The run up to the Coronation of King Charles III has prompted two questions. First, is it appropriate to spend public money on a royal event in the midst of a cost of living crisis? Second, what will be the overall impact of the long weekend on the UK economy?
The first question at least can be answered with a simple ‘yes’. There are no firm numbers yet, but the Coronation will probably cost the taxpayer somewhere between £50 million and £200 million (much of which will be the bill for additional security to protect both the participants and the general public).
Given that this is a once-in-a-generation event and that the Monarchy pays for itself many times over, this is excellent value for money. The cost will be more than covered by the additional spending by foreign visitors this year alone. (In economic terms, this additional spending is an export of services.)
In any case, it makes little sense to grumble that this event is happening during a cost of living crisis. This difficult backdrop does not affect the underlying economics. If anything, it is all the more important to have something to celebrate and bring the nation together during hard times.
The overall impact on the economy of the long weekend as a whole is even harder to quantify. Some sectors will undoubtedly benefit, notably hospitality, tourism, and sales of food and souvenirs.
The Centre for Retail Research (CRR) has won the competition for the biggest (and most spuriously accurate) estimate of the boost to spending with a figure of £1,415.7 million. This includes £322.93 million from foreign visitors.
My more cautious friends at the CEBR have estimated that an extra £104 million will be spent in pubs over the Coronation weekend, and that foreign visitors could add another £233 million to the UK economy.
A headline in the Daily Mail claimed that the Coronation would ‘help to deliver a £1 billion boost to struggling parts of the economy’. This figure included £600 million for the two May Bank Holidays which already happen every year, and £50 million for Eurovision. But the boost to the hospitality sector from the Coronation weekend alone was put at £350 million.
The lower figures seem to be in the right ballpark. There are about 28 million households in the UK. So if households spend an average of £10 each on the celebrations (some more, some less, and some none at all), this would add up to £280 million.
But all these figures are likely to overstate the net impact on activity in the economy as a whole (as measured by Gross Domestic Product, or GDP), which will probably still be a small negative.
For a start, some of the additional spending on the festivities will simply be spending diverted from other goods or services, or spending which would have happened anyway but at a different time.
For example, money spent on a street party with neighbours might otherwise have been spent in local restaurants with family or friends. Some of the foreign visitors might have come to the UK anyway, but perhaps in June or July rather than May.
What’s more, the main impact on GDP will be the loss of output (and in some cases, income) in the rest of the economy, due to the additional Bank Holiday on Monday 8th. The long weekend will create more opportunities to shop, or go to the pub, but people cannot spend money that they do not have.
The Bank Holiday will also affect the output of public services, notably education and health. (This part of GDP is measured more accurately in the UK than in most other countries.) For example, the NHS will provide fewer GP appointments and perform fewer operations.
Finally, the precedents are clear. Monthly GDP fell by 0.6% in June 2022, when there were two fewer working days because of the Platinum Jubilee holiday (after one more in May).
The ONS also estimated that the extra Bank Holiday for the late Queen’s funeral accounted for ‘at least half’ of the 0.6% fall in GDP last September. One month’s GDP is about £200 billion, so 0.3% off would be about £600 million.
The upshot is that the Coronation celebrations on Saturday and street parties on Sunday should provide a small boost to the economy, but this is likely to be more than offset by the hit to economic activity on Monday. Overall, the long weekend means that GDP is likely to be 0.1 to 0.3 per cent lower in May than it would otherwise have been.
But the main message is that this is worth it. The Coronation celebrations on Saturday will more than pay for themselves. The only reason why GDP is likely to be lower is the additional Bank Holiday on Monday.
And of course, GDP isn’t everything. It is a measure of economic activity rather than people’s happiness. Indeed, this is a good example where the official statistics are a poor guide to the impact on people’s wellbeing. After all, even diehard Republicans should enjoy an extra day off work!
Plain-speaking Economics 