Select Committee on European Union Minutes of Evidence

Supplementary Memorandum by First Tuesday


  Most entrepreneurs want government to removeobstacles that are slowing them down. Those high on the list include:

    —  the cost of bandwidth. There is acry going up for faster unbundling of the local loop—andBritain is already cheaper than most of Europe;

    —  more flexible employment. IR35, theInland Revenue ruling which treats many freelance programmersand computer consultants as full-time employees, is seen as ahuge step backward;

    —  stock options. Entrepreneurs wantbetter treatment for stock options in general. Preferably theywould like to see them treated as capital gains rather than income.Of particular concern is the removal of employer's NIC contributionson stock option gains—which threaten to pose companies withhuge and unpredictable liabilities;

    —  harmonisation of VAT. One of theliveliest topics of debate on the firsttuesday-forum recentlywas the VAT chargeable on an American product sold in Italy bya UK company from its Web site. It would be funny if the answerdidn't actually matter critically to some poor company;

    —  immigration and work permits. Ina global search for talent to conquer global markets, companiesjust can't wait six to eight weeks for governments to figure outwho they can employ.

  It is not just government that entrepreneurssee as holding them back. The banking system came in for a lotof stick—though few saw much that government could do aboutit, and some are already hustling to turn the banks' problemsinto their own opportunities. One big issue is the difficultyin getting hold of merchant accounts to take credit cards overthe Web. Indeed, it's often easier for a British company to opena merchant account in the US than the UK. Another issue is justhow slow the bank's networks now look in comparison to the Internet.As one entrepreneur put it: "We needed to get £30,000to our German subsidiary urgently. E-mail takes seconds. For cash,we could either pay £35 to send it via SWIFT, which takestwo and a half days, or £50 for a money belt and a ticketon Easyjet, which takes about three hours."



  Do not try to regulate something which cannotbe regulated. The Internet is so dynamic, that a regulation, onceagreed upon within the EU, is already out of date.


  There is no conceivable way that politicianscan speed Internet growth. Except by keeping out.

  Name: Graeme Levin. E-mail:

  Government does most good where it treads lightest.Stay out of the way so the rest of us can get on with it. Dumpthe VAT on net transactions, it is an anachronism. The Britishgovernment's attempts at an encryption policy are seen as a bitridiculous.

  Name: Nick Gogerty. E-mail:

  I spoke with the advisor on the Internet tothe US President at the WSJ CEO conference two years ago. Basicallywhat he said was that the US Government had made an early decisionnot to regulate anything concerning the Internet or e-commerce.Government regulation to promote or to limit e-commerce is whatwill limit the potential growth in this country. My message toanyone remotely connected with government is to stay away fromregulating anything and let the free market find its own level.

  Name: Steve Smith. E-mail:

  May I stress that no particular government regulation(except the points made above) is required. The Internet has beenthe first medium whereby governments have to take a step backand allow e-commerce to flourish without the hindrance of unnecessarygovernment intervention. The only points of consideration aresecurity and competitive markets.

  Name: S Unitt. E-mail: bunitt—

  Let the present anarchy reign—howeverseek to punish those guilty of crimes. Don't restrict.

  Name: Adrian Bell.


  Faster Internet Connections and greater bandwidth.I feel that this is the major thing putting Europe in the slowlane at the moment.

  Name: Steve Button. E-mail:

  Open up the local loop at exchanges to allowADSL immediately. Twist BT's arms to force them to offer flatrate charges now—next year is simply foot dragging and franklydestructive to the new economy.

  Name: Lawrence. E-mail:

  Internet connectivity—It's got to be cheaperor even free. I'd even go further and say that the governmentshould be leading the way to a permanent Internet connection inevery home or at least make the home dial-up access free.

  Name: Daniel Owen. E-mail:

  The most significant problem is the lack ofaccess to affordable broadband services. The UK is now 18 to 24months behind the United States. Small business needs access to*DSL or Cable modem services at similar pricing to that currentlyavailable in the United States.

  Business requires that governments whether EUor UK promotes "confidence" in conducting business viathe Internet. The United States has provided the light touch ofregulation in promoting behavioural change within commerce andindustry. The EU and UK should adopt a similar approach.

  Name: Robert Walsh. E-mail:

  Bandwidth should be like air. Which for practicalpurposes I guess means big tax breaks for investment in infrastructure,and big funding of the science of high-speed networks. We shouldhave the cheapest bandwidth in the world.

  Name: Paul Sanders. E-mail:

  If the government really wants to help thenmaybe the very cosy Quango watchdog over BT should be replacedby an Internet friendly body that will make BT capitulate on chargesfor local calls rather than let them reduce the charges when forcedto by economic competition.

  Name: Robert Kaplan. E-mail:

  We need unmetered low-cost Internet access.An entrepreneur in San Francisco can rent an ADSL line for $50a month and will get a permanent Internet connection with a setof IP addresses that he can start running servers from, so thathe can try out his start-up idea. Here in the UK, the cheapestcurrent "always-on" service is a 64k leased line withan annual cost of 6k minimum. Way slower and much more expensive—thishas got to change. Even when we get ADSL, it's constricted toonly be for consumers, no block of IP addresses, dynamic IP addressing,so no chance of running servers. How does a small guy with a goodidea (like the two guys who started Yahoo, for example) competein the UK in that environment . . .

  Name: Rachel Willmer. E-mail:

  If telecoms were the railways then BT shouldbe Railtrack. Bring in legislation that will have BT racing tooffer fibre to the home and bring the UK to the forefront of theInternet. The UK shouldn't be me too, it should be aiming forthe moon.

  Name: Tony Pollard. E-mail:


  Not going ahead with IR35 would help entrepreneurshipin e-commerce.

  Name: Jonathan Smart. E-mail:

  IR35 will ruin the flexible labour market thatthis government is proud of and upon which entrepreneurs depend.

  Name: Matthew Lyddall. E-mail:

  Whilst this Government openly states its commitmentto IT and E-Commerce, IR35 will force much of the UK skills baseto base their skills in other parts of Europe or even wider afield.

  Name: Arron Ludlam. E-mail:

  The new IR35 tax rules are a huge obstacle toe-commerce start-ups, both consultants and clients. I have a smallbusiness offering Internet consultancy services; a typical contractto help a small business get on the web would bring my servicesinto the realm of "IR35"; so I will have to turn downsome business, or increase prices to compensate for the outrageoustax hike. Similarly, I am deterred from subcontracting to othersby the increased cost, and IR35 makes it difficult to use contractorsas a "half way" stepping stone before I take on fulltime staff. The new legislation is half-baked and unworkable,and is a monument to the Government's ignorance and arrogance.It will probably be easier for me to transfer my company abroadrather than be suffocated by the UK tax system.

  Name: Don Erskine. E-mail:

  I am mainly concerned that many good contractorswill reluctantly turn permanent in the aftermath of the IR35 changes,because they will no longer have the lifestyle advantages thatgo with their risk-taking work methods—or else a fair proportionwill go work elsewhere. Remember corporation tax in Eire is only10 per cent.

  Name: Diana Holder. E-mail:

  Recently the government has enacted some legislationthat will penalise entrepreneurial companies. This legislationis known as IR35. Crudely put, this legislation states that allrevenue my company generates will be treated as taxable incomefor myself, regardless of whether that money is spent on companyhardware, software, equipment, training, marketing, employingstaff (not your wife/partner as a tax dodge—but real staff),accountancy fees.

  Can you imagine running a company where if youwanted to hire another member of staff you had to pay their wages,pension, health insurance, national insurance, holiday pay, sicknesspay etc, out of your tax income (taxed at upper band + your NI+ company NI?) Doesn't add up does it? Well, the Inland Revenuedoesn't agree.

  Name: Stephen. E-mail:

  Stop the ridiculous re-classification of ITcontractors as paid employees. High growth is dependent on flexible(ie unregulated) labour markets and the reduction of risk forthe entrepreneur. This usually involves keeping the governmentwell out of the way. The Internet is a very efficient marketplaceand leaving it alone is the best policy. New regulation and taxeswill certainly slow it down considerably.

  Name: Justin Mencher. E-mail:


  The overwhelming problem is taxes on options.As long as there is a severely draconian tax system on start-upcompanies (any companies) and the awarding of options, this willstunt growth, and drive entrepreneurs elsewhere. This problemconsumes time that companies should be spending on operating andgrowing. Let people make money—and they will spend money.

  Name: Ovid Santoro. E-mail:

  Easing NIC contribution on stock option gains—thecurrent ruling, introduced in April 1999, puts a major disadvantageon UK companies trying to retain talent in this country, by creatinguncertain and potentially massive financial liabilities on theirbalance sheets if they give options to employees on anything likethe scale available in the US.

  Name: Dominic Jacquesson. E-mail:

  Roadblock to European expansion: Inconsistentoption treatment for tax purposes across Europe. Start-ups needoptions that are favourably treated for tax purposes. That isthe great democratic aspect of start-up economics. If the samefavourable tax treatment does not apply across Europe, only employeesin one country will benefit. Only accountants and lawyers profitfrom the ensuing attempts to comply that initiating country'sStock Option Plan with the tax regime of each other country thathas participating employees.

  Name: Ian J Stock. E-mail:

  Charging National Insurance on share optionsis a very bad idea. It will send entrepreneurs overseas.

  Name: Jan Szymankiewicz. E-mail:

  Simplify the rules around option schemes andthe Inland Revenue stranglehold on them. The IR must have a moreflexible system of valuing companies to get approved status.

  Name: Richard Seekins. E-mail:


  Whilst harmonisation of European VAT is an objectiveby the year 2004, (any bets on that being achieved?) the currentsituation is that tax rates vary from 3 per cent to 24.5 per cent,and products and services liable differ wildly. (Source:

  This simply adds massive amounts of complexityto any new enterprise wishing to establish an electronic retailpresence in multiple countries.

  Name: Nick Mullen. E-mail:

  If governments wish to prevent the loss of suchbusinesses from Europe, they should recognise that removing VATon information will not affect their tax revenues, but will havethe benefit of encouraging businesses such as ours to stay withinEurope, building up European strength in this sector.

  Name: Dr Ian A Galbraith. E-mail:

  Whilst there are classification systems fordifferent industries at present, a global scheme is required coveringall digital content, eg simple aggregation for specifying/identifyingtax categories of digital content.

  Name: Roger Hardie. E-mail:


  I have only one suggestion on how Governmentmight help the entrepreneurial culture and that is in the areaof taxation. Currently, the present government has made considerableconcessions on capital gains taxation for entrepreneurs but theseare oriented to "old economy" time rather than Internettime. This must be revisited if the entrepreneurial passion isto be fully realised.

  Name: Alasdair McLeod. E-mail:

  At present there appear to be very few incentivesto set up your own company. The tax system has become more confusing,thereby requiring increased expenditure for the mandatory annualaudits and for the majority of the time, cash flow problems dueto import/export duty requirements. This is one of the most importantaspects of a start-up company. If European tax laws were simplified,or relaxed for E-Business, which is inherently international bynature, many more people would stand a chance of improving theirbusiness portfolios.

  Name: Jaime Maxwell-Grant.

  The trademark protection process is cumbersome.They seem to type a word onto a search engine and then if theengine finds something then your product is deemed generic. Thishinders time to market considerably.

  Name: Dr Nigel Glen. E-mail:

  We need laws that require European countriesto recognise fellow members' standards for incorporation, muchas they do with product safety and education standards. Creationof laws for incorporation at the EU level would be even better.Both of these have been on the agenda for at least a decade, andit is high time to move them into the accomplishment column.

  Existing tax structures often create perverseincentives. For example, in Germany employees receiving stockor stock options as part of their compensation can be liable forgift tax on the full market value of the stock. Thus, someonewho has received 1 per cent equity in a company valued by investmentbankers at $30 million, would be liable for tax on $300,000, whichcould easily force that employee to sell the stock immediatelyin order to cover the tax bill on paper profits.

  Name: Doug Merrill. E-mail:

  The biggest thing the Lords could do to makeit easier for us is to cut some of the red tape. Have you everhad to start a company from scratch in this country? The amountof rules, regulations, filings, and requirements are very onerous—especiallyin the areas of taxation, NIC and employment law.

  Name: Dale Anderson. E-mail:

  I work full-time (to keep afloat financially)whilst embarking on an Internet publishing venture and governmentpaperwork actually threatens to kill the whole thing. I have hada couple of "brushes" with the tax authorities, notbecause I am unwilling or unable to pay my taxes, but becauseI have been unable to get through the paperwork. (If you don'tbelieve me, just take a look at the "starter-pack" theInland Revenue send out.) In short, if the government wants toextract cash out of me, the least it could do is make it easyfor me to work out what I owe.

  Name: Jamie Price. E-mail:

  As with all Government initiatives in business,the less intervention the better. If Governments really want tohelp small businesses then how about cutting taxes, business ratesand new red tape such as limits on the working week and minimumwage. Also, politicians should learn that you cannot "make"entrepreneurs—they are best nurtured when the economy ismost competitive.

  Name: Mike Elms. E-mail:


  How about e-Work Permits—so that entrepreneurscan more easily set up companies (rather than just be employedby them)?

  Name: Grant Warrell. E-mail:

  If the government really wants to help UK Internetbusinesses flourish and prosper—and remain in the UK—theyshould relax the draconian work permit regime and allow any companyin the sector to hire the best staff irrespective of their citizenship.The offer of a job in the Internet sector should be a sufficientcondition for a work permit to be granted immediately.

  Name: Fiona Harrison. E-mail:

  Not being able to employ qualified programmersis a tremendous obstacle for fast growth, which is essential inorder to compete with US based competitors. I would thereforelike to see restrictions on working permits reduced significantly.

  Name: Joerg Ueberla. E-mail:

  I have a single suggestion: Grant working Visasto US citizens who work in IT. We had a terrible time findingstaff with exactly the right technical qualifications in Europe.Had we been able to bring over a couple of Americans to trainour staff we would have sped up the website development and savedourselves a great deal of time and money.

  Name: Ari Miller. E-mail:


  The reluctance of UK banks to offer merchantstatus to start-up companies wishing to trade on-line. As creditcard is the only sensible transaction mechanism currently available,the trader takes all the risk—so where is the problem?

  Name: John Lewis. E-mail:

  VAT and bank account (or general payment mechanism)differences make it difficult to expand in Europe.

  Specifically for foreigners in the UK, it isterrible to try to start a company when nobody trusts you. Thefact that you don't have or use ID isn't helping much. Very oftenI was treated like a criminal here, because surely only criminalscan have that much money to spend . . .

  Name: Jan Van den Berghe. E-mail:

  Forget about high Internet access costs andlet's talk about the amount of time it takes to get a MerchantID to even be able to sell something. If it wasn't for the WorldPayDirect service where you don't actually have to have a merchantID our site would still be a business plan.

  Name: Simon Annicchiarico. E-mail:


    (1)  Educating existing businesses about thebenefits of getting into e-commerce and the threats if they don'tdo so;

    (2)  Providing assistance to business peoplein preparation of their plan or e-commerce business case;

    (3)  Acting as honest brokers for dot.comsand existing businesses looking for financial support and signpostingthem;

    (4)  Providing gap funding, where it is needed(mainly to help existing businesses get e-commerce enabled);

    (5)  Providing a fast track service for e-commerce-relatedbusinesses at Internet speed, not snail speed;

    (6)  Ensuring the infrastructure is in place,eg putting pressure on telcos re bandwidth availability, pricingpolicy;

    (7)  Otherwise being as little involved aspossible!

  Name: Julian Lawson Hill. E-mail: jlh—co—

  Cheaper telecoms prices—not just dial-upbut leased lines and everything else. Clear signals to incumbentoperators that they must not hinder progress (and face penaltiesif they do).

  Effective tax breaks for entrepreneurs/start-ups.There are many ways. Raise VAT threshold on e-commerce activities.

  Less red tape in setting up businesses. Godknows there is way too much.

  Open up mobile/wireless (especially in 3G/UMTS)to non-infrastructure service providers—more effective competitionneeded now and in future (lower prices . . .)

  Identify mobile/wireless as key sector for development,especially in Europe (don't throw away that lead). Encourage participationfrom industry at all levels.

  Name: Malcolm Laws. E-mail:

  1.  Don't put so many obstacles (conditions)in the way of funding—government will get all its grantsback through taxes on the successful businesses!

  2.  Do provide free Internet phone callsfor businesses.

  3.  Leave the rest to us.

  Name: Clare Martell. E-mail:

  1.  *cheap* 1mb+ links to high speed networksare essential. BT disallowing (by filtering) the use of ADSL forservers will be a good example of the sort of environment we havehad to deal with. If ADSL ever arrives, that is.

  2.  Clarification of access to 128 bit certsfor ssl. The US government recently relaxed export controls yetthe UK still messes about with 40 bit certs. All it would takeis for someone in the UK government to speak to the appropriatepeople in the US, and speed up the issuance of 128 bit certs topeople outside the US.

  Name: Tam Freestone-Bayes. E-mail:

  1.  Domain names—the law is still fairlysketchy and it seems to come down to who can afford the courtcase.

  2.  There is a big gap between larger companiesconducting business online and smaller entities. If the governmentcould provide loans for smaller operators to be paid back overtime, better solutions (ie more robust and reliable) could enablethe smaller business to compete with the big multinationals.

  3.  Merchant id's to take credit card payment.Again from the point of view of the smaller merchant these arerelatively difficult to obtain. As I see it they should be noharder to get than a standard telephone payment id without thecardholder present.

  Name: Andy Dunbar. E-mail:

  1.  Greater use of technology in all schools,every pupil computer literate by 2005, say.

  2.  Creating a better telecommunicationsnetwork over the whole of Europe, not just Germany, France, Belgium.Countries in the former eastern block need improving.

  3.  Ensuring a system to prevent fraud onthe net, stop criminals setting up sites to gather info, takefake orders then use the credit card numbers to generate cash.Audit the sites and monthly customer checks, ensuring the peopledid get their ordered goods.

  4.  Prevention of mega companies controllingthe small investors/start up companies.

  5.  Start up grants, or group grants. Alternativewould be a free system to launch business, including tacklingthe problems of logistic, ordering, quality control, delivery,service back-up, customer help department.

  Name: Martin Hoban. E-mail:

  Obstacles—employee share options not asgood as USA, so difficult to have a start up that includes allthose contributing.

  Regulations—where to begin! This countryis overfull of legislation—it is worrying to employ peopleas they can take you to an industrial tribunal for minor grievances,leaving you with high costs. Taxes are also high for companiesand employers. VAT is expensive to administrate for a new business—EUregulations are bad also.

  Late payment culture in the UK, nothing evergets done about it.

  Also high telecom costs, low bandwidth etc BThas a monopoly so the mass market cannot use the Internet at itsbest.

  Generally the government should stay out ofthings and let us get on with it!

  Name: Andria Lennon. E-mail:

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