It’s a tricky job measuring economic activity and a bit thankless when its relevance is so frequently debated. But not normally quite as much as now.
The Office for National Statistics yesterday released details of its estimate of the impact on GDP of methodological changes to improve the usefulness of the statistics. Some of the changes are down to new standards adopted in the European Union.
Usefully, we hope, there will be an estimate for own-account construction – or self-build to you and me. This is expected to amount to about £4 billion a year.
There was, however, a bit more juice in some of the other amendments. What raised most eyebrows was that trades such as the drugs trade and prostitution will be included in the official estimates of GDP (gross domestic product).
It’s caused a few headlines and some puzzling reporting, along no doubt with tutting.
I read one suggestion that prostitution accounted for more activity than construction another that drugs and prostitution accounted for more activity than real estate activities.
Unless I am misreading something badly, this is of course bollocks.
The ONS estimates that “illegal activities (drugs and prostitution)” account for about £10 billion a year in terms of GDP. Exactly how the intermediate inputs will be taken into account I must admit I remain a bit hazy, but there will be intermediate inputs. Lighting and heating for cannabis farms for instance in the case of drugs. So the value added may be less, depending on how this is all recorded and how data are collected.
Anyway, broadly it means on average each person annually spends about £150 on these illegal activities. In reality the spending pattern on these goods and services is not evenly distributed. There will be big consumers and many (most) who are non-consumers.
I understand, though we must wait to see the final tables, that there will not be intermediate consumption of these services within the figures.
Now let’s look at construction. Getting straight matches is never quite as easy as you might think.
The most quoted figure for the industry is construction output. In cash terms that was about £121 billion in 2013. This figure includes bits that come from other industries, such as materials and rental firms. It doesn’t however include cash in hand jobs, which account for a slice of housing repairs and maintenance work. It doesn’t include work done by architects and other consultants. It doesn’t include work done in-house by firms in other industries.
If, however, we look at GVA (gross value added) at current prices (KKI3), which strips out intermediate inputs we end up with £85.4 billion. This does include some estimates for unrecorded activity picked up through spending patterns. But again it doesn’t include some activities most people would think of as construction-related such as plant hire and design. It doesn’t include construction work done in-house by firms.
Either way on any measure construction is an order of magnitude bigger than the estimates for prostitution and drugs activities combined.
As for real estate activities (KKL3), GVA here came in at about £155 billion in 2013. So the difference is even larger.
What worried me slightly was that there seemed to be those on twitter and journalists prepared to accept there might be more prostitutes and drug dealers in the UK than estate agents or construction workers.
However much you might try to avoid estate agents, surely that’s hard to accept.
Maybe I mix in different circles.