UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 9 8 - i

House of commons

oral EVIDENCE

TAKEN BEFORE THE

Culture, Media and Sport Committee

Support for the Creative Economy

Tuesday 14 MAY 2013

Mr Edward Vaizey MP and Viscount Younger of Leckie

Evidence heard in Public Questions 821 - 905

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Oral Evidence

Taken before the Culture, Media and Sport Committee

on Tuesday 14 May 2013

Members present:

Mr John Whittingdale (Chair)

Mr Ben Bradshaw

Angie Bray

Paul Farrelly

Jim Sheridan

Mr Gerry Sutcliffe

________________

Examination of Witnesses

Witnesses: Mr Edward Vaizey MP, Parliamentary Under-Secretary of State for Culture, Communications and Creative Industries, and Viscount Younger of Leckie, Parliamentary Under-Secretary of State for Intellectual Property, gave evidence.

Q821 Chair: Good morning. This is likely to be the final session of the Committee’s inquiry into support for the creative economy, and I should like to welcome, as our witnesses this morning, the Minister for the Creative Industries, Ed Vaizey, and the Minister for Intellectual Property, Viscount Younger. Jim Sheridan is going to start.

Jim Sheridan: Good morning, Ministers. Can I ask, when it comes to supporting the creative economy, what the Government is doing best but, equally important, what it is doing least well?

Mr Vaizey: I think we are doing a pretty good job on the creative industries. I think it is an area of policy we are getting broadly right. We have, I think, some of the most successful creative industries in the world. Certainly, if you measure it on a per capita basis, they probably are the most successful in the world. One of the things we have done is set up the Creative Industries Council, which brings together the Secretary of State for Business and the Secretary of State for Culture, Media and Sport to meet the industry on a regular basis.

I think the most successful policy intervention has been the continuation of the film tax credit introduced under the last Government, and its extension to high-end television and animation and I hope soon to video games. Broadly speaking, though, I think some of the initiatives in terms of tax-efficient investment, like the EIS scheme and so on, are good for the creative industries. We have tried to focus on skills, encouraging creative apprenticeships and a skills investment fund, IP protection-which my colleague, Lord Younger, would no doubt wish to talk about-and the Technology Strategy Board, as well as bringing together digital catapults. So, the creative industries are quite a wide spectrum of different industries, but I certainly think the screen industries are benefiting very substantially from tax breaks, and other industries benefit from the Government’s stance on issues like skills and IP protection.

Q822 Jim Sheridan: Just on the film tax credit, you will be aware that the Committee visited America last year, and it has proved it is a very popular policy, certainly in America. Viscount, do you have any comment about what we are doing best or not doing?

Viscount Younger of Leckie: Yes, very much so. First, I should say that, having stepped into the role in January, I have had a pretty steep learning curve. My role of course is somewhat broader than Ed’s, in that I cover intellectual property in general, which focuses on patents and trademarks, as well as the important area of copyright. There is a huge amount going on, and you will tell me that there is a huge amount of change going on in the market, particularly looking at the digital markets with the challenges that that brings.

In terms of what we have been doing, I am proud to say that there are a number of successes that I want to explain. We have supported the EU extension of copyright term for music performances. We have been developing an IP education campaign with industry input, as discussed at the Creative Industries Council. We made some changes to the court system, so that small companies can better bring their claims in a small claims court. We are also working more closely with DCMS, which I think is extremely important-which we can talk about later-on tackling online infringement, and yes, I can talk later about enforcement. I am very pleased to say that we are in advanced discussions with the City of London Police about setting up a new IP crime unit.

There is more, but just to say that, in terms of what we can do better, it is simply this: the market and the changes in the marketplace are moving very quickly, and we feel that we need to keep ahead of the game. There are of course, as I have discovered since January, very strong activists and people who have strong views in the world of copyright at both ends of the scale. I see my role as producing the optimum framework for growth. My role is to protect and grow UK companies, but not to protect to the extent that the consumer end is shut down completely, and it is an important balance. There is no easy answer. There is no "yes" or "no". That is a challenge that I am grappling with. I think it is very important, and I will continue to grapple with it.

Q823 Jim Sheridan: Minister, the Secretary of State said recently, "The creative industries have to prove they have got economic worth". Do you think or believe that the arts should be defined purely by their profitability?

Mr Vaizey: I think what the Secretary of State was saying was what he thought the arts sector wanted to hear, which is that we value the intrinsic value of the arts. They are important for their own sake, but I think the arts themselves want people to understand that they also contribute to our economic growth. So, if you are running a large arts organisation it is not just a "nice to have" or a luxury. It is not valuable simply because it is producing great art. It should also be seen as part of the growth story. We have a Government that is very focused on growth, so you have a Secretary of State who wants to argue the case to the Treasury, and to other Ministers, that she represents a sector that contributes importantly to our economic growth.

Q824 Mr Bradshaw: I want to ask Mr Vaizey about those figures, because we have heard a variety of figures from different organisations about the value in percentage terms of the, broadly speaking, creative industries to the UK economy. What figure do you settle on?

Mr Vaizey: For the creative industries as a whole, we tend to focus on a figure of £36 billion GVA. The Arts Council-I do not have the exact figure in front of me-has just published, specifically on the arts, a paper on the economic contribution of the arts, which I think was around the £2 billion to £3 billion mark.

Q825 Mr Bradshaw: What does that GVA figure represent in terms of a percentage of our overall GDP?

Mr Vaizey: I cannot remember off the top of my head, but it is probably around 4% or 5%.

Q826 Mr Bradshaw: It would be really helpful if you could write to us with a figure, because I know from my experience in your shoes under the last Government that when you are making arguments to the Treasury, in the context of the Comprehensive Spending Review, it is incredibly useful for your argument to be able to explain to them how important the creative industries are in terms of their overall contribution to the economy but, also, their potential to deliver growth and jobs.

Mr Vaizey: Yes; well, you filled slightly bigger shoes than mine when you were in office, but that is absolutely right. I think that goes back to what my Secretary of State, Maria Miller, was saying in her speech. She was saying that the case for the creative industries-particularly film, television and so on-was well made. People understand that, and that is why tax credits were introduced, for example, to encourage investment in those industries. The arts have always made the case for their economic contribution. I personally thought it was very good news that we have a Secretary of State who is prepared to stand up and say, "I don’t just value the arts for their own sake but I make the case to the Treasury that the arts are just as valuable and economic, as part of the economy, as any other industry, and, therefore, we should regard what some people call ‘art subsidy’ as arts investment".

Q827 Mr Bradshaw: Indeed. I seem to remember I may have myself used a figure, when I was Secretary of State, of around 8%. That may have included a broader definition of the creative industries-

Mr Vaizey: Yes. There was a change to do with whether or not software was included in the creative industries, which changed the definition slightly.

Mr Bradshaw: In any event, it would be very helpful for us as a Committee, I think, when publishing our report, to get a figure.

Q828 Angie Bray: Vis-à-vis those figures that you gave, in terms of what you said the figure you tend to use-

Mr Vaizey: We tend to use a figure of £36 billion. If I can just check my briefing to ensure that is accurate: we say that 1.5 million people are employed; about 5.14% of employment, and that GVA is £36.3 billion; 2.9% of UK GVA.

Q829 Mr Bradshaw: Do you still favour the evidence, as we did, that Britain has the biggest creative sector as a proportion of its overall economy of any country in the world?

Mr Vaizey: Yes, we do.

Mr Bradshaw: Great.

Viscount Younger of Leckie: Could I, if I may, just add to that? I agree with Mr Vaizey’s figures. I have a figure too, which is probably quite helpful to the Committee, of £36 billion a year. The creative industries generate in the same way £70,000 for every minute for the UK economy, and, as Ed was saying, employ 1.5 million people. But there are some other statistics that the Committee might find helpful. From the IP perspective, the total annual investment in intellectual property rights represents 4.3% of UK GDP, which is quite significant. The UK has been rated No. 2 in the recent Taylor Wessing Global IP Index, and I think that has something to do with the fact-I am delighted to say-that the UK is now going to be hosting the GRD, which you probably will have seen: the Global Repertoire Database. That must say something positive about the UK and the reputation for IP.

Mr Bradshaw: That is the same figure for both, so that is helpful.

Q830 Chair: Viscount Younger, you will have seen that Professor Hargreaves produced a number of figures about the possible value to the economy of some changes to copyright law, and some of those figures are quite controversial. We may come on to explore that in a little more detail in due course. But the figures you quote: is that a figure that you estimate as the value of intellectual property rights to the economy, or has there been any calculation of that?

Viscount Younger of Leckie: The calculation of that is never an exact science, but there are two sides to this. One is that, as you will know, Professor Hargreaves-who I think gave evidence himself to this Committee-has said that the value would be between £5.5 billion and £7.9 billion to the UK economy by 2020.

Q831 Chair: I am not talking about his recommendations, because I want to come on to those a bit later. I mean about whether you as IP Minister have a figure in your mind for what IP is worth to the UK economy?

Viscount Younger of Leckie: Yes. The figure I gave earlier is what I have. In terms of copyright, which I think maybe you were alluding to particularly, we reckon that particularly with copyright exceptions, we will add £0.5 billion to the UK economy over 10 years at current prices, with additional benefits of £0.3 billion per year identified. You mention Hargreaves, which you might talk about later, but the issue is that the figures are not an exact science. So, we look at Hargreaves, and we look at the Government figures, but the UK investment in copyright was approximately £3.2 billion higher than previously thought. It was £5.1 billion in 2009, if that is helpful. Overall, if I could say, the creative industries accounted for 10.6% of the UK’s exports in 2009.

Q832 Chair: Have you made any estimate of the cost to the UK economy of IP crime?

Viscount Younger of Leckie: That, again, is not an exact science but the answer is yes, we have. We have had some figures from different sectors in the creative industries. For example, the UK film industry has estimated that the costs of piracy are £170 million per year. There are various other figures, for example, from BASCAP-Business Action to Stop Counterfeiting and Piracy-where, for example, €1.7 billion for every 1% of increase in crime caused by counterfeiting is the figure that is given.

What we do not have, and we are working very hard on it, is one holistic overall figure. I hope the Committee will appreciate that it is extremely difficult to get one accurate figure, but we need to work harder on that. A particularly important part of what we do is enforcement, and prevention of piracy.

Q833 Chair: At the moment, the figures you have just quoted are industry estimates. It would be helpful if the Government could express a view as to what the level of crime is across all the industries in terms of IP theft.

Viscount Younger of Leckie: Yes, I agree, and that would help us. I am agreeing entirely with you. Hopefully you will appreciate that it is quite a challenge to get to the bottom of where the piracy is happening and to determine what the costs are for that. For example, the retail value of single tracks downloaded from unauthorised sources in the UK is £984 million, which is another figure plucked out of the air. The challenge for us is to continue to delve into these figures and to give a holistic overall view, but I do not believe it will ever be entirely accurate. I do not believe you can ever get-

Q834 Chair: But you are going to have a shot at it?

Viscount Younger of Leckie: Absolutely. Yes. It is very important because protecting our creators and our rights holders is very important indeed. We are particularly strong in that in the UK. We are doing a lot on the enforcement side, and getting to the bottom of the figures, and what we need to do to stop piracy and theft, to put it bluntly, is extremely important.

Q835 Mr Bradshaw: Do you accept, from the figures you have just given, that if you look across the sectors, those amounts soon build up to a figure considerably higher than the figure you quoted from the Hargreaves Report after the benefits of relaxation of copyright?

Viscount Younger of Leckie: I have no doubt the figures are higher, because there will be many aspects of piracy that we have not been able to detect. For example, the measures we are taking, including talking to the City of London IP Crime Unit will help enormously, to help us delve into matters of piracy and crime and get further into where the problem lies. It is a big issue.

Chair: We will come on to the detail in due course, but, before we do that, let me turn to Gerry Sutcliffe.

Q836 Mr Sutcliffe: Good morning, Ministers. I want to turn to the very successful Olympics and Paralympics that were held in 2012, and to ask Mr Vaizey: do you think that UKTI have been good at securing business for British businesses on the back of the successful Olympics and Paralympics, and, perhaps in more general terms, what do you think the legacy of that successful period has been for sport and for culture?

Mr Vaizey: I think UKTI has been very successful. I would like to pay tribute to UKTI. I have worked with them as a Minister off and on over the last three years, and I find them to be a very effective organisation. I do not know; they sometimes say the Queen thinks the world smells of fresh paint. Whenever I go on a trade mission people come up to me spontaneously and tell me how marvellous the UKTI is. I do not think they have necessarily been primed to say that. I was very struck, for example, when I went to the Mobile World Congress, that UKTI had secured a prime position for British businesses. I think British businesses were the second most represented businesses after the Americans. I also went on a trade mission recently to South Korea and to Taiwan, specifically taking sports organisations or organisations involved in the creation of events, including architects, for example. That was a very well-organised trip to two countries that are holding major sporting events over the next few years.

The British Business Embassy, which was the event effectively based at Lancaster House to encourage British businesses to engage with foreign investors-I have seen a figure of £1.8 billion as a target for what we want to get out of that. Foreign direct investment: I have seen a figure of £2 billion on the back of the Olympics as a target, and for higher value events, like Sochi and obviously Rio as well, a target of something like £1.5 billion. They have put into place an account management system for top exporters. So, I think it goes absolutely without saying that we have a unique opportunity, after the Olympics, to capitalise on expertise built up by British companies in putting on what was a show-stopping event, which was an event obviously started by the last Government, finished by this Government, and I think a great tribute to British organisational skills and engineering, manufacturing and almost any other industry you can think of, and creativity of course. I think that people are very alive to that opportunity, and it is potentially a decade-long opportunity for us to take advantage of.

As far as the cultural legacy is concerned, again, the Cultural Olympiad is deemed to have been a great success; something like 40 million individual participations over many thousands of events. We are certainly considering how we can build on that. We use an initiative, again started by the last Government-the UK City of Culture is proving to be very popular. But I certainly think people are looking at whether there is a way of harnessing, effectively, what the Cultural Olympiad was-a national cultural festival-to see whether it can be continued in some way in the future.

Q837 Mr Sutcliffe: It is refreshing to hear that. I think the Committee and all of us who have travelled abroad since the Olympics and the Paralympics have felt an upsurge in the fondness of Britain, in terms of putting on events. So, that is great news. There was a slight hiccup, though, and I think you have personally been involved in terms of the protocols around the marketing issues for companies that could not say that they were involved in providing services or manufacturing for the Olympics. How is the new scheme going that you introduced?

Mr Vaizey: The hiccup-I certainly know that, from my own perspective, in terms of the industries that I look after, architects were very vocal in wanting to ensure that they could shout-quite rightly-about the contribution they had made, in iconic buildings, to the Olympics. Clearly, as you will know from your time in Government, Gerry, there are strict protocols and contracts put in place by the IOC to protect the sponsors who make a very significant financial contribution to the Olympics, and I think that is appropriate. What we have put in place, which I understand is the first time it has been put in place in any Olympics, is a supplier recognition scheme, which allows people to apply for a licence in order to market their involvement with the Olympics. My understanding is that something like 600 licences have been issued. Some have been refused. I am not quite clear of the grounds for their refusal-presumably because it came to close to what a particular high-level sponsor was doing in terms of their marketing. So, certainly, we have provided a route, after negotiations with the IOC, for people who have contributed to the Olympics to showcase their contribution.

Q838 Mr Sutcliffe: I would add, Chairman, from the organisations involved, that there were difficulties, but hopefully this new scheme will iron it out and people will have the opportunity to benefit from their involvement in the Games because I think, going back to your earlier point, it is important that they are able to market to the wider world the successes that they were involved with. Are you confident that enough has been done? Is there more that could be done in trying to promote this Olympic legacy in its wider sense across Government? Part of the problem sometimes is that the Department is enthusiastic about promoting the values that you talked about, but how can we continue the story, if you like, right across Government to make sure that that momentum is maintained?

Mr Vaizey: I think that is an interesting question. Certainly, from my perspective, I think I would divide it into two areas. One is obviously to benefit the UK economy, to benefit UK companies that have participated in the Olympics, so to use UKTI and other organisations to ensure that they get the chance to market their expertise abroad to countries that are organising big events such as this. Certainly, in terms of the Cultural Olympiad, we need to build on that success, but I would hope that other Government Departments where they thought it was appropriate, whether it was in education or in health, would see opportunities to use the Olympic legacy. It is hard to believe it was less than a year ago that the Olympics took place.

Viscount Younger of Leckie: Could I just come in here to say that from a business innovations skills angle-Ed will know of course that we are very fully involved, and it comes under Michael Fallon’s aegis to look after the legacy from the business angle. He has asked me to help with that. So, in a way it is quite convenient that from the Olympic side, linked with DCMS, I will be playing a bit more of a part there.

Mr Sutcliffe: Good. Excellent.

Q839 Paul Farrelly: Just from the business point of view, one of the concerns from the outset was that as many businesses as possible would get the opportunity to bid for contracts, be they creative industries or normal construction industries. The Government seemed with LOCOG to have set up quite a successful portal to allow as many businesses as possible that opportunity. Are there lessons that the Department has learned from the Olympics that have been shared across Government, in terms of maximising the opportunity for small business in particular directly to access Government contracts, rather than going through big-company gatekeepers?

Mr Vaizey: I will check with my officials afterwards and write to you if there are specific lessons from the Olympic contracting process that we shared with Government. But I certainly know, from my dealings across Government, that the Cabinet Office is very, very focused on ensuring that we can procure contracts with small companies. I think particularly, the one example that I seem to come across mostly is IT contracts, because now IT contracts, as I understand it-and I am speaking outside my brief now-go through the Cabinet Office. You get bids from the Department for vast contracts of many millions of pounds, which the Cabinet Office can now deconstruct and invite in bids from smaller companies, and the cost reduces dramatically. So, I think there is a real appetite in Government to ensure that small businesses have an opportunity to procure with Government, not just because it is the right thing to do to support small businesses, but actually you can, in many cases, get far better value for money. I will certainly ask whether the Cabinet Office could also write to this Committee about the work they are doing on encouraging procurement from small businesses, because I know that is something they feel very passionate about.

Paul Farrelly: That would be very helpful.

Q840 Jim Sheridan: Ministers, can we perhaps move on to the funding and finance issues? As I understand it, the Government has announced another £440 million funding through the Technology Strategy Board, and it would be interesting to hear how you think this money will help the creative sectors. I understand that some of the money is earmarked for digital technologies. I am interested to see how the Government seems to think preferring to invest in digital technologies over the creative industries is helpful. Certainly a vast amount of money could go to America, whereas the successful creative industries in the UK will not see much of that money. Is there some sort of disconnection there in Government, in terms of supporting American technological firms rather than the creative industries?

Mr Vaizey: I think there are a number of different schemes that would support the creative industries. Going back to your first question, Jim, about whether or not the Government could do things better, I certainly think that we need to provide an element of coherence about the number of potential funds that are available. I once-just a sort of window into my sad life-spent a period over Christmas hunched over a computer trying to work out how many different business support schemes there were coming out of BIS for different sectors. But certainly I think for the creative industries, things like the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme are the front door.

As far as the Technology Strategy Board is concerned, they are setting up a series of catapults. In fact I think this afternoon I am going down to open with David Willetts the space catapult, which I am lucky enough to have in my constituency-it is clearly a name that chimes with the Chairman. But they are doing a digital catapult, which is going to be headquartered, I think, in London. Again, I can’t remember the figure off the top of my head, but I think about £100 million is being invested. That will effectively allow people to trial different ways of digital delivery and involve the creative industries.

I am not entirely clear whether there is a problem in terms of American technology companies being helped by the fund. Clearly, our funds are there to help our businesses based in the UK get off the ground and grow, but it may be that where you are experimenting and looking at different ways of digital delivery, you will inevitably involve technology companies from across the world who may be interested in supporting that work.

Q841 Jim Sheridan: My understanding is that all the technological companies are American, and that is where the money is going.

Mr Vaizey: I can check that fact, but-

Jim Sheridan: There does seem to be concern about the disproportionate spend of money in terms of the digital technologies as opposed to direct funding into the creative industries.

Mr Vaizey: I can check that.

Viscount Younger of Leckie: My take on that is, as you will know, that the majority of the funding for the creative industries comes in through DCMS, and I have said already that we are working more closely with DCMS on these matters. From the intellectual-property perspective, clearly much of the funding comes through the IPO. They are not major figures, but it is still significant in terms of what it is going to produce. The Government is providing £150,000 towards the copyright hub, as you probably know, which we see as being a very significant step forward for copyright. Professor Hargreaves estimated that the hub could add up to £2.2 billion a year to the UK economy by 2020. So perhaps, from our perspective, it is a question of small amounts of money going in for a greater return over the longer period.

Q842 Mr Sutcliffe: This whole issue of funding and finance being high in the evidence that has been given to us by other bodies-I think the concern is that, in the creative industries, because there is a high level of risk, it is difficult to get funding from the normal routes. The banks will not take a risk on some of these projects. How can the Government help, in terms of supporting either individuals or groups of individuals, turn themselves into more permanent companies that obviously lead to greater employment? Have you found any issues in your ministerial role where you think there is a route for Government to help in this area?

Mr Vaizey: I think it is a problem. One of the issues that the Creative Industries Council is looking at is what we call "access to finance", to look at the ways that we can encourage people to invest in the creative industries. There has been work done, for example, by Demos, which shows that creative industries are not the risk that they are perceived to be. It is certainly, I think-I have picked up, and it is more anecdotal than objective-that we don’t have that level of investment that we should have. If you go to your bank and say you want to open a pizza takeaway restaurant, you can walk away with a loan, but if you want to start a design business, it is going to be more difficult. Certainly that is why I was a very strong supporter of the creative industries tax breaks that we have brought in, as well as the R&D tax break. Certainly that is why I think, again, the industry welcomed the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme, although I am aware of the evidence that you have received that some people feel-I think it was the Ingenious representative who said that the scheme is launched and it hasn’t been communicated. In terms of what the Access to Finance Group has come up with, it is, first, much better communication about these schemes and how they exist. I have thoughts about how we can take that forward in the future, perhaps working with the Government digital service to communicate to people, because most people who are looking for a loan will type into a search engine saying, "How do I get a loan or a grant to support my business?" Certainly I think badging of these schemes, so that they are coherent and there aren’t a dozen different schemes that confuse people, is something we need to look at. So I think communication and clarity are two very important points, then also engagement with investment companies.

Somebody made-again, this is anecdotal, so probably not very helpful-the point to me the other day that they felt that in the big banks they have one technology analyst whereas if you go to America you will have a team of 20, each one specialising in niche areas. Of course, there are specialist investors in these areas, but I think it is important that we continue to engage. I do events pretty regularly, trying to engage with investors and bring creative industries into the same room to talk about it. You have had evidence from your witnesses, and we started talking about the value of the creative industries. If you step back and look objectively, the video games industry is going to be one of the global growth industries of this decade. So, we are bringing in, hopefully, a video games tax break. Investors should be getting into that.

I have heard, again anecdotally-a third anecdote-of a very experienced UK games developer who couldn’t get funding, went to America and got it the next day. What he said-and again, it was a cultural thing-was that he felt they were investing in his team. The Americans recognise skills and the value of a team, and they were prepared to make that investment.

Q843 Mr Sutcliffe: That is reinforced by information that we received about Canada being a place of investment for video games, and I think that Dundee in Scotland is an area where equities could be lost if we do not try to protect and support that sector. You talked earlier about the film tax credits, which have been very successful and resulted in investment coming into the UK in terms of new studios for some of the bigger companies. Just to be a little parochial for a short while, areas like mine in Bradford-it is the UNESCO City of Film and the National Media Museum is there-are trying to promote the city as a city of culture, media and sport because our problem is the proximity of Leeds next door being the regional centre. What can the Government do or has the Government thought about using creative industries in areas of hubs, really, to support skills training and development of new and emerging communities because of the make-up of the population that we have in Bradford?

Mr Vaizey: That is an excellent point, and one of the huge benefits of creative industries is that they are nationwide. You will find classes in Dundee, in Brighton, in Manchester, Liverpool, Bradford, Bristol-all over the country you will find clusters. A number of LEPs-Local Economic Partnerships-that were set up to replace the RDAs have put creative industries at the heart. I think the most innovative that I have seen, in terms of engagement-they have engaged with me on it-has been Birmingham, which wants to be seen as a digital city, wants to be known to have a cluster of creative industries, and I think innovative LEPs-I am afraid I don’t know, Gerry, the position of your LEP-who have creative industries on their doorstep should embrace them as part of the offer, in terms of investment, but also thinking strategically about what kind of infrastructure they need to put in place to support these clusters.

Q844 Mr Sutcliffe: If I can, I will write to you outside the Committee on the issue.

Mr Vaizey: Okay.

Mr Sutcliffe: Thank you.

Q845 Chair: It is widely recognised that this country is exceptionally good at producing very creative people and very innovative digital businesses, for instance. But we have also heard that for a lot of people their ambition is that, once they have established themselves, they will go and work in America and get paid a lot more money, or if they set up a firm, they will get bought up by a large American multi-national, and for them that is a measure of their success. Is that a cause of frustration that we do not seem to have the ambition to create very successful British individuals and companies, or is that just inevitable and part of the consequence of our being a small player?

Mr Vaizey: Gerry said he is being parochial, I guess it is my turn to be parochial. I think, if I am being honest, it is a sense of frustration. But is that me being parochial? Is it me just being a politician who would like to see obviously successful British companies? I suppose if I was a dry economist, I would say, "Capital investment is a good thing. If the capital is coming from America and creating jobs in the UK, that is fantastic".

We do have I think big, successful companies. I tend to characterise them as the back end rather than the front end. We see big companies, obviously, like Google. We see companies like Apple, of course, but then we don’t acknowledge that a lot of the graphics in an Apple iPhone are provided by Imagination Technologies, a company in Hertford, created from nothing, worth between £1 billion and £1.5 billion, or companies like Telecity that provide huge data services. ARM is quite a well-known one as well-so a lot of British high-tech manufacturing. There is a lot of huge success there. The motorsport industry is a £5 billion industry that exports 70% of what it makes. Again, if we are being parochial or patriotic, there is perhaps something satisfactory in the fact that a German driver driving a German Mercedes in a Grand Prix is driving a car that was designed and manufactured in Britain.

So, there are good points, and it is perhaps that our perspective is slightly coloured by the fact that more consumer-facing products tend to be American. But I do think there is a lot of capital in America. It works very hard. It tends to be there to invest in companies at the medium size, and so I suppose the economist in me would say, "That’s a good thing, that these companies get the capital to grow and continue to employ people in the UK", and, as a politician, I would like to see more big, shiny British success stories.

Q846 Chair: So we should be pleased and celebrate that Star Wars is going to be made in Britain, but we should not have ambitions for a British company to make Star Wars?

Mr Vaizey: That is a more complicated question. Again, it is about capital. There are five major studios in America who have the capital to make films that cost between $100 million and $200 million. We do not have those kinds of studios in the UK, and the only countries that could probably match that capital investment would be India and China. Given that those films are going to be made, it is fantastic that they are coming to be made here. They are coming to be made here partly because of the tax break, which is something that now any major film production would expect in whichever country it was going to. But it is also very important to stress that they are being made here because the Americans actively want to make films here because of our skills base. Whether it is costume-making or set design through to visual effects, we are regarded as one of the best if not the best place in the world to make a film.

Viscount Younger of Leckie: Just to add to what Ed was saying, I wanted to make you aware of a fascinating maiden speech that Martha Lane Fox gave in the Lords yesterday, which is relevant to the extent that, although she was not referring specifically to the creative industries, the digital age of course is here and I think there are tremendous opportunities for those with particular skills to stay in Britain and not move to America, and-several quotes I want to give. She said, "Only when we focus on all aspects of digital growth, both infrastructure and skills, will we be a truly digital Britain". It is quite interesting-and I think I realised this, but she put it starkly: "In Britain we do have strong digital foundations. The internet accounts for 8% of our GDP, the highest of any G20 country, and recent forecasts suggest that 25% of our economic growth will come from the internet sector in the future", and I could go on. But there are some fascinating figures there, and it just explains that we have a lot going for us in Britain. I could say a lot more on the IP side, which I might later; but an exciting time.

Chair: Since you are figuratively on your feet, we might move on to that.

Q847 Jim Sheridan: Could you explain why the Government is finding it so difficult with the IP portfolio? I think there was a regular turnover of Ministers on this issue, but when the Government says, "We want to free up copyright", what does that mean to the lay member?

Viscount Younger of Leckie: When you said that people were finding it difficult with IP, what did you mean precisely?

Jim Sheridan: The Government are finding it difficult to come to terms with and grasp what we mean about the whole IP portfolio.

Viscount Younger of Leckie: Yes. From the IP perspective, we have a busy and vigorous programme, and, in fact, just after I came in in January, I signed off on the IPO corporate plan. So, we in the IPO are extremely clear what we are doing in terms of setting out our strategy or objectives, or our aims. We have values, and we have a very clear set of objectives. It is very important indeed that we communicate those objectives, which we arguably need to do slightly better, particularly among the parliamentary theatre, among Peers and MPs, and I have already started to do that.

In terms of what is actually going on on the ground-and this is the most important thing-support from SMEs-all business, but particularly SMEs-is incredibly important, and we all know that 95% of all businesses in the UK are SMEs and they need a lot of support. It is extremely important from the intellectual-property perspective that we give them all the maximum support.

Last year, for example, which you may not know, we helped 18,000 businesses face to face in the IPO. With that, on the back of the Hargreaves Review, we are giving a lot more advice to small companies. We have been funding also 200 IP audits for SMEs, so of course once they have had the audit done, we are pushing them to register their patents. We have also managed to secure well over 200 IP attorneys to give pro bono advice to companies. Then there is training as well. We have just completed training of over 220 business advisers from several partner organisations, such as GrowthAccelerator.

So, there is an awful lot going on, on the ground, for businesses. That obviously covers one aspect of IP. There is obviously a lot more going on in the copyright side, and you will know that I have been extremely heavily involved in the ERR Bill, which is now an Act. This has gone through Parliament, and there is an IP Bill coming up that I am taking the lead on.

Q848 Jim Sheridan: There are a number of people in this industry who have some difficulty understanding what we actually mean by freeing up copyright. You are probably aware that the Committee visited Google last year, which personally I found a rather spooky experience. It was like visiting some sort of religious sect. I have to say that this is an American company that makes millions of pounds in profits from advertising revenue and websites, and the Government gives British IP away for free. Do you think it is fundamentally fair that a company like Google, which is not even paying any tax in the country, is getting this advantage over people?

Viscount Younger of Leckie: Google is one of several search engines, and I am very aware of their power, put it that way. I am also very aware, I think, that they have access, for whatever reason, to higher levels than me in No. 10, I understand.

Q849 Jim Sheridan: Could you expand on that?

Viscount Younger of Leckie: No, because I just heard that. I think we all know.

Q850 Jim Sheridan: So that was a conversation, then, was it?

Viscount Younger of Leckie: Absolutely, yes, which is fine; that is their right to do so. I am making the point that they are a vociferous action group and a big company-to put it bluntly-and they are quite powerful, but there are also other powerful ones. To come back to your basic question, which I think is focusing on copyright, I have come to realise that of course copyright is a highly complex issue. There are no yeses and nos, I think, to copyright, and I see my role in IP as focusing as a priority on growth, which I have said before. That takes account of the rights holders, very importantly; in other words, protection of our very strong creators and innovators in this country.

On the other hand, as Hargreaves has reported, it is very important-as Martha Lane Fox alluded to yesterday-that we grasp the digital age, we are not left behind, and that we actually change and this is a great big challenge. Some people perhaps think that copyright should not change. I am afraid that other Governments are looking at copyright. The US and China particularly understand that the copyright system needs to change. We in the UK must also do that and must be aware that we are a global family.

Q851 Chair: Are you saying that you agree it needs to change?

Viscount Younger of Leckie: Yes, I do. I agree that copyright needs to change. We need to change with the advances in the digital age and with advantages in technology, and that is what we are grasping at the moment. That takes account of both polarised views.

Q852 Chair: It is one thing to say that copyright needs to be updated, so that it covers new technologies, but that does not mean you change where the rights lie and the importance of those rights. Are you just talking about updating law, or are you actually talking about changing the balance?

Viscount Younger of Leckie: Yes. Well, I don’t know whether change or updating-I don’t know quite how one would define it. I would say change because, at the end of the day, we do need to move forward in the right direction. It is very important indeed that we protect our right holders on the one hand, but not batten down the hatches at the same time. We need to allow the user end and the consumer end to have their say, because there is some growth potential at that end of the spectrum.

Q853 Jim Sheridan: In terms of change, did the Government give any consideration to supporting an equal system of licensing for British IP assets, as opposed to giving them away for free?

Viscount Younger of Leckie: I think you are alluding to the fact that one should have full licensing. I do not believe, frankly, that is the way forward, because you would put too many burdens on individuals and businesses. I think it is entirely fair, where it is seen to be reasonable, that there should be some opening-up, for example, for research. Particularly if we look at our very strong pharmaceutical sector and medical research, it strikes me as being unreasonable to shut down that side, and companies like GlaxoSmithKline would presumably-or may-suffer. Pharmaceuticals, for example, I think is our second or third largest sector in terms of contribution to the GDP, so we need to bear that side in mind while also-as I say again-protecting those who are either writing or creating.

Q854 Jim Sheridan: Finally, is delivering the Hargreaves agenda your biggest challenge?

Viscount Younger of Leckie: It is one of the many challenges that I have within IP. I have already explained that the IPO is my main focus. It is the main part of my job, other than seeing BIS business through the Lords. That is the way I see it, which is perhaps slightly different from my predecessors.

Q855 Jim Sheridan: Minister, would you like to expand on the influence of Google in No. 10?

Mr Vaizey: I do not think Google has any more influence in No. 10 than any other large investor in the UK. We had a meeting in No. 10 recently with Time Warner because Warner Bros were opening Leavesden Studios, which is a £100 million investment. So I think it is absolutely appropriate that you meet companies that are making a contribution to the UK economy. As Lord Younger said, there is a debate about copyright. A report was commissioned by Ian Hargreaves. It has been well debated, and we know from the previous Government, when we had debates about copyright, orphan works has been a perennial issue that people have tried to grasp. That has been driven by many different organisations. Companies, like the BBC, the British Library and so on would like to see clarity on orphan works. So I think it is important that Government looks at these issues and sees whether there are ways forward.

Q856 Mr Sutcliffe: There have been 22 meetings between Google and No. 10. Do you not think that is quite unnecessary?

Mr Vaizey: You can take meetings in and out of context. I can’t comment on those individual meetings at No. 10. I get attacked for meeting Google, but what is not explained is that the meeting with Google takes place with the BPI and rights holders, who basically spend an hour challenging Google on the issues of concern to them. So, I have deliberately brought together-

Q857 Chair: But there is a perception that Google have an access to No. 10 that the rights holders, for instance, do not. Do you think that is accurate?

Mr Vaizey: I do not think that is accurate, no.

Q858 Chair: So you think that the rights holders have just as much opportunity to present their case to, for instance the Policy Unit, to No. 10 as Google does?

Mr Vaizey: I am sure they do, absolutely. Time Warner-the Chancellor made no secret of the fact that he was personally involved in talking to Lucas Film about bringing Star Wars over. So obviously we engage with all companies that want to invest in the UK economy.

Q859 Jim Sheridan: All these meetings at No. 10 and with your own Department are all recorded, are they?

Mr Vaizey: Yes, my meetings are all recorded.

Q860 Jim Sheridan: No. 10 as well?

Mr Vaizey: Yes, as far as I am aware.

Q861 Mr Bradshaw: Why did Viscount Young acknowledge a moment or two ago that Google had a direct line to No. 10?

Viscount Younger of Leckie: I can’t remember saying "direct line"; I just said that-

Mr Bradshaw: Words to that effect, in terms of lobbying; I think you acknowledged-

Viscount Younger of Leckie: I simply said-I think you are probably making too much of it-that I know that Google had been into No. 10. I have no idea on how many occasions.

Q862 Mr Bradshaw: That does not make your job more difficult?

Viscount Younger of Leckie: No, not particularly. As Ed was saying, I think it is absolutely right that if people want to have access to No. 10, No. 10 can decide who they want to see. In my case, as IP Minister, I like to make it my business to see as many stakeholders as possible. Indeed, that is what I have been doing, and I will continue to do so. I know that my Secretary of State, Vince Cable, is also seeing, with me or without me, some stakeholders. I think it is right that we should be transparent and open in Government and to have an open door. I think Ed has mentioned others, other than Google, who have possibly or probably been into No. 10. I am not sure it is particularly significant, to be honest.

Q863 Mr Bradshaw: Could I ask you both to respond to something that Andy Heath of UK Music told us in his evidence in December: "The biggest problems for the music industry and the cultural industries in general is the bewildering attitude that we seem to be getting from the Government about its ambivalence towards the benefit of copyright". He went on to state, "The Government have bought the line that intellectual property is a barrier to growth, and that simply is a lie", and he said that, in conversations with business people and investors, "This Government hates copyright. They are going to bring in all sorts of laws that are going to make it easier for Google to steal your music that they already steal, so why should we invest?" How do you both respond to those comments?

Viscount Younger of Leckie: I don’t recognise that view of copyright. I said earlier that it is a highly complex issue, and I suspect they come from a particular angle. As I say, I see my role as looking at both sides of some very polarised and strong views. My job is not to take one side or another, and I need to find my way forward. I say again: it is to be able to protect those who are creating or making music, in particular, but also to open up where it is seen reasonable to open up. That to me is a very reasonable way forward, and it is what I would continue to do as a policy. So I don’t recognise that particular view point, and it is obviously a passionate view, which I respect.

Q864 Mr Bradshaw: Mr Vaizey?

Mr Vaizey: I know Andy Heath pretty well, and Andy has as much access to me as he wishes. As I say, obviously on one level, some of the meetings that I have with Google are about the future of technology. They support Tech City, for example, but most of the meetings I have with Google are absolutely on Andy’s agenda. They are these IP enforcement round-tables. We have the Motion Picture Association, we have the BPI, and we have other rights holders challenging Google on the issues of concern to them, which are well known, which are search rankings and the ability to find pirated material through Google Search. That is how I engage with Google, and I don’t think they get an easy ride from rights holders. I made a very conscious decision, as a Minister, that I would bring the two sides together-that includes the ISPs as well, BT and Sky and so on, who also have a big role in this debate-to get these issues out on the table and see how we can work together to reduce piracy.

Viscount Younger of Leckie: Can I just add two things to that? One is that, in terms of fighting on behalf of the music industry and looking at the enforcement side, there was an eightfold increase in UK convictions for copyright offenders from 2002 to 2009. You may know that the IPO has an intelligence hub and has aided the enforcement community and industry with approximately 400 investigations since it began in 2008. As I said earlier, it is very important that we protect the likes of the group that you mention. Secondly, we are planning, from the intellectual property perspective, an enforcement conference, and we think this will be a very important thing for the UK. We don’t know quite when it will be, but it is likely to be 2014. It will be a global conference to bring players from across the world to London, to spend two days discussing enforcement issues, airing views and a bit of networking. This has never been done before, and we are taking the initiative. So, although it has not happened yet and we do not have a date, we are in discussions about that, and I think that will be a very good step forward.

Q865 Mr Bradshaw: Mr Heath’s views, although perhaps expressed more frankly, were very widespread of the evidence we have heard from virtually all of the rights holders who have come and given evidence before this Committee. Isn’t one of the reasons that they feel as they do that the Government has failed to implement the provisions of the Digital Economy Act?

Mr Vaizey: I think again one has to put it in context. I believe in IP enforcement, and we have sat round this table on regular occasions to discuss ways forward. My view is: what can you do that will have an impact as soon as possible? The industry was always advised, and was advised by the last Government as well, that you could use the Copyright, Designs and Patents Act 1988 to block sites. The industry has used that Act. It took a while, because of the court process, but they have, as far as I am aware, two successful cases under their belt, and it is becoming easier. They deal with one judge. Mr Justice Arnold hears these applications. They have blocked sites like Newspin 2 and Pirate Bay. So, site-blocking has gone through very uncontroversially when you consider the kind of debate that happens in the States. We have worked with the City of London Police on preventing payment mechanisms being put on pirate websites. So again, we work with them to work with credit card providers. We work with the advertising industry where again I think we are regarded-certainly by my American counterpart-as one of the leading nations, if not the leading nation in the world, in trying to ensure that brands do not inadvertently put their advertising up on pirate sites. That involves digital training and the Standards Group coming up with a self-regulatory code and working with the National Fraud Intelligence Bureau to draw up a register of infringing sites so that brands don’t allow their advertising on them. Google has changed its algorithm. I can’t claim credit for that, because there is pressure on them obviously in the United States as well. So we keep on keeping on.

As far as the Digital Economy Act is concerned, and I know that you will have heard a wide degree of evidence, but some people gave some pretty frank views about whether that Act was fit for purpose and, given that it went through in the wash-up, whether it was properly scrutinised. We started when we came into Government with an Act that was subject to judicial review by BT and TalkTalk. Again, BT is an ISP that we bring into these enforcement round-tables. That judicial review process went on effectively until this time last year; so, for two years. Although we were confident I think, broadly speaking, of victory, which indeed we achieved, we were not absolutely clear what the judgment would say at the end and whether we would need to amend things. So we had to amend a statutory instrument, which we tabled two or three months after the appeal had concluded, so we weren’t hanging about. But we now have a classic Whitehall discussion about whether the statutory instrument is appropriate; whether the Ofcom costs are regarded as a tax or a fee. We are in discussions with the Treasury to ensure that we get it absolutely right, but we intend to proceed as soon as we can come to an agreement with the Treasury about the proper way forward. I would reject any notion that we have delayed on the Digital Economy Act. We did not ask for this judicial review. We fought for judicial review and won the judicial review, but in the meantime I did not just sit on my hands and say, "Well, the Digital Economy Act will have to wait; hands out." I have taken forward initiatives on a whole range of areas in terms of IP enforcement.

Q866 Mr Bradshaw: When do you hope to resolve this problem with the Treasury and get the Digital Economy Act, which you very strongly supported during its passage in the House-

Mr Vaizey: Yes, we did support it. We supported it in the wash-up, but we are aware of the criticisms from stakeholders that the Act did not achieve appropriate scrutiny, and you will also be aware we are in a Coalition with the party that did not support the Digital Economy Act and they have taken out, for example, the-

Mr Bradshaw: That is not quite true. Bits of it did not.

Mr Vaizey: Right, okay.

Q867 Mr Bradshaw: Their culture spokesman at the time supported it very strongly. What I am trying to get at, Mr Vaizey, is can you not see that the creative industries detect that you have lost your enthusiasm for the Digital Economy Act and that is why they have lost trust in you?

Mr Vaizey: I don’t think they have lost trust in me. I have read all the evidence that you-

Mr Bradshaw: You collectively as a Government.

Mr Vaizey: Okay. I don’t think they have. As I say, I come to this Committee confident in terms of what we are doing to support the creative industry. On the one hand, we are encouraging investment through tax credits and the establishment of the Creative Industries Council to be a forum for policy, and, on the other hand-in fact I think I have an IP enforcement round-table next week-we continue to press ahead on what are, I think, very important initiatives. Site-blocking is happening, and it is happening in a way that is deeply uncontroversial in this country. On advertising we are well ahead of the game, and on payment sites we are also making great progress. I also think it is important that we recognise that targeting some of these big websites that make money from piracy is a very important part of that equation.

We would like to implement the Digital Economy Act, but we have to get it right. We could not implement it while it was subject to judicial review, because we ran the risk of tabling and passing an SI that would then have had to be amended, so it would have been absolutely self-defeating, but we are moving as fast as we can. I am not going to blame anyone for the fact that the Treasury takes a different view on the fees and whether or not that is a result of the Bill going through very quickly. As you quite rightly say, we supported it in Opposition and we wanted the Bill to be enacted during the wash-up, but that is a technical issue that I have to deal with. I don’t think they should lose confidence in what we are doing.

I also think it is very important that the industry itself continues to work together. One of the things that I hope will change and has changed is that you have ISPs like BT-and remember BT did not want this Act and tried to undermine it in the courts or, to put it more objectively, sought a judicial review of its implications-that have now made a massive investment in content by buying Premier League rights. Now, I cannot believe anyone in BT is going to sit idly by while pirate sites put up live-streaming of a Premier League match that they are providing for their customers. The Americans are pressing ahead with a voluntary three-strikes process with the main cable companies and rights holders, and they are certainly looking to implement something like that in the UK.

I think that industry itself has to work together, and one of the reasons I have brought both sides together is to illustrate the point that ISPs have as much interest in protecting IP as rights holders do.

Q868 Mr Bradshaw: When can we expect the first customer notification letters to drop through people’s letterboxes?

Mr Vaizey: We are looking at 2015 now.

Mr Bradshaw: Which is significantly later than originally promised?

Mr Vaizey: It is significantly later, yes.

Q869 Mr Bradshaw: Can I ask about one of the other promises around the Digital Economy Act, which was to extend PLR to the lending of e-books and audio books at libraries? What progress has been made on that?

Mr Vaizey: William Sieghart carried out a review for us and I think that recommendation has been made by him as well, and we will look at that in the context of the spending review. We could simply extend it within the current spending envelope of what the PLR has at the moment in terms of what money is available. That would be one option. Another option would be to try to find additional funding for the PLR in order to extend it in a meaningful way.

Q870 Paul Farrelly: Just going back to the broad thrust of the Hargreaves Report, there was a quantification that ran into small amounts of billions of benefit that these changes would make. Those billions disappeared in a puff of smoke under scrutiny when Professor Hargreaves came to see us, but he did say there is no question but that the direction is positive while many in the industry would argue counter to that. What is the Government’s view of the broad thrust of the Hargreaves Report? Does it agree that the broad thrust is positive for the economy, or is that yet to be debated?

Viscount Younger of Leckie: The answer is absolutely, I do believe it is broadly positive for the economy. We did touch on the figures earlier, I know, but I am certain that the way it works is that-and this comes under me-it is the framework that counts. It is providing the right framework for creativity and for opening up, as well as protection. I am confident that Hargreaves has set the right platform for certain actions to be taken within the broad spectrum of IP, particularly in copyright.

Q871 Chair: In terms of Hargreaves-I do not know if you saw the evidence on the potential benefits-one of the measures that Government appear to be intending to introduce is the exception for private copying. Hargreaves talked about the £2 billion gain for the economy as a result of that. We tried to discover from him precisely how that figure was reached, but he was not able to tell us. I wonder if you could give us any more information about the benefit of that.

Viscount Younger of Leckie: Absolutely. When it comes to private copying, that figure of £2 billion, which I think has been cited before, is meant at the upper end of the spectrum. I don’t particular recognise that figure, by the way. Just on private copying, the way we see it is that we think it is entirely reasonable for individuals to be able to copy some music from, say, an album that they have bought on to a gadget; say it is an iPod. We think it is unreasonable, unlike Europe, for copying to go further than that, and then it prompts the question of how you can enforce that. To that extent, the benefit will be much more focused on the gadget companies. If you take the sales of iPods, for example, I think that is where the business benefit comes from.

Chair: Sales of iPods are not being held back by consumers thinking, "We’re not allowed to put things on our iPods, so we are not going to buy one".

Viscount Younger of Leckie: If it was the case that they were held back, in other words nobody was allowed to copy, I believe that there would be a reduction in sales of iPods.

Chair: But that is the case at the moment. It is just that nobody pays any attention to it.

Viscount Younger of Leckie: What I am saying is that at the moment the sales of iPods are going well, and they are going well because individuals are buying CDs and albums and they are copying them. If we were to not allow that, then that would have an adverse impact on the-

Chair: It is not a question of your not allowing it. It is not allowed at the moment, which is an absurdity, and you are going to introduce a private-copying exception that will make legal what everybody is already doing. I still do not see where the economic benefit comes as a result of that.

Viscount Younger of Leckie: Although I do not have any figures on me, it is definitely the case that it is the business angle rather than the individual angle that is the focus here. There will be an adverse business effect. It is not just iPods, but there are other gadgets, and there are add-ons.

Q872 Chair: You are going to extend a right so that individuals are able now to make private copies for their own use. In every other country where that has happened there has been some recognition that the owners of the rights should have some additional benefit from that, but the Government does not appear to be giving any additional benefit to the rights owners at all from introducing the private-copying exceptions.

Viscount Younger of Leckie: We see ourselves as being different from Europe. I understand in Europe that private copying is allowed more broadly, particularly among the family or family members. We see it as being a matter of protecting the rights holders to allow private copying only for the individual.

Q873 Chair: It is fair to say that the Minister beside you has rightly welcomed the investment in this country coming from major film studios. When this Committee went to talk to those studios I can tell you that 20th Century Fox spent 45 minutes giving all of us, I think, a pretty hard time on the private-copying exception. They see that as deeply damaging to their attempt to modernise technology, to introduce the ultraviolet opportunity, to give people a legitimate right to store their purchase content on the cloud, but you are basically undermining that by just telling them they can do it anyway.

Viscount Younger of Leckie: I think there are two aspects. One is the issue of private copying from, say, an album on to, say, an iPod, and then you have the cloud issue. The assumption is that individuals may have to pay twice. We do not see that as being reasonable, for individuals to pay twice: firstly, for buying an album and, secondly, for paying for cloud services. I think it comes back, if I may say so, to what is seen to be reasonable and, secondly, what one can enforce. The user would be restricted, but I think it is entirely reasonable to allow the individual to pay for the album and then copy, and copy on to the cloud as well.

Chair: You are not worried, therefore, that industry says that is going to completely undermine their attempts to innovate through things like ultraviolet and give people those rights for a small additional payment?

Viscount Younger of Leckie: No. I can see where they are coming from and I can see that they would be vociferous in their views, and I would be delighted to meet them myself to explain, but no, we see this as being a reasonable response.

Paul Farrelly: I think "vociferous" is an understatement.

Viscount Younger of Leckie: Yes, okay.

Q874 Paul Farrelly: We are not lightly persuaded, and they were speaking not only on behalf of Fox but on behalf of the whole industry. The thrust of their argument was that Hargreaves is behind the advance in technology. This is an issue of future-proofing what we put into law.

Viscount Younger of Leckie: Okay. In terms of the benefit, Chairman, you alluded to a figure of £2 billion, which, as I say, we see as being right up at the very top end. I do not recognise that particular figure. The figure that we have is nearer £300 million, and that is the impact assessment that we have produced, if that is a help.

Q875 Chair: Have you taken account of any negative consequences on the industry in terms of cost as a result of this?

Viscount Younger of Leckie: Yes. This is us taking a reasonable view of both sides. It would be very easy for us just to take the view of one body or another alone, but we have to look at both sides, as I said earlier.

Q876 Paul Farrelly: What is the margin of error in your £300 million, which is down £1.7 billion?

Viscount Younger of Leckie: It is clearly quite a large margin of error if we take £2 billion and I am going down to £300 million, but this is the evidence we have produced. This is the impact assessment, and I have to stick with what assessment is given to me. Obviously I have to scrutinise it, but this is where we are coming from.

Q877 Angie Bray: The industry’s point to us was that they do understand that people buy their albums and that they will download it on to their iPod or whatever. They accept that they do it. They do not particularly like the fact they do it, but they accept the fact they do it, and they say that they are not particularly intent on pursuing anybody doing that. I think the message they are saying to us is if you were then to recognise that in law and to legalise it publicly, it would change the kind of message that you are sending out. While they are passive about it at the moment, if you were then actively saying, "Right, we are going to make it legal", that would completely change the game as far as they are concerned.

Viscount Younger of Leckie: That is very much noted. It is an ongoing debate, and I hear what you say, but we obviously have to look very closely at this. We have to look at the impact assessments, and we also have to consult and we know that there are strong views either way. Album sales are going particularly strongly at the moment, I happen to know, and that is a very good thing for the economy as well. If you do impose some changes, that could change the sales of albums.

Q878 Chair: Can I come back to the general question? Both of you have talked about the value of IP to the economy and the importance of the creative industries. Mr Bradshaw quoted Andy Heath who expresses things in colourful terms, but what he said is very widely felt throughout all the creative industries. I will just give you a couple of examples. Busker in their latest newsletter: "Busker remains on red alert regarding Government plans to introduce legislation which will, in its terms, modernise copyright, fearing that the income of British songwriters and composers will once again be jeopardised, if not irreversibly harmed". BPI write to us, "The positioning of the UK Government in Europe is baffling to us. Weakening the value of creating music and other copyright content is not in the UK’s economic interest". Is it that you have just completely failed to get across your message that you are on their side?

Viscount Younger of Leckie: I do not recognise that. I could say that we have to take both sides, but you know during the ERR Bill we had much discussion on copyright. When it comes to exceptions, we think that the exceptions we are looking at, whether it is private copying or parody, text and data-mining-by the way, there is more discussion to come on these exceptions-are entirely reasonable. By having no exceptions at all you would be looking at one side of the argument. By allowing private copying, which we have discussed-

Chair: But you must be concerned that the creative industries, almost to a man and woman, think that they have a Government that is acting against their interests and wants to undermine their rights.

Viscount Younger of Leckie: That is not what I have been hearing directly. They have not said that to me directly. I have met quite a number of the stakeholders, and I am not saying that they have said everything is rosy. There are many issues, which I have alluded to earlier, particularly in copyright, that we are grasping and grappling with, and we will continue to do so, but I have not had any stakeholders come in and talk to me face to face in a particularly vociferous way. I would be delighted if that was to happen, and I shall continue listening to them.

Q879 Mr Bradshaw: Could I suggest, Viscount Younger, you read the evidence that these organisations have presented to this Committee? Your officials will have copies of the records, and I think that would have been a very useful start. You keep talking about listening to both sides. In the end you are going to have to come down and make a judgment about what is in the interests of the British economy and what is in the interests of what we have already heard is our very valuable and big creative industries sector. That is going to be a political choice, and I would suggest that to try to say that you are balancing the interests of Google and the internet anarchists alongside our hugely important creative industries is not taking a responsible position on what is in Britain’s national economic interest.

Viscount Younger of Leckie: The answer is yes, of course, I will look at that evidence, but, again, I shall look at the other evidence too. For example, when it comes to education, is it fair that we should batten down the hatches and have a complete blanket on historians who write history books and they are not allowed to be given to schools? One has to look at both sides. I think my aim in looking at growth in Britain is to look at what is seen to be reasonable in terms of opening up but, crucially, protecting those who are creating. You have made that point. I must stick with that view, and I think when it comes to, for example, parody, where we have a strong history in the UK, we can’t just shut down on parody and pastiche. We have to allow an element of that, because that is part of the British culture and the British psyche.

Chair: You say we have a strong history, so it is working perfectly well?

Viscount Younger of Leckie: Well, it is an exception, which means that for some original creators if we-

Chair: The creative industries essentially say, "Look, this is a system that is generating a huge amount of money for the British economy. It is working pretty well. If it ain’t broke, don’t fix it"?

Mr Vaizey: Parody is proposed as an exception; that is the point, and we think that is entirely reasonable.

Q880 Paul Farrelly: Just let me offer a parody myself. The sentence, "I don’t recognise that figure", is pure Yes, Minister in terms of the £2 billion. You have come up with a very helpful £300 million.

Viscount Younger of Leckie: Yes.

Paul Farrelly: Could you let the Committee have the basis of that £300 million calculation when you go back to the officials?

Viscount Younger of Leckie: Yes, of course.

Paul Farrelly: That would be very helpful.

Viscount Younger of Leckie: Sure.

Q881 Chair: Minister, perhaps I could just turn to you for a second. Our favourite subject of Google: you have talked about how you have had lots of meetings with Google, you give them a tough time and they have now tweaked the algorithm. I will just give you one statistic. In August 2012, 63% of the top 10 sites in Google rankings were infringing sites, directing people towards illegal content. The algorithm has been tweaked, you put pressure on them, and the latest figure is that 61% of the top 10 sites are infringing sites. It does not appear to have made much difference.

Mr Vaizey: The point I am making is that I do not doubt at all rights holders’ concerns about what can be found through using Google Search, and I bring Google to the table to be challenged by rights holders and see where we can make progress. Certainly they say they have tweaked the algorithm, and they would, if they were in fact here in front of you, defend themselves and say that search rankings have changed. They also-

Chair: 63% to 61%, yes.

Mr Vaizey: I can’t comment on those figures. I have not seen them. Those are figures I do not recognise because I have not seen them. I am not claiming credit for changing the algorithm either. I suspect that came from US pressure. We do challenge Google on that, but the other point to mention is auto-complete. My Secretary of State wrote to Google only recently at the behest of the BPI to challenge them on Search and so on, and we can share that correspondence with this Committee. The BPI is probably the foremost campaigner on these issues. They are highly articulate and highly knowledgeable on this issue, and they put points to us that we challenge Google over, so there is no question of us holding back on that issue.

Chair: It is just that Google do not appear to be paying any attention.

Mr Vaizey: I do not want to come here as a Google spokesman. We put these points to Google. They say, "We have changed this. We have changed that". The BPI will come back and say, "Well, that is not good enough; challenge them on this", and we will challenge them on that.

Q882 Mr Bradshaw: You are sounding like a go-between, like a messenger between the creative industries and Google. That is not your job. You are a Government Minister. You are responsible for policy that will defend and further the growth of our creative sector. You are not a go-between or a messenger.

Mr Vaizey: We are trying to implement the Digital Economy Act, okay, and we are working on a whole range of different issues to enforce IP in the digital age, which I have rehearsed before this Committee and I will rehearse again. It includes advertising. It includes site-blocking. It includes removing payment details. Google has made changes, which it says are progress, but we rely on the BPI and others to come to us with further evidence of where Google should be challenged, and we will continue to do that. I absolutely reject the idea that we are a go-between. I represent the creative industries, and I take their concerns very seriously and I think we have made progress, but there will always be further things that the industry will come to me and ask that I do. You can have Geoff Taylor back here and ask him whether he feels that I am doing enough.

Q883 Chair: I will just give you an example. You mentioned auto-complete. We were told the other day that if you put in "coldplay mp3", the top Google recommendation, on auto-complete is mp3skull, which is a pirate site where you can obtain illegal content. Has Google paid any attention to you?

Mr Vaizey: Ben accused me of being a go-between. The point is that, as a Government Minister-and I am sure he would recognise this from his time in Government-you have to balance the evidence. You challenge Google on these points, and Google come back and respond and challenge the evidence that has been put to them by the BPI and others. You have to have a balance.

Q884 Mr Bradshaw: In the end, you have to make a decision. You have to make a choice.

Mr Vaizey: Of course you do, absolutely, and that is why we are having a communications renewal and we will, no doubt, debate some of these issues as part of that process, but in the meantime you have to balance the evidence, and you have to challenge Google.

Q885 Chair: Are you intending to include in the Communications White Paper additional measures to deal with this kind of problem?

Mr Vaizey: We are not specifically planning legislation in this area, no, but I am sure that the Labour Party, if the Labour Party wants to oppose it during that process, will-

Q886 Paul Farrelly: How would you react to the friendly amendments?

Mr Vaizey: I would react as any Government Minister would in terms of whether they would be effective and workable.

Q887 Chair: If you go to an organisation and say, "This is intolerable; you have to change", but then you say, "I am not planning any legislation"-

Mr Vaizey: No, I am not-

Chair: What leverage is there-

Mr Vaizey: I think it is unfair to characterise me as a go-between. I think it is fairer to say that there are two sides to this debate that put evidence before Ministers about what is happening in reality, but the idea that we do not put the BPI’s concerns to Google is wrong. We do. The idea that Google has not changed is wrong. I did not want to come to this Committee to be a Google spokesman. They have given evidence to you, and you have challenged them on it. They have changed their algorithm, and they say that has been effective. They challenge, in evidence to this Committee-and they no doubt will challenge it again-the nature of Search for pirate sites.

It is also the case as well that you cannot have this debate in a vacuum. You have to look at how the music industry is changing. There is absolutely no doubt, of course, that the digital economy disrupted the music industry. It moved from a physical product to a digital product. Is the music industry now moving back into profit? Yes, it is. Is it adapting to the digital world? Yes, it is. Is streaming becoming a much more prevalent and effective way of accessing music in a digital environment? Yes, it is. The key fundamentally is: is the music industry becoming healthy and adapting to a digital environment? I think it is. We still have huge success stories in terms of-

Chair: But is the music industry still worried about piracy? Yes, it certainly is.

Mr Vaizey: Of course it is; so is the film industry. That is why I have these round-tables. It seems slightly odd to be damned for working thoroughly over the last three years to bring the two sides together-and, again, we only talk about Google; we have not talked about the ISPs: BT, Virgin, Sky, TalkTalk and others-to hear the concerns of rights holders and to take action. I am not going to be damned for taking action in trying to cut off, effectively, the funding that encourages large-scale industrial piracy sites, and I am not going to be damned by the fact that the music industry use the legislation that we said would be effective for site-blocking and have used it in order to block sites.

Q888 Chair: You are obviously not going to be damned for taking action, but are you promising any more action?

Mr Vaizey: We will obviously continue to look at that, and we will absolutely take ideas put forward by Ben and others if they think there is further action that should be taken.

Chair: The Committee may make some recommendations to you.

Mr Vaizey: I am sure you will.

Q889 Jim Sheridan: Minister, this Committee has seen at first-hand the arrogance of Google, which you have probably seen as well, when we visited America but also when they came here in front of the Committee. It was just sheer arrogance from them. The problem is that Google has just become too big, too powerful and too influential, not just for the UK Government but for the US Government as well, and as legislators can we not do anything to help people who are trapped in the Google bubble?

Mr Vaizey: I think we do. The reason that my return will show lots of meetings with Google is because I bring Google in to meet rights holders to discuss what more we can do to combat piracy. Yes, we can continue to work with them and challenge them, and, at the same time, I have not been shy in challenging rights holders. I have said from the beginning as a Minister that there were two sides to this equation; one was IP enforcement but the other side, which they acknowledge, is businesses adapting to a digital environment and offering different services. Spotify and streaming are now much more prevalent, but this is a time of transition and change, and people will be concerned.

Q890 Jim Sheridan: But what I am saying is any changes that they have brought in have been marginal.

Mr Vaizey: I don’t think they are marginal changes. I think we continue a regime of tough IP enforcement.

Q891 Jim Sheridan: People elect us to do a job of work-and this is not party political-we just don’t do it when it comes to Google.

Mr Vaizey: I am not going to-

Jim Sheridan: Big organisations have come in front of this Committee before who thought they were too big and powerful.

Mr Vaizey: I am not going to succeed in convincing you, clearly. As I say, I have set up this IP round-table, and I see that as my job as a Minister is to do that work and push forward on it, as well as implementing the Digital Economy Act. Certain things are beyond my control.

Q892 Paul Farrelly: One of the points that was put to us in our last round-table with the industry last week was that there was the discrepancy between the physical and virtual world in terms of penalties; where the industry, in trying to protect its own copyright, sought out a common law-old-fashioned conspiracy to defraud-because the penalty was twice as high as the two years that the current law allows them on digital copyright theft. Is there an argument for equalising the penalties between the virtual and physical world? Is that something you would look at?

Mr Vaizey: I can’t say hand on heart that it is an argument that has been put to me yet, but I would obviously look at a proposal such as that. To a certain extent it would not be my Department’s decision.

Paul Farrelly: The point has been made that criminal offences for digital copyright theft are maximum two years but in the physical world it is 10 years.

Mr Vaizey: Yes.

Viscount Younger of Leckie: I don’t know about equalisation, but it might be helpful to give you some statistics in terms of enforcement, which I have had the chance to do, because that is, as I said earlier, a particularly important part of what I do within IP. The UK’s legal system convicts pirates and counterfeiters, as you will know. 80% of criminal cases under IP legislation in 2009 led to a guilty verdict. Assets seized from IP criminals were £21 million in 2010-11, which was more than twice the previous year’s figure, and last year saw the highest numbers of detentions by HMRC. The Border Force seizure of counterfeit products in air and sea freight over the last three years was worth £70 million. I gather there is a place in Bradford where there are an unbelievable number of counterfeit goods that come in that are being monitored and they are seized, which is good. That is just a small amount of statistics that shows you how seriously we take enforcement and we continue to look at the criminal side as well as the patent infringement side.

Q893 Chair: The point Paul makes, I understand, came about because the extension of penalties to digital online theft was done through the ECA, which only allows a two-year maximum, and that has created the discrepancy against the 10 years, which was brought in by your Secretary of State in a Private Member’s Bill.

Viscount Younger of Leckie: Okay.

Chair: Would you, when you take through the IP Bill in the course of this session, look sympathetically at an amendment that might seek to equalise this?

Viscount Younger of Leckie: I am not going to give any guarantees on that, but I will, from this Committee, go and-I am not briefed about that.

Paul Farrelly: I am looking for a guarantee of sympathy.

Viscount Younger of Leckie: You always have my sympathy. I am always sympathetic, in that I like to listen. Let me continue listening, and let me look at the details first. The IP Bill, by the way, you probably know, is focused on some aspects of patents but primarily on the design side, which might have been hooked on to the ERR Bill.

Q894 Chair: I think, if my colleagues have finished on that, we will move on to slightly happier territory. Tax credits, as Jim Sheridan said, have been very widely praised and have been recognised as being extremely effective. Can I ask you, first of all: do you have any ambitions to extend tax credits into other areas of the creative economy, and also, how serious is the obstacle that seems to have cropped up in terms of implementing the video games tax credit?

Mr Vaizey: The Chancellor mentioned in the budget that we are looking at tax credits for the visual-effects industry, which could potentially be wrapped up within the film tax credit. I think consultation on that will come out this week. The video games tax credit we expected to be potentially a more difficult ask, but we have put in, I think, a very strong case to the Commission on state aid issues and I will maintain a dialogue with them, and I hope we will get a decision over the next few months.

Chair: I will not ask you to speculate about whether or not it would be easier if we were not in the European Union. Perhaps that is beyond the realms of this Committee this morning.

Mr Vaizey: What do you think?

Mr Bradshaw: I have never attended a Conservative meeting, but I suspect that is one of the things they are discussing among themselves at the moment.

Mr Vaizey: You were right, Chairman. This is happier territory.

Q895 Chair: Can I also ask you about the Creative Industries Council that you have set up? Do you feel that is a useful addition to the discussions about the creative economy, and how influential do you see that as being?

Mr Vaizey: Yes, I do. It did not exist before, so, by definition, I think the fact that it exists now means it is a useful addition. It brings together the Secretary of State for Business and the Secretary of State for Culture, so I think that is a good thing. I have seen from the evidence you have received that people want more engagement from other Ministers. I would support that. We do invite other Ministers and I can’t at the moment recall which ones have attended, but we have had attendance by the Ministers. I certainly think regular attendance from Treasury and Skills Ministers would be useful.

Q896 Chair: Just to take an example, has Viscount Younger yet been to the Creative Industries Council?

Mr Vaizey: He has only just come on board.

Viscount Younger of Leckie: Absolutely.

Q897 Chair: Did your predecessor go?

Viscount Younger of Leckie: I don’t know.

Mr Vaizey: I can’t remember. I don’t think so.

Q898 Chair: That the Creative Industries Council has not heard from the IP Minister seems a bit strange.

Mr Vaizey: No, but I had Vince Cable at the table. What more can you want? A polyman. I think that is a good thing. That is the first thing. The second thing is I wanted to use this opportunity, because obviously I prepared carefully for this Select Committee as you can tell, to get across to industry the message that it is their council. It can be frustrating when you occasionally hear people saying, "Well, it is not quite doing what we want it to". It is your council. It is there for the creative industries to be an effective conduit to Government and represent the concerns of industry. If you think bits are not being covered, it is your council; make sure they are covered.

We have tried to make clear the issues that we want to look at so that there is a focus and these working groups are coming up with proper recommendations. One is on access to finance, one of the issues you have looked at; one is on skills, which you have taken a lot of evidence on; IP-not necessarily wanting to turn to that subject but IP is one of the issues that we cover; export support for the creative industries; and I think the fifth one, which I alluded to earlier, is more coherence in terms of the creative industries being able to access information about what support there is from Government.

Q899 Chair: Given the creative industries’ importance and given the concern that we have already expressed about the attitude that they see in the Government towards IP, perhaps Viscount Younger could be an early attendee in future meetings.

Mr Vaizey: He will be at the next meeting.

Chair: Very good.

Q900 Mr Bradshaw: Given the importance that you have acknowledged of the creative industries and their symbiotic relationship with our arts and cultural life as a country, is there anything that you can say to reassure us that the Prime Minister and the Chancellor get it?

Mr Vaizey: Yes, I can reassure you they get it.

Mr Bradshaw: What is the evidence of that?

Mr Vaizey: What evidence would you like?

Mr Bradshaw: Has it ever been discussed at Cabinet?

Mr Vaizey: I am not a member of the Cabinet.

Q901 Mr Bradshaw: Have they ever been helpful to you as a Minister in resolving inter-departmental wrangles to your advantage and to the advantage of the creative sectors?

Mr Vaizey: I haven’t had to call them in.

Mr Bradshaw: If you can think of anything afterwards, perhaps you could let us know in writing.

Mr Vaizey: We waited 13 years for Tony Blair to make a speech on the arts, but one of the first sector events that the Prime Minister had quite early on was a dinner for leading members of the arts.

Mr Bradshaw: Yes. I am trying to be helpful, Mr Vaizey. I know from experience it is very good to have a supportive Prime Minister and Chancellor when you are in the Culture Department; that is all.

Mr Vaizey: We certainly do.

Mr Bradshaw: You do, but you can’t provide any concrete evidence for that?

Mr Vaizey: I am not clear what evidence you want. What we have secured in terms of the tax credits for the creative industries, driven very much by the Chancellor and his engagement with the creative industries and his support for the arts-I think that is a clear policy success that I think came from that.

Q902 Mr Bradshaw: Yes, that is one. Thank you. Do you share the concern that has been expressed as part of this inquiry about the changes to the national curriculum and their impact on arts and culture and, therefore, their knock-on impact on the creative industries?

Mr Vaizey: I have listened to their concerns, and, in fact, in terms of engaging with people, I have a very good relationship with the Secretary of State for Education. He came to meet, for example, the arts lobby group What’s Next? to elaborate on his proposals. He has been very supportive, first, of with my proposals to secure the future of music education by implementing the first national music plan and securing funding for that. He has been very supportive of my cultural education proposals. These have both emerged out of reports by Darren Henley, which were fantastic; so we are going to implement a national cultural education plan. He has been very supportive of me, and I support him in wanting to provide clarity to the curriculum.

Again, it is a philosophical point-it is interesting, and I am sure you found this as well when you were in Government-that people seem to think they do not exist unless the Government mandates that they exist. Michael Gove is not abolishing the arts from schools, and schools are absolutely free to support the arts and teach the arts. That is what we want to do, and you can see a number of initiatives that have come from him, some of them personally like the support for Shakespeare Schools Week that I think he now funds, as well as the changes that he made to how schools are assessed to ensure that the arts is part of that. At the same time it is, I think, mildly paradoxical that what he wanted to do was give teachers more freedom to shape their school and their curriculum rather than dictate every minute and second of teaching time.

Q903 Mr Bradshaw: Are you confident that the changes that the Education Secretary is driving through our schools will not lead to a fall-off in the number of students studying arts and culture in their broader sense?

Mr Vaizey: Yes.

Q904 Paul Farrelly: He was not abolishing the right of schools to teach music or design technology, but he was setting out the framework by which most of them would be measured, and, therefore, as Ministers, you have to look at the effects of the incentives that that rolls out. That was the main concern of many of the witnesses-

Mr Vaizey: I understood that and, as far as I am aware, he has changed that approach in terms of how schools are measured and certainly the fact that arts are taught in school will, as I understand it-again, I am slightly straying from my core brief so the detail is not exact-now be an element of the measurement.

Q905 Paul Farrelly: You are sure that he has redeemed himself entirely?

Mr Vaizey: Yes. I think he is a superb Education Secretary, if I could just put that on the record, and he is a man who is passionate about the arts and culture. For example, to celebrate the 400th anniversary of the King James Bible, he arranged, through his own fundraising efforts, to send a copy of what is arguably the greatest piece of literature in the English language to every secondary school in the country.

Chair: I thank both of you very much for coming this morning.

Prepared 23rd May 2013