E-Commerce in the EU: EUC Report

HL Deb 27 October 2000 vol 618 cc605-44

11.5 a.m.

Lord Brooke of Alverthorpe

rose to move, That this House takes note of the report of the European Union Committee on e-commerce: Policy Development and Co-ordination in the EU (14th Report, HL Paper 95).

The noble Lord said: My Lords, I wish to declare an interest: I am an adviser to Andersen Consulting. I would like first to thank my fellow members of the subcommittee for their support, hard work and contributions to this inquiry. They would all join me, I am sure, in expressing appreciation and thanks to our specialist adviser, Professor David Targett of Imperial College, London.

All members of the sub-committee would also join me in extending heartfelt thanks to our Clerk, Patrick Wogan, who in delivering his maiden Lords' report worked tirelessly for us, always with good humour, patience and enviable style. Patrick, I know, would want to join me and the committee in placing on record our appreciation and gratitude to our former secretary, Michelle Sampson. We are sorry to have lost her services but wish her well in her new post in the House.

On behalf of the Committee, I want also to record our thanks to all who have given us written evidence and appeared before us and to those who hosted us on visits to Wilton Park Conference Centre, Brussels, Paris and Washington. Finally, I would like to thank the Government for their response and warm welcome of our report. They say that, it focuses attention on the key factors that will determine the success of e-commerce in the UK and the EU", and that, it will provide a valuable point of reference as they develop the Governments' approach to UK and EU policy", We hope that it will, and today we have the opportunity to help them further along this route. We also have the privilege today of listening to the maiden speech of the noble Baroness, Lady Noakes, to which we all look forward with great anticipation.

When we began this inquiry in January, we were living in a world which was markedly different from today. Millions of people throughout the world were playing the markets in Internet stocks; hundreds became millionaires; and a few became billionaires. The US Department of Commerce had measured the impact of the e-economy and claimed that it had added 8 per cent to GDP of that country. Young entrepreneurs were pursued by "old" capital, the world belonged to the new technologies, the new economies and the new capitalists. Business, it was claimed, would never be the same again.

However, curmudgeons spoke of South Sea bubbles and warned of doom. Then the NASDAQ fell. Companies, whose chief assets were expectations, collapsed like puffballs. Public sentiment swung the other way and the current mood about the new economy lurches from cautious pessimism to some indifference. But this swing of pendulum is equally unbalanced. The Internet is here to stay. It is alive and kicking.

In our scrutiny, we initially set out to examine only one aspect of this phenomenon: e-commerce—the application of Internet technologies to buying and selling. We wanted to see how policy at national level and in the EU developed and whether or not such policy was being effectively co-ordinated. But we have also looked at how the Government plan to use the new technologies to deliver their own services—e-government. Accordingly, many of our 40 recommendations are directed to the UK Government as well as to the EU for action.

The Government's response is positive and encouraging. They have made a good start. We commend the initiatives outlined in their introductory response to our report. They are already taking action on many of the wide-ranging points which we identified. But I hope that it will not be thought carping if I say that there are a few areas where the committee remains unpersuaded by some of the Government's answers.

Easy and low cost access to the Internet for all the population is a necessary condition for the success of e-commerce. In order to secure that, competition is its lifeblood. The move to unmetered telephone access was the critical step in launching mass Internet use e-commerce in the USA. The United States has also unbundled the local loop telephone connection between local exchanges and individual homes, giving greater capacity to transmit data speedily. That is why in our opinion it is the world leader.

Our principal recommendations (Nos. 2 to 5) seek such changes at a faster pace in the UK. On unmetered access, progress is now being made, particularly in off-peak access. But the critical element for e-commerce, especially for small to medium-size enterprises, is unmetered peak-time access at competitive rates. Would the Minister share that view and, if so, what action are the Government taking through OFTEL to bring that about? In our opinion, we need the lowest such charges in Europe. But perhaps the most important change this report calls for is for rapid action to unbundle the local loop.

At Lisbon on 23rd and 24th March, EU Heads of Government called for this to be achieved by the end of this year. Yesterday, the European Parliament involved a rarely used fast-track procedure to legislate. The EU asked for a regulation instead of a directive because of the paramount need for speed. I quote from the rapporteur's report: In a sector which develops as fast as telecommunications, speed is of the essence, if Europe is to develop a leading edge in information technology and services". Set against that, we believe that the Government's response is disappointing. We do not accept that the UK regulator has applied the pressure required to sustain the UK's position in this area. OFTEL has admitted that even by mid-2001 only 15 per cent of BT's local telephone exchanges will have been opened up to competition. It is little wonder that there is fierce criticism in the industry and the media about such foot dragging.

I understand that representations have been made recently to government by six of BT's competitors. In addition, Her Majesty's Government have been warned by Mr Liikanen, the responsible European Commissioner, that the Commission will take legal action against the UK unless there is a very good reason for BT and OFTEL's joint failure to ensure that unbundling takes place on more than a trial basis. I ask the Minister what action the Government are taking to ensure that the UK complies with the EU commitment, especially given that the Prime Minister played such a leading role at Lisbon back in March.

BT's grip on the exchanges and the failure to compel them to meet EU deadlines means that BT is able to roll out its own asymmetric digital subscriber loop services ahead of competition. This head start could undermine the ability of BT's competitors to offer similar services. The mere establishment of the legal and regulatory framework for unbundling is insufficient as it will not ensure a competitive DSL market in the short term. Contrary to HMG's response to the committee, it is our understanding that competitors to BT will not be able to begin to install their equipment by the end of this year. Once an order has been placed with BT, complex administrative and other processes are likely to delay installation and implementation for at least four to six months.

If other operators are unable to compete with BT on an equal footing before July 2001, the risk is that some may cancel their planned investment in the UK and look elsewhere—and look elsewhere they can. The Internet 150 report produced by PricewaterhouseCoopers indicates that Germany is becoming the dominant Internet economy in Europe, accounting for 45 per cent of the whole market capitalisation, 56 of the top 150 companies and 43 per cent of the funds raised since the beginning of the year. The UK is now second with 35 of the top 150 companies and 16 per cent of market capitalisation. At one time we led Europe in telecom liberalisation. We do not want to slip into a defensive position.

Noble Lords would not expect me to refer to all of the 40 recommendations, especially as the Government have produced positive responses to most of them. However, I should like to say something more about recommendations 28 to 40, and the Government's response to them, which deal with the role of government as exemplar. We considered two aspects of this role: the Government as an operator of e-skills, for example in the procurement or provision of services electronically; and the quite separate issue of the introduction of new technologies into the structure of government and the change to that structure that they will produce.

The Government began with a flourish. The report of the Performance and Innovation Unit of the Cabinet Office—[e-mail]—is widely regarded as the best manual available. Of significance is the appointment of a Minister with specific responsibility for e-commerce and an e-envoy whose job it is to deliver the e-policies. The Prime Minister's personal enthusiasm for, and will to succeed in implementing, such policies is not in doubt. That can be seen from the way in which he has brought forward the targets for departments to deliver government services on-line from 2008 to 2005.

However, we have been concerned to see slippage in the e-government programme, especially in developing the e-strategies for each agency and department which originally were supposed to have been delivered to the e-envoy by October this year. These strategies, which imply completed forward programmes, now feature as "departmental plans" and precise details have still to be produced.

The e-envoy's role was not merely to co-ordinate the strategies but also to find cross-cutting policies which individual departments and agencies were unlikely to produce themselves. It could be that the slippage is partly because of the long gap in replacing Mr Alex Allan, the first e-envoy, who had to stand down for family reasons; or it could be that the task is proving far more difficult than was first thought. After all, when we look back at the record of efforts to implement IT programs in government departments, we see that few have really succeeded. Can my noble friend comment on where we stand on the development of these programs?

In September the Government announced a new project on privacy and data-sharing for the Performance and Innovation Unit. To my mind, this is a welcome development which I interpret as the real answer to recommendation 19 in which we called for the introduction of a personal identification system. My noble and learned friend Lord Falconer of Thoroton has been appointed as sponsor Minister for the project. It goes to the heart of e-commerce concerns, in that it seeks to use the benefits which accrue from the new technologies while preserving individual privacy. This is a good move, but inevitably it probably means further delays in departments seeking to meet the Government's programme and the achievement of the targets which are set for the delivery of government service electronically by 2005.

We do not, therefore, question the Government's support for e-commerce, but rather their ability to meet the targets in e-government which they have set themselves. Policy has been well formulated, but we remain doubtful about the ability of government to co-ordinate policy. We still believe that e-commerce and e-government issues should be considered at Cabinet level. This is no criticism of the Ministers who have responsibility for these subjects. We are simply unconvinced that the current arrangement provides the right level of co-ordination of policies for such an important phenomenon.

The appointment of my noble and learned friend Lord Falconer, welcome as it is, as sponsor Minister for the latest project adds yet another Minister with responsibility in this area. It seems that there are too many chiefs but no paramount leader. A Prime Minister is simply too busy to fulfil this role, and, unless there is clear responsibility, that can lead to breakdowns in the system. For example, with hindsight it is clear that the Regulation of Investigatory Powers Bill would not have encountered the problems that it did in this House had industry been more closely involved at a pre-legislative stage.

To their credit the Government acknowledge this. But in a sense that is another example of the way in which co-ordination of policy clearly fails, and that, whereas the Department of Trade and Industry has sophisticated and long-standing systems for endeavouring to consult with industry, the same relationship with industry was not apparent in other departments; nor did those departments appear to learn from the better practice which obtained in the Department of Trade and Industry. We would welcome the Minister's comments on this and what the Government will do to effect changes in other areas similar to DTI on consultation.

We have held to the central plank provided by the e-Europe Action Plan. I would therefore like to end by making a few remarks about what we might call the European dimension.

At the Commission, we found—perhaps to our surprise—that attitudes among officials were more open, forward-looking and entirely at odds with the stereotyped view of a bureaucracy gone mad at Brussels. However, we did become aware of a fundamental cultural difference between North America and Europe. This has highlighted tensions at the heart of the European efforts to master the new technologies.

The best example we found of the EU acting in close harmony with the market was the rapid introduction of the e-commerce directive. The draft directive passed the European Parliament without amendment. The need was recognised for the EU to provide legal certainty for e-commerce. This was achieved in record time and in a way which generally found favour with all member states and, importantly, with industry.

The e-commerce directive was based on the concept of host country legislation. However, as the Wallis report subsequently found and indicated, there was concern that consumer interests were not adequately safeguarded in the draft directive. The protection of consumer interests marches behind the banner of country of reception legislation; a concept which industry quite naturally is at odds with because they see in it the creation of additional obstacles to the growth of trade over the Internet. But consumers have powerful supporters in all European Governments. As a result, it is unlikely that Europe as a whole will be able to replicate the freedom that characterises the United States' use of the Internet. This will inevitably have economic consequences for us in Europe.

To their credit, the European Commission is not blind to this and is endeavouring to balance regulatory rigour by introducing alternative dispute resolution procedures, which it argues will give the consumers the protection they need while at the same time leaving in place the recourse to national laws as a last resort.

There are other aspects of the EU's approach which we found troubling. The amendment to the sixth directive on VAT, for example, brings the EU into conflict with the United States. One wonders whether the present course that the EU has adopted in pushing forward for harmonisation and for the protection of European Union companies is in the EU's long-term interest, or whether, as the Americans have proposed, the matter should be delayed until a sensible compromise can be reached in the OECD.

Throughout our inquiry, we were concerned to look at both the UK Government and the EU co-ordinated policy towards e-commerce. I have reported our UK concerns. In the European Commission, we found that a similar difficulty obtained in trying to deal with a subject which cuts across so many competencies. Commissioner Liikanen, with the support of President Prodi, have come up with pragmatic solutions which enabled the e-commerce directive to pass rapidly and which appears to work at a formal/informal level. Given the pace with which this technology is developing, the Commission's temporary solutions are probably the best way forward, and any attempt to restructure the Commission, simply to take account of the effect of the Internet on industry, would be taking a sledge hammer to crack a nut.

However, there were steps which we thought could be taken in Brussels to sustain the momentum towards a real co-ordination of policies. One of these was to combine the Industry and Communications Councils into a single competitiveness council; otherwise there is a danger of dealing with technical aspects of e-commerce in one council and the regulatory and industrial aspects in another. The UK Government share that view. We wish them well in their endeavours to secure this change in Brussels. We look forward to the Government implementing many of the regulations which have appeared in our report. I beg to move.

Moved, That this House takes note of the report of the European Union Committee on e-commerce: Policy Development and Co-ordination in the EU (14th Report, HL Paper 95).—(Lord Brooke of Alverthorpe.)

11.25 a.m.

Lord Geddes

My Lords, a year ago almost to the day I found myself in a similar position to the noble Lord, Lord Brooke of Alverthorpe, in opening a debate on a report from Sub-Committee B of the European Communities Committee. At that time I had the honour of being its chairman. In fact, it was my last report.

It was a momentous day and it was also a very sad day. I hope that this will not be a sad day, but I think it will be a momentous day. We have heard the excellent speech of the noble Lord, Lord Brooke. We have the quite formidable—if I may say so—report. Furthermore, we are looking forward with very keen anticipation to the maiden speech of my noble friend Lady Noakes. Perhaps I may return to that at the end of my remarks.

I am not an expert on this subject and I certainly do not intend to go through the report as did the noble Lord, Lord Brooke. As I said, it is a formidable report. I do not recall any report that Sub-Committee B produced during my tenure as chairman that ever went to 40 recommendations. We backed off at about the 20 mark. This report was six months in its gestation. That in itself proves just what a vast and important subject this is.

When reading the report I was impressed at the references to the speed at which technology is changing and the difficulty of authorities—if I may use that expression—in keeping up with that speed. I shall come back to the question of crime and fraud in a few moments.

Perhaps I may mention two or three smaller points. In paragraph 12 of the report, the committee stated: And how global is global? Undoubtedly, the major economies will take rapidly to the new phenomenon, but, individual users apart, this still leaves vast swathes of Africa, central Asia and Latin America in unwired darkness". I emphasise that because we need to put a marker down on that subject. There is a danger in this context of the developed world and the developing world moving further apart rather than closer together.

I look now at the committee's recommendation 7. This recommendation deals with the right to transfer mobile telephone numbers being extended to pay-as-you-go subscribers. I mention this from a purely personal point of view. It took me three months this year to get my previous mobile number switched over to my pay-as-you-go phone. It was an incredible battle. I am glad to say that I eventually won. But that was more by perseverance than anything else. What worried me was the Government's response: Mobile number portability has included pay-as-you-go services since its implementation in January 1999". I am talking about June, July and August of 2000 and it still was not working.

The committee—I am a little fearful in saying what I am about to say—recommended the appointment of ombudsmen, one in this country and one for Europe. I fall back on my experience of reports and inquiries and Sub-Committee B. I say with diffidence that I have my doubts on that. I have my doubts on the practicability of it. As the noble Lord, Lord Brooke, will remember, we came up against this problem again and again in almost every inquiry we conducted. It is a very difficult subject. How much regulation does one need when trying to address the problems that will arise in this kind of activity in commerce?

My final point on the report deals with the Government's response to recommendation 36—that all police forces should develop their capabilities for countering Internet crime and should develop a close association with industry. The noble Lord, Lord Brooke, very rightly stressed that point and was somewhat less than enthusiastic about the Regulation of Investigatory Powers Act. I endorse virtually every remark he made in that regard. What particularly concerned me in the Government's reply was their statement: The Regulation of Investigatory Powers Act will establish new arrangements to help the police to detect and prevent serious crime". By coincidence, I happened yesterday to obtain Statutory Instrument 2699. I do not expect that many noble Lords know it intimately but it is a negative instrument. The Explanatory Notes to the instrument state: These regulations authorise certain interceptions of telecommunication communications"— I do not know who drafted that— which would otherwise be prohibited by Section 1 of the Regulation of Investigatory Powers Act 2000". We have only just passed that Act. Frankly, I am appalled that we should now have the necessity for a statutory instrument, and, even worse, a negative instrument, the purpose of which is to undo what was put into an Act only a month or two ago. I should be most grateful if the Minister could reply to that point.

I finish on a note of reminiscence. Twenty-five years ago almost to the day I was sitting on the Cross Benches, just about where the noble Lord, Lord St John of Bletso, is now sitting, terrified at the prospect of making my maiden speech. All I can say to my noble friend Lady Noakes is that it is much better when it is over. I am not suggesting that she should follow the quite remarkable example of Lord Benson, who was also a very distinguished accountant. Some 15 to 20 years ago I recall him making a speech—it was not his maiden speech—on the subject of accountancy. He was put far too far down the speakers' list; he was, let us say, number 18 out of 23. He did not scratch, as many noble Lords might have done; he stayed the course; he got up, he looked right round the Chamber and said, "My Lords, everything I wish to say has been said", and sat down. It was without doubt the best speech. I have ever heard in this House. We look forward with keen anticipation to my noble friend's speech.

11.33 a.m.

Baroness Noakes

My Lords, it is with considerable trepidation that I rise to speak this morning. I have sat in your Lordships' House since my introduction and have much admired the clarity and erudition of the speeches made by noble Lords. I hope in time to attain those standards of excellence.

It is with hope that I stand here today; hope based on the evidence so amply provided by noble Lords that there is indeed life after one's maiden speech, though there have been times this week when I have had my doubts.

I have spent most of my working life as a chartered accountant—I declare an interest as an adviser to KPMG—and so there is much about your Lordships' House that is new for me. I should like to record my thanks to all those who have helped me to date with guidance and survival tips. I know that I shall continue to need help and guidance before I master the ways of this place. I know, too, that guidance will always be given with much kindness and generosity, however small or foolish my requests. These thanks go not only to the many noble Lords who have offered or given assistance but also to those who work so tirelessly to ensure that your Lordships' House operates efficiently and effectively.

The report before us today is an extremely important one and we should be grateful to those noble Lords who produced it. E-commerce has the potential for the most profound impact on our economy and on the lives of our citizens. The report is timely as it highlights many areas for action to allow us to benefit quickly and fully from the potential of the Internet.

There are many aspects of the report that I could talk about, but I am conscious of the dangers of becoming an Internet bore. I am also mindful of the guidance given to maiden speakers that they are expected to be seen but are not expected to be heard for very long. I should like to speak on two detailed topics and one overarching theme.

I should like, first, to address the business to consumer—or B to C—aspects. If the Internet is to be a complete part of the lives of everyone in this country, consumers will need to have confidence in Internet transactions. I know that the Consumer's Association gave evidence to the committee that nearly 70 per cent of Internet users surveyed by the association had concerns about Internet fraud. If those concerns are not allayed, consumer confidence in the Internet could be shattered. That could have serious implications for Internet penetration in the UK.

One solution could be the establishment of meaningful security marks or seals which give confidence that Internet sites meet standards of data security and consumer protection. The Government's response to the committee's report talks about using the e-Europe agenda to explore this. But in this country we already have the TrustUK umbrella scheme through which an effective and universally recognised hallmark could be developed. I hope that the Government will look at building on this in the UK.

B to C transactions are important because they are a part of embedding the Internet into the lives of everyone in the UK. But I believe that the business to business—B to B—space, which is my second topic, has the bigger potential for unlocking productivity gains for the whole economy and thus benefits for all of our citizens.

The report contains many helpful suggestions. I should like to highlight in particular the recommendation at paragraph 221 that the lessons of the US venture capital industry should be promoted in Europe. I would go further and urge the UK Government to look at their existing initiatives, such as the enterprise investment scheme and the enterprise management initiative. There are complex rules surrounding those schemes which many believe restrict their usefulness in promoting venture capital in this country. The US approach is much more liberal than ours.

I should like also to mention share options, which are a vital part of the financing and employment structures of start-up companies. At paragraph 222 the report correctly highlights the income tax and national insurance implications of share options. Noble Lords may not be aware that, since the report was written, the UK's Accounting Standards Board has issued a proposal to make life even more complicated. Its proposal is that the value of share options be treated as a cost in the profit and loss account, thus increasing apparent losses for companies at a delicate stage in their development. The Accounting Standards Board is an independent body—it is independent of both government and the accountancy profession—but it does listen to views on its proposals. I hope that noble Lords will express their concerns about this potential accounting barrier to the successful expansion of our Internet economy.

I conclude with some brief observations on an overarching theme arising from the report. The pace of technology-led change is increasing. In the Internet world there is talk of change taking place in web-years, which are about three months, or even in dog years, where one year approximates to seven. Government by its nature is not as fleet of foot as the commercial world but its policies do need a sense of urgency. I hope that the Government will move quickly and will also concentrate on liberating the creativity and entrepreneurialism of our economy rather than on controlling it.

The UK is further advanced in Internet use than most of the rest of the world, although we do still lag behind the US. That is a competitive advantage for the UK, which I hope that noble Lords, in supporting rapid action on this report, will be keen to retain.

11.40 a.m.

Lord Haskel

My Lords, it is my privilege, on behalf of the whole House, to congratulate the noble Baroness, Lady Noakes, on her maiden speech—and what an informative and perceptive speech it was. However, we could not have expected less. The noble Baroness is one of those unique people, working as an accountant in the private sector, yet with a great deal of public sector experience. She has worked in the National Health Service and the Treasury. As the noble Lord, Lord Geddes, pointed out, she is an extremely distinguished accountant. Indeed, her current appointments are most impressive. They include the Court of the Bank of England, the Public Works Loan Board, the Institute of Manufacturing, the Institute of Business Ethics, the London Business School and others. I know that I speak on behalf of all noble Lords when I say that, in spite of all those responsibilities, we hope that the noble Baroness will find time to speak often in your Lordships' House so that we, too, may benefit from her unique and very wide experience.

I am not a member of your Lordships' committee looking at issues as regards the European Union, but I am interested in e-commerce. I read the committee's report and the Government's response with great interest. I congratulate the committee on producing such a wide-ranging report. But frankly, I felt that both the paper and the Government's response took a rather managerial view of e-commerce. Many of the matters discussed will be dealt with by time and by technology. The local loop will be opened up and ADSL will become available. Competition in the e-commerce market is sufficiently lively and active to provide those solutions. Furthermore, as the noble Baroness pointed out, it is moving extremely fast.

Indeed, the speed at which developments take place was nicely illustrated by my noble friend when he talked about the stock market and share valuations. The committee was concerned about tax. The recent slide in technology and telecommunications stocks means that many of those share options now appear to be worthless. So the way in which options are dealt with for tax purposes and how they appear on the balance sheet is somewhat irrelevant. What is relevant is whether people will start to walk away from companies and whether companies feel that they have to issue new share options in order to retain them.

However, the really difficult issues are the social issues. The report certainly does examine some of those and my noble friend Lord Brooke spoke about access. I, too, am concerned that e-commerce may open up the social divisions which exist in society instead of closing them. Those who are in the know and are wired up will secure a better rate of interest on their bank deposits with Egg. They will be able to receive their social services and benefits more quickly and efficiently. They will be able to communicate with their local councils, thus securing quicker repairs on their council houses. The answer to reducing social divisions may well lie with e-commerce on our home television sets, but I agree with the committee that such a course is expensive and that strings are attached. In general, I must confess that I was a little disappointed that the committee did not consider the social issues in more depth because those are the key issues that will affect our lives.

The report looks at the matter of trust. I agree with the noble Baroness, Lady Noakes, on this. Trusting the people with whom one is transacting business over the Internet is important; trusting that one will not be cheated. However well e-commerce is regulated in the future—even with the identification marks proposed in the report—ultimately we still have to rely on our own instincts. That is what is done in the course of ordinary commerce. We have developed social antennae that warn us about who we should or should not trust, and who we think will or will not cheat us. Indeed, I agree with the Consumers' Association which stated: Just as you would avoid disreputable looking shops in the high street, so you should avoid sites on the Internet which look dubious". The same argument applies to monitoring. Along with the committee and the Government, I, too, congratulate the Internet Watch Foundation on its valuable work. It has addressed the issues of harmful content and regulation in an exemplary manner. Indeed, if noble Lords will permit my short commercial trailer, I am sponsoring an event for the foundation to be held on 23rd January 2001 in the Moses Room. It will provide an opportunity for noble Lords to be brought up to date on the foundation's important work.

In the same way that we have developed a social code for dealing with commerce, that social code for monitoring behaviour needs to be extended to cover the Internet. When I was bringing up my children, I protected them from danger by teaching them not to take sweets from strangers and explaining why. In that way, they developed their social antennae which warned them of danger. It may well be that today's parents do not feel that they know enough about the Internet to do this, so they may prefer to use software. However, time will deal with that problem, because lack of confidence will most certainly not apply to our children's children. We develop social antennae because it is impossible to regulate everything. This is the way that, eventually, we shall build up the trust that is essential to the success of e-commerce.

Such social development takes far longer than technical development. These kinds of social issues have been with us for a long time. The committee's paper referred to a report published by the Science and Technology Committee in July 1996. I served on the sub-committee which produced that report. Some of the social issues that we identified then; namely, privacy, data protection, copyright, social exclusion and trust, are all still with us today. Because the solutions are social rather than technical, they take longer to resolve.

However, certain things cannot be dealt with by our social antennae. I refer to security and privacy. As the paper points out, these are also essential elements for the success of e-commerce. By security I refer not only to the security of matters such as the details of a consumer's credit card, but also to the security of a trader's commercial assets. E-commerce and the knowledge economy go hand in hand. Let us consider the matter of copyright and the ownership of intellectual property. This is causing problems in the music industry. I am sure that when the committee visited Washington, its members were told of how the owners of music copyright want to shut down the NAPSTER server. People, mainly young people, can obtain free music files from it. However, even if NAPSTER is shut down, people will still be able to download free music files from programs such as GNUTELLA, which employs a completely different technology and where there is nothing central to close down.

If noble Lords will excuse the phrase, such "peer to peer" technology will not apply only to the music industry. It is equally applicable to the rest of the entertainment industry as well as to design, news reports, technical data and other intellectual property. Ways will be found to provide intellectual property free of charge over the Internet. So far, the Government and others have been pretty ineffective in dealing with this problem. However, the danger is that this will undermine business confidence in the Internet. That is because quoted shares in today's knowledge economy are not valued only on profits and fixed assets, but also on a company's intellectual property. I suspect that over the next few years the real beneficiaries of e-commerce may well be the marketing companies. They already put cookies on our computers and our set-top boxes so that they can target us with direct marketing.

As more trading becomes electronic and as more files become digital, it will be impossible to regulate. Even now, I am sure that many of us get junk mail from unknown sources, from which we should be protected by the Data Protection Act. But this will get worse. Perhaps the solution lies not with regulation but with Buchanan International in Glasgow, which has succeeded in mapping the world-wide web and is adding to it everyday. With a map, one can find out the source of any web page.

Perhaps the other answer is not regulation, but having trusted hosts and trusted intermediaries to ensure privacy, provide trusted information, hold payments on goods and perhaps even resolve tax matters. Several organisations have put forward strong cases for this. It seems a fairly simple way of ensuring privacy. We can expect a wave of new intermediary businesses, creating entirely new channels of distribution. The Government will have to think about this and how it can be regulated.

Privacy, both for the consumer and trader in e-commerce, is the real issue. It seems to me that if the Government and society wish to promote e-commerce quickly, as well as developing technology, we need to adapt our social codes and the personal antennae that we have already in our ordinary daily dealings. I suppose we have to be "Internet aware".

For traders, it may well be that if they wish to trade on the Internet and retain their intellectual property, they will have to work through new channels of distribution. These are the hard issues that need to be addressed in developing and co-ordinating e-commerce in the European Union.

11.52 a.m.

Lord St John of Bletso

My Lords, I join in congratulating the noble Lord, Lord Brooke, and his committee on this excellent report. While it addresses the issues that need to be addressed for accelerating e-commerce, it also touches on many of the broader issues which need to be addressed as the whole Internet revolution matures. While I am glad that the report will provide, in the words of the Minister in his response, a valuable point of reference to the Government", I hope also that it will be distributed more widely to the general public as well as to businesses.

Sadly, all too often the Select Committees in your Lordships' House produce wonderful, elusive reports which get scant recognition from the press. As a result, the general public is unaware of these reports. This report particularly is an excellent point of reference for businesses and individuals alike who are now embracing the challenges and opportunities that the Internet provides.

I should at the outset declare an interest. I am the managing director of Globix, which is a NASDAQ-listed company. It is a provider of managed Internet services and connectivity for businesses worldwide. I shall be focusing most of my comments on the needs of businesses rather than those of consumers. While the report highlights the key issues of access, trust, resources and the need for proper monitoring, I should like to make my comments as a practitioner who comes into daily contact with companies— both old economy companies and new economy companies, as well as the smaller and medium-sized enterprises—that are facing the major challenges now.

It is well known that more than 70 per cent of UK businesses have almost no Internet strategy. Yes, they may have a website, but most companies have no idea about the need for co-location, dedicated access, managed services, web casting and the many other permutations that the Internet provides. An e-commerce divide is certainly developing between the large corporates and the SMEs. Whereas it was thought that the Internet would mean greater opportunities for SMEs to compete, the cost barrier to developing and hosting websites means that many SMEs are priced out of the market. In my opinion, the major barriers to entry—technical infrastructure, funding and the building of global customer bases—will result in many, if not most, of the new economy companies going bust.

The current stock market melt-down, to which the noble Lord, Lord Brooke, referred, is making it almost impossible for many new economy companies to raise the necessary funding to survive in this increasingly competitive environment. I see the market going through an almost "pain and gain" scenario. Invariably most new economy companies will not succeed over the next six months, but next year and the year after I believe there will be massive consolidation in the sector.

One of the greatest threats to the acceleration of e-commerce in the UK is the lack of skilled workers. There are approximately 20,000 new IT graduates generated by universities every year. Britain already has a shortage of almost 50,000 IT professionals. According to the recent IDC professional services report, it is estimated that 50,000 IT professionals with new e-commerce skills will be needed every year if UK demand is to be met. Training in the United Kingdom is not developed enough to retool people from old IT and other skills into the new age Internet skills such as JAVA, HTML and the many new applications of the e-commerce era. I therefore warmly support recommendation 279 of the report that schools and other bodies should start training those who are out of work in this new opportunity.

Office space is a huge issue for small start-up companies. The cost of property in London and many of the major cities makes it extremely difficult for small companies to get offices due to their lack of covenant and track record. The Government should encourage the setting-up of technology parks and centres close to many of the major cities.

The noble Baroness, Lady Noakes, raised an important point in her excellent maiden speech—a point also raised in recommendation 30 in paragraph 58 of the report—that is, the issue of stock options. The current financial policies in the UK towards the taxing of stock options limit the attractiveness of small innovative companies as employers. I am also alarmed by the recent recommendations of the Accounting Standards Board relating to share-based payments. I hope that the Government will give serious consideration to treating stock options as capital and not income, as well as to the concerns about national insurance contributions.

Finally, I should like to touch on the issue of m-commerce. Non-PC devices are expected to outsell PCs by 2002, eventually outselling them by a factor of 10:1 by 2010. That will have a profound impact on many of those who are using the traditional methods of accessing the Internet through PCs. They will—certainly through mobile telephones—provide the backbone of access technology for the next generation of e-commerce. According to the International Data Corporation website, 94 per cent of Internet traffic is now generated by PC use; a decrease to less than 50 per cent is predicted for the foreseeable future.

In the cyber world, the need for secure, portable authentication will become essential. We are rapidly entering a time when cash and credit cards will be replaced by on-line virtual currency. Yesterday I met with the business development team of Sonera, the major competitor to Nokia in Finland. It is remarkable how much more advanced the Scandinavians are in services, particularly the use of telephones. I say as a practitioner that it is estimated that many businesses in the UK are almost 18 months behind the United States in terms of appreciation of the Internet. I certainly believe that the UK and many parts of Europe are almost three years behind the Scandinavians in the use of mobile telephones, particularly in the field of e-commerce.

There is no doubt that m-commerce will become a huge business, but in my opinion the rollout has been radically curtailed by the Government, with the huge licence fees that are charged to operators. The obvious result is that once services are launched they will be at high prices in order for the operators to recoup their costs of entry. I should be interested to know whether there will be lower costs for data calls than for voice calls from mobile devices.

The noble Baroness, Lady Noakes, mentioned the need for quality (ISO 9000) standards. I wholeheartedly support the noble Baroness. It is increasingly difficult for many consumers to identify with the proliferation of websites which pass the quality standards.

Finally, the noble Lord, Lord Geddes, mentioned the "unwired darkness". Fortunately, with the advances in satellite technology in many parts of the world where there are no fibreoptic connections—particularly in Africa—the emergence of satellite technology will be fulfilling those needs.

I could ramble on and on. This is an excellent report. I wholeheartedly support its many recommendations. I am delighted that in their response the Government have in many ways agreed to take up the mantle.

12.4 p.m.

Lord Faulkner of Worcester

My Lords, perhaps I may add my thanks to my noble friend Lord Brooke of Alverthorpe for initiating this debate. I congratulate him on the leadership he showed as the subcommittee's chairman during the inquiry.

This was my first Select Committee investigation as a Member of this House, and I should like to say how impressed I was with the thoroughness and care with which it was conducted. I join my noble friend Lord Brooke in thanking our Clerk, our special adviser, the other support staff and the many witnesses who contributed so much to making it a fascinating and worthwhile experience.

Most of us on the sub-committee had little or no technical experience or background in the area of e-commerce, other than as Internet users and senders and receivers of e-mail. So it was particularly important that we were able to receive expert advice in language that we could understand. It was a vast subject. I am sorry if my noble friend Lord Haskel felt that there were fields that we did not move into during the course of the inquiry. We were limited by time and by our terms of reference. I am encouraged, as I am sure are other members of the sub-committee, by the kind comments of many noble Lords about the report.

A number of themes emerged from the evidence we received and from the witnesses we examined. I should like to deal briefly with two of them. The first is the question of access to the Internet; the second is the need for greater consumer protection—what we refer to in the report as "trust". We received many submissions on these matters, both during the inquiry and in the days leading up to this debate. I imagine that many noble Lords have received submissions on these subjects in their postbags.

It is clear that there is a great deal of dissatisfaction over the speed at which cheap good-quality access to the Internet is becoming available. The range of ways in which people can obtain access is growing all the time—through digital television, mobile phones, new Internet cafes and business centres, as well as greater owners hip of personal computers—and the Government have set a target of ensuring that everyone who wants it will have access to the Internet by 2005.

I am particularly pleased that there is an initiative by the Government to connect the homes of people living in disadvantaged communities to the Internet, using various technologies such as a standard telephone line, broadband technology and digital television, so that they can access a range of national and local services and develop links with local schools. This could help deliver the national curriculum and build better home-to-school links.

A £500,000 pilot scheme has already been announced for Liverpool to wire up 2,000 homes and use recycled computers. It will, I understand, be followed by others in the new year. There is also a Computers Within Reach scheme, delivering recycled PCs, printers and software, run by regional consortia and based on areas of need, particularly for people who are recipients of out-of-work benefits. This is very much in line with the range of recommendations dealing with access in our report. It also strongly underlines the need t o bring down the cost of access to the Internet, and to increase its availability.

At the heart of this is the achievement of local loop unbundling by the end of this year—the date contained in the e-Europe Action Plan. It is not acceptable for this date to slip to the middle of next year or later, as some are now suggesting. As the noble Baroness, Lady Noakes, said in her formidable maiden speech, the speed of Internet-based innovation and development means that an Internet year is the equivalent of just three calendar months. So to delay six months is like waiting two years. That is a huge challenge for a government and Civil Service machine that are not used to moving at anything like that kind of speed.

As I am sure my noble friend the Minister will say in replying to the debate, the Government are aware of what needs to be done. We have seen the appointment of an e-envoy, and the appointment of the Webmaster-General is further evidence of that. The introduction of UK-online centres, connecting public libraries to the Internet, and Internet access in post offices are all welcome steps. These are powerful reasons why there should be no slippage in the timetable for local loop unbundling.

I was concerned to read in the Parliamentary Monitor last week—and this was confirmed by my noble friend Lord Brooke in opening the debate—that we may have fallen behind Germany in the race to unbundle the local loop. I hope that the Minister will be able to reassure us that we shall be able to catch up. Once the unbundling is achieved, greater competition will be offered by telecom companies and by ISPs to offer Internet access to consumers at lower prices than can presently be found.

As that happens, there will also be a need for much greater consumer education than is presently available. It is fine for the real enthusiasts—those who might be called the "techie-anoracs"—to pore over the fine print of every offer that comes through the door from an ISP or a phone company. I had a smart CD offering me allegedly free Internet access arrive unsolicited through my letter box only last Saturday. I dare say that the experts will be able to pick out which are the good offers and which are the "duds", but for most people it is a bewildering jungle of competing offers and competing sales pitches. It is hard to tell which are worthwhile. There needs to be an objective guide to value for money and best practice. In paragraph 256 of the report we recommend the appointment of an e-commerce ombudsman. Such a person would be an important champion for the consumer. That would certainly be helpful.

We certainly do not want to see a repetition of what happened at the beginning of this year when some of the biggest Internet service providers appeared to promise free unlimited access and then could not deliver. As the Guardian reported on 21st October, AltaVista made the biggest noise about its free service and suffered the biggest humiliation when it couldn't handle the massive demand". The Consumers' Association has demanded that ISPs should make the terms of unmetered access clear to customers. That is particularly timely. I agree very much with the comments of one of their spokesmen on 5th October that: ISPs offering an unmetered service have seemed more interested in increasing their customer numbers than in delivering the services that consumers were originally promised when they signed up. Competitive markets work for consumers when people can shop around in confidence. Recent press reports suggesting that Freeserve would withdraw its unmetered access service from heavy users seems like another example of an unmetered offer that can't live up to the hype. If Freeserve has found itself caught out by the heavy usage of its customers it should accept its share of the blame. On its website, Freeserve's Unlimited Freeserve Time service offers 'unlimited Internet calls day and night, 365 days a year'—consumers obviously took the company at their word". That leads me to my second and final point which also concerns consumer protection and the need to counter illegal activity. Here I commend paragraphs 259 to 262 of our report. Rather to our surprise we were told that the incidence of credit card fraud on the Internet is less than exists in what one might call the "outside world". The copying and theft of credit cards is far more of a problem, it seems, in areas unconnected with the Internet, such as petrol stations and restaurants. But there are real difficulties with the placing of orders online. The Institute of Trading Standards has recently completed a study which showed that there were problems with 38 per cent of orders placed via the Internet. The difficulties people experienced included the despatch of fake goods; holidays falling far short of expectations; non-existent postal addresses and phone numbers for companies sending goods; inaccurate price information and misleading advertising. According to a report in last Sunday's Observer, for 17 per cent of orders, goods simply failed to appear, either forgotten, out of stock, or blamed on 'system crashes'". The second trading standards survey covered 70 shopping sites and found that a quarter of them were insecure as credit card data was not encrypted before being transmitted. In the same way as there are consumer protection procedures in place for dealing with conventional shoppers' problems, more needs to be done to establish consumer confidence for people ordering goods and services online. Much of this ground was covered in the sub-committee's inquiry but it demonstrates that we have a long way to go before arrangements are in place in which we can all have confidence. I hope very much that noble Lords will feel that the sub-committee's report will help us move in the right direction.

12.14 p.m.

Lord Chadlington

My Lords, besides being a member of the sub-committee which produced this report, I should immediately declare an interest as chairman of several companies with interests in the Internet and in e-commerce. I most warmly welcome the debate. I am sure that the whole House is grateful to the noble Lord, Lord Brooke, for giving us the opportunity to debate it at such a timely juncture.

I must also reaffirm, as others have done, the strong leadership we received from our chairman, the noble Lord, Lord Brooke, and express the appreciation of the sub-committee for the unceasing hard work and commitment displayed by the Clerk to the committee and the specialist adviser. I add my congratulations to those of other noble Lords on the spectacular maiden speech of my noble friend Lady Noakes.

Whatever the current gyrations of the NASDAQ, the Internet and e-commerce are a permanent feature of the global business environment. There is no way back from that position. According to recent estimates, there are now 378 million people online in the world, 106 million of whom are in Europe. Increasingly, we communicate by e-mail. It is predicted that 35 billion e-mails a day will be in circulation by 2005. E-commerce is soaring. Forrester's latest research suggests that global Internet trade will hit 6.8 trillion dollars by 2004. Of course, this revolution is not without its problems as the recent volatility in tech values on the NASDAQ has shown. Government have a responsibility to ensure that the issues which arise from the e-world in which we now exist are properly examined, addressed and, if necessary, are subject to some degree of regulation, whether by government or European bodies or more informally by industry bodies.

Noble Lords who have spoken before me have already touched on a number of aspects of the report, but I trust that noble Lords will allow me to highlight just four areas with which I am particularly concerned. However, I shall discuss two of those only briefly—venture capital and share options—as they have been more than adequately covered already.

The first issue is that of convergence. Until very recently we would have talked about a television set, a computer and a mobile phone as quite separate entities. Today all are converging into one home and business activity. As we all know, Internet access will no longer be restricted to [...] PC, but increasingly we shall have access through our mobile phones and our television sets. Televisions are particularly significant in this regard, as everyone, regardless of age, is familiar and comfortable with this medium. Internet access through TV, therefore, will encourage people of all ages, particularly those of the older generation who find computers somewhat bewildering. Indeed, the BBC in its written evidence to the sub-committee, asserted that digital TV is likely to reach that 60 per cent or so of the European population who will not have access to PCs in the short to medium term. This convergence will completely transform our economy and, as has already been pointed out, have a significant social and cultural impact.

In theory, convergence therefore means a much wider section of society will have access to the business, educational and leisure benefits of the Internet. However, in practice, things may be very different. Datamonitor predicts that only one out of five households in Europe will have interactive TV by 2003. That leaves four out of five—or 80 per cent—of the European population without interactive TV. Those figures are worrying but I always take forecasts with a certain pinch of salt. According to McKinsey, in 1984, when the first cellular licences were awarded to the first two mobile telephone networks, the DTI came up with a forecast of the usage of mobile phones by 2010. The estimate was 300,000 people. Today 30 million people in the United Kingdom own mobile phones!

Surely, however, any increased access can only be a positive development. There is, however, a significant risk, which again the BBC outlined in its evidence, that digital TV could actually worsen the problem known as the "digital divide". It appears that the way in which the technology is developing may result in consumers with Internet access through digital TV not having the same full range of services that those who have Internet access through a PC currently have and consequently paying higher prices. This is most simply expressed by the example the BBC gives, Few people would buy a mobile phone that only worked with others on that particular network". Clearly, we are obligated to ensure that widening access through convergence of technologies results in a consistent level of service for everyone, regardless of which appliance they use, at a cost that does not prove prohibitive to large sections of society and yet provides a market in which competition can thrive.

The sub-committee recommended that the Government and the European Union also consider certain other questions regarding Internet access via digital television. Why is it taking so long? Why is it so difficult for a consumer to gain this access? Why is it so costly? How can it be rolled out as quickly as possible? How can it be extended to those who are at present excluded? These are urgent questions demanding urgent unequivocal answers.

The second issue is on a different track—it has already been mentioned—the capital funding of new start-ups and early-stage companies. It is evident that the ability of fledgling companies to secure venture capital funding quickly, easily and effectively is, and will be, one of the central drivers of e-commerce growth. The collapse in value of Internet companies, the re-evaluation on the NASDAQ all make venture capitalists very nervous. But it is probably only a matter of time—only a matter of the cycle of our economies—which will see the best of these e-commerce companies recover their value. However, it is clear that Internet companies which are no more than "it seems like a good idea.com" will find it harder and harder to get funding. But those new e-businesses—in particular those with a traditional old economy background—which are soundly, commercially based must not be starved of capital.

One witness, Mr Bob Litan, Vice-President and Director of Economic Studies at the Brookings Institution, claimed that the most important factor which ensured the US lead in e-commerce was the parallel rise of venture capital firms and the liquid securities market. Over the past 10 years, 50 billion dollars have been produced.

In the report we recommend that the EU and the UK Government, promote the lessons of US venture capitalism in Europe". The sub-committee felt most strongly that the growth of e-commerce in Europe is largely down to the creation of an environment for venture capital similar to that in the United States. If the UK is to lead the world, as it already does in telephony, this imbalance must be corrected.

The third issues—again, it has already been raised—is: how should we treat stock options for employees of e-commerce firms? Again, the UK has been unfavourably contrasted with the US. It is self-evident that stock options should have become the favoured currency for rewarding employees, particularly for those who are being lured away from the comparative safety of a traditional career. Quality of management is essential in these new businesses, yet cash must be reinvested into fledgling organisations while at the same time employees must be well motivated and encouraged to remain with a company for the medium or long term. The remainder of what I would have said on the subject has been so well covered, I shall not go further into it.

The final issue I wish to raise is the readily available access to pornographic material by children who have access to the Internet. I regard myself as something of a liberal in terms of censorship and pornography. But my anxiety stems from my family of four young children who spend many hours a week online and for whom watching television is very much a secondary activity to surfing the Net. My concern has been heightened considerably by newspaper coverage this week of a paedophile who used a cyberspace chatroom to seduce a 13 year-old girl and did indeed go on physically to attack her. I understand from newspaper reports that 4 million children between the ages of seven and 16—those are near the ages of my children of 10 and 16—regularly surf the Net. It is imperative that we ensure that they are adequately protected at all times.

One of the much vaunted opportunities that the Internet offers is a voice for everyone, everywhere. However, as with most opportunities there is an equal and opposite threat—that this freedom of expression is abused by a criminal element. The Internet has no editor. So it is up to us all, in government, industry and as parents, to ensure that our children are able to take full advantage of the educational and commercial opportunities that the Internet offers while not being exposed to pornographic material or put within the reach of paedophiles.

This is not by any means a straightforward task. With over 1 billion web pages to police, and many sites outside the jurisdiction of the UK, it is perhaps a nigh impossible task. Also I am sure that I speak for most parents when I say that as my children's technological skills are far superior to my own, monitoring their access at home is more than a little tricky. However, everything that is possible must be done to tackle this very real and disturbing issue. Therefore, the sub-committee recommends that the Government take full advantage of the existing expertise from independent monitoring organizations—for example, the valuable work which the Internet Watch Foundation carries out—to address the issue of harmful content. In addition, we should like to see such organisations conforming to the principles of good regulation as laid down by the Cabinet Office's Better Regulation Task Force.

In conclusion, the report highlights some pertinent and urgent issues which the Government must address. E-commerce and the Internet is not something that can be put aside and dealt with at a later date. This is a revolution. Its development is swift and unceasing. If the UK and Europe are to boast of an environment conducive to high growth in e-commerce and an attractive market-place in which global industries will want to do e-business, we must be in the vanguard but keep a watchful eye that in so doing our openness is not exploited by those with baser motives.

12.26 p.m.

Lord Woolmer of Leeds

My Lords, as a member of the subcommittee perhaps I may join with the noble Lord, Lord Brooke, in expressing my appreciation of the tremendous work undertaken on behalf of the committee by Professor David Targett of Imperial College, as adviser, Patrick Wogan as clerk to the committee, and Michelle Sampson as secretary. I also congratulate the noble Lord, Lord Brooke, not only on his splendid introductory speech today but also on his clear guidance and firm chairmanship of the committee in what was a wide-ranging and at times complex review. I must declare an interest as a director of three companies with strong IT sector interests.

The Internet technology revolution is indeed transforming ways in which businesses operate while the impact upon consumer choice and behaviour is as yet more limited. However, on top of e-commerce, e-business, m-commerce, now is coming i-commerce—the commerce of information, transforming education technology and opportunity and the integration and delivery of multi-media services.

As with television, I believe that consumers will engage in a widespread manner on the Internet only for purposes of entertainment. As they use it more widely for entertainment, they will engage in ancillary activity. That is relevant to the question of local loop unbundling and broadband to which I shall return.

The impact upon entrepreneurial culture in the UK and elsewhere has been dramatic. It would be useful for noble Lords to welcome the opportunities provided in recent years for innovative ideas and risk taking especially among the vast pool of talent among our younger generation. There has been a transformation in the engagement of younger people with opportunities opened up to them which only a generation ago would have been regarded as only for people in middle age. There has been a sense of excitement in the e-commerce sector. One has only to work in it to recognise that. Despite all the problems we have mentioned today, we should never lose sight of the fact that it is a tremendously exciting and continuously changing area of the economy which is transforming attitudes as well as opportunities.

I have two issues to raise. I particularly enjoyed the speech of the noble Lord, Lord St John of Bletso, who touched on a number of issues that I have now carefully edited out of my speech. I endorse everything that he said.

The UK was taking a lead in opening of telecommunications infrastructure, but we have slipped in the league table. That is not the only issue, but it is important. Access to the final link between homes and businesses and the telecoms local exchange remains too slow. There have been developments elsewhere in Europe, particularly in Germany. BT currently takes nine months to link up a customer from the time that the competitor asks for access. In Germany, that period is 23 weeks. Oftel says that it could be four weeks, but British Telecom does not agree.

Meanwhile, BT has already installed broadband ASL on 500 out of 6,000 potential sites and will do so on a further 350 by March 2001. Having competition is not the only issue. When that competition is allowed to come in should not be overlooked. In the meantime, the quasi-monopolist is already establishing the services and beating the potential competition to the marketplace. The speed of granting access to the competition is as important as allowing competition in the first place. I urge the Government not to be content with the modest start in July 2001—rather than January 2001—but to put real power to Oftel's elbow to get matters moving more speedily.

The training and skills deficit is a worldwide issue. It is worth noting in parentheses that the proportion of women to men in the ITC sector is 30 to 40 per cent in the USA, but less than 5 per cent in this country. The enormous lack of participation by women in this exciting technological revolution is a hidden issue.

The supply of IT and science graduates is inadequate, but the level of their skills is widely regarded as satisfactory. One problem is that people with IT skills in this country are very weak in business skills. I welcome the many schemes that the Government have introduced to improve the situation, including the science and enterprise challenge, but it remains a severe problem. Many small and medium-sized enterprises and business start-ups falter because they lack the necessary business skills and awareness at the stage when that becomes more important than technological know-how and ideas.

An even bigger problem is the appalling lack of IT awareness among non-IT graduates in this country. A vast number of those who are driving e-business and e-commerce, undertaking executive and managerial roles, are not IT people and do not have that awareness. That is a severe problem in e-government. We have far too few people in the Civil Service who understand and are aware of IT in principle and the business restructuring opportunities that it offers.

When I talk to people in the industry, they comment on the contrast with graduates from the former Soviet Union, where mathematics and science are very strong throughout schools and universities for a large proportion of graduates. I was greatly concerned a few weeks ago to hear it suggested that mathematics is not important throughout our school education. School mathematics and physics remain desperately in need of strengthening.

I should like our science graduates to be made more business-aware and our students of other disciplines to be made more IT-aware. That means not just knowing about computers, but understanding the business, commercial and technological possibilities and the challenges that flow from that in their employment.

There are one or two clusters in this country where companies and businesses with similar IT interests have been brought together, but there is still room for the development of further clusters around our higher quality universities and the promotion of innovation centres and closer connections between universities and industry, particularly SMEs.

Notwithstanding the Select Committee report, a number of venture capitalists have told me that the current problem is not the supply of venture capital funds, but insufficient demand to take up the money available. That is partly because of the lack of awareness among SMEs and start-up companies of how to go about things.

We also need to address the issue of visas and drawing on a pool of international skills. There is an international skills shortage, so if we import skills we are drawing people away from their own country. I know from my contacts in China that the Government there are concerned that once students leave the country, they will never go back. In a competitive age, the UK Government have said that they intend to take steps to increase the flow of overseas skills in IT and related areas. So far there isprecious little evidence of that. I may have the timetable wrong. I should be grateful if the Minister would tell us about the progress of those initiatives to allow foreign students to stay in this country for up to two years after graduating and to allow foreign nationals to come in through companies if there is a demand.

Time and again I hear foreigners say that getting a visa is not just very difficult, but often a humiliating experience. There is a deep cultural problem in our immigration services. I urge the Minister to ensure that that is overcome. It is no good saying that we are going to welcome people if highly skilled, intelligent, able professionals are treated as if they are unwanted, despite the IT demand for them.

In conclusion, I again congratulate the noble Lord, Lord Brooke, on his speech. I hope that the House and the Government are persuaded by many of his arguments. Above all, I hope that the Government will put more energy into local loop unbundling to speed things up on behalf of consumers and small businesses.

12.39 p.m.

Lord Watson of Richmond

My Lords, I add my congratulations to the noble Baroness, Lady Noakes, on her remarkable maiden speech. She spoke with great clarity, great authority and, regardless of how she felt, great confidence.

I declare an interest. Like the noble Lord, Lord Brooke, I am an adviser to Andersen Consulting. Although it is not a commercial interest, perhaps I should also say that I am a member of the charities committee of British Telecom.

As has been said, this is an excellent and timely report. I was particularly interested to read on page 56 the reference to "a new industrial revolution". I believe that that term is appropriate because of the scale and the implications of what is happening. The same part of the report referred to the enthusiasm and willingness of people and organisations to adapt. The committee constantly came across that in its work and in the evidence that it took. That is absolutely true. The noble Lord, Lord Woolmer, referred particularly to the enthusiasm of younger people. An infectious enthusiasm does exist. It may have its downsides but it is a great driver. There are not many issues about which so many people have so much enthusiasm. I believe that your Lordships should recognise that fact and welcome it.

I certainly encountered both enthusiasm and willingness—indeed, eagerness—to adapt by individuals and organisations. I have been asked to chair a conference next month in London called The World Internet Forum, which will bring people from all over the world to discuss the implications of the Internet revolution on society, on economies and on the relations between governments and citizens. Therefore, the scale of the revolution is widely acknowledged.

Despite that, there are causes for concern in the UK. Of course, much progress has been made, some of which has been referred to. An e-envoy and a Minister with sole responsibility in this area have been appointed, and there are the targets of [e-mail], an important document, and e-government: a strategic framework for public services in the Information Age. There is a plethora of initiatives; nevertheless, there are also causes for concern.

The same applies in Europe and inside the European Union. The Lisbon Summit has taken place and the e-Europe Action Plan has been introduced. Reference has been made to the best efforts of Commissioner Liikanen in Brussels and, indeed, to the speedy passage of the directive. However, there is no cause for complacency, let alone triumphalism, either in the UK or in the European Union.

It is true that we can now talk historically about the net and about the e-commerce revolution. In some ways the United Kingdom has led the way. The report notes that the English language dominates the web. Declaring another interest as chairman of the English Speaking Union, of course I believe that that is a marvellous phenomenon. In this country we have tried, for example, to initiate debate over the net between teams in different countries. I believe that in due course the Internet debate will become an important democratic form in its own way. However, it seems to me to be imprudent to boast that we still lead the way or that our leadership is automatic, as I heard a Minister do only a few weeks ago at the forum on the Internet in London.

The noble Lord, Lord Brooke, made reference to the PricewaterhouseCoopers report. I shall quote the figures again because I believe that they are so important. They sit very uneasily with some of the more complacent assumptions which are quite common in the UK and in the UK media in particular in relation to this subject. Fifty-six of the top 150 Internet companies in Europe are German and, of those, 50 per cent are profitable, compared with 35 in the same list which are British, of which only 26 per cent are profitable. The PricewaterhouseCoopers report shows a clear lead of B2B over B2C in the development of the net. An extraordinary "burn rate" characterises B2C companies. I believe that one issue to have come out in the debate this morning is that, if we are to achieve the growth which was originally anticipated and which is necessary, much more confidence must be given to consumers in the use of the net in B2C form.

In some of its evidence the report of the Select Committee reflects a rather foolish series of assumptions about what other countries are doing. I made reference to the German example, but on page 32 the committee quotes as evidence the report, The Building Blocks of Growth in the "New Economy". That report twice refers to "double minus ratings" for the development of the Internet in respect of Germany, France, Greece, South Korea and India. We all know of India's software prowess and, with reference to Germany, for example, one has only to consider that a few weeks ago the Siemens company announced a 1 billion euro investment to place all its transactions, internal and external, on to an Internet platform. That is not something which should rate dismissal. Therefore, there are no grounds for complacency.

I believe that we must move on the report's key recommendations. I hope that the Minister will say something about those in his response to the debate. With regard to access, I should like him to comment on the situation whereby the United Kingdom and the European Union insist on the local loop being unbundled by the end of this year. We are very nearly at the end of this year. The second is that Oftel should do all that it can to accelerate and complete the roll-out of ADSL technology. With regard to resources, a number of noble Lords have made the point—but perhaps we may also hear a response from the Minister—that the Government should be encouraged to treat stock options as capital and not as income. That could produce a great freeing-up of potential investment.

Equally, there is no cause for complacency with regard to Europe as a whole. As the report graphically illustrates, the United States dominates this new industrial revolution and its dominance could increase. Commerce on the Internet last year may have been as high as 180 billion dollars (mainly B2B). Two-thirds of that occurred in the United States. GSM, mobile telephony and WAP phones may give Europe a technological advantage. Scandinavia has certainly led the way in many fields, and Internet use (a fact quoted in the report) is now growing faster outside the United States than within it. However, the United States is the site of 70 per cent of total worldwide Internet hosts. Seventy-three per cent of secure Internet servers are in the United States. Most bandwidth capacity is in and out of the United States. Those are enormous, monumental characteristics of the industrial revolution.

Above all, it is no "cyperbole"—a wonderful word which I am glad that the report picked up—to admit that the ethos of the Internet is determined by its parentage. That is not by any means a matter only of language; it is part of the assumptions that have lain behind the Internet revolution in the United States, one of which is quoted in the report as "a sense of global mission". The Americans have been positively evangelical about the Internet. It is one thing for people to be enthusiastic; it is another for them to be determined to go out and transform the world with this technology.

As I said, GSM may give Europe a technological lead, although I believe that, as a result—a point made very well by the noble Lord, Lord St John of Bletso—the cost of the licences involved in the relationship of mobile telephony to the Internet will carry a real impact, price and restriction. Europe may also be distinctive in its characteristic concern, as shown in the debate and referred to in Lisbon, with the social impact of the Internet and of e-commerce. There is a serious European-wide commitment to education. All that may be distinctive.

But perhaps I may suggest one other area where we might be distinctive. On page 15, there is an extremely useful glossary, particularly for beginners, with descriptions of e-commerce—B2B, B2C, G2C, G2B and G2G. I strongly recommend that little summary. I suggest another which could be added. What about not so much G2C—government transactions as they impact on the citizen—but rather C2G; namely, citizens to government? That would be an interesting development of the Internet. Indeed, if mobile telephony becomes a characteristic aspect of the net in Europe and digital convergence also takes off and moves, as we all hope in the end it will, there is the potential in this technology to create a new dialogue between citizens and government, both at a UK and European level.

It would not be so much about closing the digital divide, but rather it would be about addressing the democratic deficit. That would be very good. If the net had been more active in helping government to understand what citizens were thinking, would we really have got into the mess which we did over BSE, fuel prices and Railtrack? For the Government to hear the concerns of the citizen, not through the distorting trumpet of much of the media but directly, would surely be an extremely positive step for democracy. That is a characteristic emphasis from these Benches.

In summary, perhaps I may say what an excellent report this is and what a service the noble Lord, Lord Brooke, has done for this House and, indeed, for the debate throughout the country about the implications of the new industrial revolution. I am sure that we are all united in expressing the hope that this is a sphere in which not only our country can compete successfully with others but that this revolution can be an enhancement to the quality of life of the citizen.

12.52 p.m.

Baroness Buscombe

My Lords, it gives me great pleasure to begin my contribution to this important debate by congratulating my noble friend Lady Noakes on her excellent maiden speech.

We are extremely grateful to the European Communities Select Committee for giving us this opportunity to debate e-commerce and we congratulate the Select Committee on initiating this inquiry. This report produced by Sub-Committee B is wide-ranging and addresses those issues which impact upon accelerating e-commerce here in the United Kingdom and across the European Union.

As my noble friend Lord Geddes said today, it is an enormous subject and one which is developing at such tremendous speed, perhaps equivalent, as my noble friend Lady Noakes suggested, to dog years. Only last week I witnessed the launch of BT Openworld, broadband technology in action, which is transforming the speed of access and flexibility of use.

With reference to the report and with regard to access, we welcome the Select Committee's recommendations and in particular its "insistence" that the United Kingdom should achieve local loop unbundling by the end of this year. In addition, we agree that Oftel should insist that British Telecom roll out its asymmetric digital subscriber loop technology by the earliest possible date.

Costs for Internet users is also a key factor affecting access, whether it be for business or personal use. For example, as AOL Europe stated recently: One of the main explanations for the lack of confidence in online shopping is simply lack of use of the Internet. In this respect, a recent decision by OFTEL to require BT to provide unmetered wholesale prices to Internet providers will be vital in freeing people up from the ticking clock while browsing online. The move to unmetered access was a critical step in launching mass Internet use of e commerce in the US". AOL Europe went on to say that the UK now has a strategic lead in Europe in this area, but if UK e-merchants are able to make the most of selling to the EU single market, it is now vital that other countries adopt the UK approach.

We fully support the Select Committee's recommendation that the EU and the United Kingdom should consider how universal access can be met and with which technologies and that the privileges associated with Internet usage apply equally to all sections of society. In contrast, however, I applaud everything that my noble friend Lord Chadlington said today about harmful content and the dangers implicit in ease of access by our children.

In addition, I personally find deeply patronising the suggestion in paragraph 281 of the report, and the Government's response in their recommendation 8, that we can somehow achieve balanced usage of the Internet by working with women's groups, as though women need special treatment because of their sex. Does the e-Minister in another place feel she needs special treatment I wonder?

With regard to trust, we are pleased that the Select Committee has addressed the question of jurisdiction and the conflicting EU proposals between service providers' preference for the country of origin principle and the consumers' preference for the country of reception.

Indeed, we are particularly concerned by the vote on 23rd September 2000 in the European Parliament on the Wallis report and the stance taken by the plenary in favour of the powers of the courts of a consumer's country of residence for litigation between the consumer and a company selling its products through e-commerce. We are concerned that should the Council follow the European Parliament's opinion, a company wanting to sell its products over the Internet would be running the risk of being sued in any member state, which would deter SMEs from using the Internet. Can the Minister comment upon that case?

With regard to proposals for some form of pan-European alternate dispute resolution, I must declare an interest in that approach as a patron of the Foundation for International Commercial Arbitration and Alternate Dispute Resolution. That route should be kept under review. We are not, however, in favour of an e-ombudsman. We fear that that spells more bureaucracy.

With regard to resources, we welcome the Select Committee's comments on the tax treatment of stock options. We believe that the tax arrangements for stock options must operate in such a way as to provide an incentive to skilled personnel in the new economy.

However, references to the venture capital industry, which form a surprisingly small part of the report, given that e-commerce cannot develop without resources and given that the venture capital industry is the driving force behind start-ups, express a view which we believe is at odds with reality.

Indeed, some of the terminology used in the report—for example, in paragraph 56 which states, We recommend that the EU and the United Kingdom Government promote the lessons of EU venture capitalism in Europe", and further, in paragraph 220, evidence shows first that the quality", and I stress the word "quality", of venture capitalism is essential for the growth of e-commerce"— is a real concern.

Yes, there are aspects supporting the US venture capital market that are not yet fully matured here; for example, the availability of serial entrepreneurs, a more experienced stock market for technology companies and the existence of a highly developed infrastructure of advisers, investment banks, incubators and business angels.

However, it is not the "quality" of venture capitalism in the UK which needs to be addressed, and certainly not by any government. Rather, it is the negative cultural attitudes towards entrepreneurial activity that need to be overcome.

In addition, and I quote from the submission by the 3i Group which stated that, we believe the European markets are developing fast and the relative immaturity of the European markets is not due to a shortage of investment funds or a reluctance to invest on the part of venture capitalists. On the contrary, there is a huge amount of investment funds looking for homes in the e-commerce area at all stages of a business's development and the entry into Europe of US institutional funds ensures there is no logical reason, except in the short term, for the overall markets to apply significantly different risk/return thresholds". We are surprised that neither the British Venture Capital Association nor the European Venture Capital Association, two highly regarded, established bodies, were not approached to give evidence, since the report's conclusion seems to base itself very much on the funding technology report, which is a series of interviews with US venture capitalists. It is difficult to imagine an equivalent report in the US ever stating, however phrased, that venture capitalism is better in Europe than in the US.

As my noble friend Lord Chadlington stressed, this debate is timely. The development of e-commerce in this country and across the EU is at a turning point. Whether or not the so-called dot.com bubble has burst, it is clear that a sense of realism has now descended upon e-business. That sense of realism is aptly captured in a quote from John Browett, Chief Executive of Tesco.com: The problem with a lot of internet businesses is that their underlying economics do not work". Or, as Kevin Ellis, partner at PricewaterhouseCoopers has put it, The dot.com honeymoon is over". The reality is that e-businesses are confronting the fact that quite simply they need to make a profit through quality revenue streams, and the resultant inevitable period of restructuring is now gathering momentum. We on these Benches want to see successful e-commerce in the UK. We have made it our aim to turn the UK into Europe's new economy capital. However, we have also recognised that e-businesses are just as much subject to the old travails of profit and loss, taxes and regulation, as any other business venture.

We believe that it is time that the Government also took a more realistic view of e-business. New Labour has been quick to jump on the bandwagon of all things bright and new, and this being the brightest and newest next big thing, it was inevitable that the Government would spin into overdrive when it came to proclaiming the merits of the on-line world. Yet what is the reality?

Only this week the eCom index has shown Britain as lagging behind France, Germany and the Netherlands in embracing e-commerce. The index, which tracks 250 companies earning more than 1 per cent of revenue through e-commerce, found that the UK scored only 15 points on its index, compared with 22 for Europe as a whole.

Some of the Government's biggest hype has concerned the relationship between the Internet and social exclusion. The Chancellor of the Exchequer said at this month's UK Internet summit: The blessings of the new technology give us the means to break down the walls dividing people and the problems of exclusion. You cannot build a knowledge driven economy without having a knowledge society as well". However, what the inventor of IR35 fails to appreciate is that you cannot build a knowledge-driven economy without having a skilled, flexible and dynamic workforce. The reality is that IR35 is all about exclusion: exclusion from the UK of thousands of the most skilled IT workers. If the Government still believe their own hype about e-commerce and fail to believe that these taxes do make a difference, they might care to listen to the following real life examples. These are cases of skilled IT workers previously based in the UK who have been driven abroad by IR35 and have posted their personal details and comments on the website of the Professional Contractors' Group.

One example is of a person who worked in the UK as a voice networks technical consultant for several blue chips. He is now doing the same work but in Germany. He states: Let me be very clear. IR35 is the reason that I have moved. Prior to this very silly piece of Government arrogance, I had no intention of working anywhere but the UK". There is the example of an individual who worked in the UK as a business analyst in the financial sector but left for Luxembourg to design business rules and processes for the most technologically advanced clearing system in Europe. She states: In 1986 at the time of 'Big Bang', London was the Financial Centre of Europe and the most innovative Stock Exchange outside USA. All initiative has been thrown away … IR35 is the last nail in the coffin in London—loss of top-rank IT contractors has sent innovation and excellence to Brussels, Luxembourg, Paris, Berlin, Frankfurt, The Hague. Staff productivity and customer service will follow. The City is fighting a losing battle". Another example was an IT contractor who worked in the City for four years but who now works on an SQL server for a venture capitalist in San Francisco. He states clearly that: IR35 is the main reason for working abroad". Finally, there is yet another example of an individual who worked in the UK designing, implementing and supporting distributed three tier client/server systems using TUXEDO, Oracle and Unix. Now he does the same work but in the USA. He states: Only going because of IR35. My wife and two daughters remain in the UK and will visit me during school holidays". There are many more such stories for the Minister to view at the PCG website. They are all tales of cutting edge IT skills reluctantly leaving these shores.

As the report acknowledges, a lack of skilled IT workers is a clear barrier to a competitive and flourishing e-commerce industry. However, this uniquely anti-e-commerce piece of stealth taxation does not simply send skills abroad; it also hits the very micro investment which is key to e-business growth. For example, a senior Unix and VMS strategic design consultant and system configuration specialist who has left for Sweden states: This unfair tax penalises small business men (and women) who are wanting to invest in growing their businesses". We welcome the committee's recommendation that the Government keep under review the operation of IR35 so as not to impede—it is already impeding—the development of new e-commerce companies.

Taxation is not the only problem. New Labour is ignoring the real world when it comes to the harmful effect on enterprise of burdensome regulation. At Lisbon the Government made grand statements of their support for a lightly regulated, competitive and flexible economy in which IT is able to deliver greater prosperity.

However, the Institute of Chartered Accountants has just published figures showing that the cost to micro businesses of complying with new legislation has more than doubled since last year from £1,700 to £3,600. There have also been huge rises in the cost of regulation for small businesses from £4,700 to more than £8,000. Even sole traders are spending around £1,000 a year implementing new legislation.

The crucial point is not that these regulations necessarily fall particularly on e-businesses. It is that every minute which any business spends on form filling, every penny spent on costly regulations, is money and time which could have been better spent investing in developing e-commerce strategies. This point goes to the heart of the debate as highlighted by the report: should we go for the European model of relatively burdensome regulation or the light-touch US model?

In the Conservative Party we believe that Britain can do better than both and be the best place in the world to do business, but only if we deliver genuine deregulation, freeing enterprise to create wealth instead of suppressing it with regulation.

In conclusion, e-commerce is of such significance that it has already had an enormous impact upon our culture and our thinking. The Select Committee on the European Union is to be congratulated on its proactive approach to addressing this crucially important subject. Never before has there been an economic phenomenon subject to as much hype as the Internet. This report confirms that there are real issues which the Government must address.

Only last week in the Peers Dining Room a guest was heard to say that he was relieved to learn that at least the Lords are taking e-commerce seriously. Let us keep, and indeed, enhance, that reputation, for it will serve us and the United Kingdom well for the future.

1.8 p.m.

The Minister for Science, Department of Trade and Industry (Lord Sainsbury of Turville)

My Lords, the Government warmly welcome the committee's report, which is wide ranging and extremely useful. We have all benefited from the committee's work and I thank its members sincerely for it. I also thank my noble friend Lord Brooke for introducing this debate so thoroughly and eloquently.

I congratulate the noble Baroness, Lady Noakes, on a brilliant maiden speech. However, none of us should be surprised by that brilliance. Having recruited her to the board of the London Business School, I certainly was not. I am glad that wiser and better people than myself have now recruited her to this House. I know that she will make an enormous contribution in the years ahead.

As noble Lords have indicated, e-commerce is transforming the economic and social landscape of Europe. It is already a key driver of economic growth both in the UK and globally. Using e-commerce effectively is therefore crucial to our success in business, employment, education and as an inclusive society.

We are all agreed that the e-commerce scene is particularly fast-moving and that e-commerce touches on most aspects of business life and public policy. In order for it to flourish, therefore, it calls for a rapid and light-touch response where it impinges on public policy matters. In that respect, I agree with the noble Baroness, Lady Noakes, that we want a light-touch approach and not heavy-handed regulation. That will not move as fast as the market. It also requires governments always to consider the wider e-commerce implications of particular consumer, legal and other sectoral issues.

It may help your Lordships if I now set out where I believe the UK to be in terms of e-commerce. However, I want to make it clear that the Government are in no way complacent about performance. We believe that we should constantly monitor the situation, look for areas in which we are not in the leading position and take action to deal with that.

During the past year, the Government have been working towards their target of making the UK the best place to trade electronically. We have taken a number of substantial steps towards our meeting this objective. For example, we held the world's first auction of spectrum for third generation mobile services. We have passed the Electronic Communications Act, which provides for electronic signatures to be admissible as evidence in legal proceedings. We have worked with Oftel to drive down the cost of Internet access by promoting competition in telecommunications markets. We have introduced 100 per cent first-year capital allowances for investment by small businesses in information and communications technology. We have also completed a national network of "UK Online for business" advisers.

The Select Committee report quite rightly points out the importance of monitoring the impact of policies designed to promote e-commerce. So where does the UK now stand in terms of measurement? As regards individuals, the number of households on the Internet rose from 13 per cent to 25 per cent in one year. One-third of the UK population is now online, which is a 50 per cent increase since September 1999. Ninety-three per cent of secondary schools are now connected, as are 70 per cent of primary schools—more than any other G7 country.

As regards businesses, 90 per cent of employees now work in businesses which are connected to the Internet. That is on a par with the US at 93 per cent. Twenty-seven per cent work in UK businesses which trade online; that is a higher proportion than in the USA, Sweden, Germany, France, Japan or Canada.

As regards the cost of Internet access, the UK is now among the cheapest places in the world for off-peak Internet access, which is a huge improvement on last year; and UK peak-time rates are now below the OECD average and very intensive Internet users pay less than almost anywhere in the world.

Perhaps I may now deal with some of the main categories into which the committee divided its recommendations and respond to the specific points that have been raised within those categories. I shall deal first with access. The Government believe that a competition-based approach is the best way to ensure that we have a world-class telecommunications infrastructure and world-class Internet access. Thanks to competition, UK Internet users accessing the Internet using a standard telephone line and a modem already have a wide choice of providers and an increasing choice of pricing packages. We pioneered the free ISP model and we now have unmetered access as well. Competition is working and has given the UK, as confirmed by a recent OECD report, some of the cheapest off-peak Internet access rates in the world.

I have spoken about the current situation, but for the interactive multimedia services of the future, a modern broadband infrastructure is vital. A variety of new technologies will be able to provide that level of capacity to consumers and small businesses: for instance, digital subscriber lines, cable modems, broadband wireless, digital TV and low earth-orbiting satellites.

Cable companies now pass over 50 per cent of homes in the UK. Moreover, BT is rolling out high-speed ADSL services. I shall deal in a moment with the speed of the roll-out, which is important. In accordance with its licence, BT is obliged to provide other operators with access to its upgraded system on the same terms as its own retail arm and other operators are already moving in to take advantage of this. As well as this form of competition, we are introducing local loop unbundling. That will allow other operators into BT's exchanges to provide high-speed services using BT's lines.

I turn to the question raised by my noble friend Lord Brooke, the noble Lord, Lord Woolmer, and the noble Baroness, Lady Buscombe, on the local loop unbundling. Oftel has set a demanding timetable, allowing four months between initial requests for space and the availability of unbundled loops. That is not an unreasonable target, given the fact that, in order to incorporate that, in some cases changes must be made to the buildings of exchanges. It is in line with international standards, as Oftel has pointed out. Commissioner Liikanen recently stated that he regards the UK as being in the vanguard of telecommunications liberalisation and as far as I know there is no question of the Commission taking action against the UK on this issue. Perhaps I may reassure the noble Lord, Lord Faulkner, that the UK is not behind Germany on local loop unbundling. In fact, the UK is in the forefront of member states' unbundling to stimulate broadband access and has in general one of the most competitive telecoms markets in Europe.

As regards the ADSL roll-out, BT had upgraded exchanges which cover 38 per cent of the country. Subject to commercial considerations, BT will cover 70 per cent of the country by the end of 2002. Contrary to what has been implied, wholesale ADSL products are available from BT and have been since June. Other operators have taken up those projects, such as VNL and Demon. The decisions on the extent of BT's ADSL roll-out must be a commercial decision for it and not for government. We will continue to encourage competition both in ADSL and between broadband services as the best means of driving broadband roll-out across the country.

It should be remembered that ADSL cannot serve the entire country. Current ADSL technology will not work where the end user is more than a certain distance from the exchange. That means that only about 70 per cent of the UK population can potentially have access to ADSL. For that reason, the Government are encouraging other high-speed technologies such as broadband, cable satellite and fixed wireless.

I turn now to the international digital divide. That important point was raised by the noble Lords, Lord Geddes and Lord Haskel. There is a digital divide from a global point of view, but the UK has demonstrated its commitment to tackling the issue by agreeing with other G7 governments at the recent summit in Okinawa a statement of objectives and a joint government/industry workforce to develop and implement practical schemes and report back to the Heads of Government for review after 12 months.

The second issue after access is that of trust. The noble Baroness, Lady Noakes, and the noble Lords, Lord Haskel and Lord Faulkner, correctly identified trust as an important element in the take-up of e-commerce. There are a variety of areas in which business and consumers must be given confidence. They include the security of transactions; the privacy of information; consumer protection and dispute settlement; and intellectual property rights. In order to encourage trust, the Government are pursuing a policy of co-regulation with providers and users. An example is the Trust UK scheme to approve codes of good practice for e-business. The Government take the view that Trust UK should be the basis of such trust building. Trust in this context must also be subject to an international scheme. Obviously, people can have access to information on an international basis and, therefore, we must work with other countries to develop similar codes of good practice.

Lord Randall of St Budeaux

My Lords, my noble friend's speech is fascinating. However, one matter that bothers me is that so far the Minister has referred only to solutions. I just wonder whether the Government have focused sufficiently closely on the whole market opportunity. Out there one has the single market which, with enlargement, will be twice that of the United States. However, for example, SMEs have made very poor progress, if one breaks them down into various sub-sectors. I just wonder whether in their policy the Government should devote far more attention to market opportunities and to clearing the road specifically to facilitate access to the single market at the level of SMEs.

Lord Sainsbury of Turville

My Lords, I am very grateful for that intervention. I believe that in answering the question it is easier to start with the UK and then move on to the European situation, which is obviously a further dimension. However, I believe that it is the role of government to provide solutions. Businesses must seize the opportunities and it is for government to create the framework in which they can do so. Therefore, as appropriate, I shall talk about creating the right framework, not about the particular opportunities at which individual business need to look.

The Government see their role as being to define goals from a public interest perspective and to ensure that there is an adequate and up-to-date framework of law where necessary. Wherever possible government should look to those closest to the market, both providers and users, to implement agreed goals through non-legislative arrangements, such as codes of practice, guidelines and voluntary schemes for dispute resolution. Those generally provide a more rapid and flexible means of responding to changing market needs and achieving international consensus than is possible through legislation.

I believe that the third major area of the report is the UK e-commerce environment. The Government have three clear targets: to be the best place in the world to trade online by 2002; to enable universal access to the Internet for everyone who wants it by 2005; and to get all government services online by 2005. Our role as the Government can be described in three parts: we must enable modern markets by providing a light-touch regulatory and tax framework through the guiding principle of co-regulation. We must also work with industry to drive down access costs and roll-out key enabling technologies. We have to help to develop confident people and businesses, and we must make government itself a leading-edge user of new technologies. That is why the Government are investing £3.8 billion under the UK online programme to ensure that people, businesses and government are in a position to take advantage of the online world.

The key elements of the programme are: first, the setting up by 2001 of 600 UK online centres. They will provide people with access to new technologies and the Internet, and help them to develop the skills necessary to seize the opportunities provided. I refer, secondly, to UK online for business—a network of advisers to help business to succeed online by offering independent support and advice. Thirdly, UK online government services will deliver services electronically. Later this year we shall set up a UK online citizens portal to allow a single online point of access to government information and services.

The noble Lord, Lord Brooke, referred to the Government being in a position to meet the targets to put government online. We are making good progress towards that target. That progress includes such key services as National Health Service Direct, Company House returns and searches, and Foreign Office travel advice. Later this year, the UK online citizens portal will offer a single online port of entry to government information and services 24 hours a day, seven days a week.

In his spending review the Chancellor set aside £1 billion for electronic service delivery, and all departments have been asked to submit e-business strategies to the e-envoy by the end of the month. As far as concerns co-ordination by government, the Prime Minister announced in the UK online annual report that he would hold special six-monthly Cabinet sessions on e-government to ensure that all Cabinet Ministers were directly involved in implementing the Government's strategy. We are putting in place solid foundations, such as the Government Secure Intranet and key framework policies, and I believe that we are making good progress on it.

I turn to e-commerce at European level. We cannot, and should not, pursue a national strategy in isolation. The Select Committee makes an eloquent case for a broader global approach, which I support. We are taking a leading part in moving forward the EU agenda with some success. The foundation stone is the e-commerce directive. In recognition of just how fundamental it is, the European Parliament adopted it unamended earlier this year. The directive ensures that contracts can be concluded electronically, determines the liability of intermediaries for illegal or harmful information, and sets out information to be given by the seller to raise the confidence of the consumer. Above all, it establishes the principle that electronic transactions are generally governed by the law of the home state of the seller.

The noble Lord, Lord Brooke, referred to the creation of a competitiveness council. As is clear from the Government's response, we agree that a competitiveness council would be desirable as a forum for micro-economic issues and to take forward the conclusions of the Lisbon Summit. Some progress was made following a review under the Portuguese presidency earlier this year when a decision was made to combine the Internal Market Council with the Consumer and Tourism Councils, and the Industry Council with the Energy Council. We hope that under the Swedish presidency further progress will be made.

The Government strongly support the general thrust of the EU's overall policy towards e-commerce, in particular the development of specific action plans with demanding targets, the development of a robust and competitive single market and the adoption of minimum effective intervention and, wherever possible, to do it through co-regulation.

The noble Baroness, Lady Noakes, and the noble Lords, Lord St John of Bletso and Lord Watson, referred to stock options. It is clear that the Government have listened carefully to industry on this matter. For that reason, we have taken measures which enable companies to come to an arrangement with employees about payment. If the national insurance contribution is paid by employees, the taxable gain on the share options comes to about 47 per cent, which is very close to the position in California or New York. In announcing these changes the Financial Secretary said that he wished to continue the dialogue. Therefore, I shall continue to pass on the concerns of this House on that particular matter.

I say to the noble Lord, Lord St John of Bletso, that we should not over-respond to the market reaction to the valuation of dot.com companies. I believe that this is an example of the market working as it should to correct over-valuation, and it does not, and should not, reflect on dot.com companies which have some form of competitive advantage and obey the normal laws of economics about future revenue flows. We are working on Internet mentoring and incubation and are producing a scheme to that end.

We have tended to concentrate in this debate on those areas where the UK or Europe are behind America. We should not forget that in the case of mobile telephones we actually lead in Europe. That is a reflection of the way that regulation should be done. It was led very much by the DTI on an informal basis to get a European standard on mobile telephony. It is our ability to do that in Europe, and the failure of the Americans yet to achieve that, which has led to the extremely good performance in this country.

The noble Lord, Lord St John of Bletso, raised the question of training. That remains an enormously important issue. Where one has such significant change, it is inevitable that one will see significant skill shortages. There are numerous reasons which lead to that. Both the DfFE and the DTI are taking action on that and support the implementation of a skills strategy for information technology, electronics and communications. For the most part, that is led by the ITEC strategic group of national training organisations—taking forward such work; developing a better understanding of the labour market for ITEC occupations; improving the image of careers in ITEC— particularly targeting children and women—improving recruitment; retaining work-based training practices and supporting a better dialogue between business and education providers over ITEC skills.

The noble Lord, Lord St John of Bletso, raised the effect of the sums paid for the third generation licences. The effect of that will be to encourage operators to roll out their services rapidly. The intensive competition between them should ensure that services are priced so as to be attractive to consumers.

The noble Lord, Lord Chadlington, raised the question of Internet access through digital TV. This is a difficult area. There are difficulties in getting the same level of services in access to the Internet and making certain that these show up to good effect on the TV. This is a competitive situation. It will be for people to decide which is the best way to get these services. I take the noble Lord's point that if this area could be developed, it would have a great impact on widening access. The Government strongly support the work of the Internet Watch Foundation in the whole area of harmful content. I think that is the right way to approach that particular area.

Perhaps I may say to the noble Baroness, Lady Buscombe, that IR35 is not about inclusion or exclusion. It is about the question of the application of rules about how people are defined for self-employment. The issue here is that IR35 ensures that the normal rules of self-employment apply to workers who operate as service companies but who generally work for one company. I cannot see under what grounds of equity different rules should apply to people in IT from the rest of the population across the country.

The committee's report is a comprehensive manual for government, the private sector and any other organisations engaged in EU e-commerce policy development and co-ordination. The Government will base a great deal of their future approach to this on the principles identified by the committee in its report. I should like to thank all noble Lords who contributed to it and who have spoken so thoughtfully in this debate.

1.34 p.m.

Lord Brooke of Alverthorpe

My Lords, we have had an interesting debate on our report which was produced on an all-party basis; namely, where we seek to avoid dividing on party lines. That perhaps is the strength of the work that we undertake in the EU sub-committees. We have had an excellent maiden speech from the noble Baroness, Lady Noakes. I, too, add my congratulations on her brilliant contribution.

I thank the Minister for his reply. I sense from looking and listening to the whispers from my noble friends that there may still be some differing interpretations on facts between the Government and ourselves. I may be writing to the Minister on two or three of the issues. No doubt the Minister will be pleased to receive such a letter from us.

I should like to thank everyone who has participated in the debate. There has been an enthusiastic—almost evangelic at one stage—approach to the subject. It has raised some new issues worthy of deep consideration. The Government still have a good deal of work to do in a number of areas. We shall endeavour to ensure that the momentum is maintained. I conclude, as noble Lords will not wish to hear another long speech from me at this late time of the day.

On Question, Motion agreed to.