TUESDAY 6 FEBRUARY 2001
                               _________
  
                           Members present:
              Mr Gerald Kaufman, in the Chair
              Mr David Faber
              Mr Ronnie Fearn
              Mr Christopher Fraser
              Mr Alan Keen
              Mr John Maxton
              Mrs Diana Organ
              Ms Claire Ward
              Derek Wyatt
  
                               _________
  
                 MEMORANDUM SUBMITTED BY H M TREASURY
                       EXAMINATION OF WITNESSES
  
                 RT HON MR ANDREW SMITH, a Member of the House, Chief Secretary to HM
           Treasury, MR DAVID KNIGHT, Head of Gambling Duties Policy Team,
           Customs and Excise, MR IAN PEATTIE, Comptroller General of the
           National Debt Office and Director of the National Investment and
           Loans Office, and MS HELEN JOHN, Head of Treasury spending team
           responsible for the Department for Culture, Media and Sport, HM
           Treasury, examined.
  
                               Chairman
        602.     Chief Secretary, I would like very much indeed to welcome you
  here this afternoon.  We appreciate not only the fact you have agreed to come
  here yourself as a witness when this is not related to your own departmental
  responsibilities, we are also grateful for the fact you have taken some
  trouble to make yourself available and therefore our appreciation of your
  presence is enhanced by that.  Our practice is to open up the questioning
  right away but if you have prepared an opening statement in view of your
  courtesy in being here, then we will take that from you.
        (Mr Andrew Smith)          Thank you very much for those kind words of
  introduction.  I merely wanted to introduce the people I have with me.  On my
  right I have Helen John, who is the Head of the central department's team
  which is responsible for DCMS spending issues in the Treasury.  On my far left
  is Ian Peattie, the director of the National Investment and Loans Office and
  Comptroller General of the National Debt Office, and on my immediate left,
  David Knight, who is the Head of Excise Policy at Customs and Excise.
        Chairman:   That is a very, very powerful team you have brought with you,
  and we appreciate you having done that as well.  Perhaps I should explain,
  some of the members of the Committee are on a Standing Committee and are
  moving backwards and forwards, and others will be coming in presently.  Mr
  Fearn?
  
                               Mr Fearn
        603.     Good afternoon.  Do you accept that Lottery funded sectors
  such as Heritage which have seen a decline in Exchequer funding since the
  Lottery was established, find it hard to believe this is a coincidence?
        (Mr Andrew Smith)          I think this raises the general question of
  additionality which I know the Committee has taken a close interest in.  I
  would just underline, as Chris Smith did when the Lottery Bill was in
  Parliament, that we adhere very closely to the principle of additionality,
  that Lottery money must not replace Exchequer spending, so the test really is
  if the money were not provided through the Lottery would it have been provided
  through the Exchequer, and the answer is no.
        604.     That is an emphatic no.
        (Mr Andrew Smith)          Yes.
        605.     There are no circumstances whatsoever where that has been
  breached?
        (Mr Andrew Smith)          No.  We do have very close regard to it.  There is a
  difficulty here which anybody looking at the matter carefully can see, that
  you are comparing an actual, a distribution of resources through the Lottery
  and distribution through the Exchequer, with a hypothetical, what would have
  happened if this money were not available.  In that sense, it is harder to
  provide a rigorous arithmetical proof than it is to adhere to the spirit of
  the principle.  What I am saying is we do adhere to the spirit of that
  principle and moreover in the procedures we apply, for example in the way I
  conducted the spending review last year, close regard is held to that
  principle.
        606.     Do you think the National Lottery will necessarily continue
  to fund specified good causes then in the future?
        (Mr Andrew Smith)          I very much hope so.  I would say I think we are
  getting into the issues which are very much ones for Chris Smith.  I am very
  conscious in the discharge of my responsibilities that responsibility for the
  Lottery and for the New Opportunities Fund are matters for Chris.
        607.     Is all the money in the National Lottery Distribution Fund
  allocated to the Lottery distribution bodies, or have you got a contingency
  fund?  I imagine you have.
        (Mr Andrew Smith)          That is not a matter for me, I am afraid.
        608.     Not at all?
        (Mr Andrew Smith)          The policy on the use of the National Lottery
  Distribution Fund is something you would have to ask Chris about.
        Mr Fearn:   That sort of flattens my question on that.  Thank you.
  
                              Derek Wyatt
        609.     Good afternoon.  Chief Secretary, we have had quite a bit of
  correspondence, fairly friendly and amiable, about what "revenue neutral" is,
  and I wonder if we could go over that again.  Currently taxation is 12 per
  cent of the Lottery and in the debate in the House, at which there was a
  Conservative Minister, there was a note to say the Lottery was, I think it is
  called, "revenue neutral".  It is something I do not really understand
  because, as far as I can make out, most Lottery terminals are in small shops
  and their trade has gone up, and there is no VAT on many things like food,
  chocolate and newspapers in these shops.  So what is revenue neutral?
  
                               Chairman
        610.     If you cannot explain, I will.
        (Mr Andrew Smith)          All I can say is that I am advised by the
  statisticians that the Lottery duty equates to the loss of revenue from the
  taxation on the bundle of goods and services on which that money would have
  been spent had the Lottery not been in existence.  That is the aim of the
  neutrality.
  
                              Derek Wyatt
        611.     I understand what it is, but I am saying that in practice it
  is not revenue neutral, that in fact there has been an additional opportunity
  for people to spend on the Lottery, in addition to the fact that if you look
  at all the sales of food and newspapers and chocolate, which I have already
  mentioned, in the shops, they have not gone down, they have gone up.  So it
  is not revenue neutral in the terms of the statisticians, it is actually a
  huge windfall tax for the Treasury.
        (Mr Andrew Smith)          I certainly would not describe it as a windfall tax
  for the Treasury.  As I say, the aim is merely to compensate for the duty and
  tax which would have come in on the spending which the Lottery displaced.
  
                               Chairman
        612.     Can I come in there?  I am a bit baffled and maybe I have
  been labouring under a misapprehension for several years, which would not be
  the first misapprehension and it would not be unusual for it to have been that
  number of years, but I was under the impression when we had these discussions
  in the last Parliament and our initial inquiries on the Lottery, the purpose
  of it being revenue neutral was to compensate for the speculatively assessed
  loss of revenue from other forms of gambling which it was assumed would go
  down because of the creation of the Lottery and the attractions of the
  Lottery.  I have to tell you I always took the view that the Treasury very
  remarkably was being too modest and ought to have taken a great deal more from
  the Lottery since it generates such large amounts of funds.  Chief Secretary,
  if you are telling me I have been wrong all these years, I shall just have to
  correct it in my mind, but I would be very interested to know.
        (Mr Andrew Smith)          I would hesitate to express it in those terms,
  Chairman, but my very firm understanding is that it is to compensate.  Yes,
  there is an element of course of judgment and statistical assessment here, not
  merely for revenue foregone through taxes on gambling but revenue foregone
  more generally from the expenditure which is thereby displaced.
  
                              Derek Wyatt
        613.     Your own evidence states, paragraph 2, page 63, "It has been
  difficult to determine whether this intention has been delivered" in respect
  to it being revenue neutral.  If it is difficult, forgive me, how do the
  statisticians know it is or not.  I am confused.
        (Mr Andrew Smith)          As I said, of course, there is a matter of judgment
  and statistical assessment there.  All I can say is that that is the best
  advice that I have.  I do not know whether David Knight from Customs & Excise
  can add anything to that.
        (Mr Knight) I am not a statistician myself but my understanding is
  that the range of revenue neutrality was calculated at between 12 and 15 per
  cent, and the judgment at the time was to set the figure at the lower end of
  that range.  It is a recalculation which has been done from time to time to
  see if it holds good, and there has been remarkably little fluctuation over
  the time since the Lottery was introduced.  The point about whether you can
  see definitively post facto that revenue neutrality has been achieved is
  simply the fact that of course nobody can know exactly what the spending on
  the Lottery has substituted for.  We can only do it on the basis of a basket
  of alternative goods.
        614.     I will be corrected but I think the total spend on the
  Lottery is about 5 billion.  That is not winnings, that is on projects right
  across the board for the five or six commissions, and they all pay VAT on that
  work, whether it is the Dome or the Kew Gardens Seed Bank, so you get a huge
  amount of revenue on top of the revenue neutral element.  Are you saying that
  the VAT is not part of the revenue neutral or is part of the revenue neutral?
        (Mr Andrew Smith)          I think that is a fallacious deduction because the
  expenditure which was displaced would also have been spent on other things
  which would also have incurred VAT or other taxes further down the chain.  So
  you have to compare like with like.
        615.     Except the 5 billion comes out of people's ticket prices. 
  The Government would not have spent 5 billion on a more or less Keynesian bit
  of economics, it would not have spent that money - it would have spent it and
  is spending it on schools - this is additional money, so your VAT is
  additional.  Am I being really dim here?
        (Mr Andrew Smith)          As I say, the duty is calculated on the basis of what
  you need to take in to compensate for the revenue foregone elsewhere, and in
  that sense it should be neutral.
        616.     I would love it, Chairman, if the statisticians could deliver
  this in a way I could understand it, because I have to say I am not at all
  certain it is revenue neutral.
        (Mr Andrew Smith)          I would be very happy to give you whatever further
  statistical calculations and the evidence on the baskets of goods and services
  on which it is computed, to try and satisfy your point.
        617.     Thank you.  Do you feel, as you do take 12 per cent, which is
  a large amount of money, that it ought to be hypothecated and spent back with
  the five commissions?
        (Mr Andrew Smith)          I do not think there is any stronger case for
  hypothecating the expenditure from that tax than there is from any other tax.
        618.     So that is a no? 
        (Mr Andrew Smith)          Yes.
        619.     Okay.  On projects in the New Opportunities Fund, which
  Ronnie Fearn has mentioned, there are some cancer projects and what has
  worried us is that in three years' time, without continuous funding of those
  cancer projects, those cancer projects will stop, and yet it is one of the
  Government's prime aims in their health philosophy to help cancer and heart
  first.  We are slightly confused as to whether that is strictly additionality
  or not, but more worrying is that in three years' time if that money is not
  made available by other means, then people with cancer will suffer again.
        (Mr Andrew Smith)          As I said earlier, I think the hard test of
  additionality here is not whether particular facilities or services could have
  been funded from the Exchequer, it is whether they would have been funded from
  the Exchequer, and it is that which I answered with a clear no in the previous
  question.  I understand of course why you are probing this particular point,
  but I think there are two things we have got to bear closely in mind here. 
  First of all, in areas like palliative care there is a very strong tradition
  of voluntary funding and fund-raising so to imagine that simply because
  something is so important, and it is an incredibly important service, it is
  not right to presume that it is therefore necessarily best placed looking to
  the Exchequer for funding.  I have followed the progress of the Helen House
  Hospice in my own constituency closely and because of that very concern and
  support which the public has for such facilities they have been prepared to
  give very generously.  In many cases, especially where it is innovative care
  that is being spoken about, the flexibility that gives the service is
  something they appreciate.  I do not think that is in principle any different
  from funding from the Lottery.  The second thing that I would say is that I
  think in the round we do have to take account of what we think the public at
  large thinks is an appropriate use for these funds.  I think there is ample
  evidence, not least the BMA opinion survey which was published if I recall
  correctly last August, which showed very strong public support for funding
  from the Lottery going into these areas.  I think judged against those two
  tests it is a perfectly good and reasonable use of funds and of course, like
  you, I hope that funding by one means or another will be sustained in the
  future to enable these facilities to continue.
        620.     As I understand it, since polling started on what the public
  would like from the Lottery in 1996, overwhelmingly they would like it spent
  on health and education which is a dilemma if you continue with the
  additionality.  You do understand the complication here?  We saw in America,
  where there is no additionality, that politicians would sit on the shoulder
  and say, "I need some schools to be built.  You had better hurry up and raise
  some money because I will not be elected as the Governor of the State."  The
  Committee did not like that inference and that interference but does the
  Treasury have a view that if that principle was to go how the Lottery might
  work?  Do you think it should be run by the government as opposed to run by
  Camelot? 
        (Mr Andrew Smith)          First of all, I do not think the application of the
  principle of additionality is any different in relation to health, or for that
  matter education, than it is, for example, in sports or arts.  It is the same
  question, the same test that has to be applied: if this money were not being
  provided through the Lottery would it have been provided through the
  Exchequer?  Unless we are careful we can get into a perversely paradoxical
  situation here - I am not suggesting you are arguing this - but some of the
  commentary on the application of Lottery proceeds can almost suggest that
  something is too important to be funded through the Lottery.  I think that
  would be a curious concept to the public who, after all, are  buying the
  tickets.  I think at the end of the day people do support a range of different
  sorts of projects and I think they have no problem, indeed some enthusiasm,
  for those including health and education.  Obviously to the extent that those
  payments are for one-off or special initiatives, then I think that is more
  readily accommodated within the Lottery funding framework.
        Derek Wyatt:   Thank you. 
  
                               Chairman
        621.     I would like to follow up some of the lines of questioning
  that Mr Wyatt was starting, perhaps in a rather heretical way.  Mr Wyatt
  talked about the very large take of the Treasury from the Lottery in taxation. 
  I wonder whether it is large enough.  After all, here is a source of revenue
  that is new.  My own view, and maybe I am wrong, is that the public really do
  not care how heavily the Lottery is taxed provided that they do not feel that
  that rate of taxation is liable to detract from their ability to win a prize. 
  On a number of these issues that we have been discussing this afternoon this
  Government is very much carrying on the concepts that the previous Government
  started.  I am not saying that what the previous Government started was wrong,
  after all they started the Lottery and everybody now agrees that is a very
  important and worthwhile initiative, but just because something was so when
  the Act went through  Parliament, four years on, ought not the Government be
  looking at asking itself the question is this really the way we need to
  continue?  I ask the first of those about the rate of taxation and the revenue
  take out of the Lottery. 
        (Mr Andrew Smith)          You present the hypothesis that the public might be
  prepared to tolerate a higher level of taxation as long as it did not affect
  their chances of winning a prize.  I wonder about that.  Of course, even if
  it were the case that they would tolerate a higher level of taxation if it did
  not affect their prospects of winning a prize, that does not mean they want
  a higher level of taxation.  I rather suspect they do not and there would
  indeed be public resistance to the idea of the Treasury or the Government
  taking a disproportionate slice of the cake.  I think therefore the
  justification that we have given in terms of seeking to achieve this revenue
  neutrality and, by all means, re-examining the evidence on that as we were
  prompted to earlier, is a reasonable way of proceeding.
        622.     I would like then to come to the  --- 
        (Mr Andrew Smith)          There was a second part to your question which was
  really saying is it time for a more fundamental re-think.  We did make quite
  a fundamental change in accordance with our Election Manifesto with the
  introduction of the New Opportunities Fund.  As I say,  I think that has been
  generally warmly welcomed.  I do not see this is a case for more radical
  change at this stage.
        623.     I would like to come to that. 
        (Mr Andrew Smith)          But in saying that I am stepping outside my
  ministerial brief anyway.
        Chairman:   And a good thing too, after all we have Ms John here today
  whose title seems to revolutionise any approach of the Treasury - the Head of
  Treasury Spending Team! 
  
                               Mrs Organ
        624.     Small but perfectly formed.
        (Mr Andrew Smith)          It is not a contradiction in terms; we do spend quite
  a lot of money.
  
                               Chairman
        625.     I would like to come again to this question of additionality. 
  This Committee and the National Heritage Committee before it has been
  conducting inquiries on the National Lottery for around eight years and
  successive Secretaries of State have come before us, and have all avowed as
  to the integrity, not to say sanctity, of the additionality principle and
  representatives of the Treasury, including yourself this afternoon, have all
  endorsed the sanctity of additionality principle, but why should there be such
  sanctity?  In the United States, as my colleagues have pointed out, they
  regard their lotteries as a very useful source of revenue for expenditure,
  sometimes including core expenditure.  Again, without criticising the previous
  Government for the way in which they started this thing off, provided that you
  are not using revenues from the Lottery in order to cut core expenditure, is
  there any real justification any more for the additionality principle and in
  a moment I will come to the categories.  I know that all government
  departments hate the Treasury and feel that unless what is allocated to them
  is protected the Treasury will raid everything that they can get their hands
  on (and of course the Lottery is a great thing for the Treasury to raid) but
  if you are willing to be heretical this afternoon, Chief Secretary, is there
  really anything so sacred about the additionality principle?  
        (Mr Andrew Smith)          We adhere to it for the reasons I set out earlier and
  in considering this I put myself in the position, I am in the position of the
  person going to buy a Lottery ticket and I think people are happy, comfortable
  and enthusiastic about the notion that a good part of what they are doing when
  they are buying that ticket, as well as standing a chance of winning a prize,
  is giving something extra and it is that that is extra.  If they felt they
  were simply substituting for expenditure out of taxation which in a sense, as
  you say, crudely might be defined as allowing that expenditure to be cut, I
  think they would feel somewhat aggrieved.  Judging whether we are adhering to
  it, you can also look in the round at what has happened to Exchequer funding
  of some of the things which the Lottery has supported since the General
  Election, or for that matter since the Lottery started.  It is just worth
  pointing out that arts spending since 1997-98 will have increased by 18 per
  cent in real terms and spending on sport by four per cent in real terms under
  this Government, and if you take it from when the Lottery first started to the
  end of this forthcoming spending review period in 2003-04, the increase in
  arts spending in real terms will be no less than 32 per cent and in sport 99
  per cent.  What I am saying is that we as a Government are putting extra into
  these areas and the Lottery is adding a very considerable amount extra on top
  of that.  I think that is something that the public is happy with and I
  certainly would hesitate before seeking to change it.
        626.     But Mr Wyatt was talking about, insofar as one knows the
  public's views on this and so on, what the public wants.  Again my guess from
  the evidence that is available is that, okay, the public buys tickets in the
  end to win a prize but they also look at what the revenues from the Lottery
  go to in terms of good causes.  I have a feeling that, given the choice, the
  public will be perfectly willing for huge chunks of money from the Lottery to
  go, for example, to reducing cancer waiting lists or going into cancer wards
  because cancer is, very understandably, a highly emotional subject.  If you
  ask members of the public would they like 70 million to go to the Royal Opera
  House or go to the cancer wards in Christie's in Manchester, they would say
  in language which we do not often use in Manchester, and which I will not use
  here, they would say in very strong terms that their preference would be for
  the Royal Opera House never to get another penny and for the money to go to
  cancer wards not simply in Manchester but anywhere.  What I am saying, Chief
  Secretary, is that if people had their way and were really consulted, if there
  were referendums on this, I think it is a fair guess that people would say,
  "We do not care about this additionality principle, if it can provide more
  computers for schools, if it can help deal with students who cannot afford
  fees at university, we do not really care about this additionality principle,
  we would like to spend this money on things that mean a lot to us."  So not
  only for the question of should the additionality principle go on being sacred
  but the other part of it too. The previous Government, when it created the
  Lottery, created what were then five categories for awards for distribution
  from the Lottery and this Government has added the New Opportunities Fund. 
  Why is the Government so utterly preoccupied with those categories? Okay, it
  has changed it a bit but is there not a case for saying that was then, that
  was good, we are not criticising it but there is nothing sacred about those
  categories. Would it not be better to spend more money on health, more on
  education, perhaps give money to overseas aid? If the Lottery was now to
  announce it was giving 20 million to the Indian Earthquake fund, I think a
  lot of people in this country would say "That is a good thing". What I am
  saying is, this is a very, very traditional Government in the sense that it
  does not seem to be challenging concepts that are something like ten years
  old.
        (Mr Andrew Smith)          With the greatest respect, I think part of what you
  are saying there is confusing the concept of additionality, whether spending
  is not substituting for that which the Exchequer would otherwise have provided
  with the question of relative priorities, why should we not give more money
  to things that the public considers important. As I said earlier, I think we
  can, through the Lottery, make money available to things which are important
  without infringing the additionality principle.  When you challenge me on the
  overall distribution, again I just have to enter the caveat that in terms of
  ministerial responsibility these are very much more matters for the Secretary
  of State for Culture than they are for me but I would say there are a number
  of considerations. One, if you ask people what they want money spent on, yes,
  a lot will say on health or on education or the environment, I think those
  were the three which came at the top of that BMA poll but there will be very
  substantial numbers, including very many Lottery players who want to see money
  also spent on arts and sport and other things as well. I think there is merit
  here in having a plurality of good causes which are supported. Moreover,
  having enunciated a principle and saying that we would be guided with and we
  would stick with additionality, I think it is right that the Government should
  do so. Moreover, of course, there are those who have come to look to the
  Lottery as an appropriate source of funding and I think they would question
  the fairness if there was an abrupt change of policy which adversely affected
  important activities which they are involved in.
        Chairman:   Thank you. If there is a minute or two before your session is
  over, I may come back to this but meanwhile I will ask Mr Faber.
  
                               Mr Faber
        627.     The previous Government founded the National Lottery with a
  mechanism such that the distribution bodies were to be kept at arm's length
  from ministers, removing the responsibility effectively from ministers making
  important grants.  The thinking behind this was very often those bodies were
  specialised bodies who understood better than perhaps ministers might where
  the funding might go.  This Government has carried on that principle. Is that
  arm's length principle one that you support?
        (Mr Andrew Smith)          Yes, it is.
        628.     As far as you are aware the current Government has no plans
  to change that?
        (Mr Andrew Smith)          Yes.
        629.     What would you say are the strengths of the arm's length
  principle?
        (Mr Andrew Smith)          What they want to know is that the money is being
  allocated genuinely in response to sound applications for good projects that
  are going to be properly run. I think they want to be assured that the
  distribution mechanisms are not susceptible to political manipulation for
  political ends.  Those are the strengths of that measure of independence, 
  also having people involved in that stage who have particular understanding
  of the areas which are recipients. 
        630.     That really does follow on from the previous Government's
  view.  Would you also agree that public perceptions of the Lottery are
  affected if subsequently people see that funds which have been allocated are
  allocated to projects which perhaps do not have long term viability. Mr Wyatt
  touched on it in a sense in terms of cancer treatment but perhaps more so with
  capital projects.  Capital projects, the most obvious is the Dome, I am not
  here to talk about the Dome but if you look at capital projects all over the
  country which sometimes are not perceived in the local community as having a
  long term viability, would you agree that as well causes problems to public
  perception of the Lottery?
        (Mr Andrew Smith)          Where projects turn out to be non viable, it is going
  to be problematic.  No resource allocation process is going to be perfect.
  Obviously it is up to those judging the viability of proposals to take into
  account all the relevant factors when they are making their assessment.
        631.     That is a job for the distribution bodies rather than for
  individual Members of Parliament to make. Very often individual Members of
  Parliament try very hard to lobby on behalf of individuals for projects in
  their areas.  What you are saying is the arm's length principle really
  protects them from having to do that?
        (Mr Andrew Smith)          Yes, it does. I am sure that representations made by
  Members of Parliament are considered on their merits by the relevant people,
  just as other representations will be. I think the public has confidence in
  a mechanism that maintains a measure of insulation between the political
  process and the distribution of Lottery proceeds.
  
                               Chairman
        632.     Mr Faber has mentioned something which perhaps I can use in
  the remaining moments to ask you something else. As a result of the Lottery
  there has probably been, in the last few years, the greatest wave of more or
  less simultaneous building and major construction projects for public use,
  probably in the history of this country.  It is an extraordinary efflorescence
  of construction and all kinds of major public facilities are being provided
  which otherwise might never have been existed.  A lot of those inevitably have
  revenue spending consequences.  The Tate Modern, for example, which you had
  better make sure goes on being free.  All over the country art galleries,
  theatres and all the rest of it, it is an incredible period in our lives this
  but quite a lot of them must have revenue expenditure consequences which
  cannot be borne by the Lottery and will be borne either by local authorities
  or by the Treasury.  To what extent are those consequences taken into account
  when you are considering the potential taxation proclivities of the Lottery?
        (Mr Andrew Smith)          First of all, I join with you in celebrating the scale
  and the diversity and the richness of the investment which Lottery funding is
  making available. As I was saying in answer to the previous question, I think
  on each individual project there has to be an assessment of its viability and
  prospects for revenue funding and so on but set against the very substantial
  increases in public spending which we announced in the spending review, which
  will take us on the figures I gave a few moments ago in sport to a 99 per cent
  real terms higher level of sports funding by 2003-04 than there was when the
  Lottery began and a 32 per cent real higher level of expenditure in arts, and
  of course there will across that period have been a very substantial uplift
  in the income to local authorities as well. So I give those as examples of
  where the revenue to maintain and carry forward the work of these wonderful
  facilities can be sustained. Of course, the users make an important
  contribution as well.  
        633.     A proud credo for the Treasury to end this session on. Thank
  you very much indeed.
        (Mr Andrew Smith)          Thank you. I have enjoyed it.
        Chairman:   Thank you for coming.


		MEMORANDUM SUBMITTED BY THE DEPARTMENT FOR CULTURE, MEDIA AND SPORT

				EXAMINATION OF WITNESSES
  
                 THE RT HON CHRIS SMITH, Member of Parliament (Secretary of State for
           Culture, Media and Sport) and MR JON ZEFF, Head of National Lottery
           Division, Department for Culture, Media and Sport, examined.
  
                               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 in 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.
        Chairman:   Thank you.  Mr Fraser.
  
                               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 the 19th 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 10th 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.
        Mr Fraser:  Thank you.
  
                               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
  was 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 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.
        Mr Fearn:   Thank you.
  
                              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 both 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 entirely up to them and any service that wishes to do a deal with
  them to decide whether a specific proposal comes forward.
        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 Boards 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.
        Derek Wyatt:   Thank you.
  
                                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 levels something like half of the
  profit levels 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 stated 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
  distributers 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 distributer 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 22nd or 23rd of 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.
        680.     At that meeting with Mr Bates, in return for the 20 million,
  did you agree that Wembley would enjoy relaxation of the marketing rights at
  the ground, in particular with relation to naming rights in and around
  sponsorship, naming rights in around the ground?
        (Mr Chris Smith)           No.
        681.     You did not subsequently confirm that decision in a letter to
  the Chairman of the FA or to the Chairman of WNSL?
        (Mr Chris Smith)           No, what I confirmed in writing to all the parties
  concerned was the agreement for the return of 20 million.
        682.     Are you concerned that it now looks as though opinion has
  hardened on the board of WNSL and there is a very good chance that they will
  not be paid the 20 million?
        (Mr Chris Smith)           The latest information that I have from the Chairman
  of WNSL is that they stand by the commitment to return the 20 million that
  they made.
        683.     Has anything been paid yet?
        (Mr Chris Smith)           No, because certainly it was not envisaged in the
  agreement that it would be yet paid.
        684.     I thought 3 million was supposed to have been repaid in
  2000?
        (Mr Chris Smith)           I would need to check the agreement but it was as the
  money began to come in to WNSL and the Football Association from the onward
  sale of some of the corporate facilities at the ground.
        685.     Does not looking very likely at the moment, does it?
        (Mr Chris Smith)           That was the basis on which the agreement was reached.
        686.     If you would just indulge me for a moment, Chairman.  That is
  the first tranche, the 20 million. The second tranche is the 40 million
  which is the return the Lottery is supposed to supply, and we will not
  rehearse the arguments about the athletics, and the warm up track. Where is
  the further 35 million conservative estimate going to come from?
        (Mr Chris Smith)           It is a matter entirely for debate at the moment as
  to whether the 90 to 95 million approximate figure is an accurate figure. We
  will know a lot more as soon as the feasibility work that is currently under
  way is done.
        687.     Have you ever known of a major feasibility study where costs
  do not subsequently go up afterwards?
        (Mr Chris Smith)           I am aware of quite a number of stadia that have been
  constructed around the country in the course of the last five years which have
  seat for seat been considerably cheaper than the 90 to 95 million which is
  currently on paper.  However, in addition to the 60 million which has been
  in principle committed by Sport England, there are further sums which have
  been committed by both the Lea Valley Authority themselves and by the UK
  Sports Institute for the ongoing centre of excellence work at the ground.
  There is a lot of work currently under way by the Borough of Enfield, together
  with companies in the private sector, to seek private sector support. I gather
  that those discussions are very encouraging.  Everyone involved in both the
  borough and the Lea Valley Authority is confident that the funds needed to
  build the stadium will be found.
        688.     If Sport England and the Sport England Board was to turn
  around at the end of all this and say it does not offer value for money, it
  is not the right place, it is not the right site, there is not a long term
  structure in place to finance the stadium, and they refuse to pay the grant
  to the Board, what would you do then?
        (Mr Chris Smith)           Obviously they would have a right to take that
  decision because they are an independent body. However, I would certainly very
  much hope that they would not seek to do so.
        689.     You are basically putting as much pressure on them as you
  possibly can?
        (Mr Chris Smith)           I have urged them publicly and privately that I hope
  they will take into account both the value of the 2005 championships for the
  nation and also the importance of the legacy for athletics but those are
  decisions which ultimately are for them to take.
        690.     Even though you had consistently over the past year been
  giving everyone the impression that it was a done deal?
        (Mr Chris Smith)           I rely on the in principle support that they have
  given. That is valuable support and they have indicated to me on quite a
  number of occasions that they hope to be able to stand by that.
        691.     Finally, Chairman, you said also on Sunday Business a couple
  of days ago "Obviously there is a General Election between now and then and
  that might change my position a bit".  What did you mean by that?
        (Mr Chris Smith)           Well, the fairly obvious point that has to be made is
  that the outcome of a General Election is not a foregone conclusion, Chairman. 
  I would not wish anyone to think that it was.
        Chairman:   That is the first time I have disagreed with you, Secretary
  of State.
  
                                Ms Ward
        692.     Secretary of State, my apologies for being late and I hope
  you have not already dealt with this issue. The process by which the Lottery
  operator was selected for a second term was ultimately a bit of a shambles
  with the delay and with the problems of announcements and court action and all
  of that. It certainly would not have been what, I am sure, either of us would
  have wanted to see. Given that, you made comments at different points during
  that process and yet did not make comments at other points of the process.
  What do you consider to be your role in now reviewing that process?
        (Mr Chris Smith)           Well, I have already touched on some of this in
  answers to previous questions, but certainly the process that was gone through
  was not the smoothest of operations.  I think there are obviously some lessons
  to be learned from this. I do think that it is sensible to review the process
  to see whether changes are required. That review is one that I would not wish
  to rush in to because I think we need to make absolutely sure that the new
  franchise is absolutely signed and sealed and everyone knows exactly what is
  going to happen when. Once that is all known, then I think will be the time
  to establish a review to look in detail at what happened, why things went
  wrong where they did and also to talk with everyone who was involved in the
  process, both the regulators and the bidding organisations, to see what
  recommendations they have as well. I am sure the deliberations of this
  Committee will also form a major part of any such consideration.
        693.     Do you accept that in making comments in support of the
  Commission on their first decision, and not making comments after the second
  decision, may have been unhelpful?
        (Mr Chris Smith)           No, the comment that I made the first time around was
  in relation to the decision which the Commission took that they were unable
  to award the franchise to either of the two operators. In the case of Camelot
  because they were worried about the propriety issues in relation to GTech. In
  the case of the People's Lottery application, because they were worried about
  the protection of players and the financing of the bid.  Now in those
  circumstances they had taken the decision to say publicly that they were
  unable to appoint either of the two operators. At that stage I did say that
  I welcomed the robust way in which they had examined both of those two
  applications. That I think was an entirely legitimate thing to say. What we
  now know, of course, is that the concomitant decision that they took, which
  was to commence detailed negotiations with only one of the two bidders, was
  not a sensible and right decision. The Court made its judgment on that. It was
  not up to me to make a comment on any decision that the court had made because
  I would not seek to question the judicial process. 
        694.     Do you think you should now review the membership of the
  Commission?
        (Mr Chris Smith)           The membership of the Commission I think proved
  themselves during the course of the consideration that they gave in November
  and December as to the two bids that were in front of them. They reached a
  decision, which has now been accepted by all parties involved.  They clearly
  have strong leadership in the form of Lord Burns. It may well be that members
  of the Commission themselves will decide that they have had a good stint and
  want to stand down in due course, that is a matter entirely up to them.
        695.     In the future, if with a new operator there might be issues
  of public concern, perhaps the sort of problems we have faced in the past,
  would you consider it to be your role as Secretary of State to make public
  comment and to intervene or do you now think this is purely a matter for the
  Commission and the chair of the Commission?
        (Mr Chris Smith)           On the whole, of course, it will be very much up to
  the Commission to make decisions and to monitor exactly how the operator is
  going about putting the new franchise in place than operating it.  If at any
  stage there is a question about the actions of the Commission then of course
  it would be a matter for me to consider because ultimately the Commission are
  answerable to me for the propriety with which they go about doing their job. 
  At present I see no reason to intervene in that way. 
        696.     In relation to what I understand to be an application by the
  People's Lottery for some form of compensation for their bid, do you have a
  comment on that?
        (Mr Chris Smith)           That is entirely a matter for the Commission to make
  a decision on.
        697.     You will certainly not be providing any additional funding to
  the Commission to be able to deal with that matter?
        (Mr Chris Smith)           No, that is a matter entirely for the Commission.
        698.     But the Commission clearly will have a decision to make and
  as you just said the Commission are responsible to you ultimately. Surely you
  would be willing to comment at some point?
        (Mr Chris Smith)           I have every confidence in the ability of the
  Commission to come to a sage judgment on that matter.
  
                               Chairman
        699.     On these questions of regulation, has it not emerged,
  Secretary of State, that every formal regulation, however well intentioned,
  is seriously vulnerable?  The previous Government when it set up the Lottery
  created Oflot and appointed Mr Davis. They did that from the best of
  intentions, they did not want themselves to be involved in any major decisions
  about the Lottery once legislation had been passed. That was found to be
  seriously vulnerable.  This Government then changed it by creating the Lottery
  Commission. It has emerged from questioning this afternoon, that turned out
  to be seriously vulnerable, without any reflection whatsoever on the integrity
  of anybody on the Commission.  The Commission clearly made a very bad mess of
  that, which resulted in the litigation which resulted in the resignation of
  one of the revolving Chairman/woman and the arrival of Lord Burns who did a
  very, very good job as professional trouble shooter but made it reasonably
  clear to this Committee that he intends to move on after a decent interval. 
  He will do a year and then go. If one looks at other forms of regulation, the
  ITC made an appalling mess of the whole News at Ten issue which has resulted
  in not only a mess on the news on television on Channel 3 but also a mess on
  the news on television on Channel 1.  That is the result of regulation.  If
  one looks at the British Museum and the admitted mess over South Portico and
  Portland Stone versus French stone, that was done with the best of intentions
  by the trustees of the British Museum, another form of regulation. If one does
  not have to, and I would not in any case, cast any reflection whatever on the
  integrity of any people involved in all these decisions, they have been
  seriously flawed decisions which in some cases have been adverse to the
  interests of the taxpayer.  Clearly this is a very, very difficult problem
  because governments of both political parties have found themselves assailed
  with difficulties as a result.  Is it your belief that we need to assess this
  whole business of regulation because if you get an effective regulator, as
  clearly in the case of Lord Burns you got in the end, things work well, but
  if you do not get effective regulators, as appears to be the case in all of
  the other examples I have quoted, then you can be in a lot of trouble and,
  although the regulators have the job, the Government of the day of whatever
  party is in power in the end carries the can.
        (Mr Chris Smith)           You touch, Chairman, as you say, on a very difficult
  issue about what the best format of regulation is likely to be.  You are
  always going to have areas of public life, areas of public service, where you
  require regulation of some shape or form, so how best to deliver that
  regulation.  The two models that have tended to be in place up to now, either
  the single person regulator or the board of non-executive lay people
  regulator, have both in some cases delivered effective regulation, in some
  cases have not delivered effective regulation.  I think we need to give some
  careful thought particularly in relation to another inquiry that you are
  conducting at the moment in relation to the precise structure of OFCOM into
  how to get that structure right. In relation to the National Lottery
  Commission I would say, however, that they made one very major mistake, they
  made it in good faith, ----
        700.     Is that not the worst kind of mistake?  A mistake made in ill
  faith for personal gain at least has got that motivation but decent people who
  are not up to their job, that is a very different matter.
        (Mr Chris Smith)           Far be it for me to suggest to any regulator that they
  should make decisions in ill faith. They made one serious mistake which, of
  course, the court then subsequently rectified.  I think it would be foolish
  for us to assume from that that the entire nature of such a regulatory body
  is bound to be disastrous.  I think we need to look very coolly and carefully
  at what works and where and why and whether it is very specifically a case of
  getting the right people rather than the right structure, or whether
  structures being got right can help you to get the whole nature of regulation
  right as well.
        701.     Would they not be assisted, whatever form you get, if we in
  this country were to adopt the practices they have in the United States of
  transparency?  We have an extraordinary culture of secrecy in this country in
  which a very great number of major decisions, in which people are interested,
  are taken behind closed doors.  When this Select Committee a couple of months
  ago visited the United States to meet a number of lotteries, we were told, for
  example, by the Lottery Commission in Maryland, who run a very successful
  lottery, that all the meetings of the Lottery Commission there are held in
  public, on the record, with members of the public able to attend and the press
  there.  Why can we not encourage, or indeed require, except when matters of
  serious commercial confidentiality are being discussed, these regulatory
  bodies, whether it is the Lottery Commission, whether it is the ITC, whether
  it is - God help us - the BBC Board of Governors, to meet in public?  After
  all, the public finances all of this.  The Government that has introduced the
  Freedom of Information Act, should it not now in these reviews you are talking
  about bring in a culture of transparency so that people can actually see for
  themselves the decisions being made in their names?
        (Mr Chris Smith)           The first thing to say, Chairman, is from my
  recollection of the Freedom of Information Act, I think quite a number of
  these bodies do themselves fall under the Freedom of Information Act and,
  therefore, there is access to certain numbers of documents.  Secondly, there
  are a number of regulatory bodies that have already, with my encouragement,
  taken steps towards greater openness.  A very good example is the Radio
  Authority which is now much more open about the decisions it takes, the
  discussion leading up to those decisions, the publication of minutes and such
  like, than they were in the past.  There are clearly some issues, particularly
  where regulation is occurring in a very sensitive commercial market, where
  issues of commercial confidentiality will inevitably mean that there has to
  be some private discussion.  The progress that could be made towards greater
  openness is certainly something that I would welcome.
        702.     We have held discussions, and for example Mr Wyatt referred
  to the competing merits of GTech and AWI, with GTech and AWI, we have held
  discussions with the Lottery people, all of whom made no requirement whatever
  of confidentiality about the competing merits of these two.  We came down
  pretty well on the side of GTech even though AWI gave a dazzlingly brilliant
  presentation compared with the one by GTech.  I simply do not understand why
  the behind the net curtains, not in front of the children ethos prevails in
  this country.  Mr Faber has been talking about the proceedings of the Lottery
  Commission and, apart from any matters of commercial confidentiality, I cannot
  see why the discussions of the Lottery Commission should not have taken place
  in public and why they should not have been televised; in another country they
  would have been.
        (Mr Chris Smith)           Of course, the Maryland example might not be an
  absolute analogy because of the fact that the lottery was not itself being run
  eventually by a private company.
        703.     A-ha, but I made that point to you already.
        (Mr Chris Smith)           In relation to the discussions of the Lottery
  Commission I would certainly hope that as much as possible that was not
  necessary to be kept confidential as a result of commercial reasons could be
  made available and open to the public.  Indeed, it is also worth bearing in
  mind that the Commission is required by law to publish a full statement of
  reasons for any decision that it makes and it has to set out the thinking that
  led it to make the conclusions that it did.  So there is some element of
  openness there at the moment.  I would certainly encourage them to go further
  than that.
        704.     Secretary of State, I could go on forever, not just about
  this, but the whole question of additionality, about the distributing bodies
  which Mr Faber talked about, but we have kept you here a very long time and
  it is time we finished and had a cup of tea.  I thank you and Mr Zeff very
  much indeed for coming here this afternoon.  We shall be seeing you again
  quite soon.
        (Mr Chris Smith)           Thank you.