House of Commons - The Gambling Act 2005: A bet worth taking?

The Gambling Act 2005: A bet worth taking? - Culture, Media and Sport Committee Contents

5 The Gambling Commission

184. The Gambling Commission (the Commission) was created by the Gambling Act 2005 as a unified regulator for the UK commercial gambling industry, excluding spread betting and the National Lottery.[229] This will change in future as the Gambling Commission is due to merge with the National Lottery Commission. The Commission is a Non-Departmental Public Body sponsored by the Department for Culture, Media and Sport, but its work is funded by fees from the gambling industry. It was designed as a national regulator to operate in a system of shared regulation alongside local licensing authorities and boards: UK gambling operators must be licensed by the Commission while local licensing authorities provide permits and premises licences.[230] Its three statutory objectives are those of the 2005 Act, to keep crime out of gambling; to ensure gambling is conducted fairly and openly; and to protect children and vulnerable people from being harmed or exploited by gambling. The Commission also has a duty to advise the Government on matters related to gambling.

185. The remit of the Commission is not identical to that of its predecessor, the Gaming Board for Great Britain (GBGB). Not only has it the additional task of regulating the betting industry, but also the 2005 Act was intended to make the UK a home for the online gambling industry, leading the way both in terms of regulation and innovation. It was expected that large numbers of providers would base their operations in the UK and therefore be regulated by the Commission. The Act was also expected to lead to a significant increase in the land-based gambling industry, which would be regulated and licensed by the Commission. The scale of the Commission when it was first set up reflected both this anticipated increase in industry size and the extra resources that would be required to issue new licences and develop new regulatory processes.

186. As a result of several factors, including the economic climate, fiscal regime and the fact that no Regional Casinos were developed, the Act has not resulted in a significantly larger industry than the one regulated by the GBGB. Partly as a result of this, the Commission has been seen by many as too large and expensive for the current industry.[231] However, it is important to note that, under the 1968 Act, the GBGB was subsidised by the taxpayer by several million pounds per year. Local licensing authorities were also subsidised by the taxpayer: below-cost fees were applied in some places.[232] The 2005 Act, however, introduced a statutory requirement on the gambling industry to pay licensing fees which fully reflected the costs of the regulatory regime, and this alone, as the Hampton Review Report of 2007/8 into the Commission found, meant a very significant increase in costs for many companies.[233]

Cost and value

187. The then Government's impact assessment for the new 2005 Act regime predicted that the cost of regulating the industry would rise from £8 to £12 million per year.[234] As Table 3 below demonstrates, this was an under-estimate.

Gambling Commission Accounts 2008-2011

2008 2009 2010 2011 Change 08-11

Income £11,567,000 £12,843,000 £12,353,000 £13,268,000 +14.7%

Expenditure £16,699,000 £15,273,000 £13,949,000 £13,367,000 -19.9%

Deficit (£5,132,000) (£2,430,000) (£1,596,000) (£99,000)

Table 3: Gambling Commission Accounts 2008/2011

188. The Commission and DCMS argued that—in comparison with the GBGB—the Commission had "a significantly broader remit" with the addition of betting regulation, while the costs of both the GBGB and Commission were broadly similar as a percentage of the industries' Gross Gaming Yield (GGY).[235] The Commission costs 0.15% while the GBGB cost 0.14% (see Table 4). However, the 0.15% figure for the cost of the Commission includes the significant (1.9 billion euros) GGY of the online gambling sector, which the Commission does not currently regulate. It includes this sector in its calculations as it has a duty to advise the Government on it, but this makes the figures less directly comparable.[236]

189. As table 3 shows, after the initial period of system implementation and the issuing of new licences, the Commission responded to criticisms of its size and cost by reducing its workforce and operational costs. It told us that its operating costs had decreased by about £1.9 million over the two previous fiscal years.[237] Between 2009/10 and 2010/11 it reduced employee costs by 3.5%, and its other operating costs by 5.5%.[238] The Commission's structures and practices were reviewed in the Hampton Implementation Report in 2008. This was broadly positive but produced a series of recommendations for improvement, which the Commission, according to much of the evidence we have received, has broadly acted upon.[239] Witnesses from the gambling industry argue, however, that the Commission still needs to do more to reduce its operating costs.[240]

Gambling Commission (as at March 2011) Gaming Board for Great Britain (GBGB)

Employees 203 75

Venues regulated 12,000 850

Industry Gross Gaming Yield (GGY) £8.4 billion £3 billion

Total Cost £13 million £4.1 million

Cost to tax-payer * £2.2 million

Cost as % of GGY 0.15% 0.14%

Table 4: Gambling Commission cost. *The Commission received Grant in Aid finding from DCMS of £481,000 to support its research work. This funding has now ceased.

190. The Bingo Association told us that "the Commission is less effective than the Gaming Board, yet costs more, representing poor value for money".[241] The British Amusement Catering Trade Association (BACTA) described the Commission as "gold-plated" and argued that there had been "no practical implementation of Hampton" reforms.[242] BACTA said that the Commission appeared to be not "fit for purpose".[243] BALPPA told us that it did not agree with the Commission's justification for its staff levels—that its role is significantly increased from that of the Gaming Board for Great Britain. Instead, it held that its workload had "only risen marginally with extra involvement in the Arcade sector".[244]

Regulatory activities of the Commission

191. BACTA set out some of the areas where much of the industry felt that the new licensing and regulatory regime had added to its costs, including:

the new licensing regime, removal of Section 16 and 21 machines from arcades and bingo halls, new amusement machine technical standards, implementation and training for new licence conditions and codes of practice, change of premises structures to address new requirements of the Act, professional advice from lawyers and accountants in making application for licences and preparing and submitting regulatory returns.[245]

192. Noble Group's Solicitor, Elizabeth Speed, described the increase in annual regulatory costs, before and after the Act, as "astronomical" for "no noticeable difference in the regulation".[246] Costs had risen from around £11,000 to £800,000 in one of the Group's divisions. The increase does, though, include conversion fees which were the result of the Commission issuing new licences.[247] A leading AGC operator, Talarius Ltd, cited costs such as the introduction of an internally regulated "Think 21 Policy" and the extra administrative burden of compliance procedures as factors affecting profitability.[248]

193. The Bingo Association argued that current fees did not represent value for money in terms of their correlation to frequency of inspections and the broad nature of inspections.[249] John Carpenter, a bingo hall manager, made the same point. Describing the situation under the GBGB, he said that his venue had an in-depth visit four or five times per year by a local inspector who would speak to staff and customers as well as examining paper records. In contrast, he told us that he had seen his Commission inspector twice since the introduction of the Gambling Commission.[250] Gala Coral told us that, whilst the Gambling Commission was "not an expensive regulator per se", it could "certainly provide increased value for money".[251]

194. Questions were also raised about duplication of roles between the Commission and local authorities. Nikolas Shaw Limited told us that all of its premises—comprising casinos, arcades and betting shops—were visited by the Commission but that these visits simply duplicated those made by local authorities (in relation both to venues' gambling and liquor licences).[252]

195. The focus of the Commission on tackling illegal gambling activity was called into question by several witnesses. Simon Thomas said that it appeared to be "weak on enforcement against illegal operations" and was "often mired in red tape and ineffective in being able to address real negative regulatory issues".[253] He expressed frustration that the responsibility for tackling illegal poker clubs was being passed between local authorities and the Commission and getting "lost between the two".[254] Jenny Williams, Chief Executive of the Gambling Commission, responded to our question to her on this issue saying that it was "very much a matter for the local authority".[255] She said that the Commission had assisted local authorities with "various actions" and described one case where four out of five poker clubs identified as illegal had been closed (with the fifth "dying or dead"[256]).

196. There was a desire—expressed by industry witnesses and the Gambling Commission—for a move away from "blanket" stake and prize limitations towards more flexible, risk-based regulation. Roy Ramm, Director of the NCiF, said that "one of the issues we have been talking about with the Commission is not having a blanket stake and prize regime at the higher end" of the scale for stakes and prizes. Instead, they had discussed the desirability of working towards a regime where controls were "more focused, [and] more surgically addressed to individuals".[257]

197. The Gambling Commission needs to provide greater clarity about what it means by moving away from a blanket stake and prize regime. We are concerned that a move towards allowing individual venues or operators to have stakes and prizes set at a different level to the rest of the market—because the Gambling Commission considers that they are well controlled—could destabilise the regulatory pyramid.

Licensing fees

198. The Commission impacts on the financial health of the industry, through licensing fees as well as the regulatory requirements it places on operators. A leading AGC operator, Praesepe plc, told us that there had been a "12 fold increase in fees for the majority of operators since the introduction of the new Act".[258] Smaller operators, particularly in betting shops and arcades, complained most strongly about the costs imposed on them by the Commission. Nikolas Shaw Limited said that the "annual fees for the commission and local authority is a substantial cost that is difficult to justify",[259] while Ladbrokes told us that the costs to its business per shop had increased under the Act "from around £150 plus a £25 renewal cost, to a potential £1,600 payment to the Gambling Commission, in addition to a £600 annual charge by the Local Authority".[260] Talarius ltd told us that its premises licence costs had risen from £18,700 in 2006 to £224,475 in 2010. It said that it had been further affected by operating and personal licence costs introduced by the Act, which came to £81,125.[261]

199. A specific issue raised by our witnesses was the steep increase in cost when moving from one licence fee band to another. Small independent betting shop operators argued that this system, whereby fees could increase significantly with the addition of one betting shop, put them at a financial disadvantage in relation to the larger operators. Warwick Bartlett of the Association of British Bookmakers (ABB) said that an ABB member with 50 shops paid £17,514 annually but that this fee would increase to £45,426 if he opened one more shop.[262] He also told us that the fee structure meant that, "if you are operating a company say with 2,000 shops, you pay £152 per shop but a company with one shop pays £1,531".[263] This increase in cost is the result of the Commission's banded licence fee structure. Jenny Williams told us that this situation was the consequence of "practical trade-offs" and that an alternative, sliding fee structure would cause practical problems. She also said that an owner of a small chain of betting shops wishing to open one or two new premises was able to "take out a separate licence" to "get across the boundary problem".[264] In its submission to us, DCMS stated that "the Government believes there is scope for reducing regulatory costs and burdens".[265] However, under the Commission's proposed new fee structure, the steep increase in licensing costs at between fee bands would continue.

200. Another issue of concern to betting shop operators has been the dual licensing system whereby both local authorities and the Gambling Commission carry out separate sets of compliance inspections. The ABB points to statistics from the Gambling Commission's licensing authority statistics for April 2010 to March 2011 which show that over that period:

212 licensing authorities made a total of 1649 pre-planned visits to betting shops, which equates to around 1 in every 5 betting shops. 152 licensing authorities did not visit a single betting shop and only 65 visits were made as the result of a complaint. In 87% of percent of cases, including the complaint visits, no return visit was considered necessary and no local authority reviewed or revoked a betting premises licence.[266]

201. The Gambling Commission has shown signs of redoubling its efforts to consult with the industry on fees. The Commission and DCMS jointly conducted a fees consultation in September 2011 which is now closed and awaiting a response. The Commission's proposals are to reflect its efficiency savings in the fee structure by "maintaining the overall fee burden" at 2009 levels (in cash terms) which it said would represent a "significant reduction in real terms".[267]

202. Disagreement between the regulator and the industry it regulates over the appropriate level for licensing fees is unsurprising to the extent that no business welcomes costs imposed upon it. However it is important that the industry has a clear understanding of why it has to pay certain fees and what it is getting in return. It is clear from some of the evidence we have received that this is not always the case. We recommend that the Gambling Commission provide the gambling industry with a clear and easily accessible summary of where the fees it charges are spent as a part of its Annual Report. This would improve the relationship between the Commission and the industry, as well as highlighting areas where value for money is not currently being achieved. This requirement should also help to reduce well intentioned mission creep by the Commission into areas such as sports integrity, which is—and should continue to be—the responsibility of the sports' governing bodies.

203. We remain unconvinced by arguments from the Gambling Commission that changing the licence fee banding system would lead to too much complexity. On the contrary, the current system is too simplistic and in some cases leads to the ridiculous situation where operators face steep fee increases when they open just one new premises. The Commission should introduce a new licence fee structure which gives a much clearer reflection of the amounts charged per shop. Small independent operators should certainly be paying less than they are now. The Commission should also be looking to charge large operators less than they currently are.

204. Particularly given the absence of a significant UK-regulated online sector or any Regional Casinos, the Gambling Commission remains an overly expensive, bureaucratic regulator. We consider that the Commission has not gone far enough, in particular, in its efforts to reduce its operating costs. We recommend that an independent review of Gambling Commission expenditure be carried out as soon as possible after a new system for remote licensing is in place. We consider that it is important for such a review to be carried out externally so that the industry has confidence in its conclusions. The reviewing body should have the power to recommend changes to the Commission with a view to reducing its costs and the regulatory and fees burden imposed on the industry taking into account the Commission's ability to fulfil its licensing objectives.

CHAMPION OR REGULATOR?

205. Much of the industry argued that the Commission should follow the recommendation of the Hampton Review regarding its relationship with operators. The review stated that:

Regulators should recognise that a key element of their activity will be to allow or even encourage, economic progress and only to intervene when there is a clear case for protection.[268]

Industry representatives suggested that the Commission should be more pro-active in its support for them.[269] Witnesses from the bingo sector argued that there should be a "champion of the industry".[270] The GREaT Foundation argued that the Commission should have the role of depoliticising the "process of regulation and deregulation" by reporting to DCMS annually on issues where it judged changes needed to be made (for example amending or removing regulations).[271]

206. Philip Graf, Chair of the Gambling Commission, responded to suggestions that the Commission should "champion" the gambling sector by saying that:

I do not think it is a regulator's job to promote an industry [...] we are not an economic regulator [...] If we were to end up promoting an industry, it would cause real issues for our credibility with wider stakeholders and our ability to be properly objective and to fulfil our duties. I think our job is to provide solid, good regulation, which encourages a responsible industry and ensures a competitive industry.[272]

207. Much of the industry's concern about its relationship to the Commission seems to stem from its disappointment at the final form of the 2005 Act (and the fiscal regime that followed). The Gala Coral Group said that the Act was heralded as "balancing legitimate commercial interests with effective regulation" as well as leading the way in responsible gambling. It pointed to DCMS's response to the Budd review, both of which "saw gambling as a modern leisure pursuit which provides harmless fun for a vast majority of participants".[273] In Gala Coral Group's view, the Act failed—as a result of political "in-fighting" and a "negative press campaign"—to deliver on these aspirations. It also pointed to the fact that DCMS did not mention gambling in its latest Departmental business plan.[274]

208. We concur with the view taken by the 2008 Hampton Review Report that allowing the economic progress of a regulated industry is an important role of any regulator and that the Gambling Commission should only intervene when necessary to protect the consumer. However, the Gambling Commission should not have an explicit duty to encourage economic progress in the gambling industry. Whilst we believe that the Gambling Commission's primary objectives, and its ability to maintain a good relationship with all gambling stakeholders, are best served by it remaining as an impartial regulator, there is no such barrier to the Department for Culture, Media and Sport having a more supportive role towards the industry. Despite the statement, displayed on the website for the Department for Culture, Media and Sport, that it is a sponsor for the gambling industry, it makes no mention of the gambling industry in its Departmental Business Plan of 2011/15. We call on the Government clearly to set out its position on whether the gambling industry constitutes a legitimate mainstream leisure pursuit and whether it intends to be a pro-active sponsor of, or simply to tolerate, the UK gambling industry.

RELATIONSHIPS AND COMMUNICATION

209. Whilst we heard several criticisms of the Commission, much of the industry reported having a broadly positive relationship with the organisation and its staff.[275] Praesepe plc noted that the Commission had "experienced growing pains and a steep learning curve for its staff", whilst Rileys described it as "constructive and able to recognise strengths and weaknesses in the implications and running of the Act".[276]

210. In contrast to many of the positive submissions regarding relationships with the Commission, Leslie MacLeod-Miller argued that BACTA no longer had a "collaborative approach" with the Commission, which he accused of being "unaccountable".[277] A possible explanation for this apparent disparity in operators' experiences of the Commission is that "the smaller operators have less visibility to the Gambling Commission" and therefore have not been able to develop the same strong links as have the larger operators.[278]

211. Evidence from the amusement and arcade sectors, in particular, suggests that the Gambling Commission has not been able to develop strong relationships and lines of communication with some smaller operators.

212. Some of our witnesses complained of the poor standard of the Commission's website. Praescepe plc said that, whilst it was "designed to be industry rather than consumer facing, it is difficult to navigate and has a Search Engine that still does not list results or documents in date order. Even a simple everyday search for sector or category fee rates is a laborious and time consuming process".[279] The Bingo Association observed that the website "also misses the opportunity to advise and support players by providing relevant information or appropriate referral, particularly on online gambling".[280] During this inquiry we have found the Gambling Commission's website, which should be a significant tool for communication, frustrating. This should not be the case with a modern regulator and we recommend that the Commission move quickly to rectify any technical or design issues which prevent its website from being an effective communication tool. Specifically, the Gambling Commission should ensure that the search engine built into its website is functional and that links are maintained.

213. As a part of its enforcement and advisory roles, the Commission collects a large amount of data from the gambling industry. The 2008 Hampton Report made a clear recommendation that the Commission should ensure that "the purpose of data collection is clear and understood by businesses and used when information is not available from existing sources".[281] There appeared, however, to be a lack of understanding amongst some in the industry about the reasoning behind some of this activity. Betfair, for example, told us that it remained unsure as to what use the Commission made of data on "self-exclusion tools and the numbers of under-age people who seek to gain access to an operator's site".[282]

214. The Gambling Commission needs to continue to make improvements in the way it communicates with the businesses it regulates, particularly when conveying the reasons behind its regulatory activity. In particular, it should ensure that the purpose of requests for data are made clear.

215. The Commission appears to enjoy broadly positive relationships on a wider European Union level with other regulators. According to Betfair it was "well-regarded in Europe as an example of how a national regulator can effectively monitor and control a dynamic licensed gambling market".[283] We heard evidence from witnesses from the Jersey and Alderney Gambling Commissions, which had positive relationships with the UK Commission.[284] Andre Wilsenach said that, from his "perspective, it puts a lot of time and effort into relationships with other regulators around the world".[285] Phillip Brear, Commissioner for the Gibraltar Gambling Commission (GGC), however, described cooperation with the UK Commission as "a one-way street", with the GGC offering to cooperate in joint exercises and getting "nothing back".[286]

Local Authorities

216. A consequence of the 2005 Act was that local authorities were given a role in granting gambling premises licences. The industry complained that local authorities have had different interpretations of the Act, and as a result its implementation had been inconsistent. It is vital that good lines of communication exist between the Commission and local authorities for the Act to function properly because of their joint regulatory and licensing roles. Jenny Williams acknowledged that the sharing of responsibilities between the Commission and local authorities was "still an issue" and would be one of its priorities for the coming year.[287] She blamed this situation partly on local authorities not prioritising gambling issues and partly on the dissolution of the Local Government Association's central organising body, with which the Commission had previously worked closely.[288]

217. The London Borough of Haringey raised concerns that shared responsibility—between local councils and the Commission—for checking age verification compliance was "confusing" and it saw little evidence of "significant coordinated activity" between the joint regulators. It argued that local authorities should be given a "clearer and stronger role in the delivery of programmes of under age sales test purchasing" as they had a good track-record of running similar schemes in relation to other industries. Local authorities are responsible for coordinating national enforcement and advice through the Primary Authority scheme which, it said, could be "used to coordinate activity".[289] Ladbrokes informed us that the Better Regulation Executive was "currently consulting as to whether age verification checking should come under the Primary Authority scheme".[290]

218. We welcome the Gambling Commission's moves to improve communication channels between it and local authorities through the creation of a liaison unit. The Commission should provide clear, accessible guidance to operators and local authorities, setting out its regulatory responsibilities and those of the local authorities. This would help to avoid regulatory and enforcement activity falling between the two responsible bodies.

THE FUTURE: MERGING COMMISSIONS AND THE MOVE TO BIRMINGHAM

219. Whilst the Gambling Commission is coming to the end of its 'bedding down' phase, it is still undergoing significant changes. The Commission is due to merge with the National Lotteries Commission (NLC) at some point in 2012, subject to the approval of secondary legislation under the Public Bodies Act 2011. Proposed changes to the regulation and licensing of online gambling could add significantly to the role of the Commission. Jenny Williams stated, in the Commission's latest Annual Report, that the two Commissions were working together to ensure the "achievement of our respective objectives".[291] This statement raises the question of whether the merger will lead to a set of aligned objectives or whether the two bodies will remain essentially separate commissions, simply sharing office-space.

220. Witnesses from sectors currently regulated by the Gambling Commission have been generally supportive of the proposed merger of the two regulators. However, groups representing lotteries other than the National Lottery have raised some concerns. The Lotteries Council said that:

The two Commissions, as currently constituted, have markedly different objects. The GC being a neutral regulator guarding the three principles, with the NLC having a clear brief to protect and promote the National Lottery. We are very concerned that these two sets of objectives cannot be aligned without compromise; an outturn which may adversely affect our members' fundraising interests.[292]

221. The People's Postcode Lottery was more optimistic, saying that the new merged body should regulate charity lotteries and the National Lottery in the same way thus eliminating what it saw as an uneven playing field which gave the National Lottery an unjustified advantage.[293]Camelot Group was concerned that it had "had no clear steer from Government as to how they envisage the new merged body working" and that bringing the National Lottery under the 2005 Act could negatively affect it.[294]

222. The Government and both Commissions should clarify what effect the planned merger of the Gambling Commission and the National Lottery Commission will have on the objectives, regulatory policies and practices of the resulting unified regulator, in particular the newly merged regulator's approach to society and charitable lotteries and the National Lottery.

223. The process of merging both Commissions had already begun in 2006, with the National Lottery regulator moving into the Gambling Commission's offices in Birmingham: a move which the Government expected to "achieve synergies and ultimately some cost-savings", though these would be temporarily offset by transition costs.[295] The relocation from London to Birmingham came as part of wider Government efforts to decentralise and reduce costs following from the Lyons Review.[296] The Bingo Association and Praesepe plc argued that there had "certainly been no evidence of reduced costs for the Commission" following this move.[297] The relocation inevitably led to the loss of most London-based staff (acknowledged by the Commission in its 2005/6 Annual Report[298]) which, they claimed, resulted in a loss of institutional knowledge and experience.[299] While many of our witnesses told us that Commission staff had the knowledge that they needed to perform their duties, others claimed that low staff-retention and the Commission's move to Birmingham had led to ineffective regulation.[300]

224. Jenny Williams described as a "popular myth" the idea that "moving to Birmingham was a disaster". She said that new staff would have been recruited to develop and implement the new regime wherever the Commission was based and it was able to make "large" savings on accommodation. Birmingham was also a good place to "recruit large numbers of people in fairly short order".[301]

225. The move to Birmingham came at a time of transition, with the development of the Commission from the old Gaming Board of Great Britain and the implementation of the new Act. It is therefore difficult to assess the true impact of the relocation in terms of reduced costs. We would expect the merger of the Gambling Commission and the National Lottery Commission in Birmingham to be completed within the next year. This merger should produce significant savings. The Gambling Commission should continue to effect cost-saving measures as a part of its merger with the National Lottery Commission wherever these would not interfere with its statutory objectives.

The Health Lottery

226. The 2005 Act allows for two kinds of licensed lottery: the National Lottery and small-scale society or local authority-run lotteries. The fundamental differences between the two types of lottery are that the National Lottery is more highly regulated whilst the small-scale ("society") lotteries have fixed prize limits. Society lotteries must also operate purely on a not-for-profit basis and must contribute a minimum of 20% of their proceeds to good causes.

227. The Health Lottery, launched in September 2011, is a brand composed of 51 community lotteries promoted by a single external lottery manager (ELM). This is possible under the 2005 Act because a lottery manager's operating licence is held by the ELM while the 51 community interest companies (CICs) hold separate society lottery operating licences, each giving 20.34% of their proceeds to the People's Health Trust (a registered charity) to fund charitable causes in their distinct geographical area.[302]

228. The Health Lottery has been heavily criticised by Camelot, the operator of the National Lottery for, in its view, operating as a national lottery in competition with itself and acting for profit in contravention of its Gambling Commission licence.

229. While the Health Lottery appears to us to accord with neither the spirit nor the intention of Parliament as set out in the National Lottery Act 2006 and the Gambling Act 2005, we cannot comment on its legality or make any other recommendation, in light of the recently announced Judicial Review.

230. The Government should provide clarity one way or the other as to what constitutes a national lottery and what constitutes a local lottery connected to other local lotteries. If the Government decides to allow more than one national lottery then it should ensure fair competition by requiring any new national lottery provider to pay lottery duty and meet the same legal requirements as the existing National Lottery operator.

SOCIETY LOTTERIES

231. The 2005 Act introduced a new licensing regime for lotteries. It created two broad classes of lottery: large society lotteries and lotteries run for the benefit of local authorities (licensed by the Gambling Commission); and small society lotteries, registered with local licensing authorities. The National Lottery is currently regulated separately by the National Lottery Commission.

232. The Act generally relaxed lottery law, in particular it:

i. relaxed the limits on the percentage of proceeds that could be applied to expenses or prizes;

ii. allowed rollovers of the prize fund from one lottery to another; and

iii. allowed for the sale of tickets by an automated process; and removed the maximum price for a lottery ticket.

However, the impact of the Act has been disproportionately to regulate some sectors. The Gambling Commission told us that the Act "arguably imposes burdensome requirements on small lotteries that make it harder for small charitable enterprises to use lotteries to raise funds for 'good causes'".[303]

233. The Hospice Lotteries Association and the Lotteries Council—representing society lotteries—raised two issues in particular. They argued first, that small and society lotteries are impractical under the Act because operators are required to register in advance with the Local Authority and to keep accounts;[304] and secondly, that the current definition of remote gambling under the Act means that lotteries that utilise the internet, telephone, television, radio or other electronic technology are subject to a requirement for a remote licence in addition to their standard licence. The Lotteries Council said that it "questioned the need for concurrent licensing in both non-remote and remote activities, given that the latter imposes a higher standard of compliance than the former".[305] Removing this requirement would mean altering the definition of remote gambling under the 2005 Act. The 2005 Act has created a situation where small society lotteries are required to hold ancillary licences for remote gambling, increasing their operating costs through additional administrative burdens and fees. We recommend the immediate and practical solution of making ancillary remote licences free of charge for small society lotteries. This would not, however, have any effect on the amount of bureaucracy involved in small lotteries making licence applications and renewals. We recommend that the Department for Culture, Media and Sport work with local licensing authorities to review the registration process for small society and charity lotteries with a view to reducing their administrative burdens.

234. Under the 2005 Act, proceeds of society lotteries have been restricted since a 2008 review to £2,000,000 per lottery, £10,000,000 per year and £400,000 per draw.[306] The People's Postcode Lottery (PPL) told us that there was an "extremely uneven playing field between charity lotteries and the UK National Lottery" which is protected under the Act by the limitations placed on charity lotteries.[307] It argued that these restrictions reduced the amount of money that could be raised through small lotteries. Despite the Government raising the limits on proceeds in 2008, the PPL held that the limit should be abolished altogether. The Lotteries Council argued that these "arbitrary" restrictions were the result of DCMS and Ministers wishing to protect the National Lottery from competition. It said that society lotteries did not compete with the National Lottery and that the Gambling Commission was "on record as stating that there is no justification for limits on Society Lotteries and therefore implicitly their removal would not pose any threat to the objects of the Act".[308] The then Minister for Tourism and Sport, Richard Caborn, stated in 2004 that the National Lottery was ring-fenced in order to help good causes.[309] The Lottery Council challenged this argument saying that "typically 55% of proceeds" from society lotteries went to good causes while the figure for the National Lottery was 28%.[310] The National Lottery is however liable for lottery duty at 12%.

235. We recommend that the Government should establish whether there is evidence that the National Lottery would be adversely affected by society lotteries with the right to offer increased or unlimited prizes. If it cannot be demonstrated that the current limits on small lotteries are necessary to protect the National Lottery from competition, then they should be reduced or removed. If the limits on small lotteries are removed then they should be subject to lottery duty on the same basis as the National Lottery.

229 Regulated respectively by the Financial Services Authority and the National Lottery Commission. Back

230 The Commission also has the ability to require additional licence conditions of operators on an individual basis. Back

231 Ev W 32, and 217 Back

232 Ev 261 Back

233 Better Regulation Executive and National Audit Office, Gambling Commission: A Hampton Implementation Review Report, 2007/8, p5 Back

234 DCMS, Regulatory Impact Assessment of the Gambling Act 2005, 2007. Back

235 Ev 237 and 261 Back

236 Ev 237 Back

237 Ibid. Back

238 Gambling Commission: Annual Report and Accounts 2010/11, p29 Back

239 Ev W 36 p37, see also: Gambling Commission: A Hampton Implementation Review Report. For the opposing view see: Ev 217 Back

240 Ev 217, Ev 158, For views on the Commission's value for money see: Ev 152, Ev 227 Back