Select Committee on Trade and Industry Minutes of Evidence

Examination of witnesses (Questions 60 - 79)



  60. It was said that there should be a taxation framework. That was agreed at Ottawa. This is fundamental to international e-commerce. The government has held itself out as being in the lead on this internationally and I wanted to find out what had been achieved.
  (Ms Hewitt) The work is progressing pretty well. We benefit from the fact that there is a British official chairing one of the key working parties for that OECD work on taxation. It is a matter for the Treasury and I would be delighted to arrange for them to give you a more detailed memorandum on that if that would be helpful. I do not deal with it day to day.

Mr Butterfill

  61. You mentioned that you are working with European colleagues and with the Commission on VAT matters. At the moment, as I understand it, there is already an agreement—I appreciate this is slightly outside your area of responsibility—on VAT whereby if a United Kingdom supplier makes a supply in another EC country, unless that supply is to another VAT registered trader, VAT will be payable in the United Kingdom. Otherwise, it is payable at the local rate by the trader in the other country. I am puzzled why you should be involved in any further discussions with the Commission on this unless they were on the harmonisation proposals which were dropped at Nice, were they not?
  (Ms Hewitt) I am not personally involved. I was making a point about the government rather than myself. There is a well established framework for the application of VAT to sales between Member States. The Commission has made a proposal which related to VAT on transactions for instance between the USA and a purchaser within the European Union. That is a matter for the Treasury. The Chancellor made his view on that very well known at the most recent ECOFIN meeting.

Helen Southworth

  62. Can I take you to the digital divide? What is your understanding of the current scale of the digital divide? We have had figures that suggest that 80 per cent of unskilled or semi-skilled people have no contact with the internet.
  (Ms Hewitt) There is a very real digital divide. The figures I have seen suggest that in the poorest households fewer than one in 20 have internet access at home. In the richest households, it is well over half. There is a very big division there. The changes that are taking place within the market for internet access will help to change that picture. When we get the new survey next week from the Office of National Statistics, we may see things starting to change. I am thinking for instance of digital television which can enable internet access. I am also thinking of other devices—games machines, for instance—that can enable internet access. There is now an internet enabled analogue television on the market for about £179. We will see whether that helps to penetrate into lower income households, and also to bring the internet within the reach of people who are completely familiar with television but may be completely unfamiliar with the idea of a computer.

  63. Are we talking about a conceptual divide as well as an equipment divide? How are we going to overcome that?
  (Ms Hewitt) The way I look at it is that the first generation of internet access came through the PC. The next generation of internet access will come through digital television and through mobile devices, particularly with the arrival of third generation. We will get some before third generation but third generation mobile will bring the mobile internet alive. Most industry predictions are that by about 2003 there will be more internet access through mobile devices than there will be through PCs. We need to look at the full range of internet access and to realise that this is changing very, very fast. Having said that, it is absolutely essential that we in government also act to bring the internet within the reach of people who do not have a PC at home and may well not have digital television and clearly have not got third generation. The UK onlineprogramme is now creating UK onlinecentres. The Prime Minister announced the first 600 in September. We will have 6,000 by 2002 including all the public libraries. Those UK onlinecentres will offer facilities particularly to people in low income areas and in the more remote, rural areas to use the internet on a PC or on some other device, to get some help and advice in using it and in some cases offer other facilities as well like the chance to borrow a laptop, take it home and use it. As well as that, we have the programme that Gordon Brown put in place that Michael Wills is delivering for cheap computers to low income families. We have the wiring up of schools. We have all the secondary schools connected and almost all the primary schools as well. There is a very big investment there, at least £1.5 billion, in ensuring that everybody in every part of the community will be able to have access to the internet and will have a chance to get the skills and confidence to use it, because that matters almost as much as access to the actual hardware and software.

  64. You have referred to a number of initiatives. What specifically are the UK onlinecentres going to be doing? How are they going to be resourced? How are you going to be monitoring them and how are you going to see them deliver?
  (Ms Hewitt) The UK onlinecentres are funded at the capital end by the capital modernisation fund. £250 million is available over three years within England. There are parallel programmes in the devolved administrations. There is also revenue funding of just over £77 million in England, available through the new opportunities fund. We have both capital and revenue available. Bids have been invited from a whole range of providers, private sector and non-private sector, all over the country, to bid to that fund which is run by Michael Wills at the Department of Education. The Prime Minister announced the first 600. The second wave of bids is either just about to come in or is now being considered. We are moving on fairly aggressively. The central feature of the UK onlinecentres is that they are designed to make internet access available to disadvantaged communities and that they are designed to be in places where people go. For instance, in the West Midlands, there is a UK onlinecentre in a caravan that goes around with a travelling fair reaching enormous numbers of people. There is at least one in a pub; there are some in community centres, some in libraries, some in schools and so on, but it is very much a bottom up programme where you have local communities and private sector providers working together with the public sector to make internet access happen in a way that suits that community.

  65. Are you going to be checking to see that you get a good spread of access? For example, I was visiting my local carers centre last Friday and I automatically went into the office and said, "Can I check something up on the carers' website?" They smiled and said, "We are going to get a website but we have no money for it and we are hoping that we will be able to get a grant from somewhere."
  (Ms Hewitt) That was a local voluntary organisation?

  66. It was the local voluntary carers support network. You know perfectly well there is a whole range of extremely active, self-help support groups working with extremely disadvantaged people. How are we going to ensure that those kinds of groups which are working precisely with those marginalised people get access?
  (Ms Hewitt) Many of them are already exploiting the internet. I was astonished. A couple of months ago I was doing a street survey in one of the low income wards within my own constituency on a social housing estate. In the first house I went to, where both the mother and the daughter suffered from different, very rare diseases and wanted to talk to me about medical treatment, they had become—the mother in particular—an expert in both her own and her daughter's condition through the use of the internet to access self-help groups in those two conditions. It was having a very interesting effect on her relationship with the GP and the consultant who did not expect patients from council estates to turn up knowing as much as they did about the particular conditions she and her daughter were suffering from. A lot of these self-help groups are already on the internet. The National Health Service and the Department of Health have a very substantial programme of internet enablement, starting with NHS Direct online, which will make it much easier for that sort of information to be made available to patients. One of the key criteria when the Department of Education assesses applications for UK onlinecentres is what they are proposing to do to develop local content. That may be content that is of interest to a particular local geographical community but it may also be a community of interest where there is a particular disadvantage that needs to be served by a UK online centre. On the other issue you raised about monitoring the effectiveness of the centres and monitoring their reach, the E-Envoy's office is working very closely with the Department of Education and also DCMS who are responsible for the libraries so that we get a proper map of the provision to ensure that we do not have lots of access points in some places and none in others. We want to make sure that there is a proper geographical spread as well as proper access for different communities who may, because of language or various disabilities, have particular trouble in using the internet.

  67. Is local content happening yet or is it just a pious hope?
  (Ms Hewitt) No; it is absolutely happening through a variety of initiatives, not simply government ones. For instance, the Hansard Society and the Women's Refuge movement, the domestic violence movement, recently collaborated—our colleague Margaret Moran was very involved in this—in creating an on-line secure site for women who were survivors of domestic violence. Two of the first groups to be engaged in that programme who are still using the internet were respectively a group of Irish women travellers and, secondly, a group of Bengali, Urdu speaking women. They in particular accessed the internet at their children's school and one of the reasons why they became so enthusiastic about it was because they could read Urdu language newspapers as well as meet each other at the internet centre.

  68. Can I ask you about the loan or donation of PCs by private or public sector employees for home use, which is a particular target of your office? The Treasury apparently do not have any evidence from tax return forms as to how this is growing. Have you any evidence and, if so, what sort of numbers are we actually talking about?

  (Ms Hewitt) There is a variety of different provisions here. There is first of all the tax relief that was introduced in the Finance Bill in 1999, which enables employers to lend their employees computer or other ICT equipment for use at home by the employees and by their families. There are no restrictions on the use. In the past, that would have been taxed as a benefit in kind. It is now tax free up to £2,000 capital and £500 income equivalent. I do not have figures on the takeup of that but I have certainly had anecdotal comments from a number of companies who are using that. I have also had comments from companies who would like to use it to give their employees PCs. That is not embraced within the scope of the Finance Act concession. There has also been considerable interest across the public sector in low cost leasing deals for public service employees. Those are working and there are some operating in schools. There are more and more LEAs and individual schools who are interested in getting low cost leasing deals, not only for teachers but also for pupils so that you can have one laptop per pupil on a very low cost basis and perhaps an additional subsidy to parents who cannot afford even the low cost. There are some good examples of that happening but because we have a highly competitive retail market in the United Kingdom leasing may not have taken off in quite the way it has in some other countries. I asked John Monks at the TUC whether he had looked at the scheme the Australian TUC runs for very low cost, leased internet mobile computers for members of trade unions in Australia. It has been a huge success there. John Monks said yes; they were very keen to do it but they had not so far found a leasing deal that offered anything as good as you could get at Dixons. 69. Is the DTI leasing to employees?
  (Ms Hewitt) No, but a growing proportion of DTI employees have remote access at home with the use of the laptop. Of course that is invaluable particularly for staff who want to balance work and family and who only work part time and who want to do some of that work at home.

  70. What about the Department of Health which has a phenomenal number of employees? We were talking abut 80 per cent who do not have access to the internet.
  (Ms Hewitt) The Department of Health has a very substantial programme to roll out effective electronic working across the National Health Service. They have some major challenges there because they have a legacy of different hospitals, different hospital departments, different GP practices, using different systems. What they are now seeking to do is to move the patient appointments booking system on-line between hospitals and GPs—there are pilots in that area already—and they are seeking to move on-line the whole process of prescriptions so you do not go through the business of keying-in prescription data at a central office in order to monitor prescription patterns and so on. It is a very significant part of the NHS modernisation plan. Just coming back to the DTI, we are developing a purchase scheme for employees which will give them very favourable terms, but I understand so far other government departments have not been interested in doing something similar.

  71. In terms of the digital divide in the Department of Health, you have talked about tackling electronic systems but in terms of the digital divide, in the number of people who do have access, a very large number of people are excluded.
  (Ms Hewitt) Indeed. I am sorry, I must correct what I just said, I was misreading a note which had been passed. Other departments are all interested in looking at the sort of low cost favourable purchasing schemes we are looking at in the DTI.
  (Mr Parker) To add to that, in the Office of the E-Envoy, we are looking at helping evaluate the pilots which have gone on in the private sector, so we can start to quantify some of the business benefits which flow through to departments from this sort of activity.

  72. Finally can I ask about the Computers Within Reach initiative. The Chancellor announced £15 million for up to 100,000 PCs for low income families in March 1999. We are told by the end of this financial year there should be 35,000 computers which will have been distributed in pilot areas. Why has it taken so long?
  (Ms Hewitt) What the Department for Education and Employment had to do in order to put that scheme in place was, first of all, to get partners in the private sector and voluntary sector who would actually run the scheme, and who would have the capacity to collect PCs and then to recycle them, to bring them up to speed, as it were, and then could operate an effective process of ensuring that those recycled PCs went to low income families. Of course, that is now in place and, as you rightly say, there will be up to 35,000 recycled PCs in various places in England by the end of March. Now we have the partners in place, it will be much easier to roll out the next phase of the programme. The Department is also finalising evaluation processes so we can ensure we can look at the scheme and the first wave of it and ensure it is meeting its objectives.

  73. £60 is an awful lot of money for someone on a low income. What are you going to do to get rid of the £60 charge? £60 can buy a lot of meals and pay a lot of heating bills.
  (Ms Hewitt) Indeed, but we thought it was important that families who wanted to use the recycled computers did actually pay something towards them as a way really of expressing for themselves the value they would place upon the service and the hardware they were being effectively given. I do not think that is unreasonable at all, but clearly it is one of the issues which the Department for Education will want to look at in the evaluation.

  74. So you will be giving serious thought to affordability? £60 is a lot of money.
  (Ms Hewitt) It is one of the issues the Department will look at in the evaluation.


  75. Can I ask a point on this? I will give you the anecdotal evidence of my wife, who is a teacher in a school which is on-line. When a computer goes funny, when something goes wrong, it is virtually impossible to get instant response. The schools no longer can attract the kind of staff to do the maintenance jobs that they might have done in other technical areas. The public sector cannot get the kind of technical support staff to enable the on-line dreams to be realised. You mentioned en passant this morning the skills issue, but I would like you to talk about the rather fundamental one, there is no point in giving somebody a computer, it goes wrong and then for three weeks there is nothing they can do about it, or it costs them a fortune to phone up one of the helpful help lines which charge rather more than they anticipated when they bought the cheap computer in the first place.
  (Ms Hewitt) It is an important issue and we all know the frustrations of computer systems going down. You might want to get more detail, and again I can arrange a more detailed memorandum on this if it would help, directly from the Department of Education—

  76. I am sorry, this is the DTI. Surely it is your responsibility to take account of the fact that the maintenance industry is virtually non-existent? That is the point. You are giving out computers willy-nilly, if anything goes wrong, they go back in the cupboard because it is either too expensive or it takes too long to get them fixed.
  (Ms Hewitt) If I may, I was going to say something first of all about the schools side of this and then more broadly what we are doing on skills. I think, if I may say so, you are painting much too dismal a picture of what is happening in most of the schools, although I certainly absolutely recognise the problem, but the Department for Education has been putting in place both a very substantial programme of ICT training for teachers themselves and is rolling out the National Grid for Learning, and what we are seeing is more and more schools making very effective partnerships, in some cases with universities, in other cases with private sector suppliers, often to get extremely innovative information and communications technology in the schools. I visited one in Lancashire recently—

  77. I am sorry, I think we have gone over that. What I am talking about is what happens when the thing breaks down. Why are there not enough mechanics to come along to fix it? Why are we not getting more of these people trained? Why are they not better paid in the public sector to enable them to stay there and not be poached by the other parts of the British economy? That is something which we have to have on the record.
  (Ms Hewitt) I do not think we can expect to have within the public sector every set of skills that you need in order to run modern ICT applications. In many cases those skills and those maintenance arrangements will be provided by the private sector in a partnership under a contract with the public sector. That applies to core government departments, it will apply in some cases in schools, it will apply in the National Health Service and so on. The much bigger issue, which is one that DTI and DfEE are giving very high priority to, is the much larger problem of the shortage of skilled people in information and communications technology and indeed in the engineering sector as a whole, and that is a shortage of skills really from very basic skills right up to the graduate and the post-graduate level. We have already put in place at the bottom level free IT training for people out of work and the 80 per cent discount on basic IT courses for people who are in work. We are getting a very high take-up of that and in many cases that is then the first step on the ladder of further IT training. Similarly, with learndirect, which of course is now rolling out across the country, the University for Industry tell me that by far the most popular courses which people are signing up for are related to IT and the internet. So that will begin to give us the people with the basic skills who can then go on to the next level of competence. The Department for Education introduced this autumn the new Integrated ICT curriculum in schools. That will produce a new generation of school leavers and then college leavers much, much better equipped for the demands not just of this sector but every sector, because indeed for almost every job in the economy these days you need at least some level of computer skills. I know that Stephen Byers and David Blunkett are discussing this problem very urgently to see what more we need to do, because we do need to do more, to ensure that at every level, from the very basic technician right up to graduate and post-graduate, we have the supply of people we need, because it is not only the public sector, it is also the private sector, who are being constrained by the lack of skills. A final point is, of course, this is not a problem unique to the United Kingdom, every industrialised country faces this problem. I should perhaps as a footnote just add that the ICT funding for schools does cover the support and maintenance as well as the initial kit, therefore that will normally be part of the contract which the school or the LEA has with the IT supplier.

  Chairman: Thank you.

Mr Morgan

  78. Following on from that, and on schools, I think that about 14 per cent of primary schools are not connected to the internet. I think the ratio of pupils to computers is about 12:1 in primary schools, and I do not count the recent ones which, as the Chairman says, are going to be covered. Either way it is not very good. What is the problem? Is it cash?
  (Ms Hewitt) The Government has had a very, very fast programme of rolling out both computers and the necessary training for teachers. Secondary schools, as I say, we have now got completely on-line. With primary schools, at the point where we came into that, it was only about 14 per cent of primary schools that were connected. So we have driven that up very, very fast over the last three years. I have not got the target date here. In 2002 we will have every primary school connected, but we have made huge progress since 1997-98.

  79. I think that probably most of us feel that there is maybe an unholy alliance between Microsoft perhaps and the hardware manufacturers, in the sense that over the period of a parliamentary term the software seems to change to such an extent that your hardware is unusable. Is this going to give schools a big problem in five years' time, or at some period, when there is a big replacement cost? Are they going to be in a position to bear that cost?
  (Ms Hewitt) I know it is an issue which has been of great concern to my colleagues at the DfEE, because clearly you do not want to have the situation where you are making substantially huge investments in hardware only to find that you cannot use it. I think what will make a very big difference there is that as schools connect to the National Grid for Learning, at higher bandwidths, they will then be able to get the software and the content they need from the network rather than having to hold it within the PC itself and, to use the jargon, the PC will, in effect, become the thin client and all the rest of the stuff will sit upon the broadband network. That should, as I understand it, enable PCs that would otherwise become redundant to have a happy new lease of life as the thing develops.

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