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Enjoy a sunny bank holiday – regardless of the cost to the economy?

This late August bank holiday in England, Wales and Norther Ireland is seeing the country bask in temperatures up to the high-20s Celsius (or 80s in ‘old money’ Fahrenheit). For once the standard story about a wet bank holiday weekend can be shelved as people enjoy alfresco wining and dining or a day on the beach. Whilst bank holidays augment our workplace holiday entitlements nicely we should, perhaps, reflect on what they cost the UK economy – particularly during this difficult period for the economy as Brexit approaches.

Research undertaken in 2012 by Centre for Economics and Business Research (CEBR) concluded that, on average, a bank holiday costs the UK economy £2.3 billion in lost economic output. So, on this basis, a year’s worth of bank holidays is costing the economy some £19 billion!

Support for this view on the negative effects of bank holidays on the economy has actually come in the form of data on the UK’s Gross Domestic Product (GDP). In years when there is a ‘one-off’ bank holiday – say for a royal wedding or jubilee - economic growth has been found to be adversely affected. One estimate put the cost of the bank holiday to celebrate the wedding of Prince William and Catherine Middleton  at 0.4% of GDP in the second quater of 2011. This cost was, though, estimated to have been recouped in the following quarter-years.

So in this period of economic uncertainty are bank holidays a luxury for the UK? Could we actually do with one or two less and reap the benefits of higher economic growth (and the reduction in the amount of time spent in traffic jams)?

This simple rationale does not, however, bear much critical scrutiny.

First, the UK has fewer public holidays than its European peers. England and Wales have eight whilst Northern Ireland has ten. But Spain, for example, has fourteen and France twelve. And the industrious Japanese have sixteen! In short we are not over-rewarding ourselves with public holidays.

Second, the impact of bank holidays on businesses varies. Sure a business providing catering services to a company loses a day of earnings. But for others the work ‘lost’ on a bank holiday is just shunted to another day – for example when choosing the day to get your car serviced. Elsewhere holiday related businesses like pubs, restaurants, cinemas and seaside venues can do good business.

Third, these days supermarkets and other large shops remain open on bank holidays – other than Christmas Day and Easter Day. Some may also be closed on Boxing Day and New Year’s Day. So business carries on regardless. Indeed when the rain pours downs a fun day out at a shopping centre may provide one of the few sources of ‘entertainment’ on offer to beleaguered families.

Finally even the CEBR’s estimate of a £2.3 billion cost of a bank holiday referred to above is subject to a huge margin of error. So the true impact on the economy may vary from a £3.6 billion cost to a £1.1 billion benefit!

We would only know the true cost to the economy if we materially reduced or increased the number of bank holidays and then undertook a ‘before and after’ analysis. Since this is highly unlikely to happen perhaps we should just do what the great British public has always done on bank holidays – pray for sunny weather, open roads and untroubled family events. Indeed for most of us two out of three of these would do each time we wake up to a bank holiday!

Martin Upton

Director, True Potential PUFin

27th August 2017

About True Potential PUFin

True Potential PUFin is based at the Open University Business School in Milton Keynes, UK

True Potential PUFin is the first and only personal finance research centre in the UK that has an active teaching programme freely available to the public. Supported by the University’s excellence in delivering distance learning, the Centre is uniquely positioned to develop the public’s financial capability and to research the impact and effectiveness of its education programme.

 

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