Speaking notes for talk at the Woodrow Wilson Center

Monday 26 June 2000

I want to talk today about Government and the internet in a number of different contexts. First, Government and regulation of the internet. Second, Government and promoting access to the internet. Third, Government providing its own services on the internet. And fourth, some of the wider implications for Government.

Government and regulation of the internet

I’d like to start with Government and the debate about regulation of the internet. I believe that much of the strength of the internet comes because Governments have avoided interfering. New services have sprung up in response to market and consumer pressures. It has been a liberating technology. One that has enabled people and businesses to interact in new ways. One that has enabled people to realise ideas and opportunities. But also one that has constantly surprised everyone as new ideas have sprung up and branched off at astounding speed.

So Governments have to be very careful not to damage this innovative strength, and the economic benefits that it has brought. But that does not mean the only role for Government is to stand back and cheer from the sidelines.

First, the growth of the internet has depended crucially on open access to telecommunications networks. That has been achieved by regulation and by competition policies, often in the face of lobbying by incumbent operators. We need to maintain these policies as new technologies are rolled out: DSL, broadband wireless and mobile and so on. That is why, in the UK for example, we are maintaining a strong telecoms regulator and why we reserved one of the licences in our recent spectrum auction for a new entrant.

Second, there are areas where Government needs to take action if the full potential of e-commerce is to be realised. In the UK we have recently passed our Electronic Communications Act, which gives legal effect to digital signatures. And which lets us change out-of-date laws that require documents to be submitted in writing, so as to allow them to be submitted electronically instead.

But third, we are now seeing the internet and e-commerce move more and more into the mainstream of the economy. And in these circumstances Governments have to face up to the implications across a range of policies. It is no longer a fringe activity, restricted to enthusiastic early adopters. It is more and more a part of the mainstream economy, and is throwing up new issues and challenges all the time.

So, for example, the denial of service attacks earlier this year were a matter of national concern in the US, as was the impact of the Melissa and love bug viruses right around the world. The internet is increasingly seen as part of the critical national infrastructure, in the same way as other more traditional components such as power generation and distribution.

Another illustration is the growth of concern about privacy and data protection. The US and Europe have traditionally adopted rather different approaches to this, with the US leaving it largely to the private sector, whereas the European Union has had statutory rules governing the sharing of personal data. At one stage, it looked as if this would lead to real difficulties for firms doing e-commerce business between the EU and the US. But the increasing consumer concerns have led to growing recognition of the importance of protecting personal data if people are going to be confident about trading on the internet. And the US and the EU have as a result been able to negotiate the so-called safe harbours agreement.

Another area where transatlantic differences of approach sometimes emerge is on tax. I sometimes feel the term "taxing the internet" is used as a slogan rather than as the basis of a proper analysis. Few if any Governments are contemplating bit taxes or direct levies on communications. But in both the US and the European Union, there are provisions to levy sales taxes on certain physical deliveries of goods ordered over the internet. A much harder issue, though, concerns the delivery of digitised services over the internet—downloaded software, music or video for example. At one level, there is little disagreement with the principle of tax neutrality. But turning that into practice is much more difficult. It matters more in the European Union, since we raise so much more revenue from sales taxes, with rates of typically between 15 and 25 per cent. Our present regime is far from tax neutral—indeed it taxes exports but not imports. So the European Commission has proposed that foreign firms selling digitised services into the EU should register and pay VAT. How practical that is, and what the alternatives are, are issues we shall be discussing with the industries concerned.

The internet raises a number of other tax issues. Corporate taxation, for example, is largely based on concepts of physical location and that clearly becomes much more blurred in cyberspace. The Organisation for Economic Co-operation and Development is leading the international discussion on this, but we certainly haven’t cracked it yet.

At the same time, all Governments are recognising the need to have a tax system that encourages entrepreneurship. In the UK, for example, Gordon Brown, the Chancellor of the Exchequer, has cut the rate of capital gains from 40 per cent to 10 per cent for business assets held for more than four years.

While I’m on the subject of Government and the internet, I feel I must say a word about our Regulation of Investigatory Practices Bill, currently before Parliament. This has been the subject of controversy in Britain, with allegations for example that the Government plans to snoop on all email traffic. The reality is far from that. What the Bill does is to set out very clear rules, governed by our Human Rights Act, for regulating Government agencies and the police. It gives powers to require communications providers to maintain a basic interception capability, which is something we share with the US, Germany, France, the Netherlands and most other major countries. The Bill sets out requirements for warrants before traffic can be intercepted. And where such warrants have been granted, it specifies when agencies can seek the plain text of encrypted messages, or in special circumstances, the keys needed to decrypt messages. There is concern over the use of the internet by terrorists, paedophiles, drug traffickers and the like, and we don’t do the cause of trust in the internet and e-commerce any favours if we simply ignore these issues.

As you will have noticed, when discussing the role of Government, I have talked a fair bit about the European Union, rather than just the British Government. This is because of the importance of making the EU a truly single market, so that it is as easy to trade between different countries as it is to trade across different States in the US. There is still some way to go before we are in that position. Although some barriers have been broken down, the growth in e-commerce has brought into greater prominence those that remain. It used to be much harder for a consumer in, say, Italy, to buy direct from a company in Britain, but the internet suddenly makes that more possible, and hence the barriers more significant—and indeed costly.

The European Union has recognised the need to do more, and there is now an e-Europe action plan, endorsed by Tony Blair and the other heads of Government at their recent summit in Portugal. An e-commerce directive is just about passed into law, and goes some way to enabling a business set up in one European country to trade freely throughout the EU. But other tricky issues remain, such as whose law and whose courts have jurisdiction in the case of disputes? In practice, though, the key will be to find appropriate ways of dealing with disputes without going through the courts—something that is also important for trade between the EU and the US.

In many of these areas Governments need to set a framework and to work with the private sector on practical ways to implement self-regulation. That is certainly the British Government’s approach. Technological change is moving fast and the legislative process can’t keep up with the pace. Getting a Bill through the UK Parliament can take two years from conception until it is passed into law, and a European Union Directive can take even longer. So Governments shouldn’t rush into legislation until the need is clear, and should then aim to set up a framework that is technology neutral and can adapt as the market changes.

Government and promoting access to the internet

The second topic I want to mention briefly is Government and promoting access to the internet. Again, you may wonder why the Government should have any role here. Surely the private sector will do enough on its own? Our concern, though, like that of many other countries, is to ensure that the benefits of the internet extend throughout our society. To ensue that we don’t enshrine a digital divide that can worsen some of the problems of social exclusion that we face.

So the British Government is rolling out programmes to help introduce people to the new technologies and to educate them in their use. We are wiring up schools, libraries and community centres to enable more and more people to have access. And we are working with the telecoms regulators to drive down the cost of access—to the extent that it is now cheaper to access the internet in the UK than in the US in off-peak hours.

Of course, the market will play a key role. In the UK, digital television will provide an important means of internet access for many homes who are unlikely to buy a PC. The take-up is growing very rapidly. Equally important will be other channels such as wireless and mobile access. The UK, like most of Europe, has very high penetration of mobile phones, and as the new third generation services come online, so that will provide an increasingly important platform for accessing the internet. So I’m optimistic we will see the reach spreading wider and wider.

The internet and Government services

I want to turn now to the question of the Government using the internet to deliver its own services. I see this as one of the key growth areas in the next few years. As people get more and more used to the 24 hour a day, 7 day a week, service they can get from the private sector, so they will be less and less ready to accept creaking bureaucratic delays in accessing government services. And quite rightly too.

Tony Blair has set the pubic service in Britain the task of getting all services online by 2005 and I am in charge of making sure that happens. In some ways, 2005 seems a lifetime away, and we are certainly planning to make progress faster than that where we can. But for some services, significant investment will be required, particularly in updating back-office systems. But the effort will be worth it: better services delivered more cost-effectively. And we are developing a single Government portal that will provide a single personalisable entry-point to all Government services.

But even more significant than just getting individual services online, is the work we are doing on joining up public services. At present, services are organised and delivered in departmental silos. If someone loses their job, they have had until recently to deal separately with the Employment Agency, the Social Security Department, the tax department, probably the local authority and so on. We want to enable services to be provided in a seamless way, so that people don’t have to know which agency does what. The internet provides the means to do that.

We are currently building government gateway that will sit between front-ends such as citizen-friendly portals and back-ends such as legacy agency systems. It will translate and pass messages and information between the two. This will enable us to offer truly joined up services, which can let someone deal with several different agencies simultaneously.

We don’t envisage that the front-end will necessarily be a Government portal or web site. Certainly, we will enable people who want to access Government services directly to do so. But for many activities, what people really want is a mix of private and public sector services. If they are moving home, they may need access to Government or local authority databases on land titles and planning restrictions, but they need to deal with private sector real estate agents and lawyers. We plan to licence access to the government gateway so that private sector firms can offer the mix of services that people want. Real customer focus, rather than forcing people to operate in an arbitrary way determined by the convenience of Government agencies and departments.

All this raises considerable challenges, quite apart from getting the various systems to communicate with each other. Authentication becomes a crucial issue. If a citizen just wants to read information on a Government web site, there is no problem. But as we move more and more into transactions over the internet, so we need to have reliable systems of identifying people and confirming that they are who they say they are.

In some countries this is less of a problem. Singapore or Finland can issues unique IDs, smart cards and digital signatures to all their citizens without raising the sorts of issues we would face in the UK, and I suspect in the US. The private sector may well come up with solutions that can help us, as the banks and merchants look for greater certainty and security. But these solutions seem slow in arriving, and we are going to have to address the issue soon if we are to meet our ambitions for getting government services online.

A linked issue is ensuring the protection of personal information held by the Government. All the surveys show that people trust the Government with personal data even less than they trust private sector firms. We certainly found that when we trialled change-of-address services, and discovered how suspicious people were of informing more than the bare minimum of agencies where they saw a clear benefit. Part of the answer may well come in greater openness and clarity about what use Government will and will not make of personal data, and how far it will and will not share the data across different agencies. But there’s a lot to do to build up the trust we need.

Before I leave the question of the Government’s own operations, I should mention procurement. We’ve just set up a new Office of Government Commerce, charged among other things with getting 90 per cent of low value procurement online by the end of next year. Private sector companies have made massive savings on their procurement costs through purchasing online and through experiments such an reverse auctions. The Government owes it to its taxpayers to seek similar savings from its own procurement.

The internet and e-democracy

The final topic I want to cover is the implications of the internet for Government in areas such as e-democracy. I hesitate to say much in this company, since the US is well ahead of other countries in its use of the internet in the political arena. But it is becoming increasingly important in the UK, and we are finding something of the power of the medium through the work being done by the Hansard Society with Parliamentary bodies, and through the efforts of the new Scottish Parliament and Welsh Assembly.

This offers hope for engaging more people in the political process. Cynicism in the political process is a challenge for government and political parties around the world.

It is manifest in low turnouts, complaints about the system, and in a willingness to support candidates from outside the political mainstream. It is a suspicion often coupled with distrust in the information from traditional channels such as newspapers and television. If the internet can enable us to get more people interested in politicis and wanting to play a role, that can only be a good thing. And it can have a more direct impact too. We have recently passed legislation enabling experiments to be carried out in local elections in varying the times and places where people can vote, and in principle enabling online voting itself, though there’s still some way to go in developing the necessary robustness and security.

But even before we get that far, the use of the internet is already raising challenges for Governments. It is a powerful tool for spreading self-help information, for example about earthquakes or other disasters. But it is equally adept at spreading false information, for example in share-ramping schemes. And it provides unprecedented opportunities for interest groups to work together and build campaigns, something which Governments have been slow to come to terms with—as for example with the protests in Seattle against the new World Trade round. This is going to require a new look at the way Governments communicate information, and how they can build greater trust. The internet has unleashed huge new opportunities for people to take more control over their lives. I think that can have a positive impact on many aspects of our democratic system, but it raises many challenges to how Government operates.

Governments around the world will also have to work much more closely together across a range of issues. Many of them cannot be solved by one country alone, even a country like the US with its market lead in this area. Does this mean a diminution of national sovereignty? Equally, does the ability of people to link up so readily across national boundaries diminish the importance of the nation state? I don’t believe so. We have seen increasing interdependence over many years now, as world trade has grown and as countries have come to accept the need for agreeing to rules governing such activities. And I think national identity is strong enough to survive the challenge of openness to ideas and cultures from around the world.

I have covered a lot of ground today, inevitably very compressed. I’m conscious I may at times have highlighted the obstacles rather than the opportunities. If that is so, I’d like to redress the balance. I believe the strength of the internet lies in the way it connects people together. Businesses with consumers, businesses with businesses, companies with their employees, citizens with government, individuals with other individuals. It unleashes new opportunities, and the story so far is the amazing way speed with which those opportunities have been seized, initially in North America but more recently in Europe too. I’m an optimist that that will continue. Governments have a clear interest in maintaining the innovation from which we have all benefited.

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