Inclusive Income: How the ONS is moving beyond GDP

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As well as producing high-quality economic analysis and statistics, the ONS has been working on radical plans to go ‘beyond GDP’. This work includes new and innovative metrics reflecting the impact of economic change on people and the environment. Richard Heys introduces the new measure of ‘Inclusive Growth’, and explains what it says about how our lives and environment are changing.

I joined the ONS as Deputy Chief Economist in 2015, and the two things which really struck me were firstly the extensive range of data being produced and secondly how little was done to look closely at GDP and what makes it strong and so relied on, and then work out whether we add some of the other data we had to it to tell a clear Beyond GDP story. In short, many people focussed on the ‘Beyond’ rather than the ‘GDP’ bit and were not considering how we exploit the data we already held.

Increasingly, it became clear to me that I wasn’t the first to think this way, the more I learnt about the National Account the more it became clear that the internationally agreed System of National Accounts (SNA) was a framework explicitly designed to bring together myriad data sources and has a clear objective weighting system, and had started to move in this direction.

When the SNA was first fully implemented in 1968 it focussed only on the core economic accounts and omitted other things, such as human capital, unpaid work and the environment, but that did not mean even then these were seen as unimportant. There was a grand hope of wider statistical frameworks, which have not yet fully been delivered. The SNA revisions of 1992 and 2008 effectively said ‘we’ve now got capacity to lead the charge on these issues’ and started to incorporate the most directly relevant of these into their framework through a set of what became labelled ‘satellite accounts’.

And importantly, they said two key things: firstly ‘the satellite accounts need to be consistent with the core accounts’ – that is no double-counting or omissions and secondly ‘to allow comparison, we need to value all these satellite accounts in common terms, that is in market prices’.

In other words, all the design work had been done to add these satellite accounts to the national accounts and get a broader picture in a consistent and objective fashion. All one had to do was work through the data, ensure these two principles of consistency and weights had been delivered in practice and do the math.

ONS staff undertook this through two research papers published via the ESCOE in 2019 and 2021, which reached a point of being able to deliver quantified estimates for 2005-2016 and prove the concept of creating new single indices which take national accounts methods. These measures, Gross Inclusive Income (GII) and Net Inclusive Income (NII) reveal both the relative size and value of the components and the trade-offs between these, so, for example, if GDP increases but at a cost to the environment and the services it delivers citizens, this would be seen by the GII growth rate being lower than that of GDP. This initial research work proved the concept so we moved on to the next stage of producing robust estimates as proper experimental statistics.

Today, therefore, we are delighted to take the next step of delivering, for the first time, a new routine statistical bulletin containing GII and NII estimates for 2005-2019. This allows us to bring the data far more up to date and allows us to share a view of wider ‘economic wellbeing’ as captured by these metrics.

In short, GII grows more slowly than GDP and NII grows more slowly than Net National Disposable Income (NNDI), their ‘national accounts equivalents’. What does this mean? It means that GDP over-estimates wellbeing as other factors are growing at far slower rates, or indeed have shown negative growth over the time period.

It equally shows that the GDP perspective of the Great Financial Crisis exaggerates the true impact of both the decline during the recession and then the speed of the recovery, with movements in GII and NII being far more muted.

Now the eagle-eyed amongst you may spot our research estimates said GII growth was faster than GDP and we’re now saying its slower. This is because we’ve made some methodological improvements. This process of ruthlessly testing and challenging these data is how we ensure the data are as strong as possible, so we make no apology and particularly want to thank users and reviewers who asked us challenging questions along the way that led us to reconsider our approach.

But the work doesn’t stop here. Human capital is the next big area that we will work to include. We cannot just add it to GDP like the other elements, as some components of human capital are already included. In addition, we need to bring data up to date through the pandemic. Both of these are likely to significantly change our perception of these data and will bring these data to a next level of development, and we hope to issue updates in coming months.

So, how should you use these data? Beyond GDP is on a journey, but I would argue we shouldn’t be afraid of that. Whatever we end up seeing once human capital is captured, all the components in play will still be there and the mitigating effect we see, which reduces growth below that shown by GDP amongst the components we’ve captured will still be there. Whether human capital depreciation makes this better or worse, the picture drawn from the components already captured won’t change and sends a clear message that a wider policy perspective of what improves quality of life is required and looking ‘Beyond GDP’ can reveal important new lessons.

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

Richard Heys is Deputy Chief Economist at the ONS.