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Big Data and Classifying the UK’s Digital Economy

The National Institute of Economic and Social Research (NIESR) published a report last month which was funded by Google and one of its key findings was that the digital economy is poorly served by conventional definitions and datasets. Big data methods can provide richer, more informative and more up to date analysis.

According to NIESR the UK has between 270,000 and 471,000 digital companies while the government only records 187,600 in their statistics. The disparity in the figures arises due to the fact that the government still uses the Standard Industrial Classification (SIC) of Economic Activities system which was designed in 1948. NIESR claims this system is outdated and businesses are inaccurately defined by traditional sectors and the fact that they have moved to digital ways of working is overlooked.Their report uses data from independent research body, Growth Intelligence, a company that tracks the activity of firms on the internet using real-time databases and sells the information to clients.

According to the foreword in the report the myth pervades that the internet economy consists largely of tiny dot com and bio-tech start ups in a few technology clusters that quickly bubble up and go bust. It identified that what is actually happening is that the spread of the digital economy into other sectors is driving growth and jobs throughout the UK. Although London still dominates the digital economy there are strong concentrations of technology focused groups in regional areas such as Aberdeen, Middlesborough and Basingstoke. It also identified that that digital companies are working in traditional sectors such as publishing, architecture and engineering. To illustrate their point they give the example of the Scottish company, Kelton Engineering, which sells hi-tech equipment to the oil industry but is wrongly classified under the SIC system as “Business support”.

The Government’s Office for National Statistics (ONS) says that they are confident that their statistics reliably measure the jobs throughout the UK. NIESR says that companies that are wrongly classified could be missing out on investment because investors use classifications to identify potential investment targets. Speaking at the report’s launch, Business Secretary Vince Cable said the report adds to the very strong case for the Government to develop a “world class digital infrastructure”.

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