State of the South West 2008

Gross Disposable Household Income

2.35 So far, focus has been on Gross Value Added as a measure of economic output. In this section, we examine gross domestic household income (GDHI), an alternative measure of economic wealth, and perhaps a better indicator for economic wellbeing.

2.36 GDHI is ‘disposable income’ – income remaining after taxes and social contributions, pension contributions and property ownership are taken into account. The structure of GDHI varies considerably both inter- and intra-regionally and has a redistributive effect. In 2005, total GDHI in the South West was £67.2 billion, the equivalent of 79% of regional GVA.

2.37 In 2005, South West England benefited from 9.9% of England’s GDHI, compared to 9.2% of GVA. This equates to ₤13,258 per head of population and, as with GVA, the region ranks fourth, behind the three ‘Greater South East’ regions.  Regional GDHI is 98% of the English average, some way in advance of GVA per head (92%). This suggests that the region is economically better off on measures of income rather than measures of output. This is because households within the region benefit from the redistributive effects of pensions, taxes and benefits and other forms of income, such as earnings from outside of the region. As we would expect, the profile of GDHI is a narrower spread than for output because of its redistributive nature – state benefits and pensions are designed to narrow income differentials.

2.38 GDHI Growth - Growth in regional GDHI has shadowed the national growth rate. GDHI growth peaked at around 7% per annum in 2001 before falling to 3.5%-5.0% per annum in subsequent years. As well as normal cyclical explanations, this may be due in part to the increased cost of housing, increased Government spending on public services financed by taxation and increased levels of pension contributions by employees, combined with a reduction in output growth. The region’s growth in GDHI has been consistently higher than average since 2001, though this is largely offset by higher than average growth in SW population.

2.39 Sub-regional NUTS 2 - Gloucestershire, Wiltshire and North Somerset received £30.5 billion of GDHI, accounting for 45% of total SW GDHI. Although considerable, this is far less than the proportion of GVA (54%), and reflects the redistributive nature of GDHI. The other three NUTS 2 regions all had higher GDHI shares compared with their share of regional GVA.

2.40 Of the four SW NUTS 2 sub-regions, Gloucestershire, Wiltshire and North Somerset, and Dorset and Somerset, have GDHI per head around the England average. This contrasts with the pattern of GVA, where Dorset and Somerset are 19% below the England average GVA per head and GWNS 11% above - this may partly reflect the effects of commuting from Dorset into the South East, and Somerset to Bristol. Cornwall and Devon also show a dramatically improved relative position – 63% of England GVA to 89% of GDHI, and 76% GVA to 93% GDHI, respectively. The results suggest that the effect of a ‘ productivity gap’ may in reality have little impact on people’s standard of living, at least in the short term.

2.41 Sub-regional NUTS 3 - While the difference between Swindon (the best performing sub-region on GVA per head) and Torbay (the worst) was 90 index points in 2005, the difference between best and worst on GDHI per head (Wiltshire and Plymouth) in the same year was only 22% - the difference in GDHI per head between Swindon and Torbay is only 15%. GDHI per head in Wiltshire was £14,486, 9% above the English average. Plymouth, on the other hand, had GDHI per head of £11,595, 13% below the national average.