As a critical driver of real wage growth, business competitiveness, public service delivery and fiscal sustainability, productivity growth is a key mechanism by which to improve living standards in Wales. For this reason, the Wales Productivity Forum welcomes the announcement that productivity growth will be central to the economic strategy of the new Welsh Government.
We set out the case for, and our recommendations to the Welsh Government in, closing the productivity gap with the rest of the UK in our 2025 Report Wales’ Productivity Challenge: A Focus on the Future. As part of this we emphasised the critical leadership role of the Welsh Government. The recent announcement from Adam Price, the Cabinet Minister for Enterprise, Connectivity and Energy, that productivity will be at the heart of the economic approach, supported by a target for convergence in productivity between Wales and the UK average, is therefore a hugely positive step. It provides a clear statement of intent from which to develop the wider policy and direction that will be needed to kickstart Wales’ productivity growth.
This level of ambition is to be applauded and supported, but it is only a first step. Targets themselves do not generate the productivity growth that is aspired to. Indeed, similar announcements from the Welsh Government to enhance economic growth towards the UK average immediately post devolution failed to materialise into real progress. It is therefore important that we learn from that experience and invest in the underpinning policies and coordination required to support the required step change in productivity growth.
We also need sufficient monitoring, timely and high-quality data, and external scrutiny to track progress and hold the Welsh Government to account. Without this there will always be a risk that the long-term ambition will be overshadowed by short-term emergencies or political priorities. This is why the Wales Productivity Forum have called for an external independent Productivity Commission to inform policy design and evaluate progress. The proposed Economic and Fiscal Commission within Plaid Cymru's plan for the first 100 days of government appears to have to potential to perform this role.
It is important to be open about how difficult the challenge is. Productivity in Wales has been about 85% of the UK average for the last two decades. Meaningful convergence will therefore require productivity growth in Wales to exceed the UK average year-on-year. The target to halve the gap within 10 years would require annual productivity growth in Wales to be more than 0.8 percentage points higher than the UK average at a time when productivity growth has been stagnating throughout the UK. While not impossible, sustained performance at this level would be unprecedented. It will therefore require not only policy consistency with clear short, medium, and long-run priorities to support productivity growth, but also widespread support from other stakeholders including employees and business and public sector leaders.
The Cabinet Minister therefore rightly emphasised the need for collaboration and coordination, with business productivity central to the new Welsh Development Agency. However, coordination will need to be wider than business and the economy and reach across ministerial portfolios – particularly education and health. While again there is some promise, with an explicit focus on skills, this needs to be complemented by renewed attention on the fundamentals of human capital, namely population health and education, as areas of relative weakness in Wales and key elements of devolved policy. This will require patience, with long-term investment in prevention and early intervention.
So far, there has been less discussion of how public sector productivity will feature in the plans and whether there will be a sectoral or spatial emphasis within the strategy. The latter is particularly important given the evidence of agglomeration effects; that is, the benefits of being in more densely population urban areas, and because Wales has some of the least productive areas in the UK. This level of ambition will also not be achieved without reallocating attention and resources. Important questions therefore remain as to where the trade-offs will be, what might be cut to make space for investment in productivity growth and how to generate the public support for this.
While the merits of any individual target can be debated, this signal of intent is important for Wales. Productivity growth which leads to convergence on the UK average is certainly the right objective. It is, however, a challenging and long-term agenda. It is therefore critical that this ambition isn’t lost or downgraded just because achieving a target proves difficult.
