Lies, Damned Lies, and Monthly Statistics

Please just fix the LFS

Rachel Reeves has crashed the economy and we’re all doomed! You’d be forgiven for thinking this based on the response from the opposition parties and some parts of the media to the latest monthly GDP release from the ONS. In case you missed it, the data shows that economic growth dropped by 0.3 per cent in April.

You can’t really blame the opposition parties – especially the Conservatives – from gloating. As the eagle eyed and excellent economist Julian Jessop spotted, this time last year the then Shadow Chancellor was criticising the then government for the low economic growth in April. What is more, given that the government was taking credit for the 0.2% growth in March by proclaiming that it was a sign that the economy was turning a corner and was a vindication of Labour’s policies, if you’re going to try and take the credit for when things go well then you have to be prepared to take the blame when things take a turn for the worse. What is more, Rachel Reeves herself did not help matters by expressing her disappointment with the figures and how she was confident that things would be better next month.

I know that politicians and journalists need to have something to talk about and score political points but they need to stop obsessing over data for one single month or a poll showing how popular they are that month. Such a mindset encourages short term thinking and can make politicians more likely to jettison (possibly) good policies.

In fact, the government should tell the ONS to stop producing monthly estimates of GDP. This would be politically tricky because it would likely be accused of trying to cover up its failings. It should do it anyway.

This is not to say that the ONS should not be collecting and analysing monthly data, rather they shouldn’t feel the need to spend their time writing about it and publishing it. Monthly estimates give a skewed picture because they are so short term and can trick politicians into thinking that their policies are working/failing and the economy is growing/shrinking.

For example, the Tories would have you believe that GDP contracted in April due to the terrible policies enacted by Labour. While I agree that the majority of the economic policies of the government – especially on the fiscal side – are dreadful, that is not what is going on here. The reason why growth was so low in April is because it was surprisingly high in March. This had nothing to do with how well the economy was actually doing but rather that firms frontloaded a lot of activities and ramped up production in order to avoid Trump’s tariffs as well as people rushing to avoid the changes to Stamp Duty Land Tax. Now, all of this is interesting and allows economists and policy makers to see how distortionary some policies such as tariffs and stamp duty (kill it with fire) are, but they do very little to tell us anything useful about the overall strength (or weakness) of the economy.

Monthly estimates are a bit pointless and so they are also not a good use of resources. I’m a big fan of the ONS as they have a difficult job and they often do it well. They explain data and statistics and what it means for firms and households in an engaging and accessible way and they’re alway happy to chat when you call them up and ask them to clarify a few things.

However, there are also serious failings at the ONS. The low quality of data for vitally important information such as the Labour Force Survey (LFS) means that we have no idea how many people are actually in work or have decided to exit the labour market and why. I’ve written before on why this is really bad news given how important these figures are for policy makers in the government and the Bank of England. These policy makers use things such as the LFS when it comes to deciding tax rates, childcare, welfare, social care, and monetary policy. As such, it is vitally important that the ONS gets this right.

Therefore, it was disappointing to see that the ONS told the Treasury Select Committee that it probably won’t have the LFS in better shape until 2027. This is unacceptable. Fixing the LFS should be one of the main priorities for the ONS and so this is where it should focus its energy.

The ONS is an organisation with finite resources and so should use them effectively and the priority right now should be fixing the LFS. There are a number of ways it could go about this which would include looking at how to attract the very best talent. Moving the headquarters to Newport in Wales was obviously a mistake and so the government should relocate it to London or at least a major city where ambitious young graduates would like to work such as Newcastle, Manchester, Bristol, or Leeds (hello, Tom Forth).

It should also look at pay which is often pitifully low especially for the people who actually conduct the surveys. Ironically this is an anecdote rather than data but my mum once ended up doing a survey for the ONS which involved having the researcher turn up once a month and he was usually late and would reek of cigarette smoke. The ONS is not sending its best (or maybe it is). It’s time for the government to start paying more money to hire the best people (and get rid of the dross).

However, the most effective thing it can do right now is to simply stop doing the monthly estimates. This will free up the time of the staff there and allow them to focus on fixing the LFS.

Monthly GDP estimates show us nothing, are a bad use of resources, and in some cases probably leading to bad policies being implemented. The ONS should focus on what really matters and so make improving the Labour Force Survey its number one priority.

Spending Review

You may have noticed that this past week we had the Spending Review. It’s not quite a ‘Fiscal Event’ and so far less exciting for those of us who like that kind of thing. It was still interesting though in the same way that getting your test results from the hospital is. It represents a massive splurge in public spending with Our NHS getting yet even more money and taking its annual budget to the same size as the GDP of Portugal. We also saw an increase in funding for loans, guarantees, and investments which reflects the change to the Chancellor’s fiscal rules announced in the Budget last year. I’m probably going to write something about this but I have a hunch that Reeves will change her rules again and move from PSNFL to a PSNW target.

Anyway, you can read my thoughts on the Spending Review for LBC here.

Thanks as ever for reading! Time for me to go and enjoy the sunshine (playing snooker inside).