E-commerce: measuring, monitoring and gross domestic product

Transcription

1 E-commerce: measuring, monitoring and gross domestic product Jacqui Jones Office for National Statistics 7 August 2014 Section 1: Introduction Figure 1: E-Commerce as a percentage of UK turnover in 2008 and 2012 Source: Office for National Statistics Did you know? Data sources There are several sources of official e-commerce estimates from the: annual e-commerce survey, the annual Internet access questions (on the Opinions and Lifestyle survey), and the monthly retail sales inquiry. E-commerce and Internet access estimates are also produced by other European Economic Area (EEA) countries (see Section 3). Internet access and internet purchases In 2013 (the latest year for comparable country data): UK households with Internet access was 9 percentage points higher (88%) than the EU27 average (79%); and the percentage of UK adults who made an Internet purchase in the last 12 months was 30 percentage points higher (77%) than the EU27 average (47%). (Note EU28 data are not yet available). (See Section 4.1) Between 2010 and 2013, the UK was amongst the five European Economic Area (EEA) countries with the highest percentage of individuals making an Internet purchase in the last 12 months (see Section 4.1). 1

2 Business e-commerce In 2012, e-commerce accounted for 18% ( 492 billion) of UK business turnover 1. 21% of UK businesses in 2012 made e-commerce sales to their own country; 9% of UK businesses made e- commerce sales to EU countries and 7% to non-eu countries. In 2012, the percentage of large businesses (employing 1,000+ employees) making EDI sales (34%) and website sales (47%) continued to be higher than for small businesses (employing 10 to 49 employees) making EDI sales (4%) and website sales (17%) (see Section 4.2). Gross Domestic Product There are three key points in relation to e-commerce from a measuring GDP perspective (see Section 5): 1. GDP is measured by three approaches: production, expenditure and income; and there are numerous data sources that are used to measure the three approaches. Where e-commerce is important is in providing information to inform the measurement of imports, especially in relation to e-services such as digital downloads and applications. 2. To ensure that the value added of unregistered businesses is included in the measurement of GDP, adjustments are made as part of the annual national accounts Supply and Use balancing process. These adjustments are based on periodic analysis using additional data from Her Majesty s Revenue and Customs (HMRC). 3. ONS have an on-going programme of work to improve coverage of e-services exported and imported by households. The first developments in this area will be improvements to online gambling data in the UK National Accounts 2014 (Blue Book 2014). There is a need to measure and monitor e-commerce from the perspectives of both policy and measuring the economy; to do this you need to have source data. From a policy perspective there is growing interest in measuring and monitoring domestic and cross-border e-commerce. In Europe this interest is largely driven by the European Commission s Digital Agenda. In relation to the measurement of the economy the increasing transition to the purchase of e-services, such as digital downloads and applications (apps) (many of which are imported) necessitates the need to continuously review and improve data sources. This paper looks at official sources of e-commerce data, estimates produced from these sources, and e-commerce from a measuring Gross Domestic Product (GDP) perspective. E-commerce includes electronic transactions over computer networks, e.g. electronic data interchange (EDI) and website sales. This paper includes the following sections: Section 2, which looks at the definition of e-commerce. Section 3, which looks at e-commerce data sources. Section 4, which looks at estimates of e-commerce. Section 5, which looks at the measurement and compilation of GDP and where the measurement of e-commerce is important. Section 6, which provides some concluding comments to the paper. 1 For non-financial businesses with 10 or more employees excluding the following industries: agriculture, mining and quarrying; finance and insurance; veterinary activities; public administration; education; health and social work; arts and recreation; and other service activities. 2

3 A companion article to this one, entitled Monitoring e-commerce, was published on 7 August 2014 and proposes the use of an e-commerce indicator dashboard. Section 2: Defining E-Commerce Typically, when people talk about e-commerce (electronic commerce) they talk about website sales and purchases but e-commerce is broader than this (see Figure 2) and includes any form of electronic business transaction e.g. electronic data interchange (EDI). E-commerce can be carried out: business to business; business to consumer; and consumer to consumer. EDI is typically carried out business to business. Figure 2: Organisation for Economic Co-operation and Development (OECD) e-commerce definition E-commerce transactions are defined as the sale or purchase of goods or services, conducted over computer networks by methods specifically designed for the purpose of receiving or placing or orders. It is important to note, under this definition, that the goods or services are ordered by these methods, but the payment and the ultimate delivery of the goods or services do not have to be conducted online (OECD, 2011, p. 72). The statistical office of the EU (Eurostat) has a glossary in which EDI is defined as follows: EDI, is the exchange of data in electronic format, usually compatible between sender and receiver. EDI offers businesses the opportunity to retrieve information electronically from their internal systems and to send that information to trade partners/suppliers/customers/government through a communications network. An example might be putting data from one type of database management system into a sequential format and then moving the data to a second location where they are stored in a format different from the original database management system. Using EDI, business data is exchanged from one computer to another in a standard format. The information is organised to allow a fully automated computer transaction that needs no human intervention during the whole process. The information that is contained in an EDI document is the same as that in a conventional hard copy (printed document). E-commerce includes transactions of goods and services; these will include goods and services that can also be bought and sold using other transaction modes such as telephone and face-to-face. However, there are now a number of services available that are only available as e-services, such as digital downloads, apps, and e-books. It is also important to distinguish the difference between websites and the Internet in the context of sales. The Internet is a global system of inter-connected computer networks, while a website is a set of related web pages consisting of information. Internet and website sales are therefore different concepts. For example, e-commerce transactions made using EDI over the Internet would be excluded from website sales. 3

4 Section 3: E-commerce data sources 3.1 The annual e-commerce survey Since 2000, a comparable annual e-commerce survey has been run in all European Union (EU) countries and also in some non-eu countries to meet the requirements of the EU Regulation 808/2004. The e-commerce survey is designed to measure the extent of the use of Information Communication Technologies (ICT) (i.e. computers, Internet connection, websites) by businesses, and the extent of electronic trading by businesses (e.g. Internet trading). Eurostat plays a key role in the annual e-commerce survey and each year leads a review of data requirements. This ensures that the survey questions are updated on an annual basis to reflect changes and developments in the use of ICT and e-commerce. However, these changes result in breaks in the times series, for example, changes were made in the 2008 e-commerce survey, which mean that estimates prior to 2008 are not comparable with those produced since. Annually, the UK e-commerce survey samples approximately 8,000 businesses from all industries, apart from agriculture; mining and quarrying; finance and insurance, veterinary activities; public administration; education; health and social work; arts and recreation; and other service activities. Currently, businesses with fewer than 10 employees are excluded from the sample 2. It is not possible to estimate what the current e-commerce survey results would be if businesses with fewer than 10 employees were still covered in the survey. However, in 2004, the last year that businesses of this size were included in the survey, ONS estimated that their value of Internet sales represented 6.6% of the total value of Internet sales. In comparison with large businesses, businesses with fewer than 10 employees had lower rates of ICT adoption and usage. In the UK, the results of the e-commerce survey are published as part of an annual E-commerce and ICT Activity statistical bulletin. Total e-commerce sales are estimated by aggregating sales received over a website and sales received over EDI. The latest available estimates are for 2012, with the next publication, for 2013 estimates, scheduled for November Internet access sources ONS has collected data on Internet access since 1998; Internet purchasing has been collected since The data are collected in response to questions included on the Opinions and Lifestyle Survey (to produce annual estimates) and the Labour Force Survey (LFS) (to produce quarterly estimates 3 ). The Opinions and Lifestyle Survey achieves approximately 3,000 interviews and the LFS approximately 41,000 interviews. On an annual basis, comparable Internet access questions are included in surveys in all EU countries and also in some non-eu countries. However, it is important to note that the majority of estimates published by Eurostat are on a slightly different basis to the official estimates produced by ONS. This is because in Eurostat s Internet access estimates, households are only included if they contain at least one resident in the 16 to 74 years old age group. In contrast, the ONS includes all households and adults. This means that the ONS estimates are usually lower than the published Eurostat totals. Eurostat also publish estimates that represent the whole of the UK (incorporating Northern Ireland 2 Until the 2004 survey, businesses with fewer than 10 employees were included in the survey; subsequently the survey was refocused on the coverage required under the EC regulation as funding could not be prioritised to maintain a wider coverage. 3 A consultation looking at future statistical releases in terms of internet access (August 2014) can be found on the ONS consultation pages. 4

5 estimates since 2013 and prior to that estimating using UK weights); while some ONS estimates only cover Great Britain (GB). The latest available annual Internet access survey estimates are for 2014 (published on 7 August 2014). 3.3 The monthly Retail Sales Inquiry In measuring the output of the retail sector, the value of retail sales are collected from GB registered retailers in the ONS monthly Retail Sales Inquiry (RSI). Internet sales of retail goods have been collected as part of the ONS monthly RSI since March The survey excludes services such as insurance, ticket sales, and digital downloads. The RSI samples approximately 5,000 retailers on a monthly basis. The sample includes all large retailers and a representative sample of medium and small retailers. The RSI provides data to comply with the European Short Term Statistics regulation. The results of the survey are published monthly in the Retail Sales Index statistical bulletin. 3.4 Other e-commerce sources Data on purchases of goods and services are included in responses to the ONS Living Costs & Food Survey, where households are asked to keep a diary of their expenditure. Separate data on e- commerce purchases are not available but are included in the collected expenditure data for goods and services. Section 4: E-commerce estimates This section looks at some of the estimates produced from the annual Internet access questions, the annual e-commerce survey and the monthly retail sales inquiry. It should be noted that, as with any estimates produced from sample surveys, there will inherently be uncertainty surrounding the estimates caused by sampling and non-sampling error. To minimise these potential sources of error ONS ensures that the most robust methods are used in the collection of data and production of estimates. The Monitoring e-commerce article published alongside this article provides an interactive demo of how the main e-commerce indicators might be presented. 4.1 Internet access and purchasing estimates In 2014, 38 million adults in GB accessed the Internet every day, 22 million more than in 2006, when directly comparable records began. In GB, 22 million households (84%) had Internet access in 2014, with the vast majority making use of a broadband connection over a Digital Subscriber Line (DSL), fibre optic or cable line. Of the 4 million households without Internet access, the majority (53%) said that they did not have a connection because they 'did not need it'. 5

6 Figure 3: Adults who accessed the Internet in 2014 Comparable 2014 estimates for other European Economic Area (EEA) 4 countries are not currently available but looking at the 2013 estimates they show that in 2013 (Figure 4), Iceland had the highest percentage of households with Internet access (96%) and Turkey the lowest percentage of households with Internet access (49%). Internet access in the UK (88%) was 9 percentage points higher than the EU27 average (79%) (Note that EU28 data are not yet available). 4 The EEA includes Norway, Iceland and Lichtenstein, and 27 of 28 member states of the European Union (EU). 6

7 Figure 4: Percentage of households with Internet access and percentage of individuals who made an Internet purchase in the last 12 months (2013) Turkey Bulgaria Greece Romania Portugal Lithuania Cyprus Croatia Italy Spain Hungary Latvia Poland Czech Republic Slovenia Slovakia EU27 Malta Estonia Belgium Austria France Ireland Germany United Kingdom Finland Sweden Denmark Norway Luxembourg Netherlands Iceland % of individuals who made an Internet purchase in the last 12 months % of households with Internet access Source: Eurostat Notes: data for the Former Yugoslav Republic are not available. Percentage of households who have Internet access at home. All forms of Internet use are included. The population considered is aged 16 to 74. Countries are ranked based on proportion of households with Internet access. Still looking at Figure 4, in 2013, the percentage of UK individuals who made an Internet purchase in the last 12 months was 30 percentage points higher (77%) than the EU27 average (47%). In 2013, individuals in the UK and Denmark made greater use of Internet purchasing than the other countries shown in Figure 4. 7

8 Figure 5 shows, the percentage point increase, between 2010 and 2013, of individuals that made an Internet purchase in the last 12 months. Here you can see that all countries had an estimated increase but this varied from 15 percentage points in Latvia and Lithuania to 2 percentage points in the Netherlands and Norway. Between 2010 and 2013, the UK had a 10 percentage point increase in individuals that made an Internet purchase in the last 12 months. For comparison purposes Figure 6 shows the 2013 proportions of individuals that made an Internet purchase in the last 12 months, in the same order as the percentage point chart (Figure 5). Throughout the period from 2010 to 2013, the UK was amongst the five countries with the highest percentage of individuals making an Internet purchase in the last 12 months, along with Norway, Denmark and Sweden. Luxembourg replaced the Netherlands in the top five in 2012 and Figure 5: Between 2010 and 2013, the percentage point increase of individuals that made an Internet purchase in the last 12 months Figure 6: In 2013, the percentage of individuals that made an Internet purchase in the last 12 months Norway Netherlands Poland Romania Italy France Finland Estonia Sweden EU27 Cyprus Bulgaria Spain Malta Slovenia Germany Denmark Czech Republic United Kingdom Portugal Luxembourg Ireland Hungary Belgium Slovakia Iceland Croatia Austria Greece Lithuania Latvia percentage point increase between 2010 and 2013 Norway Netherlands Poland Romania Italy France Finland Estonia Sweden EU27 Cyprus Bulgaria Spain Malta Slovenia Germany Denmark Czech Republic United Kingdom Portugal Luxembourg Ireland Hungary Belgium Slovakia Iceland Croatia Austria Greece Lithuania Latvia Source: Eurostat 8

9 Note: data for the Former Yugoslav Republic and Turkey are not available for all years and have therefore been excluded. In Figure 5, countries are ranked based on their percentage point increase between 2010 and For comparative purposes Figure 6 shows the percentage of individuals that made an Internet purchase in the last 12 months, in the same country order as Figure E-commerce survey estimates In 2012, the estimated value of e-commerce transactions, for non-financial businesses with 10 or more employees, was 492 billion; this represented 18% of UK turnover (turnover as measured by the ONS Annual Business Survey) (see Figure 7). Figure 7: E-commerce sales in 2012 Source: Office for National Statistics Figure 8 shows the percentage of UK turnover derived from e-commerce sales from 2008 to Over these years, the value of EDI sales has remained substantially higher than website sales. In 2012, the value of EDI sales was 328 billion and website sales 164 billion. 9

10 Figure 8: Percentage of UK turnover derived from e-commerce sales, 2008 to 2012) 20 Website sales EDI sales Total e-commerce sales Source: Office for National Statistics Note: Businesses with 10 or more employees. The percentage of businesses selling over a website increased from an estimated 13% in 2008 to 19% in Figure 9 shows the percentage of UK businesses making e-commerce sales, by size of business (defined by the number of employees). In 2012, the percentage of large businesses (those employing at least 1,000 people) making website sales continued to be higher (47%) than small businesses (those employing 10 to 49 employees) (17%) (see Figure 9). The percentage of businesses selling via EDI was 6% in As with website sales, in 2012 the percentage of large businesses making EDI sales continued to be higher (34%) than small businesses (4%) (see Figure 9). Looking at Figures 9 it is evident that in 2012, there continued to be a smaller percentage of businesses selling via EDI (6%) compared with the percentage of businesses selling via a website (19%), but it must be remembered that the total value of EDI sales ( 328 billion) continued to be higher than the value of website sales ( 164 billion). It should be noted that some businesses make sales via a website and EDI. 10

11 Figure 9: Percentage of UK businesses making e-commerce sales, by size of business (2008 to 2012) employees employees employees employees All size bands Website sales Source: Office for National Statistics EDI sales Figure 10 shows the percentage of businesses making EDI and website sales by industry. It should be noted that some businesses make sales via EDI and a website. Here you can see that in 2012, the construction industry had the lowest percentage of businesses selling over a website (7%) and accommodation & food services the lowest percentage of businesses selling via EDI (1%). In contrast, the retail industry had the highest percentage of businesses selling over a website (34%) and the wholesale industry the highest percentage of businesses selling via EDI (15%). Figure 10: Percentage of UK businesses (with 10 or more employees) making EDI and website sales by industry (2012) Construction Other services Accommodation & food services Manufacturing Information & communication EDI sales Website sales Retail Wholesale Source: Office for National Statistics Note: estimates for the Utilities and Transport & storage sectors are not included in this table due to concerns about data quality. Proportions are not additive as businesses may make both EDI and Internet sales. 11

12 4.2.1 E-commerce sales as a percentage of turnover Figure 11 shows the percentage of businesses (with 10 or more employees) where at least 1% of turnover was from online sales (EDI and website). In 2012, Denmark (27%) had the highest percentage of businesses where at least 1% of turnover was from e-commerce sales. The UK, at 19%, was 5 percentage points above the EU27 5 average (14%). Figure 11: Percentage of businesses (with 10 or more employees) where at least 1% of turnover was from e-commerce sales (2012) Italy Bulgaria Latvia Cyprus Greece Romania Poland Hungary Estonia Slovenia France Malta Spain Austria Netherlands EU27 Portugal Luxembourg Finland Slovakia Croatia United Kingdom Lithuania Belgium Germany Ireland Iceland Sweden Norway Czech Republic Denmark % of businesses selling online (at least 1% of turnover) Source: Eurostat Notes: data for Turkey are not available. Data for the financial sector are not included. 5 EU28 data are not yet available. 12

13 4.2.2 Cross-border e-commerce sales It must be remembered that the European definition of e-commerce includes the sale or purchase of goods or services conducted over computer networks using methods specifically designed for the purpose of receiving or placing orders, including via EDI or website. It must also be noted that under the European definition the goods or services must be ordered using e-commerce methods but the payment and the ultimate delivery of the goods or services do not have to be conducted using e- commerce. Using the above European definition of e-commerce 6, Figure 12 shows the percentage of businesses (with 10 or more employees) that made e-commerce sales in their own country, and Figure 13 the percentage of businesses that made e-commerce sales to other EU countries and to non-eu countries in Figures 12 and 13 show, unsurprisingly, that in 2012, all countries shown had a higher percentage of businesses making e-commerce sales to their own country compared with e-commerce sales to other EU countries and non-eu countries. Denmark had the highest percentage of businesses making e-commerce sales to their own country (29%). In contrast, only 10% of Danish businesses made e-commerce sales to other EU countries (3 percentage points higher than the EU27 average of 7%); and the percentage of Danish businesses making e-commerce sales to non-eu countries was 6% (compared with an EU27 average of 4%). In 2012, 21% of UK businesses made e-commerce sales to their own country, which was 5 percentage points higher than the EU27 average (16%). 9% of UK businesses made e-commerce sales to other EU countries and 7% of UK businesses made e-commerce sales to non-eu countries. In 2012, Luxembourg and Iceland had the highest percentage of businesses making e-commerce sales to other EU countries (Luxembourg: 15%, Iceland: 14%) and to non-eu countries (both at 12%). 6 The UK definition of e-commerce is consistent with the European definition. 13

14 Figure 12: Percentage of businesses (with 10 or more employees) that made e-commerce sales in their own country (2012) Figure 13: Percentage of businesses (with 10 or more employees) that made e-commerce sales to other EU countries and to non-eu countries (2012) % of businesses making e-commerce sales to their own country % of businesses making e-commerce sales to non-eu countries % of businesses making e-commerce sales to other EU countries Italy Bulgaria Cyprus Ireland Romania Latvia Greece Poland Hungary Estonia Slovenia Spain France Luxembourg Portugal Malta EU27 Austria Slovakia Finland Belgium Croatia United Kingdom Netherlands Lithuania Sweden Norway Czech Republic Iceland Denmark Italy Bulgaria Cyprus Ireland Romania Latvia Greece Poland Hungary Estonia Slovenia Spain France Luxembourg Portugal Malta EU27 Austria Slovakia Finland Belgium Croatia United Kingdom Netherlands Lithuania Sweden Norway Czech Republic Iceland Denmark Source: Eurostat Note: data for Germany and Turkey are not available. Countries are ranked based on proportion of businesses making e- commerce sales to their own country. 4.3 Estimates of Internet sales from the retail sales inquiry Figure 10 showed estimates from the ONS e-commerce survey, which indicated that the highest percentage of businesses making Internet sales was in the retail industry. Retail Internet sales have grown in recent years. In June 2009, the average weekly value (non-seasonally adjusted) for Internet retail sales was 303 million, which was 5.6% of the value of all weekly retail sales ( 5,391 million). In June 2014, the average weekly value for Internet retail sales was 664 million, which was 10.5% of the value of all of all retail spending (excluding automotive fuel). 14

15 Looking at the different retail industry sectors, Figure 14 shows their percentage of Internet sales in June Non-store retailing (which includes mail order, catalogues, and stores selling predominantly over the Internet) had the highest percentage of Internet sales in June 2014, with an average weekly value of 315 million. In contrast, in June 2014, the food sector continued to have the lowest percentage of Internet sales (3.7%), with an average weekly value of 109 million. Figure 14: Percentage of GB Internet sales in each retail sector (June 2014) All retailing excluding automotive fuel Food stores Department stores Textile, clothing and footwear stores Household goods stores Non-store retailing Source: Office for National Statistics Note: Value of non-seasonally adjusted Internet sales as a proportion of all retailing excluding automotive fuel. Section 5: E-Commerce from a measuring Gross Domestic Product perspective From the perspective of measuring the economy, the concept of Gross Domestic Product (GDP) is measured using three different approaches, in turn these need to be exhaustive and when balanced give a single estimate for the UK economy. The primary focus in the measurement of GDP is not on the mode of transaction (e.g. e-commerce), but on total UK economic activity. There are three key points in relation to e-commerce from a measuring GDP perspective: 1. GDP is measured by three approaches: production, expenditure and income; and there are numerous data sources that are used to measure the three approaches (see Table 1). Where e-commerce is important is in providing information to inform the measurement of imports, especially in relation to e-services such as digital downloads and applications. 2. To ensure that the value added of unregistered businesses is included in the measurement of GDP, adjustments are made as part of the annual national accounts Supply and Use balancing process. These adjustments are based on periodic analysis using additional data from Her Majesty s Revenue and Customs (HMRC). 15

16 3. ONS have an on-going programme of work to improve coverage of e-services exported and imported by households. The first developments in this area will be improvements to online gambling data in the UK National Accounts 2014 (Blue Book 2014). This section looks first at the measurement and compilation of GDP and then specifically at e- commerce in relation to GDP. 5.1 Measurement and compilation of GDP The standards used in the production of national accounts and the associated economic indicators (e.g., GDP, gross national income (GNI)) are set out in: the System of National Accounts (SNA) and the European System of Accounts (ESA). UK national accounts are currently compiled on an ESA 1995 basis but will move to an ESA 2010 basis in September GDP measures and combines in a single figure: all the output (or production) carried out by all the firms, non-profit institutions, government bodies and households in a given country during a given period, regardless of the type of goods and services produced, provided that the production takes place within the country s economic territory (Lequiller and Blades, 2006) In the UK three different approaches are used in the estimation of GDP: production, often referred to as the output (O) approach, expenditure (E), and income (I). GDP (O) measures the sum of the value added created through the production of goods and services within the economy (our production or output as an economy). This approach provides the first preliminary estimate of quarterly GDP and shows the different contributions of industries (for example, services) within the economy. GDP (E) measures the total value of final expenditures on all finished goods and services produced within the economy; this is by consumers, profit and non-profit institutions and government. It includes gross capital formation (spending on capital assets, inventories and valuables) and exports of goods and services less imports of goods and services. GDP (I) measures the total income earned by individuals and businesses in the production of goods and services within the economy. The estimates split income into, for example, income earned by businesses (corporations), employees and the self employed. The three GDP approaches are calculated, in current price terms, by: using data from a variety of sources including surveys, secondary sources and forecasts. applying industry weights derived from the annual national accounts supply use process, which includes an adjustment for the under-coverage of unregistered self-employed people and businesses (see Section 5.3.1). seasonally adjusting the current price data. In volume terms the three GDP approaches are calculated by: by deflating the current price data to remove the effects of price changes. seasonally adjusting the data. GDP is therefore a complex estimate to produce and is often difficult for people to understand how it is produced. To assist in understanding GDP data sources, a list is included in the article by Andrew Walton, published on 30 May

17 5.2 E-commerce and GDP Section 4 provided an overview of e-commerce estimates, which showed that: in 2012, e-commerce accounted for an estimated 18% ( 492 billion) of UK business turnover. 21% of UK businesses in 2012 made e-commerce sales to their own country; 9% of UK businesses made e-commerce sales to other EU countries and 7% to non-eu countries; the wholesale industry had the highest percentage of businesses selling via EDI (15%); and the retail industry had the highest percentage of businesses selling over a website (34%). In the measurement and compilation of GDP all of this e-commerce activity is included (domestic, exports and imports) but in different ways. Table 1 shows the GDP scenarios that need to be considered for the purchasing and selling of goods and services, alongside their GDP classification and examples of data sources. What is apparent from the GDP scenarios is that the value of domestic output, expenditure and exports are included in the measurement of GDP; whereas the value of imports of goods and services are deducted in the compilation of GDP(E) as: GDP(E) = (final consumption) + (gross capital formation) + (exports imports) Figure 15, provides a pictorial overview of the compilation of GDP. In the measurement and compilation of GDP: The distinction between resident and non-resident institutional units is crucial to the definition and coverage of GDP (System of National Accounts, 2008, p. 105). Figure 15: Pictorial overview of the compilation of GDP From a GDP perspective, what is important is not that the purchases or sales were undertaken electronically but that purchases and sales from non-uk businesses and households are accurately measured. 17

18 Table 1: GDP scenarios, classifications and examples of data sources GDP scenarios GDP classification Examples of data sources Goods and/or services sold by a UK producer and sold to UK based consumers such as businesses, government or households. The goods and/or services produced are classified as domestic output and expenditure and included in UK GDP. The value of the goods and/or services produced (i.e. output) less the goods and services used up to produce the output (i.e. intermediate consumption) contribute to the production (output) approach to measuring GDP refer to as GDP (P). Range of ONS business surveys, household surveys and administrative data are used to estimate the various components of GDP. Often the same source is used for different components of GDP. ONS business surveys are based on samples drawn from a comprehensive business register of UK producers. ONS monthly business survey (covering most industries in the economy) collects sales of goods and services by UK producers feeds into GDP (O) and GDP (E). ONS Annual Business Survey (covering most industries in the economy) collects a variety of detail including turnover, purchases, capital expenditure, labour costs, etc. feeds into GDP (O), (E) and (I). ONS quarterly surveys collecting details such as businesses capital expenditure, inventories and profits feed into GDP (O), (E) and (I). ONS conducts a range of household-type surveys such as the International Passenger Survey (collecting expenditure details of travellers in and out of the UK) these feed into GDP (O) and (E). ONS Living Costs and Food Survey collecting details on expenditures by households feeds into GDP (E). A variety of other sources are also used such as government expenditure outturns for central government expenditures and VAT-based sources from HMRC as well as data for the agricultural industry from the Department for Environment, Food and Rural Affairs and Bank of England covering all banking activity in the UK. Goods and/or services sold by a UK producer to a non- UK based consumer (e.g. a business or household) These are all classified as exports. The export value is included in GDP (E). Exports of goods are collected from UK producers as part of Intrastat (for the EU) and Extrastat (for non-eu) by HMRC. Various adjustments are made to the foreign trade statistics to move to a balance of payments basis (for use in the National Accounts) including coverage type adjustments. Exports of services are collected from a number of 18

19 Goods and/or services bought from a non-uk producer by a UK consumer (either business, government or household). These are classified as imports. The import value is deducted in the estimation of GDP(E) as they do not contributed to UK GDP but the country where the goods and/or services were produced surveys like the ONS International Trade in Services Survey (covering exports from UK producers), ONS International Passenger Survey, Chambers of Shipping and other data sources. Imports of goods are collected from UK producers as part of Intrastat (for the EU) and Extrastat (for non-eu) by HMRC. Various adjustments are made to the foreign trade statistics to move to a balance of payments basis (for use in the National Accounts) including coverage type adjustments as well as issues like smuggling. Imports of services are collected from a number of surveys like the ONS International Trade in Services Survey (covering exports from UK producers), ONS International Passenger Survey, Chambers of Shipping and other data sources. Imports of services is an area where ONS are seeking to improve coverage. 5.3 Current coverage Unregistered businesses The ONS Interdepartmental Business Register (IDBR), used as the sample frame for ONS and some other government departments business surveys, includes all UK businesses registered for either Value Added Tax (VAT) or Pay As You Earn (PAYE). In March 2013, the registered business population was estimated to be 2.17 million enterprises, compared with 2.15 million in March 2012 (ONS, October 2013). In contrast, the estimated number of unregistered businesses was higher than registered businesses. At the start of 2013, there were an estimated 2.7 million unregistered businesses. Between the start of 2012 and 2013, estimates of unregistered businesses increased by 89,000 (3.3%) (Department for Business, Innovation and Skills (BIS), October, 2013). Unregistered businesses (e.g. smaller non-employing businesses including a large proportion of self employed sole proprietors and partnerships) are not easily identifiable in administrative systems. It would therefore be difficult to maintain a register of unregistered businesses to be used as a sampling frame. Including unregistered businesses in surveys would also pose an additional burden on them. To overcome this issue and to ensure that the value added of unregistered businesses is included in the measurement of GDP, adjustments are made as part of the annual national accounts Supply and Use balancing process. These adjustments are based on periodic analysis using additional data from HMRC. ONS are currently repeating this analysis. The analysis is undertaken at the detailed UKSIC class level and adjustments are aggregated and applied to unbalanced Supply and Use industry data at the UKSIC or 3-digit level; this is because individual industries have different proportions of unregistered businesses. 19

20 Tables 2 and 3 show examples of the current largest and smallest unregistered business industry adjustments, the figures represent the percentage uplifts applied to both market sector industry output and intermediate consumption data from the Annual Business Survey during the Supply and Use process. The contribution of the adjustments to final balanced estimates of output and intermediate consumption and hence gross value added can vary due to other coverage, conceptual and coherence adjustments applied later on during the balancing process. Table 2: Examples of industries with estimated high contributions from unregistered businesses (based on Supply and Use analysis) Industry Estimated missing output and intermediate consumption from unregistered businesses (%) Land transport services and transport services via pipelines, 17.3 excluding rail transport 59 Motion picture, video and TV programme production services, 7.3 sound recording & music publishing 93 Sports services and amusement and recreation services Other personal service activities Food and beverage serving services Accommodation services 4.8 Table 3: Examples of industries with estimated low contributions from unregistered businesses (based on Supply and Use analysis) Industry Estimated missing output and intermediate consumption from unregistered businesses (%) 53 Postal and courier services Motor vehicles, trailers and semi-trailers Manufacture of grain mill products, starches and starch products Extraction of crude petroleum and natural gas Manufacture of alcoholic beverages 0.0 In the estimation of GDP, what is more important is not the number of unregistered businesses but the value of their economic activity. In relation to some speculation that the contribution of unregistered businesses has increased since the financial crisis, BIS estimates show relatively stable proportions of unregistered business turnover to total turnover between 2006 and 2013 (see Table 4). Any under coverage will most probably impact on GDP levels rather than GDP growth. 20

21 Table 4: Number and proportions of unregistered businesses and their turnover At the start of year Estimated total number of businesses (million) Estimated number of unregistered businesses (million) Unregistered businesses as a proportion of all businesses % Estimated value of unregistered business turnover ( billion) Estimated unregistered business turnover as a proportion of all business turnover % % % % % % % 101 See note 3.1% % 88 below 2.7% % % % % % % Source: BIS* Note: turnover estimates after 2009 are not strictly comparable to the earlier estimates improved methodology used for estimating the number of unregistered businesses was introduced in 2010 and it has only been possible to update the historical series for the number of businesses, which was reduced by about 400,000 when the methodology changed. *BIS do not directly collect information on the turnover of unregistered businesses, though estimates have been derived by comparing against turnover data for zero-employee VAT/PAYE registered businesses for each 2 digit SIC division. Comparable estimates of unregistered turnover are only available between 2010 and Trade Measuring exports and imports of goods is relatively straight forward as they are products that have to be physically moved. In the UK, exports and imports of goods are measured via Intrastat (for the EU) and Extrastat (for non-eu), which are collected by Her Majesty s Revenue and Customs (HMRC). More challenging is the measurement of exports and imports of services, as they do not have to be physically moved and are therefore, more difficult to measure Trade in services The main sources of trade in services are surveys of UK businesses. In the UK, exports and imports of services are measured by the ONS International Trade in Services (ITIS) survey, and other sources such as Bank of England surveys. ITIS includes businesses known to engage in overseas trade in services (purchases and sales), either from their past responses to ITIS or from their responses to a trigger question in the ONS ABS. Exports of services are covered (though there remain challenges in ensuring that multinational businesses identify and include their intra-trade). Imports are covered insofar as a UK business is a customer for the service in question. ITIS has a sample size of 14,000 businesses, including all large businesses and a representative sample of medium and small businesses. The survey excludes businesses classified to travel, transport, banking and other financial institutions, higher education, charities and most activities within the legal profession; as there are other sources of data for these e.g. International Passenger Survey. Where a household purchases services from a non-uk business, thereby importing a service, there are currently limited data sources for the value of the import. To improve this ONS has initiated a programme of work to identify additional sources of data (please see section which provides an overview of work that has been undertaken to improve online gambling estimates). Household expenditure on imported services is collected in responses to the ONS Living Costs and Food Survey, which collects data on total household expenditure and is included in GDP(E). 21

22 However, households will not typically know that the service has been imported e.g. purchased from a non-uk registered business, so the explicit value of UK household service imports is not identified. Currently therefore: including household expenditure on imported services correctly increases the expenditure component of GDP; but this is not offset by the identification of the value of household service imports, which would reduce the expenditure component of GDP as the impact of trade on GDP is calculated as exports less imports (see Figure 16). There is a risk therefore that the current estimates of services (particularly e-services) directly imported by households is marginally understated in the trade estimates and marginally overstated in GDP; this is why an ONS programme of work has been initiated. Figure 16: Measurement and coverage of GDP(E) Good coverage from business and household data sources Good coverage from business data sources GDP(E) = (final consumption) + (gross capital formation) + (exports imports) Good coverage of goods and services exported and imported by businesses Ongoing programme of work to improve coverage of services exported and imported by households It is currently not possible to estimate the impact to the level of GDP from imported services to households. However, it is likely to be negligible in relation to annual GDP, which was estimated to be 1.6 trillion in 2013 in market prices (2010=100). Looking crudely at the potential impact on trade estimates, in 2013 imports of goods was estimated at 413 billion and exports of goods was 305 billion. Table 5 shows the 2013 current price (seasonally adjusted) values for imports and exports of goods (e.g. books and videos) that could potentially also be purchased as services (i.e. traded online as e.g. downloads). In 2013, these goods represented only 0.6% of total imported goods and 1.1% of total exported goods. It is unlikely that all of these physical products would be transformed to e-services, so, in terms of total trade and GDP, the total value of e-services exported and imported is an important but most probably negligible value. 22

23 Table 5: 2013 current price ( million, seasonally adjusted) imports and exports of goods that could also be traded as services Printed matter Packaged computer software Films and videos Audio recordings and printed music Total Imports Exports Source: ONS MQ10 Trade in Goods Industry BOP Note: Printed matter includes: printed books, books on disk, tape of other physical media, directories and mailing lists printed on physical media, printed newspapers and printed journals and periodicals. Note: Packaged computer software includes: packaged computer games. Note: Films and videos includes: cinematographic film, films and other video content on disk, tape or other physical media. Note: Audio recordings and printed music includes: musical audio disks, tapes or other physical media, printed music (sheet music etc). The Entertainment Retailers Association (ERA) in their 2014 Yearbook estimate that in 2013 the majority of entertainment market sales (value), despite the rise of downloads and streaming, are still from physical formats (56.6%); although some of these will be sold online. In relation to the proportion of sales via online and physical stores, they estimate that in 2013, 60% of sales were from Internet derived sales including home delivery, digital download and streaming and other access services and the remaining 40% of revenue was generated by physical stories (ERA, 2014). They also note that e-services that allow consumers to access content rather than purchasing it outright (i.e. products like discs or downloads) is the fastest growing segment (ERA 2014). However, it should be noted that many of these e-service providers are non-uk registered businesses and the purchased e-services, in relation to GDP would be treated as imports Improvements to online gambling data As part of the ONS programme of work to improve measurement of the value of imported and exported e-services, improved online gambling data will be included in the UK National Accounts Blue Book Online gambling is a fast-growing e-service. Research by the ONS has shown that the abolition of the UK betting tax in 2001, replacing it with a tax on operators gross profits, along with deregulation of the UK gambling industry through the Gambling Act 2005, were catalysts for increased online gambling and operators moving offshore (or transferring the online arm of their business offshore). The online gambling market comprises of four sectors; poker, sports betting, bingo and casino. More than 50% of the current market is dominated by five companies; three of these have moved offshore in recent years. A Parliamentary business paper (2012) states that 90% of online gambling consumed in the UK is now supplied from outside the UK. This equates to an under coverage of imports, as online gambling activity is not currently measured, although household expenditure on online gambling is included. In the measurement of GDP, the gambling service charge (i.e. the amount bet minus the amount paid out in winnings (i.e. the amount lost by the gambler per bet)) needs to be measured. This is equal to the gross gambling yield (GGY) 23

24 from the operator s perspective. Data for GGY is available from the Gambling Commission which publishes estimated figures obtained from H2 gambling capital. From a trade perspective there is interest in companies operating offshore. An adjustment is made to GGY figures to account for the percentage of companies operating offshore each year. Data are available from 2009; a back series to 1997 has been calculated using information on companies relocation abroad in conjunction with GGY growth rates 2009 to Section 6: Concluding comments This paper has looked at available sources of e-commerce data, the e-commerce estimates and e- commerce from a measuring GDP perspective. From a policy perspective the internet access and purchases, the e-commerce survey, and the internet sales series of the retail sales inquiry provide good sources of estimates to measure and monitor e-commerce activity by UK businesses. From a measuring the economy perspective, it is essential that fit for purpose data sources are maintained. ONS has therefore commenced a programme of work to improve the measurement of services exported and imported by households. The first improvements will be included in Blue Book 2014 with the measurement of online gambling. Acknowledgements I would like to thank the following people for their contributions to this paper: Darren Morgan, David Matthews, Hazel Clarke, Pete Lee, Stephen Curtis, Russ Pierce, Ciara Williams, Julie Griffiths, Kate Davies, David Howells, Richard Wild, Sanjiv Mahajan and Heather Bovill. As well as those who produced the infographic to accompany this paper. References Business Innovation and Skills (2013) Business Population Estimates, Business Innovation and Skills. Entertainment Retailers Association, 2014 Yearbook. European Commission European System of Accounts, 1995, Eurostat European Commission European System of Accounts, 2010, Eurostat Lequiller, F., and Blades, D. (2006) Understanding National Accounts, OECD publication. OECD (2011) Guide to measuring the information society, OECD. Office for National Statistics (2014) Retail Sales, June 2014, Office for National Statistics. Office for National Statistics (2014), Internet access households and individuals 2014, Office for National Statistics. 24