The latest Gross Value Added (GVA) statistics released on 20 December by the Office for National Statistics (ONS) show that Wales still has the lowest GVA per head of the UK nations and regions at 72.7% of the UK average in 2016, however it had the largest growth in GVA per head of the UK nations at 3.5% between 2015 and 2016, with only London of the English regions experiencing greater growth in GVA per head.
So, drilling down from the headlines, how does performance differ across Wales, how does the ONS’ new way of measuring GVA work, and is GVA the be-all and end-all in assessing Welsh economic performance?
What are the headlines from the latest GVA release for performance across Wales?
In 2016, all nations and regions of the UK had GVA per head that is lower than the UK average except London and the South East of England. Welsh GVA per head as a percentage of the UK average has been the lowest of all of the UK nations and regions since 2001. Similarly, West Wales and the Valleys has had the lowest level of GVA per head as a percentage of the UK average of all UK NUTS 2 areas (the areas that have historically been used to determine allocations of EU structural funds) since 1998.
These figures form part of the context for the entrenched, long-term and structural inequalities highlighted in the Welsh Government’s Economic Action Plan as a key challenge facing Wales. These inequalities have developed over generations, and the Welsh Government considers that a whole-government approach is needed to address them, and to improve the competitiveness of Wales and address geographical variations in economic outcomes.
While all of the Welsh NUTS3 areas have GVA per head below the UK average, there is variation in economic performance across Wales. The Isle of Anglesey and Gwent Valleys have the lowest levels of GVA per head of any NUTS3 regions across the UK, with GVA per head at 51.8% and 56.0% of the UK average in 2016 for these two areas. However, it is worth being aware that commuting affects GVA figures for smaller areas, with areas such as Anglesey and Blaenau Gwent having more people commuting out than commuting in this means that their populations will contribute to the GVA of other areas.
Conversely, Cardiff and the Vale of Glamorgan has had the highest GVA per head of the Welsh NUTS 3 areas since 1999, and had GVA per head of 93.8% of the UK average in 2016.
We’ll be looking in more detail at figures for local authorities and the economic regions the Welsh Government has established in a further article tomorrow.
Figure 1: GVA per head as a percentage of UK average, UK nations and regions in 2016
Figure 2: GVA per head as a percentage of the UK average, Welsh NUTS 3 regions, 2016
What is the ‘balanced’ measure of GVA, and how is it different to the ‘income’ measure that was previously the headline measure of GVA?
In previous years the ONS has published two separate measures of GVA. The ‘balanced’ measure introduced for the 2016 figures uses both measures, and weights them according to the quality of all aspects of each measure to produce a definitive estimate of GVA for an area. The headline measure previously used was the ‘income’ approach to measuring GVA, which adds together components of income such as employees’ wages, rental income and trading profits and surpluses. However, the ONS also developed a ‘production’ approach in recent years, which measures GVA as the total output of goods and services minus the value of goods and services used up in the production process.
The ONS concluded that a weakness of having two separate measures was that there wasn’t a single definitive measure of GVA, and consequently developed the ‘balanced’ measure. This is similar to the approach the ONS takes to measuring UK Gross Domestic Product (GDP).
What other data might be needed for a more complete understanding of Welsh economic performance?
Analysis by the Welsh Government's Chief Economist and Chief Statistician, published in 2015, stated that a range of indicators are needed to measure economic performance, including employment rates, earnings and the poverty rate as well as traditional measures such as GVA and Gross Disposable Household Income. They state that GVA is linked to city size, and that this negatively impacts Wales as it has the lowest proportion of its economy in large cities of the nations and regions in Great Britain.
Inclusive growth has become an increasingly important barometer in the Welsh Government’s thinking, playing a key role in the recent Economic Action Plan. In the plan the Welsh Government set out its ambitions to achieve a fairer distribution of the benefits of economic growth between individuals, and between different parts of Wales. It sees its role as supporting an economy that increases the wealth of well-being of people across Wales, and views growth and fairness as mutually reinforcing rather than being mutually exclusive.
So how does this relate to GVA? The Wales Centre for Public Policy notes that it will be important to assess progress towards achieving inclusive growth, and that developing measures above GVA will be required to do this. The Institute for Public Policy Research (IPPR) has said that the UK is ‘deeply divided by geography’ and that headline figures such as GVA and GDP mask an economy that is not working for the majority of the population with the proceeds of growth not being fairly shared. A range of measures have been used by different organisations to define inclusive growth, including organisations such as the LSE Growth Commission which use a single measure of inclusive growth, the World Economic Forum which uses a range of indicators, and the approach of the Joseph Rowntree Foundation to score areas based on 18 indicators of inclusive growth.
Looking at more radical change, Professor Karel Williams has told the Assembly’s Equality, Local Government and Communities Committee that GVA is a technocratic and remote measure, and that a dashboard of welfare indicators that are easily accessible and meaningful to people would be a better approach.
On 17 January the Assembly’s Economy, Infrastructure and Skills Committee will be taking evidence from the Cabinet Secretary for Economy and Transport, Ken Skates AM, including scrutinising the Economy and Transport budget and the Economic Action Plan.
Article by Gareth Thomas, National Assembly for Wales Research Service
Figure 1 source: Office for National Statistics, Nominal regional gross value added (balanced) per head and income components
Figure 2 source: Office for National Statistics, Nominal regional gross value added (balanced) per head and income components
