Letter from the Clerk of the Committee to the
Department for Culture, Media and Sport
Proposal for the Regulatory Reform (Gaming Machines)
Order 2003: request for further information
Thank you for your appearance before the Committee
on Tuesday, and for the helpful briefing you and your colleagues
gave the Committee on the above proposal. The Committee considered
the proposal at its subsequent meeting and resolved to seek further
information from the Department. The issues which concern the
Committee are set out below, together with questions arising from
them, under the relevant categories for consideration set out
in the Regulatory Reform Act and the Committee's Standing Order.
Whether the proposal removes or reduces a burden
or the authorisation or requirement of a burden (S.O. No. 141(6)(b))
1. The Department has indicated that the existing
law imposes three burdens on the operators of gaming machines:
(a) a requirement that payments in and out of machines may be
made only in coins; (b) a requirement that machines must be able
to accept payment for a single play; and (c) a requirement that
machines must pay out winnings immediately. The Committee is not
convinced that the Department, in paragraph 36 of the explanatory
statement, has sufficiently demonstrated the nature of the burden
which the existing law imposes in respect of burden (c) (retention
of winnings), and on whom it considers the burden presently falls.
Q1 Please specify the nature of the burden the
Department considers is imposed by the present requirement that
prizes won in one session of play on a gaming machine must be
paid out at the end of that session, on whom the Department considers
that burden falls, and how the proposal would reduce or remove
Whether the proposal satisfies the tests set out
in sections 1 ["proportionality"] and 3 ["fair
balance"] of the Regulatory Reform Act (S.O. No. 141(6)(k))
2. The proposal would impose a new burden on operators,
by requiring operators who run jackpot machines which pay out
in non-cash media to pay out the full value of a player's winnings
from the operator's machines on demand by cash, cheque or a combination
of the two at the premises where the machines are used for gaming.
3. The explanatory statement states that the Government
believes that new burdens would be created by the draft order
and by the proposed new Gaming Board guidelines. In paragraph
66 of the explanatory statement the Department appears to have
treated the proposed new burden to be imposed by the draft order,
and the non-statutory burdens to be imposed by the Gaming Board
guidelines, together for the purposes of the proportionality test.
4. The Regulatory Reform Act provides that a regulatory
reform order may create a new burden only if the test of proportionality
set out in section 1 of the Act is met, and if the Minister is
of the opinion that the tests of fair balance and desirability
set out in section 3 are met. The Department is required by section
6(2)(f) of the Act to state how these tests are to be satisfied.
5. The Department has not, however, explained why
the Government considers that the new burden of the proposed order
in its own terms meets the requirements of section 1(c)(ii) of
Q2 Please indicate why the Government believes
that the new burden which would be created by the order is proportionate
to the benefit which is expected to result from its creation.
6. Paragraph 64 of the explanatory statement sets
out the Government's assessment of the way in which the proposal
meets the fair balance test. For the fair balance test to be satisfied
in relation to the proposed new burden under section 3(2)(a) of
the Regulatory Reform Act, the Minister must be satisfied that
the provisions of the draft order, taken as a whole, strike
a fair balance between the public interest and the interests of
the persons affected by the burden being created.
7. As the proposed order would impose only one new
burden, and as paragraph 64 refers to 'new burdens', it appears
to the Committee that the Department has taken non-statutory guidelines
into account in its assessment both of the way in which the order
would benefit both the public interest and the interests of those
persons affected by the new burden. It is not therefore clear
to the Committee whether the Department's assessment of the fair
balance test meets the requirements of section 3(2)(a) of the
Regulatory Reform Act.
Q3 The Department has accepted the need to make
non-statutory provision for measures of protection further than
those which the draft order itself contains. Please state how
the Department believes that the order, taken as a whole, would
strike a fair balance between the public interest and the interests
of the persons affected by the burden being created.
Whether the proposal continues any necessary protections
(S.O. No. 141(6)(c))
8. Section 6(2)(d) of the Regulatory Reform Act requires
the Minister to state "whether the existing law affected
by the proposals affords any necessary protection and, if so,
how that protection is to be continued". The explanatory
statement does not appear to set out the Department's assessment
of the protections afforded by the present legislation in the
terms required by section 6(2)(d).
Q4 Please list the relevant protections which
the Department considers are contained in (a) the existing law
affected by the proposals, and (b) any current Gaming Board guidelines
on the operation of gaming machines which will be amended by the
proposed new guidelines.
Q5 Please indicate the extent to which the Department
considers these protections will be continued by means of (a)
the proposed order and (b) the proposed new guidelines.
Q6 In respect of any protections the Department
considers will not be continued, please indicate whether the Department
considers that these are necessary protections.
Necessary protections: paying out on smartcard
9. The present requirement that machines must pay
out only by coins appears to provide a de facto protection
for the player, in that an immediate payout of winnings from a
machine in full in cash is theoretically guaranteed. The Department
believes that the proposal would impose a new burden on operators
by requiring those operators who run jackpot machines which pay
out in non-cash media to pay out the full value of a player's
winnings from the operator's machines on demand by cash, cheque
or a combination of the two at the premises where the machines
are used for gaming. The Department states that this new burden
will act as a protection for customers.
10. The consultation document indicated (at paragraph
57) that the Government did not propose to make it a specific
offence for an operator to refuse to honour a legitimate smartcard
credit, but that "a consistent pattern of improper refusal
to settle smartcard credits would plainly have an impact on the
11. The Committee has noted the observations of Professor
David Miers, of Cardiff University Law School, on this point in
his response to the consultation document. Professor Miers has
argued that it is possible to make it a criminal offence for an
operator to refuse to settle smartcard debts; that the threat
of market sanctions on an operator who refuses to settle smartcard
credits is an insufficient form of protection, as so much depends
on the nature of the local market; that the possible eventual
loss of business by a recalcitrant operator does not sufficiently
compensate the player whose credits would remain dishonoured;
and that operators who are to be given the commercial advantages
of smartcards should also have their obligations to players set
out in law.
Q7 What is the Department's response to the specific
issues raised by Professor Miers in his consultation response?
Q8 Why it is not possible to make it a criminal
offence to refuse to pay out on smartcard debts by means of the
Q9 What will the practical effect of the new requirement
on payouts be, in terms of consumer protection?
Q10 What recourse, if any, will a customer have
in practice against an operator who refuses to comply with the
Q11 What sanctions in law, if any, will be available
against an operator who refuses to comply with the new requirement?
12. Section 38(3) of the 1968 Act renders it an offence
to contravene any provisions of section 31 of the Act "in
so far as they relate to the use of machines". Section 31(1)
indicates that that the provisions of section 31 are to have effect
"where any machine to which [Part III of the 1968 Act] applies
is used for gaming on any premises . . . ". The proposal
would make provision for the immediate honouring of smartcard
debts by inserting new subsections 31(3A) and (3B).
The Committee considers that a breach in the requirements
of those subsections would relate to the use of machines, and
would therefore constitute an offence under section 38(3), but
this is not clear on the face of the proposal.
Q12 Does the Department agree that failure by
an operator to honour a smartcard debt, thereby breaching the
provisions of proposed new subsections 31(3A) and (3B), would
constitute an offence under s. 38(3) of the 1968 Act?
Q13 If this is so, does the Department intend
that this should be the case?
Necessary protections: credits to smartcards
13. The consultation document proposed a specific
safeguard to be included in the Gaming Board guidelines, namely
a requirement that whenever a smartcard is withdrawn or ejected
from a gaming machine, the machine shall first credit the card
with all the money owing to the player. This requirement does
not appear in the list of proposed guidelines in the explanatory
Q14 Why was the proposed requirement that a smartcard
withdrawn or ejected from the machine should first be credited
with all the monetary value owing to the player was dropped between
consultation and proposal stage? For what reason is this safeguard
not considered to constitute a necessary protection?
Necessary protections: operation of smartcard
14. The explanatory statement (at paragraph 68) indicates
that Gaming Board guidelines "will provide for premises which
have gaming machines which use smartcards to have smartcard readers,
separate from the gaming machines, for customers to use so that
they can check the amount remaining on their card without inserting
it into a gaming machine."
15. The draft Gaming Board guidelines at annex A
to the explanatory statement appear to be at variance with this
provision They indicate that "a facility must be available
on the premises which will show the player what credits his smartcard
holds without requiring credits to be spent or a game to be played.
In practice this requires that the facility is provided by
the machine [emphasis added], where the contents of the smartcard
will be shown on a display until either the player transfers money
from the smartcard or withdraws the smartcard."
Q15 Please explain the apparent discrepancy between
the Departmental policy aim, which is to require operators to
provide free-standing smartcard readers, and the draft Gaming
Board guidelines which are intended to achieve this aim, which
indicate that it is acceptable for smartcard readers to be built
into gaming machines. Please also indicate how the draft guidelines
are to be amended to resolve the discrepancy.
Q16 Please explain how the proposed requirement
for operators to provide free-standing smartcard readers can effectively
be enforced by Gaming Board guidelines, given that these guidelines
are addressed to, and enforceable upon, suppliers of gaming machines
rather than operators.
Necessary protections: removal of requirement
to accept payment for single play
16. GamCare, in its response to the consultation,
believed that the present requirement that machines should be
able to accept payment for a single play constituted an important
safeguard, "especially for the occasional or casual player."
However, it raised no objection to the removal of the requirement,
provided that the relevant machines would display clearly the
minimum stake to be committed to play the machine, and the number
of games which could be played for that stake.
Q17 How does the Department intend to ensure that
players know, in advance of committing their money to a machine,
the minimum stake which has to be committed to play, and the number
of games which can be played for that stake?
17. The proposal would also remove the requirement
to be able to accept payment for a single play from machines which
could continue to accept coins. But there would presumably no
technical bar to such machines being able to accept payment for
a single play. In the consultation document, the Government proposed
that a requirement that coin-operated machines should be able
to accept payment for a single play should be inserted into Gaming
Board guidelines. However, the explanatory statement states (at
paragraphs 70 and 71) that the Government now considers that it
would be inappropriate for the guidelines to renew a requirement
which Parliament had removed from legislation, and that in any
case "not much purpose" would be served by doing so.
Q18 Why does the Department now believe that jackpot
and higher-value AWP machines which accept coins should no longer
be subject to the requirement that they should be able to accept
payment for a single play?
Q19 What is the basis for the Department's assertion
that not much purpose would be served by including the requirement
in Gaming Board guidelines?
Necessary protections: retention of cash residues
18. The proposed Gaming Board guidelines for operation
of the bank meter appear to indicate that machines will be required
to pay out from the bank meter only in round pound amounts: they
will therefore not be required to pay out cash amounts of less
than £1 remaining on the bank meter. It could be argued,
however, that the flexibility of new payment methods ought to
work in favour of the player as well as the operator of a machine.
There does not seem to be any particularly good reason why, for
example, the full amount owing to a player on a bank meter could
not be credited electronically to a smartcard. The retention on
the bank meter of a sum which the player could realise only by
transferring it to the play meter appears to the Committee to
constitute an inducement to further play.
Q20 Please explain whether in the Department's
view the proposal, contained within the Gaming Board guidelines,
to permit operators to retain sums of up to £1 which remain
on a player's bank meter, constitutes an acceptable reduction
in the level of protection presently available to players of gaming
machines. If so, please explain why.
Necessary protections: operation of Gaming Board
19. The Committee is concerned at the extent to which
the apparent protections contained in the existing law are to
be replaced by non-statutory guidelines for suppliers of gaming
machines, to be issued by the Gaming Board. These guidelines would
make detailed rules for the operation of the new types of gaming
machine which the Department envisages will be able to operate
lawfully in Great Britain should the proposed order be made.
Q21 Why does the Department believe that it is
more appropriate for the safeguards to be enshrined in non-statutory
and non-binding guidelines, which will not be subject to Parliamentary
scrutiny or approval, rather than being set out on the face of
the proposed order?
Q22 At what point does the Department expect the
guidelines which the Gaming Board intends to issue to accompany
the proposal, if made, to be finalised and issued? Under what
circumstances, and under whose authority, may the guidelines subsequently
20. GamCare, in its response to consultation, raised
concerns about the present enforcement powers of the regulatory
authorities. In relation to present Gaming Board guidelines on
the operation of gaming machines, it stated that "the regulator's
powers to enforce compliance are only partly effective."
Q23 What is the Department's assessment of the
effectiveness of the Gaming Board as a certifying and enforcement
Q24 What is the Department's response to GamCare's
assertion that the Gaming Board's powers to enforce compliance
with its guidelines "are only partially effective"?
Q25 Please provide an analysis, covering the last
three financial years for which figures are available, of the
Board's activities in certifying suppliers and refusing and revoking
certificates; the complaints received in respect of breaches of
gaming machine guidelines; the number of complaints investigated,
and the resulting action taken by the Board.
21. There are some doubts (raised at paragraphs 9
to 11 above in relation to the proposed guidelines on the provision
of smartcard readers) as to the extent to which the Board is able
to enforce its guidelines on the operators of gaming machines,
given that it does not certify operators.
Q26 Please explain why the Department believes
the proposed guidelines can be enforced by the Gaming Board in
so far as they relate to operators, and how the proposed guidelines
to apply to suppliers relate to their fitness to be suppliers.
Whether the proposal has been the subject of,
and takes appropriate account of, adequate consultation (S.O.
22. The Committee notes that the Government, in the
consultation document, asserted that "it seems unlikely that
the way people will play machines will alter" as a result
of the changes to the operation of jackpot and higher-value AWP
machines which the proposal would enable.
23. The Committee has also noted the response of
Professor David Miers, of Cardiff University Law School, about
research into problem gambling. Professor Miers states that the
Government, in its consultation document, has been content to
accept industry beliefs about the proportion of winnings recycled
into machines by players, and the prevalent self-limiting behaviour
of the majority of players. He notes that the Government does
not appear to have taken into account any of the relevant findings
of the Gambling Prevalence Survey, the results of which were published
in 2000. Dr Steven Miles, Director of the Centre for Research
into the Social Impact of Gambling at the University of Plymouth,
believed it "imperative" that research should be undertaken
to address the potential impact of the changes on the patterns
of consumption of gaming machine users and their likely effects
on problem gambling behaviour.
24. Since the explanatory statement does not appear
to address these specific issues which have been raised in consultation,
the Committee is keen to be satisfied that the Department has
taken adequate account of them.
Q27 Please set out the basis for the gaming machine
industry's assertion, repeated in the consultation document, that
70% of players' winnings are played back into gaming machines,
and that players generally decide to limit their session expenditure.
Q28 Please indicate whether the Department has
commissioned, or is aware of, any independent research into the
effects of the new machines and payment methods on player behaviour
and problem gambling; if so, what conclusions it has drawn from
the research findings; and if not, why not.
25. The Department has made at least two material
changes to the proposal following consultation. The Department
proposed to include the following two requirements in Gaming Board
guidelines: (a) that a smartcard ejected or withdrawn from a gaming
machine should automatically be credited with the full value owing
to the player, and (b) that machines which were to continue to
accept coins should continue to be required to accept payment
for a single play. It has now decided to drop both these requirements
from the proposal, both of which the Committee considers would
arguably constitute forms of protection for the player.
26. Although the Department states that no changes
have been made to the proposal as a result of that consultation,
it seems to suggest (in paragraph 137 of the explanatory statement)
that it agrees with the argument put forward by certain consultees
that coin-only machines should not need to be able to accept payment
for a single play
Q29 Why did the Department not seek the views
of consultees on dropping these forms of protection from the proposal?
Whether the proposal requires elucidation, is
not written in plain English or appears to be defectively drafted
(S.O. No. 141(6)(h))
27. The proposed order would amend section 26(1)(b)
of the 1968 Act to remove the requirement for jackpot machines
and higher value AWP machines to accept coins. It would also amend
subsections 34(5B) and (5D) to remove the requirement that higher-value
AWP machines should accept and pay out by means of coins only.
However, the proposed amendments to the existing law do not appear
to specify what means of payment may be made into a higher-value
AWP machine. The Committee considers that the effect of the proposal,
if made, may therefore enable higher-value AWPs to accept any
form of payment, extending to smartcards and even to credit cards.
The explanatory statement makes it clear that this is not the
outcome the Government intends.
Q30 Please indicate whether the Department agrees
with the Committee's analysis of the effect of the proposed order
in this respect. If so, how does the Department propose to redraft
the proposal to close this drafting loophole? If not, why does
the Department believe that the draft order, as presently drafted,
would have the effect of permitting higher-value AWP machines
to accept nothing other than banknotes and coins in payment?
Whether the proposal has been the subject of,
and takes appropriate account of, estimates of increases or reductions
in costs or other benefits (S.O. No. 141(6)(m))
28. The Department states that, because sections
34(5C) and (5D) of the 1968 Act were amended in December 2001,
the operation of section 1(4) of the Regulatory Reform Act prevents
their further amendment until December 2003. It believes that
it is therefore not possible to amend the law to allow the use
of smartcards, payouts in means other than coins, or the optional
retention of winnings for future play, in higher-value AWP machines,
as was proposed in the consultation document. As a result it estimates
that the benefit to industry of the proposal, if made, would be
reduced from £9.5 million to £1.85 million.
Q31 Given the very significant reduction in overall
benefits which the proposed order would now achieve, why the Government
has decided to press ahead with the proposal at this time and
in this form?
Acceptance of the euro
29. Suppliers and operators of gaming machines have
identified potential benefits to industry from the draft order,
in terms of reduced conversion costs, should the UK decide to
adopt the euro. The Committee would like to know whether it would
be possible for machine operators in, for example, Channel ports
and tourist resorts, to enable gaming machines to accept payment
in euro and to pay out in euro.
Q32 Are operators of gaming machines in Great
Britain at present able to accept payment into machines in euro,
and/or to pay out in euro? Would the proposal lift any restrictions
which presently operate in this respect?
Other matters arising from the Committee's consideration
(S.O. No. 141(5))
Timing and handling of the proposal
30. The proposal is being brought forward in advance
of a Gambling Bill which the Government hopes to introduce in
the 2003-04 Session. The Department has explained that, because
of the provisions of section 1(4) of the Regulatory Reform Act,
the proposal cannot amend sections 34(5C) and (5D) of the Gaming
Act 1968 to make provision for the use of smartcards in higher-value
Q33 Why were the implications of amending sections
34(5C) and (5D) of the 1968 Act in December 2001 not realised,
given that the provisions of the proposed order, and of the Regulatory
Reform Bill, were known as early as March 2001?
Q34 How soon after the expiry of the 60-day period
for Parliamentary consideration (presently estimated to expire
on 4 June 2003) does the Department envisage being able to lay
the draft of this order before Parliament?
Q35 Assuming Parliamentary approval of the draft
order, when does the Minister expect to be in a position to make
Q36 What is the earliest date on which the Minister
would be able to make a regulatory reform order in the terms envisaged
in the March 2001 consultation document, having regard to the
provisions of section 1(4) of the Regulatory Reform Act?
31. The Department has indicated that the technical
standards set out in the proposal and the accompanying guidance
lay down technical standards of a type of which the European Commission
must be notified.
Q37 Please indicate the date on which notification
of the proposed new technical standards was made to the Commission,
and when the Department expects to receive clearance of the new
I would be grateful to receive your response to the
above questions, together with any further information the Department
believes would be helpful, as soon as possible, and in any case
not later than Thursday 17 April. Could you please ensure that
you send a copy of your response to the Clerk of the House of
Lords Committee on Delegated Powers and Regulatory Reform, Christine
3 April 2003