Select Committee on Culture, Media and Sport Minutes of Evidence



Examination of witnesses (Questions 634 - 659)

TUESDAY 6 FEBRUARY 2001

THE RT HON CHRIS SMITH and MR JON ZEFF

Chairman

  634. Secretary of State, I would like to welcome you and your official here this afternoon. We much appreciate your making yourself available to us. People have been coming in and out of the Committee, one of the reasons for that is that several are on the Committee of a Bill next door. So if you see people arrive that is because of the attraction of your presence but if you see them leave it has nothing to do with the fact that it is you who are here.
  (Mr Chris Smith) I quite understand, Chairman.

Mr Fraser

  635. Secretary of State, can we just go back over some of the decision making process. When the Lottery Commission announced its decision initially to exclude Camelot on 23 August last year, a decision that was ruled at the time as being unlawful and conspicuously unfair by the High Court, you welcomed that decision by the comments that you passed at that time. I will not go through it because I am sure you remember what you said. Do you now regret the haste in which you came to that decision to welcome what had happened?
  (Mr Chris Smith) Well, first of all, of course, Mr Fraser, the decision was ruled unlawful about a month later, after the appeal had been lodged with the Court and the Court had made its decision. It was not obvious at the time that was likely to happen. Secondly, I seem to remember my remarks at the time were welcoming the fact that the regulator had been robust in reaching its conclusion that neither of the two bids as they then stood were right for the running of the future franchise of the Lottery. I was not obviously in a position at the time to make a specific judgment about the decision that they had made to negotiate with only one of the two bidders. It was that point that the Court subsequently found to be unlawful. The decision that neither of the two bids were at that stage acceptable was indeed regarded as perfectly right and proper for the Commission to take by the Court.

  636. At that time, part of what you said was that you looked forward to a speedy and constructive conclusion.
  (Mr Chris Smith) Yes.

  637. Then on 19 December there was another announcement but at that time you were conspicuous by your absence in terms of commenting, why was that?
  (Mr Chris Smith) When the Court made its decision it was obviously a formal legal decision and it was not the place of a Minister to question what the Court had decided.

  638. Or could it have been that you suddenly realised that you had made a bit of a hash of coming forward so quickly before and thought better of it this next time round?
  (Mr Chris Smith) No, because as I say the first time round I was attempting to make clear my view about the decision the regulator had taken in relation to both bids rather than the decision that they had taken simply to negotiate with one.

  639. Okay. On 19 January this year, and correct me if I am wrong with these dates, please, on the Jimmy Young programme, which I remember hearing, you passed several comments about the selection process saying that it was flawed and gave an unfair advantage to the current operator and should be reviewed. If, Secretary of State, you were unhappy about the flawed process, why did you not rectify the 1998 Lottery Act?
  (Mr Chris Smith) At the time, of course, when the 1998 Lottery Act was passed we had not been through the process of selection of the new operator. The only experience that anyone had of the selection of an operator was the first time round exercise which had happened seven years' previously. What we now know, I think anyone looking at the process would agree, is that it was not a particularly smooth and trouble free process. The point that I have made consistently since the decision was finally made is that I think we do need to have a look at the way in which the process operated, whether there are lessons to be learned and whether there are changes that ought to be made. That is not a series of questions or decisions that I believe should be rushed into, I think it is something we should only remark on once all the details of the new franchise are absolutely signed and sealed, but at that stage I think it would be sensible for the Government, together with independent advice, to talk with all the people who were involved in this process, regulator and bidders, to see whether lessons can and should be learned.

  640. There is nothing specifically you can tell us today that would help that process?
  (Mr Chris Smith) I think there are a number of questions that need to be asked. One, for example, and I stress this is simply an example, that I think perhaps needs to be examined, is the fact that in the running of any major Lottery of this kind there are currently only two companies worldwide who can provide the software for the computer systems that are required to run it. One is GTech and the other is AWI. When you have a situation where you have only two companies capable of providing that software, where each of those companies has signed an exclusive agreement with a particular bidding operator, you inevitably end up in the situation that you have only two bids in front of you and that was the situation that we faced. Now, two bids does provide you with good and strong competition but I think a question can legitimately be asked about whether that is an ideal situation. There are questions of that kind that I think need to be asked and looked at. I have no instant answers to those because I think this does need to be a careful process.

  641. On 11 October, taking you back slightly, you told the BBC's Today Programme that "It is not a mess. I intend to make sure the process delivers a proper result within the time period". What specifically did you do to make sure that the process delivered a proper result?
  (Mr Chris Smith) Of course, the most important decision which it fell to me to make was the appointment of a new member of the Commission and then, by decision of the Commission, appointment as Chairman when Helena Shovelton resigned. That was a decision which I regarded as being important. We had to secure someone who was of unimpeachable integrity, someone who would have real strength in getting to grips with the detailed and complex portfolio of issues very rapidly and someone who would command public confidence. I think in Lord Burns we found precisely such a person. We made that appointment very quickly. That I regarded as the most important role that I had because, of course, I had no direct role in any of the decisions that the National Lottery Commission itself made. However, I would add that when Lord Burns was appointed, I did emphasise to him that I hoped that he would encourage the Commission to address the outstanding issues as rapidly and as fairly as possible and that he would seek to ensure a smooth transition from the first Lottery franchise to the second and, indeed, he proceeded to put measures in place, whoever had been chosen as the operator, to ensure that that happened.

  642. You mentioned about the departure of Dame Helena Shovelton. In your opinion was she right to resign?
  (Mr Chris Smith) I did not seek to encourage her to resign at any stage. Indeed, I regretted the fact that she had decided because of the pressure that had come on her, particularly in the media, that she had no alternative but to resign. I respected her decision, I could see entirely why she wished to step down. In my view she had done nothing wrong other than participating in the flawed decision that following the court judgment we know the Commission had made, but they made that decision in good faith. I would not have sought to hold that specifically against her.

  643. With hindsight you think it was the right decision?
  (Mr Chris Smith) With hindsight it was obviously the right decision for her from her point of view.

  644. It is what you think.
  (Mr Chris Smith) In relation to the decisions of the National Lottery Commission, if she had carried on as Chairman I would have had equal confidence in the Commission being able to continue the process, as indeed the judge himself did when he made his judgment. He said very clearly that he had confidence in the Commission as a responsible public regulator to see the process through to its conclusion. I would have had that confidence if Dame Helena had remained as Chairman. The fact that she decided to resign and the subsequent appointment of Lord Burns made me, in terms of Lord Burns' role, every bit as confident.

  645. Do you think your input into ensuring that the process was delivered properly was hampered by the fact that you had the manifesto pledge for a not-for-profit Lottery operator?
  (Mr Chris Smith) No. What we said in the manifesto before the election was that we would seek an efficient not-for-profit operator and, indeed, we made it very clear throughout the preliminary processes that we would welcome bids from operators on a not-for-profit basis. However, we also consistently made it clear that the key test was the raising of the maximum amount of money for the good causes. That was the test against which any bid, be it not-for-profit or for profit, would be judged.

  646. So you have not fulfilled your pledge?
  (Mr Chris Smith) No, I would argue we did fulfil our pledge. We sought and welcomed not-for-profit bids. That did not give a particular bid an automatic right to be selected simply because it was on a not-for-profit basis, it had to be tested against that crucial test as set out in the legislation of the raising of money for the good causes.

  Mr Fraser: You also passed another comment I might remind you of on 10 January—

  Chairman: Mr Fraser, could I interrupt you. The last thing I want to do is to make you feel that I am somehow preventing you from asking questions but you have been on for a quarter of an hour and several other colleagues want to ask questions. I do not want to stop your flow, I think you are right to be asking questions, but a bit more succinct.

Mr Fraser

  647. And some succinct answers would be great, thank you. You passed comment about Sir Richard Branson setting up an independent Lottery at the beginning of January this year. Do you agree that it is illegal under the current law to set up such a Lottery?
  (Mr Chris Smith) It is not illegal to set up a Lottery provided you get permission in the usual way and it is not a Lottery seeking deliberately to rival the National Lottery. If it is an ordinary charity or society Lottery you are perfectly capable of doing so and that was why I said to him, I think the phrase I used was "good luck to him". It was entirely up to him to make a decision as to whether he wished to do that or not.

  648. But, once again, do you not think you did it in haste and regretted it at leisure because you seemed to be saying things and later on saying nothing.
  (Mr Chris Smith) Not at all, I was very clear in what I said. I was asked a question about whether if he sought to set up a Lottery, not—note—specifically a rival to the National Lottery, what would my view be and I said "good luck to him". That seems to me a perfectly rational and reasonable response.

  649. You are committed to a single Lottery provider?
  (Mr Chris Smith) I have no plans to change the legislation on that matter at all.

  Mr Fraser: And, finally, what plans do you have—

  Chairman: Generally "finally" leads to three more questions.

Mr Fraser

  650. What plans do you have to change the law regarding a single Lottery operation?
  (Mr Chris Smith) Again, I have no plans to do so. Clearly when we do take a careful look at the process for the selection of the Lottery operator these are questions that may emerge and may conceivably need to be considered, but at this stage I would not envisage wanting to make any changes.

Chairman

  651. I will ask one question consequent on the extremely interesting and stimulating questions Mr Fraser has been putting. As somebody who would very much like to see the Labour Party election manifesto carried out, as I have said a number of times on the Floor of the House, may I put it to you that if you had, in fact, intervened in the processes of the decision of the Commission in order to get the Labour Party election manifesto commitment fulfilled, you would have been open to the criticism that you were interfering in the processes of an independent Commission for party political reasons.
  (Mr Chris Smith) Chairman, first I would point out that the manifesto commitment was to seek a not-for-profit operator, not necessarily to appoint. But, having said that, if I had at any stage intervened in the decisions of the Lottery Commission in making their decision on who should run the Lottery I most certainly would have been not just open to criticism but I would have been acting illegally because the legislation very clearly spells out—always has—that the Secretary of State must not intervene in what must be an independent decision. I made it very clear to everyone throughout the process that I was going to abide by what the law told me to abide by.

  Chairman: If there is time I will come back to some of these things when others of my colleagues have asked questions.

Mr Fearn

  652. Some time ago in this Committee I did raise the question, because I myself was not certain, of the backgrounds of the other Commissioners who sit on the Commission itself. This was prior to the resignation of the Chairman. I queried in a way their backgrounds as to why they were sitting on the Commission anyway, and those Commissioners were chosen through your process of course. Do you have every confidence in the ones who remain and do you know what backgrounds they have?
  (Mr Chris Smith) Yes, indeed. It is worth noting, for example, that Brian Pomeroy was a senior partner of Deloitte Consulting, Rosalind Gilmore is a Director of Allied Zurich and Harriet Spicer was former Managing Director of Virago. So those who have said they cannot make a decision of this kind because they have no business background or experience have not themselves looked in detail at the backgrounds of the members. The members were appointed following a process of advertisement and interview, entirely a normal way for these matters. When the appointment was made of Lord Burns to succeed Helena Shovelton, I am afraid because of the urgency of the matter we had to truncate the process to a certain extent, so we did not go out to outside advert, we trawled the Civil Service database for names of people who had put themselves forward for public appointment. We selected two or three names and we then had an independent panel assess and advise on their suitability. That was a slightly different process simply because of the urgency of the matter at the time.

  653. When do you actually review that? Do you review that yourself or do you leave it to the Chairman to review, if he wanted another member to leave?
  (Mr Chris Smith) Obviously we would take very careful consideration of any particular proposals that the Chairman might himself make about possible candidates. If a number of vacancies were to occur in the course of the next year or so it is my view that we would wish to go through another open advert procedure because it should be as transparent as possible.

  654. And the timetable?
  (Mr Chris Smith) I am just getting a useful note from my official here. Just for the sake of completeness, Rosalind Gilmore was, of course, appointed not at the outset, as indeed Lord Burns was. She was a replacement for Robin Squire, who had been one of the original appointees and who stepped down. She was not appointed by outside advert because we went back to the original applications and the original responses and the original interviews and appointed arising out of that because the timescale had been relatively short since those interviews had taken place. I just say that for the sake of completeness.

  655. You say that you are conducting an ongoing review all the time, or now you are anyway, of the Lottery itself and how it operates. What is the timetable for that? Sir Richard Branson made it clear that he does not intend to bid again, so within that process of review are you looking at whether that process as well should be amended, because if not we will have a monopoly from here on with the same operator, will we not?
  (Mr Chris Smith) One of the issues that any such review would need to consider would be the potential advantages which incumbency gives in a system such as we have at the moment. That is something on which we would wish to take views and to take evidence. As I indicated in my answers to Mr Fraser's extremely interesting questions, the process of looking at how the system operates is not something that I think we should rush into in haste, much better to get the new franchise absolutely signed and sealed so we know exactly what is happening and when and how and, once that is under everyone's belt, then I think that would be the time to have a look seriously at how the process has operated and whether there are changes that ought to be made. I would have thought that at that stage—we have not any specific proposals yet to make because we are not at that stage yet—we would have an independent element in that review so we could get the widest possible range of thought and opinion and experience coming to bear on the issue.

  656. I listened carefully to what you were saying about a not-for-profit operator and your original promises but it is impossible, is it not, to have a not-for-profit operator unless the Government do it themselves?
  (Mr Chris Smith) No, I would not agree that it is impossible. I would have thought it is perfectly possible. Indeed, it is very clear from the analysis that the Commission made of the two bids that were in front of them that a not-for-profit proposal very nearly made it. In the final analysis they decided that it was not the best of the two bids for the good causes. They certainly were not ruling it out simply because it was a not-for-profit bid.

  657. They obviously looked at the operation costs of the Branson schedule that he put forward, there were enormous costs there lying behind as to how you run a Lottery anyway. I asked him about the interest on the loan and that was enormous. Whether it is not-for-profit or not, I do not know, there can be enormous costs and still you would accept the fact that it could have been not-for-profit, would you?
  (Mr Chris Smith) Of course it was up to the Commission to make a judgment about the costs, not up to me. A commonsense observation would lead one to accept that running a Lottery of this scale and size is bound to involve very substantial costs, particularly in any refreshing of the hardware that delivers the system around the country, the computer terminals, the software systems as well. These things are going to have to be upgraded at some stage in any process of a seven year roll-on of a franchise and that is going to involve very considerable costs. It is up to a bidder to explain how they are going to raise the money to do that and how they are going to seek to pay it back.

Derek Wyatt

  658. Good afternoon. Just looking at it from our perspective I think, I do not know, I have not done a poll around the table, we felt in the end that it had to be Camelot for different reasons. In our analysis we both felt that the AWI software was better and in our analysis of the marketing we probably felt that The People's Lottery was sharper than Camelot. What we have now got is a Lottery but we have not got the best of what was available. In looking at that from that perspective and looking at the 37 or 38 state lotteries in America, the most capitalist seeking country in the world, all of those 37 or 38 are state lotteries run by the state. It seems to me that is now the only solution left. If you want the best product, as it were, like Channel 4, the Government should own it and run it and break up the bits. How are you reflecting on that sort of argument?
  (Mr Chris Smith) Of course, my concentration up to now has been very largely on seeking to ensure that we manage the process of change for the next seven years as smoothly and efficiently as possible, and that will be on the same basis as the first franchise was done, which is the operator itself then chooses who supplies particular services to them. A crucial change, of course, between August and October was that Camelot had resolved the propriety issue as far as GTech were concerned by effectively buying out GTech and running the GTech operation themselves. That was an absolutely crucial change without which, I suspect, the Lottery Commission would not have been able to give the consideration they did to the Camelot bid. In relation to your general question it has been said to me by quite a number of people now that an option could perhaps be to see a Lottery that is effectively owned by the nation through the Government, but that each individual service for the running of that Lottery is contracted out to different suppliers. That is obviously a model which works in some other parts of the world; it is a model that I am sure when any review of the whole process of awarding Lottery franchises takes place will need to be considered by that review. At this stage I remain agnostic on the question.

  659. In a sense, when you look at the delivery and collection means, if you take the DVLA which is a dreadful organisation in Swansea—they are behind forever on tax discs; months and months behind—if you take a broadcasters TV licence, we have two separate organisations collecting as it were different bits of a poll tax or tax, do you think we missed a trick by not saying the Lottery terminals could deliver substantially more and that our thinking was analogue rather than digital two years ago and, as a consequence, we shall not be able to have digital Lottery operating facilities right across the country?
  (Mr Chris Smith) As far as I understand it, Camelot have made it very clear that they do envisage the possibility of all their terminals being able to be used for other things than just the running of the Lottery. It will of course be up to them and any service that wishes to do a deal with them to decide whether a specific proposal comes forward.


 
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