Thinking Outside the Box (Part 1): Real Living Standards

Publication Date01 May 2019
Date01 May 2019
AuthorDavid Hearne,Alex de Ruyter
When comparing regional living standards, we’re typically
most interested in the welfare of residents of an area (rath-
er than its workforce). This chapter discusses the preferred
welfare measure of many in the Ofce for National Statistics
(ONS) (Dunnell, 2009) – gross disposable household income
(GDHI) – before touching on a measure of deprivation, name-
ly the Index of Multiple Deprivation (IMD). This has critical
salience for those ‘left-behind’ (Goodwin & Heath, 2016)
in the ‘places that don’t matter’ who voted most strongly
to leave the European Union (EU) (Rodríguez-Pose, 2018).
The chapter is structured as follows:
• Introduction – This section gives a brief discussion
of GDHI per capita, its component parts and the
regionalisation process adopted by the ONS.
• Price levels – Here we introduce a more detailed
discussion of the primary weakness of the GDHI measure:
its failure to account for different living costs across
20 Regional Success After Brexit
regions. We draw on the latest data to develop and
appropriate correction for this and demonstrate its impact.
• Operating surplus – This addresses a further relatively
minor technical issue in the regionalisation process used
to account for imputed rent.
• Inequality – GDHI takes no account of inequality and this
section discusses the possible scale of the issue.
• IMD – Here we briey discuss the IMD, noting its
advantages and disadvantages, and show that it requires
similar corrections to GDHI in order to take account
differences in the cost of living across Britain.
GDHI per capita is a measure of average regional living
standards. It includes household income from all sources and,
unlike GVA, is calculated on the basis of residency. Thus, if
a pensioner living in Devon receives investment income that
is ultimately generated by prots from a company in London
then it is counted as disposable income in the South West. As
such, it is a superior measure of average living standards, but
should not be used to measure productivity, regional output
or to describe the economic geography of an area.
GDHI is dened by the ONS as being ‘the amount of
money that individuals in the household sector have available
for spending or saving […] after expenditure associated with
income, for example taxes and social contributions’ (West
et al., 2016, p. 34). The regional GDHI gures published by
the ONS are compiled on a ‘top-down’ basis. In practical
terms, this means that the ONS begins with national aggre-
gates for each component part of GDHI and then uses a vari-
ety of indicators to apportion them in turn to each region.

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