UK To Follow US In Raising GDP Without Raising NI

Britain will now follow the U.S.and consider spending on intellectual property as investment rather than cost of production.

It will also consider the accumulation of future pension rights as present income.

As I pointed out when the U.S. made those changes this will not really make the country richer as cashflows stay the same. It will at least in the long run raise consumption of fixed capital as much as it raises GDP, leaving net income unchanged.

The problem is that unlike the U.S., Britain doesn’t publish numbers over consumption of fixed capital and net income, at least not in the quarterly national accounts, so the distortion won’t be as obvious as in the U.S.

It remains to be seen if and when other European nations will make these changes. If they don’t then U.K. GDP numbers won’t be strictly comparable to GDP numbers in other nations.

This whole mess about how to define capital investments and therefore GDP illustrates how it would be much better to focus on net domestic product or national income.

The effect of counting pension rights as household savings will similarly not really raise national income or savings. If pension rights count as household savings, then they must start counting as dissaving for companies or governments issuing those rights.

These changes may make the U.K. economy look better, but don’t fool yourselves in to thinking that there has been any actual improvement.

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