Memorandum submitted by the Department
for Culture, Media and Sport
1. We have been invited to submit evidence
based around any or all of the questions set out below. The Secretary
of State published two documents on 3 July 2003 setting out the
Government's policy on licensing and regulation of the National
Lottery, and on the distribution of the money raised for good
causes. We have tried to answer the questions without repeating
all that is set out in those documents.
Q. Will the proposed changes ultimately
lead to more resources for good causes?
2. Two things will decide this: the total
volume of sales of Lottery games; and how the money is distributed.
This section sets out how our proposed changes to the licensing
of Lottery games will contribute to maintaining sales. The Secretary
of State has three overriding statutory duties. The duty to act
in a way most likely to secure propriety, and the duty to protect
the interests of participants, have primacy, but subject to them
the third duty is to do her best to maximise the net proceeds.
This is the money which goes to good causes.
3. The UK National Lottery is one of the
most successful lotteries in the world. It rapidly caught people's
imagination and, since 1994, has raised more than £15bn for
good causes. Private sector expertise and enterprise was delivered
through a framework of careful regulation that ensures propriety
and protects players. Competition to operate the National Lottery
lies at its heart.
4. The changes proposed for the licensing
and regulation of the National Lottery will introduce greater
competition into the operation of the Lottery. We believe:
— Increased competition should deliver
the best result for good causes.
— The proposals will allow the opportunity
for companies of different specialisations to bid for different
licences where they have greatest competitive advantage.
— The proposals will allow flexibility
for the NLC to take a view of the market for Lottery products
at the time of the next competition.
5. To ensure that there is effective competition
at the end of the current licence period in January 2009, the
Government's Decision Document[2]
proposed a new approach to licensing the Lottery. This:
— Moves away from a requirement for
a single licence competition, typically every seven years.
— Retains and strengthens the National
Lottery Commission (NLC) as regulator.
— Provides the NLC with the ability
to offer for competition a range of licences to operate different
parts of the Lottery.
— Allows for those licences to be of
different duration.
6. Our proposals for better distribution
of Lottery money will also have an impact here. Making decisions
more transparently, involving the public in those decisions, and
making it easier to apply for and use Lottery money will all build
confidence in the National Lottery as a national institution.
The whole package of reforms of this kind, the impetus we have
put behind the tenth anniversary celebrations, and the work to
make it more obvious to people which projects have benefited from
Lottery money will all aim to keep people interested and playing
the National Lottery games.
7. Bringing together the New Opportunities
Fund (NOF) and the Community Fund to create a new Lottery distributor
will make direct savings which can be spent on grants. It will
be responsible for distributing 50% of all Lottery money to good
causes which at present are overlapped by NOF and the Community
Fund. The scale of those savings and the timing will be agreed
later this year. A single body would be able to provide a more
responsive and streamlined source of funding for applicants with
ideas to benefit their communities. The body will take a lead
role in implementing improvements in distribution, including simplifying
the application process, cutting administration costs, and increasing
responsiveness to public views. Although the merger is being driven
primarily by these policy considerations, the benefits we envisage
should also lead to efficiency savings and, ultimately, increase
the resources available for the new good cause.
8. By addressing the high level of balances
we aim to get Lottery money delivering projects on the ground
more quickly—delivering the benefits of the Lottery to communities.
Since March 2002 about £680 million of balances have been
released on top of the current income from Lottery sales. While
this means a little less investment income to be distributed,
the other side of this coin is that as projects get money earlier
the spending power of that money will not have been eroded by
inflation in the meantime.
Q. Is the National Lottery Commission
(NLC) the right body to regulate the National Lottery?
9. The Government's proposals provide that
the NLC be retained as regulator of the National Lottery. In reaching
this view, the Government considered whether there should be change
to the regulation of the Lottery. Most responses to the consultation
exercise[3]
recognized the special legal position of the Lottery and the unique
support it provides for good causes. There was also acceptance
that the regulator should continue to have its existing responsibilities
(to ensure that the Lottery is run properly and that players'
interests are protected and subject to that to maximize the income
for good causes). Most respondents believed that to combine the
regulation of the Lottery with that for the rest of the gambling
sector could give rise to irreconcilable conflicts of interest
for the regulator. There was general acceptance that the Lottery
should therefore continue to be regulated by a separate regulator,
the NLC, rather than the proposed Gambling Commission.
10. It would in principle be possible to
divide the functions of awarding licences to run the National
Lottery and ensuring compliance with the licence conditions between
separate public bodies. But unless the bodies had the same members
such an arrangement would deprive the regulatory body of familiarity
with the experience which the licensing body had when making its
decisions. There would be two learning curves rather than one;
and the knowledge gained by the licensing body might be unused
for some time. Nor is there any reason to believe that the NLC
has felt inhibited from punishing breaches of licence conditions
on account of having selected the current licensee. If, on the
other hand, the bodies had the same members then it is not clear
what purpose would be achieved. So in either case inefficiencies
would result.
Q. Should the responsibilities for awarding
licences, on the one hand, and regulating their implementation,
on the other, be divided between different bodies?
11. Given the NLC's increased role under
the Government's proposals for future licensing arrangements to
offer flexibility in the licences that may be offered and their
duration it does not seem to make sense to strip it of "sponsoring
and commercial" functions. Without a duty to maximize revenue
for good causes it would be open to the NLC to select an operator
which was wholly safe and of unquestionable integrity but also
wholly ineffective. It might be argued that the operator(s) itself
has a strong incentive to maximise sales, so that no further duties
on its regulator are needed. But that incentive is there only
because the NLC structured the licence and competition for it
in such a way as to provide that incentive. However a regulator
might approach the task quite differently depending on what its
statutory duties are in respect of maximising income. This issue
does not only arise at the initial competition stage, but throughout
the licence period, whenever the NLC has to consider proposed
changes to games, prizes, sale arrangements etc, in each case
having to balance its current statutory duties.
12. So long as the NLC retains a responsibility
for the proceeds of the Lottery there are obvious arguments against
contemplating its incorporation into the Gambling Commission.
Clearly the Commission would be expected to treat all the gambling
it regulates even-handedly. But it would be at risk of complaints
from commercial operators that it was holding them back in order
to advantage the Lottery. As set out above, for this reason the
Government agreed with those who considered that the Lottery should
continue to be regulated by a separate regulator, the NLC, rather
than the proposed Gambling Commission. The Government is therefore
also proposing changes to the way that the NLC is organised to
support its new role.
Q. What advantages, disadvantages or
risks, are there in a system of multiple licences for different
parts of the Lottery operation potentially run by different bodies?
13. The Government proposes to end the
requirement that the NLC issue just one operator licence for the
National Lottery (the section 5 licence under the National Lottery
Act etc. Act 1993). There would also be an end to the requirement
that other companies may only participate (the section 6 licences)
with the agreement of the section 5 licence holder. The Government
proposes instead that the NLC should be empowered—after
consulting on its licensing plans—to offer a number of new-style
operating licences covering different aspects of the delivery
and marketing of the Lottery; the NLC would also have the ability
to offer licences of different lengths.
14. The Government recognises that it will
be important under the proposed new licensing arrangements to
maintain the unity of the Lottery, both in terms of its operation
and public image. There will be competition for such different
licences as the NLC considers appropriate; but once selected the
licence holders may have to make their distribution and information
systems accessible to each other. There will have to be, as now,
common branding. It will be the NLC's responsibility to set and
enforce licence conditions which ensure that everyone pulls in
the same direction. In the context of the National Lottery, competition
should not mean that once there are separate licences held by
separate companies each must try to decrease the sales income
of the others; and the NLC will have ways of ensuring that operators
have incentives to grow the whole business.
Q. Will multiple licences increase competition?
Should, and/or could, any tender arrangements include a mechanism
to prevent one company winning all available licences?
15. The proposals should make the market
for Lottery game provision more contestable, by removing the requirement
that any section six licensees can promote a game within the National
Lottery only under agreement with the section five licensee. Such
changes will reduce barriers to entry, thereby providing increased
potential for an economically efficient outcome by allowing new
entrants to specialise, for example, in the provision of specific
Lottery products, eg online, scratchcards, etc. The outcome should
enable a more open, dynamic and competitive market for the provision
of Lottery games. While the operator may have an advantage over
potential new entrants, in terms of having a proven track record
(thereby providing a barrier to new entrants), this factor is
outweighed by the pro-competitive elements of the proposals including
the ability of the NLC to issue more than one licence for different
parts of the Lottery operation.
16. Multiple licences should increase the
potential for competition to operate the National Lottery—although,
as identified above, the most important consideration will remain
to maximize the overall amount the operators are able to raise
for good causes. This would argue against both imposing restrictions
on those bodies that can participate in licence competition(s)
and the number of licences for which any operator could submit
a tender.
Q. What will be the impact on the existing
good causes of the Olympic funding stream being created to provide
resources in the event that London wins the 2012 bid? How realistic
are the Government's estimates?
17. New Olympic Lottery games could generate
£750 million in the period 2005-12. It is likely that some
people will choose to play the Olympic Lottery games instead of
existing National Lottery games. Camelot estimates, reviewed by
NLC, suggest that the proportion of sales of the new Olympic Lottery
games which are accounted for by sales which would otherwise have
been enjoyed by the existing games (sales diversion) could be
in the region of 59%. However, Olympic Lottery games have the
potential, as part of a wider strategy for growth, to invigorate
interest in the Lottery in general and therefore benefit all the
existing good causes.
18. Another way of looking at this is the
impact on the funds which existing distributors have to spend.
Current estimates are that sales diversion could lead to an average
annual reduction in this income of about £64 million a year
to the existing good causes over the seven years of the games
(2005-12). Because of the expected profile of sales of Olympic
Lottery games, the impact of sales diversion is likely to be lower
in the early years, rising after 2009. The bulk of sales of Olympic
Lottery tickets will occur after 2009, in the two years immediately
before the Olympics Games in 2012. Camelot's estimates of Olympic
Lottery proceeds over the period are as follows:
|
| | 2005
| 2006 | 2007
| 2008 | 2009
| 2010 | 2011
| 2012 |
| Total | £m
| £m | £m
| £m | £m
| £m | £m
| £m | £m
|
|
| OLDF return | 753
| 35 | 50
| 53 | 81
| 126 | 156
| 155 | 97
|
|
19. Any forecast comes with uncertainty and qualifications
but we believe Camelot's estimates, as reviewed by the NLC, are
robust.
Q. Does the National Lottery have the right focus—is
it right that the range of available awards will be from a few
hundred pounds for a local grant to (possibly) millions of pounds
for a national transformation grant?
20. It is true that Lottery money goes to fund a wide
range of projects but the Government believes this very diversity
is fundamental to what the Lottery is about. The £500 grant
to a local sports centre to provide football equipment provides
different benefits on a different scale to the £45 million
given to the Eden Project but both help transform communities.
Part of the Lottery's strength is the wide range of things it
can fund, enabling it to be locally sensitive to the needs and
interests of our nation's many communities. Key here is ensuring
that the Lottery Distributors are structured to deliver this variety
of grants in the most efficient way possible and this is what
many of the proposals in the Lottery Distribution Decision Document
are intended to achieve.
Q. What are the implications of merger of the New
Opportunities Fund and the Community Fund with the Millennium
Commission's ability to support large regeneration projects?
21. The Government is giving the new distributor the
leading role and wide powers to fund projects of national significance,
as the Millennium Commission has done. This is the natural focus
for this role, as the distributor will distribute 50% of Lottery
income in future. The level of resources devoted to this programme
will be significant, but has yet to be finalised. Detailed proposals
for the precise nature and scope of transformational funds are
being worked up in conjunction with the new Lottery Forum.
Q. Will this merger be enough to achieve the desired
changes: improvement in efficiency and increased speed and simplification?
22. It does allow us to create a new dynamic Lottery
distributor, more responsive, more streamlined and better able
to exploit opportunities for joining up funding streams.
23. We want the new body to be more than the sum of its
parts, and we believe it will successfully be able to set the
pace for modernising delivery of Lottery funding, making a real
difference to the lives of disadvantaged people and communities.
The new body will:
— provide a responsive and streamlined source of
funding, particularly for the voluntary and community sector;
— focus on improving the quality of life in communities
by tackling disadvantage and social exclusion; and
— take a lead role in implementing improvements
in distribution, including streamlining application processes,
cutting administration costs and increasing responsiveness to
public views.
24. In addition, we want the new distributor to have
a clear focus on outcomes, and to demonstrate genuine innovation
in delivering them. This extends to the range of delivery agents
used, which might include the new Community Interest Companies.
The new distributor's role will be to pilot new programmes and
approaches. It will need to be confident that ongoing funding
is in place for longer term projects, and that the revenue consequences
of capital funding have been fully considered. In all of this,
our commitment to the principle of additionality remains.
25. The new body will continue funding for charities
and the voluntary sector, and health, education and the environment,
and will also assume the Millennium Commission's ability to fund
large scale regenerative projects. Detailed proposals for the
different funding programmes the new distributor will operate
are currently being developed.
26. Creating the new distributor will require primary
legislation. However, we are encouraging NOF and the Community
Fund to work as closely together as possible in the meantime to
begin to exploit the synergies between the two bodies and to ensure
that full merger can happen quickly when the legislation is in
place. The benefits of administrative merger are already being
felt, and we are confident that the full merger will deliver the
full range of benefits we envisaged in the Decision Document.
Q. Will the provisional view of the Department—that
the UK structure for Lottery distribution should be retained but
that the devolved administrations should have more influence in
setting specific priorities and strategies—a) benefit inhabitants
of those areas; b) increase returns to good causes in Scotland,
Wales and Northern Ireland?
27. The Government's view is that giving administrations
in Scotland, Wales and Northern Ireland more influence in setting
specific priorities and strategies would provide significant benefits
to residents of those areas. It would allow more flexibility to
take account of the needs and wishes of local communities. It
would enable Lottery funding more easily to be focussed on the
specific needs and priorities within each country, and to work
in synergy with other sources of funding, although the principle
of additionality would remain.
28. The Government have never proposed operating separate
Lotteries for Scotland, Wales and Northern Ireland because all
the evidence suggests that they would not generate comparable
levels of income, and so returns to good causes in those countries
would fall. Neither have we proposed the other option of collecting
money through a UK national game but completely devolving the
way the money is spent. The framework of the existing legislation
vests in the UK Parliament ultimate oversight for the sharing
out of funds and accounting for them throughout the UK. Placing
more power with devolved administrations for setting priorities
and strategies for spending in their countries should, however,
help distributors to spend Lottery money more effectively, thus
getting more real value out of each Lottery pound.
Q. Does the existing pattern of Lottery awards represent
a fair and equitable investment in the quality of life across
the UK; across society? How does the pattern of expenditure match
up with the pattern of ticket purchase? Will the new arrangements
affect the status quo?
29. The Government is committed to encouraging the fair
distribution of Lottery funding across the UK. However, equitable
distribution does not mean that every ward or region in the UK
will receive the same amount. We believe that proportionately
more Lottery funding should go to areas of greatest need, and
that there is a need to target areas of deprivation and socially
deprived groups. Nearly half the total amount awarded so far has
gone to the 100 most deprived local authorities. Having said that,
Lottery awards will continue to be made on merit, so a bad project
will not be funded simply because it is in a deprived area.
30. Some variation in levels of funding is inevitable:
different parts of the UK will have different needs and major
centres of population will often attract major capital projects,
although they are not the only beneficiaries. Having said that,
it is clear that some parts of the country continue to miss out
on Lottery funding and proposals within the Decision Document
are designed to help address this.
31. The Government do not believe it would be proper
or indeed practical to seek a direct correlation between the patterns
of expenditure and ticket purchase. The National Lottery is a
UK Lottery for UK benefit, and we believe Lottery funding should
continue to be distributed according to the merits of the application
for funding considered in conjunction with local need. The new
arrangements will not directly affect the status quo. Projects
will continue to be judged on merit, but the larger merged distributor
will be able to put more strategic effort into effective targeting.
Q. Is enough done to assist communities that potentially
merit Lottery funds actually to: (a) develop projects; (b) attract
matching funding; and (c) apply for, and win, Lottery grants?
Is there anything in the new proposals to tackle concerns in this
area?
32. Lottery distributors undertake a variety of forms
of advisory and development work on a national level and through
their regional development officers. Some have introduced a two-stage
application process, allowing them to work more closely with applicants
who have been successful at the first stage and help them to develop
projects and achieve a successful outcome. Others have introduced
grant programmes which include elements to provide up front assistance
with project planning for successful applications.
33. Proposals to develop a more streamlined applications
process and a common code of practice will help to clarify the
help which is already available for applicants for Lottery funding
and we intend the new distributor to lead in developing a network
for building capacity to make successful applications and produce
successful projects across the UK. This will include expanding
and improving on the success of the Lottery hotline.
34. Requirements for match funding vary according to
the type of project and level of funding required. The most popular
Lottery programme, Awards for All, which makes grants of between
£500 and £5,000, does not require match funding. Awards
for All has been particularly successful in attracting applications
from smaller groups and communities who may never have accessed
funding before. While the Community Fund requires a contribution
from applicants for some of its grant programmes, this does not
have to be in the form of funding, and can instead be a contribution
in volunteers' time.
35. On the other hand, major capital grant programmes
generally do require an element of match funding, ensuring that
a wider variety of stakeholders become involved in a project and
thus helping to ensure that it is viable and has a longer term
future. We believe as long as requirements for match funding are
sufficiently flexible, then they should not in themselves act
as a deterrent to good projects.
36. Lottery Distributors have been set up to give out
Lottery funding and clearly their primary focus has been on delivering
grants. Having said that all distributors offer assistance to
those applying for funding. Again the level and type of assistance
varies according the grant being applied for. The Community Fund
can also give grants to voluntary organisations which focus on
capacity building and development.
37. Merging the Community Fund and the New Opportunities
Fund to create the New Distributor is an opportunity to look at
capacity building in a much more strategic way and identify those
areas and groups across the UK which are most in need of assistance.
Q. In 2001,and other Reports, the Committee have highlighted
a number of principles and issues. We would welcome views on these
matters and whether the Government's proposals affect the existing
situation: the additionality principle; the requirement for match
funding; distribution at "arm's length" from Government;
and the tax neutrality of Lottery duty. We would welcome views
on these matters and whether the Government's proposals affect
the existing situation.
38. We believe that the policies and proposals we have
published maintain the present position in relation to each of
these four area.
39. In particular, the Government remains firmly committed
to the principle of additionality. The Prime Minister said in
1997 "We don't believe it would be right to use Lottery
money to pay for things which are the Government's responsibilities."
We intend to continue to protect the principle of "additionality",
that is that Lottery funding will not be allowed to become a substitute
for funding that would normally fall to mainstream Government
spending.
40. The proposals in the Decision Document are not designed
to alter the approach to match funding either. The Government
remains of the view that the Lottery provides an excellent vehicle
for levering in additional resources to good causes from other
sources. However, the approach we take is a flexible one, with
the distributors' policy directions recognising the reasonable
ability of different kinds of applicants in particular areas to
obtain such support. Typically larger projects are better placed
to attract match funding than awards to individuals. It is therefore
possible that the move towards smaller grants that our policies
favour will tend to reduce total match funding.
41. We also continue to believe that decisions about
individual grants should be made at arms length from Government.
This is what the legislation requires and we have no plans to
change that. To an extent it goes with the additionality principle
. However, ensuring that Lottery money goes to fund something
extra does not mean that it has to be awarded randomly. Lottery
distributors will continue to plan their work strategically and
those strategies have to be presented to the Secretary of State
for approval. Where, like Arts and Sports Councils, they also
have responsibility for giving out Government grants they will
try to ensure that Lottery funding works in synergy with Government
grants, but they must also ensure that Lottery funding is doing
something different from grant-in-aid. Inevitably there is some
ambiguity about the precise dividing line, but we expect them
to constantly work to protect additionality.
12 January 2003
2
"National Lottery Licensing and Regulation Decision Document"
July 2003. Back
3
"National Lottery Licensing and Regulation Consultation
Document" June 2002. Back
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