National Statistical

Inclusive Income: How COVID-19 affected our new measures

Image of grandparents playing with a baby

Image of grandparents playing with a baby

Our headline measure of the size of the economy, Gross Domestic Product, is produced rapidly and relied on widely. So it’s no surprise that when the pandemic hit in 2020 we saw a focus on the rapid fall in output it revealed. But how does our understanding change if we take a wider perspective on the economy and account for the sustainability of economic activity? Here Cliodhna Taylor looks at some wider metrics that we have just published for that period.

As part of its ‘Beyond GDP’ work, the ONS has been developing measures of ‘Inclusive Income’ which reflect all the goods and services households consume, whether from the market economy (as shown by GDP) or not – things like childcare delivered by the family or the value we get from the environment. Including these elements allows us to better account for the sustainability of that activity, as we described in a blog last year, and to understand when people have traded off making something themselves (for example, cooking at home, which is not in GDP) against buying services (going to a restaurant for a meal, which is in GDP). This phenomenon was particularly important during the lock-downs associated with COVID-19.

During the pandemic

A lot changed in the UK economy during the coronavirus pandemic. Some of the broad changes were easily observable at the time: staff were furloughed, travel was discouraged, most children didn’t go to school in person. Fast economic indicators gave an indication of the scale of many of these quickly, but the data weren’t always comprehensive. Even GDP, the go-to measure of overall economic activity, masked some of the biggest changes. It didn’t quantify the value of additional childcare done at home, or the value of the human capital which was furloughed rather than working.

Today we release our first estimates of Gross Inclusive Income (GII – broadly equivalent to GDP) and Net Inclusive Income (NII – which takes account of capital depreciation, like measures such as Net National Disposable Income) for 2020 and 2021, as well as incorporating several improvements to the measures – including a move to measuring inclusive income on a per-person basis. These new data, which draw on the Household Satellite Account dataset also published today, paint nuanced and revealing new pictures of the UK economy both during the pandemic and in the years preceding it.

Despite increases in childcare and nutrition provided at home, the total value of unpaid services undertaken by the household fell in 2020, largely due to the very significant fall in household transport services (people driving their own cars or walking / cycling to work or leisure activities) because of lockdown. However, unpaid economic activity in the household fell less than did activity in the market sector. This results in GII – our expanded measure of economic activity – indicating a smaller contraction in the economy in 2020 than that shown by GDP. In general, since 2005 GII paints a less volatile picture of economic progress than GDP, with shallower falls during the financial crisis and coronavirus pandemic and slower growth in the intervening years.

As well as better understanding changes in economic activity, we can better understand the sustainability of those activities. NII accounts for the depreciation of capital stock, that is, the expected decrease in its value regardless of whether it is used in production or sits idle. This includes not just the wear and tear of machinery or the obsolescence of software, but also the depreciation of human capital and the depletion of natural capital. By subtracting depreciation from our measure of economic activity we can understand how much value was created in a period over and above the amount needed to replace that lost wealth.

NII shows a much steeper fall in 2020 than either GDP or GII, accompanied by a stronger (but still partial) rebound in 2021. This reflects the fall in sustainability of economic activity in those years; particularly during lockdowns, machinery was less utilised than usual and furlough meant that an increased portion of the workforce were not engaged in producing economic value through their employment. Nevertheless, the value of that capital, regardless of whether it was engaged in production, fell in value by a similar amount to previous years.

Before the pandemic

However, these new data also provide a very different perspective on the years immediately preceding COVID-19. We are used to comparing more recent data to ‘the pre-pandemic peak’, which for GDP happened in 2019, immediately before the pandemic. However, GII tells a different story. Here the peak came earlier, in 2017, and GII steadily declined after this. The main driver of this was falling quantities of activity in the home – so GDP continued to go up, but we see greater decreases in areas such as care for adults at home, and home cooking. Given the nature of the ageing population this may appear surprising and we are investigating further. Nonetheless, whilst we normally associate rising GDP with improvements in living standards, in this instance where GDP is going up but the growth is cancelled out in other parts of GII, it is possible for the outcome overall to be a fall in living standards in this scenario.

Next steps

While these data are helpful for understanding trends in economic activity and its sustainability, this area of research remains work in progress, and we would expect numerous theories to explain these trends to surface as more people study these data. To support this, whilst this latest publication includes several improvements, including the incorporating of human capital depreciation and natural capital depletion, the ONS has a continuing programme to improve the timeliness and quality of these statistics. We plan further analyses which we hope will be useful to our users. If you have an interest in the direction of these statistics, we invite you to join a user group which we are setting up to inform our prioritisation and direction by contacting us at inclusive.wealth@ons.gov.uk.

 

 

 

Cliodhna Taylor is a senior statistician in the Macroeconomic and Environment Statistics and Analysis branch at the Office for National Statistics. 

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