UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 905-ii

House of commons

oral EVIDENCE

TAKEN BEFORE THE

Culture, Media and Sport Committee

Pre-legislative scrutiny of the draft Gambling (Licensing and Advertising) Bill

Tuesday 12 February 2013

Jonathan Stephens and Jenny Williams

Evidence heard in Public Questions 159 - 243

USE OF THE TRANSCRIPT

1.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.

2.

Any public use of, or reference to, the contents should make clear that neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.

3.

Members who receive this for the purpose of correcting questions addressed by them to witnesses are asked to send corrections to the Committee Assistant.

4.

Prospective witnesses may receive this in preparation for any written or oral evidence they may in due course give to the Committee.

Oral Evidence

Taken before the Culture, Media and Sport Committee

on Tuesday 12 February 2013

Members present:

Mr John Whittingdale (Chair)

Angie Bray

Philip Davies

Paul Farrelly

Mr John Leech

Steve Rotheram

Jim Sheridan

________________

Examination of Witnesses

Witnesses: Jonathan Stephens, Permanent Secretary, Department for Culture, Media and Sport, and Jenny Williams, Chief Executive, Gambling Commission, gave evidence.

Q159 Chair: Good morning. This is the further session of the Committee’s examination of the draft Gambling (Licensing and Advertising) Bill and I would like to welcome Jenny Williams, the Chief Executive of the Gambling Commission, and Jonathan Stephens, Permanent Secretary of the DCMS.

Philip Davies: Can I start, Mr Chairman, by saying that I do not believe I have any relevant interests to declare but if anybody wishes to crawl over my register and come to a different conclusion I am very happy for them to do so.

Could you start by telling us what specific benefits you think this particular Bill will bring to consumers?

Jonathan Stephens: Well, the basis of the case for this Bill is based on the need for effective regulation in Great Britain that is fit for purpose; that is specific to the needs and culture of GB; that offers strong protection for consumers, particularly for the young and vulnerable; that offers consistent protection for consumers; that is easily understood and easily accessible; that offers a level playing field for operators operating in the GB market; that keeps pace with changes in technology; and one that takes a generally prudent approach to regulation, one that does not take unnecessary risks.

Matched against that, the case for change is that most online gambling undertaken by consumers in Great Britain is not currently regulated by the Gambling Commission, so not currently subject to UK regulation under laws passed by Parliament. There are significant risks of new and emerging jurisdictions taking an unknown approach to the regulation of online gambling. Consumers within GB are subject to a number of different regulatory approaches, which means confusion for the consumers in where to go if problems arise, and it is not easy to update regulation quickly and effectively and in a consistent manner when changes, such as in technology, occur. All of those are the case for change and all of them give benefits to consumers in Great Britain.

Q160 Philip Davies: I have a feeling this is the going to be the closest we ever get to an episode of Yes Minister to be perfectly honest, but we will come on to the reason for that a bit later perhaps. In the explanatory notes it says, "The Gambling Commission has become aware of new and emerging European jurisdictions", which is a phrase that you used as well, "where online gambling sites have begun targeting British consumers and where very little is known about the level of regulation of consumer protection", but it also says that "no specific public protection risks have yet arisen." Which jurisdictions pose this danger? What problems have we identified that we are trying to solve with this Bill?

Jonathan Stephens: I draw attention to the letter that I wrote to the Committee yesterday. Just to clarify that statement to make it clear that it is referring to two issues. One is the issue of new and emerging jurisdictions, particularly in the European economic area where a number of countries are changing their approach to gambling regulation with the potential to have impact on gambling conducted by consumers in Great Britain. While a number of well-established regulators in the EEA are well known to the Gambling Commission, there are new and emerging jurisdictions where their approach is not nearly so well-known and that clearly constitutes a risk that they may take an approach that is not consistent with the standards.

Philip Davies: Which jurisdictions?

Jonathan Stephens: Some of the new and emerging jurisdictions. I am not making any comment on the quality of their regulation, merely that they are emerging as new jurisdictions with regulation of online gambling, such as Bulgaria, such as Latvia and so on. A separate issue but clearly linked is that there is also evidence of operators from overseas targeting the UK consumer using the sort of .co.uk domains and-this is where it comes back to what I said earlier about the Government’s approach being one of prudence and not wanting to take unnecessary risks-there is clearly the potential for operators targeting the UK consumer from jurisdictions with relatively little experience of regulating gambling activity and where the standards and approach may be significantly different to the approach in the UK.

Q161 Philip Davies: How many consumers do you estimate are using unlicensed, unregulated or badly regulated sites or sites that are regulated in a way that you would not approve of? How many British consumers are using those sites?

Jonathan Stephens: If you are essentially asking for an estimate of the size of the unlicensed activity, black market or whatever, we do not have an estimate, unless the Gambling Commission has anything to add. By its nature it is unknown.

Jenny Williams: At the moment it is probably well below 5%, but that is a guess because obviously, by definition, it is not something that one has figures on.

Philip Davies: What is well below 5%? I mean 1% is well below 5%.

Jenny Williams: I am just saying that by definition we do not know, but there is no indication from the web traffic or the monitoring that it is a large problem at the moment.

Q162 Philip Davies: From a regulatory point of view, it is fair to say that this is a solution looking for a problem?

Jonathan Stephens: I think part of the approach to regulation here, as I said at the beginning, is to take a prudent approach in which one anticipates risks and seeks to prevent them from becoming serious problems. The Government thinks there is a risk here and one of the reasons-not the only reason-for taking action is to make sure that risk does not become a problem.

Q163 Philip Davies: Take, for example, companies that are regulated in Gibraltar, which is on the White List. Are you unhappy with the regulatory regime in, just for argument’s sake, Gibraltar?

Jenny Williams: We are not unhappy about it, but we do not know a great deal about it in detail and that is one of the problems. As life moves on there are the risks that emerge. It is not a very transparent regime in terms of getting information. That is not a criticism. It works perfectly well in-

Philip Davies: What is it that you do not know that you would like to know about the regulatory regime in Gibraltar?

Jenny Williams: How it works in practice. When you regulate companies like that you look at their systems, you look at their culture and you look at the way in which they deal with particular incidents. That gives you a sense as to whether they are behaving in a socially responsible way. I have no reason to suppose that the big companies that Gibraltar regulates are not, but I do not know and I do not have the information; so I cannot provide any assurance to the Department or to the Government or Parliament about approximately 80% of the market that has been regulated outside Great Britain.

Q164 Philip Davies: How did Gibraltar get on a White List if you cannot vouch for its regulatory regime? How did it get on a White List in the first place? The reason that it was on the White List was because we could vouch for its regulatory regime.

Jenny Williams: Can I make two points there? It is not on the White List. It is counted as part of Europe. That is just a question of fact. At the time that the 2005 Act was coming in, there was already a well-established market in Gibraltar, Alderney and the Isle of Man. The Government took the view they had broadly the same regulations and approach as we did. There was no reason to suppose there was a particular problem and no reason to disrupt matters. The point is that things are changing. At that stage very few other jurisdictions in Europe allowed online gambling. Although the system had its clunkiness and difficulties, it was perfectly tenable at that stage, but things move on and if I could take a particular example.

The Committee has probably seen a great deal about social gambling. That is where people do not win money prizes but they can either play for free or pay for gambling. We are looking at that at the moment because we have some concerns about whether that is being socially responsible and about whether in fact some of it is not gambling. Now, if we bring in conditions on our licensees about social gambling activities that might only affect 20% of the people operating in Great Britain. We would have to get all the other countries in the European area to change their regulations as well. Some of it would need primary legislation. That is not a very effective system of providing assurance to the Government.

Q165 Philip Davies: There are meetings of EU gambling regulators on a regular basis. Do you raise your concerns about their licensing regimes at those meetings? You did not even bring Gibraltar to the meetings that you had recently about this. Where have you set out in detail the Gambling Commission’s concerns about other regulators’ regimes? Where are they in the minutes of meetings and things like that where you have expressed clearly what your concerns are?

Jenny Williams: Those meetings are about, as it were, the mechanics of regulation and sharing best practice. We do indeed do our best in those meetings to find out about what other people are doing and we do our best in various other forums, like the International Regulators Gambling Working Party that I chair and the European one that one of my staff co-chairs, to find out and to express views and to share good practice. As I say, that is very different from the day-to-day contact and, indeed, the Gibraltar regulator himself would say that there is no substitute for the actual contact with the operators and understanding their systems.

Q166 Mr Leech: I just wanted to clarify a point that Jenny Williams made earlier and that was in relation to the estimate on the proportion of gambling that was from unregulated sites. You made a guestimate at 5%. Is that 5% of transactions or 5% of money being spent?

Jenny Williams: As I said, it is well below and the only reason I say that is because the estimates of the sort of market you would get in the tax debates-which is nothing to do with this, it is about the black market-is about the 5% mark and I was going down from that. I was just trying to triangulate off other information, but in money.

Mr Leech: It is money rather than transactions?

Jenny Williams: Yes.

Q167 Mr Leech: It if is money, what would be the estimate on the proportion of transactions?

Jenny Williams: I am sorry. I don’t have a note on that.

Mr Leech: The reason behind my question is are we more concerned about this market, even though it is a fairly small share of the market by your estimates, because the actual stakes that are put on the unregulated market are significantly higher on average than the stakes being placed on the regulated market?

Jonathan Stephens: Let me pick up. First of all, the concern is not just about the black market, the unregulated market. It is about the inconsistency of regulation across the regulated market. Secondly, what we are saying is that we are seeking to anticipate and mitigate risks in advance of them becoming significant problems.

Jenny Williams: That is absolutely right and I think policy, by definition, is the main problem because it accounts for the vast majority. To pick up the black market, there are two sorts of problems with the black market. If it has some large volume then there are issues about crime and money-laundering and those sorts of issues, but the separate problem that we have, which is independent of its size, is about young people and vulnerable people and them having the proper protections. So it would not matter how much they were spending in that sense.

Q168 Mr Leech: Finally, in terms of the estimates on the amount of black market gambling, have you made any estimate on the proportion of black market gambling that there will be post changes in regulation? Again, the reason for my question is that there is an assumption from some that if you have a tougher regulatory regime there will be a bigger proportion accessing the black market rather than the regulated market.

Jenny Williams: Yes. Clearly there would be that economic incentive if there is more regulatory burden on people in the regulated market, so that must be the case. But our discussions with analysts and with other regulators suggest that in a very open market like us where you can offer most forms of gambling-there are very few restrictions on the type of gambling you can offer-and where you can advertise freely, it is very difficult for black market operators to get much of a foothold. It is not expected that there would be a huge increase.

Q169 Mr Leech: Has there been an assessment carried out to make that judgment or is that just a guess? Is that just an assumption?

Jenny Williams: If I could say it was an informed judgment, but it is based on guesswork and anybody who said anything to the contrary is, I think, exaggerating the position because it is so difficult to predict the exact size. As I say, looking round at the precedents elsewhere and at the nature of our market and talking to the people whose business it is to estimate the impact, such as the analysts, that is the consensus view.

Jonathan Stephens: If I may, the purpose of this is not to introduce, per se, a tougher set of regulation. It is to introduce a more consistent and GB-specific set of regulation and there are jurisdictions that take a much tougher approach and effectively ban remote gambling. As Jenny was saying, we will have a system of regulation that is specific and relevant and appropriate to the nature of the UK market, which is traditionally comparatively open but will, critically, be consistent across all those playing from within Great Britain. A Great Britain consumer of online gambling will be regulated by the Gambling Commission.

Q170 Paul Farrelly: Despite all the arguments that have been put forward by some of the operators and the Remote Gambling Association, the fact is-as they have admitted-that all of their members who are operating in the UK will take a UK gambling licence and it comes down to the issue of tax at the end of the day. Given that they will take a gambling licence, do you consider the emergence of a grey unlicensed market that much of a reality?

Jonathan Stephens: I think we have covered this already. Of course, by the nature of grey and black markets, it is not possible to be precise about estimates now and even less about potential behavioural effects of future changes to either regulation or taxation, and those are two separate issues. The Gambling Commission has had discussions with other jurisdictions that have gone down this route.

Paul Farrelly: That is what I want to come on to in a moment.

Jonathan Stephens: Jenny may want to add on that, where the experience suggests that there is not a significant risk of a large grey or black market emerging.

Q171 Paul Farrelly: Denmark was a country I talked about. What experience do you have?

Jenny Williams: I have talked at length with the Danish regulator and we work quite closely together because a lot of the characteristics of that market are similar to ours. They are as certain as you can be that their black market, after introducing their tax and online gambling arrangements, is well below 5%.

Paul Farrelly: I have heard 90% captured and the tax rate there is 20%.

Jenny Williams: That is absolutely right. I have double-checked recently, obviously, knowing I was coming today and they are absolutely clear about that.

Q172 Paul Farrelly: Are there are other jurisdictions that you would point to, to say, "They are doing or have done something similar to what we are doing and they are a model of good practice and this is what happened in reality"?

Jenny Williams: The other countries are not very good comparators because the circumstances are very different. Either they have a more limited range of options, so if people want to do the thing that is still banned they have to go into the black market, or they have very high, or relatively high, tax rates, well above 20%. Again, there is more of an economic incentive to go into or stay in the black market.

Q173 Paul Farrelly: Spain has been mentioned as a country that is doing things quite well.

Jenny Williams: Their arrangements are relatively new and are quite onerous on the operators in terms of the way they are doing it. There are quite big upfront costs. Again, countries choose to do it in different ways and that may or may not be an incentive to stay in the black market, but that one is relatively new in terms of what they are doing at the moment.

Q174 Paul Farrelly: One of the concerns that has been mentioned in the past is your capacity and ability and having the budgets to fulfil this properly, where you are licensing far more people individually than you are now. Do those issues mean in practice that, if companies are licensed by Gibraltar, your licensing of them would be pretty well automatic?

Jenny Williams: There are two issues there. First of all, all those people currently authorised to operate in Great Britain will, under the transitional arrangements, continue to be able to operate in Great Britain for a transitional period while we check through their licences. As you rightly imply, quite a lot of those companies in Gibraltar we already license for other purposes or they have bits of their business licensed with us. We already know quite a lot about them, but just not a lot about the way they are doing some of their online operations. It would not be automatic, but I think it would be very surprising if those transitional licences were not confirmed and it did not take a huge amount of additional amount of work; added to which I would expect the home regulator to have most of the information that we would need to tick through readily to hand and, therefore, it would not be big deal for them.

Q175 Chair: Just following that up, is it going to be your approach that there are certain regulators who you are completely confident of and, therefore, essentially, if they had issued a licence you will accept that and are there other regulators where you do not have that same degree of confidence?

Jenny Williams: I think we are approaching it slightly the other way round. What we are going to do is focus on the operator and the things that we need to know. If the home operator, if I can call it that, has that information-for example, has the source of funds and has done the sort of due diligence we would do, and has not just stopped when they got to the Virgin Islands or somewhere like that, and has pursued it further and has the records of inquiries about their regulatory history or their criminal records-then we will be perfectly happy. Obviously, over time, we will get to know how those other regulators do the work and it is a question of risk assessment.

Q176 Chair: Do you not know that now? I am surprised, given that we operate a system where you basically accept the rubric of other regulators, that you say you do not have the information of how they operate.

Jenny Williams: Not in terms of how they do their actual work. No, we do not. There is considerable variation in terms of the amount of personal discretion that individual regulators have as opposed to doing the due diligence. That may work perfectly well, but we do not know. Rather than take the sideways route of trying to assess the regulator, we want to look at the homework. Of course regulators change, individuals change, most of these countries have very small regulatory bodies, so we are talking about a handful of individuals. If they can give us the homework, no problem. There are people over the years that we know an awful lot about, for example-a slightly different context-Nevada. The way that Nevada does its licensing-sends people all over the world and looks into everybody in sight-we will just do a quick confirmation with them when we have someone, but we know exactly how they have done it. They are coming through us the whole time asking about operators, but we do not have that sort of oversight of the other regulators.

Jonathan Stephens: If I may, the critical point is that under the current system operators based abroad but offering services into the GB market are not required to have a licence or an approval from the Gambling Commission. When and if issues arise or complaints arise from GB consumers, which they not unreasonably put to the Gambling Commission, your ability to follow them up is exceptionally limited and dependent upon co-operation from others and from other regulators. Whereas the fundamental change here is that everyone operating in the GB market, offering services into the GB market, will require a licence from the Gambling Commission, which will give the Gambling Commission direct access to that company in respect of its online services.

Q177 Chair: Not if the Gambling Commission adopts the approach that if that operator is licensed by an overseas regulator and the overseas regulator is doing a good job. You are just going to accept the overseas regulator.

Jonathan Stephens: The approach required under the legislation is that the operator will need to be licensed by the Gambling Commission.

Chair: Of course it needs to be licensed.

Jonathan Stephens: That is why Jenny is saying that there cannot be an automatic acceptance.

Q178 Chair: The Gambling Commission is not going to go out and look at the practices of every operator. You are going to say, as I understand it, "If you are licensed by an overseas regulator who we have confidence in and think has all the proper safeguards in place, then we will accept that that is sufficient for us to grant a licence".

Jenny Williams: No, what I said was that we would look at the homework. We would look at the material they have and I would expect that in most of those places they would have the material, so it would be a relatively quick business. There is a difference between the application stage-we are talking about applications at that stage-and the ongoing compliance and enforcement. One of the problems we have at the moment is that we do not get any learning or exposure at the moment to about 80% of the market. Under the system we will actively oversee those operators that are operating in our market. Now, some of the operators in places like Gibraltar or Alderney we have quite a lot to do with on their non-remote side. We know something about their company culture. We know something about their systems. We do not at the moment have any ability to pick out a particular case or pursue a particular inquiry, which you learn an awful lot from when you are regulating companies.

Q179 Chair: Just to take an example, Full Tilt and Alderney. Alderney is a White-Listed gambling regulator and there was a failure by them in terms of one of the companies which they are regulating. Does that mean that you look again at your confidence in Alderney as a regulator?

Jenny Williams: As I say, under the proposed system that arrangement would not arise because there would not be the White List anymore.

Chair: No, I know the White List will go, but you presumably will be relying on the Alderney regulator. Let us say Full Tilt operates under the new system. Full Tilt comes to the UK Gambling Commission asking for a licence because it wishes to sell to UK consumers. You go to the regulator under which Full Tilt is operating, which is Alderney. Are you going to accept that Alderney is a well-regulated environment?

Jenny Williams: Under the new system Full Tilt would have to comply with our conditions. As you know, separately we are about to have a consultation on the way in which we protect players’ funds, which is a particular problem in that case. Wherever we land up with that, they will have to obey our conditions and we will make sure, either by doing our own direct compliance or by getting the homework from Alderney, that that is being complied with. It does not require us to separately assess the regulator. We do it directly with the material we get on the actual operator.

Q180 Chair: Essentially, while you are looking for the regulator to supply you with all the information, the Gambling Commission is going to determine in every individual case, every application from an operator, whether or not they are fit to receive a UK licence?

Jenny Williams: Yes, as we did when we licensed the industry in 2005.

Chair: I think we are going to come on to quite what that means in terms of your workload and resourcing shortly.

Q181 Angie Bray: Paddy Power has put forward a number of measures that it has suggested would be crucial to ensuring the effectiveness of a new licensing regime. It talks about the requirement for financial deposits against breaches. It talks about definitive advertising and IP address restrictions that make any breach clear cut and it talks about equipping a regulatory authority with strong enforcement powers, including criminal proceedings. Mr Stephens, I think the suggestion is that we do not see many of those measures being talked about in the Bill, do we?

Jonathan Stephens: No, they are not in this Bill essentially because the provision for those measures, if they are needed, already exists. The 2005 Gambling Act has provisions for criminal offences, which the Gambling Commission can enforce, and, through the application of licence provisions, again set in place in the 2005 Act but extended by this Bill to all operators within the GB market, the Gambling Commission can apply licence requirements to require those sorts of enforcement measures and others.

Angie Bray: You are saying they do not need to be laid out specifically again?

Jonathan Stephens: No.

Angie Bray: There is no way that this new Bill would completely supersede the-

Jonathan Stephens: No. Indeed, it operates by amending the 2005 Act to have the effect of extending the Gambling Commission’s powers to a whole series of operators who are currently outside them.

Q182 Angie Bray: Would you see these as very important?

Jenny Williams: Yes. As I say, this ability to be able to put licence conditions on all people who are operating in Great Britain is the crucial difference that this brings and it enables us to keep the regime up to date with emerging risks.

Q183 Angie Bray: Are they enforceable?

Jenny Williams: Yes. Take it in stages. When you have licensees, the value of the licence, the ability to trade and the ability to be able to advertise in Great Britain is very valuable. Generally speaking, we find that operators may protest, but they do comply. We have the ability to fine. We have the ability to suspend or revoke licences and, as Jonathan said, in extremis we could also prosecute them because breaches of conditions are criminal offences, but we do not get that far normally.

Q184 Angie Bray: We heard an interesting example last week from my colleague here about a pay-out that happened from one based in this country and then the same company, but based abroad, did not pay out.

Jenny Williams: Yes. That was an interesting case in lots of different ways. That was a case where two regulators took rather different views about the case. One can argue about the rights and wrongs, but it shows the difficulty of having a consistent approach to the same set of consumers.

Q185 Angie Bray: Do you think that, with the new Bill in place, this would be a thing of the past and it would not be able to happen again?

Jenny Williams: That would not be able to happen. It would be our judgment in that case, for good or ill. Our judgments can be appealed to the Gambling Appeals Tribunal. No, that particular circumstance could not happen again.

Q186 Angie Bray: How easy is it going to be to demand financial deposits?

Jenny Williams: Perfectly easy. You just put a condition on the licence.

Q187 Angie Bray: Mr Stephens, can I ask you about another aspect of fairness, or not, to do with what I think they call bricks and mortar casinos as opposed to online gambling. As you will know, there has been quite a forceful case made for levelling up a little bit because at the moment I think the sense is that online gambling is going to be increasingly allowed to offer all sorts of advanced exciting games that are going to draw in consumers and meanwhile those bricks and mortar casinos are not able to offer the same. Do you feel that that is something that needs to be addressed?

Jonathan Stephens: This set of provisions is specifically directed just at the issue of remote gambling.

Angie Bray: Nevertheless, if you legitimise more of it, it is going to make it more appealing. You are obviously looking to see an expanded online gambling.

Jonathan Stephens: It is expanding. This is about having a consistent set of regulation for what is a growing and significant market, rather than necessarily expecting this change to force further growth in the market. I think the critical thing is there is a wide variety of places and opportunities in which gambling takes place. The Government’s approach is that each needs specific and appropriate regulation or legislation to its particular circumstances. There are differences between the online and the physical environment. Often in the physical environment a lot of gambling can be anonymous. In the online environment it is easier to run checks on individual players and to monitor such things as age and location and things like that. What is appropriate to the physical environment is not necessarily appropriate to the online environment and vice versa. All of this needs to be kept under review, but just simply because there is a change in regulation in one environment does not mean that there is a case for a change in another environment where the challenges, risks and problems can be-

Q188 Angie Bray: But this is an issue that has been raised for some time now. I think even the former Secretary of State, Tessa Jowell, said in evidence that the Gambling Act needed to be looked at in terms of how it addressed the bricks and mortar aspect. What did she have in mind when she said that, do you know?

Jonathan Stephens: I am sorry. I cannot read into a former Secretary of State’s mind, but from the Government’s point of view it does not have any current proposals or plans to change further legislation. It always keeps it under review. It has consultations on a number of areas at present on points of detail, but it does not have as part of its programme a significant change.

Q189 Angie Bray: You are not looking to level up the playing field? I think some of the written evidence talked about a precipice; not even just a tilted playing ground but a precipice they are facing.

Jonathan Stephens: No, the Government is not looking to make any significant change.

Angie Bray: But you are reviewing-

Jonathan Stephens: It does not believe that the case for that has been made out.

Q190 Angie Bray: But you are reviewing prizes and that seems to be taking a very long time. Is there any reason why it is taking so long?

Jonathan Stephens: We have a specific consultation out at the moment on stakes and prizes, which I think was launched last month and concludes on something like 9 April. It is part of a regular three-yearly look at stakes and prizes. That is part of the regular updating and consultation on existing regulation, but it does not suggest a fundamental change to the regulatory framework.

Q191 Chair: Can I just ask you about a couple of concerns that have been expressed to us. Firstly, the definition contained in the Bill. It talks about facilities for remote gambling "being capable of being used in the UK". Now, some have suggested that that is a rather broad definition that might catch, for instance, people who write software or test software and that a better definition would be more specific, such as something like "provision of facilities for remote gambling by persons present in Great Britain". What is your response to that?

Jonathan Stephens: I think, taking it as read, we are agreed on the purpose or the intent of the provision, which is essentially to change the regulation from point of supply to point of consumption. There are always opportunities to think about different ways of drafting the provision, so we are very open to any suggestions or concerns on that point. I am not convinced that the specific concern about this specific provision catching software that would not otherwise be caught is relevant because the definitions of "provision of facilities for gambling" elsewhere in the 2005 Act are sufficiently tightly drawn to avoid that. But if there are specific concerns then the publication of a draft Bill and then the process in Parliament is exactly to address those sorts of issues.

Q192 Chair: If you have no problem with the alternative suggested then you would be very willing to consider substituting that?

Jonathan Stephens: We will certainly look at alternative wording and drafting. My experience of working with parliamentary draftsmen is that they generally point out ambiguities that one has not anticipated. I think in that specific provision there is already an ambiguity, which I am sure could be sorted relatively quickly, about whether it is the provision of facilities or the gambling that is undertaken by people in the UK. One would have to sort that drafting out. We certainly do not have a closed mind if there is a better way of doing this.

The other thing I would say is one does need, in this area, to make sure that one is not creating opportunities for long legal arguments about, for example, "Well, I did not intend to supply gambling to people in Great Britain. It is purely incidental or accidental that 100,000 people started gambling on my site". One would not want to give too much room for that sort of legal argument to be made.

Q193 Jim Sheridan: Could we move on to match-fixing, perceived or otherwise. Is there anything in this proposed legislation that you think would help reduce the problems of match-fixing?

Jonathan Stephens: Jenny may want to comment on that. In the sense that it provides for a more consistent and effective system of regulation around the GB consumer, then it enables the Gambling Commission better to address issues that are relevant to the GB consumer.

Jenny Williams: Yes. The whole structure of the efforts to combat match-fixing-some of which is related to betting and some of which is not related to betting, it is a cross-over with other aspects of sport-were looked at, as you know, by the Parry Report. There is a structure where you have sports bodies, the gambling regulator and law enforcement in this country facing comparable bodies in other countries and it is that jigsaw arrangement that works, but it does depend on you having the intelligence from the betting operators and that is what our Sports Betting Intelligence Unit does.

The problem that we have is that we have a condition on our operators, the ones that we licence, that they give us information on suspicious or unusual betting transactions, which we feed into discussions with law enforcement and with the sports bodies, and we are not getting that direct information from a very large proportion of the market. We get some information but relatively little and it makes it very hard to play our part in this arrangement, which does seem to having some impact. Certainly we are co-operating with overseas bodies, but we are not getting the information.

This change would mean that the information would come direct from the operators to us to go into the Intelligence Unit and it would also enable us to investigate and follow up particular suspicious transactions or unusual transactions direct with the operators instead of having to ask another regulator and then for them to consider whether they think it is appropriate or not, all of which takes up time and has not been terribly productive to date.

Q194 Jim Sheridan: Can you give us any specific details where you have asked for information on suspicious betting partners, for instance, and that information has not been forthcoming? Are there any specific details?

Jenny Williams: Yes. You will obviously appreciate it is a little difficult commenting on particular cases, but if I speak in general terms we have one open at the moment where our operators drew our attention to some suspect betting on a number of UK sports matches by individuals who have participated in those events; so they are sportsmen. The wider analysis of the odds on those matches identified that overseas operators were likely to have seen similar sort of patterns. We approached another regulator where they told us that one of their operators had taken more than 10 times the normal amount on that particular match, but, when we asked for further details, first of all it took about a month for them to come back and, secondly, that particular operator said they did not see anything unusual. Now, they may be right. I am not saying that they are wrong, but it is this inability to directly get our hands dirty, if you like, really looking into things, that means that we are playing our part somewhat blind. That is one specific example.

I can give you another one where we had reports from a sport’s governing body, in this case, that there was suspect play in a match by a player where they had long-standing concerns about their integrity. One of our operators reported that they had taken an £80,000 online bet from a customer on that match that they had concerns about. There were other suspicious-looking bets in the bookmakers in that area. When we asked the overseas regulator about our concerns and asked them to ask their operators, they dismissed our concerns. They did not see any problem. Again, I am not saying they were wrong. What I am saying is that we cannot get our hands dirty on the data and see it ourselves.

Those are two specific examples and we have already mentioned the Barney Curley case where we had differences of views about what was going on and, in fact, we asked for information in that case and, again, the regulator concerned said that, on the basis of data protection, they did not think we had a right in terms of our criminal inquiries to get that information. That is a judgment they are entitled to make, but it is not the judgment we made.

Q195 Jim Sheridan: If there were either individuals or organisations found guilty of this, what is the practice to either get the money back or suspend payment to people who are involved in it?

Jenny Williams: A lot of this is about deterrent and disruption. What we are trying to do is first of all to make the players or the people involved very nervous about any involvement in match-fixing so that they know that, because we can give the information to the sports bodies, they are very likely to get caught and they will get banned. You saw the snooker case, Higgins’ agent. That was a News of the World sting but the sports body went very quickly and, I think, banned him for life or certainly a big fine. It is that deterrent value of being able to pool this information and show that something is going on. First of all you have a big deterrent from the sport people. We can prosecute. We can void bets if you get the information quickly enough and if you can establish, but in practice it is a pattern and it is a deterrent and you build up.

Q196 Jim Sheridan: Do you have a handle on just how much money or how many bets are placed through legitimate operators as opposed to the black market operators?

Jenny Williams: In the UK?

Jim Sheridan: Yes.

Jenny Williams: There is obviously a huge overseas Far East market.

Q197 Jim Sheridan: Most of the concerns that you have in terms of what happens are on the other side of the world; so it is highly unlikely it will have any effect on that. The rationale behind it-what handle do we have on legitimate operators and the black market? What are we targeting?

Jenny Williams: As I say, it is a jigsaw puzzle of arrangements. We try to keep our sports market very clean. There are strong deterrents against the players or sports officials getting involved. We pool information with law enforcement and Interpol. The Interpol arrangements in the Far East also have quite a strong interest in the grey market. They do not care quite so much on the betting integrity front, but they do care about money-laundering and organised crime. You can pool information in that sense.

Also with your operators, they get a sort of shadow effect of some of the Far East betting. They can see movements in the market that they cannot quite explain. You have to pool all that and pool information from the police, who obviously have information on organised crime. It is everybody working together, but to play our part we need the information. We need the intelligence. My Director of Operations is playing a key role in the European discussions and the Interpol discussions but, as I say, he does not have the texture of information that would enable him to contribute fully.

Q198 Jim Sheridan: Finally, just building on the success of the Olympics, it has been suggested that the online gambling people can police themselves, obviously in co-operation with the Gambling Commission. Is that the case?

Jenny Williams: I do not think it is a question of policing themselves. It comes back again to this pooling of intelligence. Nobody expected there to be a significant problem on the Olympics but it was obviously such a high-profile important event that one could not take any risks. One of the things that was a bonus for the Olympics was it enabled us to pilot with the Olympic Committee, law enforcement and the sports bodies, a thing called the Joint Assessment Unit, which is a way of all the bodies working together, which is now being rolled forward by the European bodies as a model for how you might behave on the big international events. But that does require, again, playing our part in terms of getting the information.

Q199 Paul Farrelly: Clearly, as I have said before, a lot of this is all down to tax. The Government has done a very detailed consultation on the design of the policy framework from the tax point of view, but has yet to announce the results or respond to that consultation. Jonathan, I know it is the Treasury, but do you have any idea of the likely timing of that response?

Jonathan Stephens: The Government has already announced its decision in principle to move to a basis for taxing on the place of consumption. The detailed consultation is currently out. I expect-but I cannot give an undertaking-that the Treasury will reach a conclusion on that soon. As to what "soon" is, I am afraid I cannot be more specific.

Q200 Paul Farrelly: One of the arguments that the Remote Gambling Association members are making is that they should be taxed at a lower rate than 15% because they have lower margins. What work has been done with the Treasury in talking to the industry on the tax front as to whether a lower rate might yield more revenue or whether a lower rate might capture more of the market?

Jonathan Stephens: I am sorry; I am going to have to say that that is a matter for the Treasury. They do have a consultation out that enables people to present evidence relevant to issues like tax take. The only thing I would say, from the point of view of having had some responsibility in the past for tax issues in the Treasury, is that the Treasury is very focused on the tax yield and so will certainly think about such issues as behavioural effects resulting from tax rates.

Q201 Paul Farrelly: Just one final question here. We talked about Denmark and the Danish experience earlier on where there is a higher tax rate than here and, of course, in this industry the barriers to entry now are quite considerable in terms of investment, branding and facilities. Do you buy the argument that the changes that we are considering here are going to make the British online gaming industry less competitive in reality?

Jenny Williams: As Jonathan said, this is for the Treasury and, if I can follow suit, I used to be in the Revenue and they will be looking at that and would not proceed if they thought that was a serious issue, but it is not something that keeps me awake at night worrying.

Q202 Philip Davies: Just on the subject of tax and the genesis of this Bill, could you just explain to the Committee where the genesis was? Was it the brainchild of the Department of Culture, Media and Sport or was the genesis more in the Treasury?

Jonathan Stephens: It goes back quite a long way, to the review in 2009. There was then a subsequent consultation. The basis for this Bill is the concerns about public protection and consistency of regulation that we have set out. In parallel, the Treasury has developed its tax proposals but the two are not dependent on each other.

Q203 Philip Davies: The person who announced this when they came up to speed again was the Chancellor in his Budget statement. It was not the Secretary of State for Culture, Media and Sport. It was the Chancellor. The Chancellor said that the Government was going to introduce a point of consumption system and when he said that in his Budget statement he made no mention of regulation. He made no mention that it was anything to do with regulation. He said that the whole purpose of this was to even up the taxation regime. It was to benefit companies like bet365. If the genesis of this is all about regulation, when the Chancellor announced it in his Budget statement, because he was the one who announced it, why did he not even mention regulation and just talk about tax?

Jonathan Stephens: As I have explained, the genesis is a matter of public record. It goes back a long way from before this Government, back to 2009, and Chancellors, traditionally in Budget speeches, announce lots of things across a wide area of Government.

Q204 Philip Davies: Just because a previous Government looks at it, you cannot claim that that is the genesis of this Government doing it. I am talking about what is the genesis of this Government doing it and it was clearly in the Chancellor’s Budget statement. This is about tax, is it not? It is not about regulation. It is about a good way for the Government to raise revenue. Am I right in thinking that a bit of nervousness has broken out in Government because if it is about tax, which it clearly is-it seems to me perfectly clear it is all about tax-that that is likely to end up with a legal challenge against the Government because that might fall foul of European law; whereas if you can convince people it is about regulation then you will be entitled to do it from a European law point of view. Is that not what it is about? Using regulation is a cover for what the Treasury want to do, which is to raise some revenue?

Jonathan Stephens: You are quite correct that European law provides for national legislation in areas where it is directed at a matter of public protection or social protection, providing it is not discriminatory and providing it is both necessary and proportionate. In the Government’s view, this Bill is all of those things. It is not about taxation. We have just spent a long period of time illustrating some of the issues and problems that arise under the current system of regulation and the risks that that gives rise to in terms of inconsistency of regulation for the consumer, a lack of assurance of protection for young and vulnerable players, and the inability of the GB regulator to get the information and be able to take the enforcement action that it considers necessary and desirable in the interests of players and consumers in this country. That is a set of specific issues that are all about public and social protection.

Q205 Philip Davies: Well, I have to say, you are not doing a particularly good job of persuading me it is all about protection because in the first part of the questions we have basically had no real examples of where there are any real people betting on illegal sites or any problem with that. We have had Jenny scratching around for a couple of examples where people were not giving information about irregular betting patterns, or they were giving it but it was a month later, and we have not had any great example about that. Let us go on to advertising, which seems to be the next big part of the regulatory Bill. What harms are the advertising provisions in the Bill aimed at addressing?

Jonathan Stephens: First of all, to pick up on the first point, of course this is not primarily about illegal activity. It is primarily about introducing consistency, and adequate and appropriate consumer protection for all GB consumers who are participating in online gambling, and it is about anticipating risks that may arise as the market grows and new and emerging jurisdictions emerge. It is sensible and consistent with a prudent approach to regulation to take action to anticipate and mitigate those risks before they have necessarily resulted in large problems.

As regards the advertising, the advertising provisions are essentially about enforcement around the new regulatory regime. They are not about changing the content of what can be advertised or what is appropriate in terms of advertising.

Q206 Philip Davies: Jenny, how big a problem is illegal advertising at the moment in this country of non-White List gambling sites? How big an issue is it?

Jenny Williams: There is a small ongoing trickle of sites. As I said, when you have an open market that lots of people can advertise in you do not tend to get as much of a black market, but there is an ongoing trickle. We have had about 13 or 14 where we have taken steps to get the website taken down. Obviously if they are very trivial, it depends whether they come to our attention or not.

Q207 Philip Davies: There are about two a year, are there not, in terms of what you have said?

Jenny Williams: There are two where we took steps to take the website down. There are probably a great deal more, but largely below the radar and having almost zero impact.

Can I just come back to the point where you said I was scratching around for examples? I was asked to give some specific examples, which I did. But, in terms of the flow of information, we get one or two reports a month from our licensees, which are in fact 20% of the market or less than that. From the rest of the market, the ones licensed overseas, we have had about 10 since 2007. It seems implausible that those regulating 80% of the market should not have given us a great deal more suspicious transactions. I just wanted to note that.

Q208 Philip Davies: I understand that. I am not an expert on all sports, but I do know quite a bit about horse racing. I would say that the company that has done most to expose corruption in horse racing in terms of unusual betting patterns and giving a trace as to who has been placing bets is Betfair.

Jenny Williams: Absolutely, yes.

Philip Davies: Would you agree with that?

Jenny Williams: I would, and they go on and give us the information.

Q209 Philip Davies: Where are Betfair licensed?

Jenny Williams: They are licensed now. They have moved to Gibraltar.

Philip Davies: Exactly. So there is not a problem, is there? The fact that they are not licensed in the UK is not a problem, is it? They are the company that has done most to expose all of this and they are licensed in Gibraltar; so what is the problem here?

Jenny Williams: The problem is the rest of the market.

Q210 Philip Davies: If you could just tell us which companies have refused to give you information? You have just said Betfair continue to give you the information. There is nothing to stop people that are licensed abroad from giving you the information. I am quite happy to approach some of these. Let us have a bit of a naming and shaming episode. Which firms are refusing to give you the information that you need?

Jenny Williams: Since I mentioned that we have only had 10 references under 15(1) since 2008, you can say that virtually all of them are not giving it. Now, we do not know what they have that they are not giving us by definition.

Philip Davies: Which ones have you approached and said, "Will you give us the information", and they have said, "No"?

Jenny Williams: They have not provided it.

Philip Davies: Betfair provide it.

Jenny Williams: Yes.

Philip Davies: They are in Gibraltar. Which ones have you approached and asked?

Jenny Williams: I am sorry, we do not-

Philip Davies: You have not.

Jenny Williams: Asked is a general thing. The asking-

Philip Davies: You have not asked.

Jenny Williams: I am sorry, that is not the case. In discussions of course we do. The RGA wrote to us in 2009 pointing out that we should not be asking for this information because they thought we ought to be doing it via the regulator.

Philip Davies: But you could ask the companies concerned.

Jenny Williams: I am sorry-

Philip Davies: Well, you could if it was such a big issue. If I was a regulator and I thought this was a big issue and I was determined to get to the bottom of it and if somebody was stopping me from getting the information I would say to the companies concerned, "Can you give me the information?"

Jenny Williams: We have had endless meetings. If you ask me for a specific formal request for a bit of information, there have been particular cases they have declined.

Philip Davies: Who? Who has declined? We want to know who they are.

Jenny Williams: I am sorry that is not something I think is right for me to give-you can work out by a process of elimination but it’s not right for a regulator to discuss particular cases or particular investigations.

Jonathan Stephens: If I may, the fundamental point here is that all of that is dependent upon a fundamentally voluntary approach. It is very good that Betfair do voluntarily co-operate but the Gambling Commission has no powers of enforcement with those who choose not to, who can say that they are co-operating with their home regulator and don’t wish to duplicate. Even where a company produces the information, and again the Gambling Commission has no powers of enforcement if, in the course of that, concerns arise, and that is the problem that this Bill is designed to remedy.

Q211 Philip Davies: You see none of this rings true. No specific public protection risks have yet arisen. In the first bit we have two advertising a year where there are cases of illegal advertising. The biggest operator has given you all the information you need about match fixing. It all points that this is a Treasury-driven piece of legislation. Could you give us a copy of the correspondence that there has been between the Treasury and the Department of Culture, Media and Sport over the introduction of this particular Bill?

Jonathan Stephens: It is always possible to make a Freedom of Information Act request on all those things.

Philip Davies: To save me the trouble, could you give us a-

Jonathan Stephens: May I just pick up on one thing because you are addressing this issue of illegal advertising. The Bill is not primarily seeking to address the problem of illegal advertising. It is, first of all, using advertising as an enforcement. Secondly, the problem, as in elsewhere, is about consistency and clarity of approach. At present it is not possible. It is very difficult to establish because adverts for overseas operated and licensed sites are legal in the UK. It is very difficult at times to establish if it is an illegal advertisement or not, and that is one of the illustrations that the average consumer, and indeed the regulator, has a problem with the current system, which will be significantly eased with a clear and consistent set of GB regulation for the GB market in that any operator that has a Gambling Commission licence will have that stamped on their advertisement. That will be a legal advert. All other adverts will not be legal and that will be clear and consistent and moreover the Gambling Commission and others will be able to educate the consumer that that is what they need to look for.

Q212 Philip Davies: When we have had examples of football clubs from one country with a gambling organisation advertised on their shirt, playing in another country that does not recognise that particular gambling operator, they have to take the logos off the shirts for the football match. Is that going to start happening in this country?

Jenny Williams: It has already happened in the sense that there was Cardiff football club that was about to be sponsored by, I think, a Chinese betting company and we pointed out that this would be illegal advertising and they took the strip off. I think it also happened with Sunderland where, I think it is right again, they were about to put on some strip that would have been illegal advertising when it was pointed out to them that they could not use sponsorship in this way. What happened was they got themselves licensed in the Isle of Man and therefore they could do it, so it is a powerful incentive to get people sponsored and regulated by a legitimate regulated company. I think it is a powerful tool. Football advertising is very effective in that sense.

Can I just add that we, as the Gambling Commission, have been pressing the Department for these changes since before the election for the reasons that we were saying. The problems we were having included dealing with consumers who ring us up and cannot understand why we can’t help them or advise them and we have to pass them on to the other regulator because we are increasingly aware of our lack of information about what is happening on the online market, because we don’t have that day-to-day contact and we don’t have the ability to make changes. We have been pressing and, whatever the Treasury do, we have advised strongly that this would be advantageous for consumer protection.

Q213 Jim Sheridan: Can I just mention a small point that sessions like this are designed to ask people like you, the experts in the industry, what their views are. Just following up what Philip has been saying, are you saying that the Gambling Commission or the regulators should have the powers to access the information from people who operate in this country?

Jenny Williams: Yes. That’s right.

Jim Sheridan: Should you have the powers to get that information?

Jenny Williams: That would come with this Bill, yes.

Jim Sheridan: That is what you would be happy with then?

Jenny Williams: Yes.

Q214 Mr Leech: In answer to one of my colleagues you reminded the Committee that the 2005 Act gave some additional powers in terms of potential criminal proceedings and other restrictions, financial deposits. Why is it that a wide range of people who have given evidence are concerned that the proposed enforcement regime will be too light-touch? If all these other options are available through the existing legislation, why is it that people are telling us that enforcement will be too light-touch?

Jonathan Stephens: We do not believe enforcement will be light-touch. I can’t really answer for other organisations.

Mr Leech: Why do you think that they might believe that it is too light-touch?

Jonathan Stephens: Again I can’t anticipate that. The purpose of this Bill is, from the point of view of the GB consumer, to enable more consistent and therefore more effective regulation and protection of their interests. The Gambling Commission has a range of very effective powers. First of all, based in the licence conditions that they can require all those issues that have been raised, as a result of writing the requirement in, and then beyond that they have the powers to deny or rescind a licence to an operator and ultimately the powers of taking criminal prosecutions. These have significant impact on operators, not least because they get picked up by other regulators across the world and may have implications for their operations in other jurisdictions.

Q215 Mr Leech: Since those rules and opportunities to enforce were introduced after the 2005 Act, how often have they been used?

Jenny Williams: As I was explaining, with the market that we have at the moment with our licensees we tend not to need to get to the formal enforcement. Generally they either comply or shut up shop and go somewhere else at the moment, so we haven’t had to get to that stage.

Q216 Mr Leech: Are you able to give me any figures at all on the number of times that you have had to go down the route of criminal proceedings or use financial deposits?

Jenny Williams: We have not needed to do either although we have a couple of current things that might end up in that position, a criminal prosecution. I don’t know at the moment. We haven’t needed to so far.

Q217 Mr Leech: Is it possible then that the reason why people are raising concerns that it is going to be too light-touch is that you simply do not use the tools that are already available to you at the moment, and that the assumption is that you will not use them in the future?

Jenny Williams: Obviously I cannot speculate as to why. The context where I have seen people arguing about this is pointing to other jurisdictions and the size of the black market, and those that we discussed earlier on, as to why they have such large black markets and why we don’t think that would apply in the same way here.

Q218 Mr Leech: So post the change in regulation for those companies that currently fail to comply and just move elsewhere, you will then be able to use these existing powers you have under the 2005 Act legislation?

Jenny Williams: We have not needed to do it much but to the extent we have used powers, for example, they are powers to require communications, intelligence, data. That is all improving and streamlining our ability to use those powers so, yes, I am confident.

Q219 Mr Leech: From the Gambling Commission’s perspective are there any other things that would be useful for you that are not currently being proposed within the proposed legislation that would make it easier for you to do your job and regulate well?

Jenny Williams: The thing we would like is an ability to fine. At the moment we can only fine when people breach a licence condition. We can’t fine if people just breach the basic law. So, for example, if you allow somebody, an underage person, to gamble online we cannot fine for that. We can remove the licence. It is a quirk of the legislation. We can get around it by rather convoluted licence conditions to some extent, but that is a primary legislation point.

Q220 Mr Leech: Mr Stephens, I assume that the Department is aware of your wish list. Why is that not being taken on as part of this proposed legislation?

Jonathan Stephens: This proposed legislation is clearly focused on issues of online gambling and that significant change. We will always discuss and listen to the Gambling Commission’s views on other areas of change in the legislation of course. The opportunity to change legislation is quite limited.

Q221 Mr Leech: Are there any issues that are being discussed between the Department and the Gambling Commission that have been ruled out for whatever reason within this new legislation?

Jenny Williams: As I say, we can manage-it is a bit clunky, but we can manage. You have just asked about a wish list-

Q222 Mr Leech: Yes, but this is part of pre-legislative scrutiny. If we can get to the situation where we can improve the legislation by trying to get the Department to take on the concerns and the helpful suggestions from the Gambling Commission, we are doing our job properly.

Jonathan Stephens: Absolutely, and there is nothing whatsoever to prevent an amendment being put down during passage. We certainly don’t have a closed mind to this at all. We have deliberately sought to keep this legislation short and targeted on the specific issue of changing the basis for regulation for online gambling.

Q223 Mr Leech: Does the Gambling Commission have any concerns that the legislation will make it still too easy for organisations to get around the new rules?

Jenny Williams: No. We have been pushing for this legislation because we think it will make our job both much easier to do and much more effective.

Q224 Mr Leech: How about the costs involved for the Gambling Commission? Is it going to be an additional administrative burden? Will you require additional resources to make sure that you are able to enforce the new regime?

Jenny Williams: There is a fair bit of guesswork involved, but we reckon-on the numbers that are likely to apply-we will probably get between £1 million and £2 million extra fee income if nothing else changes. Obviously fees are reviewed, in principle, every year so they could change, but on the current fee rates. For that, we could get 15 or so staff or use external firms. You can use paralegals if you would want to look at the prosecution route. So there is quite a lot of flexibility and we already have quite a good base because of the work we do in regulating the non-remote.

Q225 Mr Leech: You must have made an assessment on the potential impacts, the financial impact on the Gambling Commission. Will any additional revenue that you get in pay for any additional work that is required?

Jenny Williams: We think so. As I say, our estimates suggest that that will be enough, but as we get closer we can refine those estimates and get a clearer idea. We know who the existing people are who can trade in the UK and we can do some sums on that. Part of the difficulty is knowing how many others who are not currently trading or trading legitimately will apply.

We have quite a lot of experience of the licensing and so we have a pretty good estimate of that so we can ramp that up quite quickly. We did that when we licensed the whole industry in 2005. The ongoing compliance is two or three years away so, again, we will get a better estimate but our current thinking is that the current fee levels and the fee income will be enough to cover the costs.

Q226 Chair: Obviously one of the big concerns is that with the potential additional cost of regulation unregulated sites may become more attractive. You do not have the powers to block websites. Do you think you should have or are you going to look at whether or not you can block websites?

Jonathan Stephens: Jenny may want to comment as well. This is something that, again, we keep under review. We think that the current powers and incentives around encouraging firms to apply to be licensed and all of that, particularly the incentives about advertising, are effective and provide a strong incentive. This is an industry that operates on a significant amount of advertising, that needs that advertising to generate custom, and it is relatively easy to block illegal advertising through access to sellers of advertising. That, as an enforcement mechanism, has proved to be quite effective in the past and we think will prove to be effective in the future. Clearly if it does not and there is growing evidence of a growing black market problem, we will want to keep under review all means of active enforcement. None of these things tend to be silver bullets. There are problems with ISP blocking as well, but we have not closed our mind to it.

Q227 Chair: It would be fair to say that the DCMS’s success so far in trying to obtain website blocking has not been enormous, has it?

Jonathan Stephens: If you are referring to outside, copyright, things like that-

Chair: I am referring to the Digital Economy Act and you know that the ISPs are going to fight you every inch of the way if you try and block websites.

Jonathan Stephens: That illustrates some of the issues around that and, in this case, experience and the evidence shows that advertising as a means of enforcement and protection around the licensing regime has proved very effective in the past and is likely to do so in the future. If for some reason it doesn’t or there are problems, we will look at alternatives again.

Q228 Chair: The other way you can, which may also have lessons from your experience in trying to tackle online piracy, is to try to prevent consumers being able to find illegal sites by getting the co-operation of the search engines. Is that something that you are exploring?

Jonathan Stephens: I don’t know if we are specifically exploring that in this case.

Jenny Williams: We have already talked to Google, Facebook, those sorts of people, and they co-operate with us in that they do not want to carry the illegal content, so they co-operate with us in a general sense.

Q229 Chair: If you say to Google, "This is an unregulated online gambling site, will you remove it from your search results?" do Google say yes?

Jenny Williams: There is a difference with the paid type, which they then move up the lists where people are paying. My understanding, and I have to double check this, is that they have been co-operative with us on that and so have Facebook. We talk about ISP blocking in a fairly loose sense, but we do have powers on a one-by-one basis to go to the ISP, make it clear that the advertising is illegal, and in those circumstances to date they have always been prepared to take it down. You obviously can’t replicate that on a very large scale, but that has been pretty successful so far.

Chair: When you say the ISP will take down advertising, what do you mean?

Jenny Williams: It will take down the website of the-

Chair: The search engine.

Jenny Williams: Yes. Sorry, not the search engine: we are talking about the actual websites.

Chair: I think it is talking to the search engine to take down the search reference.

Jenny Williams: The pure search, the Google algorithms-

Chair: You are talking about paid-for search results.

Jenny Williams: Yes.

Chair: The top banner in the right-hand column.

Jenny Williams: That is right, which is the important one, not the pure, untouched by human hand type. It is where there is a financial interest, we can.

Chair: You have achieved more than the copyright owners have because they have not managed to persuade Google to remove the illegal sites from that. You have found Google are willing to do that.

Jenny Williams: So I understand, but for the paid for, where there is financial involvement.

Q230 Jim Sheridan: One of the criticisms of this Committee and the proposed legislation from certain quarters is that we are making gambling far more sexy and attractive to young vulnerable people in particular. Would you accept that criticism?

Jonathan Stephens: The legislation does not change the content of the advertising codes, what would be allowed or anything like that, so it makes no change to that. There are specific provisions in the code about avoiding forms of advertising that are particularly attractive to young people or that will have particularly positive associations for young people. The various advertising authorities take action against advertisements that infringe those codes.

Q231 Jim Sheridan: Are you content that this proposed legislation, once it has concluded its course, will not in any way increase problem gambling?

Jonathan Stephens: No, I clearly cannot say that because problem gambling is something that we are concerned to monitor and watch carefully. The latest prevalence study suggests that it is relatively low in the UK, certainly lower than in some other jurisdictions and countries, and does not suggest that there has been a significant increase. It is something we are concerned about and watch. There is no reason to think that this legislation will contribute to an increase in problem gambling because in terms of making regulation more effective and more consistent and easier for consumers to address specific problems that will arise, it provides for a more effective system of regulation but I clearly cannot give any guarantees about what will happen to problem gambling in the future.

Q232 Philip Davies: Jenny, I think I am right in saying, you said you thought that the current fee levels would give you an extra £1 million to £2 million in income if this was to come in just in terms of these companies paying fees to you. I think I am right in saying that, but I could be wrong so feel free to correct me, but you would be able to employ another 15 people with that. Did I hear that right?

Jenny Williams: Yes.

Philip Davies: Say somewhere in the middle of that, £1.5 million-£1 million to £2 million-which is 15 people earning £100,000 each by my quick calculation. Is that the rate of pay for your people at the Gambling Commission?

Jenny Williams: No. We had to spend money on things other than the people. Getting information, getting lawyers, lawyers come quite expensive quite often, so this was in terms of extra staff.

Philip Davies: The average would be £100,000 each, would it? Is that what you are saying? I know the lawyers are a bit more expensive and the other folk are a bit less expensive. On average £100,000, is it?

Jenny Williams: The money you get in doesn’t go just on staff.

Philip Davies: So what else? You have obviously done some good calculations here. I can see why it was attractive to the Gambling Commission, this is good old-fashioned empire building, this is. It is great stuff, is it not, for the Gambling Commission? More money, more staff. This is what all bureaucracies end up doing, is it not?

Jenny Williams: We think we are doing this for consumer protection and the worry, I thought, was that we would not have enough resource, not that we were empire building.

Philip Davies: I am sure that is your worry that you will not have enough resource. That is the worry of all bureaucracies.

Jenny Williams: I am sorry. The point put to me by other members of the Committee was whether we would have enough resource to do this.

Q233 Philip Davies: Will you give a pledge that you will be able to meet all of the additional requirements from your existing budget, including the new fees that will come in, charging the same fees, that we are not going to see on the back of this a hike in fees for operators in order to pay for your empire building?

Jenny Williams: I would hope, but it is a hope, an aspiration, by getting 80% of the market to start contributing to our regulatory costs that in time we could bring down the costs for the current operators, but it depends a lot on how the market develops, what the risks are, whether there are additional challenges. If things carry on as they are, I would hope that getting that contribution towards overheads and so on and the economies of scale will enable us to bring down fees.

Q234 Philip Davies: That is only a hope. When you were answering a question from the Chairman earlier you seemed to be reluctant to say that you would accept the view of other regulators. That if a regulator somewhere else thought they were good enough, you seemed to be reluctant to accept that you would, therefore, just accept that if you are happy with the regulator you would automatically give them a licence. If you are going to have to start going out and looking into individual companies-every single one of them that applies for a UK licence on this basis-that is going to be huge, is it not? That is going to be massive, there will be a massive amount of work to do then. It is great, is it not?

Jenny Williams: I don’t think that the application stage is such a huge thing. We have been here before. We have done it before when we were licensing the non-remote industry under the 2005 Act. If those companies have all the information available from their home regulator it will be a very quick, easy exercise. Many of those, including the bigger ones, we already license them for their non-remote business so we have most of the information that we need. I think you can overestimate the difficulty of the application stage.

Q235 Philip Davies: Mr Stephens, does the Department not worry about empire building from the Gambling Commission? Has it not got half an eye on thinking, "Hold on a minute, we need to be aware of potential empire building here"?

Jonathan Stephens: We look at the costs of our own Department and of our bodies very carefully. We look at the burdens imposed on companies very carefully. There has been a very careful assessment as part of the Government’s consideration of this, of the impact on business in all of this. Not many empires have been built on 15 staff.

Q236 Philip Davies: No, but that is just the start, is it not? It has not been a consideration, nobody at DCMS has uttered the words, "We need to be aware of empire building at the Gambling Commission"?

Jonathan Stephens: Not in my hearing, I have to say.

Q237 Philip Davies: I just want to come back to what the Chancellor said in his Budget statement, Mr Stephens, because I have it here in front of me.

Jonathan Stephens: Right.

Philip Davies: He said this, "One area where I am today making substantial changes is gambling duties. The current duty regime for remote gambling introduced by the last Government was levied on a place of supply basis. This allowed overseas operators largely to avoid it and much of the industry has, as a result, moved offshore. 90% of online gambling consumed by our citizens is now supplied from outside the UK and the remaining UK operations are under pressure to leave. This is clearly not fair and not a sensible way to support jobs in Britain, so we intend to introduce a tax regime based on the place of consumption where the customer is based, not the company, and from this April we will also introduce double taxation relief for remote gambling. These changes will create a more level playing field and protect jobs here." Not a mention of regulation, was there, in all that?

Jonathan Stephens: No, because it was about taxation.

Philip Davies: Exactly, my thoughts entirely.

Jonathan Stephens: If I may, that entire announcement was about the tax changes, it was not about the regulatory changes that were announced separately around about the same time.

Philip Davies: He was making it quite clear what the purpose of introducing this was.

Jonathan Stephens: He was making it clear that the purpose of introducing a change to the taxation basis was about taxation. No-one has ever denied that. There are two things going on here. The Treasury has announced a change to taxation-all the Chancellor’s arguments there. The Government has also announced a change to the basis of regulation for all the reasons that we have been articulating and setting out.

Philip Davies: The two are not linked?

Jonathan Stephens: The two are clearly in parallel but neither is dependent on the other and they each stand on their own merits. I think we have sought to demonstrate the particular concerns around social protection and public protection, consistency of regulation, which provide a good case for this Bill.

Q238 Philip Davies: The precursor Bill was the Private Member’s Bill, the Offshore Gambling Bill that was introduced by Matthew Hancock, who is renowned for not only being an excellent Minister but also a very close ally of the Chancellor. Anyway, you may believe in coincidences, Mr Stephens, I am not sure I do.

Jonathan Stephens: I could not possibly comment.

Q239 Paul Farrelly: The Government has set out a timetable, December 2014, to have all this through and in place, which gives certainty to people who welcome it in terms of their own business plans. One of the main question marks is the possibility of a European challenge on whatever motive. Could you tell us, very succinctly, why you consider this Bill to be compatible with the European Commission’s approach on gambling laws?

Jonathan Stephens: This is an area of shared competence, so it is appropriate and possible for there to be national legislation in this area. National laws are basically okay, providing that there is a clear reason of social policy, public protection, which includes, from previous judgments by the European Court of Justice, such matters as the prevention of criminality, the protection of young and vulnerable people and the protection of people who have problem gambling specifically. One always has to make sure that the legislation is necessary and proportionate and we believe that this is proportionate to all of that. On that basis there is no reason to prevent national legislation.

Q240 Paul Farrelly: Given that companies under these changes will pay tax where they are not really paying tax now, there is a financial incentive for them to make a challenge, if only to delay the implementation because that means they will be getting away without paying tax for longer. It seemed quite clear from the Remote Gambling Association evidence that they expect a challenge to come from the Gibraltar Trade Association. How would you view a last minute vexatious challenge?

Jonathan Stephens: We clearly resist it. As such the Government would be defending the sovereignty of Parliament that would have passed primary legislation in an area of national competence. Always subject to legal advice, I do not think in practice such a challenge would be able to prevent implementation.

Q241 Paul Farrelly: Is there a fair amount of confidence, notwithstanding that possibility of a vexatious challenge, that December 2014 will be still okay?

Jonathan Stephens: Yes.

Q242 Chair: When we were taking evidence from the Remote Gambling Association, I suggested to them that the behaviour of online gambling companies in making a lot of money out of UK consumers, but nevertheless basing themselves overseas where they did not have to pay UK taxes, is not dissimilar to what the criticism is of Starbucks and Amazon and these other big companies that do not pay UK tax. Many people would say that for the Chancellor, as Philip Davies has quoted, to say this is unfair and they should jolly well be paying UK tax and we are going to change the rules so they are going to pay UK tax is a perfectly sensible thing to say. Is it your understanding that if that were the motivation that would be a breach of the European law?

Jonathan Stephens: There is a clear basis for the Chancellor’s decision to change the basis of taxation. The point I am making is that this legislation is about regulation and where regulation is based, and that is an independent decision not dependent on the decision on taxation.

Q243 Chair: Let us hypothetically say that there was no problem with the current system of regulation, the problem is tax and, understandably, the British Government thinks they should be paying tax. If that were the position, and I am not saying it is, you are saying there is a problem with regulation, but if it were that would be against European law, would it?

Jonathan Stephens: I am going to be very cautious on that and say I am happy to write with a view on that but I am not going to anticipate it without some advice.

Chair: I think we would be interested to see the view of the Department.

Jim Sheridan: That was definitely from Yes Minister.

Chair: Unless my colleagues have any other further questions, can I thank you very much.

Prepared 18th February 2013