How much more wealthy have we become in Wales?

John Osmond’s report of the First Minister’s claim ‘that measuring Welsh prosperity is permanently off the radar’ raises some important issues. The First Minister reportedly also claimed that ‘Wales was 50 per cent better off than ten years ago’. It is not clear on what basis this claim was being made.

It is to be hoped that it was not based on Gross Value Added (GVA) per capita which has increased by 45 per cent between 1999 and 2007 (ONS: Regional Accounts. December 2008). Such a claim would be rather disingenuous because it uses nominal GVA which ignores inflation. Correcting for the impact of inflation (22 per cent between 1999 and 2007 using the GDP deflator), over the last decade GVA per capita in Wales has grown in real terms by a total of 19 per cent or approximately 1.7 per cent per annum compared with 2.2 per cent for the UK. Growth of GVA per capita in Wales was the lowest of any country or region in the UK with the exception of the West Midlands of England.

Perhaps the First Minister was using Gross Domestic Household Income (GDHI) as his measure which corresponds broadly to household income after deduction of tax and addition of benefits. GDHI is not, of course, a measure of economic performance or success. Furthermore Wales has the third lowest GDHI per capita of any country or region of the UK and real growth over the last decade has been far short of 50 per cent.

No one would claim that GVA is a perfect measure but it is accepted internationally as the best measure of wealth creation. If we are effectively to address the economic challenge we need first to recognise reality. It would be more convincing to propose other measures of economic progress and social wellbeing if firstly our disappointing economic performance was recognised and a serious attempt made first to analyse the causes and then to devise programmes to address them.

We know for example that whilst the compensation of employees component of GVA in Wales (approximately 62 per cent of total GVA) has declined only slightly compared with the UK as a whole over the last decade there has been a serious and much more material drop in the operating surplus/ mixed income component (38 percent of the total) which is dominated by profits earned (31 per cent). The reasons for this sharp decline in profits needs to be identified: it may, for example, be due to a shift from capital intensive manufacturing and process industries to lower value added retail activities. We need to identify the causes. If this were done the First Minister could then go on to propose other measures in addition to GVA to assess the success of the Welsh economy on a sound evidential basis.