The Digital Economy Contents


1.Every day, people, businesses, organisations, communities and the Government use digital technology to make decisions, to make goods, and to deliver services more efficiently and more quickly. The digital economy refers to both the digital access of goods and services, and the use of digital technology to help businesses. Digital economy is a term that is often used to cover this activity, but is hard to define. The Organisation for Economic Co-operation and Development (OECD) defines the Information and communications technology (ICT) sector as “a combination of manufacturing and service industries that capture, transmit and display data and information electronically”.1 But this form of classification excludes much of digital business.

2.Research by the National Institute for Economic and Social Research (NIESR) showed that the digital economy is larger than conventional estimates show, with almost 270,000 actively digital companies in the UK, or 14.4% of all companies as of August 2012, and 11% of all jobs. This compares with 167,000 companies—10% of all companies—when the Government’s conventional definitions, covered in Standard Industrial Classification (SIC) codes are used.2

3.Technology is going to revolutionise, or is already revolutionising, business, transforming virtually all aspects of the economy and society. Through the course of our inquiry, we have received evidence about various aspects of the digital economy, including: digital aspects of disruptive technology, an innovation that disrupts an existing market; the sharing economy, a model that relies on the sharing of goods, intellectual resources, labour, and property using a digital platform: and flourishing digital sectors, including Fintech (financial services whose business model relies on software and an algorithm-based approach to assessing risk) and the gaming industry.

4.The United Kingdom is one of the leading digital nations in the world, and its economy has the highest percentage of GDP involved in the digital economy of all European nations.3 UK digital industries grew two and a half times as fast as the whole economy between 2003 and 2013 and comprised 7.5%, or £113 billion of the UK’s gross value added (GVA) as of 2013.4 The estimated turnover of digital tech industries in 2014 was £161 billion, and there are 1.56 million jobs in the digital tech economy, of which 41% are in traditionally non-digital industries. Furthermore, the average advertised salary in digital jobs is just under £50,000, 36% higher than the national average.5

5.In parallel, as of 2014, the United Kingdom had the highest percentage of individual usage of the internet of any G7 economy:

G7 percentage of individuals using the internet across the G7

G7 percentage of individuals using the internet across the G7

Source: International telecommunication Union, Percentage of Individuals using the Internet, 2014.

6.The Department for Culture Media and Sports (DCMS) supports Tech City UK, set up in 2010, which helps to increase the growth of digital businesses across the United Kingdom, focussing on digital skills, capital investment, international development and leadership.6 The DCMS also supports Tech North, which runs programmes for digital entrepreneurs and investment in the North of England7. The Department for Business Innovation and Skills sponsors Innovate UK, a non-departmental public body, which supports small high-growth potential businesses to grow domestically and internationally.8

7.The United Kingdom is successful in digital terms, not only in London, but in other parts of the country, including Bristol and Bath, Manchester, Reading, Leeds, Newcastle and Gateshead, and the Government supports digital start-ups through growth hubs (local public/private sector partnerships, led by the Local Enterprise Partnerships (LEPs)). At the last spending review, the Government also invested about £11 million in three technology clusters in Sheffield, Leeds and Manchester, and has previously encouraged tech clusters—a group of tech start-ups geographically close to one another—in Rotherham, Hull, Liverpool, Liverpool, Newcastle, Durham, and Sunderland.

8.Our inquiry into the digital economy covered many issues, including businesses wanting to embrace digital advances, digital businesses looking to expand, the rise of disruptive digital technologies, digital issues surrounding Intellectual Property, and digital skills. There is a digital element to most areas of BIS policy and, indeed, most aspects of the economy, and our inquiry has covered issues pertinent to past, present and planned future BIS Committee inquiries, including:

9.During our inquiry, we heard from: small businesses; organisations involved in digital skills; representatives of disruptive technologies—including Hassle, Uber, Airbnb, and three authors of reports focussing on the sharing economy; publishing and newspaper representatives, and an ad blocker organisation; copyright and Intellectual Property representatives, including the Parliamentary Under-Secretary of State and Minister for Intellectual Property, in BIS; financial representatives, including a big-data company, focusing on the financial services industry, a tech company providing small business loans online to SMEs, and an online marketplace that helps small businesses get connected to the finance they need; digital organisations in the regions; the gaming industry; and the retail industry, represented by the British Retail Consortium and Amazon.

10.We held seven oral evidence sessions, and made two visits: to Innovation Birmingham Campus and the Google Garage at the Library of Birmingham; and to Campus London. We would like to thank everyone involved in organising and participating in the visits, which gave us an invaluable insight into current digital initiatives, and to all those who submitted evidence to us.

1 The Office for National Statistics (ONS), What defines the Digital Sector?, October 2015

2 Jonathan Portes, “The UK’s digital economy”, September 2015

3 Q 344, [Herb Kim]

© Parliamentary copyright 2015

15 July 2016