Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Questions 900 - 912)




  900. Did Lisbon not ask for a target of 2003 for all government services?
  (Mr Allan) It was electronic access to the main basic public services by 2003.
  (Ms Hewitt) We are moving just as fast as we can and are in the middle of a cross-cutting review as part of the Spending Review 2000 looking at the knowledge economy, but including electronic government. We will have more to say on that in July when we announce the results of the Spending Review, but certainly we are prioritising government services that can be delivered on-line to citizens. We have recently announced the issue of a contract for the creation of UK On-line which will be a government portal for citizens that can be customisable so that depending on whether you have children and where you live you can ensure that you get the information you want about changes in the national curriculum or about local schools or other things that are happening in your town or city and so on. We are making some real progress on that, but we also, particularly when it comes to very large operations like social security, have some hurdles to overcome even to meet the 2005 target.

  901. Can I ask you if you are responsible for keeping your colleagues up to the mark on this? Are you satisfied that they are getting technologically literate at the same speed as you are?
  (Ms Hewitt) Ian McCartney and I, at the Prime Minister's request, recently did a joint presentation on e-commerce in the Government to a Cabinet session that was wholly devoted to this subject. What was very encouraging was the personal commitment of all Cabinet Ministers to transforming public services by using information and communications technology. We know from the business experience that transforming a corporation like GE into an e-business is only happening because of Jack Wilcher's personal leadership. In our case, we have the Prime Minister's personal leadership, he has gone out there and learnt how to use the Internet and he is now using e-mail and I am sure that is having a very interesting effect on the culture of Number 10 and the Cabinet Office. Increasingly I think what I am finding is that ministerial colleagues are frustrated because they have not always got the right equipment or the right network access to enable them to work on-line in the way that they want, which is why the Government strategy, the rolling out of GSI and the creation of the New Knowledge network across government is so important, because it will enable ministers and officials to communicate across these vertical boarders and work cross-departmentally.


  902. I hope that the Prime Minister did not open the "I love you" e-mail.
  (Ms Hewitt) I am sure he was warned in time.

Lord Chadlington

  903. Minister, good afternoon. Can I return to the question of equity for these new companies? In America we learned that about 5 per cent of pension fund assets are actually going into private equity and in the United Kingdom it is about 1 per cent. What can we do to incentivise not only pension funds, but insurance companies and other institutions, to provide equity capital for these organisations as the demand for that equity inevitably increases?
  (Ms Hewitt) This is an enormously important point, my Lord. Indeed, the Chancellor has just announced that he has asked for Paul Miner from Gartmore to undertake an independent study of why it is that our large financial institution are not putting more into the venture capital market? We have also taken some steps ourselves to try and deal with some of these venture capital problems or some of these equity gaps, for instance, through the New Enterprise Fund. We are putting public sector money both into a new high technology fund and into a regional fund that will be managed by specialist fund managers, and we are using the public sector investment to leverage in money from the private capital market in order to deepen liquidity in the venture capital market.

  904. How fast do you think this report will be out, because one of the impressions that we have from the pace of change and the speed at which people are setting up these businesses and the requirements is that it seem to be very dramatic? How quickly do you think the report will be out and you can action it?
  (Ms Hewitt) I will have to let you have a note on that, if I may, my Lord. This is Treasury led and it is a Treasury responsibility for financial services, but what I would say, from talking to the new Internet start-ups, is that there is no shortage of venture capital available at the moment for a good business plan. There are certainly difficulties for some more esoteric knowledge based firms where the only asset they have is the intellectual capital, they have no physical assets to offer as security, which is one of the reasons why we were interested in a high technology fund. There are certainly difficulties for smaller businesses in the more traditional sector in securing business engine and venture capital support, hence the Enterprise Fund Initiative?
  (Mr Allan) The First Tuesday Initiative around the country has demonstrated that there is tremendous interest in bringing people together with business ideas and the venture capitalists themselves.

  Lord Chadlington: Yes, we have had some very good evidence.


  905. The complaint here and the difference with the United States seems to be that the money goes in faster in the United States, people can attract it much more quickly from a start-up point, whereas here people want to see that it looks like a likely winner before they are prepared to commit their money.
  (Ms Hewitt) Indeed. I guess it is not for the Government to substitute its judgment for risk assessment by the market, but there are issues there around getting the market to work more efficiently.

  906. And there are incentives in the United States as well.
  (Ms Hewitt) Exactly so.

Lord Sandberg

  907. It may be something you feel is more a question for the Treasury, but what steps are we taking to play a proper or leading role in Europe regarding the appropriate method of taxation, not only in Europe, but also around the world?
  (Ms Hewitt) If I may just add one more comment to the previous question before I come on to that one? I would particularly point to the changes that the Chancellor announced in the last budget on capital gains tax, and I think that the new capital gains tax taper will make it much more attractive for entrepreneurs who have made substantial sums through their own start-up business then to invest in new start-ups, their own or other people's. For instance Professor Andy Hopper in Cambridge hugely welcomes that change in the CGT regime, because he certainly thinks that it is going to increase, very substantially, the amount of equity capital and venture capital that is available for new start-ups. On the taxation side, I am happy to say that we are working very closely, not only within Europe, but within the OECD, on the taxation aspects of e-commerce, because this is not a national issue, it is very much an international issue. The OECD is consulting on a proposed addition to the commentary on the permanent establishment article of the Model Tax Convention, which, although somewhat abstruse, is rather important in this issue. I think both in the OECD and within the European Commission on the VAT question, we want to work very closely with other governments in order to ensure that we do get the best possible tax regime. I think I am right in saying that colleagues in the Inland Revenue are indeed chairing the OECD working party on the taxation issue. So we are playing a very full role in this.

  908. Does that include talks with the USA?
  (Ms Hewitt) Indeed it does, and when I was in Washington recently I agreed with the Vice President's advisor on e-commerce that we would set up, through our officials, a regular dialogue which would focus on a variety of issues. He was particularly pleased with the role that our Government has played in facilitating the recent agreement between the European Union and American administration on privacy, which has been such an enormous issue, particularly over there, and the taxation issue is very high on both of our agendas.

  Lord Sandberg: That is very encouraging.

  Chairman: We are actually seeing the OECD. Minister, you have answered all of our questions very helpfully indeed.

Baroness O'Cathain

  909. I am bursting to ask another one, is that all right, Minister?
  (Ms Hewitt) Of course it is.

  910. Today we had evidence from Reuters and it contradicted evidence that we had from British Telecom last week. We are struggling to get the correct data on pricing of access to the Internet. I am just wondering if there is anything here that the regulator, with a bit of a push from you, could do to publish prices of access to the Internet? I think it is fundamental, because everybody does say that the greatest driver of people becoming more literate in the e-commerce world is access to the Internet, and one of the problems about access to the Internet is the cost of it and the fact that people are not really sure that the charges they see listed are what they pay or if there are hidden points. In the US, as you know, it is a political target that access to the Internet should be made available to everybody. I am just wondering if there is a way—it just came to me while I was listening to your evidence today—that the regulator or the Department of Trade Industry could actually regularly published access charges to the Internet? Would that be a help?
  (Ms Hewitt) That is an extremely interesting and pertinent question, my Lady. The OECD has recently published a bench-marking study that we have drawn on and publicised, which does show that, for instance, for 40 hours Internet access a month off peak—typical individual consumer use—we have the cheapest costs in the world, not simply in Europe. We will soon, I think, have other bench-marking data for the costs of private residential use and business use. OFTEL will publish the results of those bench-marking studies as quickly as they become available. OFTEL itself has been looking specifically at the question of costs of leased lines as well as other Internet access costs, but I think that we are driving competition even further and faster into a telecommunications market that was one of the first in the world to embrace it. We will get increasing competition in fixed wired access and we have seen the cost of international and national voice calls falling very fast with local loop and bundling, which OFTEL is driving forward very vigorously, and we will see competition enter that market. We have growing competition from within the wireless networks, with five entrants of for third generation mobile, because we have reserved the best licence for a new entrant. We will see growing competition between wireless and wired, and then, of course, we have the television form of access to the Internet. The Prime Minister recently set the target of universal accessibility by 2005.

  911. But you would not necessarily agree to publish those figures on a regular basis?
  (Ms Hewitt) I will take that back to OFTEL, but OFTEL will shortly be publishing the latest bench-marking studies.


  912. There are some quite strongly held views that the position has not been represented accurately in this country and we will draw this to your attention. There is no complaint about off peak pricing, but of course SMEs and the majority of people are looking for the price to come down big time, and business is done not off peak.

  (Ms Hewitt) That is absolutely right, my Lord. Last year I was drawing attention to the need to get peak hour access costs down. They are also falling, but it does partly depend on where the business is situated. If you are in London you have an intensely competitive business telecommunication market base and very low charges as a result. We have a plethora of telecommunications firms to choose from. That is not yet the case, for instance, in my own city of Leicester where I run a small business in the form of my Parliamentary office, but competition is coming as we get new entrants to the market.

  Chairman: Thank you very much again, Minister.

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