Digital economy 'double the size of the state's best guess'

The government has been selling the UK’s digital economy short by telling overseas investors not even half the story when it comes to the number of British tech companies doing business.

In fact, according to the government’s latest estimate – based on its 65-year-old classification system - there were 120,000 businesses in the digital economy as of June 2013.

But by using a more up-to-date methodology, a new report by the National Institute of Economic and Social Research says there are actually 269,695 digital firms – more than double the state’s estimate.

Unlike the government, which uses SIC codes to count tech firms, the institute took data from a software company that tracks “digital footprints left by companies online”, such as their sales, sector and product data.

The result is the unmasking of hordes of digital firms that work in ‘traditional’ sectors, such as a software company facing the architectural industry and a hi-tech engineer supplying the oil industry.

Another example is Rok Talk, a provider of services-based text-to-speech technology to website owners but, under the government’s classification, it is listed as a ‘business support’ company.

More in line with the government’s stance on the digital economy, the institute found that it is indeed on the up. In terms of revenue, such tech-savvy players are growing 25% faster and, in terms of employment, hire 15% more staff than non-tech businesses.

“This is a groundbreaking and important report”, reflected Hal Varian, chief economist at Google, which commissioned the report. “Not just because it shows that the spread of the digital economy into other sectors is driving growth and jobs throughout the UK but because - for the first time in 65 years - it presents us with a new way of measuring the economy.”

Meanwhile, Dr. Max Nathan, senior research fellow at NIESR added: “Policymakers have identified the digital economy as one of the UK’s key economic strengths. That means they need to be aware of the true numbers of digital businesses around the country.

 “The old image of tech businesses as start-ups that make no money is out of date too: using big data we show a broad array of active businesses selling digital products and services.”

The report, Mapping the UK’s Digital Economy, states: “UK policymakers – and businesses – need a good understanding of the digital economy: as a potential driver of economic growth; as potential suppliers, partners and clients; and as investment opportunities.”

 

24th July 2013

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