Select Committee on Culture, Media and Sport First Report



Principles behind distribution

128. The Lottery was established to raise funds for designated good causes.[389] The original good causes were arts, sport, heritage, charities and projects to commemorate the start of the new millennium. Lottery proceeds are distributed by bodies that are separate and at arm's length from Government. The Chief Secretary said that the strengths of the arms length principle were that it reassured the public that the money was being allocated genuinely in response to sound applications for good projects, and that the distribution mechanisms were not susceptible to political manipulation.[390] He thought that "the public has confidence in a mechanism that maintains a measure of insulation between the political process and the distribution of Lottery proceeds".[391] The Secretary of State considered the arms length principle in the distribution of Lottery proceeds to be sensible because of the scale of the distributors' task and also because it enabled the distributors to develop the necessary expertise over a long period. He went on to say 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".[392]


129. The 1992 White Paper stated that the Lottery would fund projects additional to those that would otherwise be funded by the public through general taxation, and should not substitute for existing expenditure programmes under the control of the Exchequer.[393] The Chief Secretary's definition of additionality was "not whether particular facilities or services could have been funded from the Exchequer, it is whether they would have been funded from the Exchequer".[394] He said that the difficulty was that the test for additionality compared "an actual distribution through the Lottery and a hypothetical distribution through the Exchequer".[395] The definition of

additionality that the New Opportunities Fund uses is that Lottery funding should be additional to current and planned public expenditure.[396] Grant-in-aid supports core infrastructure and the Lottery provides funding for specific time-limited innovative projects.[397]

130. The Chief Secretary told us that the Treasury both pays close regard and adheres very closely to the principle that: "Lottery money must not replace Exchequer spending".[398] However, the NCVO, and other organisations, expressed concerns about breaches of the additionality principle.[399] Professor Walker stated that "there is a paradox that the public wants the good causes spending to support the most worthwhile areas but, to a large extent, these areas are already being funded from regular tax revenue".[400] The Chief Secretary suggested that the public would be aggrieved if playing the Lottery was seen as a way to cut expenditure from taxation.[401]

131. The New Opportunities Fund is the most frequent target for those concerned about adherence to the additionality principle, because it supports sectors associated with funding from the public purse. The New Opportunities Fund said that the dividing line was not always clear, because Government funding for its sectors had been time-limited in the past and might have previously been supported through the single regeneration budget or European funding. Given those circumstances, Mr Dunmore said that "we tend to try and be reasonably flexible ... We will discuss with the applicant how we might not substitute obviously for those programmes but come in on the back of those programmes and give added value through doing something new and slightly different."[402]

132. Lottery funding of health and education is supported by the public.[403] Indeed, Mr Timothy Hornsby, Chief Executive of the National Lottery Charities Board, said that the public considerably overestimates the amounts that are spent on those good causes, particularly in relation to medical research.[404] The Chief Secretary said that "the application of the principle of additionality is not any different in relation to health, or for that matter education, than it is, for example, in sports or arts". He considered the proposition that "something is too important to be funded through the Lottery", as "perversely paradoxical".[405]

133. The Chief Secretary said that in some sectors there was a strong tradition of voluntary sector support, which provided greater flexibility to innovative services such as palliative care. He went on to say that "because something is ... an incredibly important service, it is not right to presume that it is therefore necessarily best placed looking to the Exchequer for funding".[406]

134. We would accept that the Lottery can fund projects that are in those sectors usually associated with funding by the Exchequer, such as health and education. However, we treat with caution the Chief Secretary's assertion that some things should not be excluded from Lottery funding because they are too important. There is a fundamental unpredictability about the level of income of a lottery, and that factor supports the use of Lottery funds for time-limited projects that improve the quality of life, but are not so indispensable to the public that they receive funding from taxation.

135. Additionality is a question for all Lottery distributors. Mr Derek Casey, Chief Executive of Sport England, said that additionality was "something we do need to bear in mind ... particularly in funding local authority facilities, the sports centres and swimming pools, as time goes on it does become more difficult to see whether or not Lottery funding has a causal relationship with the decrease in spending on leisure and recreation."[407] Mr Hewitt agreed that in the arts sector it was difficult to analyse "whether there is any substitution of local government support", but he was confident that substitution had not taken place.[408] The distribution bodies do refuse applications that breach the additionality principle.[409] However, Mr Dunmore made the point that those who benefit from the New Opportunities Fund or other Lottery-funded projects will probably not worry about where the money for such projects comes from.[410]

136. We received contradictory evidence about opinion polls that suggested the public was in favour of, or disapproved of, the various Lottery-funded sectors.[411] Some of the Lottery's activities, such as its part in the success of the British team at the Sydney Olympics, have been almost universally welcomed.[412] According to Professor Walker playing patterns are not affected by how the money is spent and he said that "there is no evidence to suggest that play would be sensitive to the distribution of funds even though individuals may express disapproval over it".[413] Certainly the failure of, or controversy over, a few large projects has overshadowed the vast majority of successful funding projects.[414]

137. The distribution bodies, operator and regulator should consider how to improve the public's understanding of Lottery distribution in general and of Lottery-funded projects.

138. The additionality principle is not sacred. In Ireland the additionality principle was originally applied to the proceeds of the state lottery, but the rules were changed to allow substitution of Exchequer funding because proceeds were higher than expected.[415] While the additionality principle can be of use in preventing the Treasury from substituting Lottery income for mainstream Government spending, nevertheless we believe that at some stage the rigidity of the additionality principle should be a matter for discussion.

The distribution bodies

139. A joint submission from the Lottery Distributors stated that almost 65,000 projects have been supported by the National Lottery distributors, which have provided nearly £8 billion.[416] The policies and practices the distribution bodies have developed since the start of the Lottery, for example they have responded to various concerns about their application procedures, regional distribution and efficiency.[417] Mr Casey described the change to revenue from capital funding, which had declined from about 97 per cent of funding three years ago to less than 50 per cent.[418] According to Mr Casey, "one of the great benefits of the change of the Act two years ago was the powers of solicitation under which we can identify where there was most need".[419] Further developments may require further legislative changes. For example, charities hope that Lottery grants could be made to trusts as part of the endowment of charitable organisations, a proposal included in a private Member's Bill,[420] that the Secretary of State said "looks as if it would be a sensible change".[421] This Committee has considered aspects of the work of the original Lottery distributing bodies in previous Reports and we do not intend to revisit those issues here. We also do not propose to consider the vagaries of the distribution process. We note that, although improvements have been made, many concerns remain.

140. The New Opportunities Fund has made grants of £125 million and has committed a further £511 million to projects.[422] The New Opportunities Fund's first-round initiatives covered health and education, including healthy living centres and information technology training for teachers and librarians. The New Opportunities Fund's second-round initiatives include cancer screening, green spaces and community access to lifelong learning.[423] The money is distributed over a time-frame set out in the policy directions. The first round initiatives are now reaching their halfway mark.[424] The New Opportunities Fund sees itself as a strategic body and develops relationships with partners to implement its programmes: for example, the National Lottery Charities Board is involved in the delivery of the New Opportunities Fund's out of school hours programmes.[425] All the New Opportunities Fund's programmes have uncommitted funds remaining apart from cancer screening.[426] Applications for funds under the New Opportunities Fund programmes are made by a range of organisations. For example, education initiatives applications are made by individual schools, groups of schools, voluntary sector bodies and local education authorities.[427] Three-quarters of applicants and up to 90 per cent of consortium bids are approved.[428] The initiatives have generally been well received, although concerns have been expressed about the apparent low priority of environmental programmes.[429]

141. There is a misunderstanding about what the New Opportunities Fund is for and who can apply to it. Mr Dunmore accepted that it was important for the New Opportunities Fund, as a relatively recent organisation, to publicise itself and its programmes.[430] However, the New Opportunities Fund believed that there was a fairly high level of understanding of its programmes among potential applicants and that all the distributors were trying to improve the understanding of Lottery funding.[431] The Government is consulting on new initiatives for the New Opportunities Fund.[432] The New Opportunities Fund is involved in that consultation and has had discussions with the Government about "particular problems that we might see politically or presentationally in terms of additionality".[433] We recommend that the New Opportunities Fund take actions to increase awareness of its role, particularly among those that might benefit from its support.

The income for good causes

142. Up to the end of September 2000, the National Lottery had raised £9.96 billion for good causes.[434] The initial income for the good causes was greater than expected and the balance of the National Lottery Distribution Fund rose very quickly. The distributors still have large balances in the Fund and the misconception that those funds should be released more quickly or used to the benefit of various other good causes still exists. However, although the balance of the National Lottery Distribution Fund is still high almost all of that money is already committed to projects and will be released to those projects as it is required.[435] The distributors' income has declined since the start of the Lottery, partly because the balance in the Fund has fallen as grants have been paid, resulting in lower interest payments to the distributors, but mainly due to the introduction of the New Opportunities Fund.[436] Sport England stated that its income had fallen from £302.9 million, in 1997-1998, to £212.48 million, in 1999-2000, and blamed that decline on the introduction of the New Opportunities Fund and falling ticket sales.[437]

143. Mr Dunmore said that "we ... have to base our planning in terms of our cash flow and the rate at which we get the grants out of the door ... on those forecasts".[438] Mr Hornsby said that the distributors' concerns were "to get the most robust forecasts of future income from DCMS so we can manage our cash and manage our forward commitments".[439]

144. Income for the good causes from the National Lottery Distribution Fund is subject to four factors that tend to depress the overall amount received. First, inflation has reduced the value of a £1 Lottery ticket to 68 pence in 2001. Second, the Lottery is likely to suffer from lottery fatigue. Third, Lottery players tend to be older, and over time may not be replaced by younger ones. Fourth, the American experience is that players are attracted away from the lottery to more exciting forms of entertainment and more immediate forms of gambling.

145. Lottery funds are a key contribution to funding cocktails and provide funding leverage.[440] The distributors work together and provide joint funding of some projects.[441] The distributors identified three issues which would improve the finances of their grant-giving activity. First they "would like to see some change in the taxation of the Lottery to provide for, for example, more sports organisations having charitable status which in very simple terms would make the money go 17.5 per cent further".[442] Second they felt that they should be able "to give loans as well as grants so that in some cases where in a sense they have a cash flow problem we would get the money back in due course".[443] That would require a change in their financial directions. Third, they called for a relaxation in the financial directions in relation to working closely with the private sector in private finance initiatives or public/private partnerships.[444]

146. The distribution bodies expressed concern about the level of overbidding for Lottery funds.[445] All of the sectors supported by Lottery funding can identify continuing funding need. However, the availability of Lottery funding should not be taken for granted and there is a danger of those sectors becoming dependent on the distribution bodies for funding. Exchequer funding is due to increase for some sectors.[446] Lottery dependency is presently avoided to some extent because funds are project-specific and time-limited.[447] However, those restrictions raise the problem of sustainability.[448] The Chief Secretary and Secretary of State accepted that it was problematic if projects turned out to be non-viable.[449] The distribution bodies encourage applicants to consider their long-term funding arrangements.[450] The New Opportunities Fund gave the example of a cancer information service, which if successful, would seek funding from statutory bodies.[451] Mr Dunmore acknowledged such an approach raised the spectre of additionality and said that "it does not do to be too precise about these things because areas of health and education are today funded by a large range of different sources, not least by the private sector in terms of capital spend [and] through the Private Finance Initiative".[452] He went on to say that "one needs to treat this with care and caution not least in political terms, the funding world has changed and we are now in a scenario where in many areas one can give added value by building up partnerships and cocktails of funding".[453] He explained that if programmes such as healthy living centres and out-of-school hours learning had benefits, there would be an impetus for the Government and other statutory funders to take over funding, and said: "These are all areas which ultimately could be funded by the Government".[454]

147. We received submissions from many organisations calling for more funding for their sectors, or for the distribution body relevant to the organisations' activities to receive a larger proportion of the National Lottery Distribution Fund. We cannot respond to those individual propositions, but it is clear that the Lottery is an important source of funding for those sectors and there is a continuing need for Lottery funding in the sectors it is already serving.

The future of distribution

148. We received many submissions calling for the introduction of additional distribution bodies to fund specific sectors. The National Lottery Distribution Fund is not a single big pot from which grants can be made. The distribution bodies must remain responsible for specific areas of funding. The Chief Secretary suggested that "there is a merit ... in having a plurality of good causes".[455] The present good causes are not invulnerable, but no strong argument has been made for supplanting or subsuming any of them at present. The Sports Council for Northern Ireland, as the body that receives the least from the National Lottery Distribution Fund, pointed out that its forecast receipts for 2002-03 are £6.8 million and therefore any increase in the number of distributors which reduced its share would seriously affect its income and work.[456]

149. Calls for new distributors are not new, and have been considered. In March 1997, the then Government published a consultation paper, which considered the establishment of a new distributor to succeed the Millennium Commission.[457] The New Opportunities Fund stated that changes to the distribution of Lottery funds were a matter for the Government and warned that any changes must take into account the long-term funding commitments already made by the distribution bodies.[458] According to Professor Walker, the good causes that were set out in the legislation were determined by the political necessity at the time.[459]

150. We do not propose any changes to existing good causes, either in their composition or their funding. However, the Government must allow the good causes to evolve and consider changes in the future. Furthermore we recommend that the emphasis on distribution of Lottery proceeds by the good causes should be shifted from major national projects to smaller projects which will have a more beneficial impact on local communities.

151. Any proposals for change should allow plenty of notice of changes to sectors and distribution bodies.

152. We expect the Government, in considering the good causes, to adhere to the principles under which the Lottery was established and ensure that it continues to enhance the quality of life.

389  Cm 1861. Back

390  Q 629. Back

391  Q 631. Back

392  Q 671. Back

393  Cm 1861, para 41. Back

394  Q 619. Back

395  Q 605. Back

396  Q 505. Back

397  IbidBack

398  QQ 603, 605. Back

399  Q 436; Evidence, pp 48, 53, 164-166, 275-276. Back

400  Evidence, p 91. Back

401  Q 625. Back

402  Q 506. Back

403  QQ 521, 619-620, 626. Back

404  Q 391; Evidence, pp 266-267, 273-274. Back

405  Q 620. Back

406  Q 619. Back

407  Q 392. Back

408  QQ 392-394. Back

409  QQ 392, 505. Back

410  Q 521. Back

411  QQ 185, 273, 390; The Millennium Dome and the Royal Opera House topped the Impact survey in response to the question name national projects that have received Lottery money, Lottery Monitor, November 1999. Back

412  Q 405; Evidence, pp 131-133, 290-293. Back

413  Evidence, pp 91-92. Back

414  QQ 185, 379. Back

415  HC (1995-96) 240-II, Q 1000. Back

416  Evidence, p 123. Back

417  QQ 219, 398-400, 404, 434, 514, 662; Evidence, pp 124, 128, 130, 133-135, 261. Back

418  Q 400. Back

419  Q 401. Back

420  National Lottery (Amendment) Bill. Back

421  Q 661. Back

422  Q 489; Evidence, pp 186-187. Back

423  Evidence, pp 186-187, 189-193. Back

424  QQ 489-490, 502. Back

425  Q 518; Evidence, pp 187-188. Back

426  Q 503. Back

427  Q 494. Back

428  Q 495. Back

429  Evidence, p 277; see Memoranda from the Garden History Society, the Urban Parks Forum and the Woodland Trust. Back

430  QQ 513, 523. Back

431  QQ 513-514. Back

432  Q 519; New Opportunities from the Lottery, Department for Culture, Media and Sport, November 2000. Back

433  Q 519. Back

434  HC Deb, 6 November 2000, col 52W. Back

435  Q 416; Evidence, pp 136, 233, 237. Back

436  QQ 407-411; Evidence, p 137. Back

437  Evidence, p 136. Back

438  Q 504. Back

439  Q 385. Back

440  Q 506. Back

441  QQ 388-389, 530; Evidence, p 187. Back

442  Q 413. Back

443  IbidBack

444  IbidBack

445  Ibid; Evidence, p 128. Back

446  QQ 625, 632. Back

447  Q 508. Back

448  QQ 436-437; Evidence, pp 166-169, 188, 262-263. Back

449  QQ 630, 662. Back

450  Q 508; Evidence, pp 127-128, 130, 134. Back

451  Q 509. Back

452  Q 510. Back

453  IbidBack

454  IbidBack

455  Q 626. Back

456  Evidence, pp 264-265. Back

457  A New Good Cause for the National Lottery The Millennium Information and Communication Technology Fund, A Consultation Paper, March 1997, The Department of National Heritage. Back

458  QQ 516-517. Back

459  Q 272. Back

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