May 29, 2014 2:24 pm

Drugs and prostitution add £10bn to UK economy

A teenage prostitute waits for customers in the red light area of Bradford©Getty

Prostitutes and drug dealers are set to give Britain a £10bn boost as the country revamps the way it measures its economy.

Britain said on Thursday it would include prostitution and illegal drugs in its official national accounts for the first time. The move is one of the changes planned for September that will add up to 5 per cent to the UK’s gross domestic product.

September’s revisions will change the official size and shape of the economy and rewrite recent economic history.

The UK is not alone in updating how it measures its economy to meet international standards. Last week, Italy’s statistical office said it would start to include, among other activities, the sale of cocaine and prostitution. And last year the US expanded its definition of investment, which added 3.6 per cent to the size of 2012 GDP.

In its first attempt to measure illegal activity other than smuggling, the Office for National Statistics said prostitution would add £5.3bn to GDP in 2009 and illegal drugs would add £4.4bn.

The ONS breakdown reckons that each of the UK’s estimated 60,879 prostitutes took about 25 clients a week in 2009, at an average rate of £67.16. It also estimates that the UK had 38,000 heroin users, while sales of the drug amounted to £754m with a street price of £37 a gram.

Overall, the changes announced on Thursday will add £33bn or 2.3 per cent to the 2009 level of GDP. The ONS has not yet calculated the effects on more recent years. Other changes – which will reflect new international standards adopted by all EU member states – will be announced in June.

A new way of measuring “non-profit institutions serving households” – such as charities – will add an even bigger £24bn or 1.7 per cent to 2009 GDP.

People who build their own houses will add £4bn, or 0.3 per cent.

Joe Grice, chief economic adviser at the ONS, 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.”

European statistical guidelines say illegal transactions in which all parties consent should be included in measurements of an economy’s size. The UK will join Estonia, Austria, Slovenia, Finland, Sweden and Norway in adding prostitution and illegal drugs to its GDP.

However, they have not proved easy to measure. The ONS estimates the number of prostitutes in the UK in 2004 by extrapolating the number from a survey in London that year. It then makes assumptions about the number of clients a prostitute sees each week, the number of weeks worked each year and the payment per client.

Finally, it assumes that the number of prostitutes has increased over time in line with the size of the male population aged over 16.

“This is a weak assumption based on the market for prostitutes’ services,” the ONS acknowledges in an annex to the report. “It is necessary because we have no time series data for the number of prostitutes.”

It has also used data from the Netherlands to assume prostitutes spent the equivalent of €125 a year on clothes and €0.50 a client on condoms in 2007.

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