Select Committee on Culture, Media and Sport Minutes of Evidence



Memorandum submitted by Professor Peter Collins, Director, Centre for the Study of Gambling and Commercial Gaming, University of Salford

  "Fewer-and-bigger or more-and-smaller:

the crucial outstanding question for the UK Government

in relation to the introduction into the UK

of new, international-style casinos"

INTRODUCTION

  By far the most profound consequence of the contemplated changes in UK gambling law will be the potential introduction into the UK of casinos where many forms of gambling and other entertainment are offered but where the dominant activity is the playing of unlimited prize gambling machines which may be present in unlimited numbers. Consequently, I confine my discussion to the question of what policy Government should adopt towards the introduction of this form of casino gambling into the UK. I follow the Gaming Board of Great Britain (GBGB) in referring to this form of gambling as "international-style" casino gambling and the venues where it takes place as "international-style" casinos. This reflects the fact that almost everywhere else in the world a casino is understood to be a place where the dominant activity is unlimited prize machine gambling. This is in sharp contrast to the UK where a casino is essentially a place where table games are played. Relatedly, international-style casinos tend to be large and patronised by a mass market whereas in the UK "domestic" casinos are small private clubs catering for rather small and rather specific social groups. For these reasons it is imperative that government understand that in removing the limits on the number of gambling machine which may be housed in a casino and the size of prizes which the machines may offer, Government will be introducing a wholly new kind of gambling business into the UK which, moreover, is likely to dominate the industry both financially and in terms of public perception. In fact, Government will be doing something very similar to what it did when it introduced the National Lottery and may be fortunate in being able to learn from all aspects of that experience.

  The introduction of international-style casinos into the UK has the potential to grow the gambling industry very considerably and to redistribute market share within it away from all other forms of gambling and towards casinos. This process carries with it the opportunity to secure some significant social and economic benefits over and above the benefits which accrue to the suppliers and consumers of gambling products, and to the public though the generation of normal tax revenues. It also has the potential for increasing the risks of excessive and pathological gambling and of contributing to the less easily identified social ills which might be broadly classified under the heading "cultural degradation." Overall, the effect of introducing these large new casinos into the UK will be to re-circulate a great deal of money and the decisions which Government takes about what gambling companies and their customers may, may not, must and must not do will to a large extent determine who benefits, how much, from this process of re-circulation and at the expense of whom.

  Whether and how the general public and particular sectors of it benefit from the introduction of international-style casino gambling depends crucially on how many such casinos the Government allows to be developed and, in particular on whether government adopts a policy favouring the emergence of a large number of small casinos or a small number of large ones. The answer which government gives to these questions also has a crucial bearing not only on the question of how the economic benefits flowing from the introduction of new casinos will be shared but also on the question of how great the negative social impacts of introducing new casinos will be and on whom the costs will fall.

HOW MANY NEW CASINOS? BACKGROUND TO THE CRUCIAL QUESTION

  The proposals for international-style casinos contained in the DCMS response paper and the thinking which underpins them are broadly in line with the recommendations of the Gambling Review Body's Report (the GRR aka the "Budd" Report) which in turn broadly endorses the proposals and thinking contained in the submission made to the Review Body by the Gaming Board of Great Britain. In general I am very supportive of the thinking in these documents and the policy recommendations which flow from it except in relation to international-style casino gambling. To the extent that I am critical of these three documents on this score, this is not because I believe that what they say is wrong: it is rather because of what they do not say about limiting or not limiting the number of new casinos to be permitted in the country.

  The GBGB originally took the view that Government could and should be neutral on this point: provided gambling is kept crime-free and honest and provided the young and otherwise vulnerable are adequately protected, then the provision of commercial gambling services should be left to market forces. "Budd" broadly shared this view but took the line that whether to restrict gambling opportunities so as to facilitate the development of resort casinos was a matter for general public policy beyond its remit. The DCMS response paper clearly indicates that it wishes to think more about how to avoid an undesirable proliferation of casinos but rules out a partial and short-term monopoly for Blackpool and, therefore presumably, for any similar project. What all three documents overlook or ignore is the question of whether, and if so how, Governments at national, regional and or local level should be able to grant a degree of exclusivity to international-style casino projects in the interests of harnessing unlimited prize machine gambling to the securing of developmental benefits in the regions where the new casinos will be sited and/or to the funding of good causes.

  To answer to this question presupposes answers to the more general questions:

    —  How (if at all) should gambling in the UK be linked to the funding of regional development and of other good causes?

    —  On what grounds (if any) should casino-licensing authorities (whoever they turn out to be) be allowed to refuse to grant a licence for premises to be used for casino gambling? In particular, should they be allowed to refuse an application for a new casino project on the grounds that in a particular area it is felt desirable only to have one or two or three but not an unlimited number of new casinos.

  At least part of the reason for the silence so far on these questions is, no doubt, that there are issues involved in the first question which relate most obviously to taxation policy, regional development and planning law and which go beyond the remit of the either the GBGB or the GRR or the DCMS. This issue is now being addressed by the Department of Customs and Excise and the Treasury and will no doubt be considered in due course by other relevant Departments. Also, the response paper promises that DCMS will give further and constructive thought to the second question. In addition, both issues are now being considered by the Local Government Association.

  Nevertheless, because these two issues are so fundamental and so inextricably related, all policy-making bodies, including the Parliamentary Committee, need to consider them coherently and to construct their answers to other policy questions on the basis of the answers they give to these questions. This is because they go to the heart of what we want gambling policy to achieve in the UK and whom we want gambling policy to benefit.

PUBLIC POLICY OBJECTIVES, FREE MARKETS AND GAMBLING

  Governments, in general have one or more of five main objectives in formulating laws relating to gambling:

    —  To reduce the incidence of immoral behaviour.

    —  To control and contain a potentially dangerous activity which would otherwise be supplied illegally.

    —  To integrate the gambling business as a normal part of the leisure industry.

    —  To raise money for public interest projects.

    —  To earn money from foreigners.

  A government pursuing the first of these objectives cannot pursue the others but both Government and public opinion in the UK reject the view that it is the business of government to eradicate immorality in the area of personal conduct, however identified, and in any case no longer regard gambling as immoral. The other four objectives, by contrast, are not all mutually exclusive. In particular, most jurisdictions which legalise gambling or liberalise gambling law seek to combine the second, third and fourth objectives. All do this in respect of lotteries. Most do it in respect of casinos. Many jurisdictions, seduced by the success of Las Vegas, seek to make gambling a source of tourism earnings and many are disappointed because they are not blessed with large populations of gamblers living in neighbouring jurisdictions where gambling is illegal.

  However, governments which take seriously the principle of maximising individual liberty for all tend to focus on the second and third objectives. Clearly the GRR and DCMS do take this principle seriously. Consequently, they favour reforming UK gambling law so as to make the introduction of international-style casinos possible on the grounds that if there turns out to be a demand for this form of entertainment then, provided suitable safeguards are in place, there is no good reason why the adult public should be prevented by law from spending their own time and money pursuing this form of recreation. Correspondingly, there is no reason why honest suppliers of this kind of gambling product should be prevented from doing business.

  In other words, the Gambling Review Body and the DCMS are arguing for liberalisation on the very compelling ground that this is consonant with the right of individuals to live their lives as seems best to them provided that in doing so they don't wrongfully harm others. When applied to the realm of commercial activity this emphasis on the rights of individuals to make free choices translates into an ethical case for free markets in which terms of trade are decided by private agreements between willing (and honest) buyers and willing (and honest) sellers under circumstances of free and fair competition. Thus, the Gaming Board of Great Britain in their submission to the Gambling Review Body, the GRR itself and, for the most part, the Response Paper tend to argue that, provided gambling is kept crime-free and honest and provided the young and vulnerable are adequately protected, the provision of commercial gambling services should be left to market forces. The position is not quite as pure and straightforward as this since all three documents propose interferences with market forces which are not based on these standard provisos. Most notably all three want to prevent the emergence of very small casinos and of casinos which only contain gambling machines. Nevertheless, what is perhaps most admirable, though not most popular with some sections of the existing industry, about all three documents is their determination to get away from the inadvertent protection from competition which the law has hitherto conferred on suppliers of gambling services (most notably via the demand test) and their determination to expose suppliers to the rigours of free and fair competition.

  A consequence of this commitment to healthy commercial competition, however, is that all three documents take the view that if the operation of market forces leads to the emergence of a large number of relatively small casinos, then either that is not a bad thing or, if it is a bad thing, it is not the kind of bad thing which Government should try to anticipate and forestall. There is also no doubt that this commitment to competition means that the principal, and perhaps the sole beneficiaries of liberalisation, as envisaged by the GBGB and in the GRR and the Response Paper, will be the customers of the gambling industry and those who successfully compete to supply them.

FIVE RELEVANT POLITICAL PRINCIPLES FOR DETERMINING GAMBLING POLICY

  It is a very attractive view that Government should, as far as possible, leave it to individuals to decide both how to spend their own time and money in the pursuit of pleasure and how to deploy their talents and energies so as to earn money by supplying goods and services to their fellows. Quite probably, this libertarian principle should be the first principle which legislators seek to conform to in regulating leisure and pleasure businesses. However, it is not the only one which legislators need to take account of either generally or in the specific case of regulating gambling.

  In particular, in making its choice between having a large number of small casinos and a small number of large ones it will not be enough for Government to try to find some regulatory device which would have a reasonable chance of keeping the number of casinos which would in fact emerge to within a number which feels roughly acceptable. Government will need policies which are much clearer and more rigorous than this and methods for implementing them which are more certain to be effective. In order to formulate such policies and procedures for enforcing them, government will need to attach due weight to considerations of at least four political principles over and above the principles of individual liberty and freedom of choice in the market place. Government will also need to recognise that some of these political principles to some extent conflict both with the principle of liberty and with each other. Finally government must recognise that in deciding between principles it will be making clear choices about priorities in relation to the interests it most wishes to protect and promote in the process of liberalising British gambling law.

  The main political principles which need to be taken into account when formulating policy for new casinos in addition to the principle of maximising individual liberty are:

    —  The principle that negative social impacts should be minimised. This includes, as everyone recognises, at least not exacerbating the incidence of, and harm caused by problem gambling. However, it is not restricted to this concern and might well also cover a more nebulous but not less important concern to avoid what I have called general or local cultural degradation. It is already clear from press comments that some people fear that a proliferation of casinos would have precisely this effect as well as exacerbating gambling addiction.

    —  The principle that local people should have the democratic right to determine, at least in part, what happens in the public domain within the area where they live. For example, some communities might want to limit the number of new casinos in their area and, on the face of it, it would seem natural that they should be allowed to do so.

    —  The principle that where either government action or inaction will lead to greater overall prosperity in society, government should seek to maximise prosperity. This is relevant to the extent that government policy with respect to new casinos may attract to the country as a whole or to a particular region of it new investment with concomitant direct and indirect employment opportunities in order to supply an enhanced tourism market.

    —  The principle that where government action generates economic benefits these should be distributed equitably. Perhaps this means that they should be distributed so as to benefit all equally or perhaps it means that they should benefit the most deserving, however identified, or perhaps that, where possible, the distribution of benefits should be harnessed to the alleviation of poverty or to the advantaging of the least advantaged. As we shall see, the view that government takes on this issue will determine its tax policy for gambling generally and for new casinos and for machine gambling in particular. But it will also vitally shape its decision on the many-small vs few-big issue as applied to new casinos since broadly a many-small scenario will tend to distribute economic benefits to the general public as a whole but relatively thinly, whereas a few-big policy will favour focusing a smaller number of more substantial benefits where they are thought to be most needed.

TWO RELEVANT FACTS ABOUT THE BEHAVIOUR OF GAMBLERS

  Because the GBGB and the GRR took the view that market forces ought to be the determinant of what kind of new casinos emerge and in what quantity, they thought it neither necessary nor appropriate nor perhaps even possible to try to anticipate what the landscape in respect of casino gambling in the UK would look like if left to market forces. They felt they did not need to, and indeed ought not to try to anticipate the commercial consequences of their policies. I do not think this position is tenable. It is possible both to foresee what market forces will produce and to evaluate in the light of this foresight what the advantages and disadvantages of a free market in international-style casino gambling will be. Moreover, it is essential that government anticipate the consequences of its decisions if these are to accord with its general political principles and its specific policy objectives in facilitating the introduction of new casinos into the UK.

  There are two main general facts about the gambling business which have to be understood if public policy is to be effective in maximising benefits and minimsing costs to the general public when it introduces international-style casinos.

  The first is the fact is that gamblers will not travel for longer than they have to in order to reach a venue where they can engage in their preferred form of gambling. In the case of the new casinos we are considering, this is principally going to be unlimited prize machine gambling. They will travel further than their nearest venue to avoid a venue which they regard as unsafe or uncongenial or to get to a venue where the odds are better (and therefore the cost of gambling cheaper). However, most gambling venues will be more or less equally safe and congenial and the prices will be more or less the same. This means that people will gamble at the casino nearest to where they live or, in a smaller number of cases, where they work. To some extent they will travel somewhat further to reach a larger casino because they perceive it as offering more glamour and glitz. However, in a competition for customers between a larger and glitzier casino (with, say, more than 1000 machines) and a smaller but nearer casino (with, say, fewer than 200 machines), convenience will typically trump glitz. Be that as it may, what is certain is that, if the smaller casino has lower costs and can therefore offer better prices, it will certainly out-compete the larger casino. What all this shows is that market forces will favour a proliferation of small casinos which will make large casino developments typically unviable.

  The second key fact about gambling is that players are prepared to pay much higher prices than the lowest price which suppliers could charge and still attract investment. Machine gambling has very low costs and in relation to the price it is possible to charge for their use without causing customers to spend their leisure pounds elsewhere. In other words the price of machine gambling is "elastic" and supplying machine gambling can be enormously profitable. However, there is no such thing as a business which is too profitable. Casino owners and operators will therefore still want to keep costs as low as possible and prices as high as possible. In circumstances of free competition the price will, of course, be driven down to the lowest price at which suppliers still find it more attractive to remain in this business rather than devoting their time, talents and energies to earning money in some other way. Consequently, to maximise profits, the sellers in this market will seek to keep their costs as low as possible. Investors in the new casinos will consequently seek to place casinos as cheaply as possible, as close as possible to where their customers live and work. They will focus their investment on supplying customers with only those facilities (parking, some food and beverage) which will encourage their customers to gamble (and lose) more. They will, therefore, want to make it about as easy for unlimited prize machine gamblers to get to a gambling machine as it is for beer-drinkers to get to a pub.

  These two facts explain why a free market in the provision of casinos will result in a large number of small casinos. It might be objected that big casinos offering a wide variety of other entertainment (live shows, theme parks, classy restaurants, the proximity of good shopping etc) will easily attract more visitors from a wide area than a more conveniently located casino offering little more than well-priced basic gambling opportunities. It is true that the other attractions will bring more visitors to the site of the big casino but not that these visitors will choose to spend their gambling pounds at the casino. Instead they may actually do less gambling because they prefer to spend their money on the other attractions.

  If competition means many new small casinos, what happens if competition is for whatever reason, including government regulation, restricted? If casino operations are protected from competition they can charge higher prices. What the suppliers would like, therefore, is to be protected from competition and allowed to keep the abnormally large profits which results from this. Governments, however, rightly try to prevent this but they do so in one of two ways of which only the first is popularly understood. This first way in which governments prevent suppliers from making monopoly profits is by compelling them to compete through all sorts of anti-monopoly legislation. The second way, however, is by regulating the price so as to contain the monopoly profits and then capturing these profits in the form of taxation of one sort or another. As we shall see, almost all jurisdictions world-wide limit the number of international-style casinos they allow to compete with one another and capture such monopoly or oligopoly profits as they permit to be made in the form of taxes, compulsory contributions to good causes or the compulsory funding of public interest capital projects. The clearest and closest example of this second approach in the gambling industry is afforded by the way the National Lottery is regulated in the UK. Here, government regulation creates a monopoly but then sets the price (odds) and secures 80 per cent of the earnings (stakes less prizes) in the form of tax and contributions to good causes.

MANY-SMALL/FEW-BIG AND MINIMISING COSTS TO THE PUBLIC

  The GBGB submission, the GRR and the DCMS Response Paper all accept that some strategies need to be put in place to prevent an unacceptable proliferation of casinos, especially of casinos whose principal activity is machine gambling. The criteria they employ for identifying unacceptability all have to do with the clear public interest in minimising the negative social impacts of liberalisation. The most important of these negative impacts are the following:

    —  Problem gambling: the single development most likely to increase the risk of problem gambling is the location of large numbers of especially high prize machines in venues which are very easy to get to and which therefore create a widespread temptation to engage in impulse gambling.

    —  Crime: the kinds of crime which may increase with an inadequately regulated casino industry range from fraud and money-laundering to mugging. Many small casinos are more difficult to regulate than a few large ones, where inter alia the owners of the casinos will contribute policing to ensure the safety of their patrons and will be ultra-nervous about being caught out in any improper behaviour lest they lose their very valuable operator's licence.

    —  Cultural degradation: those who are opposed to the spread of all forms of gambling and especially of casino gambling are likely to argue not only that gambling is morally corrosive and psychologically dangerous but also that leads to a deterioration in the quality of community life which most people in the community would not agree to if they were accorded a democratic right to express informed consent.

  For these reasons—and because they rightly regards the opinions and preferences of anti-gamblers as being of equal importance as those of pro-gamblers, DCMS is committed to finding some strategy for placing some limits on the number of casinos that are likely to emerge. Perhaps there should be a minimum size of gaming floor space. Perhaps there should be a minimum number of table games for every so many machines. Perhaps planning requirements will limit the number to what is desirable. Then again, perhaps they won't and some other strategy needs to be discovered and adopted. As I have indicated there is as yet no clear idea amongst any of the three bodies who have addressed the issue about how many new casinos would constitute an unacceptable proliferation nor about what regulatory conditions would ensure that the number remained within the desired limit.

  The reason the authors of the three documents we are considering cannot find a robust method of limiting the number of casinos and, in effect of ensuring that we have a smaller number of larger casinos rather than the reverse, is that they are committed to a particular interpretation of free market principles and/or that they see the point of deregulation as being, first and foremost, to benefit the consumers of gambling services who are of course the people who benefit most from a free market in any commodity or service. I believe, by contrast, that the first objective of good public policy in relation to gambling—once crime has been eliminated and safety secured—should be, as it is with the National Lottery, to promote the interests not of punters but of the general public by raising money for various kinds of good causes. Moreover, I believe, as also happens with the National Lottery, that the principles of healthy free market competition are just as fully served by processes whereby suppliers tender competitively for contracts as it is when they compete directly for customers.

  In short, I believe that advice to Government thus far has prematurely ruled out securing from the introduction of international-style casinos into the UK similar positive public benefits as were secured by the introduction of the National Lottery. I turn now, therefore, to the policy options available to Government for generating public benefits through the introduction of casino gambling.

MANY-SMALL OR FEW-BIG: MAXIMISING ECONOMIC BENEFITS TO THE PUBLIC

  In respect of choosing between "many-small" and "few-big" with respect to new casinos the arguments from minimising negative social impacts all tell in favour of "few-big". This is not so in the case of the arguments about maximising economic benefits to the public where, if public benefits were the only consideration, the issue might be adjudged very finely balanced. Indeed if the only consideration was maximising the monetary value of the contribution which casino gambling makes to the public purse, the argument would favour many small. However, as we shall see, there are additional considerations which, in my view, outweigh the loss of a small proportion of the total contribution which gambling could make to the Exchequer. It is important to understand the economics of the choices involved.

  There are only two ways in which the citizens of a jurisdiction as a whole can benefit from the introduction of casinos—other than through the elimination of an existing illegal industry.

  First, and in rare cases, they may be fortunate enough to be surrounded by jurisdictions in which gambling is illegal. In this case they may be able to use casinos to capture the gambling spend of their neighbours. This is how casinos produced prosperity in Monte Carlo, Las Vegas, Atlantic City, Sun City, Macao and on Indian Reservations in the USA. There is, however, no prospect of securing this kind of benefit for local communities in the UK, such as those at seaside resorts, unless unlimited numbers of unlimited prize gambling machines are prohibited outside these specified locations—of which in any case there could only be a few.

  Having said that by way of warning, there are two considerations which in the UK are relevant to the question of gambling and tourism and therefore to the policy goal of promoting prosperity. The first is that casino policy should ensure that, as far as possible, UK casino gamblers can get the gambling experience they prefer in this country and don't therefore need to travel abroad to visit attractive casinos. Second, not only are UK casinos, however attractive, unlikely to bring foreigners to the UK in order to gamble, it is also probable that only a small proportion of those who are coming here anyway will spend only a little more overall in this country if there are attractive international-style casinos than they would have without gambling law reform. However, the number of tourists, especially to London, is so vast that even if they spent only 1 per cent more in the UK than they would have otherwise this will constitute a substantial number.

  The other and commoner way in which communities can benefit from casinos is through the imposition of abnormally high taxes on casino gambling. Governments can do this because, people do not on the whole resent gambling taxes (and the higher prices and worse odds for gambling which they bring) and because, more particularly, the price of gambling can be set well above the price that free market competition would result in, without large numbers of gamblers deciding to spend their pleasure pounds in other ways. In this respect gambling products are like alcoholic drinks but unlike fizzy drinks where high prices resulting from high taxes would result in people switching to other beverages.

  Taxation policy is thus crucial for determining how the liberalisation of gambling law affects the distribution of gross gambling revenues and therefore of economic benefits between consumers, suppliers and the general public. The key idea which policy-makers need to understand is that the kind and quantum of benefit which the general public receive from the liberalisation of gambling law is, everywhere in the world, to a large extent determined by the decisions which governments take about whether and, if so, how to limit the number and location of gambling venues, especially of new casinos. In fact, nowhere in the world, outside of jurisdictions where the casino customers are going to be mainly from outside the jurisdiction, does government not limit the number of casinos partly in order to capture the economic rents—in order, that is, to extract benefits in cash or kind from the operators in return for granting a licence to do business in circumstances of restricted competition. In effect, this is an exclusivity payment which may consist of a share of the casino's income, an up-front lump sum or a requirement to build a conference centre or entertainment centre. The more exclusivity (protection from competition) the Government offers the higher the fee it can charge for granting a licence to do business. This licence fee will then be spent in the public interest in some form or another—or at least it will be spent in the public interest if Government and its spending agencies make wise and virtuous spending decisions.

  Here are some examples of how governments secure economic benefits for the public in other parts of the world:

    —  In most of the USA originally, government sought to capitalise on the unavailability of casinos in neighbouring jurisdictions facilitating the development of casinos as an export business to earn "foreign" currency or to protect itself against loss of revenues from gambling because its players are doing their gambling "abroad."

    —  In Germany, government imposes high taxes on casinos. The tax rate in Germany is around 80 per cent of gross gambling revenues.

    —  In Australia, government decided to have one casino only per large city and to auction the monopoly licences for an upfront cash payment to the coffers of regional government.

    —  In Canada, government treats casinos as it treats its lottery and harnesses casino gambling to the funding of good causes with the bulk of the proceeds going to the Provincial governments who often earmark these revenues for particular projects—such as funding the public library service.

    —  In South Africa, government sought to harness the creativity of the private sector by limiting the number of casinos in each Province and adjudicating between competing bids on the basis of which project offered to fund the additional infrastructure which would most benefit the citizens of the Province

    —  In France, government limits the number to one casino per area and has a composite tax system which combines tax payments to national government, tax payments to regional government, and an additional contribution which is negotiated between the casino company and the municipal authority where the casino is located.

  Each of these systems has advantages from the point of view of good public policy. It must be stressed, however, that government cannot have the advantages of all them. In particular, government cannot have high taxes on annual gross gambling revenues and a high level of investment in public interest projects or a high upfront licence fee. It must be stressed even more forcefully that government cannot have the advantages of any of these systems in relation to casinos if it permits excessive machine gambling outside of casinos, though of course it can then secure large tax revenues from the non-casino machine gambling as in Spain—which however has recently decided to change its strategy from one delivering high rates of taxation to one which will deliver high levels of investment.

CHOICES FOR GOVERNMENT

  All the choices facing Government have advantages and disadvantages. It is obviously the function of government, not of academia, to exercise the necessary judgment in weighing up the alternatives. However, academic commentary can help Government to avoid incoherence in its decision-making and in particular to avoid trying to secure simultaneously many different objectives when these are not logically or practically compossible. Also, academic elucidation can help Government to understand the nature and implications of the competing choices. In the remainder of this submission, therefore, I identify these choices and indicate what I think can most cogently be said for and against them. Thus:

Normal Tax or Abnormal Tax

  Normal tax would result in gambling being no more expensive than any other service in relation to the cost of supplying it. This would benefit the punter but at the expense of the general public who at least ought to be the beneficiaries of any new sources of Government revenue. Some argue that it is unfair or otherwise morally wrong for Government to impose taxes which discriminate amongst consumer choices. On the other hand most governments find it both politically attractive (indeed irresistible) and morally unobjectionable to impose higher taxes where these are least resented. On the other hand government must be careful not to set taxes so high that a black market develops in respect of the relevant goods and services.

Benefit all equally or target benefits where needs are greatest

  This is not a pure choice. Gambling tax policy can provide both some general benefits and some benefits targeted at the needy and least advantaged. The Lottery Good Causes Fund seeks to do this. However, in relation to casinos the judgment which government makes on this issue will be crucial because the few-big scenario permits, as the many-small scenario does not, the siting and structuring of casino projects so that they do most for those communities where need is greatest. This does not only mean that on the few-big scenario big development investment could be secured for the neediest parts of the UK: it also means that, in London for example, casino developments could be tied to the delivery of low-cost housing.

General Taxes or Hypothecated Taxes

  If the public believed that Government is infallible in the wisdom and efficiency with which it spends public money, then all taxes would be general taxes and government would simply prioritise public expenditure needs and ensure that the money spent included on them no wastage. Unfortunately, the public does not believe this and is particularly disposed to believe that much of the money which Government raises in general taxation is wasted and a regrettable amount of it spent for the benefit of those who govern rather than for the benefit of those who are governed. The great merit of hypothecated taxes is that they allow the public to see what the Government is spending their money on. This is particularly important in relation to gambling where there is very commonly a backlash, on which anti-gamblers capitalise a few years after the liberalisation of ambling law. It is then very important for government to be able to say: "But look at the good things that our lottery/casinos have done for us." In general hypothecated taxes are marginally undesirable on economic grounds but highly desirable on political grounds.

Regional or National

  There is a strong case on grounds of equity for thinking that a substantial part of the benefits from casinos should accrue to, and be spread through the communities from which the casino gamblers come. Moreover, that there is a strong case on democratic grounds for think that the communities which will be most affected by the casino for good or ill should have a substantial say in determining the number and type of casino developments which they will licence. However, there is a real danger in terms of limiting proliferation and securing the advantages of "few-big" if the local unit is too small and there are in consequence too many licensing authorities. This is why in almost all countries which have provincial or state or other forms of regional government casino decisions are to a large extent made at regional government level.

Cash or Kind

  If Government takes its share of the anticipated gambling revenues from a casino in cash it is then responsible for translating this cash into the infrastructural or other public benefits for which would be delivered by the casino company if the Government decided to take its share in kind. For example, Government could require a casino company either to pay for or to be responsible for building a conference centre for the region. The advantage of having the casino company do the building instead of only the paying is—as with any other Public-Private Sector Partnership—that government thereby harnesses the creativity and managerial expertise of the private sector.

Upfront or Annually Recurring

  Any licence fee, exclusivity payment or developmental benefit which the gambling company pays before they begin earning has the advantage that the public's share of the benefits are safe. There are, however, two risks in this strategy. The first is that if the project turns out to be more lucrative than anticipated the total amount of money which the public receive may be less than if the casino is taxed annually at a percentage of its gross gambling revenues. The second is that if Government overcharges in setting its upfront fee it may attract reckless or unscrupulous bidders who overestimate the market and when revenues fail to materialise demand all sorts of relief from government. They typically back up these demands by threatening to lay off substantial numbers of workers which can easily make great difficulty for government especially if it sold its casino policy partly on the basis of job-creation. It is also clear that Government needs to understand that it can't have everything and obviously, any strategy which seeks to get major investment and developmental benefits from the casino licensing process will need to have low rates of taxation on gross gambling revenues.

Competition for Customers or Competition for Licences

  If government wishes to maximise competition for customers between casinos it will go for a "minimum conditions strategy. How many casinos this will result in will depend on how expensive it is to comply the minimum conditions which the government sets for a casino project. Government might for example demand a 10 million licence fee and the provision of non-gambling infrastructure such as hotels or sports facilities. The alternative is to invite casino companies to tender for a contract which would be adjudicated competitively in a manner similar to the way in which tenders and competitions for public sector architectural projects are adjudicated. The disadvantage of competitive tendering for new casino licences is that once the licence has been awarded no-one else can get into the business for the period of the licence because the value of the licence is conditional on its conferring on the successful bidder a period of exclusivity—probably of ten years. On the other hand, the private sector will be highly motivated to exercise much greater ingenuity than the public sector can muster in producing very attractive projects which really cater to the tastes, preferences and interests of communities as a whole.

Bold or Cautious

  A bold strategy would contemplate with equanimity the possibility of an over-supply of international-style casino gambling. A cautious policy would prefer to risk an under-supply. There is no doubt that Government should prefer the cautious strategy. This is because, while it is always easy to relax regulations and increase the availability of commercial gambling opportunities, it is extremely difficult to cut back the supply if it is decided that, for whatever reason, there is too much machine gambling. This is because powerful and legitimate vested interests are likely to have been established which it is legally and politically very difficult to frustrate and which, moreover, have a moral claim to be protected.

  On the basis of the above considerations we may now summarise the relevant arguments on either side of the crucial question, namely:

Many-small or Few Big

  The principal arguments in favour of many-small are that they are maximally convenient for customers; they probably lead to higher gambling spend and therefore higher potential gambling taxes; they avoid the inconvenience of tendering processes, and they facilitate access by new entrants to the market. The principal arguments in favour of few-big are that they reduce the risks of impulse gambling and therefore of problem gambling; are easier and less expensive to license and regulate; are less likely to provoke a backlash from those who dislike gambling on cultural grounds; can bring substantial developmental benefits; and are highly conducive to focussing economic benefits in particular areas or on disadvantaged communities. The disadvantages of each strategy are the converse of the advantages of the alternative.

CONCLUSION

  In formulating any conclusion about future regulation of the UK casino industry it is vital to take account of existing provision. The many-small/few-big policy option only applies to new casinos and new forms of machine gambling. There are already over 100 small casinos in the UK and it is inconceivable that government should wish to deprive them of their existing rights. Adopting a policy of few-big for new casinos, therefore, will result in a casino landscape which is a mixture of small and big casinos and no doubt has room for some medium sized casinos in-between. Under these circumstances, it seems to me that the case is very strong for:

    —  adopting a strategy in the UK which seeks to ensure that there are only a few big new international-style casinos, meeting minimum standards in respect of size, facilities, amenities and aesthetic values, and which prevents the emergence of large numbers of venues where machine gambling can take place

    —  ensuring that these new casinos be harnessed to regional development and contributions to good causes as well as to paying taxes to the national exchequer

    —  having a tendering process for the award of licences which adjudicates between competing projects on the basis of which project, all things considered, does most to promote the interest of the inhabitants of the region from which the casino's gambling customers will come.

7 May 2002

 


 
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