Prostitutes and drug dealers will add ?10bn to the UK economy as part of radical changes to official measurements that will increase gross domestic product by up to 5 per cent.
The Office for National Statistics said on Thursday it would for the first time include illegal drugs and prostitution in its estimate of the size of the economy. The change will be part of an overhaul of the national accounts in September that will increase the level of GDP in 2009 by between 4 and 5 per cent.
More
ON THIS TOPIC
Chris Giles Mysteries of the economy
Data shake-up turns UK into nation of savers
City?s low returns partly to blame
Interactive Interactive ? UK upturn winners and losers
IN UK ECONOMY
Help to Buy aids ?1bn in loans
Drugs and prostitution add ?10bn to UK economy
Government lending scheme disappoints
Spotlight falls on unlikely rebel
The changes announced on Thursday will add ?33bn or 2.3 per cent to the 2009 level of GDP. The ONS has not yet calculated the effects on more recent years. Other changes ? which will reflect new international standards adopted by all EU member states ? will be announced in June.
September?s revisions will significantly change the official size and shape of the economy and rewrite recent economic history.
In its first attempt to measure illegal activity other than smuggling, the ONS said prostitution would add ?4.4bn to GDP in 2009 and illegal drugs would add ?5.3bn.
A new way of measuring ?non-profit institutions serving households? ? such as charities ? will add an even bigger ?24bn or 1.7 per cent to 2009 GDP.
People who build their own houses will add a further ?4bn or 0.3 per cent and a change to the way banks? interest rates are measured will add ?5bn. Some other changes to the way investment and inventories are measured will subtract ?9bn.
Joe Grice, the chief economic adviser of the ONS, said: ?As economies develop and evolve, so do the statistics we use to measure them.
?These improvements are going on across the world and we are working with our partners in Europe and the wider world on the same agenda. Here in the UK these reforms will help ONS to continue delivering the best possible economic statistics.?
European statistical guidelines say illegal transactions in which all parties consent should be included in measurements of an economy?s size. The UK will join Estonia, Austria, Slovenia, Finland, Sweden and Norway in adding prostitution and illegal drugs to its GDP.
However, they have not proved easy to measure. The ONS estimates the number of prostitutes in the UK in 2004 by extrapolating the number from a survey in London that year. It then makes assumptions about the number of clients a prostitute sees each week, the number of weeks worked each year and the payment per client.
Finally, it assumes the number of prostitutes has increased over time in line with the size of the male population aged over 16.
?This is a weak assumption based on the market for prostitutes? services,? it acknowledges in an annex to the report. ?It is necessary because we have no time series data for the number of prostitutes.?
It has also used data from the Netherlands to assume prostitutes spent the equivalent of ?125 per year on clothes and ?0.50 per client on condoms in 2007.
Source-FT
