Halving the gap: what the productivity mission asks of Wales

Welsh output per hour has stayed between 81.9% and 87.1% of the UK's since 1998. Halving the gap in ten years needs growth about 0.9% a year faster than the UK's, close to twice the best decade on record. The evidence points to problems inside industries, low investment and R&D, skills, health, connections and limited powers, which would all need to move at once.

Cambria ·

The Welsh Government's Programme for Government 2026 to 2030, published on 22 September, makes productivity its central economic aim: "ending generations of low productivity and halving the productivity gap with the rest of the UK within 10 years". This piece sets out where Wales starts, what halving the gap would take, and where in the Welsh economy the output sits today.

Where Wales starts

In 2023, the latest year published, output per hour worked in Wales was 84.9% of the UK average (ONS, regional labour productivity). That was the lowest of any UK nation or English region (Welsh Government, Wellbeing of Wales 2026). Figures for 2024 are due from the ONS on 24 November 2026.

The gap has hardly moved in a generation. Since 1998 the index has ranged between 81.9 (in 2009) and 87.1 (in 2000), with an average of 84.0. It stood at 87.0 in 1998, 2.1 points higher than in 2023.

What halving the gap would take

The Programme does not yet say which measure will be used or which year the ten years run from. It commits to a new Economic and Fiscal Commission to "set targets, collect relevant data and measure progress". Until it reports, Cambria uses a working assumption: output per hour against the UK average, starting from 2023.

On that basis the gap is 15.1 points, and halving it means reaching about 92.5 by the mid-2030s. That needs Welsh output per hour to grow about 0.9% a year faster than the UK's, every year, for ten years.

The best ten-year run in the ONS series was 2009 to 2019, when the index rose by 4.1 points. The mission needs about 7.6 points: close to twice the best decade on record.

Two cautions. The ONS index compares Wales with the UK including Wales, while the Programme refers to the rest of the UK, so the gap the Government means is slightly wider than these figures show. And the index moves a point or two in a year for reasons that have little to do with policy, so single years will say little; the direction over three or four years will say more.

Where the output is

The Welsh Government's size analysis of businesses by ownership (provisional figures for 2025, from the ONS business register) shows how concentrated Welsh output is. It counts every private sector enterprise with activity in Wales, wherever it is registered, and its employment and turnover figures cover Welsh sites only.

  • Ultimately owned outside the UK: 1,680 enterprises (0.7%), 182,800 jobs in Wales (15.9%), £64.6bn of turnover in Wales (43.5%).
  • UK-owned, including Welsh-owned: 244,820 enterprises, 963,600 jobs, £84.0bn of turnover.
  • All private sector enterprises active in Wales: 246,500 enterprises, 1,146,400 jobs, £148.5bn of turnover.

Fewer than one Welsh enterprise in a hundred is foreign-owned, but those firms account for one job in six and more than two pounds in every five of turnover. Turnover per job is about £353,000 in non-UK-owned firms against about £87,000 in UK-owned ones.

Turnover is not productivity. It counts the value of goods bought in and sold on, so it is high in energy, refining and retail, where much of it passes straight through. The source also leaves out financial and business services from turnover. Read the comparison as a sign of where scale and capital sit, not as a measure of value added.

Large enterprises (250 or more employees across the UK) account for 37.7% of private sector employment in Wales, and 35% of that large-firm employment is in non-UK-owned enterprises. Many of the biggest employers are not registered in Wales at all: of the 135 employers on Cambria's major employers register, 61 are registered outside Wales, so a view of the economy built only from Welsh-registered companies misses them. Progress on the productivity mission will depend in part on investment decisions taken in head offices elsewhere.

The middle of the economy

The Programme commits to "sustainably grow the numbers" of medium-sized businesses, those employing 50 to 249 people, and to reform the Development Bank of Wales to support them.

There were 2,255 medium-sized enterprises operating in Wales in 2025, up from 1,880 in 2010 (Welsh Government, size analysis of businesses). They employ 159,400 people in Wales, 13.9% of private sector employment. Size is measured by UK-wide employees, so a firm with 100 staff across the UK and ten in Wales counts as medium-sized here. 365 of them are owned outside the UK: 16% of medium-sized firms, with 36% of the group's turnover.

Growing the number of medium-sized firms and closing the productivity gap are linked but separate aims. A firm that grows from 40 to 60 staff adds to the count without necessarily raising output per hour. Cambria will track both.

What stands in the way

The evidence points to several connected problems. No single one explains the gap, and most would take longer than one Senedd term to shift.

The gap is inside industries

Wales's mix of industries explains little of the gap. The Productivity Institute finds that "the gap between Wales and the UK exists within the same industries", and that the effects of Wales's industry mix "cancel each other out". Manufacturing in Wales is more productive than the UK average. The widest gaps, more than 30% in 2019, are in information and communication, in professional, scientific and technical services, and in production outside manufacturing. The Welsh Government's own Economic and Fiscal Report says the same of UK regions in general: the differences are "more due to factors within industries". On this evidence, raising productivity inside the industries Wales already has matters more than changing which industries it has.

Investment and innovation

Businesses in Wales spent £884 million on research and development in 2024, 1.6% of the UK total. UKRI, the UK's main public research funder, spent £53 per person in Wales in 2023-24, against £134 across the UK. In a survey for Economic Intelligence Wales, 42% of Welsh firms had invested in machinery, against 62% in the rest of the UK, and 11% exported, against 32%. Survey figures like these carry a margin of error, but they point the same way as the official ones.

Skills

In 2025, 46.7% of working-age adults in Wales held a qualification at degree level or equivalent, 3.7 points below the UK, and 7.2% held no qualifications, 1.4 points above. Wales keeps most of its own graduates: 88% of Welsh students who studied in Wales went on to work here. It keeps few of the others: 20% of students from elsewhere in the UK who studied in Wales stayed. Employers report fewer skills gaps among their staff than at any point in the survey's history, but vacancies that are hard to fill for lack of skills remain above their 2011 to 2017 level.

Health and work

Sickness absence in Wales was 3.6% in 2022, the highest of any UK region, against 2.6% for the UK as a whole. Excluding students, 19.9% of people aged 16 to 64 were economically inactive in 2024-25, against 17.7% for the UK. Inactivity weighs most on output per head, which counts everyone, but the Productivity Institute notes that health "is also a direct driver of productivity" for people in work.

Places and connections

Productivity varies widely within Wales. In 2023, output per hour in Flintshire and Wrexham was 101.9% of the UK average, Cardiff and the Vale of Glamorgan 90.6%, and Mid Wales 67.5%, the second lowest of any area in the UK (the Welsh Government warns these local figures move a lot from year to year). The Productivity Institute argues that a "lack of large cities and low job density mean that Wales does not benefit from agglomeration economies". Grid capacity is a constraint on investment: in 2022 the Welsh Affairs Committee heard that Mid Wales had no transmission network and that one wind farm had been offered a connection in 2032, and a 2026 review for the National Infrastructure Commission for Wales called limited grid capacity "a major constraint". RTPI Cymru reports that real-terms funding for council planning departments fell by 43% between 2009 and 2024.

Powers and policy

Many of the levers sit in London. Fiscal, macroeconomic and monetary policy are reserved, and the block grant from the UK Government provides almost 80% of the Welsh budget. Within devolved policy, a Welsh Government review in 2025 found business support "fragmented and complex", with "inconsistency in how programmes set and report key KPIs", and a 2024 review led by Andrew Henley at Cardiff University called for action on "policy churn". The Programme for Government proposes an Economic and Fiscal Commission to set targets and measure progress, a National Development Agency, a skills strategy, planning reform and a national energy strategy. The Productivity Institute has recommended an independent Welsh Productivity Commission.

How long it takes

The Productivity Institute calculates that closing the whole gap would take about 19 years of growth one point a year faster than the UK's, 38 years at half a point and 76 years at a quarter. Since 2008 Scotland and Northern Ireland have converged on the UK average further than Wales. The OECD cautions that "copying successful strategies from other regions or following blueprint solutions rarely works". Taken together, the evidence suggests that halving the gap in ten years would need progress on several of these fronts at once, held steady for the whole decade, with some of it depending on decisions taken in Westminster and in company head offices outside Wales.

What Cambria will track

The Programme for Government page on Cambria carries the economy chapter in full and four scorecards built from public data: the productivity gap against the halving line, progress towards the procurement aim (the Programme aims "towards 70%" of spending with Welsh businesses, but has not yet said how it will be measured), the number of medium-sized enterprises, and Welsh pay against the UK. Each updates when its source does. Where the Government has not yet said how it will measure an aim, the scorecard says so.

Sources

  • ONS, GVA per hour worked, Wales (index, UK = 100), series DMOW, release of 18 June 2025.

  • Welsh Government, Wellbeing of Wales 2026: a prosperous Wales, 1 October 2026.

  • Welsh Government (StatsWales), Size analysis of businesses by ownership, size band, area and year, 2025 (provisional).

  • Welsh Government (StatsWales), Size analysis of businesses by size band, area and year.

  • Welsh Government, Programme for Government 2026 to 2030: New Ambition for Wales, 22 September 2026.

  • Cambria, major employers register (each entry cites its own public source).

  • The Productivity Institute (Melanie Jones), Wales' Productivity Challenge: A Focus on the Future, Productivity Insights Paper 051, January 2025.

  • Melanie Jones for the Wales Productivity Forum, written evidence to the UK Parliament, 1 February 2025.

  • Welsh Government, Wales Economic and Fiscal Report 2025, October 2025.

  • Welsh Government, Research and development business enterprise expenditure: 2024, 1 December 2025.

  • UKRI, Geographical distribution of UKRI funding, financial years 2022 to 2023 and 2023 to 2024, 10 March 2025.

  • Economic Intelligence Wales (Golubova and Roper), Productive investment decisions in Welsh firms, December 2025.

  • Welsh Government, Levels of highest qualification held by working age adults: 2025, 30 April 2026.

  • Medr, Graduate Outcomes 2022/23, 23 July 2025.

  • Welsh Government, Employer Skills Survey 2024: Wales report, February 2026.

  • Learning and Work Institute, A Work, Health and Skills Plan for Wales, November 2025.

  • Welsh Government, Sub-regional productivity: 2002 to 2023, 20 June 2025.

  • House of Commons Welsh Affairs Committee, Grid capacity in Wales (HC 218), 21 October 2022.

  • Arcadis for the National Infrastructure Commission for Wales, Energy Sector Infrastructure Insights, 2026.

  • RTPI Cymru, Welsh planners stuck in firefighting mode, 2026.

  • Senedd Research, The evolution of Wales' fiscal landscape, 2 June 2026.

  • Welsh Government, Business support review, 18 November 2025.

  • Cardiff University, Addressing productivity challenges in Wales (Henley review), 30 January 2024.

  • OECD, Productivity and Jobs in a Globalised World: (How) Can All Regions Benefit?, 2018.

The arithmetic in this piece (the 92.5 line, the 0.9% a year and the comparison with past decades) is Cambria's own, from the ONS series above.