Wales needs a ‘national conversation’ involving businesses, policymakers, public sector service delivery providers and individuals to tackle a ‘persistent’ Wales-UK gap in productivity.
That’s the conclusion of an insights report, Wales’ Productivity Challenge: A Focus on the Future, written by Professor Melanie Jones of Cardiff Business School set to be launched during National Productivity Week.
Wales has the lowest productivity among UK regions, with average productivity in 2022 more than 17% below the UK average. According to the report, this gap has widened since the pandemic, with productivity in Wales falling by 0.4% annually between 2019 and 2022, compared to 0.8% annual growth across the UK.
“The scale of the productivity challenge in Wales is significant,” the report states, adding that reversing this trend is vital for improving living standards and long-term economic prosperity.
Writing for Business News Wales, Professor Jones, who is Lead for the Wales Productivity Forum, says:
“Our productivity levels are not only below the UK average but are the lowest of any UK region, a situation that has persisted for decades. This gap has significant implications for wages, public services, and overall living standards.”
National Productivity Week is organised by research body The Productivity Institute, which was established in 2020 to address the UK’s long-held productivity challenges that have been prevalent for almost two decades.
Between 2009 and 2019, Britain’s productivity growth rate was the second slowest in the G7. In 2024 output per hour worked was about 10% below the average for France and Germany and almost 20% below the level in the United States.
In Wales, a range of factors contributes to the productivity gap. SMEs, which account for 62.3% of employment, face significant barriers to growth, including limited access to finance and lower levels of innovation compared to larger firms. Professor Jones notes that these constraints are often compounded by a lack of time and resources for strategic planning.
“Owners of microbusinesses are often focused on day-to-day operations and therefore lack the space for long-term thinking on productivity,” she writes.
Human capital also presents challenges. While there has been some improvement in education attainment over time, Wales continues to have a relatively high proportion of working-age adults with low levels of qualification. Long-term ill health contributes to high economic inactivity rates, which remain higher in Wales than in other parts of the UK.
The report emphasises that Wales’ productivity gap is not solely a result of its industrial structure. Productivity levels within the same industries often lag behind the UK average, particularly in sectors such as information and communication and professional, scientific, and technical activities. These areas exhibit productivity levels more than 30% below the UK average, highlighting the need for targeted support.
A long-term, intergenerational commitment is needed to address the productivity challenge in Wales, with the paper arguing that significant investment in people and infrastructure will be required.
“This is not a short-term project,” writes Professor Jones.
“It will require sustained effort and collaboration across all sectors.”
Key recommendations include the development of a national productivity growth plan with short, medium, and long-term priorities. The Welsh Government is urged to take a leadership role, guided by independent advice and assessment.
Robert Lloyd Griffiths OBE, director for ICAEW in Wales and chair of the Wales Productivity Forum, said:
“Wales urgently needs to develop a productivity growth plan, with the Welsh Government committing to its long-term implementation.”
The paper describes an “inaccurate and concerning perception” that productivity growth acts in competition with, or involves a trade-off with, the goals of the Wellbeing of Future Generations Act.
“There is in fact no automatic trade-off between efficiency and equity, and international evidence has shown that highly productive countries can also have low levels of inequality,” the paper notes.
Providing businesses with practical support is central to tackling the productivity gap. The report recommends the development of productivity toolkits to help businesses understand, measure, and improve productivity. These toolkits could include advice on adopting new technologies, improving management practices, and accessing finance.
Rhian Elston, investment director at the Development Bank of Wales and Wales Productivity Forum Member, highlighted the importance of supporting businesses to address this issue, saying:
“We need to support and encourage both small and large businesses to better understand and measure productivity within their organisation in order that it becomes possible for them to track, target, and enhance productivity growth.”
While the scale of the challenge is significant, the paper notes reasons for optimism. Recent policy initiatives, such as the Welsh Government’s economic mission for a “stronger, fairer, greener economic future,” have recognised productivity as a fundamental driver of sustainable growth.
First Minister Eluned Morgan has also committed to prioritising delivery and accountability, saying last year:
“Delivery, accountability, and improved productivity will be the watchwords of my government.”
Wales’ relatively small size could also work to its advantage, enabling closer collaboration between stakeholders. Professor Jones notes that coordinated efforts across government, local authorities, and the private sector could help maximise the benefits of productivity growth.
The report concludes with a call for collective action. “Change of this nature starts with raising the profile of productivity, including improving public awareness and understanding of its definition, measurement, and importance to improving household economic wellbeing,” it states.
Wales’ Productivity Challenge: A Focus on the Future, will be launched at an event organised by The Productivity Institute, Cardiff Business School and ICAEW. It will be held at Cardiff Business School and online on Thursday, January 30 between 3pm and 4.30pm. Places can be booked at https://www.eventbrite.co.uk/e/productivity-and-the-wellbeing-of-future-generations-in-wales-tickets-1100895270389?aff=oddtdtcreator
