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Measuring Illegal Activities in the National Accounts
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Brian Sturgess, World Economics, June 2018
Until 2014 the only illegal activity measured in the UK National Accounts by the Office of National Statistics was the smuggling of alcohol and tobacco. The European System of National Accounts 2010 requires statistical bodies to measure consensual illegal economic activities such as drug consumption and prostitution. In 2014 the first estimates measured the contribution of illegal drugs and prostitution at 2009 prices to UK Gross Domestic Product (GDP) at just under £10 billion. The estimates are based on a flawed methodology using survey data while private sector figures suggest that the contribution of the cannabis market alone to GDP may be over three times the official value of £828 million .
Using Price-Adjusted Income Data to Measure Regional Income Inequality Across the UK
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Julian Gough, World Economics, March 2018
Data for gross disposable household income for each region of the UK are published annually by the Office for National Statistics. The latest provisional data available are for the year 2015. The annual data for household income are in nominal terms only—i.e. they do not allow for differences in prices between regions of the UK, which distorts the results. A reliable deflator to correct the nominal data for differences in inter-regional price levels was derived from the regular survey of prices for calculating the Retail Prices Index, augmented by a special survey of prices of goods and services. When allowing for price level variations between nominal and real household income in different regions the greatest impact is on London. In real terms, household incomes in London are 6% lower than in nominal terms, amounting to a reduction of about £12.4 billion.
New Estimates of Regional GDP in the UK
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Julian Gough, World Economics, June 2017
Real GDP is estimated by applying a price-level estimate or deflator to nominal GDP, but GDP levels in the UK’s 12 inhabited regions are only reported at nominal prices with no allowance for differences in regional prices. A purchasing power parity (PPP) rate for the £ in each region, measuring how much a typical bundle of goods and services would cost, is required to create an accurate index to apply to nominal GDP in order to get real regional values. A solution lies in creating an expenditure-based, weighted, regional price index for consumers’ expenditure, government spending, investment and exports, to adjust nominal data to real price levels. Using imperfect public data, creating an expenditure-based index makes a significant difference to the size of each regional economy and to GDP per capita. In real terms, the London economy shrinks by 12%, the South-East contracts by 2% and all other regions increase in size.
Discount Rate Set Too High
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Angus Hanton, World Economics, September 2012
The size of government liabilities is only now becoming apparent, but the choice of discount rate is crucial in estimating these. Historically this has been set using Green Book methods and FRS17 accounting standards, but now government is moving to using a rate based on hoped-for economic growth of 3% plus inflation. The more prudent rate to use would be the much lower gilt rate of under 1% – the government’s long-term index-linked cost of borrowing. Use of the 1% rate would show liabilities more than £2 trillion higher, and these will increase as the effects of using the higher discount rate ‘unwind’. Furthermore, the overoptimism from using a high discount rate can lead to poor policy decisions in pensions, government spending and strategic planning.
Some Proposed Methodological Developments for the UK Retail Prices Index
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Mick Silver, World Economics, March 2003
The Retail Prices Index (RPI) is one of the UK’s most important macroeconomic indicators, as well as being used for indexation/adjustments for inflation to wages and benefits. This paper argues that the dynamic changes in product markets and consumers’ responses to price changes need to be incorporated into the RPI if it is to effectively measure changes in the cost of living. The quite positive and innovative work undertaken by the Office for National Statistics (ONS) is acknowledged. However, the basis of the RPI, in measuring the price changes of a matched, fixed basket of goods, is considered inappropriate to modern markets. Some proposals are made.
Poles Apart
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Paul Gregg, Kirstine Hansen & Jonathan Wadsworth, World Economics, June 2000
Analysis of labour market performance using individual level data can reach radically different conclusions to those provided by a household-based analysis, using the same source of information. In Britain and other OECD countries the number of households without access to earned income has grown despite rising employment rates. Built around a comparison of the actual jobless rate in households with that which would occur if work were randomly distributed, the authors show that work is becoming increasingly polarised in many countries. Changing household structure can only account for a minority of the rise in workless households, so that labour market failure is the dominant explanation. Polarisation of work will have important welfare and budgetary consequences for any country.
Extending the UK National Accounts
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Amanda Rowlatt, World Economics, March 2000
The national accounts measure economic activity. The UK is developing "satellite accounts" which use the framework of the national accounts but aim to quantify other aspects of living standards. This article starts by comparing satellite accounts with the use of indicators to measure the quality of life. It then reports on progress with the UK environmental accounts, and with the household accounts, which measure the productive unpaid work done in the home. It concludes with a discussion of the scope for developing a wider range of satellite accounts for the UK.



Displaying: 1-7 of 7