Select Committee on Culture, Media and Sport Minutes of Evidence



Examination of witnesses (Questions 660 - 679)

TUESDAY 6 FEBRUARY 2001

THE RT HON CHRIS SMITH and MR JON ZEFF

  660. You do see my point, we could deliver part of the Smart economy principle.
  (Mr Chris Smith) I understand the point certainly.

  661. There have been a couple of Ten Minute Rule Bills, there has been one by Ian Gibson and one by myself, and Ian Gibson's one is about whether the Lottery can top up trust funds, and mine was about whether it would be much fairer if the community could keep 10 per cent of the total Lottery expenditure in the community, instead of having to bid for £500 or £1,000 little bits, so that if a football team wants shirts, if you want a scanner in the hospital, the community could come up and decide. Do you not think that both those principles are much fairer than the current way the Lottery works?
  (Mr Chris Smith) The proposal that Ian Gibson is putting forward is I believe very much arising from a particular East Anglian issue which he has been pursuing very vigorously together with some of his East Anglian colleagues, and indeed he came to see me on the subject a few weeks ago. I think he may well be considering putting forward a Private Member's Bill to try and achieve the change that he desires. I believe it looks as if it would be a sensible change. I obviously want to look at the detail of what he is proposing but the principle seems to me to be a sensible one. In relation to the earmarking of particular funds for communities, I have to say, as always with any proposals emanating from yourself, it is an attractive sounding proposal. I think we would need to be quite careful about how one defines the community and who actually makes the decisions in this respect, but there is actually quite a lot we can learn from the success of the Brass for Barnsley initiative which the National Lottery Charities Board undertook where, prior to the initiative coming into being, there had been very, very low take-up of Lottery funds from the Barnsley area, clearly an area of considerable need. Following the earmarking of £3 million very specifically for Barnsley, the applications came in in very great numbers, very good applications, and all the £3 million has now in very short order been able to be allocated. So that scheme was a very considerable success. One of the things we are certainly looking at is whether the lessons from that can be learnt and applied elsewhere as well.

  662. I would like to push you on the community idea because I am bound to say if you come from a poor community, as I do, people actually ironically spend substantially more on Lottery tickets than elsewhere but they do not have the ability to get groups together, to put bids together, to win the money back. So in fact we have only won about 30 per cent of the money we have spent on the Lottery, and I think this is a way of redefining the Lottery and making people realise if they do spend money it will come back immediately. Let me push you on that separately. On additionality, which we have also looked at with Mr Faber, again in my constituency, in Sheerness, we have just won £900,000 which we are absolutely thrilled about for a Healthy Living Centre, which we would not have had before. However, when that funding dries up in three years' time, there is no way my local authority will be able to afford to run it and therefore either it will close, which would be a great shame, or it will be landed somehow on the local taxpayer regime which does not seem to be fair either. This is a growing concern and David Faber mentioned it earlier in conversation about the capital cost, and I just wondered what sort of study you have done within the Department to look at these issues and what your findings are?
  (Mr Chris Smith) Just briefly, if I may, on the first point, it is worth remembering of course that 30 per cent is actually the amount of the total 100 per cent of Lottery funds which comes to the good causes anyway. So the comparison is not necessarily a poor one as far as your constituency is concerned. In relation to the three year point, inevitably because of the nature of Lottery funding, Lottery money has to be a one-off intervention. Where we I think have made considerable progress in the last few years is in ensuring that Lottery funds can be used for revenue support as well as for capital work, and in seeing two or three year tranches of funding being made available, particularly at the outset of a scheme such as a Healthy Living Centre or a school club. That is welcome. It does not resolve the problem of what happens at the end of that two or three year period, and I know that NOF do go to quite considerable effort to try and make sure that arrangements are either in place or that there are plans in place for them to have continued funding beyond that initial period. It will vary from place to place and from scheme to scheme, there is no one simple solution, but we are certainly very much aware there is a potential issue here.

Mr Keen

  663. I am sorry, Secretary of State, to return again to the not-for-profit argument but can you rehearse the reasons why the Labour Party put it in their manifesto to have a not-for-profit Lottery?
  (Mr Chris Smith) It was not the field I was responsible for, of course, at the time, but as far as I understand, I think the impetus came from a not unjustified feeling that the profit levels which were attached to the original bid that won the first franchise were perhaps on the high side, and as a result the impetus for saying let us see if we can find a good bid that will operate on a not-for-profit basis was understandable in those circumstances. As I pointed out earlier, that did not of course remove the crucial criterion of who is going to raise the most for good causes. One thing which I note with some degree of pleasure is that the bid which Camelot did submit and have now won for the new franchise has profit margins something like half of the profit margins of the first franchise.

  664. If it had been 25 years ago the reasoning would have been, "If it moves, nationalise it", and we can all remember those days. Was one element of it now that it was felt damage was being done to the reasons why people would buy Lottery tickets if they felt a lot of profit was not going to good causes but to a private company? That was probably the main reason, was it not? After the general election, was any advice given by the Lottery Commission or from your own Department, or did we talk to focus groups, to find out whether in fact it was likely without making any changes to the law that the same Lottery operator would be chosen again? Because I have to say, if you did a survey in the room now, one in a hundred or one in fifty would say, "I will take a risk and go for a not-for-profit operator and dump the present operator". Was there no advice given straight after the 1997 election that if we were going to deliver the manifesto we would have to change the law? Some laws were changed. Not to get off the subject, but some good changes were made, like allowing the distributors to be proactive—and this is answering the now missing Derek Wyatt's question—and distributors were able to say, "We will need to put some money into this area because they are being treated unfairly". Did anybody give you any advice that if we did not change the basic rules on the choice of operator, nobody would be able to change it because they would be frightened to change it?
  (Mr Chris Smith) The advice was very clear at the time because I obviously asked the question, can the present process deliver a not-for-profit operator. The answer very clearly was yes. Indeed it is perfectly possible for the present process to do so. The issue becomes when you have two bids and only two bids in front of you, one of them on a not-for-profit basis and one on a for-profit basis, and the Lottery Commission is charged with looking at those two bids and assessing which is going to deliver the most for the good causes. There will be a lot of considerations about strength of marketing, likely levels of sales, return to good causes as well as the profit element which they are going to have to take into account. As long as you have a system of seeking a private sector operator for the Lottery, those are always going to have to be the range of considerations you take into account.

Chairman

  665. But, Secretary of State, why do we have that system? We were in the United States and we were told every single state Lottery, which is something like two-thirds of the states in the United States, is state owned. There is no controversy about it. When we asked people who ran some of the state lotteries we met, who were overt, active and politically appointed Republicans, why in the home of capitalism they had not privatised their lotteries, they said it had never occurred to them to have anything other than a state owned lottery, and nor were they ever going to think of not having a state owned lottery. Here we have a Labour Government in Britain which is less socialist than the Republicans in the United States.
  (Mr Chris Smith) Chairman, I understand the point you are making.

  666. I made it pretty clearly!
  (Mr Chris Smith) However, we have said, and I think rightly said, in the course of the last few months that it was probably not a good idea for the public sector to assume it could run a major visitor attraction. I step into the idea of the public sector deciding itself to run a lottery with a certain degree of caution. However, as I indicated earlier on, these are clearly some of the issues which a thorough review process of what has happened and what the problems are, what the advantages and disadvantages of the present system are, is going to have to look at.

Mr Keen

  667. To repeat my question, if I was in your position, Secretary of State, after the general election—and I know it is okay to be wise after the event—because all of us, despite seeing AWI thinking their equipment was better than Camelot were providing, we still, taking a straw poll, all felt the risk of changing was probably too great. It is alright being wise afterwards, but it was not after, we were wise just before the event. Should not your advisers have been wise three years before the event and should they not have come to you and said, "Secretary of State, we have talked to people taking surveys and no-one is going to take the decision to change from existing policy because they are going to be terrified of taking all the blame for making that mistake." You were lumbered with a manifesto commitment and it is going to be one of the few that we have not been able to deliver out of so many. I would be furious if I were in Opposition that my advisers, who are paid presumably a lot more money that we get paid as backbenchers, did not come to me and say, "We have carried out a survey, we have had focus groups around the country and hardly anybody will say, `Yes, we will take that risk of being £5 billion down at the end of the year by making the change.'" I would be furious if nobody came and advised me that that was the ultimate decision, that Camelot were going to get the award anyway.
  (Mr Chris Smith) Let us leave on one side the fact that I would not agree we had completely failed to implement our manifesto commitment. We did seek and welcome not-for-profit bids. Having said that, however, your central point, which is that there is an inevitability about not wanting to take a risk on anything other than an incumbent in these circumstances, I am not sure I accept because in order to take that view you would have to assume that the risk is always going to be too great in such circumstances. What I think the process that the Lottery Commission went through does reveal is that although the risk was ultimately one of the key factors which, it would appear, decided the way in which they finally came down, nonetheless it was certainly not inconceivable that they could have made a different decision. So I would not accept that it was inevitable that they were always going to go for the incumbent. Having said that, clearly the issue of risk on anything other than the incumbent is one of the factors in the process which means that the incumbent is always likely to be in quite a strong position, not an inevitable position, but a strong position. Whether it is right to have a process that has strength on the side of the incumbent is one of the questions which I would hope the review process would have a serious look at.

  668. Another idea that presumably nobody came along to advise you on—and nobody would say the retailers make a profit out of the Lottery, they take in Lottery money and they make any commission—was, "Why do we not change the system slightly and give Camelot commission and then they would not be making profit, they would be taking commission for all the work they did." It would not be profit but paying somebody commission which would be quite legitimate, like we pay the retailers that operate the terminals. That would be a way of getting a not-for-profit Lottery operated.
  (Mr Chris Smith) Effectively, the profit mechanism which is enshrined in the original Camelot contract is a commission because it is a percentage basis of the overall sales which are achieved. So I am not sure that changing it to calling it a "commission" would make any real practical difference. As far as the retailers are concerned, the commission that is in place is a major benefit, for small-scale retailers particularly, up and down the country. It keeps a more or less regular flow of income coming in. It brings people into their shops. In some cases it has been a lifeline. I very much hope that is going to continue.

  669. But my unhappiness with it was obviously with the bonuses that Camelot paid and the fact that it was for profit. I am sure it could have been changed slightly if we could not get it a completely not-for-profit operator as we originally intended. Why was the second offer to Camelot for the repeat operators's contract not changed to modify it so that it was not an out and out profit?
  (Mr Chris Smith) The profit level that is in the new franchise is very considerably lower than the profit level in the first franchise. As far as I understand it, I think the bonuses envisaged for successful operation for senior executives are also very considerably lower than they were in the first contract. Both of those things I very much welcome. I think they do show that the pressure that has been brought to bear from the outside world and the disapproval which a lot of the public felt some years back in relation to the Camelot bonuses particularly, has had its effect.

  Mr Keen: I think that is true. Thank you.

Mr Faber

  670. Secretary of State, your former Minister, Mr Banks, when he used to appear before us, was always quite open with us, both in his time as a Minister and subsequently, that he disagreed strongly with the arm's length principle of the distribution of Lottery funds. He always felt that politicians knew best and should be the people who distributed the funds. Your colleague, the Chief Secretary, a moment ago gave a ringing endorsement of the arm's length principle and I assume you agree with him rather than Mr Banks on that?
  (Mr Chris Smith) Yes.

  671. Can you tell us why? Can you tell was what you think the strengths are of the arm's length principle in distributing through various bodies rather than direct by government?
  (Mr Chris Smith) I think firstly because the level of detail and the overall scale of decision-making which has to be taken by the Lottery distributors are not ones which would sensibly end up on a Minister's desk, so having an independent body being able to take decisions at that level of detail is sensible. Secondly, it does enable expertise to be developed and brought to bear in a way which is not necessarily possible, not just with Ministers, but not necessarily in relation to the work of civil servants either, because in some of the distributing bodies you have people who build up expertise over a four, five, six-year period and that is very valuable and enables sensible decisions to be made. The third reason, of course, is that having independent bodies taking these decisions means that there cannot be any suggestion of political influence coming to bear on the decision-making process and that, I think, particularly when we are all (rightly) well aware of the need for such decisions to be made impartially, is quite important.

  672. I would agree with all of that and that is exactly what the Chief Secretary said. He also agreed with me that it provided a measure of insulation, as I put it, for MPs as well who were always seeking to promote a particular organisation or project in their own constituency.
  (Mr Chris Smith) It enables individual MPs who have a particular project that they wish to support to do so. It enables them to argue vigorously on behalf of their constituents. It means, though, that they cannot say, "I have a direct line to the Minister and therefore I know I can get this project approved." It does mean that the project will be assessed bearing in mind their representations but on impartial criteria.

  673. Can I give you an example. I dug out today an application for Lottery grant from Westborough United Football Club, which is in my constituency, for an all-weather pitch. The application is the size of a small telephone directory. They made an application for £60,000 and received a three or four paragraph letter back telling them "thanks, but no thanks". If I had written to you asking you to intervene on their behalf what would you have done?
  (Mr Chris Smith) I would have passed on your enquiry to Sport England, which I presume is the Lottery distributor to whom they have applied, and I would have asked Sport England to respond to you accordingly.

  674. I have listened very carefully to what you have said up until now and I agree with every single word you have said, so can you tell us why you personally have abandoned every single tenet of the arm's length principle in distribution of funds when it comes to the funding of Picketts Lock?
  (Mr Chris Smith) I would say that I have done no such thing. I have certainly encouraged Sport England to see the national importance of ensuring that we can host a good and successful World Athletics Championships in 2005. The decision about allocating the feasibility money, and the eventual decision (which I hope will be taken) to allocate the actual funding for the construction of the stadium will be entirely up to Sport England to make.

  675. You have regularly and persistently said on the Floor of the House, and both you and your junior Ministers in written answers have said that Picketts Lock will be built. You have said that £60 million of Lottery funding will be available. This is before the Lottery application has been made to Sport England before Sport England have even been consulted. At the weekend in Sunday Business you said: "I will do my damnedest to ensure that there is a world-class centre for athletics at Picketts Lock." Why will you do your damnedest for Picketts Lock and not for Westborough United?
  (Mr Chris Smith) I will certainly do my damnedest for Picketts Lock if that is not unparliamentary use of language—

  676. It is in inverted commas. I know that does not always mean a lot in newspapers—
  (Mr Chris Smith) —Because I believe it to be an important national project, but I cannot and would not seek to instruct Sport England on the matter. It is their decision and their Lottery Panel's decision. The statements on the Floor of the House about our expectation that the stadium will get built and that the money is there is based on a decision which Sport England themselves took to have an in principle allocation of £60 million in mind for the Picketts Lock stadium.

  677. I would like to talk about that in a little more detail. As we know, initially the feasibility study for Picketts Lock suggested a £95 million budget. Many people think that is optimistic but £95 million is where we are at at the moment. That is divided into three tranches of funding. The first tranche of funding is £20 million and that is to be returned by football, the FA in effect, to athletics because of athletics coming out of Wembley. That decision was taken according to a written answer from your Minister. I think the exact expression that was used was "in the margins of a meeting at Number 10". Sport England were not represented at that meeting, were not consulted about that meeting and were not informed of the outcome of that meeting. The meeting at Number 10 Downing Street was to discuss the Football Foundation and David Richards, the Chief Executive of the Premier League, agreed to this apparently at the time. Sport England was not consulted at any stage. This was a major change to a Lottery funding agreement with no reference to either the Lottery funding body, Sport England, or to the recipients of the money, WNSL.
  (Mr Chris Smith) The decision on the proposed return of £20 million, which has subsequently been confirmed by the Football Association, was taken at a meeting that I had with Ken Bates very shortly before Christmas 1999, I cannot remember the exact date, but it was about 22 or 23 December, and he agreed. He said that he had the authority of the FA Council whom he had met just a day or two before, to make the offer and I agreed with him that this was a sensible offer and offered a way forward. That was when the decision was taken. I certainly do not know of any discussions which may or may not be claimed to have taken place at 10 Downing Street.

  678. It was Mr Bates' evidence to us on 12 February when he told us that Dave Richards had discussed the launch of the Football Foundation at Number 10. He had subsequently received a phone call from the Chairman of the FA basically telling him that he had had similar conversations with officials at the DCMS and that he was therefore to negotiate with you. He then came to see you. Did you discuss with Sport England before he came to see you what you were going to discuss?
  (Mr Chris Smith) We had quite a number of discussions prior to the crucial final meeting with Ken Bates between my officials and the Football Association and also with Sport England. The final decision, however, was taken at that meeting that I had directly with Ken Bates.

  679. Which Sport England played no part in so again, as I am saying, a major change to the Lottery funding agreement. Where is the arm's length agreement?
  (Mr Chris Smith) As I said, there had been considerable discussions leading up to that with both the Football Association and with Sport England.


 
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