Can divorce make us all rich?

Marriage break-up boosts economic activity, but increases the gap between rich and poor
Click to follow
The Independent Online
Thanks to Charles and Di's divorce the country is going to be millions richer. Or rather, that is what the economic statistics would show if it were possible to unbundle them - which is a powerful reason for us all to be profoundly concerned about the economic costs of divorce. Let's look at some numbers, first of all for the additional economic activity generated, and then for the impact on the taxpayer.

The legal costs for an agreed pounds 15m settlement like this ought not to be more than pounds 500,000. Technically, this is not an unusual case by British or even international standards, but I suspect the costs of the royal divorce will turn out to be somewhat above the norm, because the associated publicity will require the lawyers to do things they would not otherwise do. So there will be a lot of additional hours, and since lawyers charge by the hour this will be expensive. We may need to increase the estimate above by a factor of up to five.

All these fees, like all legal activity, appear in the country's Gross Domestic Product. From the point of view of national accounts it is irrelevant whether people spend money on lawyers, BMWs or a health club - to choose three of the big ticket items in the Charles/Di sphere. They all show in the nation's GDP, although since the BMW is imported, only the sales, advertising and servicing for that item would register. National statistics make no moral judgements about the usefulness of the activity, they just record it.

Indeed, from a purely economic point of view you could actually argue that it is better for the country that we should spend money on divorce than on buying imported cars, for one carries a balance of payments cost, whereas the other has no import content.

Exactly the same arguments apply to all the legal costs of the other 200,000-odd divorces thattake place each year in the UK: they increase GDP. If they did not take place, all the associated costs would not appear and, notionally, the country would be poorer.

There is, however, an additional element to the Charles/Di divorce which does not apply to that of lesser mortals. This is the additional activity generated in the media and entertainment businesses. Every additional news programme, every book, every extra sale of a magazine, every syndicated photo, all add to our GDP. Putting a figure on all this must be guesswork because you cannot know how much attention the world would give to the couple had their marriage continued. But my own guess, for what it is worth, would be well into the hundreds of millions, maybe upwards of a billion.

If that sounds a bit absurd, consider the revenues of a blockbuster movie such as Four Weddings and a Funeral. According to the latest tally of Screen International, that is now coming in at $194.2m, or pounds 130m. Sure the film was cute and it struck a chord, but it was not that special. Lady Di has greater recognition worldwide than Hugh Grant, even now. So I cannot believe that the world-wide revenues of the movie A Royal Wedding and a Divorce would not be substantially larger.

If this sounds mouth-wateringly lucrative, there is another and much sadder tally that also needs to be done. This concerns the bill footed by ordinary people for the breakdown of other people's marriages. The Charles/Di case is unusual in that, presumably, it will be funded entirely by the husband's family - it would be a bit rough if we all had to stump up. But in most cases that is precisely what happens: the taxpayer has to subscribe.

Legal aid alone for divorce is running at pounds 250m a year. Think about it. That is pounds 15 for every family in the land - the entire tax on a tank of petrol - taken away from people who are married or who choose not to get married, and given to the lawyers of people who choose to get divorced.

And the total bill is much larger. The most thorough study on the cost to the taxpayer of separation and divorce I have been able to find was published back in 1990 and refers to the 1987/88 tax year. It was carried out by Compass, a consultancy group, for Relate, the charity specialising in marriage guidance. Even then the total cost of divorce worked out at pounds 1.3bn. Legal costs were actually quite a small proportion of the total, with the largest items being the social security payments (supplementary benefit, one-parent benefit, family income supplement and housing benefit) which totalled more than pounds 1bn between them. The other main cost was health, for when families break up, people are more likely to take time off work for illness. How should one gross up the figure for today? If the cost has risen in line with social security spending in general, it is not going to be less than pounds 3bn, maybe nearer pounds 5bn.

Thus very large amounts of money, equivalent to a couple of pence of the standard rate of income tax, are being taken away from one group of people and given to another. This is not to make any moral judgement about the rights and wrongs of divorce - let's leave that to Lord Mackay and his critics - nor it is to comment on the extent to which the state should transfer money between its citizens. It is simply to say that it is happening.

Not all these payments appear in GDP. Most are simply transfers. But the legal costs and the health care costs do show up, for these represent additional activity. However counter-intuitive it might seem, if someone is ill as a result of the stress of divorce, the cost of the medical care, the insurance and so on, all appear as a rise in GDP.

Understanding this is one of the clues to understanding one of the oft- noted phenomena of our age: the figures show that the country is getting richer, for GDP per head is rising, but most people compare their lives now and 10 years ago, and do not feel any richer. Anyone who does will almost certainly be working a lot harder now than then. This puzzle is partly because we are all unreasonable, in that we have a rosier view of the past than it perhaps deserved. But it is partly because things such as family breakdown, or rising crime, add to GDP but do not enhance our personal living standards.

The more orderly a society is - the less it needs to devote funds to police, lawyers, social security - the greater the resources available to spend in health clubs or to buy more BMWs.

In one sense the sad story of the royals is the story of so many of their citizens, with a few noughts added on to the end.

Comments