Examination of witnesses (Questions 634
TUESDAY 6 FEBRUARY 2001
SMITH and MR
634. Secretary of State, I would like to welcome
you and your official here this afternoon. We much appreciate
your making yourself available to us. People have been coming
in and out of the Committee, one of the reasons for that is that
several are on the Committee of a Bill next door. So if you see
people arrive that is because of the attraction of your presence
but if you see them leave it has nothing to do with the fact that
it is you who are here.
(Mr Chris Smith) I quite understand, Chairman.
635. Secretary of State, can we just go back
over some of the decision making process. When the Lottery Commission
announced its decision initially to exclude Camelot on 23 August
last year, a decision that was ruled at the time as being unlawful
and conspicuously unfair by the High Court, you welcomed that
decision by the comments that you passed at that time. I will
not go through it because I am sure you remember what you said.
Do you now regret the haste in which you came to that decision
to welcome what had happened?
(Mr Chris Smith) Well, first of all, of course, Mr
Fraser, the decision was ruled unlawful about a month later, after
the appeal had been lodged with the Court and the Court had made
its decision. It was not obvious at the time that was likely to
happen. Secondly, I seem to remember my remarks at the time were
welcoming the fact that the regulator had been robust in reaching
its conclusion that neither of the two bids as they then stood
were right for the running of the future franchise of the Lottery.
I was not obviously in a position at the time to make a specific
judgment about the decision that they had made to negotiate with
only one of the two bidders. It was that point that the Court
subsequently found to be unlawful. The decision that neither of
the two bids were at that stage acceptable was indeed regarded
as perfectly right and proper for the Commission to take by the
636. At that time, part of what you said was
that you looked forward to a speedy and constructive conclusion.
(Mr Chris Smith) Yes.
637. Then on 19 December there was another announcement
but at that time you were conspicuous by your absence in terms
of commenting, why was that?
(Mr Chris Smith) When the Court made its decision
it was obviously a formal legal decision and it was not the place
of a Minister to question what the Court had decided.
638. Or could it have been that you suddenly
realised that you had made a bit of a hash of coming forward so
quickly before and thought better of it this next time round?
(Mr Chris Smith) No, because as I say the first time
round I was attempting to make clear my view about the decision
the regulator had taken in relation to both bids rather than the
decision that they had taken simply to negotiate with one.
639. Okay. On 19 January this year, and correct
me if I am wrong with these dates, please, on the Jimmy Young
programme, which I remember hearing, you passed several comments
about the selection process saying that it was flawed and gave
an unfair advantage to the current operator and should be reviewed.
If, Secretary of State, you were unhappy about the flawed process,
why did you not rectify the 1998 Lottery Act?
(Mr Chris Smith) At the time, of course, when the
1998 Lottery Act was passed we had not been through the process
of selection of the new operator. The only experience that anyone
had of the selection of an operator was the first time round exercise
which had happened seven years' previously. What we now know,
I think anyone looking at the process would agree, is that it
was not a particularly smooth and trouble free process. The point
that I have made consistently since the decision was finally made
is that I think we do need to have a look at the way in which
the process operated, whether there are lessons to be learned
and whether there are changes that ought to be made. That is not
a series of questions or decisions that I believe should be rushed
into, I think it is something we should only remark on once all
the details of the new franchise are absolutely signed and sealed,
but at that stage I think it would be sensible for the Government,
together with independent advice, to talk with all the people
who were involved in this process, regulator and bidders, to see
whether lessons can and should be learned.
640. There is nothing specifically you can tell
us today that would help that process?
(Mr Chris Smith) I think there are a number of questions
that need to be asked. One, for example, and I stress this is
simply an example, that I think perhaps needs to be examined,
is the fact that in the running of any major Lottery of this kind
there are currently only two companies worldwide who can provide
the software for the computer systems that are required to run
it. One is GTech and the other is AWI. When you have a situation
where you have only two companies capable of providing that software,
where each of those companies has signed an exclusive agreement
with a particular bidding operator, you inevitably end up in the
situation that you have only two bids in front of you and that
was the situation that we faced. Now, two bids does provide you
with good and strong competition but I think a question can legitimately
be asked about whether that is an ideal situation. There are questions
of that kind that I think need to be asked and looked at. I have
no instant answers to those because I think this does need to
be a careful process.
641. On 11 October, taking you back slightly,
you told the BBC's Today Programme that "It is not
a mess. I intend to make sure the process delivers a proper result
within the time period". What specifically did you do to
make sure that the process delivered a proper result?
(Mr Chris Smith) Of course, the most important decision
which it fell to me to make was the appointment of a new member
of the Commission and then, by decision of the Commission, appointment
as Chairman when Helena Shovelton resigned. That was a decision
which I regarded as being important. We had to secure someone
who was of unimpeachable integrity, someone who would have real
strength in getting to grips with the detailed and complex portfolio
of issues very rapidly and someone who would command public confidence.
I think in Lord Burns we found precisely such a person. We made
that appointment very quickly. That I regarded as the most important
role that I had because, of course, I had no direct role in any
of the decisions that the National Lottery Commission itself made.
However, I would add that when Lord Burns was appointed, I did
emphasise to him that I hoped that he would encourage the Commission
to address the outstanding issues as rapidly and as fairly as
possible and that he would seek to ensure a smooth transition
from the first Lottery franchise to the second and, indeed, he
proceeded to put measures in place, whoever had been chosen as
the operator, to ensure that that happened.
642. You mentioned about the departure of Dame
Helena Shovelton. In your opinion was she right to resign?
(Mr Chris Smith) I did not seek to encourage her to
resign at any stage. Indeed, I regretted the fact that she had
decided because of the pressure that had come on her, particularly
in the media, that she had no alternative but to resign. I respected
her decision, I could see entirely why she wished to step down.
In my view she had done nothing wrong other than participating
in the flawed decision that following the court judgment we know
the Commission had made, but they made that decision in good faith.
I would not have sought to hold that specifically against her.
643. With hindsight you think it was the right
(Mr Chris Smith) With hindsight it was obviously the
right decision for her from her point of view.
644. It is what you think.
(Mr Chris Smith) In relation to the decisions of the
National Lottery Commission, if she had carried on as Chairman
I would have had equal confidence in the Commission being able
to continue the process, as indeed the judge himself did when
he made his judgment. He said very clearly that he had confidence
in the Commission as a responsible public regulator to see the
process through to its conclusion. I would have had that confidence
if Dame Helena had remained as Chairman. The fact that she decided
to resign and the subsequent appointment of Lord Burns made me,
in terms of Lord Burns' role, every bit as confident.
645. Do you think your input into ensuring that
the process was delivered properly was hampered by the fact that
you had the manifesto pledge for a not-for-profit Lottery operator?
(Mr Chris Smith) No. What we said in the manifesto
before the election was that we would seek an efficient not-for-profit
operator and, indeed, we made it very clear throughout the preliminary
processes that we would welcome bids from operators on a not-for-profit
basis. However, we also consistently made it clear that the key
test was the raising of the maximum amount of money for the good
causes. That was the test against which any bid, be it not-for-profit
or for profit, would be judged.
646. So you have not fulfilled your pledge?
(Mr Chris Smith) No, I would argue we did fulfil our
pledge. We sought and welcomed not-for-profit bids. That did not
give a particular bid an automatic right to be selected simply
because it was on a not-for-profit basis, it had to be tested
against that crucial test as set out in the legislation of the
raising of money for the good causes.
Mr Fraser: You also passed another comment
I might remind you of on 10 January
Chairman: Mr Fraser, could I interrupt
you. The last thing I want to do is to make you feel that I am
somehow preventing you from asking questions but you have been
on for a quarter of an hour and several other colleagues want
to ask questions. I do not want to stop your flow, I think you
are right to be asking questions, but a bit more succinct.
647. And some succinct answers would be great,
thank you. You passed comment about Sir Richard Branson setting
up an independent Lottery at the beginning of January this year.
Do you agree that it is illegal under the current law to set up
such a Lottery?
(Mr Chris Smith) It is not illegal to set up a Lottery
provided you get permission in the usual way and it is not a Lottery
seeking deliberately to rival the National Lottery. If it is an
ordinary charity or society Lottery you are perfectly capable
of doing so and that was why I said to him, I think the phrase
I used was "good luck to him". It was entirely up to
him to make a decision as to whether he wished to do that or not.
648. But, once again, do you not think you did
it in haste and regretted it at leisure because you seemed to
be saying things and later on saying nothing.
(Mr Chris Smith) Not at all, I was very clear in what
I said. I was asked a question about whether if he sought to set
up a Lottery, notnotespecifically a rival to the
National Lottery, what would my view be and I said "good
luck to him". That seems to me a perfectly rational and reasonable
649. You are committed to a single Lottery provider?
(Mr Chris Smith) I have no plans to change the legislation
on that matter at all.
Mr Fraser: And, finally, what plans do
Chairman: Generally "finally"
leads to three more questions.
650. What plans do you have to change the law
regarding a single Lottery operation?
(Mr Chris Smith) Again, I have no plans to do so.
Clearly when we do take a careful look at the process for the
selection of the Lottery operator these are questions that may
emerge and may conceivably need to be considered, but at this
stage I would not envisage wanting to make any changes.
651. I will ask one question consequent on the
extremely interesting and stimulating questions Mr Fraser has
been putting. As somebody who would very much like to see the
Labour Party election manifesto carried out, as I have said a
number of times on the Floor of the House, may I put it to you
that if you had, in fact, intervened in the processes of the decision
of the Commission in order to get the Labour Party election manifesto
commitment fulfilled, you would have been open to the criticism
that you were interfering in the processes of an independent Commission
for party political reasons.
(Mr Chris Smith) Chairman, first I would point out
that the manifesto commitment was to seek a not-for-profit operator,
not necessarily to appoint. But, having said that, if I had at
any stage intervened in the decisions of the Lottery Commission
in making their decision on who should run the Lottery I most
certainly would have been not just open to criticism but I would
have been acting illegally because the legislation very clearly
spells outalways hasthat the Secretary of State
must not intervene in what must be an independent decision. I
made it very clear to everyone throughout the process that I was
going to abide by what the law told me to abide by.
Chairman: If there is time I will come
back to some of these things when others of my colleagues have
652. Some time ago in this Committee I did raise
the question, because I myself was not certain, of the backgrounds
of the other Commissioners who sit on the Commission itself. This
was prior to the resignation of the Chairman. I queried in a way
their backgrounds as to why they were sitting on the Commission
anyway, and those Commissioners were chosen through your process
of course. Do you have every confidence in the ones who remain
and do you know what backgrounds they have?
(Mr Chris Smith) Yes, indeed. It is worth noting,
for example, that Brian Pomeroy was a senior partner of Deloitte
Consulting, Rosalind Gilmore is a Director of Allied Zurich and
Harriet Spicer was former Managing Director of Virago. So those
who have said they cannot make a decision of this kind because
they have no business background or experience have not themselves
looked in detail at the backgrounds of the members. The members
were appointed following a process of advertisement and interview,
entirely a normal way for these matters. When the appointment
was made of Lord Burns to succeed Helena Shovelton, I am afraid
because of the urgency of the matter we had to truncate the process
to a certain extent, so we did not go out to outside advert, we
trawled the Civil Service database for names of people who had
put themselves forward for public appointment. We selected two
or three names and we then had an independent panel assess and
advise on their suitability. That was a slightly different process
simply because of the urgency of the matter at the time.
653. When do you actually review that? Do you
review that yourself or do you leave it to the Chairman to review,
if he wanted another member to leave?
(Mr Chris Smith) Obviously we would take very careful
consideration of any particular proposals that the Chairman might
himself make about possible candidates. If a number of vacancies
were to occur in the course of the next year or so it is my view
that we would wish to go through another open advert procedure
because it should be as transparent as possible.
654. And the timetable?
(Mr Chris Smith) I am just getting a useful note from
my official here. Just for the sake of completeness, Rosalind
Gilmore was, of course, appointed not at the outset, as indeed
Lord Burns was. She was a replacement for Robin Squire, who had
been one of the original appointees and who stepped down. She
was not appointed by outside advert because we went back to the
original applications and the original responses and the original
interviews and appointed arising out of that because the timescale
had been relatively short since those interviews had taken place.
I just say that for the sake of completeness.
655. You say that you are conducting an ongoing
review all the time, or now you are anyway, of the Lottery itself
and how it operates. What is the timetable for that? Sir Richard
Branson made it clear that he does not intend to bid again, so
within that process of review are you looking at whether that
process as well should be amended, because if not we will have
a monopoly from here on with the same operator, will we not?
(Mr Chris Smith) One of the issues that any such review
would need to consider would be the potential advantages which
incumbency gives in a system such as we have at the moment. That
is something on which we would wish to take views and to take
evidence. As I indicated in my answers to Mr Fraser's extremely
interesting questions, the process of looking at how the system
operates is not something that I think we should rush into in
haste, much better to get the new franchise absolutely signed
and sealed so we know exactly what is happening and when and how
and, once that is under everyone's belt, then I think that would
be the time to have a look seriously at how the process has operated
and whether there are changes that ought to be made. I would have
thought that at that stagewe have not any specific proposals
yet to make because we are not at that stage yetwe would
have an independent element in that review so we could get the
widest possible range of thought and opinion and experience coming
to bear on the issue.
656. I listened carefully to what you were saying
about a not-for-profit operator and your original promises but
it is impossible, is it not, to have a not-for-profit operator
unless the Government do it themselves?
(Mr Chris Smith) No, I would not agree that it is
impossible. I would have thought it is perfectly possible. Indeed,
it is very clear from the analysis that the Commission made of
the two bids that were in front of them that a not-for-profit
proposal very nearly made it. In the final analysis they decided
that it was not the best of the two bids for the good causes.
They certainly were not ruling it out simply because it was a
657. They obviously looked at the operation
costs of the Branson schedule that he put forward, there were
enormous costs there lying behind as to how you run a Lottery
anyway. I asked him about the interest on the loan and that was
enormous. Whether it is not-for-profit or not, I do not know,
there can be enormous costs and still you would accept the fact
that it could have been not-for-profit, would you?
(Mr Chris Smith) Of course it was up to the Commission
to make a judgment about the costs, not up to me. A commonsense
observation would lead one to accept that running a Lottery of
this scale and size is bound to involve very substantial costs,
particularly in any refreshing of the hardware that delivers the
system around the country, the computer terminals, the software
systems as well. These things are going to have to be upgraded
at some stage in any process of a seven year roll-on of a franchise
and that is going to involve very considerable costs. It is up
to a bidder to explain how they are going to raise the money to
do that and how they are going to seek to pay it back.
658. Good afternoon. Just looking at it from
our perspective I think, I do not know, I have not done a poll
around the table, we felt in the end that it had to be Camelot
for different reasons. In our analysis we both felt that the AWI
software was better and in our analysis of the marketing we probably
felt that The People's Lottery was sharper than Camelot. What
we have now got is a Lottery but we have not got the best of what
was available. In looking at that from that perspective and looking
at the 37 or 38 state lotteries in America, the most capitalist
seeking country in the world, all of those 37 or 38 are state
lotteries run by the state. It seems to me that is now the only
solution left. If you want the best product, as it were, like
Channel 4, the Government should own it and run it and break up
the bits. How are you reflecting on that sort of argument?
(Mr Chris Smith) Of course, my concentration up to
now has been very largely on seeking to ensure that we manage
the process of change for the next seven years as smoothly and
efficiently as possible, and that will be on the same basis as
the first franchise was done, which is the operator itself then
chooses who supplies particular services to them. A crucial change,
of course, between August and October was that Camelot had resolved
the propriety issue as far as GTech were concerned by effectively
buying out GTech and running the GTech operation themselves. That
was an absolutely crucial change without which, I suspect, the
Lottery Commission would not have been able to give the consideration
they did to the Camelot bid. In relation to your general question
it has been said to me by quite a number of people now that an
option could perhaps be to see a Lottery that is effectively owned
by the nation through the Government, but that each individual
service for the running of that Lottery is contracted out to different
suppliers. That is obviously a model which works in some other
parts of the world; it is a model that I am sure when any review
of the whole process of awarding Lottery franchises takes place
will need to be considered by that review. At this stage I remain
agnostic on the question.
659. In a sense, when you look at the delivery
and collection means, if you take the DVLA which is a dreadful
organisation in Swanseathey are behind forever on tax discs;
months and months behindif you take a broadcasters TV licence,
we have two separate organisations collecting as it were different
bits of a poll tax or tax, do you think we missed a trick by not
saying the Lottery terminals could deliver substantially more
and that our thinking was analogue rather than digital two years
ago and, as a consequence, we shall not be able to have digital
Lottery operating facilities right across the country?
(Mr Chris Smith) As far as I understand it, Camelot
have made it very clear that they do envisage the possibility
of all their terminals being able to be used for other things
than just the running of the Lottery. It will of course be up
to them and any service that wishes to do a deal with them to
decide whether a specific proposal comes forward.