ONS admits to fresh gaffe by underestimating online sales

Attempts to measure growth in the volume of internet sales fail to capture transactions such as betting and pornography, government statisticians have admitted.

Estimates show that online sales make up just 2.5 per cent of household spending. The Office for National Statistics said its coverage of online sales was good but acknowledged there were potential gaps. "Household spending on some items, such as gaming subscriptions, online gambling and downloads needs investigation, as does how well internet purchases from abroad are captured," it said in a report published yesterday.

Gavin Wallis, the report's author, said estimates of gambling, tobacco and alcohol, were probably too low because they were based on surveys. "They tend to be under-reported because people don't want to say how much they spend," he said. Asked about online pornography, he said: "People don't tend to report it." He added that providers of gaming and adult entertainment tended to be based offshore, which further impeded coverage.

The ONS insisted its figures for GDP growth were not under-recording the rise in online retail sales, as the consumption figures could be cross-checked with figures from businesses. Its report comes a fortnight after the Treasury was forced to deny it had set up an internal unit to measure online sales because it was concerned that the ONS data was not accurate.

Figures published last year by the ONS estimated that the volume on online sales of goods and services surged 67 per cent to £18.1bn in 2004. It said this accounted for 2.5 per cent of the £710bn that households spent over that year. A separate survey of businesses identified goods sales at £8bn, or 3.2 per cent of the £247bn annual total. More than half of the 2004 household internet spend - £10.7bn - was accounted for by wholesale, retail, catering and travel.

The focus of the financial markets today will be the official retail sales data, which could reveal a bumper Christmas for the high street. Recent surveys from the CBI and the British Retail Consortium pointed to a bounceback after a lacklustre few months.

Economists polled by Reuters expected sales volumes rose 0.4 per cent in December after a 0.7 per cent rise in November. The annual rate is expected to climb to 3.7 per cent, which would be the strongest in 13 months.

IMRG, the industry body for online retail that will produce itsfigures today, expects the internet to comprise one-fifth of total retail by 2010 - but will influence a further 40 per cent by acting as a research facility.