Select Committee on Regulatory Reform Thirteenth Report


Appendix A

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 the burden.

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 the Act.

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 debts

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 operator's market."

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 proposed order?

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 new requirement?

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 statement.

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 readers

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 guidelines

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 be amended?

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 authority?

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. No. 141(6)(d))

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 AWP machines.

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 the order?

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 standards.

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 Salmon.

3 April 2003


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2003
Prepared 28 May 2003