The Office for National Statistics has published a report revealing the financial well-being of households in Britain was better last year. However, it did also show that the situation had not significantly improved since five years ago.
The report showed that Read Household Disposable Income in the year to December 2014 had gone up by 1.9%. However, the figure arrived at was only 0.2% greater than that from the second quarter in 2010.
The variable of Real Household Disposable Income is the measure that the Chancellor of the Exchequer, George Osborne, prefers to use. It accounts for household income after tax and includes an adjustment for inflation.
The Office for National Statistics are implementing new variables and measures in order to gauge the level of economic growth but also economic well-being.
Additional information published by the ONS includes the level of optimism in households pertaining to their finances. The report has revealed that optimism has improved in the year to December 2014.
The figure was recorded at -5.2, revealing that the amount of people who believed their financial situation was becoming worse still outnumbered those witnessing an improvement. However, the ratio was better than the -7.6 that had been logged the year previously.
The ONS also revealed that household spending has gone up. In the year to December 2014, real household spending increased by 0.3%. It has increased by 3% since 2010 went the coalition government were first empowered.
The introduction of these new variables was first proposed by Joseph Stiglitz, a Nobel Prize winner in economics. In 2009, Mr Stiglitz suggested that as well as using Gross Domestic Product (GDP) to examine the production level and income generated in the economy, it was necessary to evaluate individual households.
The critique of simply using Gross Domestic Product as a measure is three fold. Firstly, comprised in the figure is the depreciating value of such commodities as cars yet the majority of people would not look at a depreciating car as a reason to believe they were in a worsening financial situation.
Additionally, some of the income recorded when accounting for GDP goes to people living outside of Britain, such as foreign investors. Further to this, some British citizens receive income from foreign investments.
The last problem with using just GDP is that it tends to go up as a figure as the population does. To get a more accurate picture of the economic situation, it should be recorded as “per head”.