IT adds value to UK economy

Software to be measured as an investment rather than a cost in the UK's National Accounts

The first official measurement of the value of in-house software development has added £8.3bn to the UK economy.

The latest accounts released by the Office of National Statistics (ONS) last week showed a 0.6 per cent increase in 2006 GDP attributable to the long-term economic potential of software developed by corporate IT departments.

The figures have arisen as a result of measuring bespoke applications as an investment instead of a cost – previously only packaged software was recorded this way.

ONS divisional director Tony Clayton says the national accounts now reflect the true contribution of software developers.

‘Recognising the human capital of software development within firms will benefit the economy as a whole at a time when investment figures are looking stagnant or falling,’ he said.

The statistical revision was prompted by an inconsistency whereby software purchases were recorded as an investment, but people employed to write software were a cost, says ONS economic analyst Graeme Chamberlin.

‘In-house software development was becoming an increasingly under-reported investment as more firms are developing their own software, especially in financial and business services which accounts for about half of the spending,’ said Chamberlin.

Previous years’ accounts have also been revised and show that in-house software has risen as a share of private sector investment from 2.8 per cent in 1986 to 7.3 per cent in 2005.

The new measurements reflect a shift from traditional manufacturing industries towards a knowledge-based economy, says Tom Wills-Sandford, deputy director general of trade body Intellect.

‘The revised figures demonstrate the importance of software, which is the glue that holds the knowledge economy together,’ he said.

Software development is only a part of the knowledge economy, so there could be further changes.

The ONS plans to measure research and development (R&D) as an investment rather than cost over the next two to three years. Private sector R&D expenditure is £12.4bn compared with software spending of £20bn.

Queen Mary College professor of economics Jonathan Haskel says the new calculations could have a knock-on effect for the economy.

‘If there is more capacity in the economy resulting from greater investment than previously thought, the Bank of England can run the economy at a faster rate without worrying about inflation,’ he said.