Report says industry employs 23,000 and generates £500m for the state annually, as manufacturers see sales rise by 28%

Cycling generates nearly £3bn a year for the UK economy, according to a report from the London School of Economics. The figure includes £51m in revenue for British manufacturers from the 3.7m cycles sold in 2010 – a rise of 28% on 2009.

The gross cycling contribution of £2.9bn for the economy takes into account factors such as bicycle manufacturing, cycle and accessory retail and cycle-related employment.

Commissioned by the broadcaster Sky and British Cycling, the report said every cyclist in the UK has a "gross cycling product" of £233 annually.

Employing around 23,000 people, the UK cycling sector made a £500m employment contribution in 2010, including more than £100m in income tax and National Insurance contributions last year, the report said. A total of 208m cycle journeys were made in 2010, with a net addition of 1.3m more cyclists taking to their bikes compared to the previous year, bringing the total to 13m.

Of these new cyclists, half a million are now cycling regularly. New cyclists alone contributed £685m to the UK economy, with existing regular cyclists representing a total market value of £635m. The report also showed that regular cyclists take 7.4 sick days per year, compared with 8.7 sick days for non-cyclists.

It added that a 20% increase in cycling by 2015 would save the economy £207m in reduced traffic congestion, £71m in lower pollution levels and £52m in NHS costs.

Dr Alexander Grous, of the LSE, who conducted the research, said: "The good news is that structural, economic, social and health factors seem finally to have created a true step-change in the UK's cycling scene."

The transport minister, Theresa Villiers, said: "The government is committed to encouraging cycling as a healthy and enjoyable way of getting around. It helps reduce congestion, gives children more opportunities for exercise, and it can play a part in the fight against climate change.

Stewart Kellett, British Cycling's recreation director, said: "This report is further evidence that when more people get involved in cycling there are measurable benefits to the individual, their family, their employer, the environment and the economy as whole."

Ian Austin MP, vice-chairman of the all party parliamentary cycling group, said: "This important report shows that encouraging greater participation in cycling can bring not only social but economic benefits for Britain."

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