Headlines
- Despite growth in recent years, GVA per head on the region remains lower than other English regions.
- The full effect of the recession on GVA per head is clearer at the regional level with the publication of 2009 data. However, the data for the economic recovery in 2010 will not be published at regional level until December 2011.
Introduction
GVA (Gross Value Added) provides a measure of the value added to materials and other inputs in the production of goods and services. In other words it measures the contribution to an economy of all activities which produce goods or services. Whilst GVA measures the total size of an economy, GVA per head (i.e. GVA per head of resident population) is a somewhat more useful measure as this gives an indication as to average size of economy per person and also enables comparison across countries and regions. In broad terms GVA is created by working people and is quantified in terms of wages and company profits.
GDHI (Gross Disposable Household Income) Estimates represent the amount of money individuals have at their disposal to spend on goods or services, save or invest. As such it is a personal measure of wealth allocated by residences, whereas GVA is allocated by workplaces. Comparing the growth rates of total GDHI at the regional level and by head of resident head of population (i.e. GDHI per head) allows for comparisons to be made over time across countries and regions. A detailed definition of GDHI and accompanying data tables can be found at http://www.nerip.com/library/view.aspx?id=1064 .
The Regional Economic Strategy (RES) identified how the North East could reduce the economic output gap – the short-fall in GVA the region has with the UK. The challenging target of moving the region from 80% of UK GVA per head to 90% by 2016 is to be addressed through improving the twin drivers of economic growth – productivity and participation.
GVA
Due in large part to the North East’s relatively low population, in 2009 the region had the lowest GVA of any English region. Total GVA for the North East was £40.37 billion representing 3.2% of the UK total.
UK total GVA stood at £1,234.4bn in 2009, a fall of 2.11% from £1,261.2bn in 2008. Over half of this sum was contributed by the 4 southern English regions – London, the South East, the East of England and the South West.
GVA growth rates
North East regional GVA in 2009 was down by 1.5% on 2008 in nominal terms (ie before inflation is taken into account). This compared to a UK fall of 2.1%. The fall in the growth rate was the second lowest in England, only slightly behind the fall recorded in London. All regions on the UK recorded falls in the GVA growth rate, with Scotland recording the lowest fall of 0.9%
GVA per head
North East GVA per head stood at £15,621 in 2009 compared with the UK rate of £19,977– just 78.2% of the UK rate. London had the highest GVA per head with £34,200. The South East the only other region with GVA per head above the national average - indicating that the London rate of GVA per head has inflated the average figure.
In nominal terms GVA per head for the North East fell by 2.0% during 2009. This compared with a UK fall of 2.7%.
Despite showing positive growth from 1992 onwards, the 1990s were a period of relative decline against the rest of the UK for the North East. Between 1992 and 1997, regional GVA per head grew by 1.7% p.a. in real terms, the lowest CAGR (Compound Annual Growth Rate) of any UK region. Between 1997 and 2002 North East GVA per head grew by an average 2.1% CAGR in real terms, overtaking the growth rates of Wales, Scotland and both East/West Midlands.
Productivity
Productivity is usually measured in terms of either GVA per job, or where the data allows, the ONS preferred measure is GVA per hour worked. Regional disparities in productivity are smaller than are the GVA per head differences.
In terms of GVA per workforce job across all industries the North East rate of £34,400 in 2007 was some 86% of the UK rate of £39,900. The chart below compares each UK country and region’s Manufacturing and Services productivity rates. The North East demonstrates both an absolute and a comparative advantage in Manufacturing compared with the UK. The region has maintained this relative advantage in Manufacturing continuously over the past decade. However, in terms of Services productivity, the North East has the weakest performance in England, ahead of only Wales in the UK. Again this weakness has generally persisted over the past ten years.
When productivity is examined in terms of GVA per hour worked then a slightly different picture emerges. In 2007, the North East GVA per hour worked index was 91.2, ahead of Northern Ireland, Wales, Yorkshire & Humber and the West Midlands.The difference between the North East’s relative performance in terms of GVA per job, compared to GVA per head, can largely be attributed to the existence of a greater proportion of part-time jobs in the region compared to most other regions.
GDHI
Due in large part to the North East’s relatively low population, in 2008 the region had the lowest GDHI of any English region. Total GDHI for the North East was £32.3 billion representing 3.5% of the UK total of £912.9 billion. Over 30% of the UK total of GDHI was accounted for by London and the South East, indicating that these regions contribute disproportionately to the UK total.
GDHI Growth rates
The regional picture of GDHI growth over time shows the extent to which the growth in GDHI in the North East has kept pace with the UK growth rates. The regional picture on GDHI growth compared to UK growth over the period 2001 - 2008 shows the North East typically falling below the UK performance on this indicator over time, periodically matching the UK performance:
North East regional GDHI in 2008 increased by 4.6% on 2007 in nominal terms (i.e. before inflation is taken into account). This compared to UK growth of 4.6%. The region’s growth rate was jointly (with Northern Ireland) the fourth highest in the UK, behind London, the South East and Scotland. London saw the highest annual increase with 5.3%. Every other UK region experienced a lower rate of growth compared to the UK average.
In nominal terms GDHI per head for the North East grew by 4.2% during 2008. This compared with UK growth of 3.9%. Over the period 2001 – 2008 the GDHI Per Head growth trends shows the North East largely keeping pace with the UK average:
North East GDHI per head stood at £12,543 in 2008 compared with the UK rate of £14,872 – 84.3% of the UK rate. London had the highest GDHI per head with £19,038. The South East and the East of England are the only other regions with GDHI per head above the national average - indicating a ‘Commuter Effect’ of wealth created in London flowing out to adjacent regions where London workers reside. The GDHI per head growth rate for the North East in 2008 was the third highest in the UK.