At the highest levels of government, measuring well-being is increasingly seen as serious evidence. We have written before about how the Prime Minister’s wants it to be used to decide how and where money should be spent. But now a report from HM Treasury puts some flesh on this idea.
The report describes how changes in well-being can be valued in monetary terms. It outlines a technique for incorporating measures of well-being in cost-benefit analysis, the standard tool government economists use to analyse policy.
The paper’s Forward begins by stating how ‘the government is committed to improving the way that well-being and social impacts are incorporated into policy decisions.’ It goes on to say how well-being measurement can ‘provide a complement to the more traditional economic approaches’, ‘play an important role in challenging decision makers to think more carefully about the full range of impacts of their proposed policies’ and ‘gives us a better idea of the value of non-market goods’ – all of which will help policy makers ‘better ground their decisions in evidence’.
So how do you value changes in well-being? Consider this example, given in the paper:
If a 20% reduction in local crime rates increases the life satisfaction of an individual by 1 ‘index point’ and an increase in household income of £5,000 p.a. also increases their life satisfaction by 1 index point, then we can conclude that the value of the 20% reduction in crime to them is £5,000 per year. This, therefore, values the 1 index point increase in well-being at £5,000.
It’s good to see the government beginning to explore how measuring well-being can be used more in decision-making. Applying this analysis will help make better decisions and, ultimately, benefit us all.