Examination of Witnesses (Questions 540
THURSDAY 18 JANUARY 2001
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
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
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.
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
(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
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 publicthat was
before I arrivedand 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
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
(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
(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.
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
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
(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
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.