Accredited official statistics

Economic Estimates: Digital Sector Regional Gross Value Added - Technical and quality assurance report

Published 22 August 2024

1. Overview of release

This technical report covers the ‘Economic Estimates: Digital Sector Regional Gross Value Added (2019 to 2022)’ release.

These statistics provide an estimate of the contribution of the Digital Sector to each International Territorial Level 1 (ITL1) region in the UK, measured by gross value added (GVA). GVA measures the contribution to the economy of each individual producer, industry or sector in the UK. It is used in the estimation of gross domestic product (GDP):

GVA + Taxes on Products − Subsidies on Products = GDP

Estimates of taxes and subsidies are not available at an industry level. We therefore use GVA as the headline economic measure at an industry level.

The release reports GVA expressed as both:

• Current price GVA (i.e. ‘nominal GVA’), which gives the best ‘instantaneous’ measure of the value to the economy, but is not adjusted for inflation.
• Chained volume measures (CVM) GVA (i.e. ‘real terms GVA’), where the effect of inflation is accounted for.

The estimates in the publication are consistent with national (UK) estimates, published by the Office for National Statistics (ONS).

In February 2023, Machinery of Government changes moved responsibility for the Digital and Telecommunications Sectors from the Department for Culture, Media and Sport (DCMS) to the Department for Science, Innovation and Technology (DSIT). DSIT has been responsible for publishing estimates for the Digital Sector (including the Telecommunications Sector) since April 2024. Previous releases of the Economic Estimates in the DCMS and Digital Sectors series can be found on the DCMS webpage.

1.1 Code of Practice for Statistics

The ‘Economic Estimates: Digital Sector Regional Gross Value Added’ series contains statistics classified as Accredited Official Statistics. These statistics have been produced to the standards set out in the Code of Practice for Statistics.  

In June 2019, a suite of DCMS Sector Economic Estimates, including Regional GVA, were badged as Accredited Official Statistics (previously called National Statistics). This affirms that these statistics have met the requirements of the Code of Practice for Statistics. DSIT will continue to comply with these standards in the estimates that we produce for the Digital Sector.   

This followed a report by the Office for Statistics Regulation (OSR) in December 2018, which stated that the series could be designated as Accredited Official Statistics subject to meeting certain requirements. Since the report, DCMS have striven to improve the publications by providing summaries of other notable sources of data, more detail on the nature and extent of the overlap between the sectors, and further information on the quality and limitations of the data. The development of the Digital element of these publications has been continued at DSIT. 

These Accredited Official Statistics have been independently reviewed and regulated by OSR. They comply with the standards of trustworthiness, quality and value in the  Code of Practice for Statistics. Accredited official statistics are called National Statistics in the  Statistics and Registration Service Act 2007.  

Accreditation signifies their compliance with the authority’s  Code of Practice for Statistics which broadly means these statistics are: 

• Managed impartially and objectively in the public interest.

• Meeting identified user needs.

• Produced according to sound methods.

• Well explained and readily accessible.

You are welcome to contact us directly with any queries about how we meet these standards by emailing economicestimates@dsit.gov.uk. Alternatively, you can contact OSR by emailing regulation@statistics.gov.uk or via the OSR website. 

The Economic Estimates produced by DSIT follow the same methodology as those produced by DCMS. In future, DSIT will continue to consider how to improve the series, in line with the recommendations of the report. We will clearly state where this results in a divergence of methodology with the DCMS produced statistics. We encourage our users to engage with us so that we can improve our statistics and identify gaps in the statistics that we produce.

1.2 Users

The users of these statistics fall into five broad categories:

• Ministers and other political figures.
• Policy and other professionals in DSIT and other government departments.
• Industries and their representative bodies.
• Charitable organisations.
• Academics.

The primary use of these statistics is to monitor the performance of the industries in the Digital Sector, helping to understand how current and future policy interventions can be most effective.

2. Sector definitions

In order to produce these Economic Estimates, it is necessary to define the make-up of the economy and the sectors comprising it. The Digital Sector and Telecommunications Sector definitions are based on the Standard Industrial Classification 2007 (SIC) codes. This allows data sources to be nationally consistent and enables international comparisons.  

The UK SIC is a hierarchical five-digit system. From order of highest to lowest level of aggregation, where each level is divided into the next, the UK SIC hierarchy is defined by:

• section, denoted by letters, which are collections of divisions
• division, denoted by two-digit SIC codes
• group, denoted by three-digit SIC codes
• class, denoted by four-digit SIC codes
• subclass, denoted by five-digit SIC codes

There are 21 sections, 88 divisions, 272 groups, 615 classes and 191 subclasses in the UK SIC hierarchy.

As an illustrative example of the SIC hierarchy, in Section J (SIC 58-63), the division “Information service activities” (SIC 63), is comprised of the groups “Data processing, hosting and related activities; web portals” (SIC 63.1) and “Other information service activities” (SIC 63.9). The group defined by SIC 63.1 is then further broken down into the classes “Data processing, hosting and related activities” (SIC 63.11) and “Web portals” (63.12).

2.1 Digital Sector

The definition of the Digital Sector is based on the Organisation for Economic Cooperation and Development (OECD) definition of the ‘information society’. This is a combination of the OECD definition for the ‘ICT Sector’ and ‘Content and Media Sector’. An overview of the SIC codes included in each of these sectors is available in the OECD Guide to Measuring the Information Society (see Box 7.A1.2 on page 159 and Box 7.A1.3 on page 164).  In effect, the Digital Sector definition used in this publication is defined at the four-digit SIC code level:

Table 1: SIC codes included in the Digital Sector by Digital sub-sector (adapted from OECD, 2011) 

Digital Subsector	SIC codes included
Manufacturing of electronics and computers	26.11, 26.12, 26.20, 26.30, 26.40, 26.80
Wholesale of computers and electronics	46.51, 46.52
Publishing (excluding translation and interpretation activities)	58.11, 58.12, 58.13, 58.14, 58.19
Software publishing	58.21, 58.29
Film, TV, video, radio and music	59.11, 59.12, 59.13, 59.14, 59.20, 60.10, 60.20
Telecommunications	61.10, 61.20, 61.30, 61.90
Computer programming, consultancy and related activities	62.01, 62.02, 62.03, 62.09
Information service activities	63.11, 63.12, 63.91, 63.99
Repair of computers and communication equipment	95.11, 95.12

2.2 Details and limitations of sector definition

This section looks at sector definitions in more detail and provides an overview of limitations. There are substantial limitations to the underlying classifications.

DSIT holds policy responsibility for the digital industry and services across the economy and within sectors. The definition we use in this release for the Digital Sector, using SIC codes, does not consider the value added from ‘digital’ services to the wider economy e.g. digital work that takes place in other industries such as health care or construction. This is a considerable limitation in the definition of the Digital Sector used in this methodology. By not including the value added to the economy from digital services, our definition is likely to underestimate the size of the Digital Sector.

There are also limitations to the underlying SIC classifications. As the SIC codes were finalised in 2007, subsequent changes to the balance and make-up of the UK’s economy have decreased the relevance of SIC codes for important elements of the economy related to the Digital Sector; so, making the use of SIC codes less robust. This is particularly relevant for the Digital Sector, within which there are likely to be several emerging sectors that are not accurately identified by SIC codes, such as cyber security and artificial intelligence. The SIC codes used to produce these estimates are a ‘best fit’, subject to these limitations.

3. Methodology

3.1 GVA - current prices

This first section presents the methodology for estimates of regional GVA expressed in current prices, i.e. ‘nominal GVA’, which does not take into account the effect of inflation.

Data sources (current prices)

The following data sources were used in the production of regional GVA (current prices) for the Digital Sector:

• Office for National Statistics Regional Gross Value Added balanced tables.
• Unsuppressed Annual Business Survey (ABS) approximate Gross Value Added estimates.

Method (current prices)

The most reliable estimate of regional GVA comes from the Regional Gross Value Added (balanced) tables produced annually by ONS. These estimates are consistent with the UK National Accounts. National aggregates for the components of GVA are allocated to regions using the most appropriate regional indicator available. The Regional Accounts Methodology Guide contains more information about the construction of the regional accounts.

The balanced GVA tables report GVA at division level (2-digit SIC codes), but the Digital Sector and its sub-sectors are defined at the class level (4-digit SIC codes). This means a method for apportioning the GVA from the division level to the class level must be applied.

This is achieved by using approximate Gross Value Added (aGVA) regional data from the UK non-financial business economy (Annual Business Survey), by:

• Extracting aGVA from the ABS at the class level (e.g. SIC 46.51) for each region.
• Calculating aGVA from the ABS at division level (e.g. SIC 46), by aggregating industries in the division for each region.
• Calculating the proportion of the division aGVA that each class accounts for (e.g. aGVA for SIC 46.51 as a proportion of SIC 46) for each region.
• Applying the proportion for each class to the division GVA in the balanced regional GVA tables, to get the regional GVA for each class. These estimates are then consistent with the National Accounts.

Following the apportioning process, we then aggregate the produced GVA for each class into the Digital Sector and sub-sectors, for each ITL1 region and year. The Digital Sector and sub-sector totals are subsequently summed across the regions to produce our estimates for UK totals.

Users should note that:

• Our UK totals, produced by summing across ITL1 regions, exclude any extra-regio activity (i.e. any economic activity which cannot be assigned to a specific ITL1 region, such as offshore activities, etc.). Therefore, our published UK totals for all industries in current prices will match the Regional Accounts United Kingdom minus Extra-Regio totals.
• Our UK totals for all industries will not match the UK totals published in the DCMS and digital sector GVA 2022 release, as those would include extra-regio activity.
• Our UK totals for all industries will not match the UK totals published in the DCMS and digital sector GVA 2022 release, as those are constructed using provisional unbalanced data from the UK GDP(O) low level aggregates (published 22 December 2023) whereas the Regional Gross Value Added balanced tables (published 24 April 2024) have been used to construct the totals used in this release.
• Our UK totals for the Digital Sector and its sub-sectors will not match the UK totals published in the DCMS and digital sector GVA 2022 release, as there are differences between applying apportioning using either the regional or national ABS data. For a more detailed discussion on the differences between regional and national industry totals in the ABS, see the ABS technical report.
• Some of the above differences would have previously been masked by constraining our sector and sub-sector totals in this release to those reported in the Economic Estimates: Digital Sector Annual GVA release. This process has not been applied in this release, and is currently under review. See Section 3.3: Changes in this release for more details.

This method, using the National Accounts consistent GVA, is preferable to only using aGVA from the ABS. There are differences in coverage between the two measures of gross value added in the Regional Accounts and ABS. For example, GVA covers the whole of the UK economy while aGVA covers only the UK Non-Financial Business Economy, a subset of the whole economy that excludes large parts of agriculture, all of public administration and defence, publicly provided health care and education, and the financial sector.

There are also conceptual differences between the two measures of gross value added. For example, some production activities such as illegal smuggling of goods must be included in the National Accounts but are outside the scope of the ABS. In addition, the National Accounts data have gone through the Supply and Use balancing process, which reconciles all three estimates of GDP. Using balanced GVA makes comparison with the wider UK economy more straightforward, and ensures that non-market production is included in the Digital Sector estimates. More information on the differences between National Accounts GVA and Approximate GVA can be found in the article, ‘A Comparison between Annual Business Survey and National Accounts Measures of Value Added’ from the ONS.

Method limitations (current prices)

Estimates from the Annual Business Survey (ABS) are subject to various sources of error, with sampling errors published at a 4-digit SIC level. While these data provide the best available source of information there is often volatility, especially at the 4-digit SIC level which is used to produce estimates for the Digital Sector. Further information on the quality of the ABS data is published by the ONS in the ABS regional quality measures and the ABS QMI. Users may also refer to the discussion of uncertainty in surveys published by the ONS.

There have also been two survey design changes in recent years (expanding the ABS population in 2015 and re-optimising the sample in 2016), but as the survey outputs are used only to provide a proportion of the Regional Accounts, these changes should have a minimal impact on the estimates of Digital Sector GVA.

For the 2019 and 2020 collections, the Annual Business Survey achieved smaller than usual sample sizes, and this means that results for those years are less certain. This will increase uncertainty in our regional GVA estimates in these years, particularly for smaller sub-sectors.

3.2 GVA - chained volume measures

This section presents the methodology for estimates of regional gross value added (GVA) for the Digital Sector, expressed in chained volume measures, i.e. ‘real-terms GVA’, which takes into account the effect of inflation.

Chained Volume Measures (CVMs) estimates are volume measure that are obtained by chain-linking. Volume measure (also referred to as constant price) series, are the current price data deflated using a price index (deflator) from a single base period, effectively removing the influence of changes in prices over time (i.e. inflation or deflation). In CVM base periods are typically updated each year, and CVM series are created by linking together individual series with different base years that overlap in one period, which is considered to reflect more accurately volume changes over time. The methodology for deriving a CVM series in this publication is consistent with the methodology used in the National and Regional Accounts.

Data sources (chained volume measures)

The following data sources were used in the production of GVA (chained volume measures) for the Digital Sector and its subsectors:

• Office for National Statistics Regional Gross Value Added balanced tables.
• Unsuppressed Annual Business Survey (ABS) approximate Gross Value Added estimates.
• National industry level deflators, from the ONS.

Method (chained volume measures)

In order to derive a Chain Volume Measure (CVM) we make use of the relationship:

value = volume x price

Current price estimates, discussed in the section prior, are the ‘value’ component of this equation. The current price data is broken down by industry for each of the aggregated industries included within the DSIT remit. The ‘price’ component of this equation in our method comes from industry level deflators, published on the ONS website (Industry Level Deflators).

The industry deflators used in this release are a mixture of product and implied industry (division) level deflators. These are not consistent with the deflators used in the National Accounts, or the implied regional deflators published alongside the regional accounts. The industry deflators used to derive chained volume measures in this release is consistent with the deflators used in the national DCMS and Digital Sector GVA release. The use of implied deflators from the regional accounts is currently under review as a potential improvement to the series in the future.

National deflators are used because no regional price indices are currently available. The Eurostat Manual on regional accounts methods recommends that in the absence of regional prices, the use of national deflators is acceptable. The availability of a greater level of industrial detail allows the deflation to take account of regional variation in industrial composition and, hence, the composition of products and services produced in each region.

For each 4-digit SIC code in the digital sector, the ‘volume’ (written here as KP, or constant price) series is obtained by dividing the current price series (written here as CP) by the deflator (price) series.

KP = CP / price

To create a chained volume measure, the value series in previous year’s prices and current year’s prices is calculated (PYP and CYP respectively). The definition of the PYP and CYP series changes depending on whether the year in question is before, or after the selected chain-linking base year.  

For years before the chain-linking base year, the CYP series is the current price (‘value’) series:

CYP_t = KP_t x price_t= CP_t

where the subscript t denotes time (year).

The PYP series is given by:

PYP_t = KP_t x price_t-1

For years after the chain-linking base year, both the PYP and CYP series are defined to be the value of the constant price (volume) series for that period divided by the value of the annual constant price series for the chain-linking base year, multiplied by the value of the annual current price series of the chain-linking base year. When constructing a CVM series, the selected chain-linking base year also defines the reference year for the series, and as such the constant price (volume series) equals the current price series for the chain-linking base year. In effect, this means that for years following the chain-linking base year, the PYP, CYP and constant price (volume) series are equivalent:

PYP_t = CYP_t = KP_t

The PYP series and CYP series are then summed across relevant SIC codes to give a PYP and CYP aggregate for the Digital Sector and its sub-sectors, for each ITL1 region.

These are used to obtain scaling factors at sector and subsector level. When t ≥ base year, the scaling factor is 1. In this analysis, the chain-linking base year is 2019 to remain in line with National Accounts and Regional Accounts data published by ONS. When t < base year, the scaling factor (SF) is given by:

SF_t = (CYP_t+1 / PYP_t+1) x SF_t+1

The CVM is then calculated for each sector and subsector. When t ≤ base year, CVM is:

CVM_t = SF_t x CYP_t

When t > base year, CVM is given by:

CVM_t = SF_t x PYP_t

The output is a CVM series for each region from 2019 to 2022 for each sector and subsector.

Users should note that the methodology for chained volume measures means they are not additive prior to the base year. This means the sum of subsector values would not equal Digital Sector values prior to 2019.

Repricing the CVM series

Notionally, a reference year in a chained volume measure (CVM) series means that the CVM values for the reference year (in monetary value) will be equal to the corresponding current price values for the same period. Equivalently, in a CVM index series, the index for the reference year would be equal to 100. When constructing a CVM series, usually the selected chain-linking base year and the reference year are the same.

In this release, as with our most recent Digital Sector monthly GVA release, we have repriced the CVM series to 2022 prices. For a CVM series to be “in 2022 prices”, this means that the reference year for the series is 2022. Hence, “repricing” a CVM series (changing the reference year) involves rescaling the CVM series to be equal to the current price series for the newly chosen reference year. The rescaling applied via changing the reference year has no effect on the year-on-year growth rates for a CVM series, and is solely a change in how the CVM series is presented.

To do this, we first calculated an index series from the CVM series in 2019 prices such that the index for 2022 values is equal to 100 at the sector and subsector levels. We then multiply the index series by the 2022 current price level estimates for each sector and subsector.

3.3 Changes in this release

Regional GVA figures for 2019 to 2020 have been revised since the last DCMS Economic Estimates: Regional GVA publication in July 2023. These revisions take into account the latest balancing of the National Accounts and revisions of the Annual Business Survey 2019 - 2020 data. Regional Accounts GVA is open to revisions back to 1997 each year. These are planned revisions and an integral part of the balancing process. In previous releases, DCMS used different versions of ABS data in the annual and regional GVA publications. The annual GVA publication, usually published in Winter, uses provisional ABS data for the latest year. The regional GVA publication, usually published in Spring/Summer, uses revised ABS results for the latest year. This means that the sum of regional GVA for each sector would not usually match the annual GVA totals published earlier in the year. Therefore, regional GVA figures in both current prices and CVMs were constrained to the national totals previously published for each sector.

Whilst responsibility for the Digital Sector Economic Estimates series for both Regional GVA and Annual (national) GVA now lies with DSIT, we have not yet produced our own Annual GVA release at the time of this publication. Therefore, we have opted to remove the method of constraining each sector to the most recent published national totals for the Digital Sector in this release. In effect, this means that the UK and regional totals for the Digital Sector for current price data will equal the respective totals in the Regional Accounts, where direct comparison is available. For example, the Telecommunications digital sub-sector, defined solely at the 2-digit SIC code level, is fully available in the Regional Accounts. Following our method of apportioning and reconstructing the GVA aggregates, our current price values for Telecommunications (and any other sub-sector defined at the 2-digit SIC code level) will match the Regional Accounts, rather than the previous Digital Sector Annual GVA release. Users should take into account the impact of removing this constraining when comparing values between past releases and this release. We will look to review this approach, depending on the exact publication timelines of the two releases.

3.4 Summary of data sources

In summary, the data presented in this report on regional GVA are based on:

• Official Statistics data sources.
• Internationally harmonised codes.
• Survey data (Annual Business Survey and Regional Accounts) and, as with all data from surveys, there will be an associated error margin surrounding these estimates.

This means the estimates are both comparable:

• At a national and international level.
• Over time, allowing trends to be measured and monitored.

However, this also means the estimates are subject to limitations of the underlying classifications of the make-up of the UK economy. For example, the Standard Industrial Classification (SIC) codes were developed in 2007 and have not been revised since. Emerging sectors, such as artificial intelligence and cyber security, are therefore hard to capture and may be excluded or mis-coded.

4. Quality assurance processes

4.1 Quality assurance processes at ONS

Quality assurance at ONS takes place at a number of stages. The validation and accuracy of the source data, as well as the various processes in place to ensure quality for the data sources used in the regional GVA publication, are outlined in the relevant links below.

Regional balanced GVA tables

Section 6 of the Regional gross value added (balanced) Quality and Methodology Information (QMI) details how the ONS collects the data for the regional balanced GVA tables, the main data sources, and the validation and accuracy of the estimates.

Annual Business Survey (ABS)

For more information on quality assurance processes used during the production and analysis of ABS, as well as validation and accuracy of the estimates, see the Annual Business Survey QMI and the Annual Business Survey technical report.

4.2 Quality assurance processes at DSIT

The majority of quality assurance of the data underpinning the release takes place at ONS. Further quality assurance checks are carried out within DSIT. These include checking:

• growth rates are comparable to previous publications
• the proportion of the Digital Sector accounted for by each subsector are comparable to previous publications
• repricing is applied correctly (i.e. current prices for the re-priced year are equal to the CVM series for the re-priced year)
• regional totals sum to UK totals

5. Further information

For further details about the estimates or for enquiries on this release, please email: economicestimates@dsit.gov.uk.  

For general queries relating to DSIT Official Statistics, please contact: statistics@dsit.gov.uk.