Treasury Aims (Quality of Life) - Westminster Hall debate

Speech delivered on Wed 11th Jun 2008

I have a vivid memory of one of the first economics lectures that I attended during my time at the London School of Economics. The lecturer, the excellent Morris Perlman, who is sadly no longer with us, made clear to the undergraduates right at the beginning the distinction between money and wealth. "Money is pieces of paper or numbers", he said, "but the wealth that you have is the sum of all the things that you value-both the things with a monetary value attached, like your home and possessions, and the things without a price tag, such as relationships, a feeling of security and your health."

It is not just economists. Philosophers, too, contribute to the debate about what we really value. Earlier this year, A. C. Grayling said:

"Happiness is the measure of true wealth".

I shall explore how we can measure that wider definition of the nation's wealth and the implications that it has for policy making. I shall argue that levels of happiness are important, useful and integral to the concept of quality of life, as other Governments around the world, and even Departments other than the Treasury, acknowledge. I shall argue that happiness can be measured reliably and robustly and that the Treasury can and should do practical things to improve the nation's happiness and quality of life.

The Treasury's stated aim is:

"To raise the rate of sustainable growth, and achieve rising prosperity and a better quality of life, with economic and employment opportunities for all."

I commend the Treasury for including a better quality of life in its aim, but I question whether that is taken as seriously as the growth and prosperity aims. Without quality of life being taken into consideration, growth is meaningless. Gross domestic product grows after natural disasters or oil spills, as the clean-up operation is costly, but it obviously does not follow that such events are desirable. If GDP growth comes as a result of our working longer hours, we may find our quality of life negatively affected. A Department of Trade and Industry study in 2004 found that 87 per cent. of employees said that they would like to spend more time with friends and family. If some of those employees were to cut their working hours to see their family more, GDP would fall. Would that be a bad thing, if that decision enhanced their quality of life?

Research clearly shows that our quality of life is not getting better. The world values survey tells us that, if anything, we as a nation are less happy now than we were in the early 1980s. We can go back further using polling evidence from Gallup, which shows that despite increases in GDP, we are less happy even than in the 1950s. Back in 1968, the late Robert Kennedy said in a famous speech:

"There is more to life than GDP."

The debate about the best way for societies to measure progress has continued ever since. The blinkered pursuit of GDP growth on its own can lead to perverse decisions. We should recognise the limitations of pursuing GDP growth and introduce other measures to capture quality of life.

This idea is gaining momentum. Last week, Ipsos MORI dedicated its summer conference to the subject, under the title, "Who's Happy Now?" Governments around the world are looking seriously at going beyond GDP, and not just the Government in Bhutan. Earlier this year the French President, Nicolas Sarkozy, commissioned two eminent economists, Joseph Stiglitz and Amartya Sen, to develop alternative measures of progress to GDP that would better reflect people's well-being. Forty-eight Members from both sides of the House have signed my early-day motion 731, acknowledging static levels of happiness and the need for the Government to measure and address that. The British public agree. In 2006, a BBC-commissioned GfK NOP poll found that 81 per cent. of the British public think that the Government's prime objective should be happiness and not wealth.

As I have mentioned, other Departments are also addressing this issue. In 2002, the Cabinet Office commissioned a paper on the subject, "Life Satisfaction: the state of knowledge and implications for government". Although it was not a statement of policy, the paper declared that:

"There is a case for state intervention to boost life satisfaction due mainly to evidence of direct impacts on life satisfaction of government activities, together with strong evidence of the dependence of individuals' wellbeing on the actions of others."

The paper suggested a range of actions that the Government could take, including at the top of the list:

"the use of life satisfaction data to construct quality of life indices".

Following the 2007 UNICEF study of 20 developed nations, in which children in the UK ranked lowest in terms of happiness and well-being, the Department for Children, Schools and Families has introduced "SEAL classes", or so-called "happiness lessons", in schools. The Department for Communities and Local Government has included subjective well-being measures in its new 2008 national indicators set, which will be used by local authorities to keep track of progress. It is also supporting the Local Wellbeing Project, which is being conducted by the Young Foundation to test practical interventions to improve people's happiness in three local authority areas in the UK. The Department for Environment, Food and Rural Affairs has started to measure "life satisfaction" as part of its sustainable development indicators, and it has commissioned a sizeable body of research that highlights ways in which Government action could impact on happiness.

I very much welcome these moves. Many Departments are beginning to take the issue seriously. However, to bring all those activities together and co-ordinate what will otherwise be piecemeal efforts, the Treasury needs to take a lead. Sadly, when I raised this subject with the Chancellor in November 2007, while he waxed lyrical about growth and prosperity, he seemed less than serious when he said:

"I am willing to consider a Liberal Democrat happiness index".-[Hansard, 29 November 2007; Vol. 468, c. 428.]

I hope that I am wrong, and that the Treasury has an open mind about creating robust measures of quality of life.

If the Treasury is to consider measuring quality of life, quality of life obviously needs to be defined. On 22 February, I asked the Chancellor what definition the Treasury is using, and I received this answer from the Financial Secretary to the Treasury:

"Productivity and employment are the key determinants of growth and therefore of living standards. However, a large volume of other data are also important indicators for a broader measure of quality of life, such as those on crime, working hours, social capital, social demography and health."-[Hansard, 22 February 2008; Vol. 472, c. 1117W.]

That answer rightly recognises that living standards are not the same as quality of life.

Living standards have certainly increased in recent decades but, as I have said already, quality of life has not. The factors that were listed-

"crime, working hours, social capital...health"-

and so on are all important to quality of life, but with such a vague definition, it is not clear how the Treasury can measure overall progress towards its aim of a better quality of life. The answer also misses out how quality of life should be defined-the answer is by asking people. Measuring the subjective well-being of individuals is essential, if we are to know how the quality of life is changing. Asserting that quality of life has increased on a range of sterile indicators is not much use if people do not feel any happier or more satisfied.

Some would argue that happiness cannot be studied or measured accurately. However, science tells us otherwise. Lord Layard, the well respected Labour peer, goes over the evidence that it can be measured at some length in his 2005 book, "Happiness: Lessons from a New Science". He is clear that the answers that an individual gives to subjective well-being questions not only match the answers that friends or independent observers would give about their well-being, but also correlate with scans indicating activity in corresponding parts of the brain.

Furthermore, the Government's own sources suggest that a life satisfaction question is both robust and useful. A DEFRA paper published last year, "Sustainable development indicators in your pocket", states:

"The independent research commissioned by DEFRA concluded that life satisfaction measures should provide reliable information about wellbeing in a policy context."

Of course, just asking people how satisfied or happy they are may be interesting, but it will not help the Government to understand how to enhance quality of life. That is why a range of indicators needs to be developed and correlated over time with the subjective well-being question, so that trends can be established and policies changed accordingly.

There is already a large body of research into the determinants of happiness. A paper commissioned by DEFRA, "Review of research on the influences on personal well-being and application to policy making", which was written by Professor Paul Dolan and others in 2006, gives a comprehensive review of the research that has been conducted so far. In particular, the findings on income and work are interesting. The paper states:

"The majority of individual level studies find a positive association between absolute income and well-being".

We might assume that to be the case, given that most people tend to try hard to increase their income. However, the paper goes on to say:

"The results generally suggest that there are diminishing returns to income i.e. the well-being hit of income falls as income rises."

Beyond a certain point, therefore, policies that prioritise making us richer will not necessarily yield large pay-offs in terms of our happiness.

The Treasury is right to identify employment as a key driver for quality of life, although that is not just about the growth as a result of higher employment, as might be thought. Instead, the same DEFRA paper found that

"being unemployed has severe and long lasting negative consequences for life satisfaction and happiness, which cannot be explained only in terms of the loss in income."

The conclusion to be drawn from that is that even when someone who has been unemployed returns to work, they are unhappier than they were before, because the experience of being unemployed increases their feeling of insecurity even while they are in work. I know that, as a Labour Member, the Minister will welcome that finding, which suggests that there should be an even greater focus on ensuring that everyone has a genuine opportunity to work.

Regardless of the level of income, inequality negatively impacts on quality of life. People would rather earn £50,000 in a society where everyone else earns £25,000 than earn £100,000 in a society where everyone else earns £250,000. Therefore, the issue of income inequality is important, so it is especially worrying that according to the Institute for Fiscal Studies and the gini coefficient the gap between the rich and the poor has widened under this Government.

On income and work, it is also important to bear in mind the current personal debt crisis. The evidence shows that while secured debts, such as a mortgage, do not negatively impact on someone's quality of life, large amounts of unsecured debt cause a great deal of worry and unhappiness.

Interestingly, the DEFRA paper also points out that, according to the research, commuting is:

"generally associated with lower levels of life satisfaction and mood."

However, it is rare that Ministers make proud declarations about efforts to cut the average commute of the British citizen. The issue of commuting is not just about congestion; it is about adopting a different approach to how and where we work. Taken in hand with people saying that they want more time with friends and family, the case for moving to more flexible working practices is overwhelming. We need to tackle the culture of presenteeism and use technology to cut out unnecessary commutes, which would also have environmental benefits.

Research points to many other factors that have an impact on happiness. Health is a major one, especially and unsurprisingly as we get older. Locus of control is also a common influencer of life satisfaction; when people feel that decisions are made for them and that they have little influence over the events in their lives, they tend to be unhappier.

All that information should be shaping Government policy, which brings me to the action that the Treasury should take. An Ipsos Mori poll found that 85 per cent. of people in the UK agree that

"Policies should put less emphasis on consumption, and more emphasis on other aspects of the quality of life".

In order to prioritise improving quality of life, it is essential to measure it and research what affects it, so the first and most obvious thing to do is to create an index of the nation's happiness. The old adage that "what gets measured gets done" has a ring of truth about it here. No one bothered about GDP 100 years ago, because we did not have the tools to measure it; now it seems to be the obsession of most Governments around the world, although, as I have mentioned, that situation is changing.

A happiness index, including subjective well-being measures and a range of quality of life indicators, would complement GDP as a general measure of progress. It would provide a tangible way of monitoring the Treasury's goal of creating a better quality of life, and it would help to identify the policy levers to enhance happiness in the future. Importantly, it would also provide greater clarity within Government; many Departments now refer to the concepts of "quality of life" or "well-being" in their mission statements, but there is no common measurement.

In developing such an index, the Government should stick to five key principles: the index should be well grounded in the science; it should be conducted at regular intervals; it should have a large sample size; it should be robust and proof against manipulation; and, ideally, it should be part of an international effort to enable comparisons across nations-hence my early-day motion calling for the Government to work closely with the French as the French develop their index.

Even before such an index is created, the Treasury could integrate existing happiness research into its work. The supporting evidence on well-being should be consulted in allocating resources, assessing new policies and deciding priorities. Much as the environmental or budgetary impact of a policy is looked at, the well-being impact should also be considered.