Getting the right tools – How we are creating wider estimates of GDP

Picture of a forest

GDP, as an internationally accepted measure of the economy, is often criticised for missing much of what is important – how much work people do for free in their own homes and what impact the economy has on the environment. Richard Heys talks about plans to develop wider measures that go beyond GDP and what they tell us about our changing society and economy.

It’s an old saw that Gross Domestic Product (GDP) is not a good measure of welfare. Like a hammer, it is good for the job it was designed for, but not much use for others. This is a growing challenge given the pace of change in the economy and society, and as much as statisticians may argue that GDP shouldn’t be used when it is the ‘wrong tool’, in a world where it is the ‘only tool’ it is important to recognise that we may not be giving data users much choice.

So, if the GDP hammer isn’t going to be the ‘right tool’, then maybe it is time to invent the screwdriver. This takes us down a frequently walked path: many groups, commissions and reviews have considered alternative measures; whether they be single indices, like GDP, or more complex dashboards containing a variety of estimates.

Today an ONS research team has published a discussion paper, through the Economic Statistics Centre of Excellence, outlining a new wider index which is consistent with, and complementary, to GDP.

We want to use pre-existing data as much as possible, so the new measures can be produced on a consistent basis with GDP and other national statistics. We also want to use existing, international agreed frameworks and methodologies centred around national accounting methods as far as possible, effectively widening the range of activity under consideration. Where this isn’t possible, we use methodologies and data which would be readily available in countries outside the UK.

The new index reflects the wider range of factors that impact economic welfare by bringing unpaid household production and flows of benefit arising from the environment into the picture, as we don’t only derive value from what we purchase or consume. For example, in 2020 many parents had to increase their childcare and ‘home-schooling responsibilities during the pandemic. This ‘work’ isn’t included in GDP estimates, but will be included in our new metric.

Finally, we want to recognise the importance of ‘capital’, in all its forms. That means not just recording how much businesses and governments invest, but also how the environment has been impacted by economic growth (natural capital). As we develop these numbers further, we plan on including data on the investment in people’s education and learning (human capital) too.

This new index, including the impacts of these wider factors, shows substantially stronger growth, around 10 percentage points more growth over the period 2005 to 2016.

Does that mean we advocate this measure replacing GDP? No: there is, and will always be, a place for GDP in economic decision-making. Just because one has a screwdriver doesn’t mean you throw away your hammer. Nevertheless, having a wider economic welfare measure that complements GDP and builds upon, rather than re-designs, national accounts, means a fuller, richer picture for policymakers and the public.


Richard Heys, Deputy Chief Economist at the Office for National Statistics