Local Gross Value Added
2005

Introduction

Gross Value Added (GVA) is an indicator of wealth creation, measuring the contribution to the economy of each producer, industry or sector and is generally regarded as the best measure of the sum of economic activity within an area. It is an important measure in the estimation of Gross Domestic Product (GDP) when using the "production" or "income" approaches and is now used to determine regional and sub-regional estimates of wealth creation that were originally termed Gross Domestic Product by the Office for National Statistics. In essence, the link between GVA and GDP can be defined as GVA plus taxes on products, less subsidies on products equals GDP.

Viewed over time, GVA can be used as a conventional measure of economic growth. However, whilst often used as a broad measure of economic and social well-being, the GVA/GDP measures are far from perfect. As well as the "black economy" which escapes the output and income measures of GVA, it also does not include, for example, transfer payments such as social security and pensions, or allowances for household or voluntary work nor aspects like leisure time availability, income inequality or the quality of the environment, all of which are thought to be important factors in determining a nation's well-being. A further consideration is that local sub-regional estimates measure GVA on a workplace basis. This means that income from the employment of commuters is allocated to the area in which they work rather than where they live. (In 2001 the Census of population recorded a net outflow of commuters from Lancashire to other work centres of 21,400). Often a better guide to prosperity at the sub-regional level is provided by estimates of gross disposable household income.

The most recent official (and provisional) local estimates of GVA are for 2005 and are geographically based on European-defined statistical units – the so-called "Nomenclature of Units for Territorial Statistics" (NUTS). In the case of Lancashire, for example, the County of Lancashire together with the two unitary authorities of Blackburn with Darwen and Blackpool comprise a sub-regional NUTS-2 area. Each of the three areas are also separately NUTS-3 or "local areas".

The GVA figures provided for each area are (unless otherwise stated) "headline" figures – that is to say, they have been calculated using a five-year moving average based trend of the unadjusted estimates for each region. The estimates are also (unless stated) at current basic prices and do not allow for changes in prices over time (inflation) or differences in regional price levels (purchasing power). All Lancashire data may be found in our Data Download Centre. Results for all other parts of the UK may be obtained directly from the National Statistics website.

Total Gross Value Added

The estimated sum of incomes earned from the production of goods and services in the Lancashire NUTS-2 area in 2005 amounted to £21.1bn (Table 1). This sum represented nearly a fifth (19.8%) of the North West Region total or 2.0% that of the United Kingdom. Within the Region Lancashire's GVA contribution was higher that that of Cheshire (£19.3bn), Cumbria (£6.9bn) or Merseyside (£17.4bn) but only half that of Greater Manchester (£42.1bn). Within the three Northern regions the Lancashire sub-region's GVA generation was exceeded by only Greater Manchester and West Yorkshire and was roughly on a par with Northumberland and Tyne & Wear.

In absolute terms, the Lancashire sub-region's contribution to national wealth creation in 2005 was the 21st largest out of the 37 UK NUTS-2 regions in a range that extended from Inner London (£132.4bn) to the Highlands & Islands (£5.0bn). Some £17.4bn or nearly 83% of the Lancashire NUTS-2 GVA was generated in Lancashire County with the remainder divided between the two unitary authorities of Blackburn with Darwen with a share of 9.3% and Blackpool with 8.1%.

Gross Value Added per Head

A more useful and comparative measure of economic well-being, and implicitly of general living standards (before allowing for transfer payments), can be made in terms of "GVA per head of population". For the UK as a whole, excluding Extra-Regio, average GVA per head of population in 2005 was £17,800 but across the UK it exhibits wide disparities. Amongst the 37 NUTS-2 sub-regions Inner London not unexpectedly had the highest level of GVA per head in 2005, at more than two and a half times the UK average. Overall, productivity in Inner London was nearly 3.9 times higher than that in the least productive area, Cornwall and the Isles of Scilly. While Inner London produced 12.3% of the nation's economic value added and had gross value added per head of £45,000, Cornwall produced less than 0.6% and its inhabitants contributed only £11,500 each to the national economy.

Aside from Inner London, other NUTS-2 areas of high value added per head in 2005 together with those at the lower end of the rankings are shown in Table 2.

GVA per head at the NUTS-3 level (principally individual counties and unitary authorities) revealed even greater variation. Inner London West had by far the largest sum with £78,300 followed some way behind by Berkshire with £29,200 and the City of Edinburgh with £28,400. At the other extreme the Isle of Anglesey had the smallest GVA per head of population with just £9,400, a little above half the national average; Wirral (£10,100) and Gwent Valleys (£10,300) followed.

In the case of the Lancashire NUTS-2 area, GVA per head in 2005 was estimated at £14,600 (Table 3). This level was more than six percentage points lower than that of the wider North West Region and only 82% of the United Kingdom average. In these terms, Lancashire ranked as a relatively modest lower middle ranking 26th out of the 37 NUTS-2 regions used by the Office for National Statistics, positioned between East Riding & North Lincolnshire in 23rd place and Northern Ireland in 27th place. Ten-years previously in 1995 Lancashire ranked as 23rd in the UK. Rankings of the NUTS-3 areas in 2005 (out of 133 across the UK) place Lancashire County as 68th; Blackburn as 86th and Blackpool as 111th.

Elsewhere in the North West, Cheshire was easily the wealthiest sub-region in 2005 with GVA per head of £19,400. This sum was 9% above the UK average even though well-below par growth, particularly in Cheshire County, over the past decade has seen some erosion in this position, being down from 14% above the UK average in 1995). Merseyside remained the poorest area with GVA per head of £12,800 or only 72% of the national average (up from 71% in 1995) (Figure 1).

Figure 1 GVA per Head, North West Sub-Regions, 1995-2005

Source ONS - Local Gross Value Added 1995-2005, December 2007

The North West as a whole has undergone a modest decline in GVA relative to the UK over the past decade, though its constituent parts have had varied fortunes. Cumbria, in particular, has experienced a sharp reversal of its fortunes having suffered one of the lowest rates of economic growth of any UK NUTS-2 area between 1995 and 2005. Lancashire too has under-performed. No North West NUT-2 sub-region has been able to match the average UK rate of growth. However, at the NUTS-3 level both Greater Manchester South and Halton with Warrington have improved their economic potential matching or exceeding the national average rate of growth. Nominal growth rates (i.e. unadjusted for inflation) for the North West NUTS-2 and NUTS-3 areas for both the latest year (2004-05) and for the longer period 1995-2005 are shown in Table 4 and in Figure 2.

Figure 2 Headline Gross Value Added, 2005

Source ONS - Local Gross Value Added 1995-2005, December 2007

Lancashire Economic Growth

On the basis of these GVA estimates Lancashire continued to become a more prosperous place in which to both live and work over the short period 1995 to 2005 even though its pace of economic progress relative to many other UK areas was far from sparkling (Figure 3). Whilst over this ten-year period total GVA in the Lancashire NUTS-2 area increased by around 53% in nominal (cash) terms this was well below the UK average of 70% as well as trailing the regional average of 58%. Effectively, Lancashire had one of the slowest economic growth rates of all the NUTS-2 regions, ranking as just 32nd out of the 37 areas in the UK and the fourth slowest in England behind Cumbria, Tees Valley & Durham and East Riding & North Lincolnshire. Discounting the effects of national inflation, Lancashire's total GVA grew by about 17% between 1995 and 2005 – an annual average real rate of growth of around 1.6% (Lancashire County=1.9%) against 2.8% in the UK at large. The longer-term implication implied by this differential growth rate is quite substantial. At a steady growth rate of 1.6% per annum it would take the Lancashire economy close to 44 years to double in size. The doubling time for a 2.8% annual rate of increase is about 24 years (Table 5).

Figure 3 Change in GVA, 1995-2005 (constant 2005-based prices)

Note Based on unadjusted data using UK implied deflators.

Source ONS - Local Gross Value Added, 1995-2005, December 2007

GVA by Industry Group

In interpreting these figures, it should be stressed that where an area relies heavily on output and employment on a particular sector or industry, its GVA is particularly sensitive to changes in the profitability of and employment in that industry. In Lancashire's case the importance of manufacturing generally and of the defence/aerospace industry in particular, has impacted disproportionately on local GVA figures for many years. The late 1980s/early 1990s, for example, was a period of exceptional and unsustainable growth in aerospace as several major mature military programmes peaked and the civil sector expanded strongly. At the turn of the last decade an extraordinarily high 36% of Lancashire's GVA derived directly from manufacturing industry and about 14% from aerospace production alone.

It was inevitable that the early 1990s national economic downturn combined with the so-called "peace dividend" and an exceptionally severe retrenchment in civil aerospace would impact adversely on the local economy. Indeed, many thousands of local jobs, often of above-average wage and skill were lost over the first half of the 1990s and the process of adjustment remained a drag on GVA growth for some time. The more recent sluggish recovery in relative GVA per head figures in Lancashire has less obvious roots but much of the explanation is probably still to be found in structural factors – most notably the sub-region's continuing high dependency on manufacturing (still accounting for nearly a quarter of Lancashire's GVA in 2004 compared with 15% in the UK - see Figure 4) in which the real growth rate (after allowing for inflation) was negative, combined with a continuing under-representation locally of higher growth/higher wage companies across many local sectors of both industrial and service activity. The financial and business services, for example that continue to spearhead much growth across the UK contributed just 19% of Lancashire's GVA in 2004 against more than 35% nationally. Just three significant Lancashire industrial sectors: manufacturing, construction and education, enjoyed nominal rates of GVA growth greater than the national average 1995-2004 (Table 6). There is some evidence that Lancashire has benefited from the sharp increase in public expenditure since 1999 in the non-market parts of the economy, primarily government services such as education and heath and social work but not disproportionately so, but it remains the fact that private sector growth has generally remained below the levels commonly experienced in London and the south of England more generally. When public expenditure slows, as it is expected to do after 2008, recent encouraging local growth rates could falter.

Figure 4 GVA by Broad Industry Group, Lancashire NUTS-2, 2004

Source ONS - Local Gross Value Added 1995-2004, December 2006

Gross Value Added per Head by District

Separately from the ONS figures the Neighbourhood Renewal Unit of the Office of the Deputy Prime Minister have produced estimates of gross value added per head at the level of individual district authorities (Table 6). These are based on earnings data of taxpayers provided by the Inland Revenue and are not directly comparable with the ONS estimates provided above. Care should also be taken in the interpretation of the figures as they are based in most cases on very small samples of taxpayers and can be subject to some volatility year-to-year. The per head index calculation is based on an England average that uses the median value and not the mean. The effect of this in the case of Lancashire, which has a low share of higher rate taxpayers, is probably to slightly over-state most Lancashire districts' GVA contribution relative to England.

This page was compiled by Peter Kivell.

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