Software's economic contribution hugely undervalued

The Government has been hugely underestimating the contribution that the software industry makes to the UK economy for more than a decade, according to a report released on Monday by the Office of National Statistics (ONS).

The new figures boost the value of the software business in 2003 from £8 billion to £21 billion.

The underestimation by the ONS will have a small but measurable effect on the economy as a whole, adding 1 percent to the GDP over 12 years and by 0.1 percent in any single year.

The newly revised figures cover both software purchased by firms and organisations from external suppliers and software written and used in-house. The in-house software development business is now values at £13 billion, compared to £2.5 billion before. The value of the purchased software business has risen from £5.5 billion to £8 billion.

For some years software business leaders in the UK have consistently complained that the contribution the software industry makes to the economy has been seriously underestimated. It is an issue that the IT trade association Intellect has taken up in the past and the organisation is taking some of the credit for the change in stance.

"We have been directly involved in the re-estimation," Beatrice Rogers, Intellect's senior programme manager for the knowledge economy, told ZDNet UK. "I have been talking to the ONS to explain our view and what we think was wrong."

One of the problems, she said, is in the way the ONS classified the software business.

"It only has two classifications of employment in the software business and we persuaded them to change that to seven. There were just lots of things they didn't take into account. For example, they had a figure for the size of the company and they assumed that if you were above what was really a very small figure, you must be selling software. It took no account of the large numbers of programmers working in places such as banks."

Rogers believes that the underestimation has harmed the image of IT in the employment marketplace. "ICT has had a hard time since the dot-com bust, but we know that if ICT is applied well it benefits the country." Rogers believes the revised figures can only help to boost these arguments. "It is a statement, as well as a lesson."

According to some in the industry, the problem has been the lack of visibility of the software business.

"We are invisible in many senses," said Jeremy Roche, chief executive of the financial software supplier Coda. "We have one of the largest development teams in the world focused on financial applications, 175 developers working here in Harrogate and 25 percent of our revenue is re-invested in R&D, amounting to £10m a year. You look at the figures for the economy and you could see that something was wrong."

Roche believes that by underestimating the value of the software sector to the economy, the Government also underestimates the value of the "knowledge economy" as a whole, but that the reasons are partly geographical.

"We don't have Silicon Valley in the UK, so we don't have a single focus for our sector," said Roche. "It is much more dispersed into hundreds of thousands of two and three-person businesses."