William Hague – 2000 Speech on the Knowledge Economy

Below is the text of the speech made by William Hague, the then Leader of the Opposition, on 16 March 2000.

I am delighted to welcome you here today for the Conservative Party’s e-business conference. Many thanks to freecom.net for sponsoring this event; and to all of today’s speakers for giving their time to discuss the knowledge economy with all of us here today.

It is the measure of how important e-business has become as an issue, that a political party is holding this kind of event – and, that so many of you are here to take part in it.

Electronic commerce and its value to business has become one of the most important parts of the economic equation. You have been aware of this for some time, but it is now dawning on governments, the media and consumers that here is something that is changing the rules.

It has the power to transform the way we live and it will become ever more central to our future success as a country. If we take the sensible route, the route that I will map out today, then e-commerce can do for this country in this century, what the railways did in the nineteenth century and the automobile in the twentieth century.

It is vital therefore, that Government provides the right environment to nurture and support the talented business people who can lead us in this new economy and help to make Britain a leading player.

When we left office three years ago the Conservative Government had already delivered the foundations for the E-revolution, and you in your businesses had already started to build on those foundations. There was draft legislation in place to enable e-commerce to flourish, bring our laws up to date and to further deregulate the communications industry. But that was three years ago – and the world of the internet, like the world of politics, has changed a great deal since then.

Building on the knowledge economy that is springing up at such a fantastic rate will have huge implications for you in business – and for us in Government. I intend to touch on both of these areas this morning.

Success in e-business will of course rely on many of the policies that we have long championed.

So today I want to outline to you why low taxes are essential if Britain is to become a leader in the new economy.

I want to talk to you about our Tax Guarantee and a war on over-regulation that will widen our competitive advantage in the age of e-business and trade without frontiers.

I want to talk to you about the importance of nations competing with each other to be an attractive place for e-business, rather than driving that business away with higher taxes, more regulation and ever more centralised political systems.

I believe there are two very clear choices before us.

The first is to act in the belief that in a big jungle only big beasts survive; that as markets grow, so must the size of government. We can see this belief driving the way a number of Western European Governments behave, including our own.

They are interfering more and more in the labour market, imposing statutory working hours, levy new taxes and enforcing new regulations in a mistaken belief that this will protect small citizens from the chill winds of the new economy. I say such an approach does not protect citizens. It puts them on the dole. Higher taxes and more regulations only serve to make it that much harder for any business, dot.com or more traditional, to be successful in the global market. Which is why my Party is particularly concerned that business in Britain is having to find £10 billion a year to meet the costs of new regulations and £30 billion of extra business taxes over the lifetime of this Parliament.

I take a different approach, and I suspect many of you do as well.
I believe Governments must recognise that this is the age of the small unit, the individual on the internet, the small business and large business alike using e-commerce, and that in this age it is the low tax, low regulation nation state is best placed to succeed.

For in the dimension-less, go-anywhere world of the new economy, no country can take industry for granted – for industry can go to any country. The common sense approach would be to build on Britain’s existing advantages of the English language, our excellent software skills, and our entrepreneurial spirit by keeping government interference to a minimum.

That is the way to command the electronic frontier. That is what the Conservative approach will be.

We know this works. Take the example of Florida, which I visited a few weeks ago. There Governor Jeb Bush is attracting high technology companies to the state by creating what he calls Silicon Beach. He is doing it by building a low tax, low regulation, high skill economy.

Already Florida has seen a wide array of companies begin to cluster in Miami. These are companies offering services such as chat-rooms and search engines – email and e-commerce opportunities – as well as sites in Spanish and Portuguese specifically designed for Latin American and U.S. Hispanic audiences.

Britain is competing against places like Silicon Beach – and we cannot even offer the sunshine.

So the danger is that as all this develops, we fall behind. We already lag behind the US and much of mainland Europe in terms of Internet access; and American sites today dominate the competitive landscape – just three of the top ten most visited sites in Britain are UK based.

We also face higher costs and slower access to high speed services in Britain. As wireless and fixed communications are increasingly overlapping, it is absurd to have a regulatory structure that does not keep up with this technology.

Educationally too, there is work to do. We need flexible learners who can cope with constant change, always hungry for new knowledge and ready to lead in the knowledge economy.

A shift in skills is required right across the UK economy. Just look at recent employment headlines:

‘Tesco on-line business to create a further 7,000 jobs’ and;

‘Abbey National Internet Bank to create 500 new jobs’ are just two examples, while companies, such as Barclays Bank, cutting jobs in low skilled areas and creating them in what they term ‘knowledge areas’.

While access to Information Technology in our schools and universities grows there is still too little evidence that IT is being used to enhance the learning process rather than IT just being an “add on”.

We must also be sure that we don’t miss an important opportunity. The global reach of the Internet will drive students to look abroad for higher education qualifications. The UK is in a strong position to capitalise on this as UK qualifications are internationally well regarded. We must do so.

If these problems are not tackled we lose out. We do not have the luxury of time. The scale and speed of the new global economy is staggering.

Our sponsors today, freecom.net, state that the forecast for growth in the worldwide e-Commerce market has gone from £61 billion in 1999 to £0.7 trillion by 2003 – a phenomenal growth of 1,119% in four years.

What then should be involved in a light touch approach? What can we do to build on the knowledge economy?

You, of course, are in the driving seat. The new economy will create some big winners in business, and perhaps some big losers too in the years ahead. Like all of you, I watched with some amazement as new high-flying technology stocks ousted some of the ‘old economy’ giants from the FTSE 100 index.

Shares in the hi-tech and dot com companies are soaring, mostly based on future profits – such is the expectation for the future of e-business.

The challenge for professional investors is immense. We have to welcome the willingness of investors to bring their capital to help the growth of these companies, but they now have to develop their businesses in a way to deliver profits.

But the knowledge economy is not just about new dot-coms. It is about all businesses, old as well as new.

The Internet is reorganising the whole distribution process and taking out costs from the supply chain. It is lowering the cost of procurement, shortening delivery cycles and improving productivity.

Businesses that belong to the ‘old economy’ can use the new one to breathe new life into their operations, providing they do not make the mistake of assuming the Internet nothing more than an on-line version of a company or organisation.

Everything that I have said about the potential of e-commerce assumes of course, one thing – actually being connected to the Internet.

Whether it is business-to-business, or business-to-consumer, e-business is no business unless we’re connected. For the past few weeks the television news has been full of ‘the great Internet race’.

However it is important not to ignore the fact that the essence of e-commerce is that telecoms and service providers are interconnected. At one level you have the providers of the net, which is the backbone of the Internet, carrying the traffic. At the next level down, there are providers – the ISPs.

Currently, the Government and the media are talking about reducing the costs of access between the ISPs and the consumers. This is very welcome but it s is only one level.

There seems to be much less debate about the telecom providers, and the control that they wield over the Internet backbone. We must encourage openness and competition at every level of the Internet; over excessive dominance or control at any level would be detrimental to the system as a whole.

At present 70% of all Internet access travels via the USA and is re-routed back to Europe. Too much control at the backbone, or ISP level could only serve to push this figure up further.

If the providers of the Net take ‘ownership’ of the Internet, there is the potential of increased Internet costs, regardless of what the ISPs want to do. As one, or a few big, companies in effect start to own large parts of the Internet; the omens for healthy competition are not good.

Nor does it help that for each method of delivery of internet by telephone wire, satellite, radio-waves, cable, digital broadcasting and analogue broadcasting there is a different set of regulators trying to enforce different sets of regulations. Which is why, as I say, if we are to have regulation, then it must keep pace with technological change.

The internet revolution poses challenges for all your businesses. It also poses challenges for politicians too.

It is not enough for us to stand up at these events and proclaim the obvious about how e-commerce is ‘dissolving physical barriers, and levelling the business playing field’. Politicians of all parties must avoid the temptation to take credit for what is already happening.

I start from the position of someone who is profoundly sceptical about the extent to which the new global economy should be, or indeed can effectively be, regulated or taxed. This new economy has arisen in an astonishingly democratic fashion. And it has done so through the actions and ingenuity of countless individuals in what has probably been the most open and least regulated market in history.

Therefore, the right policy is for Government to stay out of the way and let it flourish. I have to say that this is not the approach currently being adopted by this Government

Take tax. Next Tuesday is Budget Day – a day on which some people think I earn half my salary since I have to give an immediate and detailed response to the Chancellor’s speech with no forewarning of what he is going to say.

But this year I know one thing for certain. Whatever Gordon Brown says, taxes, including taxes on business, will be higher when the Chancellor sits down than on the day he walked into the Treasury.

Even Downing Street now conceded that Britain’s tax burden has risen under this Government. Nearly £500 million of it will come in the form of the IR 35 stealth tax. Its name shows just how stealthy it is – it was sneaked out in Inland Revenue Press Release number 35 on Budget Day last year.

IR35 is a tax on contractors. Small IT companies are deeply worried about this new tax regime, which is forcing them to consider setting up shop away from the United Kingdom. The outgoing Chairman of the Professional Contractors’ Group said that he fears IR35 will deal a massive blow to Britain’s enterprise culture. “American multinationals will be laughing all the way to the bank as the British Government destroys their home-grown competition”, was how he put it. IR35 could cause a brain drain not seen here since the 1970s. It is exactly the wrong approach to the new economy.

This Government’s stealth tax increases also threaten the share option schemes that many high-tech companies need to attract highly skilled workers. Changes introduced by this Government which impose national insurance charges on employers offering share options badly undermines one of the best ways for dot.com companies to retain and motivate their workforce.

Far from driving away the very people whose enterprise and innovation can build and drive the knowledge economy, we should be doing everything in our power to make them want to stay.

Central to the our Common Sense Revolution is the promise that at the end of the next Conservative Government the state will take a smaller share of the nation’s income than at the beginning. In other words, we will cut the overall burden of tax on individuals and businesses.

For while our tax burden as a proportion of GDP is now 8 per cent lower than the Italians and 13 per cent lower than the French, it is also 5 per cent higher than the Japanese, 9 per cent higher than the Americans and a full 14 per cent higher than the Koreans. If we are to prosper in the new economy, that must change.

There is scope for tax reform too. For instance we must simplify our Capital Gains Tax. It is absurd that the reforms of the past few years have resulted in a more complicated, more distorting CGT system. Capital Gains Tax is now more difficult to collect than ever before. The British Venture Capital Association are right to favour a much simpler system and we are looking closely at how that might be achieved.

Alongside lower, simpler tax we should ensure the minimum of government interference and regulation imposed by Acts of Parliament.

Of course, some legislation in this area is needed. The Electronic Communications Bill will put into law the use of electronic signatures for the benefit of e-commerce, and we welcome that. But we had deep concerns about proposals included in that Bill, which could have imposed draconian new law enforcement powers and introduced the dreaded key escrow by the back door.

A great deal of hard work by our first-rate Shadow DTI team, some of whom you will hear from today, saw this removed from the e-commerce Bill – to the relief of business and the IT professionals.

The threat however, has only temporarily receded. Similar measures have re-surfaced in the Home Office Regulation of Investigatory Powers Bill, which is now before Parliament.

We support the Bill in its aim of updating existing interception law and allowing law enforcement agencies to do their job in the information age, but we will once again seek to ensure it only reaches the statute book as a help and not as a hindrance to e-business.

All businesses, new and old, are affected by the general increase in regulation and red tape. The British Chamber of Commerce has highlighted 17 major expensive new regulations that have hit firms since 1997 – including the Working Time Directive, trade union recognition and the European Social Chapter.

In our Common Sense Revolution, our Party set out some initial proposals for driving down the cost of regulation on business. We will introduce regulatory budgets for government departments by costing the regulations they currently impose on business – and then force them to cut that budget year on year. We are also considering a legislative framework under which we could exempt small businesses altogether from whole classes of regulation. We are currently consulting business about the precise categories of legislation and sizes of business to which this principle could be extended.

Some of you are no doubt a bit fed up with Politicians who tell you to reform but then do not themselves reform the way government does it’s business.

Government has a very poor record in delivering IT. Angela Browning, our Shadow Trade and Industry Secretary will talk about this in greater detail later today. Let me just say that we believe Whitehall can use the Internet to deliver faster, better and cheaper government.

Today I have touched on many of the challenges that lie ahead for all of us in this exciting new age.

Although I believe passionately the role for the state is and must remain as small as possible, the responsibility on the shoulders of politicians is great. We did not create the new economy, but get it wrong and we could certainly destroy it.

So we must get it right. We must act swiftly and decisively to let enterprise and innovation flourish. We must act swiftly to create the kind of environment in this country that really will make the UK the best place in the world to do e-business.

We must create the low tax burden and low regulation base that gives all businesses, new and old the best possible chance to succeed in the new global.

So the responsibility for politicians is great. Yet for you, for business, it is far greater still. The prosperity of our country depends on your imagination, your courage, your creativity, your skill. I know you will not let us down.