Digital economy 40 per cent bigger than official statistics suggest

Author(s): Dr Max Nathan Published: 22nd July 2013

A new report by the National Institute of Economic and Social Research, using new data from real-time business tracker Growth Intelligence, draws a map of jobs and growth across the whole of the UK.

The detailed report, commissioned by Google, also reveals just how far traditional sectors, such as manufacturing, architecture and engineering, have embraced digital technology.

The report shows:

●      there are at least 270,000 companies that form the digital economy - far more than any Government estimate

●      the revenue reported by digital companies is growing 25 per cent faster than that reported by non-digital companies

●      on average digital employers hire three more people - 15 per cent more - than those employers who are not digital

●      how companies in traditional sectors, from architecture to manufacturing, are using and relying on technology to run their businesses: digital technology is no longer the sole preserve of start-ups and software companies

●      the areas with the highest concentration of digital companies are outside London and spread right across the country, in places like Aberdeen, Middlesbrough and Manchester

Instead of using the 65 year-old Government classification system, known as SIC codes, this report uses new data provided by Growth Intelligence, a fast-growing London-based sales software company, to measure the business environment by tracking digital footprints left by companies online.

Official definitions only use basic sector information. Growth Intelligence classifies companies in terms of products, activities and sectors. This provides a much more detailed view of companies in the UK economy and allows us to spot digital companies working in 'traditional' sectors, such as software companies in architecture, publishing and engineering.

Britain’s out-dated business classification system means that hundreds of thousands of these kinds of digital companies are incorrectly identified by Government and financial institutions. With politicians, banks and insurers basing policy decision on SIC codes, it means that thousands of firms could be missing vital support.

Dr. Max Nathan, senior research fellow at NIESR, said: “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.”

Tom Gatten, chief executive of Growth Intelligence, said: “This research demonstrates the need for a new way of understanding the economy, both for Government and for businesses. Rather than relying on outdated codes or static lists, our new technology and internet data reveals new opportunities and insights for growth.”

Hal Varian, Chief Economist, at Google, said: “This is a groundbreaking and important report by NIESR 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.”

Business Secretary Vince Cable said: "This is an interesting alternative report. As our recently published Information Economy Strategy highlights, innovation, entrepreneurship and growth are spread throughout the UK. The information economy transforms every other business sector, driving productivity and creating new opportunities for growth.”