Before I call Dr Roz Savage to move the motion, I remind Members that, unless they have given notice to Dr Savage or the Minister, they are unable to make a speech; I have not had any indication that anybody has given such notice. They are, however, able to make an intervention.
That this House has considered the potential merits of use of alternative measures to GDP within Government.
It is a pleasure to serve under your chairship, Sir Alec, and an honour to introduce this debate on what I believe is a very important subject: alternative measures to GDP. Gross domestic product is still the predominant metric that we use to measure whether Governments are succeeding. I want to suggest today that it is not just an imperfect measure but the wrong one. Before we can agree on a better measure, it might first be helpful to ask what we are measuring for. That means asking a more fundamental question: “What is Government actually for?”
My thoughts on that are that Governments exist to do five things in particular that individuals, families and markets are not able to realistically do on their own. First, to keep people safe, from crime, from conflict and from harm. Secondly, to provide common rules and fairness, the laws, rights and frameworks that stop power being abused. Thirdly, to provide public goods: clean air, clean water, flood protection and infrastructure, the things that markets cannot easily deliver because they are not profitable. Fourthly, to support stability and reduce risk through things such as healthcare and social security, the safety net that helps people to cope with illness, unemployment and old age. Fifthly, and finally, to represent our collective choices about the future, things such as how we balance growth with nature, freedom with fairness, and short-term need with long-term resilience.
To sum up, Governments exist to do together what we cannot do alone. In a democracy, they must do so accountably, so we need an appropriate way of measuring their success.
I commend the hon. Lady for a very commendable speech in setting out what we are trying to achieve. She rightly highlights that, while GDP measures the monetary value of goods and services, it fails to capture critical aspects of life, such as environmental sustainability, income distribution and health. However, it is also a well-established measurement. Does the hon. Lady agree that the Government must ensure that we do not see a new measure that allows failures to be hidden by new definitions?
I thank the hon. Gentleman for his intervention. I absolutely agree with, and will elaborate on, his points about what GDP fails to measure and how it must be complemented by other metrics.
So the crucial question is: if those five things are indeed what Governments are for, how well—or not—does GDP measure whether Governments are succeeding?
I thank my hon. Friend for giving way, and I commend her on her speech so far. Does she agree that the focus on GDP growth will continue to damage quality of life in rural areas by overlooking environmental damage, access to education, social inequality and worsening public health, and that, if the Government prioritised measures of those issues as much as they do GDP growth, we would see greater investment in overlooked rural areas such as Yeovil?
I completely agree with my hon. Friend’s perspective that, in rural areas in particular, the aspects of our quality of life that are not measured in financial terms are very much overlooked by GDP. He makes an excellent point that, in fact, using GDP as the pre-eminent metric disproportionately impacts on rural ways of life.
As I was saying, if my assumptions about what Governments are for are correct, how well does GDP measure whether Governments are succeeding? My answer to that would be: poorly, partially and, in some important respects—as already mentioned by others—not at all. I want to take each function in turn, looking at how GDP either misses or distorts it, or actively points in the wrong direction. First, on safety, GDP cannot measure whether people feel safe, whether crime is falling or whether justice is accessible. However, it counts the cost of building more prisons and policing more disorder, so a rise in violent crime, followed by the state’s response to it, actually adds to GDP. Secondly, on fairness, GDP is just an average; it tells us nothing about distribution. A country could have record growth, but the majority could be growing poorer while a handful are growing extraordinarily rich. It counts the billionaire’s yacht and the foodbank donation as contributions to national output alike.
Thirdly, public goods are where the distortion is most severe. GDP has no entry for clean rivers, unpolluted air, well-functioning flood defences or thriving natural ecosystems. Instead, it records the cost of remediation when things go wrong, never the value of prevention. In my South Cotswolds constituency, the Thames headwaters and the Cotswolds water meadows absolutely underpin food security, flood resilience and community health, but GDP is blind to all those things. Logging a forest, draining a wetland and concreting a floodplain all register as economic activity and contribute to GDP, while the loss of the natural ecosystems that made those landscapes valuable disappears without a trace.
Would the hon. Lady add to her list a request that the Minister consider a formal target to cut inequality in this country? We will never grow our way to a good life for all our citizens while we have a fundamentally unjust society; we will only break the environmental boundaries we are already rapidly burning past.
I thank the hon. Member for his very insightful intervention. In the doughnut economics model, we are in many ways in “overshoot”, while the basic needs of many in our society are not even being met. That is one of the major failings of GDP: it does not show how the benefits of growth and the wealth of the country are being distributed. I have been very impressed by the work of Kate Pickett, who spoke at the recent Lib Dem spring conference on this very subject. She spoke about her “spirit level” concept and argued that greater equality in a society works better for everybody, including the people at the top.
If we are honest with ourselves, we can now see the cost of ignoring the warnings of Simon Kuznets and Robert Kennedy. We can see that warning embodied in polluted rivers that once ran clean, in communities that feel left behind and in a politics that too often measures success in pound signs rather than human outcomes. We have the evidence, and we have the frameworks; we just need the willingness to change the definition of what we value, because what we measure shapes what we prioritise, what we prioritise shapes our decisions and our decisions shape the country that we will be in five years, 10 years and 50 years from now. Let us take an active choice to measure what matters: the wellbeing of our people, the health of our planet and the future we hand on to future generations. Let this Parliament be the one that finally aligns how we measure success with what success actually means.
It is always a pleasure to serve under you, Sir Alec. I start by congratulating the hon. Member for South Cotswolds (Dr Savage) on securing this debate and on her speech. I am glad to be here for three reasons. More than most Ministers, I enjoy a chance to discuss statistics, so that is high on the list. The second reason is that I agree with lots of what the hon. Member said about the broad purpose of government and the need to reflect all that in how we govern. The third reason is that everybody likes a quote from Bobby Kennedy, and she has supplied one.
I will start with some of the areas of less agreement and then come to our agreement, so that we can end on a high. A good summary of my view is that there is a very large amount more to life than GDP, but that the lack of GDP growth in recent years has been a very big problem for ordinary working people. That was the big absence in the hon. Member’s speech: she did not wrestle with the fact that the lack of GDP growth over the past 15 years has been a huge problem for the British people that has had real effects on all our constituents, particularly those on the lowest incomes. Much of her speech could have been given in 2010; it did not engage with the real world as we have lived it for 15 years, and the catastrophic consequences of a lack of productivity growth feeding through to a lack of wage growth, feeding through into food bank use and the rest. Those are really important things that her speech did not do justice to.
All of that does not mean that I do not agree with lots of the points she raised, but I see those as being entirely consistent with the Government’s view that economic growth does matter, but not as an end in itself. It matters because it remains one of the most reliable ways to raise living standards and because, for example, wages in Swansea, where I am a representative, did not grow between 2009 and 2023. That is what a failure of Government looks like, and it is a failure of GDP growth, not because of too much focus on GDP growth.
On the point about statistics and what GDP measures, I ask the Minister to take away the issue of imputed rent. A fairly strange part of GDP, it measures hypothetical rent on the value of existing houses, inflates the value of our GDP as a country, and could be part of what we are measuring when we say that we are trying to achieve GDP growth, though it is actually entirely theoretical.
A debate has come on to imputed rent; we can tell it is nearly 4.30 pm on a Tuesday. The hon. Member is tempting me—and I will engage with the question. What is the big picture that matters regarding the state of Britain when it comes to housing? I will come to why imputed rent is relevant to that and tells us something important.
Housing in Britain is too expensive—incredibly expensive —but most of the population of Britain do not face market housing costs because they are homeowners who bought a long time ago. The negative effect of those high housing costs is very severe for a subset of the population. If I am honest, I think that is why Liberal Democrats oppose house building left, right and centre: the consequences for younger generations of not having built, over the last 20 years, homes that they can live in, that keep their housing costs down and that let them and their children lead a decent life have been ignored because we did not care enough about—forget GDP—actual people and their families. That is what happened. Imputed rent tells us the effect of that, which is that those people who do not face market housing costs but do live in a property that they own, are receiving a stream of benefits from owning that property. By living in it, they are consuming that; that is all that is telling us. The important lesson from GDP and housing is, “Get on with building some houses because younger generations are getting stuffed over,” not, “We paid too much attention to GDP.” That would be the opposite of what it teaches us.
What is GDP a measure of? It is imperfect for lots of the reasons that have been set out by my hon. Friend the Member for North East Hertfordshire (Chris Hinchliff), but it does represent income flowing into people’s pockets, business revenues, and a tax base that funds our public services. Those things do matter. My hon. Friend is right that they are not the only things that matter—I totally agree with that—but they are real things. They are not abstractions, and we do need to care about them. If people do not care about those things, they do not mind that Britain has seen the lowest levels of business investment in the G7 year after year.
Fourthly, on stability and risk, GDP counts healthcare spending, but it cannot tell us whether people are getting and feeling healthier. It counts anti-depressants and ambulance call-outs as contributions to output. By the logic of GDP, a pandemic is an economic opportunity. Fifthly, collective choices about the future are possibly where GDP fails most completely. It has no mechanism for accounting for the harm to future generations. By design, it rewards short-term thinking, and it is constitutionally incapable of answering the question, “What kind of a country do we want to be 50 years from now?”
The conclusion is inescapable: GDP was designed to measure the volume of economic activity, no matter what form that activity takes. Using it to assess whether a Government are fulfilling their five core functions is like using a thermometer to tell us whether a patient has recovered. The patient’s temperature may be perfectly normal, but their leg may have fallen off.
I have a couple of quotes worth remembering. Robert F. Kennedy put it with devastating precision in 1968. He said that GDP
“does not allow for the health of our children, the quality of their education or the joy of their play…It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.”
Meanwhile, Simon Kuznets—the economist who actually invented GDP in response to the great depression of the 1930s—had already warned that it should not be used as a measure of national wellbeing, yet we have been ignoring his advice ever since.
Unfortunately, GDP is not just partial; it can be actively misleading, because it creates perverse incentives at the heart of Government. As the Wellbeing Economy Alliance observes, our current system has four interlinked flaws: it is unsustainable, unfair, unstable and creates unhappiness. Critically, neither the brake nor the accelerator works any more. Faster GDP growth will only worsen biodiversity loss and accelerate climate change. In a system where a fabulously wealthy former Prime Minister pays an effective tax rate of just 23%, it will almost certainly also worsen inequality. That is the trap that GDP has built for us. It is a metric that makes it structurally challenging to do the right thing, because doing the right thing does not always show up as growth.
Moves have already been made in Britain in this direction, and we already have the data, but we do not use it. I will give credit where credit is due. When he was Prime Minister, the former Member for Witney, Lord Cameron, launched the Office for National Statistics national wellbeing programme, and also quoted Robert Kennedy. Since 2011, the ONS has published a framework tracking national wellbeing across 60 measures and 10 topic areas, across personal wellbeing, health, relationships, environment, governance and more. In February of this year, the ONS launched a new set of seven headline measures to be updated quarterly, explicitly aligned with the UN high-level expert group’s recommendations.
We have the data and what it tells us is striking. Since the pandemic, self-reported health has been in sustained decline. Trust in Government rose briefly after the last general election before falling back to lower than pre-election levels. Those trends are invisible to GDP yet are essential to any honest assessment of how our country is doing. Sadly, those measures, no doubt laboriously collected, sit on the ONS website largely unread and almost entirely ignored by Government. I suggest that it is time to use them.
Elsewhere in the world, countries are moving ahead. They are building better measures, embedding them in law and using them to govern. Last week, I was at the Wellbeing Economy Forum, two days of serious exchange with policymakers, economists and practitioners from across the world. It was tremendously inspiring. Three things were unmistakeable: we have the intellectual case and the technical frameworks but the only thing missing in too many countries, including this one, is the political will.
I will cite three examples of countries showing what is possible. Iceland rebuilt after the economic collapse, not by chasing GDP recovery but asking its people what they wanted. It is now one of the wellbeing economy Governments, alongside Scotland, New Zealand, Wales, Finland and Canada, all of which have introduced wellbeing metrics to guide public policy and budgetary processes. In Wales—not so far away—the Well-being of Future Generations Act 2015 legally requires every public body to act in the long-term interests of the next seven generations. That was initiated by Jane Davidson, a woman I am proud to call my friend. While I was at the conference last week, I had a long conversation with Sophie Howe who was Wales’s first future generations commissioner, and is now an internationally respected voice. If it can be done in Cardiff, I see no reason why it cannot be done in Westminster.
Thirdly, in Sabah, Malaysia, my good friend Cynthia Ong began the Forever Sabah movement, with a single simple question: where will Sabah be in 50 years if it continues down its current development trajectory? That question should be the founding question of every Government; not how fast are we going, but where are we going and what will we leave behind?
I have requests of the Government that would make a significant difference to my constituents, to every person here in Westminster, to the country and to the generations not yet born. The first is to use the data we already have. I am delighted we have a Minister from the Treasury here. Maybe he could relay the request to ask the Treasury formally to integrate the ONS wellbeing dashboard into spending decisions, alongside GDP, not instead of it.
Secondly, to require natural capital accounting in all major infrastructure and land-use decisions, so that the destruction of a flood plain, a peatland or a water catchment carries a recorded cost on the national balance sheet, not just a planning objection. If we value it, we must measure it. Thirdly, to introduce a parliamentary committee for the future, as called for by a coalition of organisations, including the School of International Futures and the Policy Institute at King’s College London. The committee would consider the long-term wellbeing of those who will inherit the consequences of today’s decisions. It should be not just a gesture but a committee with real teeth. Wales has shown that that is entirely achievable.
GDP is also important because it is very highly correlated with—I am not saying it is a cause of them—other things that we do care about: health and wellbeing. The correlation between longevity and GDP over time and across countries is very strong indeed. We all, I think, care about longevity because we are hoping to go on for as long as is humanly possible—not in speeches but in life generally.
It is good news that the UK has seen some signs of progress in GDP. It had the highest GDP growth among European countries in the G7 last year. The hon. Member will have seen recent GDP statistics for the start of this year, which show more significant growth than people expected. But—this is where I am in complete agreement with her—there is much more not just to life but to government and statistics than GDP. We care about secure power, clean water, lower poverty and lower inequality, not just higher GDP. All those things are incredibly important and we should care about all of them; Government’s job is to focus on them.
Let us turn to GDP and some arguments that that the hon. Member made about it. I will explain why I do not quite agree, even though I agree with many of the big-picture arguments that she made. Her argument was that there has been too much focus on GDP recently and that has led to bad outcomes. Has there been too much focus on GDP? If so, it has not had any effect because there have been the lowest levels of GDP growth that we have seen in a very long time. GDP per capita fell in the last Parliament—so there was apparently a huge focus on it but it fell. Growth in GDP per capita over the 10 years prior to that Parliament was incredibly sluggish. Was that because there was too much focus on it? No. That is why people oppose the building of houses: they do not care about younger generations or care enough about GDP; they just care about themselves, in some cases, and that is not acceptable any more.
Why, if we cared just about GDP, would successive Governments, disgracefully including the Liberal Democrats after 2010, have slashed public investment levels? Such public investment boosts GDP in the long run. That would be the target. It is a good thing for our society. It would make our country cleaner and help with clean water and the energy crisis, yet public investment levels were slashed. People were not motivated by GDP; they were motivated by easy politics. That is what happened in that Government.
The hon. Member gave the specific example that building prisons would boost GDP. Is that what actually happened? The last Governments, from 2010 onwards, did not build any prisons. They were not motivated by GDP; they were motivated by easy answers. That is why we have had to come into Government and deal with the prisons crisis that was left to us. What actually happened was the opposite of the argument that the hon. Member made.
It is sometimes argued that GDP and the other things that we care about are in tension. I totally agree. But remember: there is one area where they heavily overlap. GDP, in many ways, measures the effectiveness with which we turn resources into output. That is what we who are environmentalists should care about. We want things to become more productive. Fewer resources going in to produce the same output gets us higher GDP and a better environment. That is a really important point to hold on to. We have had a 17% fall in energy usage in the recent past. Some of that is because we have become more efficient at using that energy. That is absolutely the kind of productivity growth that we need; it helps GDP but it really helps the environment.
Turning to areas of agreement, I absolutely agree with lots of what the hon. Member for South Cotswolds said about the limitations. I also endorse her praise for the approach of the Welsh Labour Government in this area; lots of my friends have spent years developing that work. On its own, GDP does not capture everything that underpins either our economic strategy or what matters in people’s lives; that is absolutely correct. It does not, for example, tell us how growth is distributed or about wealth inequalities, physical and mental health, and environmental sustainability. As the hon. Member set out, those limits have been long recognised, but we need to keep pushing against them. In 2016, the Bean review set out some of the issues that she has raised about the need to consider broader measures of wealth distribution and natural capital. In response, the ONS has put more resources into some of those things. Some progress has been made over the last 10 years—obviously, we were not in government so I am not claiming credit for that.
The Dasgupta review further encouraged us to treat natural capital as an economic asset, as we absolutely should. Those principles have been accepted by the Government and they are being embedded in decision making. Hon. Members will have seen the supplementary guidance to the Green Book that puts in place the appraisal of environmental impacts alongside economic costs.
The truth is that it is easy to say that everyone just myopically focuses on GDP. I have set out that that is not the case because if they did, hopefully we would have seen a better job over the last 15 years. The truth is that across Government we consider a much wider range of economic indicators. Wellbeing is an important one; I have carried out research on wellbeing data and it does have something to bring to the party. But the strongest conclusion from wellbeing data is that people need a decent income and they need to be healthy. The Government do focus on those things because they should. Because we care about wellbeing, we are lifting the two-child limit. Because we care about health, we are investing in the health service to bring down waiting times. Our tax rises, which are opposed by all the Opposition parties, are delivering those things. We care about wellbeing because health is really important.
Even within economic indicators, what is the truth? We look at indicators not just on GDP, but on income, pay, employment, jobs, regional performance, and the environment. I encourage the Government to continue to do that. Ongoing improvements to the national accounts will also help better capture natural capital and the quality of public services, not to mention AI and the things that tend to get reported in the newspapers. Ministers look at all those things when they make policy. When I am looking at pensions policy, I am definitely into the weeds of health data and healthy life expectancy. I promise hon. Members that GDP is not dominating all those decisions.
To conclude, GDP remains central to how we understand the economy. It tells us something important, but partial. Both of those things are important to understand. It is not remotely a measure of everything that matters. It does not aim to do justice to non-market interactions, which is a technocratic phrase for the fact that it does not do justice to some of the most important things in our lives—not least, caring for each other. That is why this Government are so committed to both reversing the dreadful economic performance seen under the previous Government—performances that left wages flatlining—while also assessing success against a far wider range of measures. The goal is a Britain that is not just growing but thriving.