Often one knows the price, cost, or value of something in a particular ("original") year, and one wants to know the value of this money amount in another ("desired") year. There are many contexts in which such a computation might be performed. Examples include the determination of the appropriate level of deferred compensation in a legal case, updating the price of a commodity fifty years earlier, and assessment of government expenditure on health care in one year relative to another. There is no single "correct" measure, and economic historians use one or more different indicators depending on the context of the question.

This calculator performs such computations for amounts in U.K. currency. The technique is as follows. (1) select a general measure of price, income, or output, and (2) multiply the money amount by the desired-year/original-year ratio of the measure. The resulting, "updated", monetary amount may be termed the "relative value" of the original amount.

The measure often used is the price of a "bundle" of goods and services that a representative group of consumers buys or earns. In the U.K. that measure is usually taken to be the "retail price index" (RPI), which corresponds to what is called the "consumer price index" in other countries.

However, there are problems with the RPI as a measure. One problem is that the bundle changes over time. For example, carriages are replaced with automobiles, and new goods and services are created (such as personal computers, cellular phones, and heart transplants). Another problem is that the RPI is oriented solely to households, and so omits attention to business investment or government expenditure. Perhaps most important, the context of the monetary amount may lead to a measure preferable to the RPI. It is a fair statement that the RPI is used far too often without consideration of its consequences.

For values before 1830, consult Purchasing Power of British Pounds from 1264 to 2007, where you make these comparisons using only the RPI and average earnings.

Prior to February 15, 1971 ("Decimal day," or "D-day"), monetary amounts in the U.K. were expressed as pounds (£), shillings (s.), and pence (d.), where £1 = 20s. = 240d. After 1970, there were 100 pennies in a pound, so one (new) penny = 2.4 old pence. All numbers should be entered in decimal rather than fractional form (for example, 1.5 rather than 1 1/2).

Descriptions of the indicators

• The retail price index (RPI) shows the cost of goods and services purchased by a typical household in one period relative to a base period. It is best used when the monetary amount is the cost or price of a simple product, such as a loaf of bread or a pair of shoes.
• The GDP deflator is an index of all prices in the economy. It is a good measure for complex products, such as personal computers, or commodities purchased by businesses, such as machinery.
• Average earnings are a logical measure for computing relative value of wages, salaries, or other income or wealth.
• Per-capita GDP, the average share of a person in the total income of the economy, is also indicated in this context.
• GDP, the economy's total output of goods and services in money terms, is the best measure for large-scale projects or expenditures, such as the construction of a bridge or government expenditure on health care.

For more-detailed discussion of the measures and further advice on applicability of the various measures, see What Is Its Relative Value in UK Pounds: Methods, Sources, and Examples.

Here are Some Examples*

All the examples involve computation of the relative value in 2008 of a specified amount pertaining to a past year. The reasons for this type of example are: (1) most users of a calculator are interested in obtaining the present-day value of a past amount, (2) 2008 is the latest year to which the calculator applies, and (3) interesting cases of relative value for amounts pertaining to both well-known historical occurrences and mundane commodities are thereby obtained.

Cost of Big Ben: "Big Ben" is the name commonly used to refer to the clock at the top of the clock tower of the Houses of Parliament (Westminster Palace) in London. It is also conventionally considered to be the name of the clock tower itself. Both usages are incorrect. The clock is properly termed "the Great Clock," and the tower "St. Stephen's Tower" or "the Clock Tower." Rather, "Big Ben" is the name of the giant bell–weighing almost 14 tons–that hangs in the Clock Tower and strikes on the hour. In fact, "Big Ben" is sometimes called "the Great Bell." The name "Big Ben" is generally considered to emanate from Sir Benjamin Hall, a large man, who was Commissioner of Works at the time the bell was constructed. Another theory is that "Big Ben" was the nickname of a contemporary heavyweight boxer, Benjamin Caunt, and applied to the bell. Actually, the name "Big Ben" denoted an earlier bell, cast by John Warner and Sons in 1856, that cracked. The Whitechapel Bell Foundry recast the bell in 1858 using the metal from the original bell, and the name "Big Ben" was retained.

The gross charge for casting the bell was £2,401; but the value of the metal obtained from the earlier bell was £1,829. So the net cost, and the invoice submitted on May 28, 1858, was only £572. The relative value of that net amount in 2008 was £44,000 via the CPI; £58,800 via the GDP deflator; £388,600 using average earnings; £507,800 using per-capita GDP; and over £1 million applying GDP itself. For relative values of the gross cost, the figures would be increased more than fourfold (2401/572 = 4.20).

Borrowing to Purchase Shares of Suez Canal Company: In 1875 the government of Prime Minister Benjamin Disraeli borrowed £4 million from the House of Rothschild, enabling Great Britain to purchase 176,602 shares (out of 400,000 total shares) of the Suez Canal Company from the financially strapped ruler of Egypt. This transaction gave Britain ownership of 44 percent of the Company and, more important, the pretext to invade Egypt in 1882 and incorporate the country into the British Empire. It is interesting that the Rothschilds had some years earlier refused to be involved in financing the Suez Canal project. When Disraeli's private secretary, Montagu Corry, was sent as an emissary to Lionel Rothschild to request the loan of £4 million "tomorrow," Rothschild asked, "What is your security?" Corry replied "The British Government," and Rothschild responded: "You shall have it." Though this account (based on Corry's recollection) is no doubt correct descriptively, it is misleading in suggesting that the Rothschilds were surprised by the request. In fact, there is reason to believe that that Disraeli had discussed the matter previously with Lionel Rothschild.

Relative value in 2008 of the £4 million borrowing was £280 and £376 million, via the CPI and GDP deflator, however, these would be inappropriate indicators to use. Relative value is £2.1, £2.5, and £4.6 billion* according to average earnings, per-capita GDP, and GDP. Given the implication of the purchase for the British Empire, relative values do not appear unduly high.

Cost of World War I: The effect of World War I (also known as "the Great War") on Great Britain was disastrous. The human, physical, and financial losses of the country were immense. For the fiscal year April 1, 1917–March 30, 1918, the war expenditures of Great Britain have been estimated as £2.5 billion. Taking this amount to apply to the calendar year 1917, the last full year of the war, the calculator yields relative value in 2008 of £840 billion using the share of GDP, the only indicator that makes sense when comparing an expense of this size. In comparison, 2008 GDP was £1,443 billion.

Earnings of Barristers and Physicians: A "rising barrister" in 1850 could have an annual income of £5,000. The 2008 relative value of these earnings was £428,200 via the CPI, and £568,000 according to the GDP deflator. The barrister's earnings relative to average earnings was certainly greater in 1850 than in 2008; for the 2008 relative value using average earnings was £3,870,000. The barrister's income relative to the total economy loomed larger in 1850 than in 2008: the per-capita-GDP relative value was £5,660,000; and the GDP relative value £12,620,000. In comparison, "a doctor with a fairly fashionable practice" might earn £1000-£2000 in 1850 versus the £5000 of the barrister. Relative values for a physician's income would correspondingly be 20-40 percent of those of the barrister.

Stipend of Archbishop of Canterbury: In 1896 the Archbishop of Canterbury received a stipend of £15,000 annually. Relative values in 2008 are amazingly high, in fact in millions of pounds: £1.294, £1.585, £7.123, £8.900, and £13.780 million, according to the CPI, GDP deflator, average earnings, per-capita GDP, and GDP.

Price of Tea: In 1870 "normal working-class quality" tea sold at 3s. 4d. per pound-weight. In 1889 Lipton tea was offered at "the phenomenally low price" of 1s. 7d. per pound. Neither price can be construed as low according to relative values in 2008: the 1870 and 1889 prices were £11.90, £6.50 via the CPI; £16.30, £8.20 via the GDP deflator; £98.40, £40.39 via average earnings; £115.20 and £49.20 according to per-capita GDP.

Price of Daily Mail: The first mass-circulation newspaper for the general public was the Daily Mail, which began in 1896 and sold for 1/2 d. (old pence). The corresponding relative value in 2008 was 18, 22, 99, and 124 (new) pence via the CPI, GDP deflator, average earnings, and per-capita GDP.

*In these examples, we use the convention that a billion is 1,000 million.

References for Examples

Big Ben: http://www.londonnet.co.uk/ln/guide/about/gallbigb.html, http://www.parliament.uk/faq/history___buliding_faq_page.cfm, http://www.britainusa.com/faq/showfaq.asp?SID=293, http://www.en.wikipedia.org/wiki/Big_Ben

Suez Canal: Niall Ferguson, The World's Banker: The History of the House of Rothschild. London: Weidenfeld & Nicolson, 1998, pp. 820-821; Hugh J. Schonfield, The Suez Canal in Peace and War, 1869‑1969. Coral Gables, FL: University of Miami Press, rev. ed., 1969, pp. 35, 47.

World War I: Edwin R. A. Seligman, "The Cost of the War and How It Was Met." American Economic Review, vol. 9, no. 4 (December 1919), p. 749.

Barristers and Physicians: John Burnett, A History of the Cost of Living. Harmondsworth, Middlesex, England: Penguin, 1969, p. 233.

Archbishop of Canterbury: Peter Wilsher, The Pound in Your Pocket, 1870‑1970. London: Cassell, 1970, p. 79.

Tea: Wilsher, p. 28; Burnett, p. 213.

Daily Mail: Wilsher, p. 74.