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Wind and wave power are poised to be integrated into calculations of countries’ economic size for the first time, as part of changes sanctioned by the United Nations. The rules, last updated in 2008, already accounted for assets like oilfields. The aim of this update is to encompass areas that have expanded since then, such as the depletion of natural resources and the value of data. These changes are set to take effect in 2030 and could potentially lead to an increase in estimates of the UK’s economy size, thereby making commitments to allocate a fixed share of the economy on defense or aid more costly.
The economic worth of wind and waves can be approximated by considering the price of all the energy that can be produced from turbines in a country. Additionally, the update recognizes data as an asset on its own, separate from the physical infrastructure that houses it. Governments adhere to a standardized guideline for measuring the size of their economies and their growth trajectory. According to Prof Diane Coyle from the University of Cambridge, these alterations are more of “tweaks, rather than a rewrite” of the existing rule book.
Ben Zaranko of the Institute for Fiscal Studies (IFS) characterizes this as an “accounting” adjustment rather than a substantive change. He clarifies that there would be no tangible material benefit, and tax revenues would not see any increments. However, the revised rules could potentially inflate the apparent size of economies, posing a prospective headache for the UK government. For instance, if the estimated economy size were to increase by 2-3% in 2030, it could translate to an additional £2bn for defense spending. Despite being a relatively small fraction of the government’s total budget, it surpasses the cuts to overseas aid (£6bn) currently financing the extra defense expenditure or the remaining fiscal leeway the government can utilize to meet its self-imposed financial guidelines (£10bn). The government’s fiscal watchdog, the Office for Budget Responsibility (OBR), will not factor in the impact of these new rules on government finances in their evaluation this March, making it a potential future concern for the Chancellor rather than an immediate one
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