Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Questions 300 - 319)



Lord Skelmersdale

  300. It is worse than that, is it not, because under the Electronic Communications Bill the government is only producing reserve powers for itself in case self-regulation fails? However, you have talked about the proper role of the EC in the regulation of information, especially in regard to pornography. We have had evidence of the need for regulation for tax purposes, for more general consumer issues and home host country issues. Would you agree with those last three, point one, and, point two, are there any others that you would like to add to our list?
  (Mr Virgo) Can you put the question again, please?

  301. We have dealt with the regulation of information on such subjects as pornography. We have not dealt with regulation on other consumer issues in our questions and answers this afternoon; nor on the need for some sort of unified approach to tax which, by definition, you would need a regulatory ambit or a regulatory organisation to address the issue. Also, we have not talked about the issues of the home and host country; nor, come to think of it, have we particularly addressed confidence building in terms of regulation.
  (Mr Virgo) I do not think regulation has a great deal to do with confidence because the regulator has also to build and acquire confidence himself. People have to have confidence that the regulator will act when necessary and will act effectively and will not act when not necessary. Within many of our corporate members, one of their concerns about some proposals for self-regulation is that these are driven by people in trade associations seeking to create, in the words of one member, "cosy armchairs for life", while the rest of the world moves on. I was trying to work out the categories of regulation that might command consensus. One of them is certainly the prevention of activity on-line which is illegal off-line. That is statutory, and the mechanisms for coordinating that, bearing in mind that what is legal in one country may not be legal in another country. There you have this country of origin and country of destination problem emerging. The second area is the protection of consumer choice against dominant players and cartels. The key thing there is not what it should or should not be but that the consumers have a choice. The third one is those legal frameworks for self-regulation, both to ensure that self-regulation is indeed effective but also to ensure that it is not abused to create a closed market to protect incumbent players and so on. Those are arguments, in a sense, which are independent of whether it is electronic or physical. They are debates that have run ever since medieval guilds and "who regulates the regulators". I am not sure that there is consensus going much beyond that. There is this big problem though on cross-border disputes.

  302. Can I interrupt you. You have mentioned "consensus" twice. You are not being asked about consensus; you are being asked for your own view, or your organisation's view, to be fair.
  (Mr Virgo) The organisation's view is where there is a consensus amongst the members. Where the members are in disagreement, we cannot have an organisation view. We do not have a routine for majority voting.
  (Mr Bruce) We mentioned earlier that whatever one decides to regulate within the United Kingdom or within Europe or within the western world one has to ensure that it is enforceable throughout the world and that it does not simply remove the tax collection to some other area of the world where taxes or lower. That is always the problem. It is not unique but it is almost a unique problem for electronic commerce because it can be done now so easily offshore.

  303. Can you avoid it?
  (Mr Bruce) Avoid regulation?

  304. Avoid tax being moved offshore. In this particular meaning of "offshore", I mean outside the EC.
  (Mr Bruce) I rather suspect not. One can make it perhaps more difficult for people to operate offshore but one of the problems clearly is that trying to make it more difficult for people to operate in the United Kingdom or via the United Kingdom might well simplify that all those businesses not only operate elsewhere but actually do all their business elsewhere, rather than within the United Kingdom.
  (Mr Virgo) That is an area where we are trying to get information on what is actually happening within the United States with regard to interstate transactions. It is said that at least one of the states is planning to break this voluntary moratorium on not applying sales taxes to the Internet because it is losing too much from its sales tax revenues. It looks as though the attempts there are to try and get people like to build in the sales tax routines into their billing systems or their next generation of billing systems. It will be interesting to see how that goes. The amounts that are currently being lost in sales tax within the US are infinitely greater than those at risk in foreseeable prospect within Europe.

Lord Woolmer of Leeds

  305. Can I turn to the positive things that governments may or may not be able to do to assist consumers to benefit from the future of e-commerce and to ensure that our own producers are competitive? Taking the "eEurope" document from Brussels, your document was balanced. Could you tell us about that eEurope document? What do you think about that document as a list of priorities for action by European governments?
  (Mr Virgo) Very few of our corporate members have even read it. I also went up on the Commission website this morning and discovered that there have only been 200 responses to it, nearly all of them from organisations which will be bidding for funds under the various awareness and education programmes. The only comments that I have heard from organisations are that it is far more important to get those nine directives right than to get them in a hurry. If there have only been 200 responses to it and it is not that easy to get hold of, it does appear to be a bit of a damp squib and a marked contrast to where virtually everybody who is well informed on the e-commerce scene was involved in the production of was roped into the various seminars to research it, consult on it and so on. There you have a harvest of views and also quite a lot of commitment to see action. E-Europe is a nice set of statements of intent but apart from the various awareness and education programmes, which look nice and they are certainly nice for those who get the contracts to deliver them, but how much effect they are going to have is another matter. It does not appear to have that much oomph behind it.
  (Mr Bruce) Governments do tend to talk about what is happening in e-commerce and e-business but the greatest thing they could do is to use e-commerce and e-business effectively, and not simply be a list of disasters to put people off going into these fields. They must remember that there has to be a business case to go into the e-world. They have to do it better, not just because it is more modern. Those are very important issues. It could be argued—I say "it could be argued"; I am the only one who argues this—that the only computer system that has been put in effectively at the behest of government in the last 20 years or so is the Lottery, which of course will probably be taken away from Camelot on the basis that they did it so well and made so much money out of it that the government is upset about it. Perhaps they ought to turn that on its head and say, "We will give them the contract on the basis that they have demonstrated how to roll out computers across the country and make them work."

  306. I do not think we disagree that the impact of e-commerce is not as a marketing tool but all to do with the re-engineering of the business process. Addressing that matter, our focus is on Europe as well as the United Kingdom. That is where the competitive issues arise for industry and e-commerce, is it not? What, if anything, can or should the governments of the EU be doing in the coming months and years to help that side of the competitiveness equation?
  (Mr Wales) Philip has mentioned the vast volume of business being done now on electronic commerce, business to business—the City of London, for example—and the vast bulk of transactions. That really does not need any further encouragement. The problem lies in bringing in SMEs.

  307. My suspicion is that most people, if not everyone here, would agree that governments must be very careful not to intrude where things are much better left to business. In so far as governments can do anything to assist in these directions—for example, SMEs—what do you think the governments might be sensibly discussing? You have effective said the e-Europe document is a bit of a damp squib. In other words, the politicians and the Commission are not really addressing the key issues with reference to competitiveness. What do you think they should be addressing, for SMEs, for example?
  (Mr Wales) The first thing is to get information about what SMEs really need. Most people in Europe come from a big business background and either have represented people who consult and provide advice to big business or work in big corporations. By definition, small corporations do not have the personnel available they can release to work on organisations like Europe.
  (Mr Virgo) In appendix I, which was a meeting of human resources directors on flexible working, "where they focus their debate" applies to an awful lot of these things. The essence was that by and large they bin each week 10 to 20 consultation and other documents from government which are totally irrelevant to their needs. These are large organisations. They respond to a couple of regular monthly surveys done very professionally by the major market research operations, who ring up and bully their secretaries until they respond and they pay very good money for that. Their view was that government actually needs to apply market research disciplines, e.g. traditional structured panels, to identify both the needs of its target audiences and also the ways in which those target audiences would respond to a consultation exercise. Their concern is that those consultation exercises are not well structured. The only responses you get are from those who are looking to apply for funding to help run the scheme that is going to get set up afterwards, the professional responders. This problem applies right across the board with consultations within the United Kingdom, not just DfEE, I hasten to add, but DTI, government departments in general and also the Commission; that their consultation exercises and the way they run at the moment do not contact those whose views they are supposedly looking to find out. In consequence, whether a programme is well targeted or not is almost random. Once it is implemented, there is almost no feedback mechanism for building on opportunities, learning from problems and fine tuning a scheme, as opposed to, "Well, we have launched that. Now we will launch another one". We have this mix of both consultation overload and initiative overload and no fine tuning or targeting in there. It seems to be a systemic problem that is compounded by the fact that in industry, with delayering, there is usually nobody who understands an issue who has the time to respond sensibly, unless it is clear that something is in it for them or their chairman will keep beating them up until they do respond because he is looking forward to the publicity opportunity of being at the launch. If that applies to big firms, how much worse is it once you go down the line to smaller firms?

Baroness O'Cathain

  308. This is at odds with some of the real experience that some of us have had. We are tending to get into this problem of putting all the SMEs into one pot. I would have thought, on balance, more of the initiative in terms of e-commerce is coming out of the SME sector than out of the big firms. I also would take issue with you that the chairman really wants to be gung ho about e-commerce. Chairmen of large organisations are doing too many other things.
  (Mr Virgo) I was referring to government initiatives and political platforms there rather than e-commerce. Your points on e-commerce are spot on.

  309. I am concerned about this because the SMEs, as the driver, the engine, of the economy in future—what percentage of businesses is it? 90 per cent of total businesses are in the SME definition. If they are being lethargic, if they are not going gung ho or whatever the expression is, for this, we are in trouble. However, I am getting mixed messages from you. One is that there is this problem that SMEs are less likely to adopt and be in the forefront of e-commerce and the other is that the United Kingdom, with, is streets ahead of eEurope. Let us bring all that together and say obviously we need to do something to get us all into the 22nd century, so what do you think the Commission should do, the government should do or an organisation like we heard last week, the Institute of Directors? They are literally going round the country trying to get people switched on to e-commerce.
  (Mr Virgo) My response is scarred or informed by the fact that in the early 1980s I was responsible for the National Computing Centre's Microsystems Centre which was the lead body then to bring small firms into the world of micros and Pcs. Then, and I suspect now, the key thing that small firms are looking for is somebody who is competent to install something for them that works, at a price they can afford and that has an ongoing cost of ownership that is reasonably predictable. One of the points of leverage for the small firms market is down the supply chains of large firms. The second one is the British Franchise Association, where you can hit 30,000 Spar grocers with an e-commerce package at one fell swoop. People like Pitmans Training, which is itself a franchise operation of, I think, now 120 training centres, are negotiating with Sage, one of the largest suppliers to small firms, to provide packages for franchise operations where the franchise package includes the e-commerce website and the supply chain stuff and the training and the rest of it. A lot of the American takeup by small firms has been driven by franchise operations and package services either running down the supply chains originally of GE, and I think Harbinger grew almost its entire business by hooking then small firms, many of them now medium sized firms, into the GE supply chain. It is one partly of supply chains and that includes government action enabling small firms to cost effectively bid electronically for government business. That has issues to do with the public procurement directives. Government and its own supply chains and its own procurement for small firms to come in electronically is probably a more important area for government action than most of the others. Certainly things like the franchises and the value chain are the points of leverage to go for, because you get large numbers of small firms that way and packaged solutions. The other one again sits into the franchise area. It is people like the winners of one of the BCS awards a couple of weeks ago, Shopcreators, who are basically providing the tools for the electronic shop fitter to bring that small firm up on the web fast. Government's role I think is more to do with government and local government as an electronic procurer from small firms and making it easy for them to sell to government electronically. I suspect that is more important than its policy role. For the Commission, that means its electronic procurement initiatives and tying those across into its public procurement rules and regulations and ensuring those actually fit and meet the needs of small firms which takes us back to this market research into how you deal with small firms.

Lord Paul

  310. One of the suggestions in one of our previous sessions was that both the United Kingdom government and the EU may not have sufficient top leadership and focus on e-commerce. Do you think the Minister in charge of e-commerce and the envoy are sufficient or do you think one can do a bit more?
  (Mr Virgo) A fair amount of this one came up at the meeting on 21 January. The general view was there is an obsession amongst politicians with top level leadership and a total failure to get the act together about two tiers below that, where the work is really done. Essentially, it says, in United Kingdom terms, it is the need to bring together the G5s; in Commission terms, it is to bring together the heads of unit, because that is where the real work is done. It is the lack of coordination at that level rather than higher up or lower down where all the decisions have already been taken and it is just operational.


  311. What do you think we can suggest in those areas?
  (Mr Bruce) There is nothing wrong and obviously government should have a figurehead role exhorting people to go out and do things, but no manager in making an inspirational speech would expect everything then to happen automatically. One does have to do a bit of micro managing, making sure that the people who are within the organisation are delivering. We were talking about SMEs not being involved whilst in fact of course SMEs are creating new products. It is the transfer of electronic products into businesses which simply use those tools which is the important thing. Within government, that is very much the situation. They have all the kit. The PCs are sitting on every desk, including the Prime Minister's, but it is not just a matter of knowing how to switch them on and move the mouse, but to re-engineer how things are being done and to make sure that they are done more efficiently than they were previously. Discipline is necessary there.

Lord Woolmer of Leeds

  312. At the level you are talking about, do those senior managers understand that their business needs to be re-engineered? Has that really been thought through? What you are saying, if I understand it, is that at the top level statements can be made but to deliver them into action requires people understanding their business process and how to re-engineer it to make effective e-commerce changes. Is there any evidence to you that that thinking through the business process is actually happening within government and local government departments?
  (Mr Virgo) I think there is a fair amount of evidence from organisations like SOCITM, which is the IT managers in local government, who have very good relations with the chief executives, that they can see the opportunities but they face a great many legislative barriers, particularly in the public sector, to doing it. I do not think at G5 officer level they are yet convinced that government is serious about allowing them to re-engineer the business. When you are looking at a regional initiative to get people back to work and the issue is to ensure that the policies of the Department of the Environment, Transport and the Regions, the policies of the Department for Education and Employment, the study centres for culture, media and sport, the benefit rules are re-engineered, are all done in a tax efficient way, i.e., you have consulted with the Inland Revenue and Customs and Excise. I am not sure that the people at that level feel confident that they can go off and have a coordination meeting and agree a policy without an awful lot of checking up, down and sideways that they are not breaking rules, policies and the rest of it. One can say what you think needs to happen but to make it happen as opposed to making opportunities so that those people know who each other are and have informal contact and can then clear the way for things going up and down—we had discussions on modernising government and better government and why it is that the marvellous plans that were worked up for modernising government never happened and all these things are running mañana. The issue is of actually getting the coordination at that working level and getting them feeling the confidence that they can set about re-engineering without bringing their careers in the public service to a premature end. I do not think is really there yet.

Lord Cavendish of Furness

  313. Having spent six years in the Nuclear Waste Agency, I know quite a lot about confidence or failure to win it. During that process, two vice-chancellors of universities pointed out to me that we were targeting the wrong people. We were targeting the science community and the engineering community with a lot of success and they said we ought to have gone for the arts, social sciences and education establishment and so on. Events proved them probably to be right. This is very finely tuned. I just wonder if there is enough research as to who we are trying to win over in this confidence battle.
  (Mr Wales) It is back to this point about lack of real information on these issues. Again, a lot more focus needs to be put on proper market research, not little itsy-bitsy programmes, but serious research.
  (Mr Virgo) It is that battle of getting critical mass. Lots of government departments spend a great deal on market research but they tend to fragment it into very small studies. On the IT skills scene, which is one which I spend a lot of time on, there has only ever once been a large study. That was when West London Tech managed to put together a whole series of pots of funding to pay NOP Industrial and Financial to do a structured telephone interview survey through a structured panel and suddenly got answers that were completely different to all the little £10,000 studies that people had done over the years. The issue is getting a critical mass. That almost certainly means trying to find a way of working with the e-commerce suppliers to harness their market research budgets. We had a meeting hosted by the National Computing Centre on 10 January where this issue of getting collaboration on market research came up. It became quite clear that the big players are spending tens of millions on market research but it is commercially confidential and the very idea of sharing those budgets gives them the heebie-jeebies. I feel sure there are some areas where, if government is serious about wanting to get collaborative market research, there will be ways of tapping those budgets and getting cooperation, but it is not an easy recommendation to make because we were warned there and then that these were cases that were usually decided somewhere in the States as to what was going to be researched and how.

Lord Sandberg

  314. In the United States people have turned their faces against this very concept.
  (Mr Bruce) As parliamentarians, we should not get too inward looking in saying, "What should we be doing?". In many ways, it will all happen and in many ways we should be saying, "How can we follow the lead of this particular industry?". Every time they shout, "Whoa! there is a roadblock in our way", can we rush round like good servants of the people and pull the roadblock out of their way so they can get on with things.


  315. Are you going across to the CeBiT fair in Hanover?
  (Mr Virgo) I am not but I think about half our corporate members will be there. I usually get solid reports back from the journalists who go.

  316. Have you been before?
  (Mr Virgo) I have not.

  317. Apparently it is the biggest fair of its nature in the whole of Europe.
  (Mr Virgo) It is indeed.

  318. Do we have anything comparable in this country? If not, why not?
  (Mr Virgo) We have nothing comparable. We did have Which Computer? shows and things of that kind but they petered out during the last recession. The largest event in the United Kingdom is the TMA event in Brighton which genuinely does bring together the whole of the communications industry. There is no longer anything that brings together the other parts of the United Kingdom industry; we have a series of relatively small-ish individual sector shows. Perhaps the largest conference in the United Kingdom is probably UKCMG, which is the Computer Measurement Group and that is undergoing a revival. That, as a conference event, is probably as comprehensive as the TMA conference but does not have such a large exhibition attached to it.

  319. Yet we are claiming we are leading Europe with this.
  (Mr Virgo) We are certainly not in terms of exhibitions and bringing together players at anything equivalent to CeBiT.

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