Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses(Questions 40-59)



  40. You did mention the possibility of helping the bidders with their costs next time round. What cost would that mean as compared to the take in the longer term? You might have to spend a month's take by giving the bidders their costs or a year's take?
  (Mr Harris) It would be a very small amount. The flows of the Lottery over the life of the Lottery this time round are about £11 billion. If one had three or four bidders that you were supporting, it would be a very small proportion.

  41. Why was this not more seriously considered last time round? I should have thought it was an obvious way to increase competition, particularly when you mention the fact that one of the reasons competition is so low is because people might lose money.
  (Mr Harris) The Commission was seeking to get competition started as soon as possible. It had two concerns. Firstly, that in order to demonstrate that this was done properly it considered that it would need to devise a whole scheme whereby it could specify what costs it was prepared to meet and make sure they were properly audited so that it was not paying what is public money over without being absolutely sure that it was being properly used. In addition, the Commission was concerned that it would really require a two stage process in order to meet costs, in order to be sure that the bidders who came forward were serious bidders and that would add to the time taken. One of the other things the Commission was looking at doing in order to level the playing field as far as it could was to make sure that there was a maximum hand-over period because hand-over was of particular concern to the people we spoke to. Indeed, it was more of a concern than cost, so the Commission decided that it could get a competition and indeed it did get a competition.

  42. Of a sort.
  (Mr Harris) A competition of two bids. Although they did have fundamental problems, at the end of the day, it was a strong competition that produced a good return for good causes.

  43. Are you going to make it part of your consultation to ask potential operators whether it would make a significant difference to them if their bidding costs are paid?
  (Ms Street) We will be having extremely wide consultation. That will certainly be one of the matters on which we are consulting. Everything in table three in the report which reflects some possibilities will be reflected in the consultation.

  44. What advantages do you see to society as a whole in the Lottery operator being not for profit as compared to a normal profit-making operator?
  (Ms Street) From the government's point of view and probably from the Commission's as well, the status of the operator is not a determining factor. The determining factor is to maximise the return for good causes. That is the position that the Commission took.

  45. You do not think whether or not the operator is not for profit could make a significant difference to the return? That is your one criterion?
  (Ms Street) That is a hot debate. In the end, it is about sales revenue and that would be one of the ways to project whether a not for profit would generate more sales, but you have to usually set that against the efficiency of the profit-making companies. At the moment, we are third best in the world for generating money from the Lottery. That is quite a good record.

  46. Will you be considering that question any differently in the third Lottery licence bid?
  (Ms Street) We would take any views that this Committee wishes to express into very careful consideration. Only having six and a half years means we cannot look at everything, but there would have to be strong reasons for departing from the view that the purpose of the Lottery is to generate maximum revenue for good causes.

  47. Was there any consideration paid to the possibility that the Lottery might lead to gambling addiction and what help might be given to gambling addicts?
  (Mr Harris) That is a very important part of our duties. We have a division that monitors that. We have supported research and there was a large independent study done on all forms of gambling in the UK fairly recently, the gambling prevalence study, and that indicated that levels of concern for Lottery players are extremely low compared with other forms of gambling. Equally, we deal quite regularly with Gamcare who have a helpline and they keep us informed. They report that there is a very low incidence of Lottery players who have problems with gambling. Usually those people have problems with other forms of gambling as well.

  48. You say it is part of the Commission's duties to look at that; to what extent did that play a part in the licence process and to what extent will it next time round?
  (Mr Harris) I think it is an important part of the licence process because one of our fundamental duties is to look at arrangements for player protection. We ask the bidders to set out exactly what steps they would take and if they have the proper strategies in place to ensure that games did not encourage problem gambling. The Commission made it quite clear that it was not prepared to accept more extreme forms of games such as very rapid draw, high jackpot games because these are likely to encourage problem gambling and so the Commission was unlikely to license those. We also made it clear, although it is more to do with age limits which again are very important to us, that we expected high levels of testing of retailers to make sure they were complying with the law.

  49. Was there any significant difference between the two bids as far as that issue is concerned?
  (Mr Harris) I do not think so. Camelot's bid had a better understanding of the issues, particularly having been involved in running the Lottery for seven years. The other bid was not unacceptable in those areas.

  50. There seems to be a bit of difficulty as far as the hardware is concerned. The advantage of the incumbent is that they have all the hardware in the shops and so on. Does the Commission have any control over that at all? Can you, for example, next time round insist that the hardware should be transferred to the next bidder?
  (Mr Harris) What we have agreed—and it is included in the next licence—is that the next bidder should have the option to purchase at a fair market valuation the terminals. It will be possible to have continuity of terminals.

  51. Are you talking about the licence that has just started or what you are going to be doing in seven years' time?
  (Mr Harris) The licence that has just started, so that at the next competition the Commission put in a number of elements into the next licence to help the hand-over. One of those was that the next bidder will have the right to purchase the terminals.

  52. That was not in the original licence so you could not insist on it this time?
  (Mr Harris) It was not and we did seek to negotiate with Camelot to find out whether or not they would be prepared to give that undertaking before the competition, but they thought they may have other uses for the terminals and therefore they were not prepared to give that undertaking until after a decision had been made as to who the successful bidder was.

  53. Is that the most significant advantage that an incumbent has? Have you in other words managed to remove any incumbency advantage?
  (Mr Harris) That is one of the incumbency advantages, although there is still an issue about how one puts together the whole network if one has this whole range of terminals. One still needs to make that work with whatever software the person taking over would have. We have taken steps to make sure that intellectual property can be transferred and that, in particular, information on retailers can be transferred. The People's Lottery considered it very important to the construction of their bid. We have also secured an undertaking from Camelot, which is within the licence and therefore can be enforced, that they will cooperate fully in the case of a hand-over. We have taken a number of steps. Whether or not those are all the steps is an issue we need to consider carefully and feed into the consultation in due course. I am sure there are further things that can be done.

  54. In answer to Mr Williams, you said you decided not to negotiate with Camelot because they could not rectify the propriety problem within the month you thought you had, so you went for an extension of their licence in practice. Why did you not immediately think of going for an extension of the licence simply in order to give both bidders the chance to negotiate with you and thus to retain some of the competition?
  (Mr Harris) The reason we turned down Camelot's bid was because we were uncertain that they could continue to operate with all due propriety.

  55. What you said, I believe, in your first answer was that you did not think they could satisfy that problem or overcome that problem within the month you had. You did not say you thought they could never overcome the problem. Are you now telling me you thought they could never overcome the problem?
  (Mr Harris) No. We thought they could overcome the problem and satisfy the Commission but it would take time. The Commission thought it would be very difficult, because it only had a month to run, to start negotiations with Camelot about an interim licence at that stage.

  56. Yet you were able to do so later.
  (Mr Harris) We were able to do so as a result of the outcome of the court case, where Camelot gave an undertaking to the court. That was very important to us. Camelot gave an undertaking to the court that they would accept an interim licence and therefore we had a means by which we could make sure that happened and enforce it. In the period before then, we did not have that undertaking and therefore we could not take those steps.

  57. Had you gone to them and said, "If you want to continue in this business you are going to have to have an interim licence" you would have put a hell of a lot of pressure on them, would you not?
  (Mr Harris) We had one month, we believed, to convert the People's Lottery bid to a bit that would be accepted. We had doubts about Camelot's propriety and we had some difficulty in going to Camelot and saying, "We have doubts about your propriety so we will not give you a seven year licence, but nonetheless we are willing to negotiate an extension to your licence to allow proper competition to take place."

  Mr Rendel: In order to allow you to overcome those doubts, which seems fairly straightforward to me.

Mr Gardiner

  58. What is your definition of strong competition?
  (Mr Harris) The definition that the Commission uses is that you have two or more bids. Obviously the more bids the better, as long as they are credible bids that push hard against one another to produce good returns for good causes.

  59. If two bidders—paragraph 2.11—is strong competition I would like to know how many fewer than two constitutes weak competition. Two bidders does not seem to me to be that strong. On the conclusion on page six, I attract your attention to paragraph 23. In assessing the bid, risks of transferring the operator and new terminals are in effect being weighed against the value realised for good causes. How did you do that?
  (Mr Harris) The Commission looked at a whole range of criteria that it said it would evaluate both bids against. What it sought to do was firstly to determine on balance which bidder it believed had a game plan that would generate more sales and then to take account of their generosity in order to assess which of them it judged was most likely to produce the best return for good causes.

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