Select Committee on Regulatory Reform Thirteenth Report

4 Purpose of the proposal

14. The proposal is intended to allow more flexibility for the players and operators of jackpot and higher-value AWP machines.

15. The changes it proposes in respect of jackpot machines are as follows:

a) enabling such machines to accept payment by banknotes and by means other than cash, such as smartcards, as well as by coins

b) allowing such machines to pay out prizes in banknotes and in non-cash form

c) dispensing with the requirement that such machines should be able to accept payment for a single game

d) allowing players, at their discretion, to retain winnings in such machines for further play (jackpot machines are presently required to pay out all winnings automatically).

16. The changes it proposes in respect of higher-value AWP machines are as follows:

a) enabling such machines to accept payment by banknotes and by coins, but not by any non-cash means

b) allowing such machines to pay out prizes in banknotes as well as coins, but not in any non-cash form, and

c) dispensing with the requirement that such machines should be able to accept payment for a single game.

The proposal would not allow higher-value AWP machines to store winnings for use in further play.

17. The Government initially envisaged reforming the regulatory regime applying to higher-value AWP machines in the same way as its proposed reforms to the regime applying to jackpot machines. To amend the law in this way would, however, involve amending provisions of the 1968 Act which were amended less than two years previously (in December 2001), and would therefore be prohibited under section 1(4) of the Regulatory Reform Act 2001 (the 'two-year rule'). This issue is discussed further at paragraphs 31 to 36 below.

Operation of the new gaming machine systems

18. The Department intends that the operation of the new machines is to be governed partly by the law set out in the 1968 Act as amended by the proposal, and partly by means of non-statutory and non-binding guidelines issued by the Gaming Board of Great Britain, which already issues guidelines for the operation of gaming machines which operate under the 1968 Act. The Gaming Board is a statutory body established under the 1968 Act charged with the regulation of gaming and lotteries in Great Britain. The issue of the Gaming Board guidelines is discussed further at paragraphs 106 to 133 below in relation to necessary protections.

19. The Department has set out in detail how it expects the new systems to work for machines accepting smartcards and/or banknotes, as appropriate, and paying out by means of credit notes, tokens, cheques, smartcard credits and/or banknotes, in addition to cash. A detailed explanation of the intended operation of these systems is set out in paragraphs 74 to 93 of the explanatory statement.

Play meters and bank meters

20. The Government proposes that most machines accepting smartcards and/or banknotes would be required to have two separate meters:

  • the play meter: a meter displaying the sum committed to play, which could not necessarily be retrieved on demand
  • the bank meter: a meter displaying the sum stored in the machine (both initial credits and winnings), which could either be committed to play or retrieved on demand.

21. The player would have to commit no more than £2 of the value inserted into the machine to playing the game at any one time, and could commit less. The remainder of the value inserted would be stored on the bank meter. The player could commit further money to play by transferring up to £2 at a time from the bank meter to the play meter. The exact sum which the player could switch from the bank meter to the play meter would be determined by the manufacturer and the operator, who could either fix a sum of up to £2, or could offer the player a choice of sums not exceeding £2.

22. The player would be able to use the sum on the play meter to play the game, at the standard cost of a single play (that is, up to 30p for a higher-value AWP and up to 50p for a jackpot machine). When the amount of credit remaining on the play meter was not sufficient to pay for a single play, the player would be able either to commit a further tranche of up to £2 from the bank meter to the play meter, or to collect the sum displayed on the bank meter (subject to the possible retention in the machine of sums less than £1).

23. The player would not necessarily be able to collect the residue on the play meter if it were less than the cost of a single play. This residue would remain on the play meter and would be available for the next player to use.

Payment by smartcard

24. The Department envisages customers in casinos and clubs being able to buy smartcards for use in jackpot machines. These smartcards would operate in much the same way as a phonecard: they would be pre-loaded with credit at a terminal controlled by the operator, and could be inserted into a card slot to pay for play on any suitably-equipped machine on the operator's premises (including amusement machines not used for gaming). The same smartcard could be used in a range of premises owned by the same operator.

25. Jackpot machines accepting smartcards would be able to credit payments directly to the smartcard, or make payment either in cash (notes or coins) or by means of credit notes, tokens or cheques. The form in which money was inserted into a jackpot machine would not necessarily determine the form in which money was paid out.

26. Smartcard credits would be redeemable on demand on the operator's premises for cash or cheque, or a combination of the two. No other method of redemption would be acceptable, although a player would be able to use the credit on a smartcard to pay for other services on the premises. Operators would be required to pay out the exact amount of money which was shown as a credit on the smartcard. They would not be able to offer other credits or prizes in lieu.

27. Players inserting a smartcard into a jackpot machine would be able to transfer up to £20 of the stored value to the machine. The machine would automatically commit up to £2 to the play meter, and would leave the residue on the bank meter. The machine could then be played as set out above. A player wishing to commit more than £20 at a time would have to withdraw and re-insert the smartcard for each sum up to £20.

Timing and handling of the proposal

28. We have examined three issues surrounding the handling of the proposal and its proposed timetable.

The Gambling Review and the Gambling Bill

29. We note that the period from the launch of the consultation document to the laying of the proposal appears unusually long for what is a relatively short proposal. The Home Office, which was then responsible for gambling legislation, issued its consultation paper on the proposal in March 2001, under the deregulation procedure. Departmental responsibility for gambling issues was transferred to the Department for Culture, Media and Sport following the 2001 election. The Government responded to the Gambling Review undertaken by Sir Alan Budd by publishing its policy paper, A Safe Bet for Success, in March 2002. This set out how the Government would take forward the recommendations of the review in a Gambling Bill.

30. The measures proposed here are in effect interim measures pending the introduction and passage through Parliament of a Gambling Bill. The Budd Review specifically endorsed the proposals set out in the March 2001 consultation document, and the Government said, in A Safe Bet for Success, that it would take the proposed measures forward in advance of a Gambling Bill.

Operation of the 'two-year rule' (section 1(4) of the Regulatory Reform Act)

31. The Home Office consultation paper initially envisaged making similar provision for both jackpot and higher-value AWP machines. In the event, the proposed amendments relating to higher-value AWP machines are less far-reaching than those envisaged for jackpot machines. The Department explains that this modification to the initial proposal is necessary because the relevant sections of the 1968 Act relating to payments into and out of higher-value AWP machines—sections 34(5C) and (5D)—were amended in December 2001 by an order which increased the maximum prize which could be paid out by a higher-value AWP machine from £15 to £25.[11]

32. Section 1(4) of the Regulatory Reform Act 2001—the 'two-year rule'—prevents the amendment of any legislative provision by means of regulatory reform order if that provision has been amended by Act or by subordinate legislation less than two years before the date on which the order is to be made. The Department considers that the elements of sections 34(5C) and (5D) which set the maximum value of the prize to be delivered by a higher-value AWP machine form part of the same legislative provision as the elements which lay down the means whereby the prize is to be delivered.[12] The amendments to the former elements have therefore effectively forestalled, for a period of two years, the amendment of the latter by means of regulatory reform order.

33.The Department has explained that the likely difficulty created by the two-year rule came to light only in 2002, when detailed consideration was given to the drafting of the order which would give effect to the proposals in the Home Office's consultation paper. Until then, specific consideration had not been given to the particular amendments required to the 1968 Act. Even when the difficulty was initially realised, the Department considered that the issue was not clear cut, turning as it did on the exact interpretation of the extent of the provisions in the sections which it was proposed should be amended.[13] The Department argues that even had the problem been appreciated in December 2001, it was by no means clear that the Government would have then decided to delay making a prize uprating order, for which the industry was pressing, in favour of a prospective regulatory reform order which had at that point not yet been drafted.

34. The benefits to the industry if the order is made in its present form are estimated to be £1.85 million annually, far less than the estimated annual benefit of £9.5 million were the order to be made in the way envisaged in the consultation document. Given the substantial reduction in estimated benefits, we asked why the Government had decided to press ahead with the proposal at this time and in this form. In response, the Department said that it "sees no reason not to proceed now with a modest package of reform that will immediately deliver small, but real, advantages to the industry".[14] It indicated that the existing regulatory regime will in any case be comprehensively overhauled by the prospective Gambling Bill which it hopes to introduce in the next Session.

35. The Department expects to be able to lay the draft order for final scrutiny in late June, and, depending on the availability of Parliamentary time, the Minister expects to make the order before the summer recess (that is, according to the present parliamentary calendar, by 17 July).[15] The Department believes that the earliest an order could be made in the terms envisaged by the consultation document would be 9 December 2003, a delay of five months.

36. It is of course open to the Department to delay making its order until the restriction imposed by the two-year rule has expired. If the Department had not indicated that it intended to reform the whole regime by means of a Gambling Bill in the next Session, we would not have hesitated to recommend a delay in making the order to ensure that it could deliver the benefits originally envisaged. We trust that the Government's confidence in pressing ahead with this limited reform now is matched by its ability to deliver a more substantial reform next year by means of primary legislation.

Notification to the European Commission

37. The Department states that there is nothing in the proposal which is incompatible with any obligation resulting from membership of the European Union. However, it indicates that the order and the accompanying Gaming Board guidelines lay down technical standards which are within the scope of EU Directive 98/34/EC, a directive governing the operation of technical standards across the EU. As the draft order and the guidelines both fall within the scope of the Directive, they must be notified to the European Commission. EU rules stipulate that a period of between three and six months must elapse between notification of a new technical standard to the Commission and its coming into force.

38. The Commission received the necessary notification on 7 March 2003.[16] A three month standstill period must operate before the regulation is made or brought into force, to provide an opportunity for the Commission and other Member States to comment if they consider that the proposed regulation has the potential to create a technical barrier to trade. The standstill period in respect of this order ends on 9 June 2003.[17]

39. The Department states that if there is any change to the terms of the draft order, or to the accompanying Gaming Board guidance, as a result of consideration by this Committee or by our counterparts in the House of Lords, it will renotify the amended version to the European Commission.[18] Any renotification will require a further three month standstill period.

11   Amended by the Gaming Act (Variation of Monetary Limits) Order 2001 (S.I., 2001, No. 3971), made on 8 December 2001. Back

12   Appendix B, para 69 Back

13   Appendix B, para 68 Back

14   Appendix B, para 66 Back

15   Appendix B, paras 71-72 Back

16   Appendix B, para 74 Back

17   The notification, number 2003/0088/UK, can be viewed on the European Commission website at  Back

18   Explanatory statement, para 160 Back

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