As the New Year dawns the latest evidence on living standards is ominous for the Government facing election in little more than 4 months time (a March election can be discounted). The best official indicator is real personal disposable income (RPDI), but those figures will not be available for some months yet. Meanwhile the independent think tank Oxford Economics has produced estimates for gross domestic product per person which on a 12-year time series, adjusted for inflation, still accurately measures the change in sense of economic well-being. Between 1997-2001 GDP per head grew 12.6%, a healthy 3% a year. During 2001-05 it dropped slightly to 8.3%, still 2% a year. During 2005-09 however it has turned negative, a fall of 1.3%. People on average therefore (though not the filthy rich, as Mandelson would put it), are worse off than 4 years ago. GDP per person was some £23,000 in 2005, but it is now estimated to be only some £22,700, and by next year even after some anticipated economic recovery it will still be only some £22,775, a drop of about £225 on average (inflation adjusted) compared to 2005. That is not good news.

Of course other countries have suffered too from the economic downturn, though not quite to the same degree as Britain. Using dollars as the comparative international currency, Britain’s GDP per capita reached $45,890 in 2007, not far behind the US and well ahead of all the other main OECD countries – Germany, France, Italy, and Japan. However the UK average has now fallen to only £35,590, nearly a quarter less than the US and over 10% lower than in Germany, France and Japan. Somewhat humiliatingly, the UK GDP per capita in 2009 is no more than Italy which is one of the poorest performing economies in Europe.
Maybe a fairer international comparison lies in the PPP (purchasing power parity) measure which compares income per head after taking account of the raltive cost of living in different countries. On that basis the UK relative position on GDP per capita looks rather better since it shows British living standards in 2009 as higher than in Germany, France, Italy and Japan, though still trailing the US by almost 25%. And in 2010 it is likely even on the PPP measure that the relative position of British living standards will worsen somewhat because the US economy is recovering more strongly from recession and Germany, France and Japan have all registered a return to growth while the UK economy in the third quarter of 2009 still shrunk by 0.2%.

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