Drugs and prostitutes to boost economy by £10bn

The British economy is set to receive a £10 billion boost – on paper, at least – as the country revamps the way it calculates its GDP to include prostitution and illegal drugs in its official national accounts.

For the first time in 15 years the Office for National Statistics is ready to "rip up" the way it measures the UK economy, the Financial Times reports.

One of the changes that will take effect in September will be the inclusion of earnings from prostitutes and drug dealers, which experts estimate will add up to 5 per cent to the UK's gross domestic product.

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In recent years, other countries have also adjusted the way they measure their economies. Italy's statistical office recently expanded its national accounts to include prostitution and sales of cocaine, the Financial Times notes, and the US added 3.6 per cent to the size of 2012 GDP by expanding its definition of investment.

The Office of National Statistics admits that it made some fairly sweeping estimates to produce its statistics. By the ONS's calculation Britain has approximately 61,000 prostitutes who each took 25 clients a week in 2009, at an average rate of £67.16. It also reckons the UK had 38,000 heroin users in 2009, and sales came to £754m with a street price of £37 a gram.

A new approach to measuring "non-profit institutions serving households" – such as charities – will add an even bigger £24 billion to GDP, The Times notes.

Together, the changes will add £34bn or 2.3 per cent to the 2009 level of GDP.

Defending the shift, 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".