Britain’s digital economy is “massively underestimated”

A new report, produced by the National Institute of Economic and Social Research and commissioned by Google, reveals just how important digital technologies are for Britain’s economy.

The report, based on data from real-time business tracker Growth Intelligence, shows that:

• There are at least 270,000 companies in Britain’s 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
• 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 or startups and software companies
• The areas with the highest concentration of digital companies are outside London and are spread right across the country, in places such as Aberdeen, Middlesbrough and Manchester

“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,” says Hal Varian, chief economist at Google.

The researched used new data provided by Growth Intelligence, which classifies companies in terms of products, activities and sectors, rather than through the government’s 65-year old SIC code classification system. 

According to the report’s authors, this makes it easier to spot digital companies working in traditional sectors, such as software companies in architecture, publishing and engineering.

Britain’s “outdated” business classification system means that hundreds of thousands of these kinds of digital companies could be incorrectly identified by government and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, according to the researchers.

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

“The old image of tech businesses as startups 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.”

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