Family living standards are the real test of economic success

Over the weekend Ed Miliband asked Andrew Dilnot, the head of the UK Statistics Authority, to consider introducing a new measure of UK living standards. He said: “A future Labour government would use the indicator as the key measure by which we would expect our success to be measured”.

This mirrors proposals in the Fabian Society’s 2014 report, Measure for Measure. In that report Robert Tinker and I wrote:

The experience of typical families is more important than aggregate measures of success: economic success isn’t success if it is not shared by the typical, median household. That is why our headline measure of economic success is median household income…

We propose 20 measures which reflect two overlapping priorities: the need for a more sustainable, long-term economic model; and a commitment to broader-based, more equitable growth. At their core is an overall headline measure of British economic success – rising prosperity for typical families, measured by real median incomes…

Improvements to typical living standards should be the first test of national economic success … GDP is not an adequate measure to capture financial prosperity for typical households, since change in real GDP has been a poor proxy for change to real median household incomes.

Ed Miliband’s letter also highlighted the deficiencies of the current measurement of living standards. He called for timely data, with a quarterly measure based on data that is no less than six months old. And he also argued for a comprehensive measure that takes account of wages, prices, taxes and benefits.

At the moment the National Statistics offer one or the other, but not both combined. As we said in Measure for Measure, the most comprehensive indicator of household disposable income is published with a very significant lag (the most up to date statistics are for 2012/2013) and also uses a measure of inflation that is now discredited. In the report we wrote:

To be a national headline indicator this measure should be published much more rapidly, as soon as data collection permits. Some have also called for a measure of this kind to be published more frequently so that it can be better monitored alongside GDP. There is controversy regarding the best measure of inflation, with neither the Consumer Price Index nor the Retail Price Index considered appropriate. Time series based on alternative inflation measures are not available.

On a technical level Miliband’s letter matters because it will take time and effort to redesign the official statistical surveys so they can provide data on living standards in ‘real-time’ as they do for employment and economic output.

But if you’re not a stats geek you can ignore all that. The central message is much bigger: if Labour is in office after the election, the government’s test of economic success will be family living standards.

Measure for Measure by Andrew Harrop and Robert Tinker was published in March 2014, with support from a grant from the Barrow Cadbury Fund.