Examination of witnesses (Questions 320
- 339)
THURSDAY 23 NOVEMBER 2000
LORD BURNS,
MS HARRIET
SPICER and MR
MARK HARRIS
320. But you have a named adviser, do you have
other advisers who are part of your team?
(Lord Burns) We have advisers on a whole range of
issues. We have advisers who are dealing with lots of aspects
of the marketing, we have advisers who are dealing with the finance,
we have advisers dealing with the legal side, and we have advisers
dealing with the IT side. I do not think we are short of advice.
(Ms Spicer) The value of the Commission's staff in
this licence period is very considerable and very different from
the need for lottery experts from outside in the first licence
period, because we have now had a body of staff, and there is
enormously valuable continuity within that staffing, of people
who have garnered their own experience. And, indeed, on a point
of information, Brian Pomeroy, our first Chair, did talk to Professor
Walker and used his expertise early on in the piece.
321. We also understand, from evidence when
both bidders came before us, that there is a significant difference
between the two bids in terms of permanent, directly employed
staff. Does staffing form a part of your consideration of the
licence, in terms of whether staff are contracted out or are directly
employed?
(Lord Burns) We obviously have to take into account
what this implies in terms of risk, in terms of what it implies
in terms of the underlying financial stability of the bids. But
the issue of employment itself is not one of the criteria that
are involved in our assessment of this. The criteria that we use
are quite clearly set out in the legislation. Clearly, to the
extent though that if you had a view that outsourcing was either
better in terms of their reduction of risk or that it created
more risk, this would be something that you would have to take
into account in this kind of assessment.
322. So you will take into account whether or
not it is directly employed and the contracting issues?
(Lord Burns) Yes; insofar as it affects the business
case and it affects the business and the risks that are associated
with the two businesses, clearly it does enter into the analysis.
But the whole question of whether one creates more jobs than another
is not an issue that we will be taking into account; that is a
job for others.
Chairman
323. In responding to Claire Ward about the
range of advice that you have, you referred to legal advice. Now,
of course, the reason you are sitting in that chair, Lord Burns,
is because of the legal quagmire into which the Commission got
itself, after ruling out Camelot from the running. From whom did
you get the legal advice—presumably, you took legal advice—that
led you to exclude everybody but The People's Lottery; do you
have in-house legal advisers, do you go to outside legal advisers,
who were those advisers?
(Lord Burns) We go to outside legal advisers, and,
as I was not there at the time, I think it is probably sensible
that Harriet should speak about that.
(Ms Spicer) We do indeed have, and had, legal advice.
On the specific point, we were advised through the process by
Treasury solicitors; there was another firm of solicitors, Lawrence
Graham, commercial firm, who advised on the legal aspects of the
bid, entirely separate from this. If I could make that clear,
given that their name will be on Commission papers, they stand
aside from this, that is the legal aspect of it. As far as our
processes, our deliberations, were concerned, yes, we were advised
and we were advised by Treasury solicitors.
324. You have a little experience of the Treasury
solicitor, Lord Burns; presumably, you would regard that as advice
of the highest quality?
(Lord Burns) I would. I should emphasise, of course,
the Treasury solicitors are not part of the Treasury. But I had
cause to use the Treasury solicitors many times, in my time in
the Treasury, and I was always very happy with the advice I received.
325. What experience did the non-Treasury solicitors
have of matters of this kind; did they have specific—
(Ms Spicer) The non-Treasury solicitors are not involved;
they really have the appropriate commercial experience for evaluation
of the bids. Treasury solicitors were the ones who advised the
Commission. And, if I may make something of a pro-active statement:
there has been comment in the press about the extent to which
the Commission turned to their lawyers on that occasion, in such
a way that the whole issue of the mistake that was made was assessed
in terms of legal advice. I would like to say, quite clearly,
that one does not employ lawyers to take a decision for you; it
was the Commission's judgement. We made a specific judgement and
we made an assumption we should not have made; we thought we were
acting for the best. We were given, in terms of a judicial review,
which is certainly the ultimate legal advice, that we were not,
and we fully understand that. Interestingly, in the perfectly
proper examination of what went on, what is clear to me is that
there was a mistake made in the assumption that Camelot could
not rectify its bid; there were subsequent and consequential effects
of that mistaken decision, which led to us not taking courses
of action which we would have been perfectly happy with, namely,
dual negotiations. Because we had made that mistaken assumption,
we were given legal advice, quite clearly, which rested on our
decision. We were told that it would be inappropriate and greatly
open to challenge were we to negotiate with two bidders when apparently
we had made that assumption about one of them excluding themselves
out. So that is where there was a consequential distortion of
process from the one mistake. That for me, was a very useful clarification,
and not a helpful one because it arose from a mistake.
326. You have been candid that it was a mistake,
but, taking into account that Camelot had these years of experience,
that many people regarded it—I am not attributing that view
to myself, necessarily—as running the most successful lottery
in the world, taking into account, too, that although the profits,
in absolute terms, are substantial (in terms of return on turnover
they are not all that large), it was a huge decision, was it not,
to exclude the existing licensee from further consideration when
they had these qualifications and this experience, and the only
alternative was somebody with no track record whatever? Let me
make it clear, because at this stage, certainly, I do not feel
capable of making a judgement, I am not associating myself with
any criticism of the lack of experience of The People's Lottery,
if they have never done it, they have never done it, nor am I
necessarily endorsing the qualifications of Camelot, but to exclude
somebody with the experience and regarded as having run a highly
successful lottery was an enormous decision. What led you to make
that decision?
(Ms Spicer) I think, very largely, it was the weighting
of our sense of our statutory obligations and duties. We did find
them, under particular tests in the legislation, 4(1)(a), to be
likely, in the future, over a seven-year licence, not to run the
Lottery with all due propriety. And it was our balancing of the
duties. Yes, I take your point, it was a big decision, and it
emerged from our balancing of our statutory duties.
327. If I am right, you have just used a form
of words which was carefully drafted, and that would be highly
appropriate; but, if you had those reservations at that stage,
how do you believe that you can come to considering these two
bids with the necessary impartiality and objectivity which is
laid on you by legislation? If you have excluded one, and if you
have said that you excluded them because they did not meet certain
tests, are you now, as part of this process, seeking to get assurances
from them that they can now meet the tests that you believe they
failed to meet the first time round?
(Ms Spicer) Yes. In the stages of this, again, proper
formulation is quite important. We had the bids, we then had a
period of improvement, and we have, between us, come to the third
stage of rectification arising from the position, which was found
to be lawful on our part, that neither applicant should receive
the licence. In the rectification, that is precisely what our
aim is, to ensure that, in ways that they propose. Again, we have
not been prescriptive, we have heard from both parties on points
of fact, the ways in which they will choose to rectify the concerns
we put in our statement of reasons. And, while I did hear Lord
Burns having to say he had not had time to examine one particular
aspect of this work, obviously, the undeniable value of his taking
up the position of Chairman has been enormously helpful, in that
very specific task. I admit again the decision was a big one,
and so is this, our rectification process.
(Lord Burns) Could I offer just one comment, Chairman,
partly just to re-emphasise what Harriet said. No-one has questioned,
it was certainly not questioned in court, the decision that said
that neither of the bidders had met the criteria laid down in
the legislation, as far as propriety was concerned and the protection
of player interests. What we have been doing in this stage is
giving each of the parties the opportunity to rectify their bids
and to try to take care of the problems that were there in the
initial bids. And we made an announcement recently to say that
we had now received those extra bids, that we had looked at them,
and we were content now to take both of them forward, because
we thought that both had the potential now to meet the criteria
set out in the legislation. We were now going on to examine the
impact of both bids on good causes.
328. I respect, Lord Burns, the care that you
are taking not to prejudice any decisions that you may make, with
regard to this, but when the Commission had reached the stage,
you were not there, that they had decided to exclude Camelot and
they wanted certain additional information and assurances from
The People's Lottery, that was then; is the position with The
People's Lottery now simply that you are seeking to get the assurances
that were being sought when Camelot was excluded, or is that process
is now re-opened sufficiently that there may be other things that
you will be asking The People's Lottery for?
(Lord Burns) No. There was a letter that was written
to The People's Lottery after the decision of August 23, which
set out the extra information that the Commission wanted. That
material has now been received and it has been considered and
we made a statement saying that, on the basis of the additional
material that we had received, we were now taking forward that
bid to the full evaluation. We sent a similar letter after the
court case to Camelot, asking them to deal with the questions
that were under consideration on August 23, where it was deemed
that they had failed the test. We have also had their response,
we have considered that, and we have also said that we are now
taking their bid forward to the final stages.
Derek Wyatt
329. Good morning. Could you just remind us
how far we have got before decision day is due?
(Lord Burns) I am hoping that we will have a decision
in December.
330. December the . . . ?
(Lord Burns) I do not know.
331. Can you explain the legal position. If
Camelot were not to win, presumably, they have an option to sue
the Commissioners for what happened before August 23. Do you have
an indemnity for the Commissioners, or how does that work, in
terms of if there was a law suit laid by Camelot against you?
(Lord Burns) I do not know the specific answer to
that. We do not rule out the possibility there will be legal action
after this process is over. I hope that there will not be. I hope
that we are able to demonstrate that we have conducted the remaining
stages correctly and that any decision that was taken in August
has not had a long-term, adverse effect upon the correctness of
the bidding process as a whole. I hope we have now put in place
a process which means that whatever took place in August, that
was deemed by the courts to be wrong, no longer has any effect.
332. John Maxton raised the point, which I just
want to add to, that last week many retail operators were in front
of us, who run small shops, corner shops, where most of the Lottery
terminals are, to which they said, and I will just repeat it,
there is not room for a second terminal. So if it was not Camelot
and it was The People's Lottery, they are not sure where their
terminal would go in the training period that would be necessary,
that even if the training is off-site they would then have to
move out of their own shops, there would still be the need to
have two terminals, for at least two or three weeks, actually
either side by side or somewhere in the shop. Which leads me to
suggest that maybe if it is The People's Lottery that wins perhaps
the Lottery will go down for a week or two. What is your thought
on that?
(Lord Burns) I do not wish to engage at this stage
in any judgements about what the impact of that might be on the
sales. It seems to me, that falls into my category of being part
of those things that we have yet to come to a decision about and
it will be wrong for me to talk about them today. But I have made
the general point that one cannot rule out all inconvenience that
comes from a change of operator. One has to accept that on occasions
there will be a certain amount of inconvenience. It is inherent
in the fact that one is having a competition and there is the
possibility of change. It is the possibility of change that gives
us the opportunity to have a competition. That competition, we
believe, has very good effects over the longer term, in terms
of generating money for good causes. If there was not the possibility
of a change, you would not get such a good deal from the operators.
And in the course of getting that deal you have to accept that
there will be a certain amount of inconvenience, if the competition
were to go in one direction. It seems to me that that is a fact
of life, and to wish it to be otherwise is really wanting to have
your cake and eat it, the cake here being the competition and
the benefits that the competition brings to good causes.
(Ms Spicer) And to retailers.
333. I took that to be a yes, that there might
be a break in Lottery sales then?
(Lord Burns) You would be quite wrong to take that
to be the implication of it. I really am not saying that there
would be. That is something which we have to assess. Really I
am not prepared to get into that kind of predictive question today,
because it would be quite wrong and it would be unfair to the
bidding process.
(Ms Spicer) It has been done in other jurisdictions,
I think is fair comment.
334. Do you mean elsewhere in the world?
(Ms Spicer) Correct.
335. Where else in the world?
(Ms Spicer) In America, a great many times. Because
they have state-run lotteries, there are a lot of them against
which one can bench-mark, and they do move between operators,
with some frequency.
336. We are due to go to see that in two weeks'
time. Have the Commission been to America to see this?
(Ms Spicer) Yes.
337. How many times have you been to see different
lotteries change, on the actual day, the second, or the minute
that it happens then?
(Ms Spicer) In all honesty, I do not think they would
want us there on that day.
338. We might, as a Committee.
(Ms Spicer) Good; well that will be great, and they
should, because you are elected Members of Parliament and we are
not.
339. No; you should have seen a changeover so
that you can then judge—
(Ms Spicer) As usefully, we were able to go, we specifically
chose the places we went to, with regard to even-handedness between
the bidders, so that we would see reference sites for both of
them, in equal number. We also played into the complexity and
the interest around transfer between operator experienced by the
different jurisdictions and lotteries. We were able to talk to
them, not at the white heat of the switch moving, but rather about
the considered and evaluated impact of the change, which we found
of itself to be particularly valuable. Hindsight had been applied,
and hindsight can be useful.
(Lord Burns) Could I add that a lot of care has been
taken in the design of this whole process, to give time for an
orderly changeover, if a changeover is the outcome of this process.
A lot of thought has been given to how it will happen, and the
bidders have included this material in their bids.
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