In this post on Monday, the Bevan Foundation drew attention to one of the key reasons for Wales’ comparatively low GVA – low wages. It’s not a surprise; it’s a point that has been made a number of times in the past, but it’s a point of which we sometimes lose sight.
There are a number of reasons for Wales’ average pay being lower than the UK average. Not the least of them is the fact that for organisations not headquartered here, the Head Office salaries – usually the highest – are elsewhere. In a sense, that means that economic activity in Wales doesn’t contribute to GVA as much as it would if the higher salaried jobs were distributed in the same way as the lower paid jobs. Such distribution is not exactly a practicable solution, but the effect of an uneven distribution is worth bearing in mind.
Given the way that GVA is calculated, low wages will inevitably depress GVA in any area, just as high wages would increase GVA. So, the proposals by the UK Government to introduce ‘regional pay’ would have a direct impact on GVA. For any area where regional pay was set at a lower value than average, GVA would apparently drop; for any area where it was set at a higher level, GVA would apparently increase.
This happens with no change whatsoever in the work people do, in the output they produce, or in their productivity; it’s solely an effect of redistributing the same amount of pay in a different way geographically. I think we can be reasonably confident that the introduction of regional pay would see public sector pay levels reduce in Wales compared to the average, whilst they would increase in London and South East England relative to the average.
In principle, I’m in favour of redistributive policies, but in this case, the UK Government would be deliberately and consciously increasing the GVA gap between Wales and the UK average, by taking from the poorest areas and giving to the richest.
No doubt, some will cease on the resultant increase in disparity as clear proof that Wales can’t afford to control her own affairs. But in fact, all it proves is that the measurement of GVA is a complex business, and doesn’t simply reflect poor economic performance in Wales.
I wish it were as easy as suggesting some sort of reverse regional pay, where the highest salaries were paid in the poorest areas, as a deliberate tool of policy to redistribute GVA more evenly. But it does underline the way in which a policy of deliberately moving high paid public sector jobs from the centre to the periphery can have an impact on relative economic wealth.