Examination of witnesses (Questions 602
TUESDAY 6 FEBRUARY 2001
and MS HELEN
602. Chief Secretary, I would like very much
indeed to welcome you here this afternoon. We appreciate not only
the fact you have agreed to come here yourself as a witness when
this is not related to your own departmental responsibilities,
we are also grateful for the fact you have taken some trouble
to make yourself available and therefore our appreciation of your
presence is enhanced by that. Our practice is to open up the questioning
right away but if you have prepared an opening statement in view
of your courtesy in being here, then we will take that from you.
(Mr Andrew Smith) Thank you very much for those kind
words of introduction. I merely wanted to introduce the people
I have with me. On my right I have Helen John, who is the Head
of the Culture and Central Department's team which is responsible
for DCMS spending issues in the Treasury. On my far left is Ian
Peattie, the Director of the National Investment and Loans Office
and Comptroller General of the National Debt Office, and on my
immediate left, David Knight, who is the Head of Excise Policy
at Customs and Excise.
Chairman: That is a very, very powerful
team you have brought with you, and we appreciate you having done
that as well. Perhaps I should explain, some of the members of
the Committee are on a Standing Committee and are moving backwards
and forwards, and others will be coming in presently. Mr Fearn?
603. Good afternoon. Do you accept that Lottery
funded sectors such as Heritage which have seen a decline in Exchequer
funding since the Lottery was established, find it hard to believe
this is a coincidence?
(Mr Andrew Smith) I think this raises the general
question of additionality which I know the Committee has taken
a close interest in. I would just underline, as Chris Smith did
when the Lottery Bill was in Parliament, that we adhere very closely
to the principle of additionality, that Lottery money must not
replace Exchequer spending, so the test really is if the money
were not provided through the Lottery would it have been provided
through the Exchequer, and the answer is no.
604. That is an emphatic no.
(Mr Andrew Smith) Yes.
605. There are no circumstances whatsoever where
that has been breached?
(Mr Andrew Smith) No. We do have very close regard
to it. There is a difficulty here which anybody looking at the
matter carefully can see, that you are comparing an actual distribution
of resources through the Lottery and a hypothetical distribution
through the Exchequer, what would have happened if this money
were not available. In that sense, it is harder to provide a rigorous
arithmetical proof than it is to adhere to the spirit of the principle.
What I am saying is we do adhere to the spirit of that principle
and moreover in the procedures we apply, for example in the way
I conducted the spending review last year, close regard is held
to that principle.
606. Do you think the National Lottery will
necessarily continue to fund specified good causes then in the
(Mr Andrew Smith) I very much hope so. I would say
I think we are getting into the issues which are very much ones
for Chris Smith. I am very conscious in the discharge of my responsibilities
that responsibility for the Lottery and for the New Opportunities
Fund are matters for Chris.
607. Is all the money in the National Lottery
Distribution Fund allocated to the Lottery distribution bodies,
or have you got a contingency fund? I imagine you have.
(Mr Andrew Smith) That is not a matter for me, I am
608. Not at all?
(Mr Andrew Smith) The policy on the use of the National
Lottery Distribution Fund is something you would have to ask Chris
Mr Fearn: That sort of flattens my question
on that. Thank you.
609. Good afternoon. Chief Secretary, we have
had quite a bit of correspondence, fairly friendly and amiable,
about what "revenue neutral" is, and I wonder if we
could go over that again. Currently taxation is 12 per cent of
the Lottery and in the debate in the House, at which there was
a Conservative Minister, there was a note to say the Lottery was,
I think it is called, "revenue neutral". It is something
I do not really understand because, as far as I can make out,
most Lottery terminals are in small shops and their trade has
gone up, and there is no VAT on many things like food, chocolate
and newspapers in these shops. So what is revenue neutral?
610. If you cannot explain, I will.
(Mr Andrew Smith) All I can say is that I am advised
by the statisticians that the Lottery duty equates to the loss
of revenue from the taxation on the bundle of goods and services
on which that money would have been spent had the Lottery not
been in existence. That is the aim of the neutrality.
611. I understand what it is, but I am saying
that in practice it is not revenue neutral, that in fact there
has been an additional opportunity for people to spend on the
Lottery, in addition to the fact that if you look at all the sales
of food and newspapers and chocolate, which I have already mentioned,
in the shops, they have not gone down, they have gone up. So it
is not revenue neutral in the terms of the statisticians, it is
actually a huge windfall tax for the Treasury.
(Mr Andrew Smith) I certainly would not describe it
as a windfall tax for the Treasury. As I say, the aim is merely
to compensate for the duty and tax which would have come in on
the spending which the Lottery displaced.
612. Can I come in there? I am a bit baffled
and maybe I have been labouring under a misapprehension for several
years, which would not be the first misapprehension and it would
not be unusual for it to have been that number of years, but I
was under the impression when we had these discussions in the
last Parliament and our initial inquiries on the Lottery, the
purpose of it being revenue neutral was to compensate for the
speculatively assessed loss of revenue from other forms of gambling
which it was assumed would go down because of the creation of
the Lottery and the attractions of the Lottery. I have to tell
you I always took the view that the Treasury very remarkably was
being too modest and ought to have taken a great deal more from
the Lottery since it generates such large amounts of funds. Chief
Secretary, if you are telling me I have been wrong all these years,
I shall just have to correct it in my mind, but I would be very
interested to know.
(Mr Andrew Smith) I would hesitate to express it in
those terms, Chairman, but my very firm understanding is that
it is to compensate. Yes, there is an element of course of judgment
and statistical assessment here, not merely for revenue foregone
through taxes on gambling but revenue foregone more generally
from the expenditure which is thereby displaced.
613. Your own evidence states, paragraph 2,
page 63, "It has been difficult to determine whether this
intention has been delivered" in respect to it being revenue
neutral. If it is difficult, forgive me, how do the statisticians
know it is or not. I am confused.
(Mr Andrew Smith) As I said, of course, there is a
matter of judgment and statistical assessment there. All I can
say is that that is the best advice that I have. I do not know
whether David Knight from Customs & Excise can add anything
(Mr Knight) I am not a statistician myself but my
understanding is that the range of revenue neutrality was calculated
at between 12 and 15 per cent, and the judgment at the time was
to set the figure at the lower end of that range. It is a recalculation
which has been done from time to time to see if it holds good,
and there has been remarkably little fluctuation over the time
since the Lottery was introduced. The point about whether you
can say definitively post facto that revenue neutrality
has been achieved is simply the fact that of course nobody can
know exactly what the spending on the Lottery has substituted
for. We can only do it on the basis of a basket of alternative
614. I will be corrected but I think the total
spend on the Lottery is about £5 billion. That is not winnings,
that is on projects right across the board for the five or six
commissions, and they all pay VAT on that work, whether it is
the Dome or the Kew Gardens Seed Bank, so you get a huge amount
of revenue on top of the revenue neutral element. Are you saying
that the VAT is not part of the revenue neutral or is part of
the revenue neutral?
(Mr Andrew Smith) I think that is a fallacious deduction
because the expenditure which was displaced would also have been
spent on other things which would also have incurred VAT or other
taxes further down the chain. So you have to compare like with
615. Except the 5 billion comes out of people's
ticket prices. The Government would not have spent £5 billion
on a more or less Keynesian bit of economics, it would not have
spent that moneyit would have spent it and is spending
it on schoolsthis is additional money, so your VAT is additional.
Am I being really dim here?
(Mr Andrew Smith) As I say, the duty is calculated
on the basis of what you need to take in to compensate for the
revenue foregone elsewhere, and in that sense it should be neutral.
616. I would love it, Chairman, if the statisticians
could deliver this in a way I could understand it, because I have
to say I am not at all certain it is revenue neutral.
(Mr Andrew Smith) I would be very happy to give you
whatever further statistical calculations and the evidence on
the baskets of goods and services on which it is computed, to
try and satisfy your point.
617. Thank you. Do you feel, as you do take
12 per cent, which is a large amount of money, that it ought to
be hypothecated and spent back with the five commissions?
(Mr Andrew Smith) I do not think there is any stronger
case for hypothecating the expenditure from that tax than there
is from any other tax.
618. So that is a no?
(Mr Andrew Smith) Yes.
619. Okay. On projects in the New Opportunities
Fund, which Ronnie Fearn has mentioned, there are some cancer
projects and what has worried us is that in three years' time,
without continuous funding of those cancer projects, those cancer
projects will stop, and yet it is one of the Government's prime
aims in their health philosophy to help cancer and heart first.
We are slightly confused as to whether that is strictly additionality
or not, but more worrying is that in three years' time if that
money is not made available by other means, then people with cancer
will suffer again.
(Mr Andrew Smith) As I said earlier, I think the hard
test of additionality here is not whether particular facilities
or services could have been funded from the Exchequer, it is whether
they would have been funded from the Exchequer, and it is that
which I answered with a clear no in the previous question. I understand
of course why you are probing this particular point, but I think
there are two things we have got to bear closely in mind here.
First of all, in areas like palliative care there is a very strong
tradition of voluntary funding and fund-raising so to imagine
that simply because something is so important, and it is an incredibly
important service, it is not right to presume that it is therefore
necessarily best placed looking to the Exchequer for funding.
I have followed the progress of the Helen House Hospice in my
own constituency closely and because of that very concern and
support which the public has for such facilities they have been
prepared to give very generously. In many cases, especially where
it is innovative care that is being spoken about, the flexibility
that gives the service is something they appreciate. I do not
think that is in principle any different from funding from the
Lottery. The second thing that I would say is that I think in
the round we do have to take account of what the public at large
thinks is an appropriate use for these funds. I think there is
ample evidence, not least the BMA opinion survey which was published
if I recall correctly last August, which showed very strong public
support for funding from the Lottery going into these areas. I
think judged against those two tests it is a perfectly good and
reasonable use of funds and of course, like you, I hope that funding
by one means or another will be sustained in the future to enable
these facilities to continue.