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


Conclusions and recommendations


The situation prior to the 2005 Act

1.  Gambling is now widely accepted in the UK as a legitimate entertainment activity. While we recognise the need to be aware of the harm caused by problem gambling, it seems to us that the rather reluctantly permissive tone of gambling legislation over the last 50 years is now an anomaly. Our general approach in this report has therefore been to support liberalisation of rules and delegation of decisions to those most knowledgeable about their likely impacts, local authorities, while keeping national controls to the minimum commensurate with protection of the vulnerable, in particular children. (Paragraph 5)

Problem gambling

2.  In addition to the industry's voluntary annual contribution of £5 million for Research, Education and Treatment programmes, the Government previously provided funding for the British Gambling Prevalence Surveys. The Government has now withdrawn funding for future British Gambling Prevalence surveys without giving any indication that it has considered other options, either for obtaining funding for similar studies elsewhere or for commissioning other forms of research. We recommend that the Government works with the Gambling Commission to provide a clear indication of how it intends to ensure that sufficient high-quality research on problem gambling is available to policy-makers. It is particularly important that research is seen to be independent and comparable over time to show whether or not there is a change in the levels of problem gambling. (Paragraph 32)

Under-age gambling

3.  We note the wide variation between sectors in the ease with which 'under-age purchasers' have been able to evade the safeguards designed to protect them from gambling. In particular, we are very concerned about the continuing comparatively high failure rate of betting shops (against other kinds of gambling premises), which—thanks to the 2005 Act—are now able to host casino-style roulette machines. We recommend that the Gambling Commission continue to monitor the ability of children to access gambling premises through regular test-purchasing schemes rather than handing the responsibility to monitor and enforce age-restrictions to the gambling industry. The Gambling Commission, working with local authorities, should also take swift enforcement action where an operator fails to introduce sufficient access and age-verification controls. (Paragraph 38)

4.  There has been insufficient data collected to establish whether or not the 2005 Act has been successful in its aim of protecting children from gambling. This highlights a particular need for more research in this area. (Paragraph 39)

Gaming machines

5.  We were told by the Gambling Commission and by DCMS that gambling policy must be evidence-based. It is apparent, however, that the allocation of gaming machines under the 2005 Act is complex and was not made on the basis of solid evidence about the risk of problem gambling. (Paragraph 48)

6.  Casinos are the most highly-regulated sector and they are therefore the most appropriate venue for hard, high-stake forms of gaming. This is not reflected fully in the current allocation of machines. We believe that it is illogical to restrict the games available in highly regulated land-based casinos when B2s, with high stakes and prizes, can be accessed in betting shops. The Government should address the current imbalance by permitting casinos to operate up to twenty B2-type machines with a maximum stake of £100. (Paragraph 53)

7.  We recommend that research be commissioned by the Gambling Commission to assess the potential of types of gambling to contribute to problem gambling levels, in particular whether there is a link between features including speed of play, stake and prize levels, accessibility and numbers of gaming machines, and problem gambling. (Paragraph 57)

8.  The 2005 Act has had the unintended consequence of encouraging the clustering of betting shops in some high streets by removing the demand test and limiting the number of B2 machines permitted in each premises. The clustering of betting shops is a local problem which calls for a local solution. We therefore recommend that local authorities be given the power to allow betting shops to have more than the current limit of four B2 machines per premises if they believe that it will help to deal with the issue of clustering. The limit of four B2 machines under current legislation should be maintained as a minimum limit to create certainty for operators. However, if problems arise with individual betting shop chains or premises in connection with B2 machine use, local authorities should have—as a safeguard—the right to require the removal of any machines over the minimum allowance. (Paragraph 66)

9.  We support the original vision behind the 2001 Gambling Review Report in which bingo halls were to be maintained as social, soft gambling environments. In the case of Adult Gaming Centres we believe that they provide a controlled adult environment and have robust access controls, as demonstrated by their low failure rate in the Gambling Commission's test-purchasing scheme. We therefore recommend that Adult Gaming Centres are permitted B2 machines on the same basis as betting shops. (Paragraph 69)

10.  We recognise the potential pitfalls of amending the Act to meet individual hard cases and also note that it would be unlikely that the Government would be able to find room in its legislative programme for such amendments in the near future. However, it is clear that commercial snooker clubs have suffered disproportionately from the removal of B3 machines and are now struggling to remain profitable. We therefore recommend that commercial snooker clubs be permitted to offer B3 machines. (Paragraph 71)

11.  We consider that the decision to raise the stake limit on B3 machines was made on the basis of little or no evidence. We welcome the Government's position that further changes to machine stakes and prizes should be evidence-based. (Paragraph 73)

12.  It is important that the likely effectiveness of any measures for tackling problem gambling is assessed before such measures are put in place. We recommend that the Department for Culture, Media and Sport seek to learn from the experiences of other jurisdictions, such as Australia, which have implemented measures to combat problem gambling including educational programmes and machine displays showing time spent on them. (Paragraph 74)

Tackling problem gambling

13.  Despite arguments that the 2005 Act changed little in reference to problem gambling, we regard it as an important step forward that, for the first time, the Act gave the Government the power—and the gambling industry the responsibility—to tackle problem gambling. (Paragraph 75)

14.  We have seen that information about problem gambling and sources of help has been made available inside the gambling venues which we have visited. An information campaign, aimed at the relatives of problem gamblers, could lead to more people seeking help because relatives of problem gamblers may not enter gambling venues and see the information provided there. We recommend that the Department for Culture, Media and Sport develop a public information campaign outside of gambling premises to highlight sources of help for problem gamblers and their relatives. The Government should also make an assessment of the ability of existing support and advice centres to deal with any significant resulting rise in demand. If a significant increase is expected then the industry should fund, out of the existing voluntary levy, increased provision of advice and support by these existing centres. (Paragraph 77)

15.  We recognise the significant practical challenges that introducing a national "universal" self-exclusion system would involve, including confidentiality and legal issues. However, the Government should support the development of a system which would allow a customer to self-exclude from all forms of gambling regulated by the Gambling Commission. (Paragraph 81)

16.  The voluntary levy for research, education and treatment has thus far been successful at raising the target of £5 million per annum. An important lever for obtaining funds from the gambling industry is the potential for reputational damage if insufficient monies were raised or if a compulsory levy were deemed necessary. While it is important that the option of enforcing a compulsory research, education and treatment levy be maintained, we recommend that the current voluntary levy is continued. However, should one or more sectors of the gambling industry fall short in their duty to fund research, education and treatment programmes, the Government should implement a compulsory levy on those sectors. (Paragraph 84)

17.  We recommend that, in designing successor arrangements to the tripartite agreement for the funding of research, education and treatment, the Department for Culture, Media and Sport and the Gambling Commission focus on minimising overlap between the responsibilities and activities of the bodies involved as well as ensuring effective communication between them. While the Responsible Gambling Strategy Board continues to advise the Gambling Commission, and through it the Government, we believe that the Department for Culture, Media and Sport should also take a more pro-active role in identifying the research needed for strategic policy development and ensuring that these needs are reflected in the research being carried out. (Paragraph 91)

18.  We support the recommendations of the Responsible Gambling Strategy Board for the principles which should apply to the successor arrangements to the tripartite agreement as laid out in its 2011 Strategy document. In addition, the advice from the Responsible Gambling Strategy Board regarding the amount required for future research, education and treatment, if accepted, must be clearly communicated to the gambling industry. This advice should set out how the money donated by the industry will be spent. We await with interest proposals from the Gambling Commission for a replacement for the now defunct system for funding and commissioning research, education and treatment programmes. (Paragraph 92)

19.  The Gambling Commission should make an assessment of the available gambling education programmes aimed at under 16 year olds—including that which has been developed by GamCare—and make a recommendation on their merits, based on projected cost and level of impact. (Paragraph 96)

The industry, tax and regulation

20.  We recognise that the Bingo sector remains highly taxed in comparison with other sectors despite its status as one of the softest forms of gambling. In principle we believe that bingo should be taxed in line with other forms of gambling at 15%. Moreover, we recommend that the Treasury make an assessment, within the next financial year, of the likelihood that a reduction in bingo duty, to 15%, would result in increased investment in the bingo sector and a rise in net tax take. (Paragraph 104)

21.  We are not convinced by arguments from the Treasury that measures to allow the offsetting of Gross Profits Tax against VAT on capital investment for gambling machines cannot currently be implemented. The Treasury should carry out further work in this area and identify a means by which such offsetting could be achieved. We also recommend that the Treasury make judicious use of industry analysis of the likely impacts of its proposed taxation measures. As it is in the public interest to maximise the tax take from the gambling industry, the Treasury should set tax at a level which allows investment in the industry and does not stifle growth. We recommend that the Treasury also take into account the likely impact on investment by the gambling industry in future tax-rate calculations. We recommend that any changes to machine gaming duty should be revenue neutral as the Economic Secretary to the Treasury assured us that they would be. If the rate of machine gaming duty raises more than a revenue neutral figure, the Chancellor should reduce the new rate to ensure that revenue neutrality is achieved. (Paragraph 109)

22.  The failure of the Department for Culture, Media and Sport to work with the Treasury to set remote gambling taxation at a level at which online operators could remain within the UK and regulated by the Gambling Commission has led to almost every online gambling operator moving offshore whilst most are still able to advertise and operate into the UK. We therefore welcome the announcement, made in the 2012 Budget Statement, that the online industry will be taxed on a point-of-consumption rather than a point-of-supply basis. We also welcome the detailed consultation with the industry since the Budget over the design of the policy framework and look forward to the Government's response. To give certainty to online operators, and their investment plans, we urge the Government to adhere to its timetable for implementation by December, 2014 and to make plans to deal with any challenges to the proposed new system. However, the Treasury still needs to work with industry stakeholders to establish the correct level for online gambling taxation, taking into account the need to encourage companies to accept UK regulation and taxation and to discourage the formation of a grey market. (Paragraph 117)

Regulation and the impact of the Act

23.  We welcome the reinstatement of the Triennial Review system for gambling machine stakes and prizes. These reviews should be designed to maintain the value in real terms of stakes and prizes, as is the case with other industries where prices are controlled by the Government, rather than as a means of increasing industry profitability. A Triennial Review system has the potential to lead to significant calls from all sectors of the industry that they should have their machine allowances and/or stakes and prizes increased on a regular basis. It is important therefore that these reviews are carried out on the basis of evidence, are as open and depoliticised as possible. (Paragraph 124)

24.  We have seen no evidence to suggest that the existing White Listed jurisdictions pose a greater threat of problem gambling than UK or EU-based operators. However, the possible link between online gambling and problem gambling must be addressed alongside any future regulatory and licensing regime for online gambling. Online gaming has been identified as having certain characteristics which may be associated with problem gambling, including high speed of play, frequency of play and ease of availability. We consider that a vital aspect of gambling regulation is controlling the significant, and growing, online sector with its unlimited stakes and prizes, and its potential to cause problem gambling. The Commission's plans for licensing online operators will rely heavily on other regulators which the Commission has very limited means of monitoring. The Commission should aim to improve its links with overseas regulators for the purpose of spreading best-practice in terms of customer protection and problem gambling prevention. (Paragraph 133)

Consumer protection in online gambling

25.  We welcome the assurances we have received from the Department of Culture, Media and Sport that it will take into account the lessons learned from the Full Tilt case, including the conclusions of the Report by Peter Dean to the Alderney Gambling Control Commission published in March 2012. We recommend that the Gambling Commission should consider, as a part of efforts to communicate to online gamblers the potential risks to their funds, introducing a kite-marking system for gambling websites, indicating which sites are regulated in the UK. This could protect consumers by encouraging them to use UK-regulated sites and by incentivising suppliers to choose to be regulated here. (Paragraph 138)

26.  We recognise the concerns of well-managed, existing operators about the potential costs and burdens of legally separating players' funds. In the light of the Full Tilt case, however, the Gambling Commission should consult the industry as to what form of 'ring fencing' or protection of player accounts, by all UK-regulated online gambling operators, would be a proportionate response to the worries arising from this unfortunate episode. (Paragraph 139)

Ensuring adequate regulation of online gambling

27.  The current regulatory framework for online gambling has failed to create a level playing field between operators based in the UK and those based overseas. This is because, whilst companies based in the UK are subject to strict regulation and high taxation, those based overseas can be lightly or unregulated whilst paying little or no tax. This situation could allow unregulated—'grey'—markets to emerge, able to attract UK customers because they can offer better odds as the result of their lower cost bases. It is therefore important that effective enforcement methods are put in place to prevent unlicensed companies from operating into the UK and that the Department for Culture, Media and Sport and other agencies also work to encourage international co-operation and a common approach. (Paragraph 151)

28.  It is vital for the Government to recognise that the success of any new regulatory regime for online gambling will rest on the development and implementation of effective enforcement mechanisms for regulation. The Government's proposals for the regulation of remote gambling remain very unclear particularly with regard to how the Gambling Commission intends either to approve and monitor regulators in other jurisdictions or to directly regulate and licence all the individual companies which operate in the UK. It is not currently clear whether the Gambling Commission intends to carry out licensing checks on all companies that apply to operate in the UK. We recognise that it would be unrealistic for the Commission to inspect directly individual regulators across all other jurisdictions. We recommend that the Commission should approve certain overseas regulators and continue to monitor their performance where they meet its requirements. The Commission should undertake test purchasing exercises to ensure that these national regulators continue to carry out sufficient licensing checks. Such an approach would have the merit of encouraging international co-operation leading, in due course, to a more harmonised, consistent and less bureaucratic regulatory system across the 27 member states. For the sake of confidence and market knowledge, the Gambling Commission should also test whether regulators it has not yet approved carry out sufficient licensing checks. (Paragraph 154)

29.  Even if the Gambling Commission does not directly assess individual operators for their suitability to hold a UK licence, it will therefore have to make an assessment of which regulators it will allow to act as its agents—regulating online gambling sites targeting the UK on its behalf. The Department for Culture, Media and Sport should make clear how the Gambling Commission will assess the effectiveness of other national regulators and what the Commission will require of its agents. Any additional regulatory activities will have resource implications which the Gambling Commission will have to address within its existing budget. (Paragraph 155)

30.  Given that most UK operators have located their online operations offshore, this inquiry has heard concerns regarding the expertise of the Gambling Commission to monitor effectively a much larger number of online licence holders under the proposed changes to the regulatory regime. The Commission will, therefore, need to bolster its capability to do so, from within existing resources, as supplemented by licence income from the online operators it approves. (Paragraph 156)

New Large and Small Casinos

31.  We believe that the stated aim of the Government—to test the impact of the new casinos—would be almost impossible to implement in a timely and cost effective manner due to the impracticality of identifying whether any increase in problem gambling was caused by the new casinos as opposed to the presence of any other forms of gambling including online. The Government should reconsider its plans to test the impact of the new casinos. Given that casinos have some of the most comprehensive measures for tackling problem gambling and in the light of some of our other recommendations we believe that casino operators will already be doing enough to enable the industry to grow safely. (Paragraph 163)

32.  The delays in the licensing process for new Small and Large Casinos are significant and the result of an overly complex and bureaucratic process imposed on local authorities. Insufficient guidance was provided by central Government to the licensing authorities which has led to increased consultation and administrative costs. The Government should review the licensing process for Small and Large Casinos with a view to developing a new simplified and less expensive licensing process. (Paragraph 164)

33.  Both the 1968 and 2005 Act provisions successfully prevented casinos from proliferating or clustering. However, there is no evidence that allowing local authorities to decide independently whether or not they wish to have a casino would lead to a significant increase in the total number of casinos. We believe that the decision as to whether a casino would be of benefit to a local area should be made by local authorities rather than central diktat. We recommend that any local authority be able to make the decision as to whether or not they want a casino. As a step towards this, we recommend that existing 1968 Act Casino licences are made portable, allowing operators to relocate to any local authority provided that they have the consent of that local authority. The portability of these licences would be constrained by the existing 'triple lock' contained in the Gambling Act: the need to obtain local authority approval, a premises licence and planning permission. (Paragraph 165)

34.  The Act has created a situation where the Small Casino model is not considered financially viable. This is partly because a Small Casino must possess a larger floor-area for table play than a Large Casino in order to maximise its machine allowance. We note that not one Small Casino has been developed. It was not Parliament's intention in 2005 to make Small Casinos completely unviable. Given the fact that all casinos are highly regulated and access is limited regardless of the size, we see no rationale for the different gaming machine allowance. As 5:1 is the ratio presently in the legislation, we recommend that the Government introduce a single ratio of five machines to one table for both Small and Large Casinos. Local authorities should have the power to increase the number of machines permitted per table if they wish to do so and an operator requests it. (Paragraph 169)

1968 Act Casinos

35.  There is now a two-track system for casinos, with existing 1968 Act Casinos unable to modernise and take advantage of the allowances granted to new Small and Large Casinos. However, as the development of these new casinos has been so slow following the Act—with only one Large Casino having opened to date and two more having been permitted—there is currently no way of assessing what impact allowing 1968 Act Casinos the same freedoms would have. In principle, we see no logical reason for maintaining different regulatory regimes and believe that 1968 Act Casinos should be given the same freedoms as new ones. (Paragraph 172)

Regional Casinos

36.  The current wariness of casino operators about re-entering the debate on Regional Casinos has partly resulted from the confusion created after the passage of the 2005 Act and the misjudged process for selecting a location. Another factor making the development of Regional Casinos in the UK relatively unattractive is the UK's comparatively high rate of casino duty. We recognise that changing this would be extremely contentious and is unlikely to be considered in the near future. We conclude therefore, that the opportunity to establish one or more Regional Casinos in the UK has passed and, without a change in the political and economic climate, is unlikely to reoccur. (Paragraph 183)

The Gambling Commission

37.  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. (Paragraph 197)

Gambling Commission fees

38.  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. (Paragraph 202)

39.  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. (Paragraph 203)

40.  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. (Paragraph 204)

Role of the Gambling Commission

41.  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. (Paragraph 208)

42.  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. (Paragraph 211)

43.  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. (Paragraph 212)

44.  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. (Paragraph 214)

45.  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. (Paragraph 218)

Merger of Gambling and National Lottery Commissions

46.  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. (Paragraph 222)

47.  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. (Paragraph 225)

Lotteries

48.  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. (Paragraph 229)

49.  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. (Paragraph 230)

50.  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. (Paragraph 233)

51.  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. (Paragraph 235)




 
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Prepared 24 July 2012