The economy of Wales is part of the wider economy of the United Kingdom, and encompasses the production and consumption of goods, services and the supply of money in Wales.

On the whole, gross domestic product (GDP) in Wales has increased since 1999, although it remains lower than the UK average. UK government and Welsh government expenditure in Wales has also increased over the same period. Wales has received funding from the European Structural and Investment Funds and the UK government has announced that this funding is being replaced by the UK Shared Prosperity Fund, although the Welsh Government has suggested that Wales is receiving less money. Wales has a negative fiscal balance, although all countries and regions of the UK also had a fiscal deficit in 2020/21. The Gross Value Added in Wales has increased since 1998, but per head remains lower than the UK average.

Overview

Currency and monetary policy The currency used in Wales is the Pound, represented by the symbol £. The Bank of England is the central bank, responsible for issuing currency, and retains responsibility for monetary policy and is the central bank of the UK. The Royal Mint, which issues the coinage circulated over the whole of the UK, has been based at a single site in Llantrisant, Rhondda Cynon Taf since 1980, having progressively transferred operations from their Tower Hill, London site from 1968.

GDP The GDP of Wales has increased from £37.1 billion in 1998 to £85.4 billion in 2022.

GDP per head in Wales at current market prices has increased from £12,810 in 1998 to a peak of £27,274 in 2022. This compares to the UK averages of £17,073 in 1998, £34,424 in 2019 and £32,141 in 2020.

Expenditure Total public expenditure in Wales was £19.6 billion in 1999/2000 increasing to £54.6 billion in 2020/2021. The total identifiable expenditure in Wales in 2020/21 was £45 billion, with £9.6 billion not being spent directly in Wales. In 2018/19, the managed expenditure of Wales was £43.0 billion. Of this, £33.4 billion was "identifiable" expenditure on Wales, £4.6 billion was "non-identifiable" spending attributed to Wales but spent centrally in the UK, £1.2 billion was spent outside the UK. This brings the total annual spend not directly benefiting Wales to £5.9 billion. The remaining £3.7 billion was an accounting adjustment largely due to depreciation.

The Welsh government budget as allocated by the UK government in 2020/21 was £20.1 billion, increasing to £24 billion in 2023–24.

In 2021/22, public spending per person in Wales was £13,401. This compares with £13,881 in Scotland, £14,062 in Northern Ireland and £11,549 in England.

EU funds On average, Wales annually received £367 million of EU structural funds during 2014–2020, which included European Regional Development Fund (ERDF): £168.5 million; European social fund (ESF): £120.5 million; European agricultural fund for rural development (EAFRD): £77.9 million.

Following Brexit, the UK government announced in April 2022 that the EU structural funds would be replaced with the UK Shared Prosperity Fund (UKSPF). The Welsh Government has criticised the total sum of £632 million over 2020 to 2023 funding allocated to Wales, stating that Wales is being underfunded by £1.1 billion by the UK government.

Fiscal balance Wales's net fiscal deficit was £13.7 billion in 2016/17, £14.3 billion in 2017/18 and £13.5 billion in 2018/19. Later figures are affected by the COVID-19 pandemic. This fiscal deficit increased from £14.4 billion in 2019/20 to £25.9 billion in 2020/21. All countries and regions in the UK had a fiscal deficit in 2020/1, which included the North West of England at £49.9 billion; Scotland at £36 billion; Northern Ireland at £18 billion; London at £7.2 billion. The UK as a whole had a fiscal deficit of £318 billion in 2021.

Despite being the third smallest economy in the UK it typically has the largest absolute deficit, requiring borrowing by the UK to fund with disproportionate liability falling on taxpayers elsewhere in the UK to service the debt.

Gross value added This table shows the annual gross value added for Wales from 1998 to 2020. + Gross value added Year Wales (£ million) Wales (£ per head)UK (£ per head) 1998 32,769 11,30215,181 1999 33,444 11,53015,704 2000 35,032 12,05116,391 2001 36,081 12,39817,037 2002 37,828 12,94217,746 2003 40,442 13,76618,722 2004 42,751 14,45519,521 2005 44,564 15,00820,496 2006 47,128 15,78521,485 2007 48,816 16,23822,424 2008 49,185 16,25522,969200948,83316,07022,480201049,90816,36422,762201151,96216,96023,148201253,71217,47323,795201355,77418,09424,643201457,26718,52125,645201559,15619,08826,372201661,61519,79227,246201763,45520,30528,128 2018 66,078 21,05328,929201968,86621,84229,909202066,59121,01028,894

Employment Employment rate in Wales was 64.9% in April-June 1992 and increased to a peak of 75.0% during those months in 2019 and 72.7% in 2022. In 2022 a total of 1,455,800 people were in employment in Wales. Of these, 441,000 people were employed in the public sector (30.5%) and 1,006,300 were employed in the private sector.

Income and poverty The gross disposable household income in Wales per head was £9,402 in 1997 (87.4% of UK average) reaching its highest level ever in the most recent figure in 2020 of £17,592 (82.1% of UK average).

The percentage of people living in relative income poverty in Wales was 27% during 1994–95 to 1996–97. Since then it has dropped to 21% during multiple periods, but currently stands at 23% during the 2017–18 to 2019–20 period, with the UK average at 22%.

Small and medium enterprises The number of small and medium sized enterprises (SME) in Wales declined during 2021 and 37% of Welsh SME respondents said that they had been significantly affected by increasing costs in the fourth quarter of 2021. The Size Analysis of Active Businesses in Wales report estimated that 723,500 people were employed in SMEs in Wales in 2021, 1.6% lower than 2020.

The 2021/22 third quarterly report of the Development Bank of Wales showed that the bank made 243 investment transactions, totalling £28m and associated with around 760 new, safeguarded jobs. During the 2021 calendar year, the value of exported Welsh goods exports increased by 12.4% to £15.2 billion and value of good imports increased by 13.2% to £16.1 billion.

Economic development

Devolved powers

The Welsh Government established Independent Commission on Funding and Finance for Wales (the Holtham Commission) which looked at funding devolved public services in Wales, and possible alternative mechanisms. In 2011, the Commission on Devolution in Wales (the Silk Commission) was set up to review the case for the devolution of fiscal powers. This led to the Wales Act 2014, which devolved a range of provisions to the National Assembly, including powers over taxation. Fiscal and economic policy are currently reserved matters determined at Westminster, however from 2018 increased tax and borrowing powers devolved. In April 2018 the Welsh Government became responsible for three taxes: stamp duty land tax (SDLT), landfill tax and income tax. This was the first time for Wales to raise its own taxes since 1283.

In 2005, Plaid Cymru leader Ieuan Wyn Jones suggested that the lack of tax varying powers in Wales was a major reason why Wales did not have its own Celtic Tiger and that growth strategy should not be focused only on cities. Plaid Cymru have also argued that economic dividend can only be achieved with Welsh independence.

Criticism of UK government Jonathan Bradbury and Andrew Davies published an article in the National Institute Economic Review in January 2023 criticising both the Welsh government and UK government economic policies for Wales. They note that Wales had one of the weakest economies of the UK prior to devolution. They also noted views that the UK government remained in control of macro-economic powers; lacked regional economic policy; and a lack of devolution to the Welsh government to make a real difference. They also note the view of some that the historic exploitation of Wales and its treatment as an economic periphery plays have implications today.

Welsh government policy According to the Welsh Government's economic development strategy published in 2005, the role of the public sector in the economy is to help create a stable and favourable business environment, promote skills and innovation (through for example apprenticeships and Design Wales), address market failures and invest in economic infrastructure including transport and information technology.

In a report for the Institute of Welsh Affairs in 2003, Phil Cooke of Cardiff University argued that the Welsh Government had responded to the loss of productivity in manufacturing by substituting new jobs in the public sector, making Wales increasingly dependent on fiscal transfers from Whitehall. Cooke suggested that a relatively weak devolution settlement had prevented the Welsh Government from developing innovative economic policies, especially when compared to Scotland. However, critics including former Welsh Secretary Ron Davies and John Lovering, another Cardiff academic, claimed that Cooke's argument that a more powerful Assembly was a necessary precondition to more effective economic policies was a non-sequitur.

Jonathan Bradbury and Andrew Davies suggest that Wales's economic performance has not progressed under devolution with weakness in Welsh government strategy and policy and that the dissolution of the Wales Development Agency remains a topic of debate.

Identified issues Specific issues for lack of economic development include low skills; relatively low urbanisation; weak infrastructure connectivity; low Small and Medium Sized Enterprise (SME) equity with low demand and poor supply; lack of dynamic private sector leadership.

Potential economic models

Celtic Tiger

The economists Nicholas Crafts and John Bradley have argued that the Irish Celtic Tiger model, which includes lower corporation tax rates to stimulate investment and growth, was only effective in the very specific demographic and historical circumstances of Ireland in the late 1980s and 1990s. They suggest that such a policy in Wales's very different economic context would not only require political independence, but could be relatively ineffective and/or require difficult policy choices between higher personal taxes and lower public spending.

Basque Country

The Basque Country has been suggested as a comparative economic model which like Wales, is a post-industrial area. The Basque country's GDP per person has increased from 70% of the EU15 average in 1985 to being close the average in 2019. The Basque country has had 118% GDP per capita compared to the EU27 and lower unemployment than the Spanish average. The authors say that this was achieved by using a strategy focused on industry over multiple decades with "close co-operation among all levels of government and between the public and private sectors".

Preston Model Community wealth building or the Preston Model has been suggested as a model for Wales which says, "retaining more civic wealth within a locality can boost growth and economic resilience in that particular area". In 2016/17, anchor institutions of Preston spent an additional £74 million on procurement in the Preston area an additional £200 million in Lancashire (from 39% to 79.2% locally retained spend) compared to 2012/13. The results of this spend included 4,000 more employees earning the "Real Living Wage", and a reduction in unemployment from 6.5% in 2013 to 3.1% in 2017. Another report says that productivity and median income have increased and deprivation has decreased.

Economic sectors (A–Z)

Agriculture