Examination of Witnesses (Questions 560
THURSDAY 18 JANUARY 2001
560. When you were in America, how many state
lotteries did you visit that in mid-stream had changed their lottery
operator and what consequences did you find when they had?
(Ms Spicer) We visited two for sure where they did.
The strongest message I received from them was that the change-over
was more risky and needed more time and more money in every case
than any of them had anticipated. Thereafter, the strongest message
I received was that, once you had achieved, by the application
of extended time frames, certainly in two cases, further funds,
you were greatly influenced in your public perception, to take
the point you made earlier of the Lottery, as to how the game
went. That is obviously where the public have their greatest concern:
what is happening to the dollar they bet. For instance, in Florida
where they changed, they were very concerned to have big, roll-over
jackpots because they had increased their odds and they wanted
to do the biggest possible showboat kind of a draw. That did not
happen, and they were very distressed by that. Then they had to
wait. So there were those two things, and the first one I would
like to reiterate because risk has been raised, that every hand-over
has been more extended, more costly and more complex than anybody
anticipated. If we had turned to any of the people on the ground
and said, "What would you like if you were to do this again?",
they would all have said "more time and more money".
561. Remind me of when you went to America?
(Ms Spicer) June.
562. Despite that, the decision was made in
September almost to kick-start the Lottery?
(Ms Spicer) I am not quite clear how you are putting
those two things together.
563. If change is the biggest risk and you need
more time, clearly that favours the incumbent?
(Ms Spicer) At the time that we were holding the view
of the inappropriate, if I may call it that, single negotiations,
we were working under what we subsequently discovered was a misapprehension
that one of the bidders was no longer eligible. That was not a
choice. We did not wilfully say, "I have got this".
We had excluded, on the grounds of propriety, one of the bidders
totally. So our decision-making was with a single bidder: did
we consider that TPL was an eligible, single track candidate?
(Lord Burns) I may say that we have come to the same
view this time, that both could do this job. But we came to the
view that, in terms of a competition between the two, we preferred
one over the other. We were not saying that one was not capable
of doing it.
564. It does seem unlikely, and we found the
same evidenceand we saw different lotteries than you didthat
if you do not change it is very dangerous to introduce change.
That was a clear message that we also got. It is interesting that
you found that.
(Lord Burns) You cannot go on the basis that there
cannot be change because, if you do that, you have no competition
and, if you have no competition, you will not get a good deal.
I spoke last time about some of the costs that have to be borne
sometimes in order to get to competition.
565. We saw the AWI technology and it was clearly
superior, fundamentally superior, probably 18 months to two years
better, and it could offer a whole range of different options
for the public too. Now it is GTech which is cumbersome and clumsy.
What other developments do you expect GTech to introduce, not
GTech itself but the technology that Camelot has, to be able to
deliver beyond just the Lottery? How much pressure can you put
on them to look at the driving licence or the payment of the BBC
licence fee or all those sorts of other public things that a grid
(Lord Burns) First of all, in broad terms what you
say about the two systems is reflected in our statement of reasons.
Obviously we have accepted the Camelot bid on the basis of what
it is that they are offering, which is an upgrading of their present
systems but nevertheless not to the extent that they operate in
some jurisdictions. We will obviously have ongoing discussions
about what it is they do but we have accepted the bid on the basis
it was put forward.
566. It is just delivering lottery tickets.
Is there not any other development we can expect through the terminals?
(Lord Burns) Our responsibility is about delivering
the National Lottery. It is about returns to good causes. Clearly
if there are large amounts of revenues to be had from other sources
and other activities, that is something we would want to take
into account. But the Commission has statutory duties about how
they look at it, rather than taking on additional duties which
they have not been given.
567. On this question of switching, you made
the argument when you decided to award the licence to Camelot
about the risks of the change and we were told by one of the world's
leading experts on lotteries that the risks of change were always
very great and that it was his view that the argument was always
in favour of retaining a successful operator, even if somebody
was claiming to be able to operate even more successfully because
the risk of switching was so great. You have just made the point
that you cannot eliminate the possibility of change because otherwise
it is a gift in perpetuity. How do you deal with that dilemma?
(Lord Burns) I think it is important to look across
the whole range and all the aspects of the bid. Clearly there
are risks that are associated with change but, as I said, in principle,
and I think as we say in the statement of reasons, we think that
those are manageable. You have to look at those risks alongside
the other risks that are associated with it that maybe the bidder
itself introduces into the proposal. The statement of reasons
talks about some of those additional risks. You are now allowed,
I do not think, under the terms of the legislation, to make any
overt discount to a newcomer in order to give them a better chance
to compete. It seems to me that it is inherent in the legislation
that the risks involved in that are not of a scale that do not
allow you to make a change because, if you did rule out a change,
then you have exposed a basic flaw in the design of the structure.
Our view was that those risks that were associated with the change
in, say, the first 12 or 18 months of this process, were not on
their own decisive. The argument that there could not have been
a change is not a correct one. That is not my interpretation of
it. It was possible for a newcomer to win this competition.
568. How was it possible to make a change? How
was it possible to come to a decision to make a change? We have
discussed this at length privately. I speak for myself. Personally,
I was obviously in favour of a not-for-profit lottery, as the
Labour Government in its manifesto was in favour of a not-for-profit
Lottery operator. Speaking for myself, it became more and more
clear that any individual, myself included, would find it very
difficult to take that risk, despite the fact that I was heavily
biased in favour of a not-for-profit operator. It is difficult
to say that, never mind make a decision on it. We have reached
a stage now where, even from the discussion with you this morning,
it is clear that the legislation needs to be changed. Do you not
agree with that? You mentioned the history over the last 20 years
of utilities where the previous government made these decisions
that would transfer the ownership over in the way in which the
Lottery was legislated. That is following the same trends you
mentioned a few minutes ago. We have to change that in order to
get competition. Let me ask the question and get an answer to
it. Is there any alternative to changing the legislation in order
to get competition next time?
(Lord Burns) I hesitate again on this because I know
from my previous background that suggesting that there needs to
be legislation is never a very popular thing to say to anyone.
Obviously there is always a lot of competition for legislation.
My preliminary views are that it would be quite difficult to get
any more competition into this process without having some change
in the legislation. For example, the extent to which there is
competition in terms of Instants: at the moment it is a requirement
not only that the Lottery Commission agree to it but also that
the main operator agrees. One could readily see how that could
be changed. Obviously there were good reasons for putting it in
at the time. There is also the question of whether or not you
can give other people access to the same infrastructure. All of
these things will require some changes in legislation. I would
start at this stage by saying that it is not inevitable that there
have to be changes in legislation but I think, if one is going
to conduct a thorough review of this, there has to be the possibility
of changes in legislation. If one starts from the view that there
cannot be any changes in the legislation, it will restrict the
569. I know in the very early stages you had
to put every concentration into making the decision which we have
discussed at length this morning and it was very difficult to
come to that decision, other than saying, "Let us not take
a risk and therefore that is the decision". I know all your
concentration was on that. Really, it is the duty of us all to
look to the future. Taking all that into account, if you were
forced to give us two or three minutes on the future, would you
say it is almost inevitable that we have to legislate in order
to get these changes so that we get competition on the delivery
of the various services that the Lottery operator would have to
overseethe technical equipment, the terminals and what
the terminals can produce in addition to that? Inevitably do you
think it has to go to that sort of system whereby there is some
sort of public control, the Commission if you like, running the
Lottery so that the delivery of the technology can be competed
for by different companies at the time, rather than waiting seven
years and then to have a complete change? I am putting words into
your mouth but you can say yes or no?
(Lord Burns) There is an issue between whether you
have an asset company with other companies providing the services
to it or whether you have this integrated bid which then works
for the whole of the seven years. There is a second question as
to whether that asset company, let us call it, which owns the
infrastructure, should be a public sector activity or whether
it should be some other model, such as a not-for-profit company.
I am involved in debate at the moment about this kind of model
with regard to water in Wales. I have a small conflict of interest
in debating these issues. Both of those options can be debated.
Then there is the question as to whether you can have competition
for some of the outsourced work on a more ongoing basis, rather
than having this all-or-nothing situation as we do at the moment.
Personally, I am quite reluctant simply to say that we should
go back to a public sector model for thisthat is not the
way that I naturally turnand to say that that is the only
way of conducting these activities.
570. I would agree with what you say. That is
not the only model.
(Lord Burns) I am actually going further than I intended
to do when I came here and I would like to think rather longer
about this. My instinct is that one needs more in the way of competition
during the licence period and that, in so far as one can, one
should try to avoid this big bang competition every seven years.
I do not know whether it is possible to achieve those things,
and there may be very good reasons why it is not possible. That
is my instinct, as it is also to see to what extent one can get
competition by giving other people access to the same kind of
infrastructure, as has been done with some of the other utilities,
such as telecoms. This is all very much blue sky thinking. One
has to think quite carefully before making any fundamental changes
to something which, I repeat, I regard so far as having been a
Mr Keen: We are very grateful to you
for extending your views to us when you were reluctant to do so.
571. Can I start by following on from Mr Wyatt's
questions? When you were in America, did you actually visit AWI
and GTech and see demonstrations of the new technologies?
(Ms Spicer) The demonstrations took place in London.
We did visit Rhode Island, the GTech headquarters, and had very
specific and lengthy discussions, particularly on the matter of
security with them. We did not visit the AWI headquarters.
572. Who else did you visit? I am not in any
way criticising you. It was interesting that throughout our visit
we saw four state lotteries and went to AWI and to GTech and spoke
to other experts. We did not actually come across anybody who
had spoken to you. Maybe that was just accidental.
(Ms Spicer) We went to Florida and to Hoosier Lottery
in Indiana. We went to Massachusetts, which we chose specifically
because it has "instants", and we went to Phoenix, Arizona.
573. You obviously had more money to travel
than we had!
(Ms Spicer) That was also constrained by even-handedness
as to who used which operator, so we could balance it in that
way. It was a very carefully constructed list.
(Mr Harris) It was constructed to pick up the series
of things the Commission wanted to see, first in terms of handovers
between operators and also in terms of handovers between technologies
from one operator. Even if one has AWI or GTech, there can be
major changes in terminals or changes in the central systems.
It was carefully selected to get a sense of those different things.
I should also say that the Commission visited Norway as well in
order to gain a European perspective.
574. Can I switch to the future rather than
dealing with what has happened? First of all, do you think it
is right that we should have the same organisation selecting the
licence holder and then regulating the licence holder? Is there
a case for separating these two out?
(Lord Burns) I am not sure that there is any innate
conflict of interest here. I have thought about this since the
question was put to me last time. I am not at this stage worried
about that, although again I will consider it. I think where there
is a problem is that the tasks and roles of the Commission through
the other six years of the licence period are rather different
to the tasks and the roles in the years that they select a new
operator. It may be that there should be some combination of the
existing Commissioners with some other people from outside who
come in with different skills and a different background and who
would be brought in just for that period. The weight and style
of the work is very different, in terms of conducting the competition,
to the normal process of regulation, as I understand it. I am
not aware at this point that there is any real conflict of interest
between the job of the ongoing regulation and choosing the operator.
575. What is the time scale for Camelot producing
their new technology? When does it happen?
(Lord Burns) They will have a 12-month period from
now to prepare for that. A new licence will begin actually in
the final days of January 2002. They have between now and then,
which is basically a 12-month period.
576. And they must introduce it on 1 February?
(Lord Burns) Oh, yes.
577. That is because they are the existing holders
and there is no reason why they should not roll on with their
(Lord Burns) The new terminals have got to be in place.
(Mr Harris) The commitment was to put the new terminals
in place and we require that to happen.
578. The problem with regulation in a monopoly
situation is what happens if they say, "Sorry, we cannot
get it done in that time scale"?
(Lord Burns) There are financial penalties and they
(Mr Harris) They are calculated on a formula based
on the number of terminals that they are short, the number they
have committed to put in place and the time for which they are
579. Eventually, if they just turn round and
shrug their shoulders and say, "We are sorry, we are neither
paying penalties nor can we get things installed in time",
there is not really anything you can do about it, is there? You
cannot revoke the licence because then you will not have a lottery.
(Mr Harris) But the Commission can seek to enforce
the licence through the courts.