Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Questions 935 - 939)




  935. Good afternoon, ladies. We are very pleased to see you and we have been very pleased indeed to receive the papers—I will talk to the wider audience here—the two papers here submitted by students and we are very happy indeed to have you with us this afternoon and we are looking forward, some of us, to seeing you again on 14 June when there is some form of recompense for all the hard work that you have done. We hope you are going to come back and have a cup of tea with us, and we will also give you a tour of the House of Lords and the House of Commons. I understand that Professor Targett has briefed you on how we wish to approach examining your reports. Could you try to stick to about two minutes each in presenting your relevant parts. Then you will move to questions afterwards and then we will move onto the second group where we will be dealing primarily, I think it is, with consumer issues. But yours is business confidence—how do we raise business confidence. Over to you.
  (Ms Patel) My Lord Chairman, thank you very much for the opportunity to give evidence today. We will be giving an analysis of the evidence submitted to the Committee to this point in terms of a business perspective. We will firstly be talking about regulatory measures, then security and data protection and finally financial and set-up costs to businesses. There are three main areas into which regulation can be split up: no regulation at all, so businesses are self regulating, or trying to achieve certain codes of conduct and standards; some government intervention, or co-regulation; and full government intervention. The advantages and disadvantages of some regulation and complete government intervention are basically two sides of the same coin, so I will be talking about these two together. Over regulating can damage business opportunities, creating lots of red tape and bureaucracy and this can hold back some businesses in the EU. You can also reduce competitiveness, increasing start-up costs—

  936. Can I persuade you just to go a little slower and speak a little more loudly, please. You will find as you get older your hearing does not improve!
  (Ms Patel) It can reduce competitiveness, so it will increase start-up costs and running costs generally. Companies may choose to move to areas with less regulation. An example of this is that the gambling industry which has moved off-shore to places such as Gibraltar where there is less tax and less regulation. Also the Government may not be able to keep up with the pace of change of e-commerce, so that might create some problems. Conversely, regulation can create a stable environment for businesses as long as the legislation is clear and distinct. An example of this is the gaming industry in Australia where a lot of businesses have moved into this because of the stable environment which reduces their business risk. Also, smaller businesses may benefit in terms of tax, funding and also of creating networks with other businesses sharing information. Also consumer confidence may be raised if they know some form of Government intervention is in place. If we talk about partial regulation, hopefully this will have benefits of both the previous regulations. There is already existing regulation in place and this should be extended to e-business. Legislation should be required if the existing legislation does not cover the changes in technology. An example of this is electronic signatures and the RIP Bill which allows the police to monitor activities that cover electronic communications. This is quite a sensitive area, so it needs to be looked into. I am going to pass over to my colleague, Puja, who is going to talk about security and data protection.
  ( Ms Gandhi) I am going to address some issues which have already been outlined in the written evidence given to you. Firstly I wanted to talk about intellectual property rights and data protection. I will start off by giving an example and then drawing implications from it. One is able to download music or sound tracks from the internet very easily and therefore there is no need to purchase it as such. This is actually breaching copyrights. This is likely to be a major issue in the entertainment sector which would include things such as video games or movies or the music industry. This is likely to be a deterrent for them. Another area of concern that I thought was fairly big was the data protection one. Under UK criminal law, the definition of "property" does not include data; therefore it is possible to steal data, which allows individuals to steal data, basically, from their employers, or hack into computers without actually having committed a crime. Again, I think this may be a big deterrent for businesses. The final one, which I thought was of great concern, was that of credit card fraud. In the UK the merchant bears all the risk for any credit card transactions made on the internet, while in the United States or Australia there banks can actually forge a link together to be able to address verification. In other countries in Europe, such as Belgium, they have a Proton system which was primarily based for the consumers who cannot obtain credit. It also has advantages for businesses, and the business does not bear as much risk as the money is more or less paid which they have spent. There are many other issues that we felt were relevant but due to time constraints, we will not go through that in too much depth but they have been mentioned in the evidence that we handed in. I will now hand over to my colleague, Urvi, who will talk about financial issues and setting up costs.
  ( Ms Shah) There are usually large e-business set-up costs. Some of these include training costs, where training is needed for the skilled labour which is required to handle and deal with e-commerce. A lack of, or a low IT ability, represents a barrier for e-commerce development, hence IT training is strongly required. Access costs tend to be high as well. Even though, recently, there are discounts for internet dial-up, there is still the cost of the call, depending on duration, the time of the call, as well as costs of telecom operators. However, dial-up connection to the internet is still growing, as a result of the decreasing costs to be connected. An important cost to consider is the translation costs in trading across borders. The language in a country restricts the number of users to those who can actually understand the language, and hence translation is definitely required, which could be quite costly. However, financial incentives, especially tax incentives such as stock options, provide encouragement for e-business, as well as incentives for venture capitalists. The development of smart cards, electronic signature infrastructure, and other alternative means of payment to credit cards have also encouraged e-business. For example, electronic signatures cannot be discriminated against, as stated by the "Electronic Signatures Directive". Global trading also results in larger markets which could lead to increased revenue, and hence a motivator for e-commerce. To round off, I will look at some of the questions posed to the Committee and try to answer them from a business perspective.

  937. That is very good of you.
  (Ms Shah) To create and stimulate e-commerce governments can provide increased incentives for businesses by setting up more favourable tax systems and by providing legal protection for businesses going online. The government should also have a role in training—perhaps subsidising the cost—

  938. Just a little slower, please. These are very good questions.
  (Ms Shah) The government should also have a role in training, perhaps subsidising the costs and promoting it in schools and universities. We feel that the draft action plan will be useful in promoting e-commerce, though there have been many criticisms of it, such as, it does not go far enough, the measures are not clearly defined and the timing is wrong. etc. Self-regulation and codes of conduct may be preferred by businesses as it can reduce their obligations, but government intervention to protect businesses themselves, in terms of intellectual property rights laws and fraud, is definitely needed. We feel that we are not in the best position to answer the remaining three questions. We are now open to your questions.

  939. Thank you very much indeed. It was very useful with you giving us the summary at the end there. I wonder if, perhaps, we can pick up some of those points there, and see if maybe you might be able to offer one or two solutions that we might possibly postulate as answers to some of the problems. I think on the first one, you said that there was something to be said for more favourable tax concessions being offered by the government to stimulate growth of e-commerce. Any ideas from the research you did on topics that might be worth examining there?
  ( Ms Shah) For example, we could decrease the taxes that businesses have to pay and maybe by increasing the barriers to trade outside the country, and encouraging businesses to stay within the country would probably help.
  (Ms Tran) Reduce the taxes on stock options. A lot of companies could pay their staff by means of stock options , and if you reduce the taxes on those then that really helps companies who are engaging in e-commerce. Venture capitalists as well—maybe provide incentives for people who put money into these businesses.

  Chairman: Lord Paul is a businessman and he would like to ask you some questions too.

  Lord Paul: Firstly I would like to congratulate all three of you with the confidence with which you have presented what you have to say. This place can be very daunting, but it is nice to see you with that confidence. Secondly, my Lord Chairman, I am sure they are making history in this place. Perhaps you are the first three students who have come and given evidence in this House, so you can go back with a great feeling that you have made history.

  Chairman: Certainly they are significantly younger than most of the witnesses.

  Lord Paul: Those were the two comments I wanted to make.

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