Examination of Witnesses (Questions 935
- 939)
WEDNESDAY 24 MAY 2000
MS PUJA
GANDHI, MS
URVI SHAH,
MS HEENA
PATEL, MS
TODENH TRAN
AND MS
JACQUELINE AH-WONG
Chairman
935. Good afternoon, ladies. We are very pleased
to see you and we have been very pleased indeed to receive the
papers—I will talk to the wider audience here—the
two papers here submitted by students and we are very happy indeed
to have you with us this afternoon and we are looking forward,
some of us, to seeing you again on 14 June when there is some
form of recompense for all the hard work that you have done. We
hope you are going to come back and have a cup of tea with us,
and we will also give you a tour of the House of Lords and the
House of Commons. I understand that Professor Targett has briefed
you on how we wish to approach examining your reports. Could you
try to stick to about two minutes each in presenting your relevant
parts. Then you will move to questions afterwards and then we
will move onto the second group where we will be dealing primarily,
I think it is, with consumer issues. But yours is business confidence—how
do we raise business confidence. Over to you.
(Ms Patel) My Lord Chairman, thank you very much for
the opportunity to give evidence today. We will be giving an analysis
of the evidence submitted to the Committee to this point in terms
of a business perspective. We will firstly be talking about regulatory
measures, then security and data protection and finally financial
and set-up costs to businesses. There are three main areas into
which regulation can be split up: no regulation at all, so businesses
are self regulating, or trying to achieve certain codes of conduct
and standards; some government intervention, or co-regulation;
and full government intervention. The advantages and disadvantages
of some regulation and complete government intervention are basically
two sides of the same coin, so I will be talking about these two
together. Over regulating can damage business opportunities, creating
lots of red tape and bureaucracy and this can hold back some businesses
in the EU. You can also reduce competitiveness, increasing start-up
costs—
936. Can I persuade you just to go a little
slower and speak a little more loudly, please. You will find as
you get older your hearing does not improve!
(Ms Patel) It can reduce competitiveness, so it will
increase start-up costs and running costs generally. Companies
may choose to move to areas with less regulation. An example of
this is that the gambling industry which has moved off-shore to
places such as Gibraltar where there is less tax and less regulation.
Also the Government may not be able to keep up with the pace of
change of e-commerce, so that might create some problems. Conversely,
regulation can create a stable environment for businesses as long
as the legislation is clear and distinct. An example of this is
the gaming industry in Australia where a lot of businesses have
moved into this because of the stable environment which reduces
their business risk. Also, smaller businesses may benefit in terms
of tax, funding and also of creating networks with other businesses
sharing information. Also consumer confidence may be raised if
they know some form of Government intervention is in place. If
we talk about partial regulation, hopefully this will have benefits
of both the previous regulations. There is already existing regulation
in place and this should be extended to e-business. Legislation
should be required if the existing legislation does not cover
the changes in technology. An example of this is electronic signatures
and the RIP Bill which allows the police to monitor activities
that cover electronic communications. This is quite a sensitive
area, so it needs to be looked into. I am going to pass over to
my colleague, Puja, who is going to talk about security and data
protection.
( Ms Gandhi) I am going to address some issues which
have already been outlined in the written evidence given to you.
Firstly I wanted to talk about intellectual property rights and
data protection. I will start off by giving an example and then
drawing implications from it. One is able to download music or
sound tracks from the internet very easily and therefore there
is no need to purchase it as such. This is actually breaching
copyrights. This is likely to be a major issue in the entertainment
sector which would include things such as video games or movies
or the music industry. This is likely to be a deterrent for them.
Another area of concern that I thought was fairly big was the
data protection one. Under UK criminal law, the definition of
"property" does not include data; therefore it is possible
to steal data, which allows individuals to steal data, basically,
from their employers, or hack into computers without actually
having committed a crime. Again, I think this may be a big deterrent
for businesses. The final one, which I thought was of great concern,
was that of credit card fraud. In the UK the merchant bears all
the risk for any credit card transactions made on the internet,
while in the United States or Australia there banks can actually
forge a link together to be able to address verification. In other
countries in Europe, such as Belgium, they have a Proton system
which was primarily based for the consumers who cannot obtain
credit. It also has advantages for businesses, and the business
does not bear as much risk as the money is more or less paid which
they have spent. There are many other issues that we felt were
relevant but due to time constraints, we will not go through that
in too much depth but they have been mentioned in the evidence
that we handed in. I will now hand over to my colleague, Urvi,
who will talk about financial issues and setting up costs.
( Ms Shah) There are usually large e-business set-up
costs. Some of these include training costs, where training is
needed for the skilled labour which is required to handle and
deal with e-commerce. A lack of, or a low IT ability, represents
a barrier for e-commerce development, hence IT training is strongly
required. Access costs tend to be high as well. Even though, recently,
there are discounts for internet dial-up, there is still the cost
of the call, depending on duration, the time of the call, as well
as costs of telecom operators. However, dial-up connection to
the internet is still growing, as a result of the decreasing costs
to be connected. An important cost to consider is the translation
costs in trading across borders. The language in a country restricts
the number of users to those who can actually understand the language,
and hence translation is definitely required, which could be quite
costly. However, financial incentives, especially tax incentives
such as stock options, provide encouragement for e-business, as
well as incentives for venture capitalists. The development of
smart cards, electronic signature infrastructure, and other alternative
means of payment to credit cards have also encouraged e-business.
For example, electronic signatures cannot be discriminated against,
as stated by the "Electronic Signatures Directive".
Global trading also results in larger markets which could lead
to increased revenue, and hence a motivator for e-commerce. To
round off, I will look at some of the questions posed to the Committee
and try to answer them from a business perspective.
937. That is very good of you.
(Ms Shah) To create and stimulate e-commerce governments
can provide increased incentives for businesses by setting up
more favourable tax systems and by providing legal protection
for businesses going online. The government should also have a
role in training—perhaps subsidising the cost—
938. Just a little slower, please. These are
very good questions.
(Ms Shah) The government should also have a role in
training, perhaps subsidising the costs and promoting it in schools
and universities. We feel that the draft action plan will be useful
in promoting e-commerce, though there have been many criticisms
of it, such as, it does not go far enough, the measures are not
clearly defined and the timing is wrong. etc. Self-regulation
and codes of conduct may be preferred by businesses as it can
reduce their obligations, but government intervention to protect
businesses themselves, in terms of intellectual property rights
laws and fraud, is definitely needed. We feel that we are not
in the best position to answer the remaining three questions.
We are now open to your questions.
939. Thank you very much indeed. It was very
useful with you giving us the summary at the end there. I wonder
if, perhaps, we can pick up some of those points there, and see
if maybe you might be able to offer one or two solutions that
we might possibly postulate as answers to some of the problems.
I think on the first one, you said that there was something to
be said for more favourable tax concessions being offered by the
government to stimulate growth of e-commerce. Any ideas from the
research you did on topics that might be worth examining there?
( Ms Shah) For example, we could decrease the taxes
that businesses have to pay and maybe by increasing the barriers
to trade outside the country, and encouraging businesses to stay
within the country would probably help.
(Ms Tran) Reduce the taxes on stock options. A lot
of companies could pay their staff by means of stock options ,
and if you reduce the taxes on those then that really helps companies
who are engaging in e-commerce. Venture capitalists as well—maybe
provide incentives for people who put money into these businesses.
Chairman: Lord Paul is a businessman and he
would like to ask you some questions too.
Lord Paul: Firstly I would like to congratulate
all three of you with the confidence with which you have presented
what you have to say. This place can be very daunting, but it
is nice to see you with that confidence. Secondly, my Lord Chairman,
I am sure they are making history in this place. Perhaps you are
the first three students who have come and given evidence in this
House, so you can go back with a great feeling that you have made
history.
Chairman: Certainly they are significantly younger
than most of the witnesses.
Lord Paul: Those were the two comments I wanted
to make.
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