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Welfare Myth Five - The UK Is Rich

01/12/2016 10:59

When I get the chance I try and show how many of the things we believe to be true about the welfare state are actually myths. It's been a while since I did one of these, but one particular myth has become very grating recently - the myth that the UK is a successful world economy and that we are a rich country. This myth is vividly at work in Toby Young's review of the film I, Daniel Blake:

"As it is, poor Katie is reduced to trying to read by candlelight, as her wan-faced children fight over the last digestive biscuit. She is more like a Dickens character than a resident of 21st-century Britain, the fourth richest country in the world."

Toby Young seems to suggest that it is ridiculous to suppose that anyone can be really poor in modern day Britain, because we are the "fourth richest country" in the world. Much of the arrogance and ignorance displayed by Toby Young can be left for other commentators, I just want to focus on the basic factual errors involved in the oft repeated claim that we are the fourth richest country in the world.

The closest this claim gets to being true is when we examine Gross Domestic Product (GDP), which is a description of the total economic activity in a location. The UK does have the fifth largest GDP in the world, less than Germany, but more than France. By this measure, in footballing terms the UK is a Tottenham Hotspur, never at the top, but usually nearby.

However GDP measures economic activity without taking account of prices. You can have high levels of economic activity, but if you also have very high prices then your money won't go very far. So economists adjust for differences in prices by calculating Purchasing Power Parity (PPP) or 'what you can get for your money'. On this analysis the UK is currently 9th, just below Indonesia and just above France. This would make the UK a mid-table performer, say an Everton.

Yet even this is not relevant to the claim that Toby Young makes, because this measure takes no account of the size of the population. A more helpful analysis is GDP, adjusted for PPP, per head. On this ranking the UK is 25th in the world, just below Equatorial Guinea and just above France. So now it seems we have been relegated from the Premiership, but are locked in a top of the table clash with our old rivals France.

So we are getting a little closer to understanding how it is possible that the UK can both have a high GDP and yet much lower levels of real, personal income. However there is one further table we need to examine. For this data doesn't tell us how income is distributed. If income is distributed equally then even coming 25th in the world might not be too bad, but if it is unequal then we can also have high levels of poverty.

In terms of income equality the UK performs very badly. It is 39th in the world, just behind Poland and just ahead of Tajikistan. So the UK is in danger of being relegated from the Championship into the First Division. This means Toby Young was right, except for the fact that fourth is not fifth, he forgot to adjust for prices, the size of the country and the degree of inequality. In other words, he was totally wrong. Citizens of the UK are not rich by world standards and the chance that some of them will be poor is very high.

2016-11-29-1480412509-2189248-InequalityUKGDPStats.jpg

If you were to further adjust for the level of debt (both private and public) in the UK then the UK would slip even further down the world table. We are a country with delusions of grandeur, we spend like we're in the Premiership, while we slip deeper into debt and gross inequality.

Finally, just one more statistic for Toby Young. The Office for National Statistics tells us each year how poor are the poor. Currently, after tax ,the poorest 6 million individuals in the UK have an average income of about £40 per week. So that's why people need to read by candlelight, cannot heat their homes and need to use food banks.

Like me Toby Young is a big fan of Latin, so the question that he might want to consider is "cui bono?" - Who benefits from perpetuating the myth of our economic success?

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