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Technical Note for PSA 7

URN No: 02/1613/A7

PSA Target 7. Make sustainable improvements in the economic performance of all English regions and over the long term reduce the persistent gap in growth rates between the regions, defining measures to improve performance and reporting progress against these measures by 2006. Joint target with ODPM and HM Treasury 

Measuring Economic Performance

This part of the PSA target will be measured using the trend rate of growth in Gross Value Added (GVA) per head in each region.  Measurement of trend rates of growth per head will use a similar methodology to that used by the Treasury to estimate national trend GDP growth (see technical note to HM Treasury’s PSA Target 1), ie by calculating average growth rates between points when the economy can be identified as being ‘on trend’.  Current data limitations mean that we can only presently produce approximate estimates of the trend rate of growth of GVA per head in the regions.  Other regional economic indicators (see below) will also be used to assess regional economic performance, until such time as we can produce robust estimates of regional trend growth rates of GVA per head. 

The Office for National Statistics (ONS) publishes regional measurements of GVA per head. The ONS figures are published on a current price basis and estimates of real GVA are currently not available.  Further analysis will be undertaken to see if robust, cost effective, estimates of real GVA can be produced.

Estimates of trend growth, particularly for periods after 1996, are likely to be affected by the introduction from Blue Book 2003 of annual chain-linking to estimate economic growth.  This may imply that in assessing performance against the target an adjustment will be needed to put outturn and baseline data on a comparable basis.

Trend growth rates will be measured to the nearest quarter percent.

The assessment will take as the baseline the trend rate of growth in each region over the period 1989-2002. We will initially estimate the baseline over the period 1989-2001 and if necessary revise the estimates as new data becomes available.  The baseline data will be appended to this technical note in 2004. 

To measure performance against the target, trend growth rates in (adjusted) GVA per head for each region will be estimated for the period 2003-2008. Annual GVA per head data required to estimate trend growth rates will only be available after a 12-month lag and so performance against this part of the target will be reported in 2010. If the timing of the economic cycle is such that we are not able to produce an estimate of regional trend growth rates over the period 2003-2008 we will explain why. 

In order to provide interim assessments of progress, annual GVA data for each region will be compared with previous year’s data to provide an assessment of progress each year.  More timely supporting indicators, namely business surveys, employment statistics, unemployment rates, earnings growth and VAT registrations (plus any other relevant indicators which become available at the regional level) will be used to provide a interim assessments of performance at six-monthly intervals.  Improvements in the majority of these indicators (taking into account cyclical influences) will be considered as evidence that the target is being met.  An overall assessment of progress will also be made at the end of the Spending Review period (i.e. in 2006) with the latest data for GVA and other indicators then available.  Where the indicators are not National Statistics, the indicators will be checked internally and agreed between the three Departments.

Success criterion

The target for making sustainable improvements in economic performance will have been met successfully if for every region the trend rate of growth in GVA per head measured over the period 2003-2008 is higher than the baseline. 

Measuring the Gap in Growth Rates

The gap in growth rates will be measured by comparing the average growth rate of regions that currently have above average GVA per head with the average growth rate of regions that currently have below average GVA per head.  In practice, this measurement involves comparing a single average growth rate for London, South East and East with a single average growth rate for North East, North West, Yorkshire and the Humber, West Midlands, East Midlands and South West.

As well as comparing the growth rates between these aggregations of regions, the gap in growth rates for individual regions will also be scrutinised. 

Trend growth in GVA per head will be the same measure use for the first part of the target.  The assessment will use the same baseline data as the first part of the target and will use initial estimates based on the period 1989-2001.

In order to meet the target, it will also be necessary to ensure that trend growth in GVA per head is higher for all regions over the period of measurement compared to the baseline. 

Given the longer term nature of this part of the target, the gap in average growth rates will be measured using the trend GVA per head growth rates for each region estimated for the period 2003-2012.  Annual GVA per head data required to estimate trend growth rates will only be available after a 12-month lag and so performance against this part of the target will be reported in 2014. If the timing of the economic cycle is such that we are not able to produce an estimate of regional trend growth rates over the period 2003-2012 we will explain why.

As with the first part of the target, annual progress against the target will be monitored, in this case by comparing the gap in annual GVA growth rates from one year to the next.  However, given the differences in regional economic cycles, the timeliness of regional data and fluctuations of annual data, annual results should be viewed with extreme caution.

More timely supporting indicators will be used to provide interim assessments of progress, as described in the first part of the target.

Success criterion

While the underlying aim will be to reduce the gap for each of the six regions, this part of the target will be met (i) if over the period 2003-2012 there is a reduction compared to the baseline in the absolute gap between the average trend growth rate in the three regions which currently have above average GVA per head and the average trend growth rate in the other six regions; and (ii) if each individual region’s trend rate of growth over the period 2003-2012 has increased compared to the baseline. 

As an interim measure, we will be considered to be meeting the target if over the period from 2003 to 2008, the absolute gap between the average trend growth rate in the three regions which currently have above average GVA per head and the average trend growth rate in the other six regions has not increased compared to the baseline.

Measures (instruments) to improve performance

In order to achieve progress against defined measures to improve performance by 2006, the key measures will need to be defined by the time the conclusions of the 2004 Spending Review are published (ie July 2004).  At the same time, appropriate regimes will need to be identified to enable the monitoring and evaluation of progress against the key measures defined, e.g. the monitoring regimes might use the Regional Outcome Indicators developed by the Regional Coordination Unit.  Progress will be reported using the monitoring and evaluation regimes at six monthly intervals and at the end of 2006.  The identification of measures and monitoring regimes will be based on analysis and research carried out between now and July 2004, building on existing analysis and research.  

Measures bringing improvements in the economic performance of the regions may take a variety of forms. Some may be explicitly regional or sub-regional, including the activities and strategies of the Regional Development Agencies and the European Structural Funds programmes; some may be national; and others may be local, including those aimed at neighbourhood renewal and raising enterprise and employment rates in deprived areas.

The measures may be either existing measures or new measures.

Many of the measures are likely to be the responsibility of the three Departments responsible for this target but others may fall to other parts of Government such as DfES, DEFRA and DWP.  Progress against measures in the latter category will be considered to have been achieved if we can show we have brought influence to bear on those with lead responsibility, for example through developing further the regional dimension to spending reviews.    

Success criterion

We will have met this part of our target if (i) by the time the conclusions of the 2004 Spending Review are published we have identified the key measures; and (ii) by end 2006 we can demonstrate, using monitoring and evaluation regimes established, significant progress in implementing or changing those measures which are the responsibility of our three Departments; and we can show that we have brought influence to bear, for example through developing further the regional dimension to spending reviews, to secure the implementation of measures for which other Departments have responsibility.

We will revise this section of the technical note during 2004 to incorporate directly the key measures we identify and say what will constitute demonstration of significant progress.