Select Committee on European Union Minutes of Evidence

Examination of Witness (Questions 200 - 215)




  200. Is there anything you might say to help?

  A. What may be helpful is if I were to submit to you separately a series of slides which are meant to reassure small businesses. Many small businesses I have talked to regard e-commerce as a trackless wasteland, where they do not understand what the landmarks are. They are frightened of entering and then getting lost. What I am able to show is that actually most of the lessons from old business carry forward extremely well into new business. In my experience when audiences have seen this and had it directly related it is almost like looking at light bulbs going on around the room. I do not talk about technology, I talk about business, what this new set of tools—which is all it is—does to the process of business and the opportunities of business. I do not talk about data mapping or any nasty things like that. People will accept e-commerce and recognise that something quite fundamental is happening.

Lord Skelmersdale

  201. It is, perhaps, an appropriate moment to declare I have an interest as a micro businessman, who has just set up a web site. What Lord Chadlington was saying was that normal commercial pressures would, in fact, do the job for you more slowly. Given that this is the second industrial revolution, or the equivalent, that is exactly what happened.

  A. That would work, I think, more, with respect, if we were a closed nation. What could happen is the export of a large number of activities out of this country to others if they are adopted more quickly, that is a key concern for me. Let me just expand on this, what I find in e-commerce is that it is like a search light shining on a business. If that business has existed through internal cross-subsidies, in other words it charges in a way that does not truly reflect the value it creates or if it is worked on the basis of geographically separated markets or, indeed, strange arrangements with IPR, they are killed. I see a tranche of businesses who generate real value but through e-commerce they have lost the ability to charge for it. Unless we give those businesses the opportunity to think it through, to work out how they migrate charging, that activity might just leave these shores. Of course the market is working, the noble Lord Chadlington is right, but we might have a significant economic disadvantage to our economy.

Lord Woolmer of Leeds

  202. Good afternoon. In what sense is there a Europe as far as these issues are concerned? There is a whole series of Nation States at different stages and different regulated frameworks and different industrial structures, and so on, and here we are, the Commission, not really having the power to do a lot of things and urging people to do things. Bearing that in mind, what sensible reasoning can the Commission seek to do in Europe which is more difficult than trying to do something in the United Kingdom? A. I hate to come back to this issue of home versus host but I think it is crucial. Let me give you a for instance. In Germany it is illegal to discount because of the conventions of German law. So, for example, Amazon, which I certainly use regularly, is only allowed to sell at list price in Germany. This is ridiculous. I said to a German colleague, "This is clearly a business opportunity. Perhaps you and I should set up a German language book store in London accessed over the Net", and he looked at me very seriously and said, "But we wouldn't buy from that." There are some interesting cultural issues here, but I think there are some very basic things about allowing freedoms in markets which are important and why I care so passionately about problems with the Brussels Convention. Colleagues, for whom I have great respect in what used to be DG XV, now named slightly differently, have done a great deal of good work on an e-commerce Directive and to find at the last stage them undermined by those Conventions I think is totally unacceptable. That would allow for various Member States to continue these interesting market protection practices. It would fundamentally undermine e-commerce.

  203. That brings me to my second point and you have partly answered it. Taking the individual nation states of Europe, there will be a series of regulatory frameworks upon various activities that may hinder the development of e-commerce. On the other hand, as e-commerce develops rapidly that may itself raise issues that previously have been regulated or not regulated at all where regulation needed change positively. So if I could distinguish between two kinds of regulations, the ones that hamper and the ones that might in due course need to be addressed differently to today. Could you give us, in addition to your German example, two cases where you think existing regulatory frameworks in Europe hamper e-commerce and perhaps a couple of examples where you think new regulatory frameworks will need to evolve to deal with certain problems?

  A. If I may say so, my Lords, the crux of this is financial services. I am not as up-to-date on this as I might wish to be. For the last three or four months I have been focusing on British small businesses, not French insurance companies. My impression—and certainly colleagues in the Treasury gave me this as we were producing the report—was the extreme difficulty even now of selling, for example, financial services products into various Member States. France was quoted as the best example. This is both a positive and a negative point. I believe existing regulation is being used to frustrate development. I also believe that the nature of e-commerce undermines most of the distinctions we have achieved and the different flavours of financial services, much beloved of the Financial Services Authority, which to my untutored eye are rendered largely irrelevant by the approach of the Internet and e-commerce. So I think it is an immense challenge for regulation. I think we may be forced to totally re-think that approach. So it may well be, for example—and I am merely speculating, my Lord Chairman—that we would need two different regulatory regimes, one for professionals in these markets and I think of financial services in particular and the rather tougher one to protect individuals if they choose to deal direct in these markets. There is a great deal of re-thinking that is required. Your basic tenet is right, this largely undermines our existing regulation and I come from the IOD which, as you know, is quite keen to reduce regulation, but even the IOD would recognise that there is a basic minimum of regulation which is required to maintain confidence in markets and what we need to find is how to create that basic minimum.

Lord Faulkner of Worcester

  204. I wonder if I could take us back to the Internet filing of tax returns. My interest in this is that I am a founder shareholder of a small Internet company which may possibly get bigger, but it has not so far. One notices with airlines and railway companies that people who book tickets are given a discount if they book them over the Internet and they are not huge discounts, sometimes no more than five per cent or less. How much do you think it would save the Government if Internet filing of returns became widespread, and what would be a reasonable sort of discount the Government ought to be offering if we were passing the whole of that on?

  A. I am aware, of course, that the Chancellor made some statements in this area last week, but our IOD advice to the Chancellor was to have a series of discounts which were front-end loaded, so the first one or two or three years were quite substantial and then it tailed away, because what one is seeking to do is to change behaviour and that requires new investment and I think the Government should recognise that. I have not been through the Chancellor's statement in detail, but I do not think I noticed that pattern in it.

  205. What would you regard as quite substantial?

  A. Ten or 15 per cent. I stress not forever.

  206. Just to get people used to the idea of doing their tax returns in that way?

  A. Yes.

  207. And their VAT returns as well?

  A. Yes. There would have to be some kind of ceiling on that. I can imagine the newspaper headlines the following day, "General Motors saves £X million". I think we would want some kind of quite large percentage but with a cut off.

Baroness O'Cathain

  208. You were talking about the problems of regulation in the professional services like financial services. Is there any way that that could be slotted into the regulatory system that is going to be set up and is currently in place but not legislated for under the Financial Services and Markets Bill, because that is going through our House in terms of the Committee stage starting in a couple of weeks' time and it is something which is going to roll for many months? I would like your views on that one. You have said that you spent from the 1 February to 31 March going round and seeing at least 30 different fora in the UK and when you are addressing small businesses and when you put the slides up "the light bulbs go on". Have you ever thought about doing it for big business? I can absolutely assure you that there is not even a candle flicker at the moment in most board rooms. I have discussed this with colleagues who are on boards and it is absolutely appalling and part of the reason for the lethargic development of this is the fact that big business and particularly board rooms in major plc companies will be presented with an investment appraisal to introduce an e-commerce project and they really glaze over. They have got computers on their desks but they use them as paperweights. They have no idea. They just do not communicate even by e-mail. I do think there is a problem here that at the higher levels business itself does not fully understand. Do you think that business in this country vis-a"-vis business in the other 14 Member States is more reactionary in this regard? If you take the whole of the 15 Member States, are they more reactionary than, say, the United States or the Far East? Is there anything we can do to try by just naming and shaming them?

  A. What is fascinating when you look at the data on Internet adoption and use is that the UK is poised between two groups. It is quite stark when you look at the data. There is a group of high achievers which essentially are the large economies of the US, Canada and Australia and all of the Scandinavian countries which is where the EU dimension comes into this. Then there is the UK and below them there is a group of not quite so high achievers, which is many of our European Union colleagues in the large economies and also Japan, for example. The UK teeters between these two groups as though not quite certain which to join. If I had one wish in the work that was done here and the work I am doing with IOD it is to give the UK a large kick into the top group which is where I firmly believe it ought to be. That is where we are positioned. What was the second question?

  209. My second question was about how we could get business to buy into it. Instead of the candles, the real full-scale lights.

  A. We have a particularly sneaky plan to do this from within the IOD and that is we are launching a programme to train non-executive directors. My view certainly is that there is an immensely constructive role for non-executive directors here to challenge the orthodoxy of the executive directors. They have been party to decisions over many years which they see as being challenged by this. We nurse a hope that the non-executives may be slightly more open here. I am starting a series of courses for non-executives where I shall simply be giving them a list of questions which are calculated to cause the greatest degree of embarrassment to their executive colleagues.

  210. Non-executive directors are not desperately courageous as a bunch.

  A. I fear you are undermining my hope. We are starting to see an American cultural approach here and what the Americans tended to do was to set up a completely separate company and migrate the business of the core company into the new one which operates by e-commerce methods. I am starting to see that happening here. It is a recognition that it is actually very difficult to transform the core of the major company. One transfers the problem, but it is also quite hard to motivate the staff in one's core company if they know that their business is deliberately being migrated somewhere else. There are certainly issues there. On the detail of the Financial Services Act, I have to confess my ignorance. I do not know enough about this. My sense, however, is that we are locked into a framework of thinking based around history which may not be compatible with the realities of the e-commerce world, but I have to confess, I have not done the thinking necessary to transform that into a concrete and constructive proposal.

Lord Cavendish of Furness

  211. I am chairman of a group of very small family businesses in the sticks where I have been installing a system and that system has taken three months to work even by passable levels, leading me to wonder whether the training is almost at a different level, i.e. the people who install and whether you can attract that?

  A. I could give a small plug for the European computer driving licence. I think that there is a great deal of value there. At the editorial stage in this report one or two little nuances were removed as they were felt a little crude and one of the things we wanted to say was that this nation is in desperate need of a large number of what we describe as "computer plumbers", not PhDs, but basic capable technicians and I think what we are starting to see with the training that exists with the European computer driving licence is something I would welcome as a start. It is not an end point, a lot more could be done, but there is something there.

Lord Bradshaw

  212. Two simple questions. One arises out of that which you have just been asked. I think it is very important that we hear from you exactly what amendments you think need to be made to the Financial Services and Markets Bill. It is actually before the House at the moment. The opportunity arises and we would like to seek quite reasoned opinion from you of what modifications could be made. I am not sure that that is in your evidence.

  A. With respect, my Lord, I am simply not competent to provide that.

  213. There are different levels of competence and whilst I would not accuse you of being the blind leading the blind, I think you might be the king in this kingdom. At least you have one eye even if it is only partly open. We would like to have something from you because I think you have got ideas and you said the Institute of Directors has views of regulation both of the financial services market and such that is needed to protect consumers and I think we would like to see that, if we may.

  A. Perhaps if I might meet you half way, my Lord. I could certainly ask the Policy Unit of IOD to provide you with a written submission on that. My own thinking may be sufficiently radical as to be totally incompatible with the Financial Services and Markets Bill and thus somewhat unhelpful.

  Lord Bradshaw: I think we might be prepared to accept both, but it would be useful. All police authorities will have their existing radio wave bands taken away from them very shortly and we are obliged to purchase, at great expense, a new system called the Public Service Radio and Communications Project, which will furnish all police services with a capacity for the policeman who arrests you to have in his hand a piece of equipment which will, for example, take your fingerprints and compare them with the National Fingerprint Library, the register of vehicles at Swansea and all sorts of other databases. This can be done virtually on the spot. It has the capacity to reduce, hugely, the amount of bureaucracy in the Police Force but—this is the nub of the question—we are up against what I would call the due process, which requires that if you arrest somebody for shoplifting you fill out thirty-eight pieces of paper and these have to be produced to the various parties. If I arrest you and by your fingerprints, or something else, I know you have been done for shoplifting seventy times before—and this excludes the suspicion that you might be the right person, I might even have a picture of you on video doing the shoplifting—we have this due process. Can you give us any view, from your experience of the public service, as to whether anybody is willing to, as it were, cut through this requirement to keep all this paper? Are we still going to keep the paper?

Baroness O'Cathain

  214. Introduce a Bill.

  A. I think you are merely giving an excellent instance of the business process change which I was trying to argue earlier. I should declare an interest as well because I am a past Chief Executive of the Radio Communications Agency, which is partly responsible for this interesting situation. Certainly in my old role—which was an enforcement role in prosecuting, for example, pirate radio—we had to operate it also under the Police and Criminal Evidence Act and experienced many of the challenges, which you have clearly explained and which I would accept. What I am not sure about is the extent to which anything in there is addressed by the powers ministers potentially have under the Electronic Communications Bill. That might be worth exploring.


  215. I think we will have to introduce Lord Bradshaw to Lord Haskins, who is, of course, in charge of the deregulation. What Lord Bradshaw said was a testimony to what you brought to the Committee this afternoon. It has been not only interesting but it has been extremely stimulating and we are extremely grateful for that. You have offered to send some further documents afterwards which we look forward to receiving from you. If I may ask, coming back to the European thing, if, following your visits there and discussions, there are there any papers that you might think would be useful for us, if so we would be very grateful indeed.

  A. I have to say my visit to Brussels with this was after I left the Cabinet Office but with the approval of the Cabinet Office. It was really a culmination, there was no papers from me that followed that. You might want to pursue that with other Cabinet Office colleagues but they are not papers that I had access to.

  Chairman: Thank you very much.

  A. Thank you.

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