Oral evidence: The Digital Economy, HC 571-iiTuesday 24 November 2015

Oral evidence, 24 November 2015.

Witnesses

Richard Massett, Chairman, Licensed Taxi Drivers Association, Charlotte Holloway, Head of Policy and Associate Director, techUK, and Steve Chester, Director of Data and Industry Programmes, Internet Advertising Bureau UK, gave evidence.

Chair

Thank you for attending our inquiry about the digital economy. Could you state for the record who you are and the organisation you represent?

Richard Massett

I am Richard Massett. I am from the Licensed Taxi Drivers Association.

Charlotte Holloway

I am Charlotte Holloway. I am Head of Policy at techUK. techUK is the trade body representing over 850 technology companies operating in the UK. Two‑thirds of our members are SMEs.

Steve Chester

My name is Steve Chester. I am the Director of Data and Industry Programmes at the Internet Advertising Bureau, which is the UK trade body for digital advertising.

Chair

Perhaps I may begin with you, Richard and Steve. You may have heard, in the previous session, Alex saying that this disruption we are seeing, in terms of digital, being unprecedented since the industrial revolution—that third wave of what we are seeing. She also said that people are scared of change. As incumbents and as established players in the marketplace, you are just frightened of new providers. Is that fair?

Richard Massett

Not as far as we are concerned—not at all. The licensed taxi trade has always embraced new technology. Over the years we have had digital radio. We had the first apps that there were in the trade. They are very similar to the one that Uber use now. Hailo were the first into the market. We have embraced those and we will continue to do that. Taxis will shortly all accept credit cards and, come 2018, we will start having zero emission capable vehicles. We welcome new technology and we do not fear competitors.

Chair

Steve.

Steve Chester

No, not at all. Our entire industry online is based on disruption. Look at the transition that newspapers are having to go through at the moment, having to transition their revenues from traditional to digital and then from digital specifically onto mobile as more people move onto mobile. The whole industry is predicated upon constant innovation and constant change. I think it was Mark Zuckerberg that said unless you innovate within six weeks you are dead. That basis of having to have constant innovation and trying to provide better service for consumers is part of what digital advertising is all about.

Chair

You may have heard the comments from Ben from AdBlockPlus. Is the ad‑blocker a real threat to the internet?

Steve Chester

It is a threat to free content and services at the point of access, because there is no doubt that a lot of people are downloaded ad blocker. Adobe recently published a report with a company called PageFair. They specifically looked at ad-blocking on the market and measured it. As Ben referenced, about 200 million people worldwide have downloaded an ad‑blocker, and specifically in the UK, based on our research, we are seeing about 18% of the population actively using one.

Chair

So the market has decided. They do not want to see ads on the internet. It is a pain in the backside, so the market should deal with that, should it not?

Steve Chester

There are different reasons about why different people download ad‑blockers. Our research has shown a variety: some people do not want to see some advertising; some people do not want to see advertising on specific sites; sometimes people have cited concerns about privacy. There a number of different reasons. There is no doubt that we need to constantly make sure that advertising is delivering value and that it is delivering a good experience. Essentially that is what we at the IAB are focused on. We have created our standards for years. I will give an example of that. We have not backed the pop‑up, which was rife in the early 2000s, as a format for nine years. We have advised all of our members against using it. Consequently we saw a move away from that. We do believe in a good ad experience and delivering people a good overall web experience. However, there is a lack of understanding among consumers about what advertising offers, which helps deliver content and services free at the point of access. That same research showed that over half of people—56%—when asked, “Did you realise that website providing you with that free service could lose money?” said, “No, we did not realise that”, so they did not make a connection.

Chair

Do you have an added role, which is to tell people about what happens and that there is a direct correlation: “You see adverts online and therefore you have free content”? What steps are you taking to raise public awareness of that?

Steve Chester

Specifically we work with our members who both sell advertising and buy advertising and the intermediaries in between, to then make consumers aware of just that fact, but also making sure that they are aware that there is a basis where all of the significant players in the market—all of our key members—will abide by strict ad guidelines providing a good experience. We are doing just that and working on specific ad guidelines that deliver a better experience across all devices including mobile, because as more people go onto mobile we need to make sure the standards on that are ever improving. We are doing just that with the standards, but also giving people education about how advertising works, and specifically about what it offers. Already we have made good moves in this space. You may have seen a lot of adverts with the blue icon in the corner—a blue triangle. That is now in 33 countries around the world and it gives people the ability to understand how targeted advertising works, where specifically a company may then give you an advert based on the fact that you have gone to the website. A website called Your Online Choices (www.youronlinechoices.ue) also gives you all of the information about how that works and gives you the ability to control how your data are accessed and used, so you can specifically then control that. Moves are already afoot to do so, but we need to do more work in the area.

Chair

Richard, can I turn to you? You have said that you have embraced competition and you have embraced innovation in terms of other apps. However, in terms of what Uber does, that very good match between me as a potential passenger and somebody as a potential driver is exactly what consumers want. Why are you so scared of Uber?

Richard Massett

We are not scared of Uber. First of all, we do offer exactly the same service through taxi trade apps. Hailo and GetTaxi are the two largest ones. What has affected us most of all from Uber is the congestion that they cause. London has the worst traffic congestion at the moment it has ever had, and a lot of this is down to Uber. Ten years ago, one vehicle in every 100 on London’s roads was a private hire vehicle. That has now gone up to one in 10. In April 2013 there were just under 50,000 private hire vehicles in London. That is now 91,000. That is continuing to increase, and if it continues down the same route pretty soon nobody will be able to move at all on our roads.

Richard Fuller

Richard, is that not an argument for having a limit on the number of people who can have a private hire licence?

Richard Massett

Yes, indeed.

Richard Fuller

Not an argument against Uber.

Richard Massett

Indeed. That is what I said. We are not frightened of Uber. As far as we are concerned, Uber is another private hire company and we have been dealing with private hire companies, or minicabs as they used to be known, since 1959. There has been healthy competition. We think we have competed very well.

Richard Fuller

Do you therefore support TfL’s points in its consultation about forcing people to wait five minutes to pick up a taxi and requiring everyone to offer a seven‑day booking period?

Richard Massett

The difference between taxis and private hire is that taxis offer an immediate booking service. Private hire should be pre‑booked. We have a two‑tier system in London.

Richard Fuller

Why?

Richard Massett

The Law Commission has stated, when it studied this last year, that we should retain the two‑tier system, and that is taxis ply for hire and private hire vehicles do not.

Richard Fuller

But the Law Commission also said that the distinction between the two was quite vague, and has technology not really proven that that distinction, historical thought it is, is not really sustainable in the long term?

Richard Massett

What is not sustainable is the present congestion that is being caused. That is the number one priority: to bring that under control. As far as we are concerned, we welcome most of the regulations that TfL are proposing to bring forward. On the five‑minute one, they would be much better served if there was a proper definition of plying for hire and for pre‑booking. That needs to be done first of all.

Richard Fuller

The other day, Chairman, I was talking to one of Richard’s members. I will not embarrass him by giving his full name; his name was George. He spoke with passion about London. He knew exactly where he was going. He was amiable. He was positive. Do you think Uber cares about those sorts of things with its drivers?

Richard Massett

Uber probably cares more about profit than anything else. As far as taxi drivers are concerned, they have invested about four years of their life in doing the knowledge of London. Most drivers, like George that you mentioned, are very passionate about their trade and about London.

Richard Fuller

How much would someone like George have invested to purchase the hackney carriage?

Richard Massett

He has probably paid about £35,000 for his vehicle or he may be renting it for, say, £200 a week. He has to keep it pretty well immaculate and he has to have it tested every year, or twice a year. It is a lot of financial input into doing that.

Richard Fuller

If someone like George—I do not think George would do that—were to put themselves on Uber, could they possibly support that type of vehicle? Would they be forced to provide an inferior type of vehicle?

Richard Massett

Uber does offer an option for taxi drivers to join them. I believe that there is a probably a handful that have done, mainly in the suburbs. Uber drivers generally drive much cheaper vehicles—cheaper to buy and cheaper to run. That is really what we are competing with. Uber has a really low‑tech business model: it floods the market and then undercuts prices. That is not a high‑tech solution at all.

Richard Fuller

Can I just ask one more question? I put a submission in to the Law Commission review on taxis, and it was about safety in taxi cabs. I felt that for too long taxi drivers in particular were treated as second‑class citizens in our public transport system. There is no regard for their safety, and, in a very trusting relationship, no regard to the passenger’s safety. It is a very trusting relationship where you have a driver and a passenger in a single vehicle. The Law Commission has come forward saying that there should be national minimum safety standards, perhaps in the form of CCTV, etc. Do you agree with that sort of regulation to protect our drivers and to protect our passengers, and do you think models like Uber—disruptive technologies like that—that would be able to facilitate that as well?

Richard Massett

Certainly we welcome protection both for drivers and passengers. Safety is paramount, as everybody says. Uber tends to use the cheapest model of vehicle that it can use and that is not its priority at all. While the current situation continues, that is not going to change.

Chair

Could I ask about the knowledge? In the era of satnav, is it not somewhat quaint and just not conducive to good, efficient business operations? Why do we need the knowledge in 2015?

Richard Massett

Satnav is very good at getting you around if you are not in a particular hurry. There have been lots of tests carried out by the media putting taxi drivers against satnavs, and taxi drivers win hands-down all the time. They know the roads like the back of their hand. They know where they are going and they want to get there as quickly as the passenger does. As good as satnav is, it is nowhere near as good as the taxi driver’s brain.

Chair

But is it not an argument that there will be different segments within the marketplace? If I want a high quality service with a driver who is professional, like George, and who knows London like the back of his hand, I will pay for that and I will possibly pay a premium. Alternatively, I might use the Uber app and get something that is instant, gratifying but ostensibly low-cost. In terms of airlines, is it not comparing easyJet with Singapore Airlines?

Richard Massett

Not particularly. You get very good value in taxis anyway. As far as Uber is concerned, it is affecting the local minicab more than anything. All of these drivers—these 91,000 drivers that are now licensed for private hire—are not going to the local minicab company anymore; they are joining Uber and they are flooding into central London. So if you wanted to use your local minicab office, say in Tottenham, the chances are you would get a worse service now than what you would get before, because all the drivers flock into central London.

Amanda Solloway

Just following on from that—I am sorry to just stick with this for one second—just talking about congestion, one of the things that Uber was saying was around the fact that they wanted to be car-free almost, in terms of private passengers, so that there is an availability of either taxis or private hire or whatever. I just wonder whether on‑demand—i.e. your phone—helps towards that, because instead of just driving around looking for business, I am assuming that if you are calling that might help towards that. What is your vision to combat the congestion issue?

Richard Massett

First of all, it would be to limit the number of private hire vehicles. There has to be more effort from the local authorities to keep traffic moving. At the moment local authorities are closing roads, they are pedestrianising, and they are putting longer green phases onto traffic signals. There needs to be more emphasis on keeping traffic moving and then we need to decide what traffic is essential. Traffic is needed to move people around—buses and taxis—but there is also goods and services. A vast amount of traffic out there is made up of white vans and, these days, construction traffic. We need to decide what traffic is essential and then do our best to keep it moving.

Chair

Charlotte, can I come to you? In your submission, you say that “the UK has a fantastic opportunity to be a world leader in the digital economy”. Could you tell us what needs to be done to achieve this?

Charlotte Holloway

Sure. The conditions for the UK’s digital economy to continue to be a global leader and to be the best in the world are down to many, many different factors. We can look first at the strengths of the tech sector as a core. We perform very strongly—by different measures, between 10% and 15% of GDP. We can then look more broadly at the adoption of digital technologies across other sectors and other industries. The example of transport and the London example is a classic example where we are seeing the adoption of digital technologies driving productivity and new innovations in other markets. When we look specifically at the tech sector, our submission refers to a number of areas where we see there are barriers to growth now and also looking at the future. One key area that is absolutely important to get right is around data; all of this innovation, all of this growth, and all of this future potential for the UK economy as a whole is driven by how we use data. The digital economy is a data-driven economy. It is really important we look seriously about the environment in which data rules operate. We talk in our submission about some current negotiations going through at a European level at the moment, where member states are broadly in a good place about how we get the environment for data right. It is something called the General Data Protection Regulation.

Chair

Could I ask you about that, because this is very, very important? What do you think the updated General Data Protection Regulation should look like?

Charlotte Holloway

That is a difficult question to answer quickly and succinctly. It is the most amended piece of regulation in the history of the European Union. It has had about 3,500 amendments. There are some key areas we can get right—areas around how companies have limitations on how their data can be used, and things around consent. There is something called explicit consent. Every time you want to do something ever so slightly different, even though your user and consumer is clicking on an app showing they want to do it or do something in a slightly different way, we think that is unambiguous consent for a consumer wanting to do it in that way. If we have explicit consent it is very hard and very detrimental to user experience. We talk about this in our submission. We would be happy to give further points on this. More broadly, Alex, in the previous session, spoke about skills. Absolutely the digital skills shortage is one of the biggest issues facing the digital economy.

Chair

Alex said that we are basically failing in every single aspect of digital skills. Would you agree?

Charlotte Holloway

We see the three most pronounced shortages being in cyber security specialists, in big data analysts and in senior developers, so these are not necessarily entry level routes. They are routes that require more training, more skills and more expertise. Alex’s comments reflect those. I hear from companies of all sizes day in, day out. We need to be thinking about how we develop the domestic pipeline, where there have been some positive moves of late around the computing curriculum. It is really important that we look at how we get the delivery of that curriculum right, and teachers in the right place to do so. However, there are broader issues around that talent taking a lot of time to come through—five to 10 years to come through. How do we think about the broader talent that we need? The migration environment and changes around the tier 2 visas are posing a lot of challenges to our members.

Amanda Solloway

That is really interesting, and I was just wondering whether we have been a victim of our own success in terms of advancement. I wonder if you had anything we could do. In a way, you are talking about people with high-level skills, but to get those high-level skills you need to have a certain level of experience as well. Have you got a solution to how we address that?

Charlotte Holloway

The companies we represent work very closely with universities and with schools. Some of our members invest in things like Code Club. There are various different interventions across the chain of the skills pipeline where there are concerted efforts being made. The Government are looking at this issue. We think there is a role for Government in addressing where we need to get to. There are lots of different pockets of good things that are going on, but how do we know that collectively they are going to move the dial to fill the 1 million or 1.5 million new jobs that are going to be created by the digital economy? I think that is a really big question. Our members are looking at it. They have some great schemes that we talk about in the submission, which look to address some of these issues. We need to know the scale of the problem, and we are already working collectively in partnership, as Government and industry, to meet the scale of that challenge?

Jo Stevens

Could I just follow up on something you said, Charlotte, about the tier 2 visa requirements and an issue around that? What would you recommend? What would you like to see, in terms of a tweak to the current policy, to help that skills shortage?

Charlotte Holloway

We have had some recent positive developments that should take effect, with the Government adopting the Migration Advisory Committee’s recommendations to add some digital roles to the shortage occupation list. They should start taking effect soon.

Jo Stevens

Will that solve the problem?

Charlotte Holloway

We do not think it will in its entirety. There are issues around the salary increase on the tier 2 visa that particularly harm smaller firms wanting to get talent into their companies from outside of the EEA. There are also issues around the cap; as part of the Government’s broader moves, they have brought in skilled migration to be part of the overall “tens of thousands” objective, and we have found that that cap, which was reached earlier this year, has had a detrimental impact. Companies want to fill their orders; they want to grow; they want to be part of the wave of growth that we are talking about, but if they cannot get that talent in quickly, and we have reached a cap, then there is a problem.

Jo Stevens

Are there other countries that are addressing this in a different way that is working, so that they do not have that skills shortage, that you know about, that could help?

Charlotte Holloway

The UK’s digital economy is, by its very nature, global. A lot of the talent goes around the world. This is the kind of world in which we now operate. When we looked at other countries, and places like Tel Aviv, Singapore and Silicon Valley, we see a much more business-friendly approach to the migration environment, but this is one of a number of things that we need to think about in detail. If we want to do things like meet the productivity challenge and look at how we create high-growth jobs for the future in the digital economy here in the UK, we need to get wealth creators in, and people who fill and fuel that future growth of nascent new firms that are locating here in the UK and need the talent to grow.

Paul Blomfield

Very briefly, on that specific point in relation to tier 2, what you said echoes what I have heard from engineering employers. One other dimension of their concerns is about the closure of post-study work opportunities for international graduates from UK universities. Is that an issue as well?

Charlotte Holloway

It is certainly something that has been raised by a number of our members. We would encourage the Government to look again. Maybe it is not about of doing things in the same way as they were before that was closed. When we talk to companies that work quite closely with universities, they say this seems slightly odd. You bring international students here—the best in the world—they learn about the UK, they learn about the culture and what we are doing, and then if they are not able to stay and get involved through the post-study work visa, then are we effectively training our competitors to out-compete us when people return or go elsewhere to do things? This is particularly acute with STEM degrees.

Chair

This is directed at you again, Charlotte? Is access to finance a problem?

Charlotte Holloway

We talk about it in our submission.

Chair

If I may interrupt on that, one of the things that was positive was that you state in your submission that of the 15 unicorns created in the last year in Europe, nine come from Britain. That is fantastic. What are the conditions that allow that to happen, given what Alex said, which is that access to finance remains a problem? How do we address this, to ensure that in the next year we are going to have an even greater proportion of unicorns coming?

Charlotte Holloway

There has been a broad positive change in the last few years, in particular for the earlier stages of funding that Alex alluded to. It is something we still need to look at. Is it the number one issue on our members’ lists when they talk to us about problems that they are facing? Not anymore. It used to feature as something that would come up more regularly for rapidly growing firms. It is not something we hear so much, and that is echoed by YouGov’s survey for the scale-up report, which we also cite in our evidence.

Chair

So the ecosystem is working for digital and tech companies.

Charlotte Holloway

It is working better. There is still more to be done. We see that there are opportunities around the British Business Bank and the Business Growth Fund, to look at the nature of this. We also see banks themselves doing more to recognise why these firms are so valuable and why they are creating so much value in the UK economy. Barclays, for example, has launched a decent fund recently looking at exactly the challenge that Alex has cited.

Chair

Banks using loan finance—I would have thought it would be VC and private equity using equity finance in order to scale tech companies. Is that not right?

Charlotte Holloway

There is a combination; I think you are right on the focus there. I am not a finance expert. I would be happy to put in further evidence on this. The direction of travel is positive, but there is still more that needs to be done.

Chair

Charlotte, I want to continue with you if I may. You mentioned earlier about how we encourage adoption of new technologies, so not just a focus on tech companies in Silicon Roundabout, but on how, in the traditional economy, new technology is embraced? I have two questions on that. How do we encourage that? What do we need to be doing in terms of practical steps? Secondly, is Government doing enough to change how it operates, in order to make sure that we can adopt innovative new technologies?

Charlotte Holloway

Taking your first point about broader adoption across the economy, the reason many companies think, “Yes, I want to do business here in the UK”, is we have a fantastic savvy consumer base. We have the highest rates of e‑commerce, as has been shown by various studies. Individuals in the UK are very good at adopting and trialling, getting involved with new types of digital technology. That said, we do have an issue with those who are not online, who are not digitally included. We see from our members that, looking at the digital inclusion issue, not only is it good for solving other government priorities, like getting more people accessing public services online, but it also acts as a consumer driver in creating more consumers who are accessing and interacting with services online. On digital adoption across wider economies, we do see SME adoption of technologies as a problem. We see statistics from Go ON UK and others saying that only 17% of SMEs have the ability to transact online. We do need to look quite seriously at the SME adoption issue. We know that if we want to tackle things around the productivity challenge that is absolutely where those gains can be made. Think-tanks such as ITIF in the US have said that this is the number one area; SME adoption of digital technologies will drive economic growth. In terms of the Government’s role, I think it is, first, about creating a positive regulatory framework. If new technologies come along, they need to make it easier, not harder, for companies to adopt them and to level the playing field in terms of keeping that regulation up to date. It is also about Government acting as a driver and adopter in itself, so when we look at how the Government buy technology, that it is understanding the very latest in the market and that it is able to see the full richness, from a rapidly growing start-up to new innovations happening in bigger companies. The Government themselves buying smartly is a really good way to look at that. Government’s role also applies to having pilots and tests of where new technology is coming through. A couple of examples where we worked closely with the Government, and which we would applaud, would be around the driverless cars pilot in Milton Keynes. There are really big regulatory challenges. How do you do that? How do you get into a market when there is traditional planning, and roads? Piloting that, with Government and industry working in partnership, is a good example. Secondly, there are things like Internet of Things pilots. We applauded the Government in their £40 million push to look at how we can really introduce the Internet of Things at the level of the city and how we create smarter cities. They are good moves that we can do. Can more be done? I would say more can be done to look at how we maximise this.

Chair

Such as what? What more can be done?

Charlotte Holloway

We continuously need to be vigilant to the latest disruptions and new things coming through in the sector. We also see concerns around the role of science funding as part of the broader tech development pipeline. Through the combination of private companies doing innovation research and our universities also driving new technologies and new innovations, those in tandem are powering what is coming live, and what will come new down the line. For our members there is a sense of concern around the pipeline of science funding in the current fiscal environment. If we harm the UK’s international science base, that will affect indirectly our ability to succeed at the adoption, development and growth from these disruptive technologies.

Chair

You have mentioned science funding, and tomorrow is the Spending Review. What are techUK’s asks from the Government in order to help us become leaders in the digital economy?

Charlotte Holloway

We want to see continued importance and ring-fencing placed on the science budget, and on research and development more broadly. We want to see focus on making sure teachers are able to teach the computing curriculum. If this curriculum is going to drive jobs for the future, we need teachers that are able to do that. There are things around the SDSR that was announced yesterday. We want to make sure that we have a continued focus on innovation, tech and data-driven expertise as part of that. We have a list of asks that we can come back with, but consistently it is about being smart with the way we are using the UK’s capabilities and strengths in the digital economy and applying them across other areas of government objectives, whether that is increasing productivity, reducing the deficit through smarter use of tech and more effective and efficient public services, or creating high-value jobs here in the future. We think that tech and digital technologies are the only way that we can achieve some of these very broad economic challenges we face as a country.

Chair

And is Government smart?

Charlotte Holloway

It is a tough question, Chair. I think there have been some very positive moves. The Government have made some really good progress, which has been welcomed by our industry over the last five years. We want to see that approach continued. Moves around the smarter state present some interesting challenges from Cabinet Office on what we can do there. What happens to the Department for Business in the Spending Review, and how you make sure companies get the support they need that is targeted on rapidly growing firms, is very important. I will leave it at that.

Chair

I have a question for Richard and Steve, although Charlotte may want to come in. I am interested in the role of regulation in encouraging innovation, competition, choice and quality. What does good regulation look like for your industries?

Richard Massett

Regulation is always needed to protect the consumer. There is public safety. We need to ensure that vehicles offering their services for hire are properly insured. We need to ensure that drivers can speak English so that they can communicate effectively with their passengers, and that people with disabilities can be carried without undue difficulties in getting in and out, and that sort of thing. We also need to address the regulation concerning congestion. That would cover pollution. Also on accidents, we need to make sure that everything is safe and people are looked after.

Chair

Steve?

Steve Chester

Regulation that is responsible but appropriate. I reference the data protection review that is coming up, which we definitely believe in. Last time it was reviewed was in 1995, and a lot has changed in that time in the way that data is used. We are concerned with the over-prescriptive nature of the proposals at the moment, which asks for explicit consent and treats all data in the same way. So to give you an example, any interest on a site you may have as a consumer, being put in the same bracket as your name, address and financial data, and then saying that you need to seek explicit consent for each and every action. That potentially will manifest itself in terms of people being asked and having pop-ups or having things on websites saying, “Do you give permission for this to be taken and for it to be used in this specific way?” We think that unfortunately that will be a bad user experience, but also it will make sure that the really important decisions about data may get lost within that. For instance, with healthcare data, people may get so bombarded with messaging that they may not distinguish between the really important data that is personal, and that that is not. The current proposals are over-prescriptive. Certainly we would encourage good responsibility. We have a good track record within digital advertising, particularly in leading that, like the Your Online Choices initiative. It needs to be appropriate for the industry. We are in danger of, because of the way the data is treated and considered regionally, overriding appropriate changes required, which could stifle innovation.

Chair

I was going to push you on that. I am interested in how digital advertising works, and I thought one of the great strengths of digital advertising on the internet would be in the use and incorporation of data and how it can be adapted to personal circumstances. Sending me lots of stuff about the Stone Roses would be something I would really encourage, and I would look at that; I might not look at other things. If you have a problem with digital advertising, is the fault not that the advertising is not as personal as it should be?

Steve Chester

It is improving bit by bit. It already goes a long way, anyway. There are certain limitations, of course, in terms of people giving permission to say, “This is what I am willing for you, as the advertiser, to know about me, so I can then tailor that”. Inferences are currently made about sites that you browse. It is not specifically who you are or where you live, but sites that you may browse. It may be a music site like NME. You may have looked at Stone Roses and they can make a good inference that you like the Stone Roses.

Chair

I am more than happy to admit that, yes.

Steve Chester

For instance, if you just went to Yahoo and generally browsed on the site, and it did not necessarily have any information about your browsing behaviour, it would not necessarily know that you liked Stone Roses. It would need to know that you had surfed on these different sites. It can be better, depending on what the advertising knows about you or can infer from your browsing habits.

Chair

Can I push you, using the Stone Roses as an example? I have just bought tickets to go to see them in Manchester in June 2016. I would have thought that, given my activity online now, people would be saying, “Do you want a hotel in Manchester? These are great restaurants you could go to in Manchester.” I am seeing none of that. Digital advertising is failing in that regard, is it not?

Steve Chester

It is not failing. Certainly in that respect, you might have, it depends on what information digital advertisers have access to. If they have access to the fact that you have booked the Stone Roses, then the person that has delivered you that service—presumably Ticketmaster—would need to work with a third party, maybe a hotel provider, in order to give you that information.

Chair

How do you ensure that that works, so that my personal information is not compromised but I can be given opportunities in terms of future purchases that are relevant and related to my interests?

Steve Chester

The data about who you are and where you live is not collected. Rather, it is looking at your interests or potential interests online, and inferences are being made from that. We have talked already about big data and the ability to take data about a person, and the advertiser, the person who is advertising to you, taking what they know about you, and then the place where you are actually seeing the advertising, looking at data inferences made about you as a consumer and matching the two to try to give you a better experience. We have already seen big developments in those areas, and continued development with the ability to buy advertising in real time, essentially. It will make those inferences in a split second and deliver you, hopefully, a relevant piece of advertising. Conversely there are some people who do not like that, and say, “Just because I have purchased something or I have been to this website, I do not necessarily want to be retargeted with this advertising.” The Your Online Choice initiative is a first step in terms of giving people control. It is about giving users education and choice, and saying, “Do you want appropriate advertising which is targeted based on your behaviour, based on your interests?” You can say, “Yes”, or you can say, “No, I want to switch it all off”. It is about giving consumers choice, because it is not a one-size-fits-all approach.

Chair

With regards to the rise of ad-blocking technology and the compromises that entails with regard to free content online, what does that mean in terms of what the internet will look like and the content that is online for free? Does that increase the power of the BBC, for example?

Steve Chester

I do not think it necessarily increases the power of the BBC. Obviously that is under review at the moment—the licence fee, and whether people continue to pay the licence fee or a subscription cost. The BBC is having to go through changes itself. I think there is a greater realisation that the BBC is not free. People do pay for that, and when they go online they are already paying for that service. What we are seeing already is a change in the way that content providers’ websites that provide content are having to protect their ability to do so from the revenues that they make from advertising. Examples of this would be ITV and Channel 4. City A.M. is the first newspaper to do so, blocking access to content for people who have ad-blockers turned on. It is educating, saying, “We make money via advertising to support the services, by giving you free access. We need to continue to do so through the use of advertising. Are you willing to accept that, or possibly would you be willing to pay for it?”

Chair

You mentioned that the BBC is not free, and it is not; you pay through a licence fee. I asked Ben, in the previous panel, whether some sort of media levy that can combat this is the answer to ensure that I can still see free content. What would your view be on some sort of media levy?

Steve Chester

How would that work?

Chair

I do not know. For example, if I paid my provider, I would pay an additional top-up fee in order to make sure that I could still access free content, and that would be distributed to the owners of the websites. I do not know. It is a question: have you thought about it?

Steve Chester

You raise a good point. Google has an initiative called Google Contributor where it works with publishers whereby someone can access those websites. You pay a fee to Google, which distributes a slice of that to those publishers, and in exchange they do not show advertising on those sites. We have not seen the exact results of that. I think the uptake is quite limited. What we do see is that in various reports, such as Reuters who publish an annual report on the state of news and digitisation and how it is changing, they found that only 6% of people in the UK currently pay for news, at an average of about £10 a month, which is about 30p a day. Of the 94% that do not, 75% of those said they would never pay under any circumstances. They would not pay for content. That is the challenge we have. Some people do not want advertising on the sites, but they also do not want to pay for content. We think it is about presenting them with a choice and education, and saying, “Make your choices accordingly, knowing this”. It is about giving people choice, and saying, “You can pay for this service and not have any advertising, or you can perhaps accept the status quo, but knowing that key players in the industry who buy and sell advertising, such as Google, Facebook and others, have responsible advertising, and this is how they do it.” It is about educating people, and giving them the choice. That statistic I referred to earlier on—that over half the people who blocked did not know they were stifling and withholding money from the websites that were offering them a free service—is of great concern. Ad-blockers are easy to install. It took me 20 seconds to install one ad-blocker, Ben’s product, purely for testing purposes. That is how easy it is. People do not understand the impact of what that means, in giving continued access to free content, but also subsidising; do not forget people like the FT offer a subscription service. That subscription would have to go up if advertising did not exist.

Chair

My final question is to Richard and Steve, and is about the current regulatory framework and the enforcement of that regulation. Is the current enforcement regime working for your industry?

Richard Massett

Absolutely not, no. If you wander around London late at night—and some people here may do—

Chair

What are you trying to say?

Richard Massett

You may be going to a Stone Roses concert.

Chair

You came back from that very well.

Richard Massett

It is pretty lawless out there, I am afraid. There are all sorts of people doing taxi work. Taxi ranks are getting blocked. There are not sufficient resources for the level of enforcement that is required.

Steve Chester

Our regulatory environment is good. There is a good understanding from the Government broadly about the opportunities that digital advertising supports and delivers.

Chair

And enforcement is good.

Steve Chester

Enforcement is good. We have a good track record particularly on self‑regulation. We need to continue to develop that. We support the general data protection review, in terms of its development. It has been 20 years since it was last reviewed, so we definitely believe it needs to be developed. However, our big concern, which I will come back to again, is the fact that, from a regional perspective across all 28 markets, there are very different views about how data should be treated. Amongst all of this, the Edward Snowden affair has coloured people’s views about how data is used. So, people—particularly new European policymakers—thinking about exploitation of the consumer, and confusing commercial use of data and state surveillance, is a big danger. We think there is a slight, potentially anti-US sentiment in some parts of Europe that is leading to over‑regulation, which would be a very bad thing and would stifle innovation in this country.

Chair

Charlotte, you wanted to come in.

Charlotte Holloway

I would agree with the final points, on the broader European approach. I just wanted to end by talking about the overall approaches of regulation that you are referring to. We have spoken today about specific examples of disruptive technology and what the instincts and reflexes can be to those. These are going to be challenges that we will continue to face again and again. We are only partway through this wave of digital growth. We will see these kinds of challenges across many different types of industries. Policymakers need to look quite closely and think quite closely. What are your instincts to that innovation? What are your instincts to these new drivers of competition and new business models? This is a global issue. The UK is in a good place to be a leader in this issue. Companies that I have spoken with welcome the comments that Sajid Javid made to this Committee previously around this not being about having instincts to go in with heavy-handed regulation. If you go in too early around these quite nascent developments you are going to hurt the UK’s ability not only to be a world leader, but to shape and move the social and economic outcomes you want from these new technologies. To be a leader in these areas, we also need to think about how we can best shape regulation. If there are things and externalities we want to preserve—around, say, the continued life of the London cabdriver, whatever these things look like—then we should be clear that those are externalities we want to preserve, but also be very clear about evidence when it comes to harms and benefits of new technologies. It is only by being positive about the UK’s digital economy and these disruptions that we can shape them and create a positive UK as a world leader in this stuff, because it is a global competition.

Chair

Charlotte, gentlemen, thank you very much for your time. We appreciate it. Oral evidence: The Digital Economy, HC 571-ii 28