House of Commons - Trade and Industry

Select Committee on Trade and Industry Written Evidence

APPENDIX 12

Memorandum by Intellect

i. This submission has been prepared by Intellect, the trade organisation representing the UK's information technology, telecommunications and electronics industries, in response to the Trade and Industry Select Committee Inquiry "Progress Towards the Knowledge Driven Economy".

ii. In preparing the submission, we have relied on a series of consultation sessions and meetings of a working group created to guide the submission. The working group was representative of Intellect's wider membership.

1. INTRODUCTION

1.1 In September 2003 the Trade and Industry Select Committee announced that it was to review progress towards the Government's objectives set out in the 1998 White Paper "Our Competitive Future: Building the Knowledge Driven Economy".

1.2 This paper was created under Peter Mandelson's tenure within the Department of Trade and Industry. It aimed to outline the role Government and Business needed to play in order to close the performance gap between the UK and other major trading nations. This aim was set within the context of an increasingly competitive global market and the rise of the "knowledge driven economy". Knowledge, skills and creativity were identified as the most valuable assets, fundamental to designing high value goods and services and advanced business practices.

1.3 The White Paper stated "The programme of action announced in the Competitiveness White Paper represents only the first steps in the Government's drive to make the UK a world leader in the digital economy". Intellect believes that this inquiry provides the ideal opportunity to review and refocus the objectives set out within the paper.

2. EXECUTIVE SUMMARY

2.1 The UK is in a critical situation that needs urgent attention. The UK is starting to see a cascade of service jobs following manufacturing offshore.

2.2 After the dot.com "boom and bust" the new economy was seen by some as part of the surrounding hype of eCommerce. However, the impact of the networked world goes much deeper. The UK is facing both opportunities and threats from increasingly globalised markets, the demand for high value services and societal advances facilitated by technology developments.

2.3 The UK must be able to compete within this developing global market place. However, the UK's value proposition is not always competitive when measured against other countries. We are unable to compete on price with low cost production centres such as China, and we are losing our competitive advantage in high value add to countries such as India, USA and Australia. The only option is to raise the bar on the UK proposition.

2.4 Technology is a key enabler of the knowledge driven economy—the power tools of its construction. Technology underpins the tools and processes needed to support a knowledge economy and is fundamental to process and product innovation across all industries and government. But benefits will not be achieved unless technology is implemented with the necessary complementary skills and understanding of change management processes. It is essential to educate policy makers how to best utilise technology to reach knowledge driven economy aims. Regulatory impact assessment must be improved to ensure that technology can be fully exploited to the benefit of UK plc.

2.5 In facing these challenges, Intellect has identified the following as clear objectives and priorities, for Government and Industry, informed by the White Paper and subsequent experience:

2.5.1 The need to articulate a clear Vision for where we would like the UK to be in five years time, based on benchmarking of global best practice (eg The BAH 2002 study) and an objective view of our current strengths and weaknesses.

2.5.2 The development of a policy framework across Government, driven by No.10 and Treasury, to achieve knowledge driven economy aims. To have defined plans, with consensus support, to remedy the identified weaknesses (and reinforce the strengths), comprised of measurable actions against a defined timetable.

2.5.3 To put in place a single Ministerial "owner" of this "big picture" based in The Treasury, charged with programme management of the identified actions. This should be matched by a single owner (eg Intellect or the Information Age partnership) on the industry side.

2.5.4 A prioritised list of challenges to be addressed including:

2.5.4.1 Regulatory framework deficiencies in areas such as planning permission, burdens on business and penalisation of "honest" entrepreneurial failure.

2.5.4.2 Recognising and exploiting the importance of technology as an enabler for the knowledge driven economy.

2.5.4.3 Creating a modern robust national infrastructure including communications, transport and energy.

2.5.4.4 Within the public sector, address the failure to invest in people, training, internal communication, motivation, measurement and reward systems to give real incentives to adopt new working practices mediated by IS investment.

2.5.4.5 Nurturing innovation eg improving poor transformation of research excellence into entrepreneurial success—building on successful private sector approaches such as the recently floated "IP2IPO", addressing lack of adequate fiscal incentives to create intellectual capital (eg Research and Development (R&D) Tax Credits) and exploiting capital intensive manufacturing which will be resistant to off-shore outsourcing.

2.5.4.6 Developing a highly skilled workforce based on the principle of life long learning eg addressing the lack of attractiveness to school children of "hard" subjects such as mathematics and science, which is leading to falling quality and quantity of the University mathematics, engineering and science intakes.

2.5.4.7 Creating the right culture to develop a knowledge driven economy across Industry, Citizens, Government and Academia.

2.6 The White Paper set out 75 actions to take the UK forward. Overall the conclusions within the White Paper and accompanying documents were predictive. Although there were generally good conclusions and aims, there were some unforeseen setbacks (for example, September 11 and the dot.com "boom and bust" inhibiting industry moving forward as expected) and limitations in the action plan.

2.7 Although the conclusions drawn are forward looking the White Paper places responsibility clearly on the Department of Trade and Industry (DTI). In his Foreword the Prime Minister states, "All this is the DTI's role". It appears that some of the missed opportunities stem from limiting responsibility to the DTI and the realm of business, rather than seeing the aims for a competitive UK as a contribution to the state of the nation, wealth and well being of citizens.

2.8 The knowledge driven economy debate is complex and one for which all the answers are not within reach. However, the application of some basic fundamentals are critical to prepare the UK to move forward. These fundamentals are generally agreed upon by stakeholders and are also contained within Government policy.

2.9 In implementing these basic building blocks there are lessons to be learned from hindsight. The UK must go through a process of change, which must be managed effectively. Common sense good practice must apply. The project must be pushed through top down, critical stakeholders must have buy in, there must be clear, measurable and achievable targets, and in an environment of constant change, the project must be flexible and framed within a cycle of implement, review and adapt.

2.10 Intellect is a key stakeholder within the formulation of a UK knowledge driven economy. Intellect has and will continue to offer its expertise, knowledge and good practice to work in partnership with Government to achieve this goal.

3. WHERE ARE WE NOW?

3.1 How has the UK succeeded in meeting the challenges as set out in the white paper? The 1998 White Paper benchmarked the UK's position against USA, Germany, France and other competitors. By looking at some current benchmarking we can draw conclusions on how the UK has fared over the intervening five years.

3.2 Oftel's latest consumer research and benchmarking study into Internet services in the UK October 2003 are positive, showing considerable recent growth in Internet broadband uptake. However, looking at the Booz Allen Hamilton 2002 Report "International e-economy benchmarking—The World's Most Effective Policies for the E-Economy", which is perhaps still the most comprehensive benchmarking study on this subject currently available, there are areas for UK improvement. The study benchmarked the UK against Australia, Canada, France, Germany, Italy, Japan, Sweden and USA. The report's "Executive Summary" states:

— The UK has the second best environment for eCommerce amongst the benchmark group of nine countries.

— Assessed against the quantitative multi-indicator benchmarking framework designed for the Information Age Partnership, Booz Allen Hamilton and INSEAD, the UK has not yet reached its target of being the best environment for eCommerce, but has made substantial progress since 1998 when the target was set.

— The UK has many environmental strengths, although these have not yet been translated into high levels of uptake and use of the Internet.

— The UK's relative strengths are in its Market and Political Environments, Business and the Government Readiness for eCommerce.

— Its relative weaknesses are in Citizen Uptake, Government Uptake and to a lesser extent in Infrastructure.

3.3 Over the last five years, UK productivity has been consistently lower than that of our major competitors—France, Germany and the US—with whom we have a persistent productivity gap of at least 20%. The UK, although a centre for scientific excellence, under performs in translating that excellence into profitable products and processes.

3.4 The UK also has long-term weakness in the level of human capital. Despite recent improvements in schooling, the UK has a smaller proportion of workers with basic and intermediate skills than France and Germany.

3.5 Whilst making progress over the intervening five years, the UK has not yet reached the position of competitiveness and prosperity that is desired and does not have the vital factors in place to reverse this trend. Further benchmarking information can be found in Annex A.

3.6 Intellect has drawn the following conclusions on the 1998 White Paper and its contribution towards the UK as a knowledge driven economy:

3.7 The conclusions in the 1998 White Paper were predictive and forward looking

3.7.1 The 1998 White Paper states; "In the global economy, capital is mobile, technology spreads quickly and goods can be made in low cost countries and shipped to developed markets. British business therefore has to compete by exploiting capabilities which competitors find hard to imitate. The UK's distinctive capabilities are not raw materials, land or cheap labour. They must be our knowledge, skills and creativity."

3.7.2 If the word "services" is inserted after "goods", the analysis stands up today.

3.8 Policy to date has not supported the realisation of growth, productivity and competitiveness to the extent needed to face the challenge of UK within a knowledge driven economy

3.8.1 Five years ago in the White Paper " Our Competitive Future: Building the Knowledge Driven Economy" carried the aim "to close the performance gap between the UK and other major trading nations".

3.8.2 The DTI Strategy (2003) states "Productivity is the most crucial factor in securing long-term growth in living standards. UK productivity has been consistently lower than that of our major competitors—France, Germany and the US—with whom we have a persistent productivity gap of at least 20%. . . .Our [DTI's] job is to help create the conditions for sustainable business success-promoting competition and enterprise; setting standards for workplaces and products; fostering science, technology and innovation; raising skills; and building powerful leadership in the nations and regions of the UK."

3.8.3 The performance gap has not been closed. Good infrastructure, technology to enable competitive development of processes, innovation and a highly skilled workforce in a stable civil environment are all essential to succeed within the global economy. Benchmarking shows the UK has not reached a position to excel in these areas against competitors.

3.9 Predictions of the effect of eEnabling were prescient but the extent and speed of integration and its subsequent impact was not fully envisaged

3.9.1 In the paper "Competitive Advantage in the Digital Economy" the then Secretary of State's Foreword iterates "Digital technologies are a key enabler of a modern, knowledge driven economy". The Digital Economy paper accompanying the White Paper outlines the importance of the "transformation impact which information and communication technologies (ICT's) are having on every single aspect of business activity". The paper states "The speed of adoption into general use of the Internet is unprecedented. By the end of 1997 there were more than 100 million users world wide" with electronic commerce "Currently worth around $12 billion worldwide, most experts forecast the value of eCommerce to grow to $350-500 billion by 2002".

3.9.2 In 2003 Nua[57] stated, "Over half a billion people worldwide now have Internet access, according to new research from Nielsen-Netratings"[58] and "eMarketer predicts that worldwide B2B eCommerce revenues will surpass USD1.4 trillion by the end of 2003"[59]. IMRG[60] reported UK consumers spent over £1 billion online in October 2003, with sales 50% up last year. A £3.3bn "e-Christmas" is predicted[61].

3.9.3 The predictions of the impact of market organisation by eCommerce made within the Digital Economy paper have been realised, but the extent and speed of integration into the day to day was not totally envisaged. The whole business and civil infrastructure of the developed world is now reliant on ICT. Although there was demonstration of understanding of the benefits of ICT, there has been a lack of cross government focus, understanding, speed and flexibility in policy creation and implementation to create the right environment for the UK to exploit it.

3.10 The challenges recognised in 1998 are still facing the UK today

3.10.1 Five years ago the White Paper recognised that "nations across the world are becoming progressively more sophisticated and well educated. All markets increasingly demand innovative and higher quality products and services."

3.10.2 The 2003 DTI Strategy echoes this stating, "newly industrialising countries with low wage costs are competing successfully—not just in traditional industries but in the latest service technologies such as call centres. Developed economies the world over are looking to become more innovative.". Whilst this challenge was recognised five years ago, we must now re-examine the prioritisation given within public policy to meeting such challenges.

3.11 Many of the conclusions drawn in 1998 have been re-identified five years on

3.11.1 The 1998 White Paper identified actions to ensure UK competitiveness within a knowledge driven economy. It appears many of these actions have recently been `re-identified' in current government consultations, strategies and research, including the following:

— "UK Competitiveness: Moving to the next stage" DTI (2003)

— "21st Century Skills—Realising Our Potential" Department for Education and Skills (DfES) (2003)

— "Lambert Review of Business-University collaboration" HM Treasury (2003)

— "Prosperity for All" DTI Strategy (2003)

— "Efficiency Review" HM Treasury and Cabinet Office (2003)

— "Innovation Review" DTI (2003) (The Review is being progressed in conjunction with the emerging DTI Departmental Strategy, the Business Support Transformation process and HM Treasury's Lambert Review of Business-University collaboration).

3.11.2 It is noted that although referential to the 1998 White Paper in content, the DTI Strategy (2003) "Prosperity for All" does not reference the paper within the bibliography. This only serves to emphasise the re-identification problem referred to above.

3.12 The 1998 White Paper lacked prioritisation and failed to create a framework for policy rollout

3.12.1 The 1998 White Paper omits to focus on prioritisation and roll out of the aims set within it. The action to create a prioritised policy framework on which to build a knowledge driven economy within the UK is absent. The White Paper was created from within the DTI, a single Government department. This inhibited the success against a challenge facing every part of UK society.

3.13 UK must now fully realise the benefits of technology as an enabler of a knowledge driven economy whilst ensuring understanding of its limitations

3.13.1 After the dot.com "boom and bust" the ICT industry suffered from the "cry wolf" syndrome. Market expectations had been raised so high that when they failed to materialise, it was hailed as "the end of eCommerce". eCommerce was viewed as a short-term money making venture, rather than the tip of the iceberg in a long-term evolution. This reaction against technology enabled change has been heightened by a risk averse society and the view of the IT industry as over promising and under delivering (the "snake oil" effect). This has perhaps been the context behind our inability to capitalise on the opportunities before us, our lack of investment in training, innovation and infrastructure.

3.13.2 The White Paper asks—"Electronic commerce—opportunity or threat?" stating "if a business cannot bring itself to see this technology as an opportunity, it must see it as a threat. Businesses, which fail to apply ICT's across their business processes, will find themselves operating at a significant cost disadvantage to their competitors. And businesses which fail to embrace e-commerce will increasingly find their customer base slipping away." The same analysis applied here to businesses is also true of nation states. If not exploited as an opportunity, other nations competing in the global market will, turning it into a threat.

3.13.3 The Digital Economy paper recognises that "The UK's IT, electronics communication and content industries are an important and thriving part of the economy". Intellect urges that it is important to recognise that these "digital industries" are not only a sector in their own right, but need to be recognised as a facilitator for increased productivity and innovation across all industries and government. It is necessary to educate policy to recognise this and to create an understanding of regulatory impact to ensure that technology can be fully exploited to the benefit of UK plc.

3.14 Policy development requires improved regulatory impact assessment against the aim of the UK as a knowledge driven economy.

3.14.1 Intellect believes there have been errors in developing policies in a way that is supportive of increasing UK's competitiveness within a knowledge driven economy. Policies have not been prioritised strategically, there is not enough buy-in to knowledge economy goals across government departments and there has been insufficient top down push.

3.14.2 The UK needs policies with an ideology supportive of a knowledge driven economy, rather than legislation created in "stove pipe" isolation which impacts across society and inhibits achieving a competitive UK in a global market.

4. THE WAY FORWARD "BUILDING THE KNOWLEDGE DRIVEN ECONOMY"

4.1 Intellect has identified the following clear objectives and priorities for Government and Industry, informed by the 1998 White Paper and subsequent experience.

4.2 The need to articulate a clear Vision for where we would like the UK to be in five years time, based on benchmarking of global best practice (eg The Booz Allen Hamilton 2002 study) and an objective view of our current strengths and weaknesses.

4.2.1 A clear vision is needed to ensure focus, direction and a co-ordinated approach. In taking this forward Intellect's approach has been to create an overarching work programme in the form of the Campaign "Technology—Enabling the Knowledge Driven Economy"[62] to develop an industry vision and to work with Government to create a partnership approach in order to move the UK forward towards a knowledge driven economy.

4.3 The development of a policy framework across Government, driven by No.10 and Treasury, to achieve knowledge driven economy aims. To have defined plans, with consensus support, to remedy the identified weaknesses (and reinforce the strengths), comprised of measurable actions against a defined timetable.

4.3.1 It is essential that polices are developed within a framework that is supportive of the knowledge driven economy. Intellect recommends that Government:

— Develops an overarching policy framework for the knowledge economy.

— Promotes policy development that supports long term goals for UK—forward looking rather than reactive policies.

— Devises incentives and measurement for departmental and regulatory success determined on outcome based policy related to the goals of a Knowledge Driven Economy.

— Increases dialogue between stakeholders and promotes the development of mature relationships with a trusted, open and honest culture.

— Reviews the regulatory regime and takes forward measures to increase flexibility and agility in response to rapidly changing markets.

— Improves metrics for policy development in line with the needs of a knowledge driven economy.

4.3.2 Government is still making policy factored on an asset-based economy. Intellect believes that metrics are key to measuring UK's success towards a knowledge driven economy and for predicting regulatory impact, which could then be used to improve policy development.

4.3.3 Metrics used today for measuring productivity and growth are often based on measuring a factor driven economy rather than progress towards a knowledge driven economy. For example, how far do we go towards measuring the impact of services? Intellect recommends an improvement of metrics used for policy development in line with the needs of today's global economy and the move towards a knowledge driven economy.

4.4 To put in place a single Ministerial "owner" of this "big picture", based in the Treasury, charged with programme management of the identified actions. This should be matched by a single owner (eg Intellect or the Information Age partnership) on the industry side

4.4.1 Intellect calls for a Minister with sole responsibility for the knowledge driven economy. The e-Envoy's Office was created to drive the digital agenda. Though having achieved much, it has not been successful in its envisaged role. From an outside perspective several issues can be pinpointed as contributions, namely:

— Insufficient authority—supported from within DTI rather than Treasury and No 10.

— Unclear objectives—the e-Envoy's office has been through many guises with changing objectives. It has not been clear whether the role of the e-Envoy's office was to champion eCommerce, to educate internal departments on the digital economy or to ensure Government met its 2002 and 2005 targets of online service delivery. Externally there was an unexplained overlap between the e-Envoy's office, OGC, UK online for business and the Minister for eBusiness and Competitiveness.

— Growth of office from small "hit squad" to a team of over 200 with accompanying bureaucracy.

— Many within Government not buying into an overall "knowledge driven economy" strategy or not understanding implications, scope of technology, limitations, impact on society, etc, and therefore not being as supportive as perhaps necessary.

4.4.2 The imminent departure of Andrew Pinder provides a clear opportunity to revisit the role and objectives of the e-Envoy's office and to create a single Ministerial role. The future of UK competitiveness is dependent on effective Government co-ordination. It is imperative to create a role, which has the authority to ensure a joined up approach and to provide an overview of Government policy.

4.5 To address regulatory framework deficiencies in areas such as planning permission, burdens on business and penalisation of "honest" entrepreneurial failure

4.5.1 The 1998 White Paper sets out an ambitious goal, "to create in the UK the best environment in the world for electronic trading by 2002" in reaction to the recognition that "success in the digital economy. . . will be critical to the competitiveness of UK business in the next century".

4.5.2 The White Paper recognised "Excessive or poorly conceived regulation means higher costs, less choice and fewer jobs" and responded by setting up "the independent Better Regulation Task Force which is looking at the impact of regulation on productivity" and "introduced stringent requirements before new regulations can be made. These include: full assessment of the risks, costs and benefits and environmental impact; consultation with all those who might be affected and consideration of alternative approaches".

4.5.3 Intellect supports the White Paper's aim, but believes that the Better Regulation Task Force and the process of regulatory impact assessment has not been fully successful in terms of supporting a technology enabled knowledge driven economy within the UK. The following are examples of where regulation or policy is viewed by Intellect members as negatively impacting UK competitiveness.

4.5.4 Anti-Terrorism Crime and Security Act (ATCSA)

The hi-tech industries fully support the need to fight terrorism. However this legislation places undue burden, cost, and liability on industry—preventing competitiveness. This goes against reassurances made to industry in 2001 that the ATCSA would not place cost or technical burden on industry to the point of inhibiting competitiveness. No business case has been put forward by Government to Industry in terms of return on investment and value of data retention. There is a high risk of negative impact on customers—in terms of cost, increased citizen's privacy concerns and a drop in trust and confidence in electronic services.

4.5.5 Executive Pensions Capping

Pension capping will effectively lead to a decapitation of knowledge economy companies in the UK. This regulation provides entire leadership teams an incentive to resign collectively, as if they retire one day after the legislation has been enacted they will lose money. Hi-tech, high risk investors in support of a knowledge driven economy will build up a pension fund of greater than £1.4 million and so the new regulation will act as a disincentive to invest in the UK. This will undermine the business case for investment in the UK. The long term impact of the legislation will not only affect the basing of high quality, highly paid executives within the UK, but also the future recruitment of local support staff.

4.5.6 Allocation of Ministerial Responsibilities

The responsibility for competitiveness and the realisation of the UK as a knowledge driven economy is spread over Ministers who are not in the Cabinet. This creates a fragmented approach to programme management with a lack of senior responsibility and ownership.

4.5.7 Planning Policy Guidance 13 (PPG 13)

Companies offering flexible working, which supports positive recruitment based on talent, not gender or domestic circumstances, can save office space whilst not reducing the amount of people working within it. PPG 13 relates car parking to office space and does not take into account flexible working practices, particularly prevalent in hi-tech industries. The planning policy assumes outmoded working models and frustrates the adoption of modern working practices.

4.5.8 Proposed Traffic Management Bill

A number of the proposals under discussion, such as the additional requirement for utilities to resurface the whole or half of any road where they have worked, would add significant costs to the provision of new communications networks. These additional costs could undermine the business case for wider broadband deployment. Intellect is also concerned that local and regional authorities may not realise the down stream impact that their legitimate attempts to minimise transport disruption could have on their own strategies to attract and retain knowledge-based industries, which rely heavily on the telecommunications infrastructure.

4.5.9 Policy created without a true understanding of regulatory impact has the potential to seriously damage the UK's competitiveness and impede UK plc in its drive to become a knowledge driven economy.

Intellect calls for this process of regulatory impact assessment to be reviewed and improved in line with the requirements to realise the knowledge driven economy vision.

4.6 To recognise the importance of technology and exploit it as an enabler for the knowledge driven economy

4.6.1 ICT is fundamental to the evolution of UK plc as a knowledge driven economy and to its aim of being a leader within the global market. UK plc must now fully realise the benefits of technology as an enabler of a knowledge driven economy whilst ensuring understanding of its limitations.

4.6.2 Use of technology within the UK has the opportunity to be a unique value proposition and create a differentiator for UK plc, not only for the UK hi-tech Industry, but also for all UK industries effectively utilising technology. Intellect calls on Government to develop an environment across the Industry, Citizen, Government and Academic communities conducive to the take up and exploitation of technology as an enabler of socio economic growth and stability.

4.6.3 To date, the UK has never had a technology strategy. Intellect understands one is being created as a result of the DTI's Innovation review. Intellect would welcome the chance to review the forthcoming technology strategy. Intellect believes that for this strategy to be successful it has to be backed by real resource and be supported by the aim of exploiting technology to create innovations, not just inventions.

4.7 To create a modern robust national infrastructure including communications, transport and energy

4.7.1 The UK cannot possibly be competitive in a global economy without a fully functioning accessible national infrastructure.

4.7.2 The White Paper saw the UK's early lead in introducing competition to the communications market as playing a key role in developing what was then seen as a "world-class ICT infrastructure". It stated that the Government is committed to keeping up to date the regulatory framework for telecommunications and broadcasting.

4.7.3 Intellect recognises that the process of communications regulatory reform, through the creation of Ofcom, is at its formative stage. Intellect is optimistic that the key issues that were being taken forward by the individual organisations will be continued within Ofcom and there will be no net loss of focus from the ICT industry. Intellect is working to develop a partnership approach with Ofcom.

4.7.4 As was seen from the benchmarking, the UK's communications infrastructure is now behind some that it once led against, for example, Japan. It is recognised that having a communications infrastructure that is accessible and affordable is key to UK's success within the "knowledge driven economy". Without this it inhibits flexible working, cross society inclusion, ability to trade globally, development of clusters, innovation and so on.

4.7.5 Intellect supports the conclusions drawn within the White Paper on communications infrastructure. Broadband is today's equivalent of the development of roads, canals and trains. If we want UK plc to support knowledge workers and compete in the global market, broadband is essential. Global companies choose to place their investment where there are supportive networks. The UK risks losing out to other countries with a higher standard of infrastructure with the ability to compete faster and better than the UK.

4.7.6 It is not enough to deliver an accessible and affordable communications infrastructure; the environment has to be right to encourage take up and full exploitation.

4.7.7 Intellect is placing concerted resources into moving the broadband issue forward. Intellect's approach has been to develop the "Broadband Britain"[63] Campaign. Its objective is to advise the Government via the Broadband Stakeholders Group on the development and implementation of a strategy to enable the UK to meet the Government's target to have the most extensive and competitive broadband market in the G7 by 2005.

4.7.8 The UK Government, in all of its forms, represents a significant proportion of GDP. The public sector is the single largest player in the economic activity of the country and can play a major role as user of broadband. If the UK is to reach 100% broadband availability to all communities by the end of 2005, decisions will need to be made as to which model of public sector intervention is most suitable to do that. Intellect recommends that Government continue to work with industry to ensure that we have the right regulatory framework and incentives to invest in such networks.

4.7.9 Intellect believes that the rollout of Digital Television should be seen in the context of convergence and contributing to the upgrading of the UK communications infrastructure. Intellect's "Digital TV Uptake"[64] Campaign aims to accelerate the take-up of digital television in the UK and enable the UK to achieve digital switchover by 2010. However, if the Government wishes to achieve Digital Switchover by 2010 they will need to set out a clear timetable and demonstrate a firm commitment to that timetable. The current partnership of Government and Industry in the Digital Television Action Plan Project needs to be adapted to manage and drive through the implementation of the Project to achieve Switchover on schedule.

4.8 Within the public sector, address the failure to invest in people, training, internal communication, motivation, measurement and reward systems to give real incentives to adopt new working practices mediated by Information Systems investment

4.8.1 A successful nation state relies on public services, which are delivered effectively and efficiently. Without these the development of a strong economic base is seriously and potentially fatally undermined. For example, successful healthcare and education systems can provide a stable societal platform upon which to build economic growth.

4.8.2 Within the procurement process there are a number of problems, which inhibit the procurement and implementation of successful ICT projects in the public sector. These include, the capability and capacity of the market, earlier supplier involvement in the procurement process and cultural change being undertaken in both the public and private sectors. Successful IT implementation does not stop at the procurement of the equipment. There needs to be understanding, and action resulting from that understanding, of the full implications of ICT as a change management project. Without allocating resources for system implementation, data integration, business process re-engineering etc and a true focus on the people issues, including training and adoption of new working practices, the full benefits of technology implementation will not be reaped.

4.8.3 The OGC continues to look at measures to improve Government's performance as a customer, with Intellect taking a lead in addressing the issues pivotal to improving supplier performance. Industry needs to demonstrate to Government that it takes the concerns of its customers seriously and is able to address them effectively. Intellect's Campaign "Delivering IT to the Public Services"[65] sets out to address these issues with the aim "To re-establish the IT industry as a valued and trusted partner to Government customers." During the last two years, OGC has taken the lead in implementing policies, which are intended to reform Government's performance as a customer, such as the Gateway Review Process and Project and Programme Management Centres of Excellence. However these will take time to embed and will require a step change in the cultural environment within Government for these to be accepted.

4.9 Nurturing innovation eg improving poor transformation of research excellence into entrepreneurial success—building on successful private sector approaches such as the recently floated "IP2IPO", addressing the lack of adequate fiscal incentives to create intellectual capital (eg R&D Tax Credits) and exploiting capital intensive manufacturing which will be resistant to offshore outsourcing

4.9.1 Innovation is key to competitiveness. The White Paper states "Entrepreneurship and innovation are central to the creative process in the economy and to promoting growth, increasing productivity and creating jobs". However, the actions carried forward from the White Paper have not been successful in strengthening Britain's capacity for innovation and entrepreneurship to the extent needed.

4.9.2 Despite Britain's proven success in inventions, we have failed to capitalise on them through ongoing innovation. £8 billion of British ideas leave the country annually to be exploited overseas because UK companies are unwilling to adopt new ideas. Furthermore, CEOs currently have no driver to invest in R&D, normally being rewarded on yearly results rather than for any long-term return. This results in the UK being one of the few economies where business spending on R&D has decreased relative to GDP over the last decade.

4.9.3 There needs to be an examination of regulation surrounding enterprise and innovation followed by removal of any regulatory burden impairing UK business investment. The UK also needs to focus on innovation rather than inventions, ensuring that the UK can harness knowledge from around the world and use it to best advantage. There is a disproportionate investment in pure science rather than applied science by comparison with other countries.

4.9.4 In tackling these challenges Intellect's approach has been to focus on the following three areas.

4.9.4.1 Intellect has created the Campaign "Nurturing Growth—R&D Tax Credits"[66] addressing the lack of adequate fiscal incentives to create intellectual capital. Intellect's objective is to achieve a materially effective R&D tax credit for our industry and is lobbying to create clear, practical, definitions of what qualifies under the credit. Intellect is calling for Government to raise the effective value to 10% to attract R&D to the UK.

4.9.4.2 Secondly, Intellect has developed the Campaign "A New Shape for the Electronics Industry"[67] in facing the challenge of exploiting capital intensive manufacturing within the UK. Intellect has actively and successfully encouraged the government (DTI) to form an Electronics Innovation Growth Team (eIGT) to identify the challenges and opportunities available to the UK electronics industry over the next three to seven years. Intellect calls for Government to fully support the resulting eIGT findings after July 2004 when as is likely the real campaign work will begin as a function of the roadmapping.

4.9.4.3 Thirdly, in September 2003 the Board of Intellect approved a dedicated campaign, "Driving UK SME Growth in the Global Economy"[68]. SME's are increasingly becoming the engine room of the UK economy as well as a critical source of innovation which enhances our competitiveness. However, it is evident that UK ICT SME's are ill equipped to take advantage of the opportunities and defend themselves from the competitive threats presented by the global economy. Intellect's Campaign aims to address the problem at a policy level and at a practical level. Intellect would like to see government working with industry to provide the right level of incentive and support in place to overcome the real and perceived barriers to international success.

4.10 To develop a highly skilled workforce based on the principle of life long learning eg addressing the lack of attractiveness to school children of "hard" subjects such as mathematics and science, currently leading to falling quality and quantity of the University mathematics, engineering and science intakes

4.10.1 In order to sustain and increase the skills level within UK there is a requirement for life long learning in regard to job training and workplace systems. Without a solid educational grounding supported by life skills, UK citizens will not be able to rise to the challenge of creating a knowledge driven economy. Whilst outside of the direct scope and influence of Intellect members, the educational system is key to delivering the UK's knowledge driven economy. Industry recognises the importance of quality education at all stages.

4.10.2 There has to be recognition that the UK is suffering short and long term skills requirements and that these have to be addressed in different ways. In the longer term we need to address the issue of developing a highly skilled flexible workforce, whist we are also facing short term shortfalls that need more instantaneous solutions.

4.10.3 We are living in an environment of continuous change. Children are growing up in an environment which will be sizably different when they become part of the workforce. We need to recognise that success will be based on the ability to assimilate new skills and gain tacit knowledge. Specific skills will be needed for short term benefit, yet people will need to be taught to expect to learn continuously throughout their lives.

4.10.4 Following the need for updated skill sets, there needs to be a focus on developing appropriate vocational training. Supporting the recommendations within the DfES's 21st Century Skills Strategy, more work should be done to promote different types of education specific to the needs of today's environment—such as modern apprenticeships in partnership with business. This ensures that university degrees are not the panacea and value must be seen in a wider range of qualifications.

4.10.5 Individual Learning Accounts (ILA's) were designed to "encourage people to invest in their development through learning." [69]The system supporting ILA's failed to work. What incentive is there for business to invest in training? Many businesses are focused on short-term gains; there is a worry that in the current climate, companies that invest in skills will loose their investment to other companies.

4.10.6 Intellect offers three specific recommendations for moving forward. Firstly, to ensure that ICT skills are embedded in teaching, moving computers out of the computer room. Secondly, to offer more technician level training in ICT whilst making it easily available to all groups, not just the young or the unemployed. Thirdly, to create an environment to encourage business to invest in training eg a fiscal incentive for business training.

4.11 To create the right culture to develop a knowledge driven economy across Industry, Citizens, Government and Academia

4.11.1 Successful implementation of any change project requires buy in from all stakeholders. Cultural acceptance and "soft issues", such as entrepreneurism, removing fear of failure and trust and confidence, are as critical to UK competitiveness as having, say, the right communications infrastructure.

4.11.2 The White Paper correctly identified that business take up of ICT is key to UK's ability to compete within the global economy. It set out actions to promote take up in SME's and to invest some 20 million extra over three years. The identified actions were directed at promoting business take up at a local level. There seems to be little emphasis on a prioritised policy framework across local government, RDA's and business intermediaries to roll out these actions. Nor does there appear to be a process to describe how these actions will be rolled out.

4.11.3 The White Paper recognises that digital technology "is the nerve system of the knowledge driven economy" increasing our ability to share information. It recognises that it is not enough for business "simply to collect information. It has to use it effectively to raise productivity, develop new products and processes and service customers more intelligently." This often demands a new set of skills and cultural attitude for businesses, especially as systems become more complex. Research currently being undertaken by Intellect with the Universities of Sussex and Brighton indicates that users need access to education on:

— How to procure and implement processes to best exploit new technologies.

— To understand their own needs.

— Understand scope and limitations of technology.

— Business change management.

— Policy and governance including security and adhering to legislation.

4.11.4 Business is not alone in facing these cultural challenges, as they also affect Citizens, Government and Academia.

4.11.5 The White Paper recognised that trust and confidence in eCommerce and the digital environment is key to success. Five years on, this issue has become essential as business, citizen and society structures are underpinned by technology and the networked world.

4.11.6 Privacy is a very sensitive subject within today's societies and is of great importance within the British culture. Consumers are increasingly concerned with what data is stored and for what purposes. If their concerns are not addressed it could threaten consumer confidence in electronic services, impair the growth of the eMarket and inhibit the take up of eGovernment.

4.11.7 One of the main underlying issues is to ensure trust in future IT systems. To do this there must be buy-in from users. Often this is seen in terms of whether the process gives an adequate return on investment—examples where there are areas of contention include RIPA (Regulation of Investigatory Powers Act), ATCSA, Entitlement Cards, Government cross department sharing of data—are seen as not providing return on investment. Conversely you can compare these to systems such as to the London Transport Oyster card, or loyalty cards, such as the Nectar Card, where citizens see the benefit and are therefore accepted.

4.11.8 Industry and Government are working to improve trust and confidence in eServices, and Intellect has acted to facilitate this work. However, Intellect believes Government could act as a leader in this area, becoming a role model for security issues. For example, by adherence to the information security management standard BS ISO/IEC 17799.

5. ANNEX A: BENCHMARKING

5.1 How has the UK succeeded in meeting the challenges as set out in the White Paper? The 1998 White Paper benchmarked the UK's position against USA, Germany, France and other competitors. By looking at some current benchmarking we can draw conclusions on how the UK has faired over the intervening five years.

5.2 Terrestrial broadband services are now available to 80% of UK households with 18% of UK homes and 34% of SMEs connected to the Internet using broadband[70]. Oftel's latest consumer research and benchmarking study into Internet services in the UK released in October 2003 is positive, showing considerable recent growth in Internet broadband uptake. The main findings were as follows:

— 12.5 million UK households are online.

— Approximately one million Internet customers are likely to upgrade to broadband over the coming year.

— Of the European countries surveyed, UK prices for dial-up Internet access are the cheapest, with prices for residential broadband access lower than the European average.

— Of the countries surveyed the UK offers the widest availability of unmetered services.

5.3 However, looking at the Booz Allen Hamilton 2002 Report "International e-economy benchmarking—The World's Most Effective Policies for the E-Economy", which is perhaps still the most comprehensive benchmarking study on this subject currently available, there are areas for UK improvement. The study benchmarked the UK against Australia, Canada, France, Germany, Italy, Japan, Sweden and USA. Although the UK has the second best environment for eCommerce against a benchmark group of nine countries, these strengths have yet to be translated into high levels of uptake and use of the Internet.

5.4 The UK fails to meet benchmarks set by USA, Sweden and Canada in terms of readiness, uptake and impact in citizen, business or government "e-maturity" where UK ranks 4th (citizen), 4th (business), 5th (government) respectively.

5.5 The report shows that the UK has relative strengths in its market and political environments and business and government readiness. However, the UK is weak in terms of citizen and government uptake and infrastructure. The UK is failing to translate the environment into uptake. For example, UK Government has set 2005 eGovernment Targets on delivery, rather than on their usage. There has been an insufficient emphasis on services being designed to fit user needs in the rush to get services up online.

5.6 The report shows UK Broadband availability remains behind world leading levels. (July 2002—all broadband technologies): UK 67%[71] Canada 80% Germany and Sweden 90%.

5.7 Access devices are expensive in the UK, around 10-15% higher than the benchmarked group. Household PC penetration is low: UK 43%, Canada 55%, Sweden 64%. Sweden's high PC penetration is projected to be linked to their PC tax reform of 1998, which boosted PC penetration by 20% allowing all employees to buy PC's tax free from employers (who received tax relief for the purchase). The UK's Home Computer Initiative (HCI) scheme has failed to make a similar impact and is currently being reviewed by the e-Envoy's Office. Take-up of HCI schemes in the UK has been limited. Evidence indicates that this is due to low awareness of the tax exemption and a lack of knowledge on the part of employers about how to administer and implement schemes.

5.8 Population with access to household Internet is behind other benchmarked countries: UK 49% USA 61% Sweden 67%. UK Household Internet users spend almost half frequency and duration of users of the Internet in USA and Sweden.

5.9 The proportion of UK businesses buying and selling online is lower than proportions in leading countries: (Businesses buying online) UK 33%, Canada 46%, USA 54%. The UK is threatened by competitors in areas where previous strength was shown. The proportion of businesses buying online has declined in the UK whilst remaining steady in Germany and growing in Japan.

5.10 The UK does not measure up against the leading competitors in terms of Government structure. USA and Canada both have the e-agenda driven by an organisation in the Treasury/Minister of Finance with budgetary powers. Relatively few UK citizens use the eGoverment services—neither the services nor the culture to take them up are developed: UK 11%, USA 34%, Canada 46%. The UK does have the Information Age Partnership, chaired by Patricia Hewitt, which aims to bring Industry and Government together with the objective to make the UK the best place to do eBusiness. However there are weaknesses in the UK structure for driving the e-agenda, for example; the e-envoy's office has multiple focuses, Stephen Timms has a multiple portfolio, and policy is created within departments with no process for regulatory impact assessment against a knowledge driven economy.

5.11 The "Digital Economy" paper which supported the 1998 White Paper asked, "What can Government and business do in the UK to ensure that we continue to grow faster, and leap frog ahead of the US and Japan?". Over the last five years, the UK has stayed behind the US in terms of internet penetration, use of Internet and productivity. The UK has fallen behind in terms of innovation and productivity compared with France and Germany. UK's development has progressed, but at a rate meaning that countries that were not in the UK's sights in 1998, such as Sweden, Australia and Japan, have leapfrogged ahead of the UK in certain key areas.

5.12 The "Digital Economy" paper stated, "The broad picture which emerges. . . is one which shows the UK behind, but catching up with, the world leaders.". "Since the turn of the century the UK has been in relative economic decline. Our growth rate has been below the US and other leading European economies. Our productivity is 20-40% behind these countries and the gap with France and Germany is not closing. The challenge is to close the performance gap and enhance prosperity. " These quotes could have been written in 2003. The DTI Strategy written in 2003 states "UK productivity has been consistently lower than that of our major competitors—France, Germany and the US—with whom we have a persistent productivity gap of at least 20%."

5.13 The DTI study "UK Competitiveness: moving to the next stage" (2003) shows the poor level of R&D spend relative to the UK's main competitors. The UK is one of the few economies in which business spending on R&D has decreased relative to Gross Domestic Productivity (GDP) over the past decade and the DTI Strategy Analysis (2003) highlights how, although the UK is a centre for scientific excellence, the "UK under performs in its ability to translate that scientific excellence into profitable products and processes. "

5.14 The DTI Strategy Analysis (2003) also highlights the UK's skills issue "The UK also has long term weakness in the level of human capital. Despite recent improvements in schooling, the UK has a smaller proportion of workers with basic and intermediate skills than France and Germany. " The recent DfES report "21st Century Skills: Realising Our Potential" (2003) also notes the particular skills gaps in "basic skills for employability, including literacy, numeracy and the use of IT; intermediate skills at apprenticeship, technician, higher craft and associate professional level; mathematics; and management and leadership. "

5.15 The benchmarking shows that, whilst making progress over the intervening years, the UK has not yet reached the position of competitiveness and prosperity that is desired.

6. ANNEX B: INTELLECT CAMPAIGNS—MEETING THE CHALLENGES

6.1 In an increasingly global market the 1998 White Paper identified challenges that the UK faced in improving competitiveness and economic growth. The OECD states, "all the evidence suggests that ICT remains a major positive dynamic force in OECD countries"[72]. It cites three main areas in which ICT affects economic growth; through production, through investment, and through increased efficiency and innovation. Intellect, in representing the information technology, telecommunications and electronics industries, is in a unique position to provide guidance and practical assistance on the development and implementation of a knowledge driven economy.

6.2 Recognising this, Intellect has launched seven specific Campaigns over the last two years to help move the UK towards a knowledge driven economy. "Technology—Enabling the UK Knowledge Driven Economy" is Intellect's overarching Campaign and the others all contribute to the knowledge driven economy goal. Intellect's Board, comprising many of the UK's ICT leaders, has chosen these Campaigns. By definition these seven issues are important to the ICT industry and, Intellect believes, the future of UK plc.

6.3 Within this response the Campaigns have been organised under the challenges facing the UK identified within the 1998 White Paper and cited by the Trade and Industry Select Committee Inquiry, namely:

— Increased competition from low-cost economies using new technologies, highly educated and skilled workforces and mobile capital.

— The development of new products, processes and services.

— The introduction of electronic commerce.

— The development of science and knowledge bases to underpin the new technologies available to industry.

6.4 MEETING THE CHALLENGE OF "INCREASED COMPETITION FROM LOW-COST ECONOMIES USING NEW TECHNOLOGIES, HIGHLY EDUCATED AND SKILLED WORKFORCES AND MOBILE CAPITAL"

6.4.1 Technology—Enabling the UK Knowledge Driven Economy

6.4.1.1 The aim of this Campaign is "to develop an industry vision and seek a coherent set of long term Government Policies to realise a knowledge driven economy in the UK". If the UK is to create a knowledge driven economy, based on the provision of competitive high value services and the development of innovative products, it needs a supportive policy framework. There is no overarching policy for the knowledge economy goal. Policy is devised with inadequate impact assessment or by individual departments with specific agendas. The result is regulation that impedes the UK's progress.

6.4.1.2 Intellect is developing a programme to work with the DTI, to lobby No. 10 and the Treasury to:

— Develop an overarching policy framework for the knowledge economy.

— Promote policy development that supports long term goals for UK—forward looking rather than reactive policies.

— Improve metrics for policy development.

6.4.2 Driving UK SME growth in the Global Economy.

6.4.2.1 Implicit in Intellect's Knowledge Economy campaign is the acceptance that we are competing in the global market. The major players in the ICT sector have already invested in adapting their businesses to take advantage of the new opportunities. In contrast it is evident[73] that UK ICT SME's are ill-equipped to take advantage of the same opportunities and defend themselves from the competitive threats presented by the global economy. Yet SME's are increasingly becoming the engine room of the UK economy as well as a critical source of innovation which enhances our competitiveness.

6.4.2.2 In September 2003 the Board of Intellect approved a dedicated campaign, "Driving UK SME Growth in the Global Economy", to address the problem. The campaign operates at two levels. Firstly, at a policy level to ensure that the specific needs of SME's are adequately represented and understood. Secondly, at a practical level through the creation of a set of products and services to provide pragmatic help and guidance to SME's eager to "internationalise" their businesses, focusing on the core areas of knowledge, competence and contacts.

6.4.2.3 For a typical UK ICT SME going international is a high risk exercise. These companies are part of a young industry. Many will have developed their businesses in favourable market conditions with their growth aspirations largely satisfied by domestic demand. Motivation to export has generally been low, but also requisite management skills are generally poor compared to more mature industries. In addition software and services companies' products are a mixture of IP and people skills and go-to-market models can be complex collaborative arrangements.

6.4.2.4 Intellect would like to see government working with industry to provide the right level of incentive and support in place to overcome the real and perceived barriers to international success.

6.4.3 A New Shape for the UK Electronics Industry

6.4.3.1 The objective of this campaign is to address the obvious and serious weaknesses that exist within our industry today. These have resulted from a number of issues, including migration of high volume consumer electronics manufacturing to lower cost countries, the significant downturn experienced in the Telecommunications market and the ongoing reductions of inward investment. The electronics industry is worth £23 billion a year and employs nearly 500,000 people in the UK. Intellect wishes to promote the message that there is a way forward that sustains the Industry and provides growth for the UK in the future.

6.4.3.2 Intellect has actively and successfully encouraged the government (DTI) to form an Electronics Innovation Growth Team (eIGT) to identify the challenges and opportunities available to the UK electronics industry over the next 3—7 years. The eIGT will create a roadmap for the electronics sector concentrating on three key areas namely Innovation, Supply Chain and Sectors and Regions. The eIGT is due to report it's finding in July 2004.

6.4.3.3 Intellect calls for Government to fully support the resulting eIGT findings after July 2004 when, as is likely, the real campaign work will begin as a function of the roadmapping.

6.5 MEETING THE CHALLENGE OF "THE DEVELOPMENT OF NEW PRODUCTS, PROCESSES AND SERVICES"

6.5.1 Delivering IT to the Public Services

6.5.1.1 Intellect's aim within this Campaign is "to re-establish the IT industry as a valued and trusted partner to Government customers."

6.5.1.2 A successful nation state relies on public services, which are delivered effectively and efficiently. Without these the development of a strong economic base is seriously and potentially fatally undermined. For example, successful healthcare and education systems can provide a stable societal platform upon which to build economic growth.

6.5.1.3 Within the procurement process there are a number of problems, which inhibit the procurement and implementation of successful IT projects in the public sector. These include: the capability and capacity of the market; earlier supplier involvement in the procurement process; and cultural change being undertaken in both the public and private sectors.

6.5.1.4 Following reports by Government and Intellect in 2000 focused on improving Government IT Projects the Senior IT Forum was formed. The Forum is jointly sponsored by the Office of Government Commerce (OGC) and Intellect, with an aim to identify and address joint systemic issues that occur in the acquisition and implementation of Government IT-enabled projects.

6.5.1.5 The Forum has launched a series of schemes and products to help enable effective partnering between the public and private sectors.

6.5.1.6 The OGC continues to look at measures to improve Government's performance as a customer, with Intellect taking a lead in addressing the issues pivotal to improving supplier performance. Industry needs to demonstrate to Government that it takes the concerns of its customers seriously and is able to address them effectively. During the last two years, OGC has taken the lead in implementing policies, which are intended to reform Government's performance as a customer, such as the Gateway Review Process and Project and Programme Management Centres of Excellence. However these will take time to embed and will require a step change in the cultural environment within Government for these to be accepted. This, unfortunately, will take time.

6.5.1.7 The work of the Senior IT Forum is now focused on industry's performance as a supplier, developing products such as a Supplier Code of Best Practice and Concept Viability.

6.5.2 DIGITAL TV UPTAKE

6.5.2.1 The objective of the Digital TV Campaign is "to accelerate the take-up of digital television in the UK and enable the UK to achieve digital switchover by 2010".

6.5.2.2 The rollout of Digital Television should be seen in the context of convergence and contributing to the upgrading of the UK communications infrastructure. Digital Television provides a greatly increased choice of channels and services, and allows the viewer to interact, not just watch, by choosing action replays whilst a game continues or selecting an answer to a quiz question. Digital Television can also bring the Internet to households who do not have PCs and allows the user to surf the web, send e-mails and use home shopping, banking and interactive local and national government services.

6.5.2.3 By the end of 2003 12.5 million homes (half the homes) in the UK will be receiving Digital Television. The majority of those homes are subscribing to Pay-TV. It is important to focus on the provision of good quality Free-To-View programmes and a wide choice of affordable receiver equipment—all of which is now coming available. However, if the Government wishes to achieve Digital Switchover by 2010 they will need to set out a clear timetable and demonstrate a firm commitment to that timetable. The current partnership of Government and Industry in the Digital Television Action Plan Project needs to be adapted to manage and drive through the implementation of the Project to achieve Switchover on schedule.

6.6 MEETING THE CHALLENGE OF "THE INTRODUCTION OF ELECTRONIC COMMERCE"

6.6.1 Broadband Britain

6.6.1.1 The objective of Intellect's Broadband Britain Campaign is "to advise the Government via the Broadband Stakeholders Group (BSG) on the development and implementation of a strategy to enable the UK to meet the Government's target to have the most extensive and competitive broadband market in the G7 by 2005".

6.6.1.2 The deployment of mass-market broadband services is still a relatively recent phenomenon and the impact of broadband on economic growth has still to be assessed. Nevertheless, many economists continue to predict significant benefits from the proliferation of broadband networks; it has real potential to accelerate the five key drivers of economic growth: enterprise; innovation; competition; investment and skills.

6.6.1.3 There are several key issues creating barriers to UK's success in rolling out Broadband. The UK needs to continue to accelerate the adoption of broadband services where they are available making them a must have for individuals, business and the public sector. It is critical to include the rest of the country in the broadband journey by ensuring we achieve widespread coverage at affordable prices by the end of 2005. The UK is also facing the challenge of "how do we get to next generation broadband?"

6.6.1.4 Intellect is placing concerted resources into moving the Broadband issue forward, providing the secretariat and policy support to the BSG—Government's key advisory group on promoting the roll-out and take-up of broadband Services.

6.6.1.5 The UK Government, in all of its forms, represents a significant proportion of GDP. It is the single largest player in the economic activity of the country and can play a major role as user of broadband. If the UK is to reach 100% broadband availability to all communities by the end of 2005, decisions will need to be made as to which model of public sector intervention is most suitable to do that. Intellect recommends that Government continue to work with industry to ensure that we have the right regulatory framework and incentives to invest in such networks.

6.7 MEETING THE CHALLENGE OF THE DEVELOPMENT OF SCIENCE AND KNOWLEDGE BASES TO UNDERPIN THE NEW TECHNOLOGIES AVAILABLE TO INDUSTRY.

6.7.1 Nurturing Growth—R&D Tax Credits

6.7.1.1 Intellect's objective is to achieve a materially effective R&D tax credit for our industry.

6.7.1.2 The UK's record of productivity and innovation is very poor compared to our international competitors. R&D performance is a key component of an innovative society and without a strong base of R&D across all sectors we will not build a knowledge economy.

6.7.1.3 As this is written Intellect awaits the results of the latest consultation from the Treasury. The definition of R&D must be clearer and inclusive of engineering based industries and the effective rate must be raised above the "noise level".

6.7.1.4 Following a two year campaign, Intellect welcomed the introduction of the R&D tax credit for large companies in the 2002 budget but has consistently been concerned that the effective rate is not sufficiently high to provide a real incentive to invest in R&D in UK. Intellect has defined this as being "below the noise level".

6.7.1.5 Since the 2002 budget, Intellect has campaigned to ensure optimal implementation of the R&D tax credit for the Intellect industries. Intellect regarded the original definitions of what qualified for the tax credits to be confusing for the industry to understand and too science orientated.

6.7.1.6 Intellect remains very concerned that the Tax Credit only applies to between one half and two thirds of what an R&D decision maker would consider R&D costs. For instance the cost of the R&D facilities as well as the IT infrastructure to support R&D are not included. Over time the Government must raise the effective rate to 10% to attract R&D to the UK.

August 2003

57 Nua.com, the "online source for information on Internet demographics and trends". Back

58 25 February 2003. Back

59 1 April 2003. Back

60 IMRG (Interactive Media in Retail Group) is the "Industry body for global e-retailing formed in 1990" www.imrg.org Back

61 IMRG press release 18 November 2003. Back

62 See Annex B for further Intellect Campaign details. Back

63 See Annex B for further Intellect Campaign details. Back

64 Ibid Back

65 See Annex B for further Intellect Campaign details. Back

66 See Annex B for further Intellect Campaign details. Back

67 Ibid Back