Osborne+ and Schmidt+ say 'the internet' = 8.3 per cent of UK GDP

Chancellor can't tell advertising from technology

The UK's part-time Chancellor of the Exchequer George Osborne+ has again drawn attention to the Conservative leadership's cosy ties with the predatory American advertising giant Google. Yesterday, the Financial Times ran an op-ed piece jointly-bylined to Osborne+ and Google chairman Eric Schmidt+.

It's highly unusual for a democratically-elected politician to align himself so closely to a single company. Particularly one that lobbies so hard against successful British economic sectors of media, culture and advertising. Google employs fewer people in the UK than the QVC Shopping Channel and pays a much-reduced tax by billing UK transactions through Ireland and Bermuda. Which is entirely legal - but hardly an ingratiating gesture to the indebted UK state. National debt will reach £1.359 trillion by 2015, with annual interest payments alone reaching £70 billion - so every little bit of tax revenue helps.

Schmidt+ and Osborne+ used the article to highlight the success of "Tech City" (formerly Silicon Roundabout) - which they called "the fastest-growing technology cluster in the world" - and promoted Google's contribution to the project, a building. These days Google is as much a property speculator as it is any thing else - spending almost $2bn on one prime piece of Eighth Avenue New York real estate.

But the Google kingpin and the British chancellor also included a dubious statistic.

"The 'internet economy' contributed £121bn to the overall UK economy in 2010, equivalent to 8.3 per cent of gross domestic product, according to research by Boston Consulting Group," they write.

An internet economy of this size is a mirage. It doesn't exist. The BCG report Osborne+ and Schmidt+ cite was published in 2012*, and the figure it arrived at was actually 7.2 per cent. It did so by counting every transaction on the internet as a contribution to GDP from internet companies.

The FT's own Economics Editor points out today that this is rubbish.

"Osborne doesn't understand GDP," Tweeted the FT's Chris Giles. "Absurd to say internet is 8.3% of GDP. So money is more 100% of GDP, right?" He continued:

"When I buy bread online, internet only a tiny fraction of the value added. Sloppy George. Sloppy"

The sum makes a nonsense of the Treasury's own GDP calculations. But Giles says that officials have refused to correct it.

"Flagged the dodgy stat with govt yesterday. officials wanted it kept in. That is one reason I am so cross today," he wrote. "it suggests the official attitude is that a big but bad number is worth more than accuracy".

Last week we revealed that the IP review ordered by Prime Minister+ David Cameron+ was based on a fictional quote, attributed to Google, that nobody could find. Now we have fictional GDP calculations, made up for the Government by Google.

At least it's becoming clearer who's really in charge. ®

Bootnote

For more on the Google-Conservative ties, see here and here.

Updated to add

* The report, published in 2012, was independently produced as opposed to the Google-sponsored 2010 document that the article originally and incorrectly referred to.