Funding of the arts and heritage

Written evidence submitted by Camelot UK Lotteries Limited (arts 38)

1.0 Introduction

1.1 Camelot welcomes the opportunity to respond to the Culture, Media and Sport Select Committee’s inquiry into the funding of the Arts and Heritage. As the operator of The National Lottery, we have concentrated our remarks on the role of Lottery funding in these areas and suggested certain policy reforms that we believe could assist in increasing the amount of money available to the Good Causes in order to continue contributing significant amounts to arts and heritage as well as to sport and the voluntary sector.

1.2 Since The National Lottery began almost 16 years’ ago, the Arts and Heritage sectors have benefited enormously; from the injection of funds to major capital projects, to support for small community-based initiatives. Since 1994, the Arts have received in the region of £3.6 billion and Heritage £4.4 billion of lottery funding1. There have been thousands of beneficiaries including: Tate Modern, Sage Music Centre – Gateshead, Royal Festival Hall, Lowry Centre – Salford, Dorset Natural History & Archeology Society, Lancashire Wildlife Trust, Birmingham Hippodrome Theatre, Kinder Children’s Choir – High Peak and the Ilkley Literature Festival, to name but a few.

1.3 These figures illustrate not only the importance of Lottery revenue to the cultural life of the nation, but also underline how vital it is to have a National Lottery which is credible, responsible and capable of sustaining and, wherever possible, increasing sales. For that, we need wide political and public support, and that requires our regulator, government and parliament to help us to introduce more speedily those reforms and innovations we believe necessary to keep the Lottery in robust health. It also means greater efforts need to be made to ensure that the public understand better than they do at present, exactly where the lottery money they have raised is being spent. This must involve all those that make up the Lottery family, from Camelot, to the DCMS to all the distributors, including those that represent the arts and heritage.

2.0 Camelot’s role

2.1 Camelot manages The National Lottery infrastructure, designs and promotes new games, develops the marketing support for lottery products, provides services for players and winners, and runs the network that sells tickets to players in partnership with over 28,500 retailers UK-wide – as well as on the internet and mobile telephones.

2.2 Camelot’s current Licence (its third) to operate The National Lottery began on 1 February 2009 and will run until 2019, with the possibility of a further five year extension.

2.3 Camelot is not responsible for the distribution of Lottery funds. The allocation of funding is currently the responsibility of 13 independent distribution bodies designated by Parliament. The National Lottery Distribution Fund (NLDF) holds the money raised for good causes by the mainstream (i.e. non-Olympic) lottery games. The Olympic Lottery Distribution Fund (OLDF) holds the money raised for the 2012 Games from both the designated Olympic lottery games and that transferred from the NLDF.

2.4 National Lottery funding will contribute up to £2.175 billion towards the cost of the London Games, of which £750 million will come from a series of designated lottery games2. The total raised for London 2012 from all designated lottery games is currently over £500 million.

3.0 Key Facts

- Efficiency: Camelot runs the most cost-efficient lottery in Europe, with around 4% of total revenue spent on operating costs.

- Good Causes: each week Camelot generates around £25 million for the Good Causes. To date, players have raised over £24 billion for the Good Causes3, with more than 330,000 individual awards made across the UK – an average of 113 lottery grants for every postcode district.

- Returns to society: at around 40% of total sales (around 28% to the Good Causes and 12% in Lottery Duty to the Government), Camelot returns a higher proportion of lottery revenue back to society than any other major lottery operator in the world in percentage terms.

- Reach: around 70% of adults play The National Lottery on a regular basis – greater reach than any other FMCG brand in the UK. More than 96% of the UK adult population live or work within two miles of a lottery terminal.

- Long-term growth: over the last five years there has been a 14.4% increase in sales.

- Leading UK brand: The National Lottery crossed fingers logo is recognisable to 95% of the UK population. Camelot operates four of the top grocery brands in the UK. One of those, Lotto, is the single biggest grocery brand in the country. Total lottery sales each year are bigger than Coca Cola, Warburtons, Walkers Crisps, Hovis, Cadbury Dairy Milk, Nescafé, Kingsmill, Andrex, Lucozade and Robinsons combined4.

- Winners: The National Lottery creates around four million winners a week across its portfolio of draw-based and instant play games. More than 2,400 millionaires or multi-millionaires have been created since launch in 1994 and more than 11,000 people have enjoyed a share of the Lotto jackpot prize.

- Prize money: £37.5 billion to date.

- Lottery Duty: £9.1 billion to date.

- Retailer Commission: £3.9 billion to date.

4.0 National Lottery Sales Figures

4.1 Annual National Lottery sales: In the year to 31 March 2010, the first full financial year of the third lottery Licence, Camelot increased total National Lottery sales to £5,451.8m, an increase of £302.7m (5.9%) on the previous year’s figure of £5,149.1m – resulting in the second best sales performance since The National Lottery’s launch in 1994. The further rise in sales saw Camelot deliver the best annual returns, £1,548.4m (excluding investment returns), to the Good Causes in 10 years – a rise of £170.8m (12.4%) on 2008/9’s returns of £1,377.6m.

4.2 T h e strong sales performance demonstrates the continuing success of Camelot’s long-term strategy for responsible growth – which is based on offering players a regularly-refreshed portfolio of games, and innovative and convenient new ways to play.

5.0 Innovation

5.1 As part of its Invitation to Apply for the third Lottery Licence, the National Lottery Commission (NLC) asked respondents to examine closely ways in which they might develop new ideas and services that could increase money to the Good Causes .

5.2 I n our application for the Licence was the intr oduction of commercial services intended to deliver additional revenue to the Good Causes. The types of service being considered include mobile phone top-ups and electronic bill payments. The NLC has been conducting a public consultation on these proposals which has been extended until 17 September in order to give the Commiss ion time to consider further any legal and competition implications of such a move. 8 2.5 % of Camelot’s revenue from these services would go to Good Causes and the company structure would be separate and transparent to ensure no cross-promotion or cross-subsidy.

5 .3 Given The National Lottery’s unique role in public life, it is right and proper that these kinds of innovations should be assessed and scrutinised by the com petent authorities, whether they be the NLC, the Competition Commission or the Office of Fair Trading. There is nevertheless a g eneral point that such scrutiny should be weighed against the need to ensure that decisions about new propositions can be made and these services brought to market (or not) within a reasonable time frame as that is the only way in which significant additional monies can in future be raised for the Good Causes.

6.0 Tax reform

6.1 Camelot’s efforts to try and persuade HM Treasury to move The National Lottery to a Gross Profits Tax (GPT) regime is a particular example of how long it can take government to decide whether or not to introduce a change that has been mooted for over six years and which enjoys wide cross-party support.

6.2 GPT is a taxation regime in which tax is paid after rather than before prizes have been paid to players. It allows the operator to increase prize payouts on selected lottery products, enabling the stimulation of sales growth, while at the same time protecting and ultimately enhancing returns to the Exchequer and the Good Causes. With GPT, the overall share of revenues for the Exchequer would fall, but the estimated increase in sales volumes would increase absolute returns to the Exchequer and the Good Causes (i.e. a smaller percentage slice of a larger cake).

6.3 Almost every gambling operator already enjoys this more beneficial tax treatment, except The National Lottery, which is the least harmful of all gaming and gambling pastimes and is the only one charged with raising money for Good Causes.

6.4 Camelot continues to be in detailed discussions with HM Treasury and we hope that a new government may be persuaded to enact this much needed reform sooner rather than later.

7.0 Better regulation

7.1 We support a regulatory structure for The National Lottery that is firmly rooted in the principles of better regulation and look forward to discussing with the DCMS and the NLC how government proposes to enact its recent pledge to merge the NLC with the Gambling Commission. Such a move is a real opportunity to create a new framework that will reduce the bureaucracy associated with lottery regulation and increase efficiencies for both the regulator and the operator. We support moving from regulation by detailed approval/permission (as at present) to regulation by Licence to operate.

7.2 As detailed assessments have already been made as part of the Licence award process we think there is now a need only for proportionate assessments to be made by the regulator to check that The National Lottery operator is working according to commitments made under the terms of the Licence. This form of regulation is increasingly common and is practiced in some of the most significant areas of regulated activity – e.g. ITV.

7.3 The current Licence is more onerous and complicated than its predecessor as the NLC took the second Licence and embellished and expanded it rather than starting again from scratch and creating a new, simpler Licence that reflected Camelot’s experience of running The National Lottery responsibly for 15 years. The level of detail to which we are currently subject comes at a cost which would otherwise benefit the Good Causes. It is an approach which is also slow and impedes our ability to introduce new games and ways to play, for instance, as quickly and efficiently as we should like.

7.4 It is important that reform of the regulatory framework should be approached as the occasion to introduce root and branch change to improve efficiency and generate greater returns to the Good Causes. Approaching it as a minor cost saving measure in which, for example, NLC staff are simply transferred to the Gambling Commission’s HQ in Birmingham without a fundamental overhaul of the whole regulatory structure and Licence to operate will not work and should be strenuously resisted as it could seriously damage the smooth running of the Lottery.

8.0 Additional risks/policy issues

8.1 Society Lotteries: The National Lottery has always co-existed comfortably with Society Lotteries and we recognize the valuable part they play in raising funds for a wide range of charitable causes – e.g. Hospices or Guide Dogs for the Blind. However, since the passage of the Gambling Act a new and more aggressive breed of society lotteries have emerged, several of which have pitted themselves against The National Lottery. For example, when the operator, Chariot, launched the Monday lottery they deliberately criticized The National Lottery in order to try and attract players. While Monday failed, their tactics demonstrated the gratuitous damage that could be inflicted on The National Lottery’s reputation. It is as a result of this danger that we opposed the previous government’s decision to double the prize limits for society lotteries from £200,000 to £400,000. We warned at the time that this could have a negative impact on The National Lottery and that government should be aware that these sorts of measures ran the risk of tipping The National Lottery into a position from which it would be difficult, if not impossible, to recover. It is for this reason that we urge the present government not to make any further changes to society lottery prize limits for the foreseeable future.

8.2 Remote gambling: Two leading UK gambling operators with operations in Gibraltar have recently started taking bets on the outcome of The National Lottery. This is prohibited under UK law and Camelot is concerned about a development that we believe offends the spirit and perhaps the letter of the law. However, as these operators base part of their operations off-shore there appears little that UK authorities can currently do. At the request of the Gambling Commission, who recognize that these activities are potentially damaging to consumers, the DCMS has recently held a public consultation on ways in which remote gambling might be regulated. We strongly support this initiative though we have some reservations about the feasibility of enforcement.

8.3 Public perceptions: While public awareness of The National Lottery and its crossed fingers logo is extremely high – recognizable to 95% of the UK population - the same cannot be said about public recognition of where and how Lottery money is spent. Camelot was instrumental in setting up the National Lottery Promotions Unit (NLPU) in 2003 and continues to co-fund it and be represented on its management board. The Unit’s work has undoubtedly improved levels of public awareness, for example, through the use of the common brand (incorporating the crossed fingers logo) for distributors and lottery funded projects, the successful development of the annually televised National Lottery Awards and the delivery of public relations campaigns that have captured the media’s attention. However, there remains scope for improvement and the full support and engagement amongst distributors and the DCMS with the work of the NLPU will be vital to help protect the long term health of The National Lottery and its ability to continue to maximize returns to the Good Causes, especially at a time when economic pressures may well restrict other channels of funding. It is only through the prominent and consistent display of the crossed fingers logo on any project that involves lottery funding and the continuing communication of the breadth, depth and impact of that funding that the public can be made more aware of where the money they have raised has gone. With greater awareness comes a growing sense of pride in what they have helped to achieve and continued support for The National Lottery, resulting in the generation of much needed funds.

9.0 Conclusion

9.1 We would welcome any support that the Committee could offer to help us realize some of the policy reforms we have outlined in this submission, especially the introduction of GPT and the overhaul of our regulatory structure. Maintaining public interest in, and support for, The National Lottery is crucial if the arts and heritage are to continue benefitting from the levels of funding they have enjoyed until now, most especially at a time when public spending is being cut.

September 2010

[1] Figures sourced from DCMS database – last updated 16th August 2010

[2] The remaining £340 million will come from the Sports Lottery Fund, and up to £410 million from mainstream National Lottery games from 2009

[3] Including investment income

[4] Top 100 Grocery Brands, Grocer Magazine/Nielsen – March 2010