Examination of Witnesses (Questions 300
WEDNESDAY 1 MARCH 2000
BRUCE, MP, MR
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
(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
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
(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 Amazon.com
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 [email protected]
where virtually everybody who is well informed on the e-commerce
scene was involved in the production of [email protected]
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 arguedI say "it could be argued"; I
am the only one who argues thisthat 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 businessthe
City of London, for exampleand 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 directionsfor
example, SMEswhat 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?
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 futurewhat
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 [email protected], 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.
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
(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 downwe 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.
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
315. Are you going across to the CeBiT fair
(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
(Mr Virgo) We are certainly not in terms of exhibitions
and bringing together players at anything equivalent to CeBiT.