Monday, March 14, 2011


In terms of the state of the Welsh economy, there is an interesting pre-election game being played in the political arena.

Critics of the Welsh Assembly Government state, quite rightly, that Wales has the lowest GVA (gross value added) per head of any of the UK regions and that on this internationally accepted measure of prosperity, West Wales and the Valleys is now poorer than some parts of Bulgaria and Poland.

Not so, insists the Welsh Assembly Government.

According to the First Minister, GVA per head is the wrong measure to use for the economy especially, as he said recently, “gross disposable household income in Wales is catching up pretty quickly with the rest of the UK”.

So who is right?

There is little argument over the status of GVA data, which shows that Wales has declined from 77 per cent of the UK average GVA/head in 1999 to 74 per cent, although some parts of Wales, such as Cardiff, have become more prosperous since 1999 although West Wales and the Valleys has continued to decline relative to other parts of Europe.

However, there has been little debate or analysis over gross disposable household income in Wales (GDHI), which is an estimate of the amount of money that households have available for spending or saving.

As the First Minister rightly points out, GDHI/head has actually increased slightly from 86 per cent of the UK average in 1999 to 88 per cent in 2008 (see graph above). That modest increase is very different to the claims of the Welsh Assembly Government that household incomes had "outstripped" the UK average and Wales is catching up pretty quickly with the rest of the UK.

Embarrassingly, the current household income per head remains considerably lower than the 90 per cent measured in 1995. In fact, the peak for relative GDHI in Wales was reached in 2006 and, since then, the gap between the UK and Wales has been widening.

Of course, household incomes are not even across all parts Wales and, as the government’s own statistics show, relative GDHI has, since 1999, actually fallen in some areas, including Anglesey, Conwy-Denbighshire, Swansea, Wrexham-Flintshire, and the Gwent Valleys.

 In Bridgend-Neath Port Talbot, where the First Minister’s own constituency is based, GDHI/head has decreased by 2 per cent in the period 1999-2008.

However, whilst it is worthwhile comparing the whole of the Welsh economy to the rest of the UK, the biggest debate over the last few weeks has been in relation to the relative decline of West Wales and the Valleys, especially given the large amounts of European money that have been committed to supporting the region.

In this respect, its overall GDHI has grown by 46 per cent during the period 1999-2008 as compared to 48 per cent for Wales and 47 per cent for the UK.

More critically, the statistics show that despite billions of pounds of European funding being given to West Wales and the Valleys, the growth in household income in the more prosperous East Wales (which includes Cardiff, Vale of Glamorgan, Newport and Monmouthshire) has been considerably higher at 52 per cent since 1999.

Surprisingly, one of the few glimmers of growth within the poorest regions is that of the Central Valleys, which has seen its relative GDHI grow from 75 per cent of the UK average to 83 per cent. How much of that growth is due to individuals moving into an ever-growing suburban commuting belt in the lower reaches of Rhondda Cynon Taff whilst working in Cardiff is uncertain.

Of course, it may be expedient for some politicians to blame structural changes in the 1980s for the decline in the economic fortunes of the poorest parts of Wales although adopting an “Ashes to Ashes” mentality does little to deal with the simple fact that the Welsh Assembly Government simply hasn’t got it right during the last twelve years in ensuring that all parts of Wales benefit economically.

Indeed, Slovenia - another European nation that has a similar population to Wales - managed to improve its GDP from just under 70% of the EU average in 1999 to greater than 90% of the EU average in 2008. And the Slovenian economy had to deal with the legacy of fifty years of communist rule!

Therefore, whether you use GVA or GDHI as measures for relative prosperity, the overall conclusion is that the gap between the poorest and richest parts of Wales has actually been growing since the Assembly was established. Rather than hiding behind selective statistics, it is time our government accepted the facts as they stand and, more importantly, developed a proper long term strategy to ensure the future prosperity of all parts our nation.