Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Questions 880 - 899)



  880. You are back! That is a very speedy register of a vote!
  (Ms Hewitt) I did not vote electronically. It turned out to be a Ten Minute Rule Bill and apparently the Chamber will survive without my vote.

  Chairman: I will leave you with time to reflect on that question, Mr Allan. We are moving on to Baroness O'Cathain.

Baroness O'Cathain

  881. In Washington we recognised the fact that the Americans kept on stressing the importance of venture capital and also the importance of granting share options, options to people—really massive options to people. The question to ask is: do you buy into that? This is because there is a feeling abroad—and, indeed, it was expressed to us in Washington at a private view by the European Union representative—he thought it was terribly greedy to have all these people taking share options when there were homeless people on the streets. That is polarising it a bit but there is a deep unease. I am asking you to what extent you think it is possible (or indeed acceptable) to replicate that part of the emphasis on venture capital and massive share options in the United Kingdom, in order to drive e-commerce ahead even more rapidly than at the moment.
  (Ms Hewitt) I certainly do think, and so does the Government, that we need a stronger and deeper venture capital market, not only in the United Kingdom but in the European Union as a whole; and that we need to encourage and support share options as a way of encouraging people to take the risks that are involved in starting up a new business that may be highly risky and uncertain in its outcome. I think it was Winston Churchill who said, "If you want a wealthy country then you have to tolerate wealthy men"—and women—but he did not say that! Therefore, we would want, as a Government, to encourage more and more people to take entrepreneurial risks. Then, if they succeed by dint of enormously hard work, of having a wonderful idea, of innovating a new technology, a new product, whatever it is, if they succeed in making large sums of money, well, good luck to them.

  882. Great.
  (Ms Hewitt) That is the proper fruits of success and the more that success can be shared amongst all employees the better. I was talking yesterday to, who are trebling their warehouse space in Milton Keynes as the logistics part of their operations in this country. I asked what the starting wage would be for a picker and packer, a warehouse operator, a relatively unskilled job: £6 an hour and share options. I think that is absolutely right because they make the point—and it is true in most of these dot-com start-ups but increasingly in the broader economy—the success of the business depends upon every member of the team. That is, in a sense, the essence of a knowledge based economy. Therefore, employee share ownership, in a variety of forms, is increasingly the natural form of ownership for the knowledge economy.

  Baroness O'Cathain: Thank you very much for that.

Lord Skelmersdale

  883. Minister, good afternoon. Your Department has, at last, started looking at the amalgamation of regulators in terms of OFGAS and OFGEN. Is there a case, do you believe, like we discovered in America, for the amalgamation of such organisations as OFTEL, the ITC, Radio Communications Agency, and the like in this country?
  (Ms Hewitt) There is certainly a case. It needs to be looked at and that is what we are doing. We announced some months ago that DCMS and DTI would jointly prepare a White Paper on the regulatory framework for converging communications industries. We are starting work on that at the moment. We will publish a White Paper in the autumn. I do not yet know what the White Paper will say, but clearly it is an absolutely central issue to look at whether you need sector specific regulation on top of a general Competition Act regime; and, if so, what are the objectives and principles that govern that regulation? Then, what are the institutional arrangements for it? But it is, on the face of it, anomalous to have different regulators born in an age where telecommunications and broadcasting were completely distinct things, carrying on in an age when increasingly they are not distinct at all.

  884. Is this one of the reasons why you dropped telecommunications from the Utilities Bill?
  (Ms Hewitt) It is one of the reasons. When we introduced the Utilities Bill, and when we drafted it, we had not at that point considered or decided to have a White Paper on communications regulation. We initially kept telecommunications in the Utilities Bill. In fact, there are some useful things we could do, even within the present confines. But, increasingly, it seemed sensible just to deal with the whole communications issue through the White Paper.


  885. Much has been put to us this afternoon by Reuters, that there is a case for more co-ordination and collaboration between regulators in this area in Europe. What do you think about that and what would be the Government's policy? Are you content to move in that direction?
  (Ms Hewitt) I am sure there is a case for closer collaboration. I think we are getting that. That is not the same as saying there should be a single European regulator. But the European Union, through its telecommunications review and through its review of programme on liberalisation, is facilitating a process whereby the national regulators increasingly learn from each other; but is also, in a sense, setting standards that national regulators should adopt. That comes out quite clearly in the telecommunications review.

Lord Woolmer of Leeds

  886. May I turn to SMEs. Quite a lot of SMEs, to all our delight, really are getting involved and professional in this area but still quite a large proportion are not. To what extent, in your judgment, are SMEs taking up e-commerce? Do you think the Government could do more in helping or encouraging those who currently do not appear to have the resources or inclination to take up e-commerce? Finally, in relation to the Small Business Service, what part are they playing, in your view? Is there more they could be doing?
  (Ms Hewitt) I was very concerned by last years' bench marking study when we found although we have some absolutely world leading small companies, if you look at the picture as a whole, our smallest businesses in particular were at the bottom of the G7 league table for exploiting the Internet, and that is disastrous. Last year we put a lot of effort into the process of encouraging and insentivising small businesses to get on-line. One of the very important programmes here is my Department's Information Society Initiative which has rolled out local support centres right across the country. The last one was opened just before Christmas. They advise small businesses. In a way, they strip out the technical jargon, which is a real barrier for the non-technically literate small business person. They are not tied to any one product or provider. They overcome the fear that a lot of small business people have, that they are just going to be sold something wholly unsuitable that is in the interest of the sales rep, and they can advise them from the point of view of their business as to how ICT will help. We have marketed them mainly through direct mail and have had a very, very good take-up. That is one very practical way it will help. I was delighted that in the recent budget the Chancellor allocated another £10 million to that programme so that we can bring in even more business customers, but it was clear that we needed to do more and, again, I think we took a very important step in the budget when the Chancellor announced 100 per cent first year capital allowances for businesses who employ fewer than 50 people, making an investment in ICT. There is a real advantage there and, of course, it also reflects the fast moving nature of the technology that you are investing in. Those two things are very important. Getting the cost of access down will also help. I am hopeful, though I have not yet seen the figures, that when we get the results of the new bench-marking study, which is just being completed at the moment, we will see a very sharp increase in SME take-up. One additional point, if I may, is that we are now seeing more and more commercial providers offering complete service packages to small businesses. They will host websites, they will help you design it, they will offer all the e-commerce transaction facilities—the credit card, the status, the billing system and so on—they will do all of that for a per monthly fee. It can start for a simple package of about £15 a month, and the business person can get on with doing what they know about, which is designing the product and getting out there, finding the customer and selling the product and not having to turn themselves into an IT specialist or a web-master.

Lord Woolmer

  887. What do we know of the experience and practice elsewhere in the EU in the SME sector? How do we compare with the SMEs in France and Germany, for example? Are there any lessons from there that are helpful to us?
  (Ms Hewitt) The bench-marking study certainly suggests that, particularly, our micro-business centre was lagging behind. The new Small Business Service under David Urwin's direction is bench-marking the business support services generally against a range of other countries. That is not yet complete, but it is certainly something the SBS will do in order that we can define what world-class business support services look like and make sure that we are delivering them.


  888. What are the principal reasons why the SMEs in some of the other European countries do better than ours?

  (Ms Hewitt) I am not sure. I cannot give you a simple answer to that I am afraid, my Lord. I do not know whether in France the very early roll-out of Minitel may have helped to acclimatise businesses as well as individual consumers. Although take up of the Internet in France is still lower than it is in the United Kingdom, there is a different context there and that might have helped part of it, but I am afraid I do not really have an answer for it.

  889. We have had some worrying evidence given to us by Freeserve who are building portals for small businesses and we asked them what the nature of their relationship with the new SBS was, and they said they have had relatively little contact, which surprised us. I am sure you must be concerned about that kind of comment coming from the industry?
  (Ms Hewitt) The SBS is very new and David Urwin in particular, as the new Chief Executive, is having to meet an enormous number of people and is putting in as many as he can in a very short space of time. When the DTI transition team started work on what we call "the single gateway", which is now a website——we did bring in a number of private sector and non-private sector partners, because what we want is to create a portal for public sector information and services to SMEs that will also be available through banks, lawyers and accountants, trade associations and the CBI and all the rest of them, through a call centre, as well as directly on-line, so that SMEs can access this information in any way they want. As Freeserve and a number of other companies develop their portals for small business, we will certainly want to have click-throughs to and from those sites, so that our information services are available to Freeserve's small business customers, or Colt's small business customers or anybody else's small business customers, but frankly there are so many commercial providers moving into the small business market that in a way I would be surprised if my officials, or SBS officials, have had time to see everybody already.

  Chairman: It is just that Freeserve is so big. If we move on to a different topic. Lord Paul?

Lord Paul

  890. There is a shortage of skilled workers, as the Chancellor talked about in his budget. The Americans are really pouring in people from outside and the Germans have also tried it. What are we going to do about it? I know you are going to India, they are all waiting for you.
  (Ms Hewitt) I am looking forward to it.

  891. But India is also there, we were there last month, and one of the messages was very strong, that even they have started suffering from the shortage of IT personnel. What effort have we made to solve this problem? How are we going to train more people in this country? I have to leave at 4.55, this is a very fascinating subject, but I am still trying to fight for the manufacturing industry.
  (Ms Hewitt) Thank you, my Lord. Maybe I could just take this opportunity to say that e-business is everybody's business, and this distinction in public comment between the new economy—and the implication is that .com Internet stuff—and the old economy—manufacturing—dying, is nonsense, because technologies are transforming manufacturing, as you, my Lord, know a great deal better than I do. So I very much reject that old/new economy distinction and so does the Government as a whole.

  892. But I keep the message going.
  (Ms Hewitt) On this specific issue of skills, we are all suffering from skills shortages in this world. The Information Agency Partnership, which is chaired by Steven Byers the Secretary of State, brings together the chief executives of all the leading telecoms, Internet and contents providing companies. That partnership, set up a task force last year under Alan Stevens' direction, to look specifically at the issue of skills. They published a very useful report just before last Christmas. As a result of that we have put in place both a short-term and medium-term strategy, the short-term aspect of which was a very fast change to our work permit system. Unlike the USA, we do not have to pass primary legislation to alter the quota for workers. What we were able to do, and we did in March, was to add a whole range of ICT and engineering job categories to the list of shortage occupations for work permits. There is no quota, and there is no limit on the number there. So any company in the United Kingdom that needs to recruit from abroad into one of these shortage occupations can get a fast-track work permit and does not have to go through what can be quite substantial hoops about proving that they have tried to recruit all over the whole of the EU.

Lord Sandberg

  893. Sort of reverse brain drain?
  (Ms Hewitt) If I may say so, my Lord, I do not think that it is a reverse brain drain. I think that increasingly this is a global economy and that there is very real value to individuals, to their home countries and to companies, to have exchanges of workers. I suspect that increasingly we will see United Kingdom based companies bringing people in from abroad to fill shortage occupations who will acquire very valuable other experience in the course of working here and will then go back to their own countries to work there, to set up new businesses, to continue working in what may well be a global employer, and that will happen in most other industrialised countries as well. I think that is very valuable to India—if it is India that the worker is coming from—as well as to the United Kingdom. Having said that, we also have to have our own strategy for growing our own skills, and of course we are doing that as well. One of the things that the IAP Task Force discovered, which I certainly did not know, was that we have over 800 qualifications in the ICT and engineering field. So it is quite impossible for the student, the parents or careers advisors to chart a path for somebody into this part of the economy. The DTI and the DfEE have been working together. We now have the Qualifications and Curriculums Council rationalising those qualifications, so that we have a sensible path for providers, the FE colleges, as well as the individuals. The DfEE, who are in the lead on this, are working with the national training organisations. We have four or five of those in this field of ICT and engineering and we are looking at how that can work more sensibly. The DfEE, again in the lead, are looking at how the New Deal can be adapted in order to fast-track unemployed people who have got an aptitude for this into ICT jobs—something that has been happening very successfully in Ireland—and we are also looking at how we can work with businesses, I think they will lead in this to improve the whole image of careers in ICT and engineering, because, perhaps surprisingly given what is going on in this field, it is actually quite difficult to attract people into IT and engineering courses. It is particularly difficult to attract girls and women into it, and that really goes back to a very long standing problem about attracting women into engineering. We are looking again at how we can deal with that problem and actually convey to young people and women how attractive these jobs are. They have an image of nerds in front of a computer screen with no contact with other people. The reality is, of course, very exciting and interdisciplinary teamwork where interpersonal skills are at a premium, but that is not the image.

  Chairman: Back on to a European question, my Lord Brookeborough.

Viscount Brookeborough

  894. Some non-United Kingdom observers expect Germany and not the United Kingdom to be the powerhouse of e-commerce in Europe. Are we being complacent? How do we actually compare with Germany? Is the Prime Minister's aim that we should have the best environment for e-commerce achievable in a short enough time frame? We are talking about the development of e-commerce really within the next five years.
  (Ms Hewitt) We are certainly not complacent and we are very well aware that all the time we are shooting at a moving target. It is a bit like productivity gains. Our manufacturing sector has been making great productivity gains, but other countries are often moving even faster. That is even more true in the world of e-commerce. At the moment the latest Booths Allan survey, for instance, that the Prime Minister quoted from recently does show the United Kingdom as having the largest e-commerce market in the EU with, interestingly, a higher proportion of our businesses overall trading on the Internet and a higher proportion of our population having Internet access and so on. Of course, Germany is the largest economy and, therefore, it would not be at all surprising if in the end it did not also have the largest e-commerce market. That is not the only test of being the best place for e-commerce, and there are issues there about Internet access and Internet access costs. For instance, the United Kingdom has a very real competitive advantage, not only in mobile telephony, but also in digital television. We have seen digital television take-up go from nought to something approaching 4 million in just over 12 months, which is very, very fast. So, we are unique, I think, in our combination of platforms, wired access, wireless access and digital television on satellite, cable and digital terrestrial, which will rapidly enlarge our consumer market place, it will help to enlarge the SME take-up and it will make us a very, very attractive market for the companies that are supplying the hardware, the software and the applications that will then take advantage of third generation and digital television. I think we have some very real advantages there over the USA, but also by comparison with Germany.

  895. How much do we share our initiatives with other nations in Europe, because quite clearly the success of our e-commerce is determined by the open market and trading across boundaries?
  (Ms Hewitt) Indeed, and one of our objectives is to secure what I feel is a very large prize—a single market in e-commerce across Europe. We are very committed to that and in a sense I think all of us, as European Member States, are competing with each other and competing for inward investment and so on, and we have remained a destination for foreign directive in the EU, but we are also co-operating, we are learning from each other, we are sharing best practice, and we are working with our colleagues in the European Union to get the right regulatory and legal framework at the European Union level.

Lord Cavendish of Furness

  896. Minister, listening to you I get the impression that you are enjoying your job very much.
  (Ms Hewitt) I am indeed.

  897. I want to prey a little on how this is all working. How does joined up government work in connection with e-commerce? How do you, Minister, and Mr McCartney co-ordinate? Finally, how are you going to "push down and across" the process of co-ordination?
  (Ms Hewitt) I am thoroughly enjoying the job. This is exciting stuff. I have overall responsibility for the Government's Information Age Agenda. Within that I have the day-to-day responsibility for e-commerce and e-business, as it were, in its narrow sense. Ian McCartney has the responsibility for e-government and for driving that forward. We see each regularly, both informally and through the Information Age Ministers' Network, which I chair and which is the first Ministers' network to have its own secure website. We are trying to work on-line as well as through physical meetings. We also co-ordinate very closely through Alex Allan who is based in the Cabinet Office and who reports to both of us as well as directly to the Prime Minister.

  898. I do get the feeling that the Government is having a little bit of difficulty. Is this going as fast as you would like?
  (Ms Hewitt) Last year I felt very strongly that of the three things we had to do—which is getting the market framework right, getting the people right and getting the Government itself on-line—the Government part was much the hardest challenge. Every global corporation and every large corporation is struggling as they move from vertical silos to horizontal processors and get everybody focused on the same outcomes, which has to be customers, or in our case, citizens, and as they move from hundreds of different IT systems that do not talk each other to a common centrally determined technical specification, that then enables information to flow absolutely freely across the entire organisation. We have got, in government, exactly the same issues; vertical silos, a difficulty of focusing on outcomes, legacy systems that do not talk to each other and e-mail systems that certainly do not communicate with each other. We are overcoming those problems. The GSI network will help hugely and the e-government strategy that we publish will mandate a common set of technical, essentially Internet based standards that in turn will allow those legacy systems to talk to each other so that we can then, on-line, offer services to citizens without having to replace, at vast expense, all those old IT systems sitting in departments. I know this is something that we will be happy to discuss in more detail if you want to come back to it.

Lord Faulkner of Worcester

  899. Following on from Lord Cavendish's question, you announced, I think, that the Government is advancing the deadline for introducing services on-line to the public from 2005 to 2003. Can you tell us a little bit about how you expect to achieve that?
  (Ms Hewitt) Let me just correct one point there. The initial target was 100 per cent on-line by 2008. The Prime Minister has brought that forward to 2005. There will be a number of services on-line by 2003 and indeed before then, but the 100 per cent target is 2005.

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