A new approach to measuring GDP now includes “household spending” on illegal activities like drugs and prostitution.
The new method is partly the result of a new European accounting rules and include changes to how data is collected and dealt with. It also reflects payouts from defined contribution pensions and the profits of banks. But it is the inclusion of drugs and prostitutes which raises serious questions about the reliability of the figure.
Perhaps unsurprisingly, the Office for National Statistics admits there are “significant limitations” on the availability of data to make these estimates which therefore rely on “a number of assumptions”. So how do you measure the use of something which is illegal (or in the case of prostitution has legal restrictions on it), and so by extension not officially recorded?
Well, because the Home Office says data on the seizure of illegal drugs should not be used as a measure of total drug use, the ONS uses data on the number of drug users and then guesses at the amount they use. Using a variety of sources for data and estimates ONS says drugs added £4.4bn to the economy in 2009.
The statistics body estimates prostitution is worth £5.3bn in that year. But this is based on an incredibly precise estimate of there being 60,879 prostitutes in the UK and estimates of how much they earn.
Once operational expenses like producing or importing drugs or booking a hotel room are taken into account, drugs and prostitution boosted GDP by £9.7bn in 2009. None of these figures seem particularly robust.
How does this fit into the wider GDP figures? The latest estimate of GDP in 2009 is £1.48trn, though the revisions behind this new, slightly higher figure (previously £1.41trn) are far wider than simply including drug and prostitution spending of GDP, which were worth around 0.6 per cent in 2009.
The ONS describes the impact on GDP growth from drugs and prostitution as “negligible” and chief economist Joe Grice says despite the wider changes to how GDP is calculated the “broad picture of the economy has not changed much”. Unsurprisingly, that hasn’t stopped the Government using the numbers to say the UK is now the third fastest growing economy in the G8.
So ironically, and worryingly, despite the legal difficulties around drugs and prostitution (not to mention the Government’s responsibility for reducing crime) the more people use them, the better the figures will look in the run up to the election.
Steve Tolley is a reporter at Money Marketing