Misinterpreting Reality

This excellent analysis was posted by MH on the icWales Politics forum. It is worth reposting in full:

In the WM yesterday we had this story entitled "Wales Economy Worst in UK". It's well worth reading, it tells you a lot about how journalism works. The story was obtained from AP but, as is usual, newspapers that take it usually change the story around a bit... just to try and make it "their own". In this particular case, though, the journalist decided to mix two stories (i.e. Halifax and an ONS regular report) and deliberately mix them up. Hardly surprisingly, this is done for political reasons. People like Bob and his bogie's pick up on it without having the first clue what the statistics mean... they only read the headline and the political conclusion. So at the risk of teaching the more sensible among us how to suck eggs, let's look at the figures and see what they mean. The Halifax story is primarily about house prices compared with earnings, concentrating on the north-south divide.

That's how it was reported elsewhere, for example in the Telegraph. Wales was not singled out at all, it was included in Halifax's "northern area". But this wasn't quite "spicy enough" for our junior hack. So he decided to embellish it, by using ONS (Office of National Statistics) data. But the figures he quoted have not been published recently, so it took a bit of research to find where they he got them from.

The only place I could find the figures online was here (pdf). This is the UK Economic Indicators report of June 2007 (this particular version highlights the Southwest, but no matter). The essence of the criticism the WM story makes is this:

Wales contributes least to the UK economy, with a GDP of only £13,813 per head. By contrast, London has boomed during this time, with a 13% increase to £24,075.

We can all see the raw figures in table 5, on page 11. They are the estimated 2005 figures for GVA (gross value added) and not GDP. But most people don't know the difference. When you see a mention of GDP in the press, 9 times out of 10 they mean GVA. But let's look at the five year difference. London went up from £18,394 to £24,075 - an increase of 30%. Wales went up from £10,920 to £13,813 - an increase of 26.5%. True, not as good as London. But certainly not too shabby. However the figures show that Wales GDP has been rising steadily every single year (the figures go back to 1997).

There is no real reason to be over-concerned about GVA, because it's only one side of the equation. If the cost of living is greater somewhere else, then you need more money to pay for it. On its own, it says nothing about standard of living or quality of life. But we need to be quite clear about what this "contribution to the UK economy" is. The main way this figure is arrived at is on the basis of taxation. And whereas things like personal income tax and NI can be accurately assessed for each country and region, other things simply aren't. These include Corporation Tax and VAT.

As myself and others have said before, the VAT you pay in Tesco is accounted as having come from Tesco's head office in Cheshunt. The Corporation Tax companies pay is accounted as having come from their head offices, not the place where their workers actually produce the wealth. Therefore these figures are no indication whatsoever of how much Wales "contributes to the economy".

People think London is the powerhouse of the UK economy. But that's just because more headquarters are based there. In fact if you look at other indicators in detail, the opposite is more likely to be true. Let's look at unemployment. Ask any half dozen people and they'll tell you that it's bad in Wales. Well, I won't argue, it could be much better. But let's look at Table 18, page 28. The unemployment rate in Wales is 5.5%. For England as a whole it is higher, at 5.7%. For London it is 7.3%. Wales has less unemployment than England, and much less than London. Let's look at another indicator, exports. Back in January, to counter the idea that Wales exports "zilch" I said this:

Look at the ACTUAL FIGURES. Download this document (pdf). Look at table 1 on page 2 and you'll see that Welsh exports (EU and World) for 2004 and 2005 were £8.3bn and £8.6bn respectively, 5% and 4.7% of the UK as a whole. For the latest quarter they're at 5.1%. With a population of 2.96m out of 60.21m, the pro-rata should be 4.9% ... so Wales is performing EQUALLY with every other part of the UK. We can stand on our own perfectly well. In terms of our exports to the EU alone, we in fact do a few percentage points better (5.9%, 5.4% and 5.2%).

Now look at this story from a rather better journalist at the WM (quoted below):

Leading way on transatlantic trade Sep 12 2007 by Aled Blake, Western Mail LATEST figures show that exports from Wales to North America have increased at a rate nearly double the UK average since 1999. Official statistics from HM Revenue and Customs show that, since devolution, exports from Wales to North America have grown by 43%, compared with a UK average of 26%. Welsh exports for the year to June were up 1% on the previous four quarters to reach a total of £9.2bn – the UK equivalent figure was down 11.6%... Sales of Welsh products to North America have grown from £1.4bn in 2004 to £2bn in 2006. Over the past three months, sales totalled £569m compared with £484m for the same period last year. North America is by far the most important export market for Wales outside the EU – which bought £5.7bn worth of Welsh goods in 2006. During the year to June, the Wales percentage increase in export sales was the third highest among the UK countries and English regions, with Northern Ireland and the North East having the highest percentage increases over the same period. Overall, total Welsh exports have grown strongly over the recent years from £8.3bn in 2004, to £8.64bn in 2005 to the latest figure of £9.15bn for the year to June 2007. In terms of sectors, the most valuable for overseas sales was machinery and transport which accounted for £3.4bn worth of exports last year.

We have good reason to be proud of what we produce in Wales (but not complacent, because we want it to improve). The picture is very clear. We produce wealth in Wales, but the profits we earn get siphoned off, and get accounted as having come from elsewhere. - That somewhere else is, I'm afraid to say, usually London.

If it were not for the distorting effect of the UK Treasury's continuing refusal to properly account where taxes come from, we would see much more clearly that London has more claim to be the "basket case" of the UK economy. Poverty is greater. The amount government spends in London is greater (£1,100 a head more than Wales gets). But there are also some very rich people in London. It is a city of huge inequalities ... the direct result of over-centralization. In another topic, I've mentioned the amount of money that's being put into Crossrail. Where's our fair share of the pie?

Another example of how London is treated as a special case is the Olympics. This is apparently now going to be classed as a "UK" project. That will mean that an equivalent (Barnett) proportion of the money spent on East London's transport and infrastructure improvements will not be given to Wales or Scotland. Yet one more example of how "identifiable spending" depends on what the government chooses to identify.

Wise up! Wales' economy is not that bad. Our relative poverty has nothing to do with all we produce, but where the profits go. When people keep perpetuating myths, you need only ask what their agenda is.

It's obvious, isn't it? To make us believe that we're not capable of running our own country.