Unpaid household services, which are not captured in normal economic statistics, are estimated to have been worth £1.9 trillion in the UK in 2021, according to a lesser-covered ONS dataset released last week. This compares with official GDP of £2.2 trillion. 

The dataset, released every five years, covers the period 2017 to 2021, although there is no 2020 number due to data collection issues at the height of the pandemic. The figure for unpaid household services covers several categories such as housing, transport, clothing, and childcare.

If these services were included in normal GDP statistics, the estimated impact of the pandemic on economic growth would be reduced. Between 2019 and 2021, the official figure for GDP fell by 2.6%, whereas that for unpaid household services fell by only 0.5%. Had these unpaid services been included in the total, output would have been estimated to have fallen by 1.6% in this time period, one percentage point higher than the current official figure of 2.6%.

The aggregate -0.5% growth figure for unpaid household services masks large changes within certain categories. Nutrition output increased by 34% and adult care by 28% – not surprising during a pandemic which might have encouraged people to eat in and to spend more time caring for the old and the sick. On the other hand, volunteering (-32%) and transport (-25%) saw the largest declines over this period, equally unsurprising given the restrictions on movement and on leaving home during the pandemic.

It might be asked why such services are not included in official statistics. The answer is not simply due to the fact such services are provided for free or have an ambiguous monetary value – there are other services that are included in the official data that are equally hard to value in the absence of market determined prices. An example is the official estimates of healthcare spending which grew by 70% in the year to Q4 2021, largely due to the rollout of the vaccine programme. The ONS had to assign a monetary value, clearly subjective, to the provision of a vaccine shot in order to judge the impact on this component of GDP.

The main reason unpaid output is not included is the difficulty in ascertaining the underlying data. While the number of vaccine shots provided during the pandemic was known, estimating how many meals people have cooked for their family members or the quality of that food is less easy.

The estimates of unpaid household services draw attention to the weakness of the official GDP measure that is so widely quoted. This represents a relatively narrow view of economic activity, excluding many non-market transactions such as household services, some illegal activities, often ignoring the negative impact of environmental degradation and (by far the biggest category) excluding the so-called consumer surplus which occurs when you can buy a product at its market price of say £10 when you would have been perfectly willing to have paid £50 for it – the saving of £40 compared with the product’s value to the purchaser is one of the major elements of consumer welfare.

Why do we place so much weight on GDP as a measure of the economy if it captures quite a small proportion (less than half) of all relevant activity? The answer is that it is easy to understand, easy to measure, and easy to compare. However, a greater awareness of its flaws would be beneficial in order to avoid misinterpreting what a rise or decline in GDP represents.

GDP does not represent economic prosperity. Indeed, it doesn’t even capture whether people are better or worse off than before. A better way of looking at that would be GDP per capita, which fell in 2023 despite GDP growing, because the population grew faster than GDP due to the large-scale immigration that took place in that year.

But even this is an aggregate figure. It is generally assumed that an extra pound to someone with little wealth is valued much more highly than the same pound accruing to a billionaire. The aggregate figure cannot take this into account.

In recent years economists and statisticians across the world have been looking at ways of going ‘beyond GDP’ to create metrics that capture prosperity more holistically. 

The most advanced working example of such a holistic measure is Bhutan’s Gross National Happiness Index, which was adopted as the country’s primary measure of prosperity and economic goal in 2008 and includes social and family-oriented metrics.

The result is a measure that has been criticised because it underweights the importance of economic factors. Bhutan has suffered a sharp increase in youth unemployment and a decline in the rate of growth since the introduction of the Index. Moreover the adoption of the measure does not appear to have had much impact on the country’s actual level of happiness since the country was ranked 95th on the Global Happiness Report rankings the last time it featured in the report in 2019. 

The UK too has also experimented with such measures. David Cameron when in Opposition pre the Great Financial Crash (when the GDP data was looking more robust) claimed: ‘It’s time we admitted that there’s more to life than money and it’s time we focused not just on GDP but on GWB – general wellbeing.’ [1] When in government he sent up the What Works Centre for Wellbeing in 2014 with a great fanfare and with the mission to boost national happiness. The Centre was shut down a few months ago with a lesser fanfare after ten years of spending taxpayers money to little if any effect, blaming lack of cooperation from other government departments [2]. 

A group of reputable academics from Oxford have used survey data to estimate a world happiness index by country. The UK has generally ranked around 20th on this measure which is the country’s latest position in the 2024 report, above the US and Germany but below the Scandinavian countries which have persistently scored best on this measure [3]. Oddly, the UK’s best result on this measure was for the Covid year of 2020 when the country reached the giddy heights of 13th place.

Some recent academic research suggests that GDP, for all its theoretical defects, may not be such a bad measure after all. In a recent paper, Nobel laureate Daniel Kahneman (who sadly died last month) and happiness researcher Mark Killingworth have concluded that measured incomes do in fact correlate quite well with other measures of happiness [4]. In other words, money may not buy you happiness, but it turns out to be a good proxy. 

[1] The Guardian – David Cameron aims to make happiness the new GDP

[2] City A.M. – May Cameron’s Wellbeing Unit rest in peace, money can buy happiness after all

[3] World Happiness report – 2024

[4] Penn Today – Does more money correlate with greater happiness?

For more information contact:

Christopher Breen, Head of Economic Insight
Email: cbreen@cebr.com Phone: 020 7324 2866

Cebr is an independent London-based economic consultancy specialising in economic impact assessment, macroeconomic forecasting and thought leadership. For more information on this report, or if you are interested in commissioning research with Cebr, please contact us using our enquiries page.