Numbers can change but reality doesn’t

One of the least endearing features of British economic life is our national statisticians’ habit of rewriting history so frequently. Every few years, they decide that their old ways of counting beans never actually made any sense and revise the official numbers about the economy in such a way as to radically change the way we think of our country.

In some cases, the “tweaks” only affect a few quarters or years, and then only slightly; at other times they are far-reaching and revolutionary, eliminating at the stroke of a statistician’s pen some of the key “stylised facts” of our political economy. Things we thought had obviously happened – even, in at least one case, a recession – we are now told never actually happened. Entire political narratives – including some that have a huge impact on events and elections – turn out to have been built on statistical sand.

Every time this happens – and I have lost count of the number of such radical shake-ups since I started following them professionally at the turn of the century – all previous analyses, conclusions and policy developments become null and void. I remember the time, not that long ago, where GDP figures were changed seemingly for the entirety of the post-war era. As a result, virtually all empirical macroeconomic work, all economic history and much political research published these past few decades is now obsolete. The wasted energy is mind-bogglingly immense.

Obviously, some or even almost all of these reforms to statistical techniques are improvements: it is hard to add up apples and oranges, especially with technological progress and a world that is increasingly dominated by heterogeneous services.

We used to be very bad at it; we are now getting better (though some of the new methods are based on debatable foundations, to say the least). But philosophically, it makes one wonder whether there is such a thing as “truth” when it comes to the economy, or whether it’s all a matter of opinion or a mere social construct. What is a “fact” when they keep changing? And who guards the guardians of the facts?

This most recent revolution involves, among other things, the savings ratio, the health of households and companies, and the size of the current account deficit.

First, the good news: the story, politically damaging at the time for Brexit, that the savings ratio reached a record low of 1.7pc in the first quarter is no longer deemed true. In fact, the savings ratio is now measured to have been 3.8pc at that time, and even that was lowered for one-off tax reasons. The household savings ratio was a comfortable 7pc last year, up from the old measure of 5.2pc. The British are putting more money aside than previously believed, even if more needs to be done. The big picture, sadly, remains unchanged: we are facing a massive retirement crisis as a result of the demise of old forms of pension provision.

So why are the British saving more? The answer is that their income is bigger, especially if they are selfemployed. As the ONS points out: “An increasing number of owner-managers of businesses chose to be remunerated by dividends rather than traditional wages.”

Households – in other words, people – are in a better place than previously thought. Companies’ share of the overall economic pie is smaller. This goes against the prevailing narrative that capital, rather than labour, was grabbing all of growth.

The bad news is that our current account deficit is eye-wateringly large, and the gap between assets owned by Uk-based individuals abroad and foreigners in the UK is not as good as previously thought. Shockingly, the ONS reclassified £489.8bn to overseas ownership for 2016, a staggering change (other revisions were less extreme).

We are more reliant on what was wrongly dubbed by Mark Carney “the kindness of strangers”. In reality, such strangers are not kind: they aren’t helping for free. They make a return, and are acting rationally. The fundamental problem remains: we produce too little and consume too much.

We are now told that the total scale of the Great Recession was a 6.1pc fall in GDP, rather than a 6.3pc drop. The economy has now done slightly better since the end of the recession: GDP is now 9.3pc above the pre-downturn peak instead of 9.0pc, and we were back to where we were before the recession in the second quarter of 2013, three months earlier.

What does all of this mean? In a way, nothing much: we still have a productivity, savings, housing and current account crisis. Many people are still suffering from weak income, even if the self-employed are better. The numbers have changed, but the reality hasn’t.