"These companies are just two examples of the economic opportunity of e-commerce. That's why the government attaches so much importance to getting its policy on e-commerce right. And it's why, last Autumn, we set the target that Britain should be the best place in the world to trade electronically by 2002.

Since then, the Performance and Innovation Unit - led brilliantly by Jim Norton - has been working on a strategy to meet that target. The PIU is a new think tank at the heart of Whitehall, reporting to me on important long term issues. It's a mark of the importance of e-commerce that it was one of the PIU's first ever projects.

I'm delighted to be launching their report today. I recommend you read it - it's the sort of serious analysis that governments have too seldom done in the past. It doesn't attempt to be a grand plan, nor an interventionist strategy. Any such plan would be out of date before it was off the printer. Instead, the report is a sober assessment of where we are and what we should do to meet our targets.

The good news is that we've started well. More companies have websites and a higher proportion of sales are made on-line in Britain than in any other major European country. Our large companies are more than holding their own in the global market that is the Internet.

And we start with many advantages. English, the common language of the Internet. A developing venture capital industry. And some of the best universities in the world.

But the PIU also found worrying signs of conservatism - for example, the fact that less than 4% of British companies thought that the Internet could cut business costs, compared to 15% in the US and 30% in Finland. Or the industry representative who thought the government's response to Internet bookshops should be to ban them.

Overall, the PIU found that Britain was lagging behind America, Canada and Scandinavia, and that Germany and France are making a real push to catch up.

So we need to act now. Too often Britain has made a good start, only to see others exploit the full benefits of new technology.

That challenge falls first to British business and the British people. Only you can lead this revolution.

But the challenge is also for government. The PIU's report contains 60 detailed recommendations - the kind of changes that won't get headlines, but will make a real difference to the way you do business. I can announce today that the government has accepted them all.

Let me summarise them under seven headings - seven ground rules for governments in the knowledge economy.

First, use self-regulation. A Bill takes at least a year to get through Parliament. Given the pace of the Internet, it's likely to be out of date even before it comes into effect. That's why we announced in July that we would implement most of the Electronic Communications Bill through self-regulation - the ball is now in the industry's court to come up with a credible scheme.

The same is true of key escrow. Many of you will be aware of the issue of mandatory key escrow - the previous cross-party policy to coerce people to give the password to their Internet mail to a third party. Well, one of the PIU's main conclusions is that those plans were not going to work. So let me say clearly today - no company or individual will be forced, directly or indirectly, to escrow keys.

Second, act faster and co-ordinate better. We've been too slow here - as have most governments around the world. So, we've re-organised the way we work - with a single lead Minister and a single lead official. Patricia Hewitt is now the E-Minister with overall responsibility for e-commerce. And we are announcing today Alex Allan's appointment as e-envoy.

Let me tell you, there is no one in Britain who could do that job better. Having run Number 10 as its senior civil servant, he knows how government works. Not only is he a brilliant civil servant, but he must be one of the few senior civil servants with his own website - and certainly the only one whose website includes a comprehensive guide to the lyrics of the Grateful Dead!

Patricia and Alex will report to me on progress every quarter and I'm convinced we will now make policy better and faster.

Third, get trained. That starts in schools - I'm very proud of what we're doing here. When we came to power, barely one in ten schools was connected to the Internet. Now, two thirds are - the most of any G7 country. The number of primaries connected has gone up four times in the last year alone.

But that's not enough - I have pledged that by 2002, all schools will be connected. And what's more, we will subsidise over 100,000 of our poorest families to get computers, so they can access the Internet at home too. Let's be clear - this is a massive step change, which will mean all our children will have access to the Internet. Not just those with rich or enthusiastic parents, but all our kids.

But adults also need training. That's why we announced a £450m computer skills strategy in the Budget. Through Individual Learning Accounts, we will provide 80% discounts, available to everyone, for basic computer training.

We are setting up 800 IT learning centres to give access to IT to those who would otherwise be excluded.

And where companies provide computers to their employees, we will now give a tax break to the employee. So neither the employer nor the employee pays tax.

This package of measures means that everyone will be able to learn to use the Internet, rich or poor, young or old.

In many ways, I am the last person to be making this call to action.

To say the least, I am no expert. I watch my children and indeed Cherie surfing the net and feel a mild, sometimes not so mild, sense of humiliation.

Like many people of my generation in positions of leadership, I rarely use a computer and when I do, I usually need help.

But I know it's not good enough and if I recommend lifelong learning to others, then I know I should go back to school myself. I started over the summer, taking my first lesson with Cherie. But I intend to go one step further, and do a course. And I would encourage others of my generation to do the same - both because there's no shame in admitting the need to retrain, and because my children assure me that it is not that difficult!

Fourth, get the infrastructure right. Britain is already one of the most competitive markets in telecoms in the world. On some measures, the cost of using the Internet is lower here than anywhere else - 1p a minute in the evenings and at weekends.

But we need to go further to stay ahead. We've recently announced some far reaching moves here - a fifth mobile phone licensee, competition in BT's local networks.

And having opened up these markets, we need to make sure they stay open. That's why the PIU recommends that OFTEL and the OFT work together to review all possible barriers to competition by March next year.

Fifth, build trust. The PIU found that the biggest barrier to the spread of e-commerce is cultural. Companies are worried they won't get paid. Consumers are concerned that their personal details will be mis-used. Copyright holders fear piracy. The PIU report goes a long way to addressing many of these concerns. We need to implement their findings, and then communicate that Britain is a safe place to trade electronically, as safe as any in the world.

Sixth, lead by example. If people are buying plane tickets on-line, they will expect to get their driving licences or find job vacancies there too. So that's what we'll do. I have already set as a goal that all government dealings that can be should be deliverable electronically by 2008. We're making real progress towards that target - for example, I can announce today that from next year, you will be able to submit tax self assessment forms on-line.

Seven, think European. E-commerce abolishes frontiers even for the smallest firms, bringing the 380m people in the single market within reach. So companies need to think European, because the single market is their home market. And governments need to think European - to turn Europe into the world's most vibrant virtual market. I know Romano Prodi agrees with me about the importance of this challenge - Europe's goal must be not following but setting trends in electronic business over the next five years. "

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