Select Committee on Culture, Media and Sport Minutes of Evidence



Examination of witnesses (Questions 602 - 619)

TUESDAY 6 FEBRUARY 2001

THE RT HON MR ANDREW SMITH, MR DAVID KNIGHT, MR IAN PEATTIE and MS HELEN JOHN

Chairman

  602. Chief Secretary, I would like very much indeed to welcome you here this afternoon. We appreciate not only the fact you have agreed to come here yourself as a witness when this is not related to your own departmental responsibilities, we are also grateful for the fact you have taken some trouble to make yourself available and therefore our appreciation of your presence is enhanced by that. Our practice is to open up the questioning right away but if you have prepared an opening statement in view of your courtesy in being here, then we will take that from you.
  (Mr Andrew Smith) Thank you very much for those kind words of introduction. I merely wanted to introduce the people I have with me. On my right I have Helen John, who is the Head of the Culture and Central Department's team which is responsible for DCMS spending issues in the Treasury. On my far left is Ian Peattie, the Director of the National Investment and Loans Office and Comptroller General of the National Debt Office, and on my immediate left, David Knight, who is the Head of Excise Policy at Customs and Excise.

  Chairman: That is a very, very powerful team you have brought with you, and we appreciate you having done that as well. Perhaps I should explain, some of the members of the Committee are on a Standing Committee and are moving backwards and forwards, and others will be coming in presently. Mr Fearn?

Mr Fearn

  603. Good afternoon. Do you accept that Lottery funded sectors such as Heritage which have seen a decline in Exchequer funding since the Lottery was established, find it hard to believe this is a coincidence?
  (Mr Andrew Smith) I think this raises the general question of additionality which I know the Committee has taken a close interest in. I would just underline, as Chris Smith did when the Lottery Bill was in Parliament, that we adhere very closely to the principle of additionality, that Lottery money must not replace Exchequer spending, so the test really is if the money were not provided through the Lottery would it have been provided through the Exchequer, and the answer is no.

  604. That is an emphatic no.
  (Mr Andrew Smith) Yes.

  605. There are no circumstances whatsoever where that has been breached?
  (Mr Andrew Smith) No. We do have very close regard to it. There is a difficulty here which anybody looking at the matter carefully can see, that you are comparing an actual distribution of resources through the Lottery and a hypothetical distribution through the Exchequer, what would have happened if this money were not available. In that sense, it is harder to provide a rigorous arithmetical proof than it is to adhere to the spirit of the principle. What I am saying is we do adhere to the spirit of that principle and moreover in the procedures we apply, for example in the way I conducted the spending review last year, close regard is held to that principle.

  606. Do you think the National Lottery will necessarily continue to fund specified good causes then in the future?
  (Mr Andrew Smith) I very much hope so. I would say I think we are getting into the issues which are very much ones for Chris Smith. I am very conscious in the discharge of my responsibilities that responsibility for the Lottery and for the New Opportunities Fund are matters for Chris.

  607. Is all the money in the National Lottery Distribution Fund allocated to the Lottery distribution bodies, or have you got a contingency fund? I imagine you have.
  (Mr Andrew Smith) That is not a matter for me, I am afraid.

  608. Not at all?
  (Mr Andrew Smith) The policy on the use of the National Lottery Distribution Fund is something you would have to ask Chris about.

  Mr Fearn: That sort of flattens my question on that. Thank you.

Derek Wyatt

  609. Good afternoon. Chief Secretary, we have had quite a bit of correspondence, fairly friendly and amiable, about what "revenue neutral" is, and I wonder if we could go over that again. Currently taxation is 12 per cent of the Lottery and in the debate in the House, at which there was a Conservative Minister, there was a note to say the Lottery was, I think it is called, "revenue neutral". It is something I do not really understand because, as far as I can make out, most Lottery terminals are in small shops and their trade has gone up, and there is no VAT on many things like food, chocolate and newspapers in these shops. So what is revenue neutral?

Chairman

  610. If you cannot explain, I will.
  (Mr Andrew Smith) All I can say is that I am advised by the statisticians that the Lottery duty equates to the loss of revenue from the taxation on the bundle of goods and services on which that money would have been spent had the Lottery not been in existence. That is the aim of the neutrality.

Derek Wyatt

  611. I understand what it is, but I am saying that in practice it is not revenue neutral, that in fact there has been an additional opportunity for people to spend on the Lottery, in addition to the fact that if you look at all the sales of food and newspapers and chocolate, which I have already mentioned, in the shops, they have not gone down, they have gone up. So it is not revenue neutral in the terms of the statisticians, it is actually a huge windfall tax for the Treasury.
  (Mr Andrew Smith) I certainly would not describe it as a windfall tax for the Treasury. As I say, the aim is merely to compensate for the duty and tax which would have come in on the spending which the Lottery displaced.

Chairman

  612. Can I come in there? I am a bit baffled and maybe I have been labouring under a misapprehension for several years, which would not be the first misapprehension and it would not be unusual for it to have been that number of years, but I was under the impression when we had these discussions in the last Parliament and our initial inquiries on the Lottery, the purpose of it being revenue neutral was to compensate for the speculatively assessed loss of revenue from other forms of gambling which it was assumed would go down because of the creation of the Lottery and the attractions of the Lottery. I have to tell you I always took the view that the Treasury very remarkably was being too modest and ought to have taken a great deal more from the Lottery since it generates such large amounts of funds. Chief Secretary, if you are telling me I have been wrong all these years, I shall just have to correct it in my mind, but I would be very interested to know.
  (Mr Andrew Smith) I would hesitate to express it in those terms, Chairman, but my very firm understanding is that it is to compensate. Yes, there is an element of course of judgment and statistical assessment here, not merely for revenue foregone through taxes on gambling but revenue foregone more generally from the expenditure which is thereby displaced.

Derek Wyatt

  613. Your own evidence states, paragraph 2, page 63, "It has been difficult to determine whether this intention has been delivered" in respect to it being revenue neutral. If it is difficult, forgive me, how do the statisticians know it is or not. I am confused.
  (Mr Andrew Smith) As I said, of course, there is a matter of judgment and statistical assessment there. All I can say is that that is the best advice that I have. I do not know whether David Knight from Customs & Excise can add anything to that.
  (Mr Knight) I am not a statistician myself but my understanding is that the range of revenue neutrality was calculated at between 12 and 15 per cent, and the judgment at the time was to set the figure at the lower end of that range. It is a recalculation which has been done from time to time to see if it holds good, and there has been remarkably little fluctuation over the time since the Lottery was introduced. The point about whether you can say definitively post facto that revenue neutrality has been achieved is simply the fact that of course nobody can know exactly what the spending on the Lottery has substituted for. We can only do it on the basis of a basket of alternative goods.

  614. I will be corrected but I think the total spend on the Lottery is about £5 billion. That is not winnings, that is on projects right across the board for the five or six commissions, and they all pay VAT on that work, whether it is the Dome or the Kew Gardens Seed Bank, so you get a huge amount of revenue on top of the revenue neutral element. Are you saying that the VAT is not part of the revenue neutral or is part of the revenue neutral?
  (Mr Andrew Smith) I think that is a fallacious deduction because the expenditure which was displaced would also have been spent on other things which would also have incurred VAT or other taxes further down the chain. So you have to compare like with like.

  615. Except the 5 billion comes out of people's ticket prices. The Government would not have spent £5 billion on a more or less Keynesian bit of economics, it would not have spent that money—it would have spent it and is spending it on schools—this is additional money, so your VAT is additional. Am I being really dim here?
  (Mr Andrew Smith) As I say, the duty is calculated on the basis of what you need to take in to compensate for the revenue foregone elsewhere, and in that sense it should be neutral.

  616. I would love it, Chairman, if the statisticians could deliver this in a way I could understand it, because I have to say I am not at all certain it is revenue neutral.
  (Mr Andrew Smith) I would be very happy to give you whatever further statistical calculations and the evidence on the baskets of goods and services on which it is computed, to try and satisfy your point.

  617. Thank you. Do you feel, as you do take 12 per cent, which is a large amount of money, that it ought to be hypothecated and spent back with the five commissions?
  (Mr Andrew Smith) I do not think there is any stronger case for hypothecating the expenditure from that tax than there is from any other tax.

  618. So that is a no?
  (Mr Andrew Smith) Yes.

  619. Okay. On projects in the New Opportunities Fund, which Ronnie Fearn has mentioned, there are some cancer projects and what has worried us is that in three years' time, without continuous funding of those cancer projects, those cancer projects will stop, and yet it is one of the Government's prime aims in their health philosophy to help cancer and heart first. We are slightly confused as to whether that is strictly additionality or not, but more worrying is that in three years' time if that money is not made available by other means, then people with cancer will suffer again.
  (Mr Andrew Smith) As I said earlier, I think the hard test of additionality here is not whether particular facilities or services could have been funded from the Exchequer, it is whether they would have been funded from the Exchequer, and it is that which I answered with a clear no in the previous question. I understand of course why you are probing this particular point, but I think there are two things we have got to bear closely in mind here. First of all, in areas like palliative care there is a very strong tradition of voluntary funding and fund-raising so to imagine that simply because something is so important, and it is an incredibly important service, it is not right to presume that it is therefore necessarily best placed looking to the Exchequer for funding. I have followed the progress of the Helen House Hospice in my own constituency closely and because of that very concern and support which the public has for such facilities they have been prepared to give very generously. In many cases, especially where it is innovative care that is being spoken about, the flexibility that gives the service is something they appreciate. I do not think that is in principle any different from funding from the Lottery. The second thing that I would say is that I think in the round we do have to take account of what the public at large thinks is an appropriate use for these funds. I think there is ample evidence, not least the BMA opinion survey which was published if I recall correctly last August, which showed very strong public support for funding from the Lottery going into these areas. I think judged against those two tests it is a perfectly good and reasonable use of funds and of course, like you, I hope that funding by one means or another will be sustained in the future to enable these facilities to continue.


 
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