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'Nation of internet shopkeepers' pumps £100bn into the economy

Nick Clark
Thursday 28 October 2010 00:00 BST

The internet is worth £100bn to the British economy, making a larger contribution than transport or utilities, as the country becomes "a nation of digital shopkeepers".

The internet accounts for an estimated 7.2 per cent of gross domestic product and this could rise to 15 per cent within five years, according to global research by the respected Boston Consulting Group (BCG).

In its report, The Connected Kingdom: How the Internet is Transforming the UK Economy, Britain also emerges as the largest exporter of e-commerce goods in the world.

The independent study, commissioned by the US search engine giant Google, is the first attempt to quantify the impact of the internet on Britain. Google said it wanted to "address the knowledge gap regarding this growing sector of the UK economy".

Matt Brittin, the managing director of Google in the UK and Ireland, said: "The sector has come of age and, with great prospects for further growth, the UK internet economy will be vital to the country's future prosperity."

Of the £100bn that e-commerce contributed to the economy in 2009, 60 per cent came from online shopping (31 million UK adults bought goods or services over the Web in the past year) as well as the costs of computers and internet connections. The remaining 40 per cent came from investment in internet infrastructure, government IT spending and exports.

Paul Zwillenberg, a partner at BCG in London, said the pace of growth in internet spending was surprising, "especially in the context of the recession". "We were not expecting the value to be so high," he added. "It became clear very quickly that the internet had become as crucial as electricity to people and businesses in the UK."

Britain, whose internet companies employ 250,000 people, is the world's leading e-commerce market per capita. For every £1 spent online to import goods, £2.80 in goods and services is exported overseas. "This is the opposite of the trend in the offline economy, which exports 90p for every £1 imported," BCG said. The UK is also the second-largest online advertising market, behind the US. Mr Zwillenberg said: "The internet will be an important engine for job creation. This should give us confidence that Britain can compete on the world stage."

BCG drew up an "e-intensity index" to compare how well countries brought businesses, government and consumers to the internet and the state of their services. Denmark topped the table and Britain was sixth. Mr Zwillenberg said: "This shows that the UK is now a nation of digital shopkeepers. The UK was very early in embracing the internet. The survey also demonstrated the entrepreneurship of Britain's small- to medium-sized enterprises."

Companies which had embraced the Web grew their sales by an average 4.1 per cent a year for the past three years. Those with little online presence saw growth of as little as 0.5 per cent.

The report estimates the value that the internet brings could grow between 10 per cent to 15 per cent of GDP by 2015, with consumption proving the largest contributor. But Mr Zwillenberg said bringing broadband to every part of the country was "crucial". More than 19 million homes have internet access but about nine million people have never been online. He added: "There is still work to do on enablement. Government support for infrastructure is very important."

David Cameron pledged this week to work with the telecommunications companies to improve the broadband infrastructure. The Prime Minister said the Government wanted the best network in Europe by 2015.

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