H.M. TREASURY

SPEECH BY STEPHEN TIMMS MP, FINANCIAL SECRETARY TO THE TREASURY, AT THE E-BUSINESS CONFERENCE, 10 JULY 2000

INTRODUCTION

Let me begin by adding my welcome to everyone attending this conference, and by placing on record my welcome for the fact that it is taking place and that so many people from the Alliance are taking part in it.

Three weeks ago I attended a conference in France for entrepreneurs running fast growing businesses and the entrepreneurs who were present there from all over the EU made it very clear that they saw the UK as the best place in Europe to be starting and growing an e-business. I was encouraged by that but I know there is no room at all for complacency. E-commerce presents us with a range of challenges as well as opportunities, and I welcome this conference as a chance to focus on some of those challenges - challenges to both businesses and government, and to develop together our responses. We need that if we are to face up successfully to these challenges and make the most of the opportunities which e-business presents to us.

And I agree with Peter Agar that one of these challenges is ensuring the UK has the necessary ICT skills in the workforce in the UK to make the most of these opportunities.]

A couple of months ago, John Browning, a cofounder of First Tuesday - the global B2B start-up market and meeting place for entrepreneurs. John was giving evidence to the House of Lords on the future of e-commerce in Europe. The evidence was based on an e-mail survey that First Tuesday had carried out on what they wanted national and European governments to do.

The overwhelming view was that government has a very limited role - that it does most good where it treads lightest. And that is our view as well.

We know the market sets the pace of change. And it always will do.

But our role as a Government is an important one still. Not to dictate. Not to try and control. But to help to enable every business and individual to win from the changes, and to extend the new opportunities to all.

That is why we have set ourselves three targets to meet those challenges:

First, to make the UK the best place in the world to trade electronically by 2002;

Second, to aim for universal access to the Net by 2005;

And third, to put all government services on-line also by 2005.

Those three goals complement each other. Making sure everyone has access to the Internet will both improve our business competitiveness and also create a more cohesive knowledge society. Putting all government services on-line will cut unnecessary burdens on our customers - business and individuals. But it will also potentially save millions of pounds on government procurement. I know Alex Allan - our e-envoy will be speaking about e-government in more detail tomorrow morning.

Speaking of Alex Allan, I received a chastening e-mail message over the weekend. It was from a dot com entrepreneur of my acquaintance and he was complaining about the fact that I recently sent him a letter. He claimed that he had only received two paper letters in the past six months. One was from me and the other was from Alex! So I suppose it does underline that we still have some way to go.

Modern and decent

But the view of this Government is that we can build a new Britain which will be both modern and decent - that we don't as we used to think have to choose between a fair economy on the one hand or a successful economy on the other. They go together. We won't be a successful economy in the information age if we waste the skills and abilities of a large chunk of our workforce through unemployment, and our people will not achieve their full potential if they are under educated or under skilled.

After the election in 1997, our first economic objective was stability - a stability that not only gives individuals, families and businesses the chance to plan their long term future, but that also spurs the creation of new jobs and prosperity.

And in a quite remarkable way that's what we are now delivering - a platform of stability and steady growth, with inflation low and the public finances under control.

Inflation in Britain has now been lower for longer than at any time since the 1960s. And today British inflation is lower than in any of our major competitors in the European Union.

More people are now in work than ever before: unemployment is at its lowest for 20 years and is still falling. Youth unemployment is at its lowest for 25 years and all of us can see the benefits for everybody of so many young people now familiar with the habits and disciplines of work every morning when so many have been robbed of that for so long. And there are a million vacancies on offer in the UK across every region of the country.

We are also investing now a bigger share of our national wealth than our largest competitor countries in the European Union, and a bigger share even than in the US.

And the figures last week showed that in the last financial year new investments brought into the UK record numbers of new jobs and new projects - particularly in industries linked to the knowledge economy.

We have a platform now for building this modern and decent Britain, towards the four ambitions that Gordon Brown first set out last November:

our prosperity ambition: that we should be closing the productivity gap with our competitors;

the full employment ambition: that we should achieve employment opportunity for all, and a higher proportion of people actually in jobs than we have had before;

the education ambition: that for the first time at least half of our young people should go on to university by the end of the decade;

our antipoverty ambition: that we should halve the number of children living in poverty by 2010, on the way to the Prime Minister's ambition of eradicating child poverty altogether within 20 years.

Four ambitions which I think are now attainable and which encapsulate our commitment to a modern and decent Britain.

BUILDING THE KNOWLEDGE ECONOMY IN THE UK

The new technologies give us a once-only opportunity to realise these ambitions, by opening up the opportunities of the knowledge economy for all.

But we can't just take it for granted that the new technologies will automatically bring the higher productivity growth now seen in the US.

In the knowledge economy, businesses will be exposed increasingly to global competition. And we know also that continuous and rapid innovation in our technologies will compel unprecedented flexibility and adaptability in skills and knowledge.

That's why we are focusing:

- first on measures helping British firms to capitalize on the new opportunities;

- and second, on measures transforming education, promoting ICT skills, and widening access throughout society, through our commitment to opportunity for all.

Knowledge economy

So first, I want to say a few words about our measures to help British firms.

The global competition that comes with the knowledge economy challenges all of us - including government - to innovate, to be better managers, and to perform more competitively on the world stage.

So building on the new platform of stability that's been achieved in the economy, we are working hard to make our knowledge economy more pro competition, pro innovation, and pro enterprise than ever.

That means rewriting this country's outdated framework of competition law. We have given the Office of Fair Trading new powers and new resources to police anti-competitive practices which damage businesses and consumers alike.

It means driving competition further and faster into our already highly liberalised telecommunications markets. The growing competition between telco's and ISP's is driving down Internet access costs fast - and a recent global benchmarking study revealed, our residential customers - and many of our businesses - already have the cheapest Internet access in the world. But we need to keep up the pressure and go further.

It means modernising our laws. So Parliament has now passed the Electronic Communications Act, confirming the legal validity of digital signatures and enabling us to update hundreds of existing laws, so that paper and pen is no longer necessary.

At the European level, too, we are working with other states to create a true single market in e-commerce. The Electronic Commerce Directive - recently passed by the European Parliament - is an important step forward, allowing any UK-based company that complies with our statutory regulations to sell on-line to consumers in any other European member state, without having to comply separately with fourteen other sets of legal requirements.

And finally, it means removing the tax barriers to enterprise and creating in Britain the best tax environment for business investment.

So we have reformed and cut capital gains tax for business assets from 40 per cent to 10 per cent after four years, we have cut the main rate of corporation tax, making ours the lowest rate in the history of UK corporation tax, and the lowest of all major industrialised countries.

We are introducing 100 per cent allowances for the next three years for any small business buying computers, or investing in e-commerce and new IT. Patricia Hewitt will be speaking this evening at the e-commerce awards dinner about the DTI's annual benchmarking study that covers, among other things, the Internet capabilities of our small businesses.

And so that employees everywhere can have a real stake in their own business success, we've introduced Britain's most generous tax advantaged employee share ownership scheme ever.

The new Enterprise Management Incentive scheme is tailor made for new h-itech companies. To motivate, recruit and reward Britain's real risk takers, high tech firms recruiting essential personnel will be able to offer share option incentives of 100,000 pounds for up to 15 employees.

For those companies with unapproved share options, we've introduced legislation enabling the employee to bear the cost of the employer's NIC on share option gains. That will remove the difficulties that employers have faced in being liable for National Insurance based on an unpredictable share price at an unknown time. I recognise that there are still some concerns in this area, and in others as well, and we will continue to listen to those concerns and seek to address them.

Knowledge society

These measures will enable all our businesses - not only those already involved in e-commerce - to exploit the new sources of competitive advantage. To innovate. To create and market effectively new products. To exploit new markets.

But they're not the whole story.

Because businesses can only expand to the extent that there is the sufficient size and sophistication of markets, and the quality of skills base needed to be successful.

We will never have a truly effective knowledge economy without a knowledge society.

And that's why the other side of the equation is to make sure that the opportunities of new technologies are shared in every community in the country. Last week, following the Chancellor's extremely successful conference at Lancaster House for prominent investors and entrepreneurs from the US and the UK, I accompanied a team of three Americans on a visit to some disadvantaged communities in Teeside where we people working there to bring new enterprise and new opportunities there. Our group included a young guy in the American team who sold his first start up to Microsoft and was now developing a second, and another who founded one of the leading suppliers of ADSL equipment to US telcos. What intrigued me was how much those two groups US e-business entrepreneurs and UK social entrepreneurs how much they had to say to each other and how much they wanted to learn from each other's experience.

New National Statistics

Last week, new figures showed that over fifty per cent of the population own mobile phones. And this morning we have released statistics showing that a quarter of all households in the UK now have access in the Internet in their home. That's a doubling of UK homes on-line in one year, and it is a very encouraging step forward.

But, we need to go further. And we need to do so quickly.

On the whole, those on lower incomes, and those in the least well-off communities make less use of information technology than other sections of the population. The statistics this morning indicated that those in the highest income groups are around ten times more likely to have access to the Net than those in the lowest income groups.

That has to change. We need to be creative in addressing that imbalance. We need to get away from being technology led to concentrating more on people, particularly those people who feel alienated by technology.

We have made a start by investing £1.7 billion in our national IT strategy. Connecting all our schools and libraries to the Internet. Existing and new teachers are being rigorously trained in the new technologies.

We are creating a network of up to 1000 UK online centres in low-income communities, offering people the chance to borrow a PC or laptop to use at home in exactly the same way libraries lend books.

For those in the workforce, there is Learn Direct - our new University for Industry - using the latest technology - including the Internet - to do in this decade for lifelong learning what in the 70s the Open University did on TV for university study.

And last week - to boost the UK science skills base - the Chancellor announced a further £1 billion investment for science research, and a 23 per cent real terms rise over three years in postgraduate science and engineering grants, so that we can continue to produce the best minds for the workforce, and help to address the skills gap that we've referred to.

These measures together are I think the biggest public skills programme we have ever had. And it is a skills programme with one purpose only - that the whole of Britain is equipped for the information age. So everyone has the chance to succeed in the new economy.

LEADING THE NEXT STAGE

The UK can lead the way in Europe, and catch up with the US as well.

It's a tall order, I know. But we do have a lot going for us:

1. Our language, with more than 80 per cent of web sites being in English;

2. Our telecoms market. We lead the world in having a highly liberalised and competitive telecoms market and a strong, world-renowned regulator;

3. Our capital markets, with London remaining one of the world's leading financial centres, and providing a good source of capital;

4. Our willingness to embrace new technologies, including interactive digital TV and mobile internet;

5. and finally, our access to a market of 375 million people in Europe, and potentially, before too long, 100 million more.

CONCLUSION

Those key strengths will certainly help.

But success won't come by default. We're certainly not kidding ourselves that we can get everything right immediately. But that's why we're here today: so that government and business together can map out the right way forward.

There are huge challenges, for sure. But we are optimistic that our British knowledge economy can match the best:

With individuals alive to the opportunities, businesses sufficiently ambitious, and government raising its game as well, we can rise to the challenge - making Britain the best place in the world for e-commerce.

Thank you very much for the contribution you are making in the Alliance and individually -- let's work together to make this a success for all of our people.