UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 196-iv

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

CULTURE, MEDIA AND SPORT COMMITTEE

 

NATIONAL LOTTERY REFORM

 

Tuesday 3 February 2004

MS LIZ FORGAN, MS CAROLE SOUTER,

MS SUE CAMPBELL CBE and MRS LIZ NICHOLL MBE

JOHN HEALEY MP

RT HON TESSA JOWELL MP, RT HON ESTELLE MORRIS MP,

MR SIMON BRADLEY and MR COLIN PERRY

Evidence heard in Public Questions 272 - 358

 

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the Culture, Media and Sport Committee

on Tuesday 3 February 2004

Members present:

Mr Gerald Kaufman, in the Chair

Chris Bryant

Mr Frank Doran

Michael Fabricant

Mr Adrian Flook

Alan Keen

Rosemary McKenna

Derek Wyatt

Memoranda submitted by Heritage Lottery Fund, UK Sport, HM Treasury and Department for Culture, Media and Sport

Examination of Witnesses

Witnesses: Ms Liz Forgan, Chair, Ms Carole Souter, Director, Heritage Lottery Fund, Ms Sue Campbell CBE, Chair, and Mrs Liz Nicholl MBE, Interim Chief Executive, UK Sport, examined.

Chairman: Ladies, thank you very much for coming. I am sorry to have kept you waiting, but we had an important piece of private business that took somewhat longer than I anticipated due to the fact that the Committee wanted to discuss it. Michael Fabricant.

Q272 Michael Fabricant: Ms Campbell, given that there is Sport England, Sport Scotland, Sport Wales, Sport Northern Ireland, what actually is UK Sport for?

Ms Campbell: It is a very good question.

Q273 Michael Fabricant: Thank you.

Ms Campbell: We have been working very closely with the home countries, particularly over the last six months, to ask that very question: what value do we add and why do we need a UK Sport? I think there is very clear consensus from all four of them that we can add value and that our value really sits around three key areas. The first is world class performance. That is where athletes, particularly, are performing on a UK stage - so in the Olympic Games - where they are representing Britain as a nation, as a whole nation, and how we prepare those athletes, the coaches and the systems that support those athletes. So that is our world class sport, world class performance. The other area is our world class influence. We have already a significant impact internationally as a UK body and certainly our view is that, both in terms of world class influence and as a result of that influence, attracting world class events to the UK is a significant role for us to play but clearly working very much in partnership with the home countries. The third area is the whole area of world class standards, making sure that our world class athletes working on a world class stage are representing the very best of sport, which involves our drugs testing, our drugs education and also our sporting education programme. So I think we have a unique role to play. If I can use a simple analogy with Formula 1, our job is that very key end of cutting-edge technology in world class performance sport and it requires a very focused and intense look at that, exactly as it does for Formula 1 compared with, perhaps, the mass car manufacturer.

Q274 Michael Fabricant: Avoiding any discussion of Bernie Eccleston, I understand what you say, but UK Sport probably has a world class overhead, in the sense that you have got an infrastructure. A similar thing, of course, existed with the British Tourist Authority, and in order to get rid of their overheads, if you like, they decided to merge in with - I have forgotten what it is called actually, but anyway the English Tourist Authority. Why do you not do a similar thing with Sport England so that you can still represent Britain on a national scale internationally, you can still do all the things you have spoken about, including the promotion of world class excellence in various sports, but at the same time operate, you know, within the structure of an existing organisation, and, as I say, minimise your overheads?

Ms Campbell: I think, as you are probably aware, that is where we came from. We came from a GB English structure and it was felt not to be working very effectively. I think my job as the reform chair, as I have been asked to do, has been to go back to the drawing-board to ask the very questions that you are asking of me. In the short time I have been there, having gone into fairly in depth consultations, both the devolved administrations and the home country sports councils remain absolutely convinced that the distinctiveness of this organisation requires a separation of the organisation. That does not mean to say that our back-room services and our back-room systems cannot at some point be more effectively and efficiently run together, but the actual nature of the organisation is distinctive in ethos.

Q275 Michael Fabricant: How large is your organisation? How many people do you employ?

Ms Campbell: Around 80.

Q276 Michael Fabricant: So it is quite a significant sum. Then, of course, you mentioned the Olympics, but that will be operated by a totally separate organisation. Perhaps you could outline what input you provide into the Olympics Committee?

Ms Campbell: The 2012 Committee, are you referring to?

Q277 Michael Fabricant: Not just the 2012 Committee, but also---

Ms Campbell: The British Olympics Association?

Q278 Michael Fabricant: Not just our bid to host the Olympics in 2012 - is it 2012? Yes. I am getting my dates wrong - but also, you know, our role in actually presenting world class athletes at the next Olympic Games?

Ms Campbell: The British Olympic Association is the body here that actually manages the teams, travel and movement to the games and supports the athletes at the games. We are meeting with them, and have been meeting with them over the last six months, and are very aware that we need a very strong partnership arrangement with them. We are moving to a very close working relationship with them, but it is not a simple matter of simply just transporting athletes to the games. What we do is spend the four years running up to those games to make sure we are working with the governing bodies of sport to provide the systems; and that is much more than just athletes who can achieve world class success, that means making sure we have the coaches, the performance directors who can manage that, the sports scientists and the sports medical people to support the athletes at the highest level. So absolutely, again a great question, we do need a close relationship with the British Olympic Association, but we do have distinct functions and we do have distinct roles, and they are complementary, and together I think we can provide very strongly for what is essentially the UK vision for sport in this country.

Q279 Chris Bryant: I am sorry to stick with you, again; I am sure we will come on to some of the others of you. You suggest that you do not get enough cash, that sport does not get enough cash, basically, out of the lottery. You get 16.7%, do you not, or sport does? Who should get less then? Because it is a share out of a pie, is it not?

Ms Campbell: I feel very passionately that sport can be and should be an area which can have a major impact on a whole range of other agendas, whether it is health, education, or environment. I think in the past we have seen sport for sport's sake, and I think what we are all arguing inside sport is that there is a growing awareness, and indeed growing evidence, that demonstrates that sport can impact on many other wider, equally important agendas. So we are not seeing an investment in sport as just an investment in sport, we are seeing investment in sport as an investment in health, in education, in the environment. So it is not for me to suggest who should get less, but what I think we are saying---

Q280 Chris Bryant: How much more should you get? Should it be 20%, should it be 25%, and, if so, then it has got to come from somewhere else at a time when there are diminishing amounts of money coming to all the distributors?

Ms Campbell: I do understand that. I am sure my colleagues on my right will kick me firmly under the table. I am not suggesting that we would wish to see a diminution of other people's impact, but I think there are areas where we can add value, particularly round health, environment and education and, indeed, on crime and law and order. What that amount is I think is more a discussion topic in which we would want to engage with others. I do not really want to throw you a percentage.

Q281 Chris Bryant: A very political politic answer. One part of the Olympics coming, or the Olympic bid, everybody has told us already, is that we are going to enthuse many more young people around the country to be involved in sport; but that is not going to happen by accident, is it? I presume that part of that is the responsibility of Sport England, and in Wales and so on, part of it is the responsibility of the British Olympic Association, but part of this must fall to you as well?

Ms Campbell: If we go back to the analogy that we are working at that cutting-edge of performance, I think there are two or three ways we would like to feel we could have impact. You are quite right that that community investment and those community programs lie very much with the home countries, but because we fund our elite athletes and because we also attract international events to the UK there are ways we can have a major influence. May I give you a few examples? I think we know that our elite athletes can act as an inspiration and a role model, but that does not happen in isolation; and what is important is that we build strong development programs around any visits that they make or any interventions that they make to ensure that when they inspire youngsters there is somewhere to inspire them to go to; it is not just an inspiration that is there for a few moments and then lost. So I think that helping our sports, particularly those are successful in the Olympics, build off that... I can give you the example of the world rugby. You know that the response was fantastic when they came home, and they have planned now a "Sweet Chariot" tour of the UK where they are going to take the world cup round, not only to inspire young people---

Q282 Chris Bryant: The UK or of England?

Ms Campbell: Of England, sorry, of England, not only to inspire young people but also to encourage young people to join clubs and to get into sustainable opportunities. I think the other area that we can really help with is if we take the Birmingham Indoor Athletics Championships that we helped achieve, in terms of getting that for this country, but then worked closely with Birmingham in staging those - that event itself acted as a great stimulus for schools in and around the Birmingham area, and we have got a piece of research which looked at the wider impact of that event. I think there are many pieces of work that we do that can lend their support to increasing participation.

Q283 Chris Bryant: How much of the £340 million that will be going to the Olympics will come from you?

Mrs Nicholl: As I understand it, Sport England is budgeting at 80%, about 83% of that, about 280 million.

Q284 Chris Bryant: Coming from them?

Mrs Nicholl: Yes, Sport England, and they have already provided much of that within their budget to 2009, as I understand it, so that leaves £60 million to be found across the rest of the UK between the other sports fund distributors. It is the---

Q285 Chris Bryant: So we might have the Olympics, but we might not have any money to pay for any of our elite athletes?

Mrs Nicholl: That is the concern that the home countries have at this point in time. We are working with them to identify what their serious concerns are, because there are several impacts that there will be on the lottery sports fund. One is the lottery game and the transference of funding from purchasers, and the other is the amount of £340 million that needs to be found from the lottery sports fund; so a percentage of the £60 million over and above what Sport England is contributing. Then, if there is still a shortfall of £410 million, if £750 million is required from the lottery and there is a realignment of the percentages post 2009, that again will have an impact on current income coming in. So we do have some concerns, looking at the whole picture of funding available for sport, and, if we are determined to put on a successful Olympics, we must ensure that there is appropriate investment in our athletes to perform there; and that is eight years on, so there is a big investment required.

Q286 Chris Bryant: I am sure we would all agree with that. Can I move on to Heritage. One of the things that you have highlighted in recent years - you have done quite a lot about "hot spots", which are "cold spots", I guess, areas where there has been very little Heritage monies going in, and I just wonder what you have done precisely to achieve that and where you still think there is more work to be done?

Ms Forgan: It is a very tricky thing to manage. It is no good just posting off cheques. If you do that, you waste the money and you reinforce failure. It is a long job, and we have approached it in a number of ways. First of all, we physically devolved our administration, our organisation, so that the teams of officers and, indeed, Committee members, who make the decisions about investment now dwell in the regions with which they are concerned, which means that they are very much closer to the real life of those places. Secondly, we invested money in something we had never had before, which was a development function. So in each one of those regions there are one, or two, or three people whose task is explicitly to go and be proactive, to work on the ground with groups, to build capacity, to explain to people what we can do, to transmit the message that our definition of heritage is extremely wide and that it can take in all manner of things which had meaning and value in the past for people today; and I am happy to say that it is working. We are seeing, in places that have never made applications to the Heritage Lottery Fund before, quite extraordinary responses to that. Once people get the idea that heritage is not all about historic buildings and old masters, but it actually is about their own lives, fascinating ambitions appear, and I am simply delighted with the progress. It is a wonderful thing, but it also gives us a problem because it is boosting demand, as it were, at the bottom end of applications to us at a time when we are looking at fairly strict limits to our income.

Q287 Chris Bryant: Do you worry that Britain is a bit obsessed with its heritage and sometimes it tries to place everything around it in aspic? Is there a danger - and I am mixing my metaphors horribly now - that if we keep on devoting so much time and energy to preserving the past, we will set up a whole series of capital projects which have not got enough revenue funding for the future, and actually, if sport is needing some more money, maybe we should be taking it from Heritage?

Ms Forgan: In first place, we absolutely resolutely do not fund aspic. That is a really serious point. Secondly, the sustainability of our projects is a key consideration for us, and I think, if you look at the record of the Heritage Lottery Fund, you will actually see quite a remarkable degree of success in terms of projects, tiny and enormous. We have had few, if any, failures because we pay so much attention at the start to who is going to sustain this project in the future. Thirdly, I resist your notion that we are obsessed with the past and backward-looking. Our whole focus is not on buildings in the past, it is on people and the future; and the use and the role and the meaning of the heritage asset for the future is in our decision to support it.

Q288 Chris Bryant: So is heritage the wrong word?

Ms Forgan: Well, when I started this job I thought, "I hate this word. Let us do something about it." Then I realised that to you cannot change a word, so what we are after is trying to change its meaning.

Q289 Mr Doran: Can I dig a little into the impact of the Olympics on your funding, particularly referring this to Heritage. From your own submission to the Committee, you mentioned that in 2005/2006 the DCMS estimate is that your income will reduce by £7 million as a direct consequence, but, as I understand it, the DCMS estimates are that that will accelerate and that the greatest loss will be closer to the games - 2010, 2011 and 2012. Have you done any figures to see what impact that will have on you?

Ms Souter: Yes, and we have got some slightly later figures since the evidence was produced on the latest DCMS forecast.

Q290 Mr Doran: Can you speak up just a little?

Ms Souter: I am sorry. Our latest figures suggest that we will lose £22.7 million in the period to 2009, which, of course, is the end of the licence period. We fully accept that DCMS' view is correct and that the loss will increase thereafter. I think it is very likely that as we get closer to the games the new Olympic lottery games will be more appealing to people. They will see the point more readily. We do make some estimate of that, but frankly, until we get to the point of seeing how the games are actually running, it will be very difficult to make a firm estimate. Of course that is after the end of the current period anyway, so the Department will have made its disposition of resources for the future about that.

Ms Forgan: As Carole has indicated, that would be a substantial cost to us at the same time as we are having this discussion about interest on the balances, but we regard it as a great opportunity as well. If Britain gets the Olympics it will be a showcase, not only for our sport, but also for our culture and for our heritage. I think it is really important that we take a positive view of it, as we do, and look upon it as an opportunity to invest in the culture and heritage, and also, particularly if the games are spread around the country - football, for example, is planning to spread around outside London - it is a real opportunity, from our point of view, to demonstrate the wealth and Britain's culture as well.

Q291 Mr Doran: I understand that. Let me concentrate on the finances a little, because there is also the question of the contribution which has to come from existing lottery sources to the cost of the Olympics. We heard last week from Sport England - I think Ms Campbell has just repeated that - that £340 million is to be provided by the sports lottery distributors, but that leaves £410 million to be provided by the other lottery distributors. Have you been told what your share of that will be?

Ms Souter: No, and our understanding of that is that that will be raised after the 2009 period. So we are not currently expecting that that will influence the period over the next four or five years, and obviously that will be part of the re-examination of the funding streams generally for the lottery after 2009.

Q292 Mr Doran: We have heard from two of the sports distributors and they have a clear idea of exactly how much they are involved, even if it is deferred until after 2009. Do you have a clear idea?

Ms Souter: Well, on the basis that we currently receive a sixth of the income, I think we would work on the basis that if that extra money was required we would probably---

Q293 Mr Doran: What would that be? £65 million, that sort of level, getting up towards £67 million?

Ms Souter: Yes.

Q294 Mr Doran: Okay. That is quite a lot of money. Picking up Liz Forgan's point about the opportunity that the Olympics presents, presumably you will have some investment, or some projects which will be considered for investment, as part of the show-casing. My constituency is in Aberdeen, so I need to be sure that we are going to get some benefit from all of this. You will not be spending money in Aberdeen, because we have our own Heritage distributor in Scotland, but as far as the.... Sorry, go on?

Ms Forgan: Could I explain a little bit about how we are structured in respect of the devolved administrations? We devolve to the countries and regions of England every project under £2 million, but with the enthusiastic agreement of the devolved administrations I think it would be fair to say we operate absolutely on a UK-wide basis when it comes to major grants, and so Scotland, Aberdeen possibly but certainly Scotland, has had more than its per capita share of access to the big pot because we retain this UK structure.

Q295 Mr Doran: You are absolutely right to correct me on that. Let me take the question in two parts then. First, are you working now on specific projects which will have a funding implication? Obviously we do not know yet whether we are going to be successful in the bid, but do you have an outline of what extra monies you expect to spend which could be seen to be related to the Olympics?

Ms Souter: We do not currently. We have a range of projects that are taking place obviously across London and in the various cities which might be hosts for various aspects of the games. What we will then do is work alongside the other lottery distributors to look at the programme of cultural activities that will take place in the run up to the Olympics themselves. We are all obviously thinking about that at the moment, but I think, until we have a clear view of the programme as a whole, we are not sure how each of us will be contributing to that. For example, we are all going to look at the venues, the London-based venues, next week and we will be developing our plans together on that.

Q296 Mr Doran: The second part of my question was the regions. There is concern that this will be seen to be London centered and there will be very little benefit for other regions, so it is quite important that that point is stressed. Again, do you have a strategy for your contribution to the regional improvement?

Ms Souter: I think there are two strands. First of all, there is the infrastructure, if you like, the physical projects, in places where other aspects of the Olympic Games will be being held other than London, but, second, there are the wider cultural projects which will link in with the histories of the people who are here now across the UK, who may have come here from a whole range of different places, linking those histories and those stories with the experiences of the athletes and the visitors who will be coming from across the world. I think there is a tremendous amount that we can do there. As Liz was indicating earlier, the range of projects that we support is enormous. We support a lot of cultural history projects, a lot of projects associated with language, and so on; and those sorts of things, I think, will be able to knit very well into the whole cultural programme for the Olympics, and welcoming visitors as well, providing a recognition of the communities that are here that will be welcoming other communities coming in.

Q297 Mr Doran: Can I just ask one more question? The same point really to Sports UK. I can mention Aberdeen in this context because I know that my own local authority has started to look at the possibility of providing training facilities, and when we spoke to Barbara Cassani at a previous inquiry just a few weeks ago she made it clear that was going to be a clear part of the bid. Can you say what you are planning to do to encourage the regions to be involved in that process?

Mrs Nicholl: This is where we would work very closely with the British Olympic Association and their direct links with the other Olympic Associations around the world. I think we have got to understand that not every country is going to bring their squad to the UK to prepare. If you look at what Team GB is doing, we are going to four locations prior to Athens. We are going to Greece, we are going to Cyprus, we are going to Barcelona, and going to Milan. So other countries, from a performance perspective, will be looking very carefully at, "Where is the best environment for my athletes to prepare?" I think we can learn from what Team GB's needs are and have a discussion across the sports councils about what are the opportunities for matching the needs of other countries to the facilities and locations and environment that we have pre-games; and we would rely on our partnership with the BOA to be marketing that opportunity to the other countries. So I think it must be part of a long-term plan, but there are no "givens" here.

Q298 Mr Doran: No. I understand that. Will you be involving the devolved administrations and local authorities in that?

Mrs Nicholl: Absolutely, yes. The devolved administrations will be involving the local authorities; we will be involving the devolved administrations.

Q299 Rosemary McKenna: Can I comment that it is most encouraging to see four women appearing before the Select Committee. It is interesting that it is public bodies that you represent and public appointments, because we find that most people who come before us are not women, but men, and from the private sector, so I it find very encouraging. I want to develop that theme, particularly with UK Sport, because, as a former netballer - and I am delighted to say you both were involved in netball - it is a long time ago - there is a problem, I think, about young women in sport. The image that young women have of themselves at the moment is very worrying. Can you do anything, and do you do anything, to encourage participation of young women in sport?

Ms Campbell: I think there are some very exciting initiatives at the moment; but again, if I may, the community development of sport is very much a home country-based issue, and they would be tackling that wider participation of women in sport. I think the role we could play is using our elite athletes much more effectively as role models; and I do not think we have even begun to do that in a way in which we hope to in the future. We have some very exciting plans to use our elite women athletes in a much more constructive way in the communities in which they live to inspire and motivate, but that only works if you are already athletic, and for many young women that is not how they see themselves. I think your question is a very important question. There are some very exciting initiatives now in schools where we are looking at a very different menu of opportunities beyond the rather traditional physical education that we experienced which has turned off probably as many women, unfortunately, as it excited and enthused. In fact it has turned off more. By increasing the menu of opportunities, opportunities like self-defence, aerobics, yoga, activities which appeal to young women, in a more effective way, then we are seeing massive increases in participation. I think our job at UK Sport is to try to use our elite athletes to inspire young women, not just those who are going to be elite athletes, but to inspire young women to see that being physically active, being a good athlete, is synonymous with being feminine, attractive, all those things that they tend to feel sit in different camps. I mean, that is the problem, this dissonance between: is athleticism also attractive? I think we can do some good work in that, and we have some wonderful role models, as you know, with people like Paula. Paula does some tremendous work in schools and is an inspiration, just because she is such a humble, modest, wonderful person, whether or not she is a great athlete, but she has, and I have watched her, inspired the most inactive young women to want to engage in some form of activity.

Q300 Rosemary McKenna: The Government is doing quite a lot in demanding more is done in schools. I am a former teacher and I know that teachers slide out of doing anything athletic if they possibly can, unless you are enthused yourself. So I think it is right what the Government are doing, trying to get a demand for a couple of hours a week of physical activity, especially with younger children, because I think that is where it starts. If we do not get our young children involved... You should be involved, should you not, in additionality? This is where the issue of additionality comes. If what UK Sport is doing is not in addition to what is happening in schools, that questions the whole concept of the lottery, does it not?

Ms Campbell: It does. I think this is a good piece of additionality where the lottery investment which supports the athletes to become world class can now be used to support those athletes to go into schools and add real inspiration and motivation and certainly to support the two hours of high quality PE and school sport that the Government is investing in. I think those two working together are quite a powerful cocktail really to produce the kind of results we want, which is many more young people---

Q301 Rosemary McKenna: Are you finding teachers more enthusiastic than they have been in the recent past with sport out of hours and involvement out of hours?

Ms Campbell: I think the 459 million the Government is investing over the next three years in physical education and school sport is really being invested in three things. One is in people with time to do the job, and that has always been the issue for teachers; even if they have been enthusiastic where do they find the time. It is putting in some dedicated people with real time on their hands. Second, it is providing training and support for all teachers around physical education, over £18 million of in-service training starting this April which is dedicated to physical education, which I think is a fairly significant sum of money. Thirdly, making sure that schools are an integral part of their wider community vision for sport and sport development, which I think in the past has been a little isolated. There are many people in our communities who can contribute, whether they are parents or coaches, the local club, and rather than building false bridges we are trying to encompass that within the strategy. I think it is a very exciting picture for the future and will give us a very sound foundation. I think our job is to provide the inspiration from the top really.

Q302 Alan Keen: Good morning. It would be excellent if the Olympic Lottery produced a lot of new money, a lot of new people investing. I asked this question last week. I am someone who has never bought a Lottery ticket. How would you convince me to start buying them to help the Olympics and, therefore, also help the other people who receive Lottery money instead of having their share go down? If you could inspire people to help finance the Lottery, that would be a good thing. What thoughts have you given to that? Will UK Sport be involved directly in the Olympic Lottery provided we win the Olympic bid?

Ms Campbell: Yes. In terms of distributing the Olympic Lottery, we would like to think that we are an agency that might be considered as one that might be appropriate to do that because a main focus of our work is supporting our elite athletes. Another aspect of our work is event management. We feel that we are well established to be able to make a major contribution to the Olympic Lottery and the future distribution of it. I think your question about can we convince people, I do not think we have to convince colleagues on my right, and thank you for that. I think there is a major role that sport can play as a driver of real change in society. I think it is part of our heritage actually, without trying to be clever with words, it is a very strong part of who we are as a nation. I think people can and will take great pride in us staging what is the greatest event in the world. I hope that we will produce a team of athletes that will be representative of all of the home country nations that will exceed our expectations in performance terms. I think that will lift the nation and I think that is something that people really want to see happen. Also, I believe very strongly that sport is one of the greatest cross-cutting agendas we have got. It has an immensely powerful role to play in the development of our society. I do not think we have really understood the power of sport or, indeed, the art in effecting the kind of change in local communities that we can see happen. I hope that all of us will be able to work together with the home countries to get over this message that investing in sport is investing in the future of our society and in the future of people's lives in the community, not just in excellence and elite sport.

Q303 Alan Keen: Can I ask you a pretty specific question. There are some core sports in the Olympics and I will concentrate on one alone, basketball for instance, where we do not necessarily excel in this country. Do you think that we will need to concentrate on the development of that as a sport even before we know whether we have won the bid or not? Is that one of the sports that has been neglected and should it not have been neglected as it probably has been so far, because it is a core Olympic sport?

Mrs Nicholl: One of the issues that there is within basketball is that it has not got a GB focus to its operation. The competition is on a home country basis. It has not had the driver to actually make it come together more effectively within the sport to operate at a GB level. If we win the Olympics it will have the driver and really it will be focused on how do we work together collectively as home countries to add the UK/GB focus to our performance development. What we have done with basketball is we have funded them throughout a modernisation programme to put together a performance programme at a GB level. They have struggled with that within the sport because there is a difference of opinion. They may say that their top priority is success at the highest level, which is the Olympics, but in practice it is evident that it is not the top priority, the top priority is the home country success, and sometimes there is a conflict between those things that has to be discussed and overcome within the sport. There are a number of sports that are not currently significantly funded but if we win the Olympics we will have to invest in those sports if, in fact, we are to field athletes or teams. The majority of sports that are not funded are team sports and it is going to cost a lot of money to put an effective team together by 2012. We do need to invest. I think that the cost is probably prohibitive in terms of starting it prior to knowing if we have the Olympics.

Q304 Alan Keen: I am far from being an expert on the sport but at the back of my mind I wonder is it a sport where lots of black kids, who have not got the role models to be inspired by, could be inspired by basketball players? I know there have been attempts in the past to bring what is basically an American game into the country. Is that a segment you have actually looked at? We read that black youth does not do as well at school, has basketball been looked at as a sport that may begin to give that sort of inspiration to them?

Ms Campbell: I think as a participation sport it is growing all the time. We have learned very clearly over the last ten years certainly that high world class performance strategies and mass participation, while they are connected, can achieve different objectives. Basketball is a participation sport in this country and, you are right, it can attract, and does attract, young people. However, we do have to understand that in this country basketball is not as popular, for example, as soccer and the way that it has been used in the United States to drive major social change is because basketball is high profile in the media, it has high profile people playing it, pick-up games are everywhere around every corner. I think we have got a job to do to try and widen that base of people's understanding of what is popular to play. Basketball has a real role to play but whether in the time available between now and 2012 we can build a level of performance off that participation platform that is good enough to compete at an Olympic Games is a real challenge.

Q305 Alan Keen: If it is a core sport, even before the bid is made, could the bid fail because we have not given enough attention to those core sports?

Ms Campbell: One would hope it would not fail on that basis. Most countries around the world are not world class in every sport that appears in the Olympic Games. We have got a very good record in the individual sports, as Liz would point out, and we have done extremely well in many of those activities and we want to continue and be better still. Many of the countries that excel on the world class stage in team activities, those particular sports are very strong in those countries, they are the leading sports, they are not third, fourth or fifth tier in terms of profile sport. I think basketball has a very powerful way of communicating with young people but whether we can build that performance pathway (1) is about our relationship with the sport and those sports working together, as Liz has described on a GB basis, and (2) whether we can shift that level of performance up quickly enough.

Q306 Derek Wyatt: Can I apologise to you but I had a constituency meeting which I just had to go to, so I am sorry I was late. Ms Campbell, you said something about sport and how important it is but politicians do not know that and the issue now with an Olympic bid is whether we can bring those two together inside our own sports department inside government rather than as part of DCMS, but that is a fight we will have to do on your behalf. Just one question. Although we have given a huge amount of money to sport through the Lottery, the Daily Telegraph has run a series of articles in recent weeks saying that only about 12 per cent of the money has actually gone out to the schools, and this is money promised by the Prime Minister in 2000 and here we are in 2004. All of the people are saying there is so much red tape. Why is it that there we have the money and still we cannot access it?

Ms Campbell: I think the money that you are referring to is the 750 million from the New Opportunities Fund in the PE and School Sport Programme. I will not try to argue their case, I am sure they have argued their own, but the way that money was distributed was in a strategic way rather than to just allow schools to apply because all the evidence is that unless you have people out doing good development work the people who apply are not always the people who are in most need of the resource. The view was taken that the money would be put out through the local education authorities who would prioritise those schools that would benefit most from this provision. Many of those local authorities have taken a long time to come back for all sorts of reasons, including a lack of human resource on the ground to do some of the work that was asked. Those first phase bids came through last autumn and were all cleared as first phase bids. Now we have gone into the complex planning cycle, and planning and getting planning permission, as you know, is a complex business but over the next 12 months a large number of those facilities will appear in schools and on the ground. I am not denying that sometimes there is not a great deal of bureaucracy around things but in this particular instance I believe that the strategic approach taken by the New Opportunities Fund was the right approach. Whether it could have been done more quickly or not is a matter for them.

Q307 Derek Wyatt: Patrick Carter has said that there are only two sports in the United Kingdom that are managed that he would ever invest in, which is a slamming indictment of the state of sport organisation. Do you agree with that?

Ms Campbell: I would never disagree with Patrick Carter. My view of sport in this country is that we have an unbelievable commitment from people. I would challenge any country in the world in terms of the volunteers who work in our sporting system, the nature of their commitment, the passion of their commitment, the desire to achieve that we have in this country. What I think we have not had in the past is a strong enough structure that supports those people effectively. I think Sport England and ourselves, working together with Sport Scotland, the Sports Council for Wales and Northern Ireland, are moving towards a better structure which will provide the kind of support that will empower and support those people to achieve their potential. I think colleagues on my right said if you look to people to find the solutions they amaze you with their creativity and their response, and I believe that is true in sport too.

Chairman: Thank you very much, Derek, and thank you very much, we are much obliged.

Memorandum submitted by H M Treasury

Witness: John Healey, Economic Secretary, HM Treasury, examined.

Chairman: Thank you very much indeed for coming to see us this morning. I am sorry we are running slightly late but we will take a running jump at you with Mr Adrian Flook.

Q308 Mr Flook: I would like to talk to you about the tax, Mr Healey, and the 12 per cent rate and two main aspects of it. We were told that the 12 per cent rate came in in the mid-1990s because it was neutral and within a range. We are told by the clerk, who has interpreted your submission from the Treasury that you are very much in listening mode, that the 12 per is possibly out of date. If it is out of date, how long has it been out of date? Why is it out of date?

John Healey: Chairman, may I say I am very much in listening mode, as the Government is. This is a time when the contributions not only of your Committee but also of the pre-legislative scrutiny on the Gaming Bill will play an important part in the judgments and policy development that Government takes, not just on regulation but also in fiscal matters for the future. Can I say to Mr Flook, as I hope my memorandum made clear, it is not the 12 per cent that is out of date but essentially the approach of looking for tax neutrality as the one and only reference point for decisions about Lottery duty and its future. I have tried to explain that is out of date. In a sense you are right, it was a declared principle as far as I can see in 1993 in the Finance Bill and when the Lottery was introduced in 1994. It was still a serviceable principle when the Committee last looked at this but it has become decreasingly relevant and increasingly difficult to do reliable calculations of that. What I tried to explain in my memorandum is that it no longer serves as the single best objective and reference point in trying to make decisions about the future structure or, indeed, rate of Lottery taxation in the future.

Q309 Mr Flook: Okay. What discussions have you had to change that system of raising money? We are told a gross profit tax might work, but how might that work?

John Healey: If I may say there are a couple of perhaps separable issues here. The one is the interest that Mr Flook raises about whether or not a gross profit tax might serve the purposes across the board of the Lottery better in future than the current Lottery duty. That appears to be the case in the reforms we have put in place since 2000-01 for general betting duty and it is likely to serve the purposes of the bingo industry with similar reforms. On that question, as I think the Committee may be aware, Camelot had expressed an interest in the possibility of reforming the structure and approach to the taxation by basing it on a gross profit tax rather than the current Lottery duty. I am prepared to consider that. There have been discussions with Camelot and with the National Lottery Commission, and of course involving the Department for Culture, Media and Sport as well as Customs and Excise who are the revenue department responsible for this area of policy.

Q310 Mr Flook: In preparing to consider it, what have you already considered? Have you come to any conclusions in terms of what it might do in terms of the Treasury's tax take or, more importantly, in terms of attracting people to play the game and, therefore, raise more money for good causes?

John Healey: It is too early in the process to draw any conclusions but I hope my confirmation that I am prepared to consider it is useful to the Committee. Camelot would argue based on the modelling that they have suggested that their principal interest, I have to say, is in the efficiency of the structure of the tax and its operation, not in changing the effective tax rate. Their argument is if one looks at the strategy for trying to develop the Lottery over the remainder of their licence period they are interested in particular in developing essentially high volume, low margin products as part of the Lottery range and their argument is that this type of tax system does not best support and suit that sort of development. Furthermore, they argue if we were to move to a gross profit tax then this is likely to have the impact of increasing the numbers of players and they argue that, importantly, it would increase the potential revenues to good causes as a result of that. Those are the factors that are being put to us. It is early days in our consideration but I would draw the Committee's attention to the second separable issue that I discussed earlier on, which is in considering and finally making such judgments what I have suggested in the memorandum to the Committee is that this single principle of tax neutrality is not a good basis in order to make such decisions and that we ought to be setting out to see a consistent approach to policy and methodology applied as we have done over the last two to three years with reforms of other gaming duties. That is why I set out in the memorandum a suggestion that instead we should be looking at whether the tax earning potential changes might be fairer and efficient, whether they are sustainable for the future and also whether there are ways of making them more business friendly, if you like, and less expensive and complex to administer and to collect.

Q311 Mr Flook: Just on the 12 per cent tax, the Chancellor, and no doubt yourself as well, has been very good in increasing the amount of tax that goes to charities by we, as individuals, being able to claim that we pay the basic rate of tax and claiming Gift Aid. Has the Treasury thought of trying to take that principle of the 12 per cent of tax or gross profit tax and allowing individuals, or more correctly I would have thought charities, to get some of that tax back on the assumption that in a number of ways a lot of us who play the Lottery do pay income tax?

John Healey: I have to be honest, I have not considered a potential link between Lottery duty and a system of charitable Gift Aid. Gift Aid is, of course, largely confined to charities; Lottery supports a wider range. If the Committee wanted to develop that point and make recommendations in its report it is clearly something that I would consider.

Q312 Mr Flook: Just to define it further: if I operated a charity that was in receipt of some Lottery money then I could claim for an element of the Lottery tax or whatever it may become back and add that to the sum that I receive from the Lottery. You would be willing for us to look at that a bit further and make that as one of our recommendations, would you?

John Healey: Clearly if this Committee recommended such an approach we would give it due consideration.

Q313 Derek Wyatt: Good morning, Mr Healey. When your predecessor, Andrew Smith, was in front of us three years ago we tried to make some sense of the 12 per cent and we could not. Despite pages of notes from your economists we could not make any sense of them either, we just thought it was a lot of horlicks. I am glad that you are reviewing it. Can I say that although you have taken five billion with the 12 per cent since the Lottery started, of course you have also taken 17.5 per cent of all the new build, so the take from the Treasury is probably three or four times the five billion that has been admitted. Therefore, given that, we are in a tight squeeze with the Olympics. Whether or not we agree with the additionality factor, all of the Lottery heads have been in front of us to say it is a squeeze and, depending on who they are, they are going to lose 15 to 20 per cent of the money. Would it not be easier and would it not be a wonderful commitment if the 12 per cent could make up the Olympic Lottery bid so that all the other funders could be maintained?

John Healey: You will be as aware as anybody that the proposals in the Bill currently before Parliament are essentially based on an assumption of the 12 per cent Lottery duty applying to any specific range of Lottery products that might be there to support the Olympics. You will also be aware that in addition to the funds for a potentially successful Olympic bid and event contributed via the Lottery, the Government is clearly putting in directly and indirectly very significant sums alongside that. The question of whether or not Government should consider and one can make a case for a duty rate that is different for an Olympic designated Lottery from the main Lottery is one that is possible to consider if we use the framework of principles and methodology that I have set out in my memorandum. It is not possible to consider that if our one and only reference point is some conceptual idea of tax neutrality based on the counterfactual proposition of what if the Lottery did not exist. That is all the more important, if I may say so, when we look forward to the sort of changes both to the market and to the regulatory system that are in prospect through the proposals that this Committee's main inquiry is considering because if we, post-2009, do have more than operator, if we do in fact have separately licensed Lottery products, then we must be capable of considering whether or not there is a case for a differential approach in the taxation system to that sort of change in the future.

Q314 Derek Wyatt: I know this is not strictly your area but I am interested in the 12 per cent, and Mr Flook has raised that already. Given that although Camelot may just have prevented sales going down further, it looks as though sales of the Lottery have held just for a while, although we do not know whether that is going to go down again or they have stopped the downward trend of sales of tickets, nothing irritates people more locally than if they cannot actually touch the Lottery and say, "That is ours, we paid for that". It would be magnanimous if the 12 per cent could be made into a local community fund for each district council so that they could apply quickly for money. It costs £178 if you want to apply for the Community Fund at the moment, even if you just want £500 for netball tags or you want goalposts or something for football. That is an incredibly expensive way of doing it and what we have got to do is push the money down locally. Is there any way that you can push the Chancellor into creating maybe the Chancellor's fund? I do not know what it should be. I think the 12 per cent hurts Camelot's sales.

John Healey: I do not accept the specific point you are making but I accept the general point. You will remember that it was a feature of the Labour Party's manifesto in the 2001 election that there needed to be a better alignment between those areas in which people played the Lottery, devoted a significant part of their income to it, and the rewards and reinvestment that they saw, and that has been a feature of the way that this Government has attempted to encourage the Lottery distributors to move their pattern of investments and project approvals.

Q315 Chairman: Let me just put the question that Mr Wyatt has put slightly more brutally. If the Government believes in having the Olympics in this country, assuming that we are successful in the bid, why should the Government not fund that directly rather than raiding the Lottery thus (a) reducing the amount of money available for good causes and (b) breaching the additionality principle?

John Healey: I accept that with the proposal to try and win the Olympics some do argue that it should come entirely out of direct Government spending. First of all, can I say that I do not accept that it breaches the additionality principle and, secondly, point out that the Government will be making a very significant commitment and investment in the preparations for the staging of the Olympics if we are successful with the bid anyway. Why I say in my view it does not breach the additionality principle is that the Olympics is so clearly a once in a lifetime event, it is so clearly additional to the ongoing business and commitments of public spending and delivering of public service ----

Q316 Chairman: That is a very, very interesting new interpretation of the additionality principle.

John Healey: In a sense, the additionality principle has consistently been that Lottery money should add to, it should not substitute or supplant services that are already provided by Government and it should allow things to happen that would not happen if it depended simply on Government funding alone. I would not suggest it is a different interpretation but is consistent with that. The other important point, if I may say so, is in many ways as we look at the huge challenge that first of all winning and then successfully staging the Olympics would be for this country, there is a good argument for harnessing what is clearly enthusiasm from the public for supporting an Olympic project of this type and to do so through the potential for introducing Olympic dedicated Lottery products. This Committee has taken evidence from Mr Michael Grade and he has made clear, as the Chairman of Camelot, that he believes the introduction of an Olympic style Lottery with a dedicated pot devoted towards the Games would have, as he says, a very healthy effect on the National Lottery generally.

Q317 Chris Bryant: Just to pursue the issue about the 12 per cent, as far as I can understand the whole point of the tax neutrality at the beginning, and I confess this is only as far as I can understand, the Treasury was basically saying, "We still want to take in so much money every year from gambling and we are making an assumption about what the advent of the Lottery has done to the overall gambling in the market". Is that right?

John Healey: Obviously I am not privy to the advice or analysis that was conducted or went into the introduction but, as I explained in my memorandum in paragraphs two and three, it appears that the Government at the time essentially argued that the 12 per cent meant that the Lottery duty was broadly tax neutral. In other words, it would maintain tax revenues at that time.

Q318 Chris Bryant: Basically that means up until now, until the Government brings in reforms which clearly everybody seems to think are a good idea, the assumption is that so much money from the gambling market, which includes the Lottery, should be taken by the revenue every year?

John Healey: As I tried to explain in my memorandum, I think things have moved very significantly in the last two to three years and this concept which was there at the introduction in 1993-94 and was broadly serviceable in 200-01 is a concept that has served its purpose now. I would suggest to the Committee that the central question on which it is based, which is what would the spending tax patterns in the economy be like if the National Lottery did not exist, is increasingly difficult to answer with any certainty and it is increasingly less relevant to the main policy and tax decisions that we want to consider for the future, precisely the sort of things the Committee is directly interested in.

Q319 Chris Bryant: In essence now there is no real principle behind taxing the Lottery at all?

John Healey: There is, and I have set them out in the memorandum, a more broadly based set of principles and judgments, just as we have done with ----

Q320 Chris Bryant: Sorry, you misunderstand me. I do not mean the principles or the processes whereby you set about taxing, but whether or not you should tax the Lottery at all because you are no longer considering it as part of the gambling market which was the principle why the Lottery should be taxed in the first place and then it was landed on the 12 per cent for those complex reasons.

John Healey: In fact, originally the introduction of the Lottery was considered in terms of the whole economy spend and tax take, not just on gambling. That was true of the approach we used to set out the memorandum to the Committee in 2000-01. If one uses the principles that I have tried to set out in the memorandum, the question of a fair tax rate on the Lottery is one that would need to take into account some of the very special features of the Lottery. I would be concerned, like I am right across the range of taxes, that a particular tax in part of the judgment makes a fair contribution to the funding of public services for the future. With the Lottery there are some unique competitive advantages. There is no other gambling product which has primetime BBC promotion. There is no other gambling product which is quite so freely available on the high street. There is no other gambling product which has quite the freedom to advertise in this way. Those are the sorts of factors that one would need to make a judgment about in assessing whether or not a current rate of tax for duty is fair. Those are very different questions from this hypothetical examination of an alternative universe in which the Lottery did not exist, particularly as this is now such a well-established part of national life and two-thirds of us regularly play the Lottery. It is increasingly implausible to base your tax decisions on that sort of proposition.

Q321 Chris Bryant: I think we all agree that that world is dead but the bit I am trying to get at is you have your three principles: efficient and fair, sustainable and business friendly. Your understanding of fair seems to relate to how the Lottery operates within the market of gambling and other elements of the market whereas I guess many people when wanting to say what is a fair return to the Exchequer would say it should be nil because basically you are choosing between good causes, which are the good causes that tax pays for, running the health service, education, transport, police, etc., and good causes which are facing a very tough time at the moment because the amount of money coming in through the Lottery is diminishing, each of the pots is getting smaller and on top of that, because the Government has decided that we are going for an Olympic bid, even less of the money is going to be going to those good causes. The principle of fairness to many people out in the country might be that there should not be any duty on the Lottery at all.

John Healey: Some may argue that but I regard that as a rather extreme position to take. The Lottery is a part of the gambling activities that we have in this country and it has certain unique advantages over any sort of competitor products. We would consider a degree of consistency with the approach we take with other gambling regimes is important but not only that in isolation. I am prepared, and indicated earlier, to consider this question about whether potential reforms of tax on the Lottery may indeed benefit the amount of money available for good causes. I simply say to you that that would not be a policy aim that we could capture in decisions about duty or fiscal policy if one did not move away from what was the original founding concept which was it had to be tax neutral. That is one of the reasons why I am suggesting we will now apply a different approach, one that is essentially consistent with the approach that we have taken to reforms since 2000-01 in the other gaming regimes. I think it does not lead me to the sort of judgment you are encouraging me to make, which is a fair contribution from the Lottery to the public purse through the taxation system is nil.

Q322 Chris Bryant: But it might be less than 12.

John Healey: One might make a judgment about the duty rate in the context of a broader basis for such duty decisions. One might also take the view that the current structure and design of the regime is not now serving our purposes well and is not best suited to the sort of changes that we can anticipate and, indeed, in some cases want to encourage for the future.

Q323 Mr Doran: You said just now that the original founding concept was tax neutrality, and I can understand that, but has anyone actually looked at the performance of the Lottery and the income to the Treasury over the past ten years and made any assessment of whether the end result has been tax neutral?

John Healey: As I have explained, particularly the further you get from the point of introduction, the less certain you can be about that type of calculation. Those who were Members of the Committee will remember in 2000-01 that the Chief Secretary, when he gave evidence, confirmed that 12 per cent was broadly in the range of tax neutrality. Broadly, give or take, that is probably as far as one can calculate with any confidence. The tax neutral rate is probably there or thereabouts.

Q324 Mr Doran: Does that mean yes or no?

John Healey: In a sense, Mr Doran, you are pointing to precisely the problem we have got. We are trying to base policy on a calculation which is increasingly uncertain and increasingly implausible and which posits the essential question of what would be the pattern of spend, the pattern of tax and the tax take to the Treasury if we did not have a National Lottery.

Q325 Mr Doran: When we look at the figures that you have provided in your report, and these are very helpful, it does seem that the proportionate share of gambling revenue being paid by the Lottery is increasing. For example, if you look at 1995-96, there was £612 million of Lottery duty paid which represents 39 per cent of all the total gambling tax receipts. Am I right in that?

John Healey: Are you looking at the table that underlies paragraph eight?

Q326 Mr Doran: That is right. I may be misreading this but 39 per cent in 1995-96, that was the total which the Lottery duty represented of all gambling tax revenue.

John Healey: Yes.

Q327 Mr Doran: You will see for 2002-03, the latest figures, the income from Lottery duty has reduced to £550 million but the proportionate share has increased to 43 per cent. I do not know if that is the first or second year when the new tax treatment, for example, of the horse racing duty ----

John Healey: General betting duty.

Q328 Mr Doran: These sorts of things were removed and you have got the new system and the gross profit tax. Is that something that we are likely to see in the future where the Lottery bears an increasing proportion of the income from gambling or revenue from gambling for the Government?

John Healey: I think what you can probably detect as an element of those figures is precisely as you suggest, an impact of the reforms that we have made since 2000-01 in the other gambling regimes, in particular that of the general betting duty. What has happened with the reforms that we have made on general betting duty I have indicated in Annex A just as an exemplar of how we apply these new principles. Essentially the total tax take from the general betting duty has gone down during that period. In a sense this highlights conceptually one of the flaws in the previous approach which was that, strictly speaking, if one wanted to stick tightly to tax neutrality one would need to reduce by some degree Lottery duty in order to reflect what was a lower tax take in general betting duty. The trajectory of general betting duty because of the impact it has had, including the repatriation onshore of significant business that had moved offshore and online, the additional 2,000 jobs created in the sector, the increased turnover on profitability, the revenues for general betting duty are first of all at the moment higher than they would have been if we had not made the changes but are projected to take us back to a point at which we had the revenues previously. If one was slavishly following this tax neutral principle one would need to adjust Lottery duty downwards at present to a degree and then adjust upwards as the tax take of other gaming regimes and, indeed, any other changes in the general economy took place.

Q329 Mr Doran: There are just two points I want to make to you. One is you said earlier that the Lottery is part of the gambling industry in the UK and, therefore, my assumption is that we treat it as part of the gambling industry for tax purposes. The point that you have just made in response to my comment about the increasing share of responsibility for the Government's take of the total of gambling tax needs to be examined because my understanding of what happened on the general betting duty was the Government recognised that a significant amount of the gambling industry was moving offshore because of the development of technology. I know there was a lot of lobbying from the gaming companies and, quite rightly, the Government responded. It may be, as you say, that there will be an increase over the years but in the meantime the Lottery duty is taking up the slack for that Government decision. The second point I would make is in relation to your comment that the Lottery is part of the gambling industry. Lottery is not in the same territory as the rest of the gambling industry, the betting shops, the casinos, the horse betting industry, because it is state controlled and subject to very, very rigorous licensing conditions and in virtually every respect, because of the direct link between the DCMS, the Lottery Commissioner and the Lottery operators, is subject to more Government control than any other part of the industry. It is a development which we saw in the early 1990s, promoted by Government, controlled by Government, and now, because of the amount of monies which have been received and subsequently invested in our infrastructure, cultures a whole range of benefits in this country very, very different from the rest of the gambling industry. How do you respond to the suggestion that the Lottery should not be treated as simply a cash cow to support the Government's income from the gambling industry?

John Healey: I would not accept that is how we are treating it. The tax take from the Lottery depends ultimately on the amount of business that the Lottery generates, the number of players and the amount that they spend on the Lottery. What our experience of the reforms over the last two or three years has shown, and this was your first area of interest in terms of its place within the other gambling regimes, and the fresh analysis we have used both beforehand and in monitoring the effect, is with the introduction of the Lottery there was probably a greater diversion of spend from existing gaming activities than was perhaps anticipated previously. You may remember it was judged at around one per cent in the original calculations and that is probably up to about 15 per cent in terms of the diversion. Essentially that is the impact of a new product into the market of existing gambling activities. In terms of the issue of questioning the degree of Government control over the Lottery, clearly this is a matter that is more directly the responsibility of my colleagues in the DCMS.

Q330 Mr Doran: I presented it in that way to argue that the Lottery should be dealt with differently.

John Healey: In terms of the judgments we make about tax, I think it is important and appropriate that we place it in the proper context alongside other types of gambling activities. There is a degree of diversion and interplay between the two. In terms of the regulation, there are aspects of the Lottery, and I am sure the Committee has or will pick this up with DCMS ministers, which are unique and essentially reflected in the tasks that are set for the regulator (a) to ensure propriety in the conduct, (b) to protect the players' interests and (c), within that, to maximise the revenue to good causes. Whilst in regulatory terms there may be a good case for a different and separate regime, I think there is an appropriate case for saying in tax terms that we should be looking for a consistency of approach alongside other gambling regimes, which is indeed what I tried to set out in my memorandum.

Chairman: Thank you very much, Frank, and thank you very much, Mr Healey.

Memorandum submitted by Department for Culture, Media and Sport

Witnesses: Rt Hon Tessa Jowell, a Member of the House, Secretary of State, Rt Hon Estelle Morris, a Member of the House, Minister for the Arts, Mr Simon Broadley, and Mr Colin Perry, Department for Culture, Media and Sport, examined.

Chairman: Good morning, it is very nice to see you here today. In order to celebrate your arrival we will ask Mr Fabricant to open the questioning.

Q331 Michael Fabricant: Good morning. We have just been speaking with John Healey, the Economic Secretary, and I just want to follow on from there on some of the points that were raised. To begin with, I wonder if you could give us some insight into your own dealings with the Treasury? When you negotiate with the Treasury for your annual budgets, does the Treasury, or do you, take into account monies received from the Lottery not going directly to DCMS but going to good causes?

Tessa Jowell: My job is to make sure - this is a position the Chancellor respects - that the position of the Lottery is protected because of the additionality principle. I think that if you look at my department's base line over the period for which it has both been administering Lottery income and also the Exchequer generated base line you will not find evidence that there has been an erosion of our base line and substitution by Lottery funding. We will no doubt talk more about additionality but it is a principle, the integrity of which is understood both by my department and by the Treasury.

Q332 Michael Fabricant: That is a very helpful answer. Of course, one of the other things we were discussing with the Minister was the whole question of the way in which the Lottery is taxed. As you know, there is a 12 per cent levy which is taken from the Lottery and that was based on an initial understanding of there being tax neutrality. John Healey said, quite rightly, that many things have moved on since 1992-93 and the Treasury is very much in listening mode - these were the words he used - to perhaps alternative ways of taxation and various suggestions were made by Members of this Committee. Has DCMS - you - made any recommendations to the Treasury regarding the approach that they should take towards taxation?

Tessa Jowell: If you look across the range of ways in which gambling is taxed, the Lottery is now the only form of what would be broadly described as gambling which is not subject to gross profit tax. We have not made any specific recommendation about change to the Treasury because while my officials are engaged in that discussion, and certainly there is an active debate about whether the present regime is the right one, that discussion has not yet reached the point where it would be right for there to be ministerial engagement. No doubt that point will come. Clearly my interest, and Estelle's interest as the Minister who has direct responsibility for the Lottery, is to maximise the income for good causes so we would favour a tax regime which would do just that.

Q333 Michael Fabricant: One of the things the Treasury Minister said was that he would like to see a consistency of approach. There is an inconsistency, is there not, in that the DCMS take the view that the Gambling Commission should not be in overall control of the Lottery, which is a fair enough view, and yet at the same time from a tax point of view it is treated as if it were gambling and not particularly as if it were a charitable exercise? Does the DCMS take a view on that inconsistency?

Estelle Morris: Although I can see the argument that perhaps it ought to be regulated by the Gambling Commission under the new proposals, the very different nature of the Lottery in terms of the obligation of the regulator to have regard, given that it is run smoothly, to maximise the amount of money going to good causes I do think makes it different. Although you might be right to point to that inconsistency, I think that is a very, very strong factor and what we would not want is for that to be lost because that is a key responsibility of the NLC at the moment and if that body was to go and no longer give the licence there is a risk that would happen. I acknowledge the inconsistency you have pointed out but I think a far stronger factor is the need for the NLC to have regard to maximising the money to good causes.

Q334 Michael Fabricant: This is a love-in at the moment because I am agreeing with all your answers. Given the answer you have just given, does it not follow that it would be better if the tax regime were more consistent? Let me give you an example. I do not think you were here before when we were speaking to the Minister. A number of Labour and Conservative colleagues raised the question of whether or not as this is a charitable form of giving, if you like, the question of Gift Aid should be taken into account with this. The Chancellor introduced the whole concept of Gift Aid, which I think all of us welcomed, to encourage people to give more money to charities and, as you know, it means that the recipients of such monies can receive 28 per cent back of what they have given from the Inland Revenue. To be consistent, to make the point that you made, ought that not now to be a regime that the Treasury should seriously consider? If you agree it ought to, will you press that as the department?

Estelle Morris: I think the way you have put the question, "ought it to be considered?", of course it ought to be considered, it would be silly not to consider any changes in the light of new information on the progress of the Lottery. My own experience in the relatively short time I have been in the department is that there clearly is a debate about GPT that has come before the Committee. I suppose if Tessa and I were only acting in the interests of our department we would be in favour of no tax at all and then all the extra money could go to the good causes, and there might be lots of people out there who would find that a very good point of view, but there are the wider interests of Government and in the real world there is going to be a tax regime. Our officials are working on this and my feeling and experience is that nobody is saying you cannot even consider or discuss it. The point where we are at the moment, which is perhaps not particularly helpful to the Committee, is that ideas that are coming forward are being considered by the Treasury and no doubt in due time it will be their decision, but obviously they will consult with us as they always do.

Q335 Michael Fabricant: I wonder if I could ask the Secretary of State to enlarge on that because I think this is an important point. I accept that now may not be the time at which recommendations may be made but there is an interesting point here. Estelle Morris said that the Treasury would come to you for a reaction, but I am challenging you. Would you be prepared to be more proactive and make recommendations to the Treasury regarding the taxation regime there ought to exist for the lottery, not only to maximise the amount of money that can go to good causes, because as has already been pointed out £5 billion has gone to the Treasury so far, but also to be consistent with the fact that this is charitable giving and indeed to encourage more people to give money to the lottery so that they know, for every pound they put in, 28p in addition, just like any other form of charitable giving, will be given to those charities?

Tessa Jowell: I welcome the fact that this reassessment is now taking place. As I said at the beginning, we are simply not yet at a stage, because not enough of the preparatory work has yet been done, to reach a conclusion as to whether or not there is a better regime for the lottery which should form a private proposal for negotiation and discussion with the Treasury. What you have very helpfully done is to point up the inconsistencies in the present tax regime and you also raise the other way of defining lottery income as essentially charitable income. A debate which certainly in the first instance will be an internal debate about these options is a good idea. Ultimately, the important thing is that the tax regime which governs the lottery is a tax regime which is seen as fair by the wider public, so is at best promotional in encouraging people to buy tickets and, at worst, that it is neutral in people's assessment of its fairness. Secondly, our interest is to maximise the income that is available to good causes.

Q336 Chris Bryant: If it is charitable income, surely it should be tax free?

Tessa Jowell: With respect, I do not think I can say very much more on this than I have done for the reasons that I have given. I am quite sure that the Committee's consideration of this and reports of the evidence that you have taken on this particular point will be very timely given the discussions which are now underway about the most appropriate tax regime.

Q337 Chris Bryant: Moving on to a different issue, UK Sport said to us this morning that they are worried about where they are going to find money from now that £340 million is coming from the lottery for the Olympics, £280 million of that is committed already, but £60 million is still unfound from the various distributing bodies. Is there not really a danger that we are going to find, if we do get the Olympics coming to London, that we might have a wonderful Olympic bid but we might not have any athletes to perform in it because will not have any money left around to train them up?

Tessa Jowell: No, that is not a risk that will materialise. As a Committee, you have looked in great detail at the preparation that as a government we made for the decision as to whether or not to bid for the Olympics. The indicative budget which implies a public sources underwriting of the budget of 2.375 billion is estimated to be within 80/85 per cent of probability of the eventual outcome. We are confident that the indicative budget that we have is one that will meet the costs of the Games. To move from the headline to your specific question, £340 million will move from existing sports funding streams to the Olympic funding stream. In part, that amount of money has been badged already as funding for our elite athletes to ensure that if we win the Games we also win lots of medals and funding for the Olympic swimming pool, which will form part of the development at Stratford and, thirdly, the refurbishment of facilities. The precise amounts against each of those calls are under review. One of the tasks that I have asked Sue Campbell, who is the acting chair of UK Sport as you know, to undertake is an assessment of the needs of the world class performance programme for our athletes after Athens. The first answer to your question is we are confident that the budget is a realistic one and it will be a realistic one for the sporting needs of the Games. There is a separate issue which is the effect on the other good causes of the decisions we have taken as to the way we fund the Olympics.

Q338 Chris Bryant: It was Sue Campbell who was raising this concern only an hour and a half ago, saying quite explicitly that she does worry that they are going to have to find 60 million or some share of that and they are not sure how the money is then going to come back to them to do the work with elite athletes.

Tessa Jowell: I am not quite sure what the 60 million figure is that she is referring to.

Q339 Chris Bryant: It is the 340 million minus the 280 million that has already been found, so she says, from other of the sports funding bodies.

Tessa Jowell: This, with respect, reflects what is at the moment a continuing discussion between my department, the bid team and the sports funding bodies as to whether or not the headline figure includes discounting for the loss of income for existing good causes as a result of the establishment of the Olympic Lottery. This is a matter that we will resolve over time.

Q340 Chris Bryant: Can I ask a process question? Your department has been exemplary in bringing Bills forward for prelegislative scrutiny - for instance, the Communications Bill, one of the heftiest Bills physically that we have seen - but a large chunk of it came quite late into the prelegislative process and we are now seeing the same again with the Gambling Bill. It is exemplary that most of it is out there but there are clauses that still are not there. Why is that? Why do we have rolling, prelegislative clauses coming out, not necessarily in sequential order?

Tessa Jowell: It is simply a reflection of the volume of legislation that as a government we are seeking to get through and, secondly, the resources of parliamentary counsel to draft the clauses. The fact that the clauses would be published in three groups was an agreement which I reached with the chair of the Committee and, as far as I understand it, the Committee is perfectly content with the approach that they are taking. I think they are doing an excellent job in their scrutiny of the Bill.

Q341 Chris Bryant: We had the New Opportunities Fund before us and the Community Fund earlier on and they have had a difficult time with some media reporting of some of the awards that they have made.

Tessa Jowell: Do you mean the New Opportunities Fund or the Community Fund?

Q342 Chris Bryant: Both were before us. They were talking about how they had to manage their reputational risk when they made awards. Do you worry that their successor body will end up being too timid in making awards because they are frightened of how some awards may be perceived, or should they still be courageous?

Tessa Jowell: I think they certainly should continue to be courageous and true to the principle of the lottery but I also think that the decisions by which money is awarded to good causes should be much more directly informed by people who play the lottery. One of the objectives of the changes that we are bringing about in relation to the lottery through, for instance, the establishment of the joint promotional unit, involving the public in decisions about both big and small projects, is to reinforce the link between buying a lottery ticket and the benefit that flows from 28p of that to good causes. I do not think there will ever be a day when the lottery is controversy free and it should not be because the money it spends is different from the money the government spends. There is always an inherent degree of risk in the way in which the lottery makes decisions and if it lost that sense of boldness, underpinned by public understanding and a sense of communication with the public, the lottery would be the poorer for it.

Q343 Alan Keen: Everyone is concerned about the effect on the other good causes with the introduction of the Olympic Lottery. Is there one area that still may help this? There have been allegations in the past that a lot of lottery money is not distributed. That fund was extremely high at one stage. Has more efficient redistribution reduced that fund or is there still the possibility of our getting some of that money out to the good causes?

Tessa Jowell: That is an important question about lottery balances. Both Estelle and I have been very concerned about what we have seen as the unacceptably high level of lottery balances. They are coming down. I will remind you - because otherwise you will remind me - that two years ago we published a forecast which was interpreted as a target for reduction in the balances by half by March this year. While the balances will have come down by about a billion, they will not have halved over the last two years. I am concerned about this because of the scope for wilful misrepresentation of what this means, because the balance which is held by the NLDF is a pool of committed money. Decisions about how it is going to be spent have been made. What has not happened is that the individual projects have been signed off and the money has started to be drawn down. We have had particular concerns about the Heritage Lottery Fund and the New Opportunities Fund in this, both of which are explainable in very specific ways. What concerns me and perhaps also concerns you is public confidence in the proper management of the lottery when it appears that there is £2.8 billion-worth of lottery money which is sitting around doing nothing except earning interest. That is not the case and it is important that people understand that that is not the case, but this has led me to call in the National Audit Office who are currently looking at each of the distributors and the flow of money out of their distribution fund. I hope that what the National Audit Office will be able to provide me with is advice on the prudent level to which the balances can be run down and the prudent level at which distributors should commit ahead of time. I hope that that will drive a further reduction in the balances. Our expectation is that by April this year the balances will be at somewhere between 2.5 billion and 2.7 billion and that does represent quite substantial progress over the last year. At April last year, the balances were at 3.26 billion, so they will have reduced by a billion and I think the lottery distributors deserve credit for the efforts they have made to respond to that. I think we need a clear idea -- and the NAO are best equipped to do this - of what is the safe minimum to which we should aim to get the balances.

Q344 Alan Keen: When are you expecting them to report back on this?

Mr Broadley: They are going to provide an interim report in April, so before the summer holidays.

Q345 Alan Keen: I have been approached by more than one Member of Parliament because of my involvement in sport. Because of the reduction in income - I am talking now about the sports lottery money - some applications that were progressing quite well and the sports clubs have incurred expense and found that the work that had gone into the application on the condition that the clubs spent money themselves and that expense had been incurred. How widespread is this? It is quite worrying if we are damaging sports clubs themselves.

Tessa Jowell: There are two parts in answer to your question. One is that in real terms the amount of money that the lottery is spending on sport has increased very substantially, both through UK Sport and Sport England and also through money which is being spent on sport, particularly on facilities, through the New Opportunities Fund: the £750 million programme for sport in schools, community facilities, the £100 million Active England Programme to support the Olympic bid, the Space for Sport and the Arts Programme and the Green Spaces Programme. All are providing capital to build new facilities. On the other hand, what was very clear, when Patrick Carter became chairman of Sport England and Roger Draper became the chief executive, was that the Sport England lottery fund was over-committed. What Sport England did about a year ago was to declare a moratorium on further allocation of lottery money. They have a two stage process. The first is to give prospective applicants an agreement in principle, but that does not mean that they are through the final hoop and the money is assured. It means that they are able to proceed from the first to the second stage. The second stage involves the firm agreement which has contractually binding stages. My understanding from Sport England is that in the reassessment they did of all the outstanding lottery applications those that were rejected were those that were either not going to proceed anyway or they were applications about which there were doubts, that had reached the stage one approval but not proceeded to stage two. If there are specific instances, I suggest you write to the chairman of Sport England and I am sure he will give you specific explanations.

Q346 Alan Keen: We are all concerned about whether we can raise enough money for the Olympics and if we do will it damage the rest for the good causes. I have put this to you before. It is up to the International Olympic Committee but the Olympics do cost more money than they need to cost because they have to take place such a short distance from the main venue for athletics and it is something for the future that we should look at. What other nations, other than us and a handful of others, could really put on an Olympic Games? The problems with the lottery have really highlighted this and we are stopping any of the developing nations from ever being able to compete with developed nations like us and we are struggling. I would be very happy if you could keep pushing that point or asking the question.

Tessa Jowell: It is a point that the International Olympic Committee are now very concerned about. I know they would like the Games to go to South America and Africa. The Commonwealth Games are going to Delhi. The fact that that is now the approach of the International Olympic Committee was something that we took as a very positive sign in deciding to bid because it is absolutely essential that the day after the Paralympics are over - because they follow the Olympics - we do not have in effect a blighted area of Stratford in east London, where there are these huge, wonderful, state of the art facilities that for ordinary mortals are rather intimidating, rather remote and underused. I was struck by this risk when I visited the facilities in Sydney. Their sheer scale and perfection does not invite the community use that would follow an Olympic Games. The 2012 Committee who are organising our bid are very much seized by this point. Legacy, legacy, legacy is one of the really key considerations in putting gin our bid and fortunately it is now a key consideration of the International Olympic Committee.

Q347 Derek Wyatt: When we discuss the future of how the lottery might happen in the third stage of the licence, the People's Lottery people said that only one organisation could win it and that was Camelot. Would you like to comment on that?

Estelle Morris: In terms of when the licence is up for renewal again, we want to make sure that we are in a position where more than one company will have the ability to bid. I do not think it is in anyone's interest that it is a monopoly for licence after licence. That is why, as part of the consultation which we have done recently on the future of the lottery, we looked at a number of changes that could be put in place to try and make sure that there was more than one bidder. It is proper to look at these things from time to time in any case but the NLC had gone back to people who had bid for the first licence and asked if they were still interested. There is a real fear that if we do not take action and make some changes, when we come to granting the third licence, there will indeed be only one bidder and that is likely to be the company that holds the licence at the moment, which is exactly the background against which we have made the proposals we have done.

Q348 Derek Wyatt: Bidding for the licence is incredibly expensive. I cannot remember whether the People's Lottery said it was 20 million or more. The actual bid document cost 20 million and that in itself means you need fairly deep pockets to bid. Michael Grade in a memo to us recently, in the last week, has suggested that perhaps there should be a hurdle that you should climb that may cost you only £500,000 to get to the final. Is it set in stone that it is just one system or could there be a smaller hurdle so that people can jump that and be seen to have all the funding that is in place but do not have to spend so much to prove that they have?

Estelle Morris: I see the point of that two stage process so if you are going to bid you are only committing a certain amount of money to begin with, but I am not sure that is the analysis of why we did not have more than two companies last time and why we may only have one company next time bidding for the licence. I do not think it is just the cost of applying for it so I do not think it would solve the problem. What we have come up with is allowing the NLC to have the flexibility to split the Games into a number of packages and offer licences for each of those types of games. I think that answers more of the problems that have come to the forefront that have stopped people bidding for the licence. I do not believe that merely having a two stage process in which a company will have to expend a lesser amount of money will itself bring about the number of applicants that we need to make it a real competition.

Derek Wyatt: Given that it is still the most successful lottery in the world ----

Chairman: The second most, according to the statistics.

Derek Wyatt: I bow to you, Chairman.

Chairman: Never bow to me; bow to the statistics. The Spanish is the most successful.

Q349 Derek Wyatt: Can you tell me any other incumbent lottery provider or any lottery anywhere else in the world where it is so successful that they have said, "That is no good; we must split it up"? What is the evidence for splitting it up as you have split it up? On what basis did you decide you needed some new, fresh talent in here? Who else has done this in the world? We know from our research when we looked at this that if you lose incumbency you lose sales. Given the critical nature of the Olympic part of this, if you were to change and if this was to go down, this would have some serious repercussions on the whole funding of the Olympics.

Estelle Morris: I think it would be wrong to be that complacent and say that we are happy to have one person bid to run the next licence. If we consider a nightmare scenario, where that company decides not to bid or fails in the running of the organisation, we have to grow people and grow companies that are able to bid for the licence. What we are faced is that we leave the package exactly as it is with all the games being under one licence, giving NLC no flexibility whatsoever to break that up if they see fit, and only if they see fit. We are tying our hands in a way that might not be necessary. Under the proposals that we put forward in the discussion document, it may be the case that the licence is left in its entirety and it may be the case that the incumbent gets the licence for the third time. The proposals will not stop that happening but they will make sure that we do not have that as the only option in the way forward at the end of this licence period.

Q350 Derek Wyatt: I can understand the dilemma you are in but the question I asked was who else has done that in the rest of the world and put at risk their lottery. I cannot find this evidence and that is what I am nervous about.

Estelle Morris: We have to look at our record, our lottery, our country, our conditions, our people who are bidding for it. I do not think we should be fearful to go forward because nobody else in the world has done it up to this moment in time. Otherwise, we would never innovate. One of the things about many of the lotteries in the world is that they are often state run lotteries, not national lotteries, and are different in size and scope. Many state run lotteries are for very limited purposes in terms of expenditure. Our good cause expenditure goes far wider than lots of lotteries elsewhere in the world. I think it is right to look at other areas of the world. There would be worries and concerns if we did not ask the question that you have just asked us. We have looked at that but, looking at our own circumstances, we feel that this is the right way forward.

Q351 Derek Wyatt: In the sense that we have been fond of putting in our manifesto that we would like a not for profit, where does that now stand in our thinking?

Estelle Morris: If a not for profit company was to come forward, we would be delighted to look at it. In terms of our manifesto commitment which obviously I reread in the light of my appearance here today, it was not based on the assumption that it would be no profit taken out of fewer proceeds; it was based on the assumption that it would be no profit taken out of more proceeds. I would still welcome a bid from a not for profit organisation but I would not want NLC or anyone else to accept that if it meant less money going to good causes.

Q352 Rosemary McKenna: Most communities are impacted on the funding by the New Opportunity Fund and the Community Fund. Those are the aspects of the lottery that really matter to local communities. Are you absolutely convinced that the saving that you will make from merging the two bodies will increase funding to good causes and what will the new body do differently?

Tessa Jowell: Yes, the savings which are at the moment expected to be broadly within a range of 10 to 20 per cent will be put to the benefit of the organisations and communities that receive lottery funding. I am not saying that they will get extra grants. We are looking at the new distributor and offering as a service what we would call capacity building which is very important in very poor communities which may have little civil infrastructure and rural communities, those areas which either do not put in lottery applications, find it difficult to get lottery projects going or put in lottery applications but they never get funded. One of the roles of the new distributor will be to be more proactive and not wait for fair shares or a coalfields community initiative to be upon them, but to keep under scrutiny the fairness of the distribution of lottery money; and also to conduct on a continuing basis some scrutiny of why there appears to be an imbalance in the areas in which lottery applications are coming; then, taking it a step further, providing support to what may be very small, local organisations, in making applications, in establishing projects and helping to see them through. That is part of the value added that we hope and intend the new distributor will provide, a combination of proactivity and community capacity building. A third area will be streamlining the bureaucracy of the lottery which is complained about a lot by applicants. It will provide a single front door through which potential applicants can post their applications or make inquiries. It will be a very large distributor. It will command about 50 per cent of all the lottery money. There were many reasons, as you know, that drove the decision to merge the two distributors and I would like to thank both the boards and the staff for the spirit in which they have approached this. A lot of progress has been achieved in the administrative merger which now awaits confirmation by legislation. The benefits will be great. Part of the Millennium Commission which will wind up in 2005 will also be incorporated in the new distributor and it will be that part of the Millennium Commission which has shown such real talent, in my view, at managing big projects. The management of transformational projects will be part of the function of the new distributor in addition to the component responsibilities.

Q353 Rosemary McKenna First of all, it is important not to lose the expertise that is there already in the organisation. That often happens in a merger and obviously you are aware of that. Secondly, you will continue to use the devolved administrations to set up the distribution or organise the distribution within Wales, Scotland, and Northern Ireland and across the UK.

Estelle Morris: I have met both my counterparts in Wales and Scotland over the last six to eight weeks so we have a good, ongoing dialogue there about the shape of the future distributor.

Q354 Michael Fabricant: You stated, Secretary of State, that you feel that the department maintains the principle of additionality. Colleagues have expressed their concern that the Olympics are going to take some money out of existing good causes. Why are we paying for the Olympics from the lottery? Is that not a breach of additionality?

Tessa Jowell: No. The Olympics will be an enormous national celebration. One of the benefits of the Olympics is perhaps one of the most powerful ways of driving increased participation in grass root sport for people who never aspire to be athletes but who are enthusiasts but also, and perhaps more importantly for the long term, a real focus and driving force for young athletes.

Michael Fabricant: Why are we paying direct?

Q355 Chairman: It is the deal with the Chancellor, is it not? The Chancellor was only willing to finance the lottery provided he did not have to pay for it, so the lottery is being raided because the Chancellor, as Chancellors always will, refused to cough up all of it?

Tessa Jowell: No. I would reword your intervention, Chairman. The lottery is paying or underwriting a large share of the public cost of the Olympics because this is something that, were that funding not available, it is very unlikely that the government would have supported.

Q356 Chairman: That is exactly what I said.

Tessa Jowell: I would disagree with your use of the term "raided". It will bring particular benefits to London but we are also determined that it brings benefits to the rest of the country. We are not unusual in using lottery financing to fund the staging of the Olympic Games. If you look at all cities, Barcelona probably got closest to ----

Michael Fabricant: They do not have an additionality principle. That is the difference.

Q357 Chairman: I have allowed you and me a great deal of leeway but a final question is a final question.

Tessa Jowell: I am content that the degree of underwriting that the lottery is going to provide is sustainable for the lottery, is manageable for the other good causes and will be absolutely fantastic for sport in this country and for the sense of feel good that people play the lottery, in part, for. I think it is a wholly proper and consistent use of lottery funding. Finally, we have identified 1.5 billion as the amount over the eight year period following on from the decision that could be taken from the lottery. You should see that as a maximum, not as a definite allocation, because this all depends on how much of the very generous contingency that we have provided for has to be used in the event.

Michael Fabricant: I hope you are right.

Q358 Chairman: Please have the last word.

Tessa Jowell: I am satisfied, within 85 per cent of probability, that we are right.

Chairman: Thank you very much indeed.