1976: When national happiness peaked

It delivered Britain's worst drought for nearly 250 years, an economic crisis requiring intervention by the IMF and a thrashing by the West Indies cricket team. But an index of economic, social and environmental progress yesterday declared 1976 to be the best on record for quality of life in Britain.

The index will astonish anyone who recalls the year's hosepipe bans, the hastily appointed Minister for Drought (Denis Howell), Viv Richards' career-best 291 against England at the Oval and the millions of dead ladybirds which carpeted southern and eastern England when the insect's population soared and its food supply ran out.

But the New Economics Foundation (NEF) think-tank, which has adjusted the official gross domestic product (GDP) to provide a more accurate sense of well-being, insists that the year represents a golden age of lower crime, lower energy consumption and less global destruction.

Economists are especially inclined to consider 1976 a year best forgotten. While Bjorn Borg was collecting the first of five Wimbledon titles and the Clash and Sex Pistols were giving birth to punk, the pound's value plummeted, inflation took off and interest rates soared, forcing a bail-out by the IMF.

But pure economic data is only part of NEF's calculation. Its "measure of domestic progress" (MDP) model subtracts social and environmental costs and resource depletion from GDP. By the new measure, the economy peaked in 1976 but has barely risen in the past 50 years, while GDP has risen threefold per head. The divergence of the two measures has been especially stark in the past 30 years, with an 80 per cent increase in GDP but a sharp fall in MDP - fuelled by rising social inequalities in the Thatcherite 1980s - which the Labour government has "failed to curb".

Tim Jackson, professor of sustainable development at Surrey University, who developed the model, said the divergence showed how the impression of progress since 1976 was illusory. "As everyone from Mahatma Gandhi to [the pop group] the Black-Eyed Peas has pointed out, more isn't always better," he said. "Too much food makes the nation obese, burgeoning traffic leaves the roads congested. More guns make our streets unsafe."

The MDP index peaked in 1976 because of a fall in income inequality and a rise in public-sector investment. But environmental costs - including the slow loss of productive rural land and natural habitats, depletion of natural resources and climate change - have had the most striking effect on it in the years since. The MDP measure also factors in the cumulative damage which will be felt by future generations as a result of global warming since 1950.

The Labour government started reducing some "social costs" but there have been further setbacks in the past few years, Professor Jackson claims. For instance, crime fell consistently for seven years after a 1992 peak, but has started rising again. Family stability assisted the MDP's "social progress" indicator after the divorce rate began falling from a 1993 peak. But that trend has also been reversed in the past few years, according to NEF.

Overall, social costs have risen 600 per cent in the past half century, with a thirteenfold increase in the costs of crime and a fourfold increase in the cost of family breakdown. "We're running faster and faster but we seem to end up in the same place," said Professor Jackson. "A society that allows itself to be steered on a faulty myth risks foundering on harsh reality."

Though other economists share Professor Jackson's doubts about the value of the GDP figure, some cast doubt on his logic yesterday. Nicholas Crafts, of the London School of Economics, said the measures of well-being should take into account improvements in living standards such as rising life expectancy and opportunities offered by technological progress. Neither is included in MDP. But research last year by Andrew Oswald, professor of economics at Warwick University, bore out the idea that an increase in disposable income over 25 years had not contributed to well-being.

A recent Cabinet Office report on life satisfaction also alerted the Government to the well-being paradox: life satisfaction is static despite continuing economic growth. The Sustainable Development Commission also urged the Government to "redefine prosperity" last year. The same conclusion has led the small kingdom of Bhutan in the Himalayas to host an international conference to develop its own concept of "gross national happiness".

For now, Britain can only try to forget that 1976 was also the year in which the phrase "junk food" entered the English language and remember the good bits: the first commercial flight by Concorde and Olympic gold for the ice skater John Curry.