Wind and waves are set to be included in the calculation of the size of the country’s economy for the first time as part of a change approved by the United Nations.
Assets like oil fields were already considered based on rules last updated in 2008.
The update is intended to capture areas that have grown since then, such as the cost of exhausting natural resources and the value of data.
The change, which came into effect in 2030, could mean an increase in estimates of the size of the UK economy, promises to spend a fixed share of the economy on defense or make it more expensive.
The economic value of wind and waves can be estimated from the price of all the energy that can be generated from a country’s turbine.
This update also treats data as an asset on its own, on top of assets it houses, such as servers and cables.
Governments use a common rulebook to measure the size of the economy and how it grows over time.
According to Professor Diane Coyle at Cambridge University, these rulebook changes are “no rewrites, but fine tunings.”
Ben Zaranco of the Institute for Financial Studies (IFS) calls it a change in “accounting” rather than a real change. He explains:
But it can make the economy look bigger and create a headache for the UK government’s future spending.
Labour, for example, has worked to allocate a fixed percentage of the size of the economy in terms of defense and aid.
If new rules increase the size of the economy by 2-3% in 2030, it could add £2 billion to defence spending.
This is only a small portion of the government’s total budget, but it is greater than the cuts in foreign aid (£6 billion) that currently fund additional defence spending, or the headroom the government has left to meet voluntary fiscal rules (£10 billion).
The Government’s Expense Watchdog, the Budget Responsibility Office (OBR), will not include the impact of these new rules on government finances in the assessment of government finances this March.
This will result in the new rules becoming a future headache for the Prime Minister, rather than an immediate rule.
