If the UK is so rich, why are most of us so poor?

You hear it bandied around all the time, we’re the 5th richest country in the world but we have austerity because we’re actually poor.

What’s the truth? Well it’s something in between.

Before we go on, you must remember that there are lies, damn lies and statistics.  We’re going to be talking statistics here.

When you look at the UKs Gross Domestic Product (GDP) we’re the 5th richest.  Which means that the total value of all the goods and services we create (before the cost of producing them is taken into account) is the 5th highest in the world.

Our population size of 66,959,016 makes us the 21st most populous country in the world.  So we’re certainly generating a lot more GDP than you’d think we would for our size. That doesn’t tell much of the story though because it’s a country total.  What’s more useful is GDP per capita as that tells us how much each person contributed to that amount.

This is where it gets really interesting. In October 2018, the International Monetary Fund (IMF) projected where we’d rank in 2019 for GDP per capita. They say that per person, the straight out GDP will rank us 23rd, below Germany, France, Australia, Singapore, Belgium, Netherlands and Ireland.  Huh? I hear you say. We’re a high tech, high-ish population country yet somehow we lower down the ranking for per person GDP? This is partially to do with the strength of the pound, as when GDP is compared against other countries it has to be converted into a common currency, so exchange rates count. This kind of GDP figure is called Nominal GDP as it is fine for a high level comparison but doesn’t really tell you very much – except our productivity isn’t as good as it could be.  This should come as no surprise to anyone who has an interest in these things as even 10 years ago productivity in the UK on a EU scale put us at the bottom with Greece.

What this doesn’t do is tell us how reasonable prices are for this supposed wealth that every one of us has.  So what economists use to get a bit more information about how rich is a country, is a calculation called GDP (PPP) per capita, which uses the costs of the same basket of goodies for every country worldwide. Working out where the purchasing power of a country’s GDP ranks them is called purchasing power parity (PPP).

Again, the IMF did a projection and they say that GDP (PPP) per capita ranks us 30th in the world, the only ‘developed’ countries worse than the UK are Greece and New Zealand. So despite all this money sloshing around the UK, we don’t really benefit from it as everything is so expensive.

So what does this really mean?

In a nutshell, the UK is considered rich because we are producing a lot of high value goods and services. Each person is a lot poorer than their counterparts abroad as everything here costs so much more to purchase, so we don’t have the money to easily buy a lot of the things people in other countries can.

Yes, we’re better off then people in Greece or New Zealand but we’re worse off than pretty well every other ‘developed’ country in the world. Austerity has contributed to this by reducing government services, which means an extra cost on people to source the service from a private provider, wages have been suppressed, the government subsidy paid to employers via working tax credits to the truly low paid have been cut and the basic utilities we need like accommodation, transport, electricity and gas have increased well beyond inflation and the rate of pay rises.

Next time you see a company bleating for increased government subsidies and other corporate welfare, remember they’re still paying unduly large dividends to their shareholders as they artificially maintain the share price and therefore the valuation of their companies.  It’s not the workers in these companies that are causing the issue, it’s the greed of management with their high wages and bonuses and the shareholders with their demands for high dividends.

Further Reading

http://statisticstimes.com/economy/projected-world-gdp-ranking.php

https://www.focus-economics.com/blog/the-largest-economies-in-the-world