Today the ONS has published its latest GDP statistics, showing that UK GDP grew by 0.3% in the three months to May 2019. This monthly release typically attracts widespread media coverage debating the ins and outs of the latest minute change, reflecting the preoccupation with GDP as the dominant measure of economic performance.

In recent years, steps have also been taken by the ONS to start recognising well-being as an indicator of how the country is doing. The Measuring National Well-being programme was established in November 2010 and it was in February this year that the ONS brought personal and economic well-being measures together as part of their Beyond GDP’ initiative.

While this is welcome progress from our national statisticians, economic policymakers in the UK remain preoccupied with the traditional’ measures of GDP growth and stable inflation. Therefore it is not surprising that New Zealand’s recent well-being budget, aiming to shift focus away from GDP onto five priority areas of social and economic development, has attracted considerable attention. Could it signal the start of a paradigm shift that could eventually reach our shores?

the UK remain preoccupied with the traditional’ measures of GDP growth and stable inflation

The jury is out on whether New Zealand’s well-being budget will lead to meaningful changes in policy and outcomes. Alternatively, it could prove little more than a rebranding exercise: leaving the status quo largely unchanged in substance. But if history is any guide, we should pay attention to New Zealand. Back in the late 1980s they pioneered the major change in economic policy that saw independent central banks given control over interest rate policy, and which has since been widely adopted by advanced economies – from the US to the UK and the EU.

The major challenge of the 1970s and 80s was high and volatile inflation faced by many Western governments. In the UK, curbing inflation was a major preoccupation of the Thatcher government which, after a decade of policy failures, led to Britain entering the European Exchange Rate Mechanism (ERM) in 1990.

New Zealand, on the other hand, pioneered what we now call inflation targeting’ – giving the central bank operational independence to fulfil a mandate of maintaining inflation at a low and stable level. It was a major paradigm shift. Government relinquished a significant degree of direct control over macroeconomic policy. Only after the UK’s infamous exit from the ERM during the Black Wednesday on 16 September 1992 did the UK follow the New Zealand example, setting an explicit inflation target for the Bank of England, before eventually granting the Bank independence in 1998.

But just as inflation was a key challenge three decades ago, so too is the climate emergency today – only substantially more serious and urgent. And while inflation targeting has reduced price instability in the West, the broader economic framework failed to prevent the housing bubble (and the resulting 2008 crash), nor did it provide enough tools or focus to prevent inequality from rising. The challenges of the 21st century require a new paradigm to shape economic policy in a way that works both for the people and the planet. History shows that when the orthodox’ rules fail to deliver, they can be changed.

The challenges of the 21st century require a new paradigm to shape economic policy in a way that works both for the people and the planet

What might such a paradigm shift involve in the UK? It would need to go beyond monetary policy (of which inflation targeting is a tool) and incorporate fiscal policy (government taxes and welfare spending) too. The Treasury would need to reject the false analogy between the national and household budget. It would also need to recognise the economic and social damage resulting from austerity and shift focus away from prioritising deficit reduction and towards maximising welfare.

NEF has previously proposed five indicators of measuring what matters, beyond GDP, deficits and inflation: good jobs, well-being (life satisfaction), environment, fairness, and health. These could be candidate indicators – among others – for a future well-being budget’.

The tide of economic ideas in the UK has already started turning. The Welsh government introduced the Well-being of Future Generations Act in 2015, and in recent weeks Labour announced it would push for a similar law to be passed for England. More concrete indicators of well-being are increasingly becoming recognised as economic measures in their own right. Environmental consciousness also is growing and politicians are beginning to pay attention. The next step is to change the rules in a concrete fashion.

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