Data, waves and wind to be counted in the economy

 

Following changes approved by the United Nations, wind and waves will be factored into calculations of countries' economies for the first time. Previously, assets like oilfields were included in these calculations, with the last update made in 2008. This new update aims to incorporate aspects that have emerged since then, such as the costs associated with depleting natural resources and the value of data.

These changes will come into effect in 2030 and could increase estimates of the size of the UK economy. This could make commitments to allocate a fixed percentage of the economy to defense or aid more financially burdensome.

The economic value of wind and waves can be assessed based on the total price of the energy generated by turbines within a country. Additionally, the update recognizes data as a valuable asset in its own right, separate from the physical assets such as servers and cables that store it.

Countries utilize a common framework for measuring the size of their economies and their growth over time. According to Professor Diane Coyle from the University of Cambridge, these adjustments are "tweaks, rather than a complete rewrite" of the existing rules.

Ben Zaranko from the Institute for Fiscal Studies (IFS) describes this as an "accounting" change instead of a substantive one, clarifying that it would not materially improve the nation's wealth or increase tax revenues. However, these adjustments could make economies appear larger, potentially creating future financial challenges for the UK government.

For instance, the Labour Party has pledged to allocate fixed percentages of the economy for defense and aid. If these new rules inflate the estimated size of the economy by 2-3% by 2030, this could add an additional £2 billion to defense spending. Although this amount is small relative to the total government budget, it is significant when compared to the £6 billion in cutbacks to overseas aid that are currently being used to fund increased defense spending, along with the £10 billion remaining for the government to satisfy its self-imposed fiscal rules.

The Office for Budget Responsibility (OBR), which monitors government spending, will not include the potential effects of these new rules in its financial assessments this March. This indicates that the impact of these changes may pose future challenges for the Chancellor rather than immediate concerns.

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