profligacy.
For the first time in 15 years, the Office for National Statistics is preparing to rip up the way it measures Britain’s economy, with the new techniques showing a huge increase in the size of the economy, a higher level of public debt and a much increased savings ratio. There is also a good chance that the statisticians will significantly revise up growth recorded in the economy in 2012 and last year.
The reforms will have the potential to both overturn Britain’s reputation as a spendthrift nation and significantly improve the poor productivity performance of recent years.
The ONS yesterday outlined the new global accounting standards it will introduce in September, following similar changes already introduced in the US, Canada and Australia.
Under the new system, research and development spending will count towards gross domestic product rather than being seen as a cost of production, and building aircraft carriers and other weapons of war will also add to the size of the economy. The ONS said the change would add between 2.5 per cent and 5 per cent to GDP, or £40bn-£75bn to the total.
One of the biggest changes, announced by ONS officials yesterday, arises from how savings are measured. From now on, the official figures will count future pension rights as if they were present income.
With Britain one of the few countries to have a large funded defined-benefit pension system, the change will significantly raise measured household incomes, increasing the savings ratio. Officials said the ratio would rise “by around 5 percentage points”, practically doubling the current 5.1 per cent to about 10 per cent, far closer to that of other European countries.
ONS officials also highlighted that their preliminary measures of spending in 2012 were much stronger than the existing national accounts suggest, raising the possibility of a large upward revision to 2012 growth.
One possibility for a rise in spending not showing up in income, officials said, was a rise in the grey economy with growing numbers of self-employed doing more work for cash.
Research by Morgan Stanley suggests a rise in cash used in the economy is a sign of a growing informal economy and tax evasion. If statisticians find corroborating evidence, they will revise up the growth numbers.
Other changes will sharply increase the scale of government debt by more than £100bn as the reforms classify Network Rail’s debt as part of government obligations and no longer classify the state’s shareholdings in Royal Bank of Scotland and Lloyds as liquid assets that could be sold quickly. (FT)