Business and policy leaders are calling on the next Welsh Government to take a more intentional, long-term approach to productivity, warning that short-term policy cycles and narrow performance measures risk holding back progress.
Speaking on the Unlocking Wales' Productivity Potential podcast episode The Productivity Challenge for the Next Welsh Government, guests said productivity has remained a persistent challenge for Wales since devolution and requires coordinated action across skills, business support, infrastructure and public services.
Professor Melanie Jones of Cardiff Business School and Wales Productivity Forum lead said Wales’ productivity gap with the UK average has remained largely unchanged over time. While productivity growth in Wales has broadly mirrored the UK, it has done so from a lower base, with little evidence of convergence. She said Wales’ progress has also been weaker than that seen in Scotland and Northern Ireland.
Melanie said early post-devolution commitments on productivity sent a strong signal but were difficult to sustain, with productivity subsequently slipping down the policy agenda. She also highlighted the need to distinguish between employment and productivity, noting that while Wales has performed better on employment rates, improving productivity is about increasing the value generated by jobs rather than simply creating more of them.
She pointed to significant regional variation within Wales, including a clear east–west divide, and said any national strategy would need to recognise these differences rather than rely on a single, uniform approach. Investment in human capital, business capability, transport connectivity and digital infrastructure were all identified as important long-term drivers.
From a business perspective, Joshua Miles, Head of Wales at the Federation of Small Businesses, said productivity had not been a consistent feature of economic policy discussion in Wales and warned against assuming it was fully within the gift of devolved institutions to resolve.
He said headline figures often mask a more nuanced picture. While Wales’s total GVA per head places it at the bottom of UK regional rankings, productivity per hour worked and average wages present a less stark picture. Joshua said this reflects factors such as demographics, economic inactivity and sector mix, rather than poor performance within individual firms.
He also raised concerns that traditional policy measures, particularly job creation targets, can work against productivity objectives. Business support, he said, is often assessed by the number of jobs created, even though productivity-enhancing investment, such as new machinery or technology, can result in fewer roles but higher value output.
Joshua suggested a more joined-up approach was needed, with clearer intent around what productivity means for Wales and how success is measured. He said productivity should be embedded across policy areas and tracked transparently over time.
That view was echoed by Rhian Elston, Investment Director at the Development Bank of Wales, who said there remains a disconnect between how productivity is discussed at policy level and how it is understood by business owners.
She said productivity can be perceived negatively by firms who believe they are already performing well, underlining the need for clearer communication and practical support. She said tools that help businesses understand productivity at firm level, alongside case studies of companies improving productivity while growing, are critical.
Research undertaken through Economic Intelligence Wales, she said, had identified a small group of “productivity heroes” – businesses growing both turnover and employment while increasing productivity – but these accounted for reminder-level proportions of firms, suggesting policy needs to be more intentional if productivity is to improve.
Rhian said Welsh Government already has levers that could make a difference, particularly around skills and apprenticeships, as well as public procurement. She argued that aligning apprenticeship support more closely with business productivity needs, and rewarding productivity improvements through procurement, could strengthen firms over the long term.
Productivity policy must extend beyond individual programmes and be embedded across government decision-making, the podcast heard. Contributors argued that productivity aligns closely with existing long-term wellbeing objectives and should be treated as a cross-cutting consideration rather than a standalone initiative.
Hear more in the Unlocking Wales' Productivity Potential podcast episode The Productivity Challenge for the Next Welsh Government. Listen to the podcast here.
