Why we should keep the champagne on ice over growth in NI millionaires
Economy Watch By Andrew Webb of Webb Advisory
I read a story last week that announced Northern Ireland was the fourth most prosperous region in the UK.
The rationale for the claim appeared to be that we have 12,500 millionaires living among us. This is 1,000 more than 12 months previously.
At first sight, my reaction was that this was about as crass a measure of prosperity as I could imagine.
If considerably less than 1% of the population are millionaires and poverty levels are higher than elsewhere, can we really call ourselves prosperous?
As in most stories, there was a lot more detail behind the headline-grabbing number of millionaires. The statistic was drawn from research undertaken on behalf of Barclays - the UK Prosperity Map.
In addition to the number of millionaires, the UK Prosperity Map looks at a range of factors, including median household wealth and incomes, GDP per head, unemployment, average weekly expenditure, house prices, exam achievements and business growth. On these measures, Northern Ireland has performed well enough to move up one place in the rankings this year - from fifth to fourth.
Part of the reason for this growth is an increase in average house prices, wages and increases in household spending.
According to the research, household spending has risen almost 4% in the past year to £500 per week.
I haven't quite worked out how more household spending necessarily equates to more prosperity.
We would need to see how much of it is driven by increases in prices of 'essential' goods such as clothes, food and housing costs etc, as well as seeing how much of it is being driven by household debt or savings. As I understand it, based on Asda's income tracker, discretionary income (what is left after money spent on food and bills) here is half the UK level and down £5 per week compared to last year.
I suppose the other factors that were holding me back from lauding our improving prosperity were the oft-quoted statistics on poverty and inequality.
In April last year, I wrote about heading into an Assembly election with poverty levels unchanged over the mandate of the previous Assembly. At the time, the Joseph Rowntree Foundation had concluded that one in five people here was in relative poverty.
Thanks to new statistics from the Department for Communities that were published in August of this year, we can take a refreshed view of that story.
The figures tell us that in 2015-16, average (median) household income in Northern Ireland before housing costs was £436 per week, or £22,800 per year, representing a 4% increase from the previous year.
Average income in Northern Ireland reached its highest level in 2008/09, followed by a fall as a result of the economic recession. However, since 2011-12, incomes have begun to rise again, and in 2015-16 the income measures were very similar to those seen in 2008/09.
That said, inflation has reappeared and is biting into those wage increases.
In terms of income inequality, the statistics show that the average weekly earnings of the top 20% were 3.2 times higher than the bottom 20% of earners.
Looking back to wage statistics from 1997 onwards, this ratio is essentially unchanged over the past 20-plus years.
That's not necessarily a bad thing - our income inequality is consistently better than the rest of the UK and Ireland.
On measures of poverty, there is good news of sorts to report.
There are two measures of poverty presented in government statistics - relative and absolute.
Relative poverty measures the number of people living in households where income is 60% below the UK median.
Absolute poverty is considered to be if households have an income 60% below the UK median in 2010/11.
To put this in context, to be considered to be in absolute poverty the threshold for a couple with no children is an income of £278 per week before housing costs.
Until the most recent data was published, relative and absolute poverty levels were stubbornly static at around 20% over the past 15 years.
However, in 2015/16, there was a significant decline in poverty here. Some 17% of individuals were considered to be in relative poverty before housing costs, falling from 22% in 2014/15.
Likewise, 15% of individuals were considered to be in absolute poverty, falling from 20% in 2014/15.
These improvements are significant and should be welcomed.
There are a few explanations for the improvement, including the increase in the national minimum wage (which has a greater impact here relative to the UK), improved personal tax allowances and the delayed implementation in welfare reform here compared to the rest of the UK.
How local welfare reform impacts on these figures will be a crucial watching brief.
It is great that Northern Ireland can lay claim to 12,500 millionaires, but the bigger story and bigger impact, from an economic prosperity and performance perspective, is that we have 280,000 individuals living in absolute poverty.
While it's an improvement, it doesn't feel like a reason to celebrate Northern Ireland's prosperity.
In next week's Economy Watch, we hear from Neil Gibson in his first commentary as chief economist of EY Ireland