A year in the life of ane-minister

Patricia Hewitt became minister for ecommerce just over a year ago. Or as she prefers to say, four internet years back.

During that time she has presided over the third-generation mobile phone licence auction, had to defend Treasury policies such as the IR35 tax regulation, and contend with the Electronic Commerce Bill.

Under her tenure, the original bill was deftly sliced in two, with Hewitt's ministry, the Department of Trade and Industry (DTI), putting through the uncontroversial Electronic Communications Act, which enabled digital signatures. This left the Home Office with the unpopular legislation that grants internet-tapping rights to the police, passed in July under the Regulation of Investigatory Powers (RIP) Act.

Now Hewitt, who previously worked as a junior minister in the Treasury, is left justifying another department's policy, in her role as link-woman between government and the technology industries.

In an exclusive interview, Computing spoke to Hewitt about her first year in office and her verdict on IR35 and the RIP Act.

Did transferring the controversial internet-tapping laws to the Home Office produce a good result for the IT industry?
I think the result is good for the UK as a whole. We have to make sure that, as far as possible, the internet is a safe place, as well as an exciting place, for people to use. And we have to make sure again, as far as possible, that the internet doesn't allow people engaged in very serious criminal activity to completely defy the efforts of law enforcement agencies to keep up with them.

As you know, we're talking about people engaged in money-laundering; in drug-smuggling; in smuggling of people across immigration borders; terrorism and paedophile rings, all of whom are using the internet.

The choice we face as a society - not simply as a government - is: do we say the police shouldn't have any powers at all of interception? Or do we say: well, they can have powers of interception on voice telephone calls and mail, which of course they've had for decades, but they shouldn't have any with the new communications media? That seems to me to be an absurd proposition.

Are you concerned that, with Ireland going for something much more relaxed and the US undecided, we appear to be the only major industrialised country that's legalised government interception?
I don't think we got everything right in the first version of the RIP Bill. I do think it's a greatly improved Act as a result of very extensive parliamentary debate, and very extensive discussion between primarily the Home Office, but also the DTI and the industry.

This is a very, very new area for everybody, therefore I don't think it's a problem, or anything we should apologise for, that we're one of the first to make decisions in this field. We're actually not the first - the Netherlands passed a similar law a couple of years ago. Clause one says, quite baldly, nobody shall provide communications services unless they maintain an intercept capability. Because the internet service providers [ISPs] were concerned about that, they delayed the implementation to sort out the practicalities, and it comes into effect in April of next year.

I think the Irish position is persistently misunderstood. What they've done in their equivalent of our Electronic Communications Act is say that the Act can't be used for key escrow or electronic interception, which is exactly the same as ours. They haven't made a decision yet on whether they will modernise their police powers, but I can't imagine that the Irish will want their country to be a safe haven for paedophile gangs operating on the internet.

So I think we have a better act than when we started nine months ago. We've absolutely recognised the problems for the ISPs of having to install intercept capability, and we're agreed we'll carry the cost of that, and I think we've very substantially strengthened the safeguards in the act to ensure that these powers are not misused, and do not threaten the vast majority of internet traffic.

In May, you talked about a new programme to allow fast work visas for people with some IT skills. How is this progressing?
We don't yet have numbers - it's still quite early days. What I've had is just constant feedback from business about how pleased they are to be able to get people in when they need them, fast. As a short-term measure, as a way to get companies to tackle skills shortages, it's working well.

But the big challenge is to grow our own skills, and I think we're making big progress on that as well. Rationalising the NTO [National Training Organisation] structure - we've merged two into one, focusing on ICT [information and communication technology] skills - will undoubtedly help.

We've been working with the Department for Education and the NTO to rationalise the extraordinary number of qualifications in the ICT and engineering field that are completely baffling to those interested in pursuing that sort of career, and also to careers advisers.

The other thing I'm very keen on is skills, which I'm working on with the Department for Education to create tailored courses for those in, for instance, the textiles industry, who in many cases will not get employment again within textiles, but some of whom may well be interested in moving into ICT.

The other big area for IT policy is share options and employee National Insurance contributions. Dotcoms don't like the fact that the tax-free 'approved' schemes can either have 15 people in a scheme, or everyone in a scheme, but only up to £30,000 in options. They say: "We want to make everyone rich - this is classist." Can we expect further changes?
Clearly, the Treasury and the DTI are going to keep this very closely under review. It [the option to transfer the liability to employees] was in response to a number of the companies' concerns about this completely unpredictable charge on their balance sheet, so the Chancellor made the change of enabling companies that wanted - and which had their employees' agreement - to shift the liability to the employees.

Those who do that will be facing their employees with a marginal rate of tax at the point at which they exercise the options of just over 47 per cent. That's less than France, Germany, the Netherlands, Spain and Sweden, and is directly comparable with the employee in California or New York City, where you also have to take state taxes into account.

But clearly there are concerns about the approved schemes where there wouldn't be any National Insurance charged, but which for other reasons are seen as not necessarily meeting the needs of companies.

When you first came in, IR35 - the change to contractors' tax regime which came into effect this April - was the big concern. What's the situation now?
We haven't yet gone through an entire tax year of IR35. So far, I think it's proved to be something of a damp squib. The big fears of a huge exodus of sub-contractors really does not seem to have taken place. I've had literally two firms mention to me that they have lost a couple of sub-contractors as a result. But this is very, very small beer so far.

The sub-contractors I have spoken to have been greatly reassured by the approach that the Inland Revenue has taken. We are monitoring it very carefully, and once we have gone through the full tax year, I think we will then be in a position to assess on the basis of hard facts, and not anecdotal reporting, what the effect has been. Almost every other industrialised country has either similar anti-avoidance measures, or is putting them in place now.

Do you think you should still be at the Treasury, given that its legislation impacts on IT to such a large degree?
That's only partially true. I work very closely with the Treasury, and it helps being an ex-Treasury minister. I think it's just the nature of the Treasury - whichever part of government you are in, the Treasury is making decisions that affect you.

But it's not true that everything that's going on in this business is down to the Treasury. When I became e-minister, the number one issue on my plate was the cost of internet access. I was coming under a lot of pressure to mandate unmetered calls, which I resisted.

If we had gone for unmetered voice calls, we would have really damaged the position of low-income, low-level telephone users who would have found themselves paying higher rental charges.

But what I said we would do, and what we have done, is continue driving competition into the telecommunications marketplace, and through Oftel continue to use tough, intelligent regulation to get a much greater range of tariffs and reduced costs for internet access.

The result is that we are the cheapest for off-peak access in the world, and for peak-rate access we are below the OECD [Organisation for Economic Co-oporation and Development] average.

Despite the fact that there have been some failures of smaller ISPs and telcos offering completely unmetered and subscription-free access, there is still a growing choice to consumers of flat-rate internet packages, that are very, very good value - both for domestic users and small businesses.

There seems to be a crisis of confidence among consumers regarding online transactions, partly down to a number of high-profile bank problems.
I think 'crisis of confidence' is putting it too strongly. There's a long-standing reluctance among people who use the internet to buy things on the internet, and that is very largely to do with security concerns.

This is going back some years, but the very first time I was thinking of buying something on the internet, and it reached the point of entering my credit card details, I just thought: 'Oh! I'm not going to do that', and I aborted the transaction. Then I thought: 'Hang on a minute, I give my credit card details over the telephone all the time, because it's such an easy way to buy things, and that's over an unsecure phone. Whereas if you're using a reputable site on the internet, it's encrypted.'

This is where Trust UK is very important as a way of hallmarking codes of practice and trade associations that really do provide, via their members, proper security and confidentiality for consumer transactions. And it's why it's essential that companies take security seriously and deliver on it. The incidents of Powergen and Barclays have raised - perfectly properly - very real concerns.

I've spoken directly to Powergen, which said not only has it fixed the problem and put in place procedures to make sure it doesn't happen again, but that it will be more than willing to share those lessons with us and with other businesses. Security is a matter for everybody - it's not just a technical matter.

Regarding dotcom failures, should the government do anything?
No. This is a very, very dynamic market. We're in the early stages of an economic revolution. We have all kinds of people trying to work out new business models to exploit the extraordinary power of the internet. Some of those business models will work triumphantly, some won't, and that's what these failures are about.

If you have poor management, or try to do too much too soon, or your revenue stream can't keep up, then your financiers are going to pull the plug on you, just as in an old-style business. There's no reason why government should step in and throw sand into that process.

What I think is disappointing in the UK has been the element of gloating in some of the media about some of the high-profile dotcom failures, as if somehow that proved that the internet was just a great big hype that was going to go away. That is absolute nonsense. Quite a few American colleagues have said how really distasteful they've found some of the British media coverage, for instance of boo.com.

Looking at the year ahead, what's on your agenda?
The number one challenge is to deepen the use of ICT right across the economy, but particularly within industry, especially within SMEs [small to medium-sized businesses]. The latest benchmarking survey shows very clearly that, compared with a year ago, SMEs have moved online in very large numbers. What we now have to do, having broadened use of the internet, is to deepen its use. It's not about just putting your brochure up on the internet, it's about using the web right through the supply chain to transform your productivity and competitive position.

The second thing is to really drive up internet access among individuals, at home and in the community. In September or early October, we'll be launching the first couple of hundred UK Online centres, which will be created in particular communities where there is very, very low internet access at the moment.

Of course, the other thing that will transform internet access is digital television, and we've gone from zero to four million in the last 14 months or so, which is very fast.

I think the next big challenge is how we roll out broadband much more extensively, both at home and in the workplace. ADSL [asymmetric digital subscriber line], local loop unbundling, and broadband fixed wireless access are all going to be crucial to that.

Finally, if you were writing your own report card for your first four internet years, what would you give yourself?
I'd say, I've done a lot, but there's still an awful lot left to do. We're still, by a long chalk, the number one destination for foreign direct investment into the European Union. An awful lot of that is coming from the ICT area, and third-generation mobile and digital television will continue to give us real advantages in attracting inward investment.