Fast-growing economy but worse-off people

Britain has become significantly worse off since the last election, and economic well-being has declined by more than one-fifth since 1980, once official growth figures take account of factors such as pollution and crime, according to an authoritative new study due to be published later this week. The study sheds light on why the apparently thriving economy has not boosted the Conservatives' standing in the opinion polls. Contrary to John Major's claims, there is no economic basis for a "feel-good factor".

The suggestion that Britain has not had it so bad contrasted with the never-had-it-so-good message being promoted by the Prime Minister - echoing the famous line of Harold Macmillan in the 1959 election.

Twenty years on, when Margaret Thatcher took over from Labour in 1979, Mr Major told BBC television's Breakfast with Frost yesterday, the key issue was whether Britain was a "basket case, the sick man of Europe". He added: "Well, the sick man of Europe in 1979 is now the role model of Europe economically in 1997."

But this week's new figures tell another story. They mark the first update of a key indicator in five years by the University of Surrey for the New Economics Foundation, an independent think-tank, and Friends of the Earth. The indicator adjusts national income for a variety of factors that affect economic well-being, but are not included in the conventional measure, Gross Domestic Product.

The index adds the value of unpaid work in the home to GDP. But it subtracts costs arising from income inequality, caused by increased crime, from pollution and the depletion of resources such as North Sea Oil, and from so-called "defensive expenditures" such as spending on security as a result of fear of crime.

The calculations show that the per capita index of sustainable economic welfare increased, although at a slightly lower rate than GDP, until the late 1970s. But whereas GDP has increased by nearly 50 per cent since 1980, the sustainable welfare index has fallen by more than 20 per cent.

The value of work within the household has increased substantially during the past 18 years. But its boost to the value of the economy has been more than offset by big deductions for sharply increased income inequality, for long-term environmental damage and running down natural resources, and for costs of commuting and private spending on health as a result of pollution.

Charles Secret, director of Friends of the Earth, said: "John Major and Tony Blair are still competing over who will achieve the fastest growth. When will they start competing over who will improve our quality of life?"

Tim Jackson, who headed the research team at the University of Surrey's Centre for Environmental Strategy, said: "The updated index is an urgent wake-up call to politicians of every party."

The index, derived from official statistics, is used by economists as the only reliable published alternative to the standard official figures.

Leo Doyle, an economist at City of the London investment bank Kleinwort Benson, said: "I am pretty sceptical of GDP as a guide to economic welfare. Economists tend to look too much at the size of the cake, not how it is carved up or the quality of the ingredients."

Government statisticians are also sympathetic to the need for a better measure of economic well-being than GDP, and broadly accept the methodology behind the index of sustainable economic welfare. However, the official approach is to provide alternative information in "satellites" - such as the environmental accounts published for the first time last year - rather than publishing a single indicator.

The New Economics Foundation's forthcoming paper says: "There is now an utter divorce between economists and what they measure, and the real day-to-day factors that make for the quality of life of British citizens."

Mr Doyle said: "Alternative indicators inevitably make particular value judgements but they cover all of the right ideas."

Mr Major said yesterday: "This country is incomparably better off in the beginning of 1997 than it was when I was re-elected in 1992, and we have a platform for prosperity for the future unmatched, literally, for generations."