Select Committee on Culture, Media and Sport Minutes of Evidence

Examination of Witnesses (Questions 540 - 559)



  540. It is quite important to start thinking about that rather soon.

  (Lord Burns) It is. I said last time that I am more than happy to reflect on this and to judge from my limited experience what I think the lessons are from this. I just have not had the opportunity yet. I have some instincts about it and clearly it has been a difficult process; it has been a long, drawn-out process. At the heart of it, if one is going to have a single operator who is given a licence to conduct the Lottery over seven years and there is to be competition for that licence, then the process of deciding who is the winner of that competition is always going to be a difficult and drawn-out process. I see that there is no escape from that.

  541. Considering the high costs for any bidder, and we saw what the costs were last time, do you think there will be any bidders in the next round against Camelot, for instance? Can you see bidders coming forward?

  (Lord Burns) I find that very difficult to judge at this stage. It is very important for the future of the Lottery and it is very important in getting the best operator for the Lottery that there should be other bidders coming forward.

  542. In that process and thinking about it further, will you be reporting back to the Secretary of State on the process of going for other bidders next time in 2008?
  (Lord Burns) Yes. The Secretary of State has indicated that they will be having a review of the process and obviously we will contribute to that. As I have said several times, I am very happy to turn my attention to that question, now that the issue of choosing the next operator is out of the way. As far as I am concerned, I have been involved in this for quite a short period of time. It has been a very intense period of time and we have had a lot to do. There has been a lot of paper to absorb and my attention has been focused on the job in hand. Now that it is over, I will turn my mind to the question of whether there are any improvements that can be made, whether they involve legislation or not.

  543. Finally, has the composition of the Commission remained the same, apart from your taking over as Chairman? Have you got the same people on the Commission?
  (Lord Burns) We have one fewer person at the moment because one of the members resigned at the end of December. The Department is in the process of finding someone to replace Hilary Blume.

  544. You have every confidence in the others who are there now?
  (Lord Burns) Yes, absolutely.


  545. Lord Burns, and I certainly do not mean this to be a provocative question because I think it is fair to say that there has been widespread appreciation of the work you have done on the Commission since you arrived there: do you regard yourself as having a long term future on the Commission or do you feel that you have moved in there as a trouble-shooter and, having shot the troubles, you will move on, no doubt to other very important activities?

  (Lord Burns) That is difficult to say. All things being equal, it is my intention to complete my 12 months as Chairman of the Commission. Whether I stay on the Commission after that period is something that I would like to decide at that point but I am not about to walk away next week or the week after. I would like to see through, if not to the precise day, basically the 12-month period that I have been appointed as its Chairman. There is other work to do. I would like to see that through. We now have to go through the process of the implementation of the licence. There are the general management aspects of The Lottery Commission, which of course has been under a great deal of pressure over the past 12 months.

Ms Ward

  546. Lord Burns, The People's Lottery have always claimed that they would have raised more money for good causes. This is obviously a view you on the Commission did not accept. I assume that it is a view you did not accept because you also had consultants and opinions given to you, backed by some evidence, to suggest that that was not the case. Can you confirm that and, if so, will you be publishing the advice that you received from consultants?
  (Lord Burns) It is not our intention to publish the advice from the consultants. We have set out in our statement of reasons the various factors that we looked at in coming to the view about the returns to good causes. We talked both about the set of predictions and the variances around those predictions and the uncertainties that were related to both bids. We did have consultants' reports but they were inputs to the process. It is like all advice; it is advice. In the end, the Commission has the statutory duty of making the decision and we have made the decision. To some extent we accepted parts of the consultants' advice; to some extent we did not. What we stand on is the statement of reasons that we have given as to why we chose Camelot over TPL.

  547. With hindsight, would you say that a future process should be more transparent and that the advice that you receive from consultants should be made available?
  (Lord Burns) It is possible to imagine ways in which looking at consultants' reports could be made more transparent. For example, when I did the hunting inquiry, we conducted much of that in public. We commissioned pieces of research work. We then published them and had seminar discussions of that research work in public. Then we asked the people who were doing the research to amend their work in the light of it and took that into account. Maybe one cannot go quite so far as that but I can see a position where more of the background work, research work and consultants' work that has been done could be open to challenge during the process of considering it. I think the final stage, as I said last time, of the Commission considering this and coming to a view about it is not something that I would relish conducting in public. There is no reason why the process of teasing out the arguments, and where we have had academics writing articles about things, cannot be debated more fully and more openly. I think there are ways in which it could be done. The most important thing about these matters is to set out at the outset how we are going to do it. What I am always rather nervous about is when you start on one basis and then you try to switch horses part of the way through. The key thing is to set out at the beginning the process that you are going to follow. With a bit more thought, it might be possible on another occasion to conduct more of that research work and the analysis in a more open way where it is subject to challenge from both bidders but also by the world at large.


  548. If I may interject there, before Claire goes on, when we visited America and their lottery commission, they told us that all of their proceedings were in public, on the record, with the press invited to be present.
  (Lord Burns) Including the final stages where they debated with each other as to the outcome?

  549. They are state lotteries, so the question of a new licence never arises. All of the 37 state lotteries in the United States are publicly owned. That is another matter for another day perhaps. The point is that they are totally open and they have a culture of openness in the United States, whereas in this country we have a culture of secrecy.
  (Lord Burns) I think we are getting better.

  550. I hope it is getting better. The question I really wanted to put to you is: to what extent do you feel that the Lottery Commission could make it better? To what extent can Camelot, in your view, conduct itself more openly with the public and the press having access to it?
  (Lord Burns) One should not forget that there were some sessions that were conducted with the public—that was before I arrived—and with the bidders. There was public discussion about some of these issues. Nevertheless, as I have indicated to Ms Ward, I do think that one could begin to think of other ways of moving this along whereby there will be more exposure to ideas and to arguments and having them challenged. And then allowing the people who are making the arguments to respond to those challenges. To repeat, this is very much the way that we conducted the enquiry into hunting with dogs. There was quite a bitter argument between both sides and both parts contributed to it in a positive and constructive way and I think welcomed the opportunity to see much of the material. Nevertheless, in that case we still conducted the process, decided what to put in the report and the question of drafting, in private. I would rather do this in stages and to think of how far one can expose the process and the analysis and get the right amount of challenge in public and then maybe consider the question of making other aspects more open at a later stage. As I understand it, the Food Standards Agency is now conducting its meetings in an open way with the press invited. Maybe they are setting a pattern for the future.

Ms Ward

  551. The last time that you came before the Committee I raised with you the issue of operating costs. In your statement after your decision you said that the costs of The People's Lottery included in its bids were significantly lower than those included by Camelot. Can I take it from that then that the operating costs of The People's Lottery were underestimated rather than Camelot's being excessive?
  (Lord Burns) I think in our statement of reasons we made two comments. One was that the biggest difference was for IT systems and that basically we accepted that those differences were probably genuine. We were not questioning those. To that extent, we accepted that the costs of The People's Lottery were less than the costs of Camelot in that area. There were other aspects of the costs of course to do with the IT network, advertising, terminal maintenance and a whole series of other things that we looked at. Where we had some concerns was in particular how those costs varied at lower levels of sales. We did raise some questions about that but the main point we made was that, in the light of some of this uncertainty, we thought there might have been some express provision for contingencies. The answer is that in some respects we thought that the lower costs probably did reflect the fact that there was a tight contract that had been agreed between The People's Lottery and AWI and it was a tighter one than the contract between Camelot and GTech.

  552. Do I understand that the risk on that basis, with such low costs from The People's Lottery, with their being not-for-profit, would have meant that, had those costs been wrong, they would have had no margin to pay the excess from profit as Camelot would and therefore it would either have to come out of some other form of financial guarantee or indeed from the Good Causes Fund?
  (Lord Burns) Again, as far as the technology side was concerned, the IT systems side, we were not arguing that. We accepted that AWI were putting in a lower bid and that this was probably a genuine lower bid. With respect to some of the other costs, we were not quite so sure. Of course, it is a characteristic of The People's Lottery bid that because each year it was handing over any surpluses to the NLDF, it was not carrying forward any surpluses and therefore, if there were adverse effects in future years, there was no cushion to deal with that. Again, that is one of the factors that we did mention in the statement of reasons.

  553. After the decision, Sir Richard Branson accused you of being risk averse. Is that a good thing or a bad thing?
  (Lord Burns) I did wonder about that. I wondered what it would do for my reputation in different areas. Life is about looking at returns; it is about looking at risks; it is about the management of risks; and it is about the trade-off between risk and return. My view is that you have to take the appropriate judgment about that trade-off at the time. It depends what it is that you are dealing with, what the circumstances are and what the nature of the risks is. It depends what the costs are of getting it wrong as against the benefits of getting it right. It is fair to say that when it comes to financial matters, I probably do not have the reputation of being a great risk-taker. On the other hand, the fact that I accepted to do this job probably shows that I am not totally averse to taking some risks in life.

Derek Wyatt

  554. The Chairman has alluded to the fact that 37 or 38 states run lotteries in America and they are run by the state and are not-for-profit. Is that not what we should be doing?
  (Lord Burns) I am not the person to put this argument to. I did not design the legislation.

  555. You must have an opinion.
  (Lord Burns) I have an opinion but it is not terribly well formed at this stage. What I would say is that so far the set of arrangements that has been put in place has led to an outcome for the Lottery which has been, broadly speaking, a success. There are clearly problems when it comes to deciding on a new bidder because it is an all or nothing situation where everything is being done by one integrated operator. If you have a situation where, say, the infrastructure is owned by the state and you then outsource different components of it and you have contracts for those, then you have an ongoing series of competitions and there it is not the same all or nothing situation. I would say that at this stage we have been well served by the set of arrangements that we have in terms of the returns that have gone to good causes and in terms of the amount of people who are participating in it. Nevertheless, I think there are questions to be asked about whether all of this has got to be a monopoly, whether there are parts of it that could not be subject to more competition, and whether there is more that could be done with the common infrastructure, rather than having the monopoly position from beginning to end once one has appointed an operator. I think there are things to be taken into consideration. The issue of what aspects of these things should be conducted by public sector bodies and what aspects should be conducted by private sector bodies is an ongoing debate that you see in all aspects of our life, whether it is the supply of water, the supply of electricity, building the Millennium Dome, or whatever. I do not think there are any easy answers. I would like to think further about that.


  556. Before you go on, Derek, you talk, Lord Burns, about an ongoing debate on these matters. What I personally found very interesting in meetings with three different state lotteries in the United States is that there is no debate there about it. Declared and active members of the Republican Party are, in certain circumstances, involved in running those lotteries but, when I asked them whether they were satisfied with state-run lotteries and whether there had been any advocacy of privatisation of those lotteries, they told me that the question had never arisen. That is a very interesting matter, considering the private enterprise culture of the United States.
  (Lord Burns) I agree. When I said "an ongoing debate", I meant in this country and between countries. It is probably the case in the United States with utilities that they have the ownership of the infrastructure in the hands of the state and they outsource the operation of that. That applies in the case of the water industry and often to the other utilities. We have not gone down that road in this country in the last 20 years. We have gone down the road of moving it all into the private sector and then trying to get competition into those areas. When I said it is an ongoing debate, I was thinking in terms of the present debate about the tube. We have seen it in other areas as well. The Lottery seems to me to fall within that set of issues where there has been a debate about how one deals with some of these large, utility-type projects. You could think of the Lottery in one sense as being a utility-business and in particular the fact that there is with the online game a very strong monopoly element.

Derek Wyatt

  557. Some of your Commissioners visited America I think last year and went to various states. Did they also take consultancy advice from Wall Street about GTech and AWI? If they did not, then did you subsequently, in your looking at the decision, look at the rating that Standard & Poor's have given GTech or AWI?
  (Lord Burns) Certainly the latter. Of course we have looked at the question of the financial strength of both companies, but I cannot speak for the question of the visit to the United States.

  558. What did you find?
  (Lord Burns) We were satisfied in both instances.

  559. Despite the low rating that AWI had?
  (Lord Burns) We were satisfied that they could do the job that they were being put forward to do, yes.
  (Ms Spicer) That was largely from the evidence of the people to whom we spoke in terms of practice, rather than financial indicators of Wall Street. That was where I took my greatest comfort, when we received endorsement as to their efficiency from operators using both suppliers.

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