Select Committee on Culture, Media and Sport Uncorrected Evidence


  1.  As confirmed by the Clerk's letter of 30 October, the Culture, Media and Sport Committee has requested evidence from HM Treasury covering:

    —  taxation of the National Lottery;

    —  additionality; and

    —  management of the National Lottery Distribution Fund.


  2.  Lottery Duty is calculated as a percentage of gross receipts from ticket sales (under section 25 Finance Act 1993). The current 12 per cent rate of duty was introduced by the Finance Act 1993. The rate was intended to be revenue neutral, i.e the duty would compensate the Government for revenue lost from other expenditure diverted to buying Lottery tickets. Because of uncertainties surrounding the pattern of consumer expenditure it is difficult to determine whether this intention has actually been delivered, but 12 per cent remains within the range of revenue neutralising rates.

  3.  Table 1:  Annual profile of revenue raised through Lottery duty

Financial year £ ('000s)Comment
1994-95103,905Lottery started November 1994
1996-97557,777Midweek Lottery introduced Feb 1997
2000-01301,9376 month's receipts to 30 September 2000
Total receipts3,486,827

  4.  Receipts peaked in 1997-98 following the introduction of the midweek Lottery. Since then receipts have shown a decline.

Comparison with other gambling taxes

  5.  There are six betting and gaming taxes: Lottery Duty—12 per cent of stakes; Bingo Duty—10 per cent of stakes and one ninth of added prize money; General Betting Duty—6.75 per cent of stakes; Pool Betting Duty—17.5 per cent of stakes; Gaming Duty—Banded duty on gross gaming yield (ie house win)—five bands between 2.5 per cent and 40 per cent; Amusement Machine Licence Duty—Banded licence fee to operate machines—five bands between £250 and £1,815.

Current Review of Gambling

  6.  The terms of reference of the Home Office Gambling Review, chaired by Sir Alan Budd, specifically exclude changes to the National Lottery, though it will consider the impact on the Lottery of any proposed changes. The review findings are due to be published in the summer of 2001.


  7.  The Government is committed to the principle of additionality and has made clear that Lottery money should add to, and not substitute for, services already provided by government.

  8.  This principle has been reinforced by the introduction of the New Opportunities Fund (NOF) where each initiative has a clear focus, enabling NOF to demonstrate both added value and how the NOF money will complement government and other Lottery programmes.

  9.  For example, the NOF is not taking over from the core government responsibilities of Health, Education and Environment. Rather its aim is to fund specific, time-limited initiatives, additional to core taxpayer funded programmes. The Treasury endorses the Lottery's support for activities which go beyond what is rightfully funded by the taxpayer in Health, Education and the Environment, just as the Lottery supplements taxpayer support for the arts, heritage and sports.


  10.  Receipts from the Lottery come into a Bank of England account from Camelot twice weekly (Tuesdays and Fridays). The money is transferred overnight into an account of the National Debt Office (NDO)—a body administered by the National Investment and Loans Office (NILO).

National Lottery Distribution Fund Investment Account

  11.  The investment of monies held by the NDO on behalf of the National Lottery Distribution Fund (NLDF) is limited (by Treasury Direction) to those securities specified in paragraphs 1, 2, 3, 5 and 9 of Part II of Schedule 1 of the Trustee Investments Act 1961 (relevant extract attached at Annex A). In practice the NDO tends to invest only in those securities that it considers "safe", ie gilts, Treasury Bills and loans to local authorities. Gilts (mainly NILO stocks issued by the National Loans Fund) and Treasury Bills are purchased through the Debt Management Office and local authority loans are made via the Bank of England's dealing room.

  12.  The Treasury is content with the NDO's prudent management of the Fund.

  13.  The interest on these investments is added to the funds available to be spent on the good causes.

  14.  Table 2 below shows the net amount deposited or withdrawn since the Lottery began in November 1994 and the return on the investments.

Table 2

Net amount deposited/(withdrawn)
Market value at year end
Annual income
£ million£ million £ million%
1994-95284 287 36.59*
1995-961,2781,635 697.14
1996-979082,679 1376.43
1997-986813,577 2177.13
1998-99(171)3,659 2537.22
1999-00(334)3,499 1744.96


  15.  In the early years, there was little evidence as to how quickly cash might be withdrawn so the NLDF was invested in mainly cash based instruments (Treasury Bills, local authority loans and Floating Rate Treasury Stock.) More recently, it has become apparent that the minimum balance in the NLDF is unlikely to drop below £500 million for the foreseeable future and, as a result, a larger proportion of the NLDF has now been invested in two to three year gilts which should, in time, increase the overall rate of return.

Draw down of funds

  16.  The timing of withdrawals from the NLDF is a matter for the distributing bodies, taking into account the needs of the projects which they have chosen to fund. Many of the projects are capital schemes and there is therefore often a lag between approval and actual expenditure.

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Prepared 7 February 2001