Examination of witnesses (Questions 660
TUESDAY 6 FEBRUARY 2001
SMITH and MR
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.
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 proactiveand
this is answering the now missing Derek Wyatt's questionand
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
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
(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.
667. To repeat my question, if I was in your
position, Secretary of State, after the general electionand
I know it is okay to be wise after the eventbecause 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
668. Another idea that presumably nobody came
along to advise you onand nobody would say the retailers
make a profit out of the Lottery, they take in Lottery money and
they make any commissionwas, "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
(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
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
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.