Select Committee on Constitution Ninth Report


Letter from the Chairman to Lord Davies of Oldham, Government Whips Office

The Committee, which I chair, has scrutinised the National Lottery Bill, which was introduced into this House in your name on 20 January and has been set down for second reading on 6 February. My purpose in writing is to seek clarification, before second reading, of two aspects of the bill.

The first concerns the decision of the Government to establish the Big Lottery Fund in July 2004 before the National Lottery Bill was introduced to the House of Commons. We understand that the Big Lottery Fund, as currently operating, was created by an "administrative merger" between the New Opportunities Fund and the Community Fund. My Committee is however concerned about the manner in which the creation of the Big Lottery Fund was announced to Parliament. The practical creation of a public authority before paving legislation reaches the statute book is not without precedent, but where this is necessary there is a particular obligation on Government to inform Parliament of its actions in a clear and timely way. This is to ensure accountability where there is a departure from the constitutional ideals of parliamentary democracy and the rule of law which dictate that parliamentary debate and legislative authorisation should precede, not follow, the establishment of a public body. We would therefore welcome clarification of (i) the legal basis on which the Big Lottery Fund is currently operating, (ii) when and how the Big Lottery Fund was announced to Parliament, and (iii) the reasons why it was thought necessary to set it up before the coming into force of the legislation intended to give it a statutory footing.

The second area on which we should welcome elucidation concerns the inclusion of the Isle of Man and the Channel Islands in the new scheme for distributing lottery funds (clauses 7 and 12). The bill as originally introduced into the House of Commons referred only to the former, with a Government amendment in Standing Committee A on 25 October 2005 inserting references to the latter. On that day, the Minister for Sport and Tourism (Mr Richard Caborn MP) was unable to provide an explanation of the circumstances surrounding the decision to include the Channel Islands, but undertook to write to the Member who asked about this. The Crown Dependencies are not, of course, part of the United Kingdom and the people of the islands are not represented in the United Kingdom Parliament. It is therefore appropriate for the United Kingdom Parliament to be assured that adequate consultation has taken place between Her Majesty's Government and the insular authorities before legislating in relation to the islands (which currently have their own lotteries separate from the National Lottery). My Committee would therefore welcome an explanation of the circumstances in which the Department for Culture, Media and Sport decided to extend the scheme for distributing National Lottery funds to the islands.

Because it raises matters of constitutional concern, I am sending a copy of this letter to the Lord Chancellor. A copy also goes to the Secretary of State for Culture, Media and Sport.

I should perhaps add that a copy of this letter will be put on our website. Naturally, we shall also post your reply on the site.

30 January 2006

Letter from Lord Davies

Thank you for your letter of 30 January raising points of clarification on the National Lottery Bill before second reading on 6 February.

You raised first a number of points about the establishment of the Big Lottery Fund. It may help if I explain that the Big Lottery Fund is the joint operating name of the National Lottery Charities Board (which made grants under the name of the Community Fund) and the New Opportunities Fund. The Big Lottery Fund was launched on 1 June 2004.

I should make clear that there has been no change in the legal status of either the National Lottery Charities Board or the New Opportunities Fund. Both bodies continue to have a separate statutory existence, with powers and duties as set out in the National Lottery Act 1993 (as amended).

What is referred to as the "administrative merger" of the National Lottery Charities Board and the New Opportunities Fund has been conducted solely at an operational level, within the framework of the existing legislation. We were keen to encourage closer working to exploit the synergies which existed between the two bodies and to begin to realise expected efficiency savings of £6-£12 million a year. Such a merger enables the two bodies to exercise their grant making functions in a co-ordinated way given the overlap between their grant-making powers.

The "merger" has been achieved by a number of measures:

  • The same persons have been appointed to be the chair and members of each of the boards of the two constituent bodies. This required an initial step to align the numbers of the members of each board. This was achieved by increasing the number of the members of the board of the New Opportunities Fund to 16 using the order making powers under paragraph 1(3) of Schedule 6A to the 1993 Act (see SI 2003/2869).
  • The National Lottery Charities Board and the New Opportunities Fund, together with the Millennium Commission, have co-located in a single head office building.
  • A single staffing structure has been introduced for the Big Lottery Fund, including a single person as Chief Executive and Accounting Officer of both constituent bodies.
  • A single corporate identity has been developed, but making clear that the Big Lottery Fund is the joint operating name of the National Lottery Charities Board and the New Opportunities Fund. A statement to this effect is included in the Big Lottery Fund's headed notepaper, and in press releases and other communications and publications.

We believe these arrangements are unobjectionable on legal grounds provided that there are adequate mechanisms in place to maintain transparency in the internal decision making process so that it is possible to differentiate the internal functions carried out by each body, and to ensure that there is no blurring in exercise of functions by the two bodies. We believe these mechanisms are in place. They include:

  • Keeping decision making separate when required so that the board and any of its committees take decisions as one or other of the two constituent bodies which make up the Big Lottery Fund.
  • Decisions are minuted where required as taken by the board "as the board of the New Opportunities Fund or National Lottery Charities Board" as appropriate.
  • For funding programmes which started with the constituent bodies and were or are still operating during the administrative merger period, the decision making remains with that body; where functions are delegated to officers there is a documented decision so that it is clear on which body's behalf the delegated functions are being exercised.
  • The new funding programmes which have been either announced or formally launched are to be implemented under the grant making powers of one or other of the constituent bodies. Where the programme spans the funding powers of both bodies, then a joint scheme has been set up under section 25B of the 1993 Act (as with the Transformational Grants Programme). Funding flows from the appropriate stream of income from the National Lottery Distribution Fund.
  • Separate annual reports and audited accounts are produced for the two constituent bodies.
  • Staff retain employment contracts with either the New Opportunities Fund or the National Lottery Charities Board.
  • Any awards, including their terms and conditions, are in the name of either the New Opportunities Fund or the National Lottery Charities Board. Joint schemes will have their own terms and conditions and will reflect the jointness of the funding.

I hope this answers your questions about the legal basis on which the Big Lottery Fund is currently operating. Given that a new public authority has not been created, and there has been no change in the legal status of either the National Lottery Charities Board or the New Opportunities Fund, the Secretary of State did not consider it necessary to make any specific announcement to Parliament when the Big Lottery Fund was launched. Our intention to create the Fund in the National Lottery Bill had, of course, already been announced.

You also raised questions about whether adequate consultation had taken place between HM Government and the insular authorities before legislating in relation to the Crown Dependencies, and for an explanation of the circumstances in which the Department for Culture, Media and Sport (DCMS) had decided to extend the scheme for distributing National Lottery Funds to the Isle of Man and the Channel Islands.

As you say, some questions were raised at committee stage for the bill in the House of Commons and the Minister for Sport, Richard Caborn MP, wrote to Hugo Swire MP on 26 October responding to those points. Some of what I say here reflects what Mr Caborn told Mr Swire.

I can assure you that extensive consultation has taken place with the insular authorities, and indeed the short answer to your questions about the provisions in the bill is that the impetus for them has all come from the islands themselves. In addition, consultation between DCMS and the insular authorities has all been undertaken in the full knowledge of the Department for Constitutional Affairs (DCA) who of course have the primary relationship between the UK Government and the Crown Dependencies. However it may help if I set out the context in a bit more detail.

National Lottery draws and scratchcards have been available in the Isle of Man for some years (since 1999), that arrangement having been put in place at the request of the Isle of Man. Legislation was passed extending the National Lottery Commission's remit there to regulate Camelot's activities.

Obviously the £1 entry in a draw has to be the same wherever tickets are sold. People on the Isle of Man buy tickets as enthusiastically as everyone in the UK but do not currently have access to good cause funding under existing legislation. However the 12% duty levied on all tickets is returned by HM Revenue and Customs to the Isle of Man Government which distributes a similar sum in grants to local good causes (currently the arts, heritage, sport and the Public Lottery Trust). This has the rough effect of giving Isle of Man good causes 12p in the pound.

At the beginning of 2003 the Isle of Man Government first raised with the UK Government the possibility of the Isle of Man having access also to some National Lottery good cause money, but at that time it was not seen as possible. We cannot, for instance, extend the arts, sport, and heritage good causes to the Isle of Man—or indeed to the Channel Islands—without raising wider issues about the name and status of the distributing bodies like Sport England.

It was then in late 2003-early 2004 that both DCMS and DCA were involved in a round of correspondence with the Isle of Man Government saying that they could see a way forward with their request for good cause money in the context of the setting up of a new funding body. A meeting between DCMS and the Isle of Man Government was then arranged to take that forward.

So it was at the request of the Isle of Man in early 2004 that the UK Government decided to take the opportunity of the new legislation setting up the Big Lottery Fund to give them a remit to fund suitable projects in the Isle of Man. That will have the effect of giving the Isle of Man access to the equivalent of another 14p in the pound for good causes—or 26p in total. That puts them on a footing more similar to England where 28p in the pound is distributed to good causes.

It was then in the first half of 2005—that is, at a time broadly simultaneous with the National Lottery Bill first being introduced in the House of Commons—that the authorities in Jersey and Guernsey wrote to DCA asking the UK Government also to extend the National Lottery to them along with funding for good causes. As you say, the Channel Islands, like the Isle of Man, are outside the UK and so are not covered by National Lottery legislation or the good causes. Residents can currently only buy tickets with a UK address, or through an intermediary or family/friend. Locally run lotteries cannot generate the prizes or interest of a major national one, and so the Channel Islands authorities were interested in getting access to the big National Lottery prizes for their citizens, as well as a fair share of good cause money.

Although, for instance, the Customs relationship between the UK and the Channel Islands is completely different from that with the Isle of Man, the UK Government's consultations led them to believe that a similar arrangement might be achieved for the Channel Islands as had been achieved for the Isle of Man. It seemed fair to respond favourably to their request if it could be achieved since this would probably be the only opportunity to do so in this Parliament. The UK Government therefore decided that they could make relatively minor amendments to the bill to pave the way for that.

Therefore the Channel Island provisions now in the bill do the same in relation to good cause money distribution as they do for the Isle of Man. But on the taxation side, and indeed on regulation of the Lottery, discussion is still at a very early stage. The bill provisions would not be brought into effect before legal arrangements for taxation and regulation, which do not currently exist, were in place in the Channel Islands. Tax and regulation in the Channel Islands are of course matters for the States of Jersey and Guernsey, not for the UK Parliament. But obviously the new arrangements would only work if the authorities there devise something which is the equivalent of the 12p duty in the UK, and if tickets could be sold at the same price as here.

The Channel Island authorities, DCMS and the National Lottery Commission are continuing to work together to establish the appropriate licensing and regulatory framework to allow tickets to be sold in the Channel Islands.

In conclusion then, by enabling the extension of the Lottery to the Isle of Man and the Channel Islands, we are enabling the people on those Islands to join in a much larger lottery. The bill would bring to them larger prizes and larger amounts of Lottery funding and enable the Big Lottery Fund to help address some of the real problems of the communities on those islands.

I do hope that my comments have now helped to clarify matters for your Committee, but of course I stand ready to provide any further detail you might need.

1 February 2006

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