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View the article online at http://citywire.co.uk/wealth-manager/article/a753825

Sex and drugs to boost economy by £10bn

by James Phillipps on May 30, 2014 at 08:16

Sex and drugs to boost economy by £10bn

Drugs and prostitution will give the economy a £10 billion boost following a radical overhaul of how GDP is calculated.

The Office for National Statistics (ONS) said the changes to the national accounts would have increased GDP by 4-5% based in 2009, the only year it sampled.

The ONS is adding more illegal activities to its calculations to try and capture all forms of economic activity. It currently includes alcohol and tobacco smuggling but will take comparable figures from EU countries where drug use and prostitution are legal to form the basis of its estimates. The Office said illegal drugs would add £5.3 billion to GDP in 2009 with prostitution adding £4.4 billion.

It is also changing the way it measures charities, which would have added £24 billion or 1.7% of GDP in 2009. People who build their own house would have added a further £4 billion, with a rehash of how bank interest is calculated adding £5 billion.

However, changes to the calculation of business investment will reduce GDP by £5 billion and ‘stock building by UK companies’, another £5 billion.

ONS Chief Economic Adviser Joe Grice 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 to inform key decisions in government and business.’

The calculations on the use of illegal drugs and prostitution make a lot of assumptions, however, due to the lack of data available, and it admits that in places they are ‘weak’.

It has to make projections of the number of prostitutes, how many clients they see and what they charge.

Its estimate for the number of prostitutes in the UK is based on a 2004 Metropolitan Police guess that there are 115 prostitutes on the street at any one time in London and 7,000 offstreet. These were scaled up by the UK population, which gave around 58,000 in the whole country.

The price they charge was based on research by a website called punternet, while the number of clients they see per week was estimated at between 20 and 30, based on data from the Netherlands. Similarly Dutch figures led the ONS to make assumptions that prostitutes spend €125 per year on clothes and €0.5 per client on condoms.

7 comments so far. Why not have your say?

Andy hillier via mobile

May 30, 2014 at 08:32

Are we that desperate to massage the figures!

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Victorian Assets

May 30, 2014 at 08:54

€125 per year on clothes does not smell right to me! Does my memory serve me right that Greece dragged in the Black Market economy into its GDP figures to be able to meet the tests for € Membership?

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Gareth Howlett

May 30, 2014 at 08:55

This shows a disappointing lack of effort by comparison with Italy, where the impact of drugs and prostitution is estimated to be about two or three times greater relative to domestic GDP. That contribution itself is peanuts within the context of the wider Italian 'grey economy' (unrecorded and untaxed activities) which are generally agreed to be worth over 15% of GDP, which is the best part of £200 billion. Clearly we need to raise our game.

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Cynical Brit

May 30, 2014 at 09:43

It makes you wonder if Governments turn a blind eye to drug crime because of the impact it has on GDP figures. If drugs were legalised and substitutes provided free (which would allow the authorities to provide professional help to the addicts), then drug barons would stop their drugs coming into the country overnight. Petty crime (muggings, shop lifting, car break ins and many many burglaries) would slow significantly as they wouldn't need money for their daily "fix" This massive slow down in crime would have a huge effect on the money flushing round the British Economy and might even put us into a technical recession . imagine the effect on insurance companies,car & garage repair companies and the reduction of billions of pounds of daily drug money flowing round the general Economy.

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Financialplanner2012

May 30, 2014 at 10:10

"Sex and drugs to boost economy by £10bn".

And how much is contributed by 'Rock and roll' ................

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Smudger 2

May 30, 2014 at 10:14

@Cynical Brit ..then we could call ourselves Somalia.

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oneman

May 30, 2014 at 10:36

"Its estimate for the number of prostitutes in the UK is based on a 2004 Metropolitan Police guess" - Priceless - So it's the usual ONS vigourous approach to statistical evidence then - a Met Police guess that is 10 years old.

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