MPs: It's time for the digital economy to count

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A recent House of Commons report into the UK’s digital economy finally acknowledged a problem which has exasperated digital industry professionals for years.

On paper, you see, neither these professionals nor their industry exist.

All economic activity in the UK is measured using a framework known as the Standard Industrial Classification (SIC) codes. This system was devised at the end of World War II and has had just seven updates since 1948. The last update to the SIC codes was carried out in 2007. Apropos of their time, the SIC codes are heavily weighed towards manufacturing.

An invisible industry

In 2013 a report by the National Institute of Economic and Social Research revealed the damage caused by these woefully outdated taxonomies. They found that “one in 10 companies in the UK are now classified vaguely as ‘other’. One in five have no classification at all." These exclusions are particularly acute for the digital economy. The NIESR estimated that at least 150,000 companies working in the digital industry, and by extension hundreds of thousands of digital professionals, are merely lumped into “other”.

For example, a web design agency was found to be officially classified as “other publishing activities”. A company developing specialised software for the oil industry was officially classified as “other business support service activities not elsewhere classified”. The same classification applied to a company which creates text-to-speech technology for the disabled.

Another consequence of the failure to update the SIC codes, found the House of Commons report, is the revelation that the UK’s lucrative computer gaming industry does not officially exist either. The paper quotes Jo Twist, the chief executive of UK Interactive Entertainment (UKIE), as saying “the gaming industry ‘created no jobs and no economic value’, according to official statistics.” UKIE’s own figures, which value the UK games market at £4.19bn, would suggest otherwise.

Garbage in, garbage out

These omissions are not just an issue of sour grapes for industry professionals. Exclusion from economic statistics “has implications for other areas… such as regulation, taxation, and work benefits,” said Diane Coyle, professor of economics at Manchester University and fellow of the Office for National Statistics. The extensive use of freelance and temporary contracts in the digital economy means that some of the nation's most vulnerable workers are also the most invisible.

However, the damage is already done. On Monday David Davies MP, the secretary of state for Brexit, told the House of Commons his department is carrying out a programme of "sectoral and regulatory analysis which will identify the key factors for some 50 sectors" across British businesses. The undercounting and misclassification of the digital economy means that the needs of an overwhelmingly pro-EU sector could remain invisible at a time of despite uncertainty.

About Heather Burns

Heather Burns profile image

I focus on UK and EU policy and legislation, and the ways they impact the digital economy. Outside AccountingWeb I am a digital law specialist for the web design and development professions.

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09th Sep 2016 08:16

With the change from Annual Returns to Annual Confirmation Statements then reporting an SIC code is now mandatory, so when researching the appropriate code for new clients I usually check into the Companies House website to see which codes other companies with names which imply similar trading activity are using. This exercise always reveals a huge spectrum of codes being used for the same type of trade, i.e. check 20 yoga class providers and you'll find SIC codes for education, sport, sports facilities, health services as well as the ubiquitous "Any other business not listed elsewhere". You'll struggle to find the same code being used for more than 5 of the 20 companies.

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to Pavilionaire
09th Sep 2016 15:17

They really are no longer fit for purpose in any way. What's more, the message to professionals is clear: "proper" economic activity means the kinds of enterprises which existed in 1948. Modern businesses and economic activities are not important enough to count.

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