INTRODUCTION

  The Government welcomes the conclusions and recommendations contained in the Trade and Industry Committee's tenth report on e-commerce. The report has been invaluable in helping to inform the Government's strategy for e-commerce success in the UK, set out in e-commerce@its.best.uk (available at www.cabinet-office.gov.uk/innovation), produced by the Cabinet Office Performance and Innovation Unit (PIU). It was published by the Prime Minister on 13 September and the Committee was sent a copy by Patricia Hewitt, the Government's new e-Minister, at the time of publication.

  This memorandum has been prepared, on behalf of the Government, by the Department of Trade and Industry, in consultation with other departments whose responsibilities are relevant to the Committee's conclusions and recommendations. These departments are HM Treasury, Home Office, Inland Revenue, HM Customs & Excise, Department for International Development, CITU and OFTEL. In addition, OFTEL are submitting a more detailed memorandum responding to the points raised in their area of responsibility.

OVERALL CONCLUSIONS

(a)  It is important that, when considering how best the Government should respond to the growth of electronic commerce, potential advantages and disadvantages of the phenomenon are kept in perspective. Policy makers must be careful not to be carried away by the hyperbole and exaggeration which has, at times, come to characterise the debate on the future development of electronic commerce. Nor should their focus stray from those aspects of society which are unlikely to be touched by electronic commerce or which may be in some way damaged by it. Electronic commerce must not be regarded as a panacea for every difficult issue facing politicians today nor as the issue which most firms and individuals will believe to be most relevant to their daily lives. Nevertheless, DTI, perhaps more than any other Government department, must increasingly seek to promote the positive benefits of electronic commerce, particularly in terms of its potential impact on UK competitiveness, and at the same time seek to alleviate its drawbacks. In considering how best to respond to the new challenges posed by electronic commerce, the Government must pay particular attention to those areas from which it should hold back from intervening (paragraphs 9, 10 and 20).

(b)  Electronic commerce is eroding national, and regional, boundaries in many different policy areas. It has the potential to change relationships within Government and between Government and society at large as well as to alter many public policy perspectives (paragraphs 21 and 100).

  (a, b)  The Government agrees with the Committee's overall conclusions. e-commerce@its.best.uk, sets out the Government's strategy for e-commerce success in the UK and is based on analysis not hyperbole. It includes 60 action points aimed both at promoting the positive benefits of e-commerce and alleviating its potential drawbacks—for example, the potential for social exclusion to be intensified if the benefits of e-commerce are not available to all. This programme of action is based on regional and international partnership, in recognition of the blurring of policy boundaries described by the Committee. Finally, the report stresses the Government's market-led approach to facilitating the growth of e-commerce.

MEASURING ELECTRONIC COMMERCE

(c)  We recommend that the Government consider how electronic commerce should be defined, in order to facilitate comparison between the growth of electronic commerce in the UK and abroad. We recommend that the Government Statistical Service consider how best to develop new statistical measures relating to electronic commerce and to adopt its existing measures to the phenomenon (paragraphs 11 and 13).

  (c)  The Government is pressing to secure international agreement on how e-commerce should be defined through the OECD, The PIU's e-commerce@its.best.uk sets out the definition which DTI has put forward to the OECD. The report also sets out a range of recommendations for work by the Office of National Statistics and DTI to improve the relevance and timeliness of statistics in this area, including changes to industry classifications, changes to existing statistical surveys, and exploring the scope to use the Internet itself to measure e-commerce.

(d)  DTI are to be congratulated for the efforts they have made to ensure that the performance of UK businesses, in terms of information and communications technology usage, can be measured alongside that of other major economies. The results show that the UK is in a strong position to be at the forefront of the development of electronic commerce. There can be no room for complacency, however, and clear problems have been shown up. Very small businesses and some "traditional" industrial sectors have not kept pace with their international competitors in this area and this may have a detrimental impact on the competitiveness of the UK economy in the years ahead. Government policy must focus on these firms and on those regions in which take-up of new information and communications technologies has been sluggish. The Regional Development Agencies and devolved bodies may have an important role to play in this regard. Numerical indicators, for instance of the number of firms on-line, are not necessarily the best or only measures of the quality of the UK's environment for electronic trading. We suggest that the UK's legislative and regulatory framework, which the Information Age Partnership highlighted as an area of relative strength, should be taken into account when measuring the merits of that environment. The conclusions and recommendations we make in this Report, and those from our previous Report on electronic commerce, are intended to strengthen that framework and to help the Government achieve its ambitious aim for the UK to become the best environment for electronic trading by 2002 (paragraphs 18 and 19).

  (d)  The Government agrees with the Committee that benchmarking UK e-commerce performance is essential. DTI's programme of benchmarking UK business' take-up and use of information and communication technologies (ICTs) will continue, and is being used to inform future development of DTI's programme of support for SMEs, the Information Society Initiative (ISI). When publishing the latest benchmarking results this summer, the Secretary of State for Trade and Industry announced new targets for SME take up of ICTs, including a commitment to bring the UK's smaller firms (where relative performance is weakest) up to the level of the G7 best. And in recognition of the need for regionally-based action, the Secretary of State is writing to the Chairman of the Regional Development Agencies asking them to set regional targets in this area.

  The Government also agrees that the wider environment for e-commerce should be benchmarked. As a first step, in December 1998 the Government published "Benchmarking the Digital Economy", which drew together a wide range of quantitative and qualitative indicators of how the UK environment compared with its main international competitors, including in the legislative and regulatory framework. Building on this, e-commerce@its.best.uk recommends that the Government publish an annual "state of e-commerce" report, starting in June 2000 and details a wide range of "best environment" measures which should be tracked as part of this process.

STRUCTURE OF GOVERNMENT

(e)  We do not think that the creation of a new unit or division within Government exclusively concerned with electronic commerce would be a useful innovation, or something welcomed by industry. Nor do we believe that it would necessarily be helpful at this stage to tinker with the division of responsibilities for electronic commerce policy between departments and agencies or to create new cross-departmental structures. Getting the policies right is more important (paragraph 25).

  (e)  The PIU e-commerce team agreed with the thrust of the Committee's conclusions—that there should be no change in the division of e-commerce responsibilities between departments. However, the team concluded that more co-ordination is needed in e-commerce matters in order to ensure that policies are carried through. And that this should be the responsibility of the e-Envoy. Whilst not advocating the creation of a new unit or division, the report recognised the value of a small team being appointed to support thee-Envoy in this and other tasks.

(f)  We note the work commenced by OFTEL to tackle the electronic commerce policy agenda, including issues well beyond those relating to authentication and encryption for which the Director General of Telecommunications might soon have statutory responsibility. OFTEL's electronic commerce team must quickly establish a cooperative relationship with the e-Envoy, when appointed, in order to ensure that their respective remits are appropriately coordinated (paragraph 28).

  (f)  The Government agrees that close co-operation between OFTEL and the e-Envoy will be essential.

(g)  We recommend that the Director General of Telecommunications be given a specific duty to facilitate electronic commerce, at the earliest opportunity. We would expect the Director General, in response, to publish a statement of how he intends to comply with his new duty (paragraph 31).

  (g)  The duties of the Director General of Telecommunications are established by law in the Telecommunications Act 1984 and can only be changed by primary legislation. They include a duty to promote the interests of consumers, purchasers and other users in respect of the prices charged for, and the quality and variety of, tele-communications services provided. "Telecommunications services" is very widely defined and would include most electronic commerce services. The Government is considering the framework of regulation for telecommunications in the light of technological and commercial changes since 1984 and will publish a Green Paper later this year. The Government is also looking at OFTEL's duties in the context of the Utilities Bill.

THE E-ENVOY

(h)  We would welcome the appointment of an e-Envoy. The e-Envoy could be an effective ambassador for electronic commerce in the UK, an international ambassador for the UK as a centre of digital excellence and an advocate within Government for the policies and initiatives required for the UK to become the world's best environment for electronic trading. The appointment of a high-calibre, dynamic individual as e-Envoy could represent a high profile commitment by Government to electronic commerce, the like of which has so far been lacking. Perceptions of the independence from Government of the e-Envoy are likely to be enhanced if it is made clear that the post-holder is not a civil servant. In order to be effective, the e-Envoy must not be seen within Government as a DTI official, defending the department's line on issues which cut across departmental boundaries.

  (h)  e-commerce@its.best.uk, recommended (recommendation 14.2) the e-Envoy should be appointed to: galvanise e-business in the UK; provide a strategic input into e-government and to co-ordinate Government actions; to promote the UK's e-commerce strategy internationally; to ensure "e-inclusion"; and to ensure that the programme set out in e-commerce@its.best.uk is driven forward. On 13 September, alongside the publication of the report, the Prime Minister announced the appointment of Alex Allan as e-Envoy. Although a civil servant, Alex Allan will not be responsible to any particular department—instead he will report directly to the Prime Minister. This high-profile appointment has clearly demonstrated the Government's commitment to e-commerce.

(i)  It is vital that the Government, in consultation with the post-holder, devises and publishes the objectives of the e-Envoy and the resources which will be available to the e-Envoy to achieve those objectives. Progress made by the e-Envoy towards the achievement of his or her objectives should be assessed by means of measurable targets, drawn up by the Government. We would expect the e-Envoy to publish regular reports to Parliament detailing progress made towards the achievements of his or her objectives, difficulties and obstacles met, and future targets set (paragraphs 32, 33, 34 and 36).

  (i)  The job description and objectives of the e-Envoy are set out in the e-commerce@its.best.uk. The report's 60 recommendations and the targets and timescales for achieving them have all been accepted by the Government. One of the recommendations (recommendation 12.1) is that the e-Envoy should produce an annual "state of e-commerce" report. The first of these will be published in July 2000.

(j)  Ministers must not seek to burden the e-Envoy with a host of unduly ambitious and unrealistic objectives and responsibilities. The role of e-Envoy will be discredited if it is seen to combine responsibility without power. Ministers must define the policy framework within which the e-Envoy will work, rather than deflect difficult decisions and thorny issues towards a prominent but unempowered official (paragraph 35).

  (j)  e-eommerce@its.best.uk acknowledges that it is important for the e-Envoy to be independent and able to criticise the actions of the Government in relation to e-commerce. For this reason, the e-Envoy's team will not have any direct responsibility for operational matters. Instead they will be responsible for ensuring that the targets and timescales for action are met by the relevant departments, working with Patricia Hewitt, the e-Minister, at political level and with a direct link to the Prime Minister.

(k)  We see merit in the appointment of the proposed Government/industry forum on encryption and believe that it is essential that the e-Envoy participate in it (paragraph 37).

  (k)  e-commerce@its.best.uk endorses the vital role that the e-Envoy has in the Government/industry forum on encryption—and recommends that he participates (recommendation 10.6). The first meeting of the Government/Business Forum on Law Enforcement and Encryption is due to take place in October, before the e-Envoy takes up his post. The DTI will be briefing the e-Envoy on progress when he takes up his post in January and inviting his participation in the Forum.

(l)  The delay in appointing the e-Envoy, as yet unexplained, has not served to demonstrate the strength of the Government's commitment to the role or to the need for urgent policy initiatives on electronic commerce. It would seem to suggest, instead, that electronic commerce was not a priority of Government. We recommend that this impression be dispelled by an appointment at the earliest opportunity, so that the successful candidate can start making up for lost time (paragraph 38).

  (1)  The Government took the decision to await the outcome of the Performance and Innovation Unit's project on e-commerce before appointing the e-Envoy. During the course of the PIU's work it became clear that the role of the e-Envoy would need to be different to that originally envisaged—in particular, to give the post a wider remit covering e-government as well as e-commerce and to locate the post at the centre of government. Following completion of PIU team's work on e-commerce@its.best.uk, the e-Envoy was swiftly appointed. The e-Envoy will not be in post until January, but immediate action has been taken to assemble his team and drive forward the recommendations of the report.

USING THE INTERNET: INFRASTRUCTURE

(m)  We agree with OFTEL that BT's monopoly ownership and control of the local loop could restrict the roll-out of vital new high-bandwidth services. Although OFTEL has no role to play in championing the development of particular technologies—such as DSL—we believe that it must be proactive in ensuring that competitive forces exert their influence throughout the UK's telecommunications infrastructure so that residential consumers and small and medium sized enterprises can benefit from a choice of high-bandwidth technologies from different operators (paragraph 46).

(n)  Electronic commerce offers the opportunity to unlock the potential of the rural economy. The Government must ensure that this opportunity is exploited, not wasted due to deficiences in the nation's telecommunications infrastructure, by ensuring that there exists effective competition in the supply of high-bandwidth services to all users, not just those in urban or surburban areas (paragraph 47).

  (m, n)  The Government, like OFTEL, shares the Committee's belief that competition is the best way of ensuring that high bandwidth facilities are made widely available. The Government welcome's OFTEL's recent proposals for improving access to bandwidth through opening-up BT's local loop to competing operators. Consultation on OFTEL's proposals is now complete and a decision is due at the end of October. While new competitors are likely to want to address high density urban areas first, in time a combination of approaches using BT's local loop and other new technologies should increase competition in rural areas also.

USING THE INTERNET: COST

(o)  For most residential customers and SMEs using the Internet local telephone charges are the marginal cost of going on-line and, as such, are a key influence over the extent to which such consumers and enterprises engage in electronic commerce. The possibility of receiving a substantial telephone bill as a result of regular use of the Internet, and the widespread perception of this occurring, seem to us to be obvious disincentives to greater use of the Internet and, therefore, participation in electronic commerce (paragraphs 51 and 58).

(p)  The more widespread availability to residential customers of unmetered local telephone calls would give electronic commerce in the UK a substantial boost. We judge that OFTEL has been unduly cautious in emphasising the possible disadvantages of unmetered local calls, at the expense of the potential benefits. In line with our recommendation that the Director General of Telecommunication be given a duty to facilitate electronic commerce, we recommend that OFTEL investigates what, if any, regulatory actions are required to encourage innovative tariff packages being offered to Internet users throughout the UK; and devote resources to studying and publicising the comparative costs of Internet access packages, in order to dispel the seemingly widespread perception that anything more than a cursory use of the Internet would prove prohibitively expensive (paragraph 59).

(q)  We welcome OFTEL's recognition that consumers need full and clear information about the tariffs charged by different telephone operators in order for them to take full advantage of the opportunities offered by competition in the telecommunications market. Urgent progress in this area is now required (paragraph 53).

  (o, p, q)  The Government is strongly committed to ensuring the wide availability of fast and affordable Internet access. We believe that competition, not regulation, provides the most powerful mechanism for delivering this, by driving operators to provide creative solutions to their customers' needs.

  This approach has brought some welcome results. For example, vigorous competition in the UK has led to the emergence of subscription-free ISPs and falling telecommunications prices. Recent OECD data show that, taking account of the subscription free services, the UK is just below the average for the cost of Internet access at peak times and well below the OECD average—and amongst the cheapest in the world—at off-peak time when most residential users tend to log on. But the Government believes that prices need to come down further, and we will continue to drive forward competition in order to achieve this—as demonstrated, for example, by OFTEL's recent announcements on opening up BT's local loop to competition.

  e-commerce@its.best.uk, sets out our strategy for ensuring UK customers have access to a broader range of tariff options which allow both heavy e-commerce users and light users the optimum package for their usage profile. But the report recognises that unmetered local calls have drawbacks as well as advantages. The introduction of several new tariff packages for calls to the Internet access, including unlimited weekend access for a flat monthly fee, is a welcome sign that competitive pressure is encouraging innovative pricing. In September, BT announced significant price cuts which will include some access time in the rental cost and cheaper evening calls. The Government welcomes this, and will continue to work with OFTEL to encourage BT and other operators to introduce further tariff flexibility. Industry also has an important role to play—and a clear commercial interest—in ensuring that the afforable nature of Internet use is widely understood.

(r)  Without high-bandwidth services, in particular leased lines, UK businesses will be unable to offer effective and innovative electronic services, resulting in their competitive advantages being ceded to foreign rivals. Ensuring that UK firms have a choice of competively-priced high-quality high-bandwidth services must be an urgent priority for OFTEL. We support the Government in its efforts to focus the attention of the European Commission on the need to ensure that Europe leased lines prices are competitive with those offered in the US (Paragraphs 64 and 65).

  (r)  We support the efforts of the European Commission in ensuring that European leased line process are competitive with those in the US. In order to establish to what extent UK leased line tariffs are competitive with US tariffs, OFTEL has commissioned an independent benchmarking study from Phillips Traffica Limited. OFTEL plans to publish the results of this study, together with a further review of the level of competition in the provision of leased lines in the Autumn.

(s)  We welcome the work being undertaken by DTI to compare the prices of consumer goods in the UK and elsewhere and hope that it will be followed by swift action to ensure that British consumers fully benefit from competition in the computer hardware market (paragraph 66).

  (s)  The Government believes that effective and fair competition is essential to ensure value and choice for consumers. This applies to all sectors, not just the computer hardware market. The Government has already acted to introduce the Competition Act 1998, which introduces tough new powers to deal with anti-competitive behaviour; these powers come into force on 1 March 2000. The result will be better protection against those companies who distort competition.

  The international prices research will provide a solid basis to assess the "Rip-Off Britain" allegations and will further raise the profile of competition and consumer issues. When the results of the research are published in January 2000, we will be announcing what action we need to take in order to determine why price differences exist, and what remedial action might be needed.

  We do not propose to include personal computers (PCs) in the prices research because of the particular complexities involved. Research undertaken by Arthur Andersen for Dixons Stores Group showed that there are about 200 different branded and cloned models in the UK and over 700 in France. There is also wide variety in the purchasing patterns in different countries, not only in terms of the hardware specification, but also in terms of whether software is included or excluded from the package and, for example, whether PCs are sold with or without printers and/or scanners. In order to make meaningful comparisons of the price of PCs, it would be necessary to control for all these differences. The complexity of this task, and the associated costs, mean that comparing the price of PCs is beyond the scope of the DTI's current research. Nevertheless, the draft product list, published on 22 July 1999, did indicate that a computer printer would be included in the research. We cannot say for certain which particular printer will be included as the product list will not be finalised until after the research has been contracted.

SOCIAL EXCLUSION ISSUES

(t)  Personal computers, the Internet and electronic commerce should not be seen as exclusively playthings of the middle classes. We want to see everyone in society—rich or poor, young or old—able to take part in and benefit from electronic commerce. It will be a measure of the Government's success if, in five years time, the profile of the average Internet user more closely resembles the population as a whole rather than being skewed towards young, university-educated men. Aside from consideration of social justice and equity, widespread take-up of electronic commerce could provide immense benefits to British industry as well as cost savings for Government. We are of the impression that the Government shares our objective, but we think some more vocal advocacy and more dynamic policies, particularly in relation to socially disadvantaged groups, are called for. We recommend that Ministers, and the e-Envoy once appointed, give a lead in democratising and demystifying electronic commerce (paragraph 75).

  (t)  The Government is committed to creating a truly inclusive information society. Addressing "e-exclusion" has been specifically identified as one of the roles of the e-Envoy. This will build on the wide range of actions which the Government is already taking to bring the benefits of e-commerce to socially disadvantaged groups. These include:

—  the national network of over 3,000 community based IT for All access centres;

—  investment of £450 million to

—  enhance the existing IT for All network with 800 more advanced IT Learning Centres, giving IT skills training and local access to the University for Industry and National Grid for Learning;


—  provide recycled computers to 200,000 deprived families;


—  enhanced incentives for people investing in Individual Learning Accounts to improve their IT skills;


—  tax incentives to encourage companies to provide their employees with computers at home; and


—  creation of the New Library Network, providing broadband access in 4,000 UK libraries.

(u)  The Government should examine how consumers without bank accounts can be encouraged to participate in electronic commerce (paragraph 69).

  (u)  e-commerce@its.best.uk encourages private providers to launch multifunction smartcards. One of the users of these would be to act as an "electronic purse" that will allow the so called "unbanked" to engage in e-commerce. In addition, the Banking Review, led by Don Cruikshank, is examing the issue of electronic money.

(v)  One of the burgeoning number of units within DTI might be well placed to research the implications for UK employment of the growth of electronic commerce, and we recommend that such research is carried out (paragraph 76).

  (v)  e-commerce@its.best.uk identifies the need to capture detailed and accurate metrics on the growth of e-commerce in the UK, and evaluate the net impact of e-commerce on macro-economic performance in the UK, including output and employment. Recommendations 12.7 and 12.8 of the report commit the DTI to commissioning a methodological framework for this evaluation by the end of 1999, and undertaking formal evaluation in 2002 and every three years thereafter. Chapter 12 is dedicated to this issue and there are eight specific recommendations in this area.

(w)  We recommend that the Government begin a national debate about how the universal service concept can be applied to electronic commerce (paragraph 80).

  (w)  OFTEL's recent consultation document on universal service includes consideration of whether the concept should be extended to higher bandwidth services. The Government strongly encourages everyone with an interest to respond fully to the issues raised.

BUSINESS SUPPORT

(x)  There will need to be a step change in the attitude of very small firms to the use of external communications technologies in order for the UK to catch up with the best of the G7 in this area. Although it is not easy to tell how many firms are currently buying and selling on-line, the target of having 1 million small and medium sized enterprises buying and selling on-line by 2002 will be significantly more difficult to achieve than that of having 1 million such firms regularly using information and communications technology by that date (paragraph 82).

(y)  There is a danger that the projects outlined in the Competitiveness White Paper are not capable of making a significant contribution towards the achievement of the ambitious goals set out by the Government in relation to the participation of small and medium sized enterprises in electronic commerce. Too many of the initiatives seem ill-thought out and lacking in detail—promising on paper, but, so far, short of substance. There is a worrying lack of attention to the coordination of these projects with existing initiatives, the proposed Small Business Service, new regional organisations and the devolved Assemblies. We recommend that DTI publish details of progress made in implementing those initiatives relating to electronic commerce launched in the Competitiveness White Paper, how those initiatives are to be coordinated with regional and national bodies including the proposed Small Business Service, and how they will be evaluated in further Implementation Plans (paragraph 86).

(z)  Small businesses remain unpersuaded of the usefulness of Business Link services, including Local Support Centres, as providers of advice on electronic commerce. We are not convinced that it is desirable for the Government to sponsor the provision of advice on information and communications technology to firms through a hotch-potch of seemingly unrelated organisations. A greater degree of national consistency is required. We recommend that steps are taken to improve the consistency and coordination of the electronic commerce support services offered to small and medium sized enterprises, including clarification of the relationship between Local Support Centres and the proposed Small Business Service (paragraphs 89 and 90).

  Source:  ISI. DTI.

  We also accept the need for cohesion in the local delivery mechanisms for the ISI. This should not mean, however, a single, monolithic route to market. The ambitious targets for SME use of ICTs requires the use of all available effective routes to the SME population, including for example industry supply chains and other sectoral approaches. As DTI's consultation document on the Small Business Service made clear, the ISI Local Support Centre Network will be an integral part of the new simplified Small Business Service infrastructure.

  Progress on implementing the commitments in the CWP is regularly published as part of the Implementation Plan reporting. The ISI website also provides up to date information on the Initiative (www.isi.gov.uk).

(aa)  We welcome the increasing use made of the Internet to provide business support services. DTI should ensure that its on-line services are co-ordinated with the business support services it sponsors off-line. Particularly given the frequency with which new laws refers back to older pieces of legislation, we recommend that the Government consider placing all primary and secondary legislation currently in force on-line (paragraphs 91 and 92).

  (aa)  The consultation document we issued concerning the establishment of the Small Business Service (URN 99/815) set out three key tasks for this new organisation. Improving the coherence and quality of Government support for small business is one of them. We have proposed that the Small Business Service will provide a single gateway for access to services directed primarily or mainly at small business. This will place it in the ideal position to ensure that all services provided on-line are properly co-ordinated with the business support services it sponsors off-line.

  With respect to the on-line availability of legislation, Her Majesty's Stationery Office manage the legislation web sites (www.hmso.gov.uk/legis.htm) on which the full published texts of all Public General Acts enacted since 1996, all Local Acts enacted since 1997 and all printed Statutory Instruments since 1997 are made available free of charge. In addition, the Lord Chancellor's Department is producing a database of UK legislation which is due to be completed by mid-2000. The database currently contains the text of all Acts that were current on 1 February 1991 and most of the Acts and Statutory Instruments passed since then. It aslo contains local legislation, both primary and secondary. Although the marketing strategy for the database has still to be decided it will be capable of being delivered via the Internet.

  Furthermore, helping small firms with regulation will be one of the three key tasks of the Small Business Service. It will be given responsibility for developing a single electronic gateway into the information provided by regulators, so that businesses can find out from a single source which regulations affect them. Copies of existing guidance on regulations produced by government departments and agencies are already available through a single gateway on the Internet called Direct Access Government (www.open.gov.uk/gdirect/).

ELECTRONIC GOVERNMENT

(bb)  CITU's analysis shows that most Departments already provide more than 25 per cent of their services by volume electronically. The 2002 target is therefore not particularly challenging, although the 2008 target might prove a challenge to some departments. However, making a service available electronically is no guarantee that anyone will wish to use it in that way; it is essential that the electronic Government agenda is driven by the needs and requirements of users, not by what Government officials assume these to be; and high-profile failures to implement electronic Government projects send out the wrong signals to the private sector about the potential attractions and benefits of electronic commerce (paragraph 95).

(cc)  We are concerned that the electronic Government agenda is characterised by hyperbole, over-optimism about the capabilities of management to implement novel technological systems on a large scale, and repeated failures to learn from past mistakes. There is an urgent need for a hard-headed assessment, across Government, of what electronic services are required by users and how these best can be delivered and financed. However desirable and convenient they may be in theory, ambitious cross-departmental projects and "one-stop-shops" are of no use to man nor beast unless they can be delivered on time, in budget, and in full working order. The current plague of costly, late and untested electronic Government projects must be tackled before the situation worsens (paragraph 96).

  (bb, cc)  In 1997, the Prime Minister set a target that, by 2002, a quarter of dealings with government should be capable of being done by the public electronically. In the Modernising Government White Paper, the target was raised to 50 per cent by 2005 and 100 per cent by 2008. As the Committee is aware, in early June CITU published on its website (www.citu.gov.uk) its first six monthly progress report. This revealed that 38 per cent of relevant services were capable of electronic delivery. In this report, Departments gave indicative figures for a sample of dealings with the public. For the first time we have an indication of the level of activity with the public and how far departments have got with modernising their services. We agree that we must keep progress under review and the targets of those departments that are on course to exceed the 25 per cent target may have their target revised upwards.

  We also agree with the Committee's recommendation that the needs and requirements of users drive the electronic government agenda. Our Modernising Government programme has clearly stated that that is what we believe government is for—not government for those who work in government, but government for people—as consumers and citizens.

  We note the Committee's comments on the difficulties that the Government has experienced in implementing some of its IT projects. We are committeed to improving performance in this area and have established a team, based in the Cabinet Office, to lead the work that is needed. The team will examine the full range of issues involved in the handling of IT projects, including those raised by the Committee such as management and learning from the past. It will produce recommendations drawing on best practice from across government, the private sector and overseas. The study steering committee, which will be chaired by the Minister of State in the Cabinent Office, Ian McCartney, will have a broad membership drawn from across Whitehall and outside.

(dd)  Care must be taken to ensure that those who cannot use new technologies, or those who, for whatever reasons, choose not to do so, are not discriminated against because of the rush to embrace electronic commerce (paragraph 97).

  (dd)  We fully support the Committee recommendation that people who choose not to use new technology to access government services should not be discriminated against. In our Modernising Government White Paper we said that government must serve those who feel excluded from developments in information technology just as much as it serves those who embrace new technology. The information age should increase the choice of how citizens and businesses receive service, not restrict it. Modern services will be developed to produce a wide range of delivery channels, including call centres, digital TV, the Internet and better face to face contact where needed.

(ee)  DTI should seek to ensure that its websites remain up-to-date, well organised and operative in order so that they become an increasingly important means of disseminating information and facilitating contact with the public. (Paragraph 99).

  (ee)  The DTI is increasingly taking advantage of the Internet in delivering its information and services. Nearly all new hard-copy publications now have our Web site address on them and are available on-line. The DTI's Web sites are being used extensively, with an increase in visits to the sites at "www.dti.gov.uk" from around 2,500 per day in August 1998 to around 6,000 per day in August 1999.

  We remain committed to increasing the facility with which people can interact with us on-line (while noting the Committee's point that there will always be some people who will wish to use traditional methods). The Department is continually reviewing and improving the services we offer, with activity both centrally and by the line directorates responsible for particular areas of policy. We have a policy of continual improvement as the nature of the medium demands.

  At the strategic level, The Internet Editorial Board, which has been overseeing the Department's use of the Web, has been supplemented by the appointment of a new Head of Internet and New Media Publicity with the remit of encouraging the Department to use Web technologies in interacting with businesses and the public.

TAXATION

(ff)  We welcome the Government's indication that it will play an active role in the international effects to safeguard national taxation revenues from a proliferation of low-tax or tax-free Internet gambling facilities (paragraph 104).

(gg)  The world's major economies broadly agree on the principles which should underpin the taxation of electronic commerce. Rapid progress in reaching agreement on how the international tax system should be adjusted to take account of electronic commerce is unlikely, however. The issues are not only complicated but, especially in relation to sales taxes, solutions are hoped for rather than expected to be found. There is also a danger that the broad principles which it is agreed should underpin the taxation of electronic commerce might be undermined by compromises and agreements reached on issues which, although minor in themselves, have unintended and unwelcome cumulative effects. The slow pace of policy development might prove advantageous, in that it could ensure any agreement reached is not overtaken by technological developments or unforeseen consumer trends. We would welcome frequent updates from the UK tax authorities on progress made on reaching international agreements in this area. (Paragraph 106).

  (ff, gg)  The Government welcomes the Committee's views and recommendations on the taxation issues raised by e-commerce. In particular, the Government is pleased to note the support given by the Committee to the Government's work in this area and specifically to the role it will play in international discussions to safeguard national revenues from low-tax or tax-free Internet gambling facilities.

  As the Committee recognises, the tax issues are complex, although the UK does not of course face the problems posed to sales taxes commented upon by the Committee.

  The Government agrees that there is a danger in moving too quickly to reach agreement on the policy issues while technology is still developing so rapidly—there would be a danger that any "solutions" would, after a time, work inappropriately or not at all. And business has made this point to the revenue departments and in international fora such as the OECD. Nevertheless, the Government is working with its international partners to progress and provide clarification on a number of issues over the course of this year and next.

  As recommended by the Committee and in the PIU report, the revenue departments will shortly be publishing a detailed update on e-commerce taxation issues.

INTELLECTUAL PROPERTY RIGHTS

(hh)  We welcome the Government's commitment to ensuring that a "fair balance is achieved between rights holders and users": once that has been achieved at European level it must be swiftly transposed into UK law in order to clarify the present legal position in several vital areas. We welcome the swift progress made in resolving tensions between the EU and US concerning the allocation of domain names (paragraph 110 and 114).

  (hh)  While the Government is pressing for rapid adoption of the draft copyright Directive—we want to bring protection for copyright across the EU up to at least current UK levels—we are also seeking to minimise any change in the well-established balance that is already present in UK copyright law between the interests of right holders and users of copyright material. The provisions in the Directive on exceptions to copyright for a broad range of users are too prescriptive, and we will continue to press for more flexibility for Member States in this area.

  The concerns of intermediaries, such as on-line service providers, about liability for temporary copies made in electronic environments (such as over networks) is a separate issue from the need for a balanced copyright regime, and the Government has welcomed the fact that clarification of the law in this area will be dealt with in a general way in the draft electronic commerce Directive. We are also supporting the discussions now taking place between intermediaries and right holders on this difficult issue—right holders, users and intermediaries are all key players in ensuring the success of electronic commerce.

  DTI continues to work both through the EU and in its own right to ensure the success of the project to transfer technical management of the Internet to a private sector body, the Internet Corporation for Assigned Names and Numbers.

CONSUMER PROTECTION

(ii)  In many respects, transactions which make use of a computer are no different from mail-order or telephone transactions. Electronic commerce transactions, although often carried out in a consumer's home or work place, might have the same legal status as transactions made abroad, for instance when a consumer is on holiday, as a result of the implementation of the draft EU Legal Aspects of Electronic Commerce Directive. It is vital that, when buying on the Internet, consumers are made fully aware of the jurisdiction under which the transaction is taking place. The development of a single EU electronic commerce market is likely to increase pressure for the harmonisation of consumer protection legislation. Such harmonisation must not involve any reduction in the level of protection currently offered to consumers by UK legislation (paragraph 119).

  (ii)  The Government supports the proposal in the draft directive that an e-commerce trader who complies with the legal requirements in the Member State in which he is established should be able to trade freely in the single market. As cross border shopping in the EU grows there will be a growing need for consumers to understand how the regulatory regime works. The Government will provide access to information, for example through its Consumer Gateway website (www.consumer.gov.uk) which was announced in the White Paper "Modern Markets: Confident Consumers", published on 22 July 1999. There will also be a role for consumer and business organisations, particularly through e-commerce codes of practice. The White Paper announced plans for the development of a body, TrustUK, to accredit e-commerce codes. The Government supports proposed provisions in the draft Directive on Certain Legal Aspects of Electronic Commerce aimed at encouraging the establishment of codes at Community level.

  There is a case for close harmonisation of certain key pieces of EC consumer protection legislation. In the present negotiations on the Directive on the Distance Marketing of Financial Services the UK has been pressing for high level (as opposed to minimum terms) harmonisation, on the understanding that existing UK protection would not be reduced. In areas where there is no Community legislation mutual recognition of national rules has an important part to play.

(jj)  We recommend that, if any court was to decide that section 75 of the Consumer Credit Act 1974 did not apply to overseas transactions, then DTI would speedily bring forward legislation to fill the gap (paragraph 123).

  (jj)  If a court decided that section 75 did not apply to overseas transactions then DTI would want to examine the scope for addressing this gap in consumer protection.

(kk)  International agreement is essential to deal both with sharp practices and the legal questions of consumer protection and redress arising from electronic commerce. Even at EU level, agreement on how to deal with these questions has not been reached and the situation is confused. This may not yet have hindered the development of eletronic commerce, which has, so far, been focused mostly on relatively simple goods, such as books and CDs, which might rarely give rise to disputes between buyer and vendor. Electronic trade in more complex products is more likely to be deterred by uncertainties as to what protection exists for consumers when things go wrong. At the very least, consumers need to know what rights they have when they engage in on-line trade, and how those rights can be exercised. We would expect DTI's forthcoming consumer White Paper to deal with these issues (paragraph 124).

  (kk)  The Consumer White Paper announced plans for the development of a new network of advice agencies, building on the exsiting infrastructure of advice services, to ensure that people get quick and accurate answers to questions on consumer issues. This will link with the Community Legal Service (CLS), which is developing to provide easier and more co-ordinated access to legal advice and information. The Government's Consumer Gateway will help people find out about their rights through the Internet. For example, it provides a path to the Office of Fair Trading website which includes detailed information about consumers' on-line shopping rights.

  The Government strongly supports work in the EU and international organisations such as the OECD to improve consumer redress in cross border cases. In the EU this has included initiatives on access to justice for small claims and the Commission's recommended principles for out of court dispute resolution. The Government's core principles for codes of conduct, published in the White Paper, require effective and low cost alternative dispute resolution (ADR) mechanisms. European and wider codes should facilitate cross border ADR schemes. The Government wants to see new ideas pursued, including the use of new communications technology such as video conferencing.

TRADE ISSUES

(ll)  Neutrality between trade carried out on-line and off-line should be the key principle underpinning any future consideration of the relationship between electronic commerce and international trade rules (paragraph 126).

  (ll) The Government strongly agrees that the overarching principle of technological neutrality should apply to all regulation affecting e-commerce, and in particular within each area of the international trade rules.

(mm)  The potential benefits to consumers of buying cheaper goods from overseas using the Internet might be lost if the duties levied and procedures followed by customs authorities fail to facilitate small cross-border transactions. We would support the inclusion of trade facilitation procedures on the agenda of the next round of multilateral trade negotiations (paragraph 129).

  (mm)  The Government welcomes the Committee's support for the inclusion of trade facilitation in the next WTO round of multilateral trade negotiations. An ambitious initiative should have major benefits for all trade, and needs to take full account of the opportunities that e-commerce has to offer.

  There is wide international agreement that products delivered electronically should not, for the time being, be subject to customs duties and we are anxious to extend that. Goods ordered electronically but delivered physically may be subject to duty. With the development of e-commerce, HM Customs are reviewing the case for raising the de minimis limit below which duties and taxes are not collected on imported goods—while bearing in mind the need for fairness with domestically traded products on which VAT would still be payable.

DEVELOPMENT

(nn)  We recommend that the Department for International Development consider the contribution the UK can make to ensuring that developing countries benefit from the opportunities offered by electronic commerce. (Paragraph 130).

  (nn)  The Government recognises both the opportunities offered to developing countries by the growth of e-commerce and the dangers of further marginalisation if they do not integrate into the electronic global economy. DFID's main area of activity in e-commerce is through our support to a multi-donor initiative called "infoDev". This is a global program managed by the World Bank to help developing economies fully benefit from modern information systems; its focus is on consensus building, information infrastructure development strategies including knowledge assessments, telecommunications reform and market access as well as demonstration projects.

PRIVACY

(oo)  Protection of consumers' data, like the protection of their health and legal rights, must be vigorously defended by Government. Infringements of data protection standards cannot be excused by doubtful arguments that such standards are too expensive or complicated to defend (paragraph 137).

(pp)  We believe that the Data Protection Registrar has a vital role to play in ensuring that consumers understand what their rights are in relation to data protection, and in monitoring market, policy and technological developments to warn and advise of changes which might encourage data protection infringements. We recommend that the Registrar make use of her powers to report to Parliament where necessary to draw attention to such developments. The Registrar's expertise on data protection issues should be exploited to the full by the Government while it is considering its policy proposals. As information increasingly becomes a key generator of economic growth and prosperity, the Data Protection Registrar's role will become ever more important. The Government must ensure that the Registrar has all the resources she requires to deal with the challenges she faces. The Government has a duty to set the highest standards of data protection in its own electronic commerce projects (paragraphs 98 and 134).

  (oo, pp)  The Government fully supports the Committee's recommendation that the protection of consumers' data must be vigorously defended by Government, and that Government has a duty to set the highest standards of data protection in its own electronic commerce projects. As the recent Modernising Government White Paper made clear, we will address concerns about privacy and will demonstrate that data protection is an objective of information age government, not an obstacle to it. We will continue to work closely with the Data Protection Registrar (who will be renamed the Data Protection Commissioner when the Data Protection Act 1998 comes into force on 1 March 2000) to ensure that privacy implications of electronic service delivery are fully addressed. Our commitments include promoting specific codes of practice on a departmental or inter-departmental basis for information age government, as well as deploying privacy enhancing technologies, so that data are disclosed, accessed or identified with an individual only to the extent necessary.

  The Government agrees that the Data Protection Registrar has a key role to play in promoting consumers' understanding of their data protection rights and in monitoring developments with data protection implications. She acts independently of the Government. The 1998 Act places a duty on her to inform and advise the public about the operation of the Act, about good practice and about other matters within the scope of her functions under the Act. It also strengthens her powers to prepare and issue her own codes of practice; to encourage other bodies to prepare codes of practice; and to consider and comment on codes issued by other bodies.

  The Government understands that, in addition to educating consumers and assisting the Government, the Registrar/Commissioner is working with industry to develop privacy standards for e-commerce. She recognises the important role of self-regulation and agrees with the Government that British Standard 7799 on information security management offers a sound management framework for protecting personal information. She is also working to ensure that arrangements for consumer protection such as codes of practice include effective measures to protect personal information.

  The Government notes the Committee's recommendation that the Registrar draw attention to developments affecting data protection in her reports to Parliament. The 1998 Act requires the Commissioner to lay annually before Parliament a general report on the exercise of her functions under the Act. The Commissioner may also lay before Parliament from time to time such other reports with respect to those functions as she sees fit. The Government understands that the Registrar/Comissioner will continue to ensure that her Annual Report to Parliament draws attention to the data protection implications of developments in e-commerce. She will also consider using her more general power to report to Parliament where developments require it.

  The Government is committed to ensuring that the Registrar/Commissioner has sufficient resources to carry out her statutory functions. In determining the level of future resources the Government will take careful account of any additional demands upon her time.

12 October 1999