UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1554-i

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

Culture, Media and Sport Committee

Gambling

Tuesday 18 October 2011

Roy Ramm, Peter Brooks and Simon Thomas

Dirk Vennix, Warwick Bartlett, Andrew Lyman, David Steele and Richard Glynn

Evidence heard in Public Questions 1 - 107

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the Culture, Media and Sport Committee

on Tuesday 18 October 2011

Members present:

Mr John Whittingdale (Chair)

Dr Thérèse Coffey

Damian Collins

Philip Davies

Paul Farrelly

Mrs Louise Mensch

Mr Adrian Sanders

Jim Sheridan

________________

Examination of Witnesses

Witnesses: Roy Ramm, Director, NCiF, and Compliance Director, London Clubs International, Peter Brooks, Member, NCiF, and President and Chief Operating Officer, Genting UK, and Simon Thomas, Member, NCiF, and Chairman, Hippodrome Casino, gave evidence.

Chair: Good morning. This is a session of the Committee’s inquiry into the implementation of the Gambling Act. We have received apologies from our first session from Michael Sutherland, who is unable to be with us, but can I welcome Peter Brooks, the President of Genting UK, Roy Ramm from London Clubs International and Simon Thomas, who is developing the Hippodrome, and all three of you also sit on the National Casino Industry Forum.

Q1 Mrs Mensch: Has the Gambling Act of 2005 overall put the casino industry in a better or a worse position?

Roy Ramm: If I may kick off and then refer to my colleague, Mr Peter Brooks, to pick up some of the comments there. Thank you very much indeed for the opportunity to be here. We represent about 90% of the casino industry through the National Casino Industry Forum.

The Gambling Act of 2005 was intended to construct a pyramid of regulation and the casino industry was intended to be at the top of that pyramid, so there was intended to be a structure of regulation around us that was reflective of the kind of gambling products that we had to offer, and I think that one of the main messages that we wish to get across to this Committee is that we feel that that pyramid has been inverted to some degree and the Act has not delivered what it should have done. So at the top of that pyramid, we do have the measures in place to offer a well-protected, well-regulated gaming product, but when you look at the casino industry as one brief statistic-and we will try not to throw thousands at you-but there are 248,000 slot machines in the UK, less than 1% of them are in British casinos. There is a lack of differential now between the product that we offer in casinos and what is offered in other gaming establishments. The last comment I would make before turning to Peter to pick up is that taxation since the Act passed has also made it very difficult for us to maintain our position at the top of that pyramid. Peter.

Peter Brooks: Picking up on the detail in response to your question, and in particular picking up on the tax point, I realise the Committee is not concerned with tax, but when you look at the gambling industry and the casino industry in particular, it is impossible to avoid the tax impact on what has happened to us as part of the package. So in answer to your question, the Gambling Act has undoubtedly given the casinos some positives, but in the overall picture, it has failed to do two things for us. One, as Roy has said, it has inverted the pyramid between the highest levels of responsibility and security from a supervision and access perspective with the highest level of gaming product. Roy touched on that. The other thing that it has done is that it has in effect created a twin-track process, so you have the new casinos that are capable of being created under the 2005 Act––but, and I am sure we will come back to this, none yet opened, although I think one is due to open next month, the first one four years past the Act coming into effect––and on the other, the 1968 Act original casinos, of which there are over 140 today, which are frozen in aspic. We are stuck for the existing industry. It is almost as though the Act ignored the existing industry altogether.

In terms of impacts, there is what we refer to as the 2007 package, so it is a combination of the smoking ban-which applied to all premises, of course-tax, which dramatically increased as a cost burden, and finally the Act itself, which importantly in the context of machines removed the ability for casinos to have a category of machine, so we are now limited to 20 machines. What you have seen since then, and this is reflected in the Ernst & Young report, which is part of our evidence, is after an optimistic period leading up to the Act with considerable investment, a big decline in investment. We have seen more than, up to now, 23 casino closures. The net number is like a dozen if I ignore the small electric format-which doesn’t really compute-that is just using an existing licence. We have seen a reduction in jobs of the best part of 1,100 rising to 1,300. It varies, so whereas there has been an employment reduction generally of about 3%, within our industry it has been about 11%, and you have, as I say, seen this big reduction in capex. Therefore part of the points that we are making and the measures that we have included in our evidence that we are promoting are about creating a better framework, both in the context of the regulatory pyramid and to encourage us to do what we want to do, which is to invest more to create more jobs, and by the way, pay more taxes, which we recognise is part of the package.

I have not touched on profitability, but again, the Ernst & Young report shows that with variations, depending on the category of casino, be it high-end London or low end and outside London, you are seeing very significant reductions in casino revenues, as great as 20% in some instances. Now, I should say in closing there has been some improvement since then, certainly in terms of profitability, because a great deal of cost has been taken out of the industry and that has been how we have been keeping things going forward. I hope that gives you a picture in response to the question.

Mrs Mensch: Do you have anything to add, Mr Thomas?

Simon Thomas: I think it has all been covered.

Q2 Mrs Mensch: Let me just ask for clarification. You have spoken about the deficiencies in the Act and what it didn’t do, but just going back, you have spoken about the many problems in the casino industry, not all of which are attributable to the Act, that come from the smoking ban, the tax regime and so forth. Would you say overall though that the 2005 Act helped or hindered your business as casinos?

Roy Ramm: Hindered.

Q3 Mrs Mensch: You would say it hindered it. You touched briefly at the end there on the revenue that casinos have generated. What effect has the Act had on the number of people coming to visit casinos and spend money? There are two parts to this question. First of all, how has it affected revenues overall, and secondly, how has it affected visitor numbers coming in to use casinos and enjoy your product?

Peter Brooks: In terms of visitors, we have seen growth in admissions although not enormous growth. That has been helped by one of the early freedoms, which was to remove the requirement for membership and removal of the 24-hour wait period. No doubt that has helped. What has also helped is that the industry, despite the impediments, if you like, under the Act, has continued to modernise in the sense of producing a more modern, entertainment-orientated product, so it is attracting a broader audience, so you are seeing admissions going up, but at the same time you are seeing revenue per head going down. So it is a mixed picture on that. In terms of revenues, I only have the numbers up to the end of 2009, but in the high-end London casinos, they were about 20% down; in the outside London estate, it is a figure of a little bit more than 11%.

Mrs Mensch: These are revenue numbers?

Peter Brooks: These are revenue numbers. They are in the Ernst & Young report at pages 11 and 12.

Q4 Mrs Mensch: It is very important if we are to have responsible gambling that the casino industry attracts a broader range of people, rather than raising revenues from a static number of people who may have a gambling problem and spend too much on gambling. Attracting greater numbers is extremely important. Can you summarise how the Act has affected different types of casinos? Has it had a differential impact on sort of smaller casinos versus larger ones or has the impact been widely shared across the board?

Roy Ramm: The Act has created a twin track, which Peter alluded to in his opening remarks. What we have is an industry-the 1968 industry, if I may bracket it like that-which is simply not moving forward because we had this other track of the 2005 Act casinos, and there is this notion that we should see the outcome of the 2005 Act casinos before anything happens with the 1968 Act. The 2005 Act is simply going nowhere very quickly at all. The majority of the industry is not moving forward.

Mrs Mensch: Sorry, just to clarify, you are saying that the 2005 Act prevents liberalisation of regulations affecting those casinos operating under the 1968 Act because of the wait and see period?

Roy Ramm: Yes. The wait and see period is endless, because there were 16 licences, and as Peter has said one is due to open soon. There are a number of local authorities that have not even begun the process. Some local authorities have no intention of beginning the process, so the idea that we wait for the outcome of 16, it is just never going to happen. So that is the main difference between the current industry and, if you like, the 2005 Act industry.

On the second part of your question on how the Act affects the different segments of the industry, at the high end, across the industry, we have had to reduce costs, so our ability to compete in the international market, where people are looking for air travel, hotel accommodation, all that kind of stuff, has been narrowed. Our profitability has been squeezed, so we are not competing well with the high end of the market. I guess lower down the market, where we have got more volume-I look to colleagues to pick up on this-but where we have got more volume, this is where the almost 18 million visitors is coming from, and that has been reasonably positive, I would say.

Peter Brooks: Yes, I think one could add two things to that, the first in terms of the volume clubs, the loss of that category of gaming machine, which I described, that had to be removed, for a large club that is a much more adverse impact than a small club, in terms of footprint. The example of that is in that in the very busy clubs-and my colleague has one of these in Leicester Square, the Empire, and there is another good example in Newcastle-regularly on a Friday and a Saturday night, there are people queuing for the 20 slots that are available. So you have 1,000 people in a club, plenty of tables being occupied, but they are queuing to get on the slots. So at that end, you have a more stark impact. At the smaller end, much less so, because it is a small footprint, and in many cases you could not even take up your full allocation of 20 slots. Then in the international market, again it is very stark, because the maximum stake in a slot machine is limited to £2, two things happen. First of all, for players within a high-end club, they are never going to play slots, so we do not have them, because they might have a minimum bet of £25 on the blackjack table, why are they going to put £2 in a slot machine? It isn’t going to happen.

You will find internationally what happens with the very large numbers of slots that more typically they will have, what they are offering is a very wide range of stakes and prizes. Being limited to 20, quite apart from the production problem in procuring slot machines with such a small market, you have very limited opportunity to offer a range of choice, whereas when you go to major gaming centres, or indeed if you go as far as Rotterdam, where I was six months ago, you find 800 slot machines in their casino there. You have got a full range, so you can offer a machine, if you choose to, with a stake and a prize which is much more commensurate with the experience people are having on the tables. Those I think are the differential impacts.

Chair: We are going to come on in greater detail to slot machines.

Q5 Damian Collins: I was interested in the answers you gave to my colleague: where does a casino make its money? Where is the greater part of its revenue coming from? Is it from the slot machines or is it from the tables or other gaming or entertainment that might happen within the building?

Roy Ramm: In the UK, if you look at slot machine revenue versus table gaming revenue, it is 15% of revenue comes from slot machines, 85% from tables. That is the second lowest in Europe. There are 23 countries that provide evidence to the European Casino Association and we sit at number 22, just above Hungary. At the top of the pile is France, where I think they are about 90%, it is 15% in the UK.

Damian Collins: That is the revenue, but what are the profits?

Roy Ramm: Well, that is quite difficult to tease out, frankly. I do not have those statistics and I will happily try and find them for the Committee and send them in to you, but I do not have them readily at hand.

Damian Collins: I would be very grateful if you could do that, but are slot machines more profitable than tables?

Peter Brooks: May I expand for one minute? The difficulty in allocating the profit is how you allocate manpower cost. By far our biggest single expense as an industry is manpower cost, and for our clubs outside London, it is-and I think this is not far off typical, so I hope I am not sharing confidential information with my colleagues-more than 40% of revenues, so manpower costs are very high. Now, when you come to profitability, how much you allocate to table gaming, which requires much higher levels of manpower, and how much you allocate to slots is an open issue. That is the underlying dilemma, but we will surely feed into the Committee what we have.

Damian Collins: So slot machines are more profitable than tables?

Roy Ramm: I mean, you know, it stands to reason. If you are running a roulette table on which you have got a dealer and maybe half an inspector or whatever, in comparison to running a slot machine, then clearly the labour cost is less. But as Peter says, it is difficult to be very clear about how you apportion those costs.

Q6 Damian Collins: One of the reasons I was asking is that, in the written evidence from NCiF, you talk about the table to machine ratio for large and small casinos, and you said there that you repeatedly urged there should be a simple uniform ratio of five machines to one table, capped at 150, which seemed to suggest that the smaller casinos in particular had too great an obligation placed on them. Therefore the number of machines in a casino has quite a big impact on its profitability, its viability, and therefore may also have an impact on whether it is attractive to open new casinos within those criteria.

Roy Ramm: Just to be clear, when you say "smaller casinos" are you talking about small casinos within the UK?

Damian Collins: Yes.

Roy Ramm: I think the small casino in the 2005 Act is an economic model that very few people in the industry can ever see working. It is certainly not going to work in all eight of the locations. We, as an industry body, do not believe that anybody will build a small casino with 40 tables to get the 80 slot machines in any of the areas that were identified by that committee.

Q7 Damian Collins: To get the 80 slot machines-is that because you have to maximise the number of slot machines you have got in the casino to make it pay?

Roy Ramm: Yes.

Peter Brooks: I should just add, going back to the profit point, our second biggest item of expense is real estate, our property space, so if you have to provide enough space and manning for 40 tables in order to allow up to 80 slots, your fixed cost base has then become very high. That is why the economic model doesn’t really work well.

Q8 Damian Collins: That is why I would be interested to see the figures on the profitability for the contribution of the slot machines to overall profitability, because if it is only 15% of revenue, it seems to be a disproportionately large part of the business if the failure to maximum the number of slot machines within a casino is a big impediment on its profitability or whether you might open one, which seems to be what you are saying.

Peter Brooks: Well, the 15% is under the current regime with its maximum of 20 slots. The picture in a new casino, large or even small, would be different.

Damian Collins: So it would be much higher?

Peter Brooks: It would be a higher percentage, we would hope, but I think you are right, really.

Simon Thomas: But equally, the large and small casinos will have a much more international style operation. They will have more bars, restaurants, and when you look at the American examples, I think 60% of revenue is non-gaming. It is all contribution to the overall business and it is all a valid part of it. I know we are talking about machines now. Do you want to come back to it?

Q9 Damian Collins: I want to ask one or two questions about casinos and then I will happily hand over to colleagues who want to get to games and machines, because I suppose it is a question of, "I think it is interesting because it is how we see casinos." There is the kind of James Bond/Aga Khan level––you know, people jetting in from all round the world to spend thousands and thousands of pounds on the turn of a card, and that is one level of it, and that is a million miles away from problem gambling and all the other issues we have talked about. But there is the kind of underbelly of it, which is slot machines, which seem to be quite crucial to the viability and profitability of the casino.

Roy Ramm: I think it is not an underbelly, if I may say so. You know, they are important-when people go into a casino, they expect to see slot machines and tables. You are right that there is a segmentation in the market that we have talked about already, and we have made the point that if you go into one of the high-end London casinos, you are unlikely to see slot machines, because as Peter says, the stakes and prizes that we are able to offer on those machines are not relevant to the people that are playing there. If you are talking about people who are prepared to wager several thousand pounds on tables, they are not going to go to a slot machine if it takes £2. Moving down the industry, what we try to do is to provide a mix of table games and machine play and bars and dining and entertainment across the piece to make it a genuine adult leisure offer, and Simon, I am sure, can talk about what he is trying to put into the Hippodrome, but it is not that slots are only for the masses at the bottom. That is not the way we would like to see the industry go. We do not want to see machine sheds, that is not what we are asking for.

Simon Thomas: We talked about the regulatory pyramid. That is based around common sense and protection of the vulnerable, and at the bottom end the regulatory pyramid has always been there. It was picked up by Budd and absolutely clarified, and it has been enshrined in the 2005 Act; at the bottom end, we have the seaside arcades, 10 pence slot machines, very light regulation. In the middle, we have the high street access premises, the arcades, the bingo halls, the betting shops, moderate regulation; and then at the top end we have the casinos, and we are sitting there with effective active door control, effective active voluntary self-exclusion schemes, the highest rate of tax. We have money-laundering control, all our gambling staff are certificated by the Gambling Commission and are social responsibility and problem gambling trained, and it is accepted that the casinos are the correct place for the higher stake gaming.

Q10 Damian Collins: Okay, I am sure we are going to get on to that. Why do you think that only one new casino licence has been approved under the Gambling Act?

Roy Ramm: Well, there are about four reasons. First, of the 16 new licences, 10 are in existing permitted areas. If I can just use one of my own businesses as an example, Leeds has five licences under the 1968 Act, so there are businesses in Leeds operating. We have a casino in Leeds that has got two restaurants with James Martin from the Saturday Kitchen, Vineet Bhatia producing fantastic Indian food. It has about 60,000 square feet of public-facing space, it has a cinema, it has everything that you could possibly want, we would suggest, in a modern leisure destination. Now, Leeds City Council has a large casino licence to offer. Frankly, if we didn’t get that licence and somebody else did, that would make our business unviable. So you have this ridiculous situation where you have 1968 Act casinos competing against 2005 Act casinos.

The process itself of granting these licences is horrendously complicated and expensive. I am sure that if Newham were giving evidence to this Committee and you were to ask, I suspect that the cost to Newham, one of the poorest boroughs in London, has probably been well north of £1 million to grant their licence. I think it is probably a good deal more than that. We know that-I think it was in Hull, and one of my colleagues will probably correct me––but a council spent £750,000. So what local authorities are now worried about is are they going to recoup their costs if they run this competition? Only one of those three licences that has been granted at the moment was competed for, and that was the Newham licence. The other two that have been granted, there was only one applicant, and again we come back to this model of the small casino in particular with two slot machines to one table. It makes no sense at all. You end up with a small casino having to have a bigger gaming floor than a large casino to get its slot machine allocation. So there is whole mix of factors there that mitigate against anybody applying for all 16 of these licences, and I would have a bet that all 16 never get developed.

Q11 Damian Collins: So your view is that the slot machine allocation ratio is the most important aspect in deciding whether a casino is viable or not, particularly for a small casino?

Roy Ramm: I would say yes, and that is why we have advocated in our evidence that for a whole range of reasons, including clarity for the public, who, walking into a casino, do not know whether they are going to see 150 slot machines, bingo and betting, or 80 slot machines and no bingo, but betting, or 20 slot machines and no betting or all bingo, we are simply saying, "Let’s just clear away some of this nonsense of regulation and have a simple model that says, ‘One table, five slot machines’ and that is it."

Peter Brooks: I just wanted to add one other thing, which is not for this Committee, but again it comes back to the tax. When the gaming duty was increased in April 2007, it made a material difference to the economics. Particularly when you are looking at the Small model-with a capital S-it is very hard to make the numbers work, because you quite rapidly get to the top 50% gaming duty level. I don’t know whether local authorities really hoisted on board the impact of that, but it meant that a very significant shift of potential regenerative funds that authorities were looking for moved to the centre, and for the potential competitors, the industry, the suppliers of the product, we were never really involved in that key piece of the whole process, which is, "Can this be a commercial proposition which will warrant making an investment?" So that was an absolutely central missing piece, and the situation then made more stark with the gaming duty change.

Roy Ramm: We did offer a sort of solution to some of this, which was the portability issue.

Q12 Chair: Indeed, and that is what I want to ask you, because you have specifically cited the fact that 10 of the licences have been given to local authorities within permitted areas and you have suggested that local authorities should be allowed to just decide whether or not they want to permit casino development. Are you suggesting that if we adopted that and got rid of the CAP recommendation and just said, "There are all these new licences, anybody who would like to bid for one within a local authority that wants to have a casino should be able to do so", that that will lead to investment which hasn’t so far taken place?

Roy Ramm: Yes.

Chair: So there are local authorities that want them, but because they were not chosen by the CAP-

Roy Ramm: Just to be really clear about what the proposal is, what we are saying is that currently there are 53 permitted areas, and the 1968 licences are locked into those areas. We are saying that those areas are defined by data from the 1960s, that time has moved on and local authorities should be able to decide for themselves within their three-year licensing policy whether they want casinos. If they don’t, then fine. Nobody wants to move to an area where, frankly, the local authority is not supportive. But if they decide that they do, the next lock is planning consent; you get planning consent for the property, and finally, there is the lock which is the premises licence. So there are three steps, and if a local authority decides that, we suggest that it is perfectly possible just simply to move a 1968 Act licence into one of those areas, and the important thing is that you could see some of them moving away from the other 16.

Q13 Chair: But there are places that are not currently within permitted areas, that have not been identified by the CAP, but where if the local authority said, "Yes, we would like a casino," your company or one of your colleagues in the industry would want to build?

Roy Ramm: Fifty-seven local authorities applied to have a casino, 57. That was wheedled down to the 16, but we were talking outside the Committee room saying that on a regular basis, we get approached by entrepreneurs, by property owners who say, "We have spoken to our local authority in X area, they would like us to build a casino. Would you like to come and operate it for us?" and we say, "I am sorry, but you are not a permitted area. We can’t do it".

Peter Brooks: We believe that with the security of the three locks, if there is local demand from both customer and local authority-and logically there should be out of that 57 that did not succeed in the CAP process; there is definitely appetite among operators to take advantage of that in respect of their existing licences that aren’t being used-and, to paint a picture, if a typical size is about 25,000 square feet, you could expect to see about 125 jobs. You would see about £600,000 in taxes, £250,000 in local taxes and gross value added for the area, if you take in supplies and so on, about £4.5 million per annum. Individually it is not a lot, but not to be sneezed at by a community that would like to have this opportunity, which it might either because it is a tourist destination or because it wants to improve the attractions for its community.

Q14 Mr Sanders: Can I just pick up something that Simon Thomas said? I think you will find that seaside arcades also feel that they are quite heavily regulated, and I think, with the industry as a whole, it is relative to size. I do not think there is any part of the industry that is not suffering at the moment. Seaside resorts, arcades, whatever––they would probably take exception to other people thinking they were lightly regulated. Can you see any merit at all in reviving the regional casino concept through secondary legislation?

Peter Brooks: We think it is really a matter of demand. It is not something we are seeking. We have a great deal of scepticism that there is really a public demand and acceptance for it. We think there are more important things to be getting on with right now, like the existing structure, rather than worrying about adding new things.

Q15 Mr Sanders: In terms of where we are at, do you see that the restriction on the numbers of licences was really a fudge in the run-up to a general election rather than a considered view of what the market could tolerate?

Roy Ramm: I worked with civil servants on this Bill for months and about four hours before it was published I had no idea that it had changed so much. It was clearly a piece of political expediency, frankly, and what has come out of it is not good. To add to what Peter said about the regional issue, the fuss and furore, we don’t want to go there, simply because we think there are three things you need. You need political consensus, you need public consensus, and you need a company that is prepared to invest, and frankly, unless you have the first two, the third will not follow.

Q16 Chair: Can I press you? The legislation is there to allow a regional casino to be built. Many people felt that the place that was identified was the wrong place, which was why it never happened. If the Government were to say, "Right, we still think there is a case for having one regional casino, and where would you, O industry, like to build it?" and if the Government then agreed, do you think it would happen, or have you just lost all enthusiasm for this completely?

Roy Ramm: If you say to Caesars Entertainment, which builds huge resort destinations-and Peter will speak for himself-but huge resort destinations, thousands of bedroom hotels, the top class shows and so on, taking 60% of its revenue from non-gaming activity, "Do you want an opportunity to develop a business?" the answer would normally be yes, but always with the caveat that you have genuine public and political support for it. You are never going to go into an environment where you don’t want it and where you are not wanted, and in a way, it doesn’t matter whether it is a regional or a tiny casino that you want to transfer from one place to another. You have to have the public and regulatory support.

Q17 Chair: But I mean, having lived through this, as I recall, the entire House of Commons was of the view that the best place to build a regional casino was Blackpool. Blackpool was falling over itself to get a regional casino. There is no doubt there was public support and political support for Blackpool. The CAP, for reasons which are still something of a mystery, came up with a completely different recommendation, but if it came back and they said, "Okay, Blackpool" do you think the industry would still be interested?

Peter Brooks: I am going to pick up on what Roy said, Chairman. If you are talking about very large sums of investment, you are probably mostly looking at international investors. My own company has just spent about $500 million in New York. We spent SGD$4.5 billion in Singapore in 2010. If you asked us to do something equivalent in the UK, I don’t think there’s going to be a take up for that. If, perhaps a bit more controversially, I go back to the process, it began life as a sort of Budd Unlimited, went to an experiment with eight, eight and eight, and frankly, the experiment was completely flawed; it was some sort of a fig leaf. Then it came down to one, eight and eight for reasons of political expediency, and then people didn’t like the one, so now you have got eight and eight. I think there is a genuine question of whether there is public demand for that type of product, and if customers don’t want it then we certainly would not want to invest in it. Don’t forget again the fiscal regime has changed. People wanted it for Blackpool because it was going to regenerate a very popular seaside resort which has huge affection, but it is very hard to make the numbers work.

Q18 Chair: Because of the tax regime?

Peter Brooks: Because of the tax regime. You know, what happens with gaming duty is, it is by volume of gross gaming revenue. By definition, if you have a large establishment, the volume will be greater, so you will get up to the ceiling of 50%, so just to remind people, for every £1 of gaming win, 50% has gone to the Customs and Excise or whatever it is now, HMRC, before anything else has happened at all.

Roy Ramm: One last thing, the stakes and prizes in the slot machines that we do have, have not been reviewed for six years. They were last reviewed in 2005. We have had two sets of tax increases since, so that has reduced the profitability still further. It really does come back to political will-people have got to be prepared to want this and to provide the regulatory framework for it before any business will consider it.

Q19 Mrs Mensch: On a point of clarification, you say it is a 50% tax rate before any of your costs are taken into account, so it makes the numbers not work for a big Atlantic City style resort in Blackpool. What are the comparable tax regimes in, for example, where you have just invested––in Singapore and the US? What are the comparable tax regimes there?

Peter Brooks: For Singapore, the equivalent to gaming duty is between 10% to 12% for what is called a premium player, so that is somebody who deposits SGD$100,000 before they start to play, so call that £50,000, and for a non-premium player, it is of the order of 20%, and the corporation tax rate is 17%.

Q20 Mrs Mensch: What about the United States?

Roy Ramm: I was hoping you weren’t going to ask me that, because I cannot remember. It is much less than here.

Mrs Mensch: Roughly.

Peter Brooks: It is lower.

Roy Ramm: I think it is 15%, from memory.

Dr Coffey: That is state duty though, isn’t it, as opposed to federal?

Q21 Mrs Mensch: You have to add up your state and federal tax burden, and I am just interested to know how much greater the burden is on the industry in the UK than in the United States, because you have just said that your primary reason for not investing in a giant super-casino in Blackwell is the tax law, so what is the differential?

Peter Brooks: I was trying to distinguish between where the rate was, at 40%, to explain why there might have been a change of appetite. Amongst the factors is this shift of the top rate from 40% to 50%. It is very hard to actually elide the two together because gaming duties are gross profits tax. Then you have all your other expenses and so on to come off before you calculate the corporation tax, so you are getting a multiplier effect because it is a gross profits tax.

Q22 Mrs Mensch: I understand that. I am trying to see how much worse are we in Britain than in the United States where you have just made an enormous $500 million investment in New York. How much better is it for your industry over there?

Peter Brooks: If the gross profits tax is 15%, if it is, versus our 50%, you are at that point 35% on your gaming.

Mrs Mensch: That is a state tax. So you would have state and federal taxation to put together to calculate your tax.

Peter Brooks: That is true and I think at the corporation tax level, combining state and federal, broadly it is the same, US and UK.

Q23 Chair: Would the NCiF like to give us a document setting out the international comparisons? Although you said at the beginning our remit did not cover tax, we will be raising matters of tax and possibly talking to the Treasury about that, so I think that would be helpful.

Peter Brooks: We would certainly welcome that approach, because looking at the future of the gambling industry-as you are doing and we really welcome that-in isolation from fiscal policy doesn’t actually compute.

Chair: No, that is why we reached the same conclusion.

Peter Brooks: We welcome that.

Q24 Philip Davies: Can I start by asking you about these permitted areas, because I do not think anybody who looks at it could think that the current system makes any sense at all, basically only allowing licences based on town population levels of 40 years ago, which totally ignores new towns and things like that. I remember moving an amendment to the Localism Bill to try and scrap them but it fell on deaf ears. What I don’t quite understand with your approach is that you want to be able to transfer the licences from one place to another, where they want them, but not to increase the number of licences overall. If casinos are such a well regulated place, which I am sure they are, why should as many licences as the market can stand not be allowed? Why do you still argue that there should be a limit to the number of licences across the country? Surely the thing that should determine the number of licences is the market, isn’t it?

Roy Ramm: That is what Budd said and quite clearly in a free market that is what should happen but, to be candid about it, I think that as an industry trade body we looked at what we felt was the art of the politically possible. I think if the outcome of this Committee was casino industry seeks unlimited licences we would have a struggle on our hands. So what we are trying to say is, "Look, let us at least move our businesses, the existing licences, to where we can operate them with a chance of profitability". It is about getting the public comfortable and accepting of the industry.

Q25 Philip Davies: But you generally in principle agree with my premise, which I think is something that Tony Blair said in Prime Minister’s Question Time just before he retired hurt. He said that if a place wants a regional casino, if they want two, if 10 places want one then they should be allowed to have them. That generally would be your view in principle as well, would it?

Roy Ramm: It might be mine personally, but our NCiF position-and I don’t get want to get torn limb from limb by my colleagues-is that we want to see the licences that are extant able to be moved and to be built first.

Q26 Philip Davies: What I am getting at is that what I would not want to see is your industry trying to argue for some kind of protectionism, in the sense that, "Hold on a minute, I’ve got the licence for such and such a place and let’s just leave the number of licences as they are because that means I’ve got the licence for here and while we’ve got that regime nobody else can come and tread on my toes." I would not want your industry to be divvying up the licences between your members and saying, "Well, that’s it, now we’ve got them all covered everybody is a winner. We’ve now got a monopoly."

Roy Ramm: We are between a rock and a hard place. We are damned if we ask for more and damned if we don’t.

Philip Davies: You don’t want to protect the sort of-

Roy Ramm: No.

Q27 Philip Davies: Okay. On to machines. Damian pressed you earlier about how important machines are to your business and you have the proposal of five machines to one table. Why five machines to one table? What is the rationale? Why not four? Why not six? Why five?

Roy Ramm: We picked five because the large casino, under the 2005 Act, has a ratio of five machines to one table. We felt that it would be consistent with that piece of policy to level everything up to that large.

Philip Davies: So it is simply you just want to follow what the Government at the time thought was the right number?

Roy Ramm: Yes.

Q28 Philip Davies: What impact would that number of machines have on the profitability of your business? I know Damian tried to tease this out of you. If we have the five-to-one ratio, what would that do to the profitability of the casino industry?

Roy Ramm: It is in the Ernst & Young report, where we think the profitability or the increased revenues would come. I think the first thing to say is don’t anybody run away with the idea that if you go to five-to-one instantly you are going to have 150 machines in every casino in the UK. That simply cannot happen because of the size of the premises and so on. We would see it being evolutionary over time, but it would materially impact our profitability. I think the number is in the Ernst & Young report, and I wonder if my colleague has found it.

Peter Brooks: What the Ernst & Young report is talking about is the tax take at the end of it so you have to sort of work backwards, but I think the logic is it could add to the profitability of the industry of the order of £17 million, I think. My apologies, I am struggling to reach this.

Q29 Philip Davies: Okay, don’t burst a blood vessel. Can you tell us about how important allowing category A machines in casinos is to your industry?

Simon Thomas: We have been discussing category A machines internally. There is no such thing as a category A machine anywhere in the world. There are no unlimited stake machines, and neither do we think there should be. As such, we don’t see any demand for category A machines anywhere. All we are asking for is gaming machines, stakes, prizes and numbers proportional to our position on the regulatory pyramid and customer demand. I respect Mr Sanders’ position on "Every industry believes they are the most regulated" but having operated seaside arcades, inland arcades, bingo halls, I can say with my hand on my heart there is no level of regulation and protection like we are getting in the casino industry, particularly money laundering and every single member of staff being certificated.

On the machines, we are asking for a proportional number of machines and appropriate stakes and prizes relative to our position in that regulatory pyramid. We find it very challenging that we are limited to a £2 stake machine in a casino, with all our protections, where an arcade and a bingo hall and other premises are also allowed a £2 stake machines. It doesn’t make any sense and that is even further complicated by the B2 machines in bookmakers being allowed a £100 stake, which is equally illogical. Bingo and arcades have many more £2 gaming machines than we do, again that doesn’t make any sense. Our stakes and prizes have not been addressed for over six years. We believe we have a very strong argument for correcting the number of machines and the stakes and prizes in casinos to where they should be and that can all be done under B1 by reviewing the stakes and prizes and just plain statutory instruments without any major complication.

Q30 Philip Davies: Just for clarity, what do you think the limit should be-the stake limit and prize limit?

Simon Thomas: We are proposing a £5 stake and a £10,000 prize. The challenge we are facing in the casinos, above us we have the internet with very high stake gaming machines available and below us we have the betting shops with £100 stake machines. We are asking for products that are commensurate with our position that will make us attractive to customers so people will come and gamble with us rather than online or in other places, because we believe we are the right place. I think it is universally accepted that casinos are the correct place for higher stake gaming.

Roy Ramm: We have had a dialogue with the Gambling Commission about how you deal with much higher stake slot machines, and one of the issues we have been talking about with the Commission is not having a blanket stake and prize regime at the higher end but it is about knowing your customer-so that the controls are more focused, more surgically addressed to individuals than a blanket that affects everybody.

Q31 Philip Davies: You talk a lot about what the regime is in other parts of the gambling industry. Do you think that one of the things that has held back the gambling industry over the years is that different sections of it have been, in effect, squabbling among themselves, arguing with each other, trying to do each other down, rather than each part of the gambling industry supporting other parts of the gambling industry? Would you say that the industry has been guilty in the past of trying to argue among themselves too much?

Roy Ramm: I will take that, if I may. I think there is something in that. I think that we haven’t been the best, we haven’t been terribly collegiate, but let’s be really clear about it. As far as the National Casino Industry Forum is concerned, we had as a strapline "Positive about Gambling" and that simply meant that we would not attack other sectors. We supported BACTA in its application to increase the stakes and prizes on B3 slot machines and now, as Simon rightly says, the stake in a slot machine in Margate is the same as the stake in a slot machine in Mayfair. But we didn’t choose to suggest that BACTA shouldn’t get an increase; we just hoped that it is recognised that we should also. Equally, we are not suggesting that B2 machines in bookmakers or machines in bingo clubs are wrong. We are not about attacking other sectors at all and we hope that they will take that lead from us.

Q32 Philip Davies: So you are quite content that they have got those machines in their shops?

Roy Ramm: It is not for us to make comment on that. It is for Government and policymakers to decide whether they are content.

Q33 Philip Davies: We will ask the Government when they come. I am asking you whether you are content.

Roy Ramm: What we are saying is that there is a regulatory pyramid. We sit at the top of it. If it is right and proper for bookmakers or bingo clubs to have a certain category of machine, a certain style of gaming product there, as Simon says, we sit above them on the pyramid so, what should we have in advance of that? We are not arguing against the bookmakers.

Q34 Mr Sanders: How would you describe the relationship between online casinos and land-based casinos?

Simon Thomas: I will take that one. To be honest, we have a degree of envy of them. They have much lower operating costs and they have much lower taxation, if any, and much lower regulation but, being blunt, they are here to stay. We have to accept them as part of the competition. There is definitely a degree of concern for players who, because there are less attractive products offline, are encouraged to play in less protected and regulated environments. If I was the taxman I would be concerned as well because there is very little income coming from the UK players playing online on overseas sites. They are selling into our traditional market and they have obviously less costs so they have a material advantage.

We welcome the Government proposal for national licensing and hope that it goes some way towards levelling the playing field. It cannot be right that an overseas operator can prey on UK customers to the detriment of UK businesses, jobs and tax. You have to remember, it is not just online. It is smartphones. Everyone has a BlackBerry; you can gamble on there. It is not just computers; it is digital television. It is very pervasive and we are in that same competitive space and with our regulations it is quite hard to compete against, which comes back to our proposals. What we are doing is striving to make our premises as attractive as possible to encourage customers who want to gamble to come and gamble with us in highly taxed, highly regulated, highly protective environments-that are paying lots of tax obviously-and we are just asking for products that are commensurate and give us a competitive chance.

Q35 Mr Sanders: Do you see the issue as one of trying to win back people from online gambling? Surely that is quite a difficult thing to do once people have the convenience of going online.

Simon Thomas: There are a lot of people who don’t want to gamble online. There are a lot of people who are uncomfortable with gambling on a website in Antigua or Bogota or wherever, uncomfortable with putting their credit card numbers into an online site. I would certainly be very uncomfortable, personally. So there are differences between us and them and there will be people that are gambling online that are uncomfortable with it.

Q36 Mr Sanders: I accept that but your point, Simon, was that you are losing and the Chancellor is losing revenue as a result of this development. So is it your intention to try and win back custom from online or is it to change how the online world operates?

Simon Thomas: I think there is an element of both. I think it has to be right for the online business to be forced by regulation to be based in the UK, pay UK tax and have UK regulation. At the same time, yes, we want to try to win back and be able to compete with the online companies and also to stop people feeling that they can only gamble at the level they want to online because there is no alternative. So it is a combination.

Q37 Mr Sanders: Do you have an estimate of how much business you think you have lost since the online industry was created?

Peter Brooks: Can I just have a shot at that? Let me declare an interest in the sense that we have some 40-plus land-based casinos in the UK and my group also has an offshore online business. It is just not possible to estimate how many people have gone; we know we have said farewell to some people; we know equally that we are able to persuade, if that is the right word, encourage, online customers to come and play in our shops and vice versa. So it is a very mixed pattern. The reality is online is here to stay, it is part of the competitive marketplace. We are advocating a much more level playing field and it is both tax and instantaneousness of product. So if a new game comes out from a new film, players can see that immediately online. It will take us ages to have anything equivalent like that in the land-based operation. So it is level playing field we are talking about. Online is here to stay. We are no different to retailers or anybody else as far as that goes.

Q38 Mr Sanders: Would you be in favour of legislation that only allowed online companies licensed and taxed in the UK to advertise in the UK?

Roy Ramm: Absolutely. I think one of the things that the Gambling Commission picks up on in its annual report is that most online play in the UK is now on sites that are not regulated by the Commission. If you look at the Commission’s stats, they say, I think it is £630 million-odd in gross gaming revenue was declared by the sites that are here, so there is a big lump of money that is sitting out there that is available to the Exchequer and we would like to see just that level playing field, the same tax regime, the same regulatory regime, the same access to product that they have.

Q39 Mr Sanders: Is it possible, though, to have that in both online and offline without more regulation coming in? For example, would you not need to have ISP blocking of either payments or blocking of unlicensed operators, which would be a whole new set of regulations that you have been arguing against? Is it the case you are in favour of regulations so long as they are in your favour?

Peter Brooks: The fact is that there are different approaches around the world to this. The type of approach that is being adopted in mainland Europe seems to be the right way to go, I think. Yes, it does involve a new level of regulation but it is not really additive, it is only additive for people who are currently unregulated.

Q40 Mr Sanders: There are some variations within Europe, I think?

Peter Brooks: There are variations.

Mr Sanders: Is there a particular country that you think has cracked it? There are big differences between Belgium, France and Malta, for example.

Peter Brooks: It is a big subject and I would hesitate to say one is right. My feeling is that Denmark is getting pretty close, but there is learning to be done. We just think it is right to bring it, if for no other reason than consumer protection. It was always thought that the Alderney Gambling Commission was as good as or close to as good as the UK Gambling Commission but look what has happened with Full Tilt.

Roy Ramm: I think on one aspect of that modernisation and us getting access to the products, we don’t believe that it requires anything more than a couple of statutory instruments to give us electronic products of the same kind that you can get online.

Q41 Jim Sheridan: Can I move on to the question of problem gambling and ask just how big or small problem gambling is in the casino industry compared to other gambling organisations?

Roy Ramm: We welcomed the result of the prevalence study. We felt that that was reassuring for the whole of the industry. We also have drilled down into it and we are again reassured that as far as the casino industry is concerned we are very much on the right track. Having said that, this is not an issue for complacency, we think that one problem gambler is one problem gambler too many. What we try to achieve is a balance that really means that we provide a product for the great majority of our customers who don’t have any problems with their gambling, but we also provide trained people, we provide literature, we encourage people to gamble responsibly, we engage with the major service providers of care and counselling. I think it would be good to get on record that the gambling industry broadly, including the casino industry, started GamCare. We funded GamCare for a decade before the 2005 Act. So we have not been dragged to the table to be responsible; we were there first. We are very pleased with the way that is going. We are very pleased with the relationship we now have with agencies like GamCare who tell us what their concerns are, help us to train our staff and to certificate our businesses that they think that we are doing the right things.

Q42 Jim Sheridan: What is your definition of a problem gambler?

Roy Ramm: Goodness me.

Jim Sheridan: What are the signals? Someone comes into your casino; what are the signals to tell you this is a problem?

Roy Ramm: There are a number of definitions of a problem gambler. It is somebody who loses control of their gambling and gambles beyond their means. I am going to ask Simon to join in in a moment because Simon is a trustee of GamCare as well and has a lot to contribute here. What we look for is people who are chasing losses, we look for people who are distressed, that become distressed, and we will intervene. Our staff will go along and find out what it is that is affecting their behaviour. Sometimes it is their gambling and sometimes it is not, it is something completely different, and they will tell you, "It’s not the gambling, I’ve got something else on my mind." Simon, why don’t you pick up on that?

Simon Thomas: I have the unusual position of being the only person in the gambling industry who is a trustee of GamCare and it is something that I hold very dear. Nobody wants problem gambling but the challenge we all face is actually identifying what a problem gambler is and there is so much evidence as to comorbidity, issues with somebody being addicted to a whole range of things. It is almost impossible to really bore down to it. From a purely commercial point of view, we want a sound business that is reliant on happy customers spending their money, coming in; and in that respect a casino is a very good environment because people generally have made a decision to go. It is part of a planned trip out; it isn’t just a spontaneous visit. In the prevalence study, we spent an awful lot of money trying to identify what problem gambling is and it identified that there is an element of society that has problems with gambling, but that is quite a fluid element. It has never come down to what a problem gambler is or what causes it, that is almost impossible. It has been tried worldwide.

As a family man and a private business, I also want to sleep at night and hence why I am very comfortable working in the gambling industry knowing the protections that are put in place and the fact that our staff will intervene, will talk to people and have a chat. If they are showing signs of distress and they say, "Look, I’m just spending too much money on my gambling" we can say quite fairly to them, "Well, these are the avenues open to you. This is GamCare. They have very good counsellors. Talk to them. They will help you through this period. If you want to self-exclude we will self-exclude you." It won’t just be from us. I know if Genting self-exclude from one of their casinos, they self-exclude from all of their casinos. We are, as an industry, looking at a piece of technology that sounds a bit like an Oceans 11 type thing, but it is facial recognition technology and they have got it to the point now where it is quite good. As an industry, we are looking to put it into the casinos and to have a common database for self-excluded people, so if a self-excluded person turns up it is not a case of they have never been in the casino before, if they are on the register they will be picked up and pointed out that they have self-excluded themselves from casinos. So we are working hard to try to prevent it.

Roy Ramm: Could I just add to that very particular point? That is the technological solution, but what we also do is we incentivise our staff to identify people who have self-excluded so if somebody does come in we will reward our staff for identifying somebody as a barred individual or a self-excluded individual.

Q43 Jim Sheridan: Your focus is very much on staff and training. The service and leisure sector are notorious for employing-or some people would say exploiting-migrant labour. Would your industry fall into that category?

Simon Thomas: As the person who is probably employing the next tranche of employees in the gaming industry, no, not really, because we need British as the first language. We are a service industry.

Q44 Jim Sheridan: Is that a condition of employment?

Simon Thomas: It is certainly not a condition but it will be an essential requirement for people that their English is actually brilliant because we are a British industry and we have British standards of service. We need that understanding otherwise you can lose the nuances of what is going on.

Roy Ramm: We employ a couple of thousand people around the UK and quite clearly sometimes in London you will find that there are quite a high proportion of foreign individuals, but one thing I have to push back to you is we do not exploit, that is for sure. We pay the wage for the job. As you move around the country, I think there are fewer foreign voices around the towns.

Peter Brooks: We have about 3,400 employees and a very high 80%, it is 87% or 88% of those are British.

Q45 Jim Sheridan: There have been a number of submissions that have argued for a consistent and evidence-based approach to gambling. Do you have any ideas or suggestions about that? Given your international experience as well, is there any other country you think that has a better system than we have?

Roy Ramm: I think there are bits that you can tease from lots of countries. I am the chairman of a business in South Africa where we have a casino with 600 slot machines, a restaurant, a resort area, a small zoo, and it is seen as part of the mainstream leisure fabric of that area. I think that for me, and my colleagues I am sure will speak for themselves, to see the casino industry not treated as an adjective to describe errant bankers, but rather embraced as part of the leisure fabric of the country is where I would like to see it, and people recognising that we have got a good, decent, honest, well regulated business and that for the great majority of people that come through our doors they have no problem with their gambling, they enjoy a night out.

Q46 Dr Coffey: The Gambling Commission was set up in 2005, taking over from the Gaming Board. What impact do you think it has had?

Roy Ramm: I guess my main portfolio is as a compliance director so I have probably had more to do with the Gaming Board as was and the Gambling Commission as is. It is our regulator. It has been more supportive and we have had a better dialogue with the Commission than we had with the Board. They have moved where they can. We have had a number of, for want of a better description, concessions from them around the way we introduce new games, the way we deal with gambling reserve and so on, and we have found that from our perspective it is a reasonably productive dialogue with mutual respect.

Q47 Dr Coffey: So you would say it has been effective in fulfilling its regulatory requirements?

Roy Ramm: Yes, in fulfilling its regulatory requirements. Our problem is that we are looking for somebody to sponsor us and in our submission we have said that we would like it if there was some imperative on the Gambling Commission to be more concerned about the economic welfare of the industry and seeing it as a good and vibrant industry. That is not there and I think that is a bit of a pity.

Q48 Dr Coffey: Building on that, there are some people who say the Gambling Commission is too close to the industry and then I think Mr Thomas also put in his evidence that you would like to see a bit more of a cheerleader. I think the BBC Trust is the only regulator I know who is both champion and critic. I am not sure that most people would see a regulator as being there as a cheerleader for the industry. Do you want to say anything, Mr Thomas?

Simon Thomas: Yes. My submission differs from NCiF. I am standing here as NCiF but I am happy to answer questions on my submission as well. The Gambling Commission are generally very good; all credit where credit is due. They are sometimes overly bureaucratic and slow to act, and I am sure many departments will suffer from lack of resource, but it is frustrating for an industry who is trying to be good. For example, the illegal poker clubs, the Gambling Commission will tell you they are illegal poker clubs but they say it is a local authority issue, they don’t have the resource to deal with it. They pass it to the local authority and it gets lost between the two. So we are in a competitive industry with clubs, which everyone agrees are illegal, but are not being dealt with. We point the finger at the Gambling Commission and they point it at local authorities. It is frustrating.

In terms of being both regulator and advocate for our industry, Ofcom and Ofgem, for example, in their requirements Ofcom say, "We make sure the people in the UK get the best from their communication services and are protected from scams and sharp practice"––good regulator-"while ensuring that competition can thrive"–– promoting the industry. Ofgem say, "Helping to secure Britain’s energy supplies by promoting competitive gas and electricity markets and regulating them so that there is adequate investment." So they are both regulating and making sure the commercial side works.

Q49 Dr Coffey: Yes, but it is not trying to promote the electricity industry or the mobile phone industry.

Simon Thomas: No, but it is easier to regulate a healthy industry and we are asking for our regulator to help make sure that we are healthy.

Q50 Dr Coffey: There is a little bit here about the Gambling Commission being seen to be rather expensive, about how there would be new entrants into market. The Gambling Commission is taking on the lottery, with the potential change in legislation; it hasn’t quite gone through yet. Do you feel that there is an opportunity for them to save money, given what you have just said about how they do not have the resources to be tackling illegal poker clubs? Any thoughts from anyone about that?

Simon Thomas: The cost of the Gambling Commission compared to the Gaming Board was dramatically more and there was an anticipation they would be regulating a lot of very large casinos, which haven’t happened, and to give them credit they have pared down the costs. They are still more expensive than the Gaming Board was. Taking on the National Lottery obviously changes their whole business model and you just hope they keep as competitive as they can. We want very good value for money from them. We don’t mind paying for it but we do want value for money.

Roy Ramm: I would just like to pick up one point. You said some contributors have suggested that the Gambling Commission is too close to the industry. That is certainly not something that I have observed as a compliance officer. I think that they maintain a distance. I can think of a number of issues where we have had dialogue with the Commission over the last year where if they had been in some sort of cosy relationship the outcome would have been very different.

Q51 Chair: Can I just ask you one final question? Do you think the Government want to see a thriving casino industry or are they so scarred by the experience of the Act that they would rather pretend it didn’t really exist?

Roy Ramm: I would sooner you asked the Minister that. It is quite clear that it was a very bruising time for parliamentarians generally when the Act went through, and it has not been easy for us to get traction with Government since then but we continue to try. In my reply to Mr Sheridan earlier, I said that I think that it is critically important that we get drawn in by DCMS into the mainstream leisure fabric of this country and that they see that we don’t eat our own young and we can behave properly and that we have a contribution to make to the leisure industry. I think that the closer they get the more comfortable they will become.

Q52 Chair: You don’t feel that is being recognised sufficiently at the moment?

Roy Ramm: More would be nice.

Peter Brooks: Could I just add one thing to that, if I may, which is it really is a case of getting it back in perspective or keeping things in perspective. I think I am right in saying that if you go back to Hansard and the debates about the Bill, approximately 70% of the time was devoted to casinos. Casinos are about, by revenues, 11% of the gambling industry, so it was massively out of proportion. Out of that time, an enormous amount was spent on regional casinos. So in a way, going back to your comment, a lot of what we are asking for is very much framed by the realities. There is no doubt there are scars from that debate. We have suffered from that in terms of reputation, we think quite wrongly. We really hope that the Government thinks there is enough time gone by that they can move on from that and keep us in perspective. One of the things that has gone wrong with the Act, going back to the pyramid, is simply not enough time was devoted to considering regulation of the industry as a whole-there was so much time spent on casinos. We hope that in this process you will be able to help the Government get back to a proper overall view of the industry, and we have our rightful place to play in it.

Chair: Indeed. I think that is a good note on which to finish. Thank you.

Examination of Witnesses

Witnesses: Dirk Vennix, Chief Executive, Association of British Bookmakers, Warwick Bartlett, Chairman, Association of British Bookmakers, Andrew Lyman, Head of Public Affairs, William Hill, David Steele, Commercial Director, William Hill, and Richard Glynn, Chief Executive Officer, Ladbrokes, gave evidence.

Chair: For the second part of this morning’s session we are now going to turn to the bookmakers. Can I welcome Warwick Bartlett, the Chairman of the Association of British Bookmakers and Dirk Vennix, the Chief Executive, together with Richard Glynn, the Chief Executive of Ladbrokes, Andrew Lyman who is from William Hill, as is David Steele.

Q53 Dr Coffey: Are bookmakers in a better or worse position since the implementation of the 2005 Gambling Act?

Dirk Vennix: We are saying that it is difficult for our businesses and that is why we are calling on the Government to provide assistance for us to continue creating more jobs in the industry and contributing to local economies. We also ask to put it in context that betting is a mainstream leisure activity, which is consumed safely by millions of customers up and down the country. I think it is fair to say that. In that context, we are therefore saying treat us like any other retail sector on the high street and therefore reduction of taxation and new regulations should be considered. I am thinking about the MGD rate that is coming in for electronic gaming machines and also thinking about looking at the gaming duty in the context of online gambling operators. On regulation, we are also calling for the triennial review, which Mr Ramm alluded to earlier, to include liberalisation of the number of machines in our shops. Also, as has been mentioned earlier, regulatory costs, which have increased as a result of the Act being implemented, should be looked at more closely.

We honestly and genuinely believe that there is a strong case for economic growth that we could fulfil if we are given the assistance by, for instance, DCMS, also the Gambling Commission has been mentioned in terms of a champion role. They could help us, I think, on the business growth agenda. We also think they could support us in terms of protecting us against any further unnecessary taxation and regulation.

Q54 Dr Coffey: Would Mr Glynn like to add anything? I understand the profitability of Ladbrokes has been struggling pre and post the Gambling Act, but I don’t know if the two are exactly linked.

Richard Glynn: It has certainly fallen over that time. I would make a couple of comments. I think that the industry faces an awful lot of competition now and certainly profitability has fallen but I think we are very well regulated industry now. I think with the right ability to compete effectively this is a great industry to drive jobs, to drive growth. It is a very tough time on the high street out there. It is a very tough time economically and I think the industry has a responsibility to make sure it continues investing very heavily in regulation and in making sure that it, in a way, over-services the customers who come in and provide us with that revenue. But there is no doubt that it is an incredibly tough time economically for the industry and anything that we can get that helps us, through really strong competition, to grow this industry, to put more jobs into the UK, to keep on investing in the high streets in the UK and to keep on paying high rates of tax, then we would welcome that.

Warwick Bar t lett: Can I just pick up on the cost of regulation? This is something that concerns particularly the smaller independent bookmakers. If you are operating a company say with 2,000 shops, you pay £152 per shop but a company with one shop pays £1,531. Under this fee structure, I wrote to a member over the weekend to ask of his experience and he said that a 50-shop company pays £17,514 a year to the Gambling Commission. If he adds another shop to take him up to 51 he pays £45,426, which is an increase of £27,912, which is a real disincentive for him to expand his business. These are the new proposals. Looking at it further along, he was talking about the visits that the Gambling Commission make and he said they visit six to eight shops out of 49 a year. Each visit lasts around 90 minutes. Two of them also visit head office per year for a couple of hours. It is basically a tick-box exercise. There is rarely anything worthwhile to discuss. So in total we receive no more than 20 man-hour visits at a cost of £17,514, which for him is hardly good value for money.

Q55 Dr Coffey: From William Hill, Mr Steele or Mr Lyman, I understand that you think that the vision hasn’t materialised, and that actually there has been regulatory uncertainty discouraging investment. Can you say a bit more about that, please?

David Steele: Yes. Just echoing what Richard said, times have been tough in retail. I think if you look at our own estate we are probably something like 15% back on profit over the last three years. I don’t put that in the hands of Gambling Commission because there are other things out there, not least a recession. I think the important thing to recognise with the Gambling Commission is the fact that in terms of the Act it didn’t actually bring that much in terms of LBO estates. It brought regulation and, as Warwick has mentioned, the cost of regulation, but it didn’t bring much by way of deregulation. It allowed further around advertising in windows and the like and on TV but very little more than that.

Q56 Mr Sanders: Given the ups and downs of revenue, has the actual revenue generated by the industry changed since the implementation of the Gambling Act?

Warwick Bar t lett: I think the major change occurred with the introduction of gross profits tax, which enabled a larger payout to the customer, created a more exciting betting opportunity for the customer and allowed us to introduce fixed odds betting terminals. I think that was the major change.

Q57 Mr Sanders: So you have seen revenue rise in that area but fall in other areas?

Warwick Bar t lett: Overall the profitability of the betting shop is in decline. David is right, overall the profitability is in decline but it is just that we are taking money in different areas according to customer demand.

David Steele: I think if you look at the industry as a whole, there are about 8,500 shops. The latest economic research that the ABB have commissioned suggests that something in the order of 2,600 of those shops will make around £22,000 profit, which is not a lot. It doesn’t take much to move that with changes in fees and other regulatory or economic issues.

Q58 Mr Sanders: Is this down to numbers of people visiting betting offices going down?

David Steele: That is a hard one to comment on because we don’t have a real measure on tracking headcount as such. What we tend to do is track slippage and I think if you took the William Hill estate over the last five years you have got-

Q59 Mr Sanders: Can you explain what that terminology means, what slippage means?

David Steele: Sorry, that is bets over the counter, one slip over the counter, and we would probably have an average of somewhere slightly north of about 300 million slips. It moves up and down a little bit but it is relatively static over five years. There will be more visitors, I am sure, as a consequence of gaming machines or fixed odds betting terminals, but in terms of absolute numbers we really have no way of tracking it.

Richard Glynn: If I could just add to that, Ladbrokes has a retail loyalty card that it can use. We can then track when people come into the shops and I think that we would say that footfall is relatively stable over that period of time. You mentioned before about the revenue opportunities and things like that and tying it back into the Act. It is an anomaly that somebody can go into our shops where we pay all the staff’s employment, we pay the rent, we pay the rates, they can watch what are quite expensive picture content costs, they can sit and they can drink our coffee, and yet on a mobile device or an iPad device they can play a casino game for something offshore but I am not allowed to promote them to play on our own product where we could tax them, we could regulate them, from inside our own shops. These are the sorts of competitive pressures that the industry faces at the moment where through the Act there are possibilities to liberalise and keep up to speed with very fast moving technology, which would allow us to compete more effectively. Those are the revenue pressures that the industry faces at the moment.

Q60 Mr Sanders: This seems to be a very critical issue and I am not sure whether it is picked up later but it strikes me that what you are saying is that if you were able to get people to go online through your company people would choose to do that because you could market and you could get them. Is there not a danger that there might be an element of competition that better odds might be offered by an unregulated offshore concern, or are you confident that not just you, Ladbrokes, but the UK-based industry would be able to garner the majority of those people wanting to do it online?

Richard Glynn: You have raised a really important point there. There are two answers to the question, I think. The first one is to have the flexibility to compete, and nobody on this side of the table is saying that we don’t want to compete. We are quite confident in taking on competition. So the first point is allowing us to use technology, as it advances, to compete. The second point is to say Ladbrokes has 2,100 shops, 14,000 staff here, very few constituencies in the country that we don’t have a presence. We pay quite a lot in tax nowadays and we are a UK plc. We are delighted to be here. What we would like to see is-and it is an oft-used phrase already many times today so I will repeat it just once more-that level playing field, not only in terms of taxation but in terms of technological liberalisation, which allows us to compete and then we will take our chances about competition.

Q61 Damian Collins: The same question I asked to the casino people: as a proportion of the profit for a licensed betting office on the high street, how much of that will come from slot machines and how much of that will come from slippage-to use your term-people placing bets on sporting events and the like?

David Steele: If I do revenue first, because it is perhaps easier to put it into context. About 46% of our revenue comes from gaming machines and the balance comes from the over the counter sports activity. In terms of profit, it is difficult to allocate because, again, it is the cost of running that business. Our biggest overheads are staff and property, and we need both of those for both elements of the business. So I could say that probably somewhere around 50:50 is about the mark because all of those costs are necessary for both elements of the business.

Q62 Damian Collins: It is probably reasonable to assume that conventional betting is slightly more staff intensive than the machines overall?

David Steele: If you look at typical staffing in a shop you are only talking about probably two members of staff through the vast majority of the day. So it is a model that works for both elements and it is very hard. I would suggest that you could look at content costs, and somebody might argue they are there for the over the counter customer, but if you then look at what goes on I think our own market research suggests that only 7% of our customers play machines only. So customers come in for multi-products. We are not there for one or the other so I think you have to look at the whole cost base and probably split it across the total revenue model. So if I said 50:50 as a broad brush and that might vary with other operators.

Q63 Damian Collins: Is the growth in revenue coming from the machines as opposed to conventional betting?

David Steele: It is 46% that is coming from the machines.

Q64 Damian Collins: If I had asked that question three years ago would it still have been 46% or would it have been less than that?

David Steele: No, it has been growing.

Q65 Damian Collins: It has been growing. Conventional betting is static, would you say, or declining?

David Steele: About static. There is growth in some areas. There has been growth in some sports, football being an obvious one, and no growth––it is probably going backwards a bit––in horse racing terms. It is very much around customer choice. We are a part of the leisure high street environment and to a large extent our customers shape the income streams.

Richard Glynn: I would like to try and give some colour on that, if I may. For our estate it is about 40% of the revenue that is gaming machines. You mentioned about OTC-over the counter-growing. If you were to look 10 years ago, the amount of betting that we would take on something like basketball was relatively small. The amount of betting that we would take on what they now call in-running football, betting during the game, was relatively small, but because of technology, using algorithms and very experienced traders, we can now offer very quick bets to the customers at relatively low margins to enhance their excitement during a game. If Man U are playing Scunthorpe City most of us know what the outcome will be but you don’t know what the outcome of the next free kick will be or the next penalty, and a lot of customers find that that is a very attractive way of enhancing the enjoyment of their experience. So that element of the over the counter is growing. I think it goes to the point of if you allow us the technology to do these things we can innovate quite well as an industry and thereby satisfy customer demand.

Q66 Damian Collins: Typically, what time in the morning do your betting shops open?

Richard Glynn: Typically 9 am.

Q67 Damian Collins: Do some open earlier than that?

Richard Glynn: There are a few locations that open earlier than that.

Q68 Damian Collins: 8 am?

Richard Glynn: I wouldn’t know.

Warwick Bartlett: There was a William Hill betting shop in Victoria this morning opened at 7 am. I wasn’t there. I was there at 9 am.

Damian Collins: Queuing up outside waiting at 6.30 am for it to open.

David Steele: It is a very small number and I think it is no more than a handful that would open around 7 am, 7.30 am, and then they come on stream gradually from 8 am, 8.30 am onwards. The majority would be about 9 am.

Q69 Damian Collins: Presumably people are just playing machines at that time of the day, or is it international sporting events or-

David Steele: No, we have virtual product, we have our own virtual product and that is available from when we open.

Q70 Damian Collins: Virtual product. What would that be?

David Steele: If you want, anything from cycling to horse racing to dogs in a virtual environment.

Richard Glynn: Quite a lot of people would want to come in if there is a 4 pm race at Haydock and they are working during the day but on their way into work they want to place a bet. They will come in and place the bet at 9 am. On the way out, when they have won from us, they will come and pick up the winnings.

David Steele: There is an over the counter product literally from opening to closing.

Q71 Damian Collins: Do you monitor the patterns during the day? Do you say if people are betting over the counter, there are peak times of the day when people might play on the machines? Is that something you look at?

David Steele: Yes.

Q72 Damian Collins: How does it pan out?

David Steele: Typically the large majority of the income comes in the lunchtime period through to the early afternoon. Horse racing is going to start at midday or 1 pm so that is typically where you would expect that volume to come from and, again, although you do have some people who will come in early morning, the vast majority are in about lunchtime, in their lunch hours or late morning.

Q73 Damian Collins: Some people have raised concerns about where you have problem gamblers would you spot people coming in earlier in the day, would you spot people playing particular games or doing particular things earlier in the day? Certainly that early morning session, as you said, there may be some people that will pop in on the way to work but I imagine that is a probably a pretty small minority. Do you monitor what happens in the early part of the day to see if there are patterns that concern you about your customers’ betting behaviour?

Andrew Lyman: If you think about the sort of square footage of the normal betting shop, even if we have one member of staff on, in the mornings for example, they are able to look at the door, control the floor, effectively, of the betting shop. We have a record of customer interactions, for example, both customer-initiated and staff-initiated interactions, and obviously we monitor things like self-exclusion. So it is the same question, I think, that you put to the casino industry around what protections we have for customers. The protections we have for customers are clear processes around problem gambling, clear processes around customer interaction and an obligation to report certain matters to the Gambling Commission on our regulatory returns. So there is a monitored environment.

Q74 Damian Collins: Would you like to see more gaming machines in your shops? Do you think there is customer demand for that?

Warwick Bar t lett: If there is customer demand, yes.

Q75 Damian Collins: No, would you like to see it and do you think there is?

Warwick Bar t lett: I have one shop and I used to have three machines. I now have two because it was unprofitable to have the third machine so we took it out. But there are some shops in London, like for example Edgware Road, I would think that they would probably need more machines.

Richard Glynn: To answer your question rather directly, what we want is the ability to satisfy demand and we know that at certain times of the day in a number of the shops there is a requirement for more machines. What we would like to see is, I suppose, three things. We would like to see the ability to review the stakes, the ability to review the prizes and the ability to review the number of machines. The limits to us seem to a degree arbitrary. We know that there is latent demand, we know that by doing that we can satisfy the demand, which will hopefully allow us to perhaps employ more people, pay more taxation and so on, but there is certainly latent demand out there that further machines could be satisfying.

Q76 Damian Collins: If I could ask one other question just because you mentioned it, Mr Glynn, about in-game betting for football in particular. There are lots of reports about allegations of bribery and match fixing in football and people betting on how many players will be sent off in a game. There was an incident in Scotland with that. Do you have a concern about the rise of this type of betting and do you think there is more the industry could do to monitor unusual betting patterns on in-match betting?

Richard Glynn: I think it is important to differentiate the product from the problem. The incidence of problem gambling I think you won’t find actually exists predominantly in Europe. The phrase that I quite often use is the bookmakers, we are the canary in the mine. The people who pay the money out when the betting coups happen are the bookmakers. The people who will stop the betting coup happening are the bookmakers who track the incidence of irregular betting. We tell the authorities when that happens. In fact, I would turn it slightly on its head and say we spend a huge amount of money in the shops, in the central offices-I know William Hill do-tracking the prevalence and the incidences and the correct betting patterns. When something untoward happens we notify people. I think people should use the industry more to help them. This is not a betting-related problem. This is a problem for perhaps the sports and so on to make sure that they are regulating the incidences and putting the appropriate sanctions in place. We can help them, with pleasure, but I don’t believe this is a betting-related problem.

Q77 Damian Collins: That was what I was wondering, how you use the data you get.

David Steele: We do use it and we track it and we hand on the data regularly to people.

Dirk Vennix: Just to add to that, you mentioned Scotland and the recent Jennings case is a very good example where our members raised suspicions of betting irregularities in this particular case. We then raised the alarm with the Gambling Commission and the sporting governing body in Scotland and nine months later we have seen the conclusion of an investigation that has led to a prosecution.

Warwick Bar t lett: A lot of the corruption in the sports emanates from the Far East where gambling is illegal and there are a lot of illegal bookmakers.

David Steele: To the data point, the trigger for us as an industry is when does something that is the norm move to unusual and then move to suspicious. We all monitor field books because we are all trying to make a profit and when something starts to move from an unusual pattern to a suspicious pattern we are very quick to alert, not least if it is going to cost us money if indeed we are correct in our suspicions.

Q78 Chair: Can I come back to fixed odds betting terminals? A number of people have suggested that FOBTs are perhaps the most dangerous, that they are very available on the high street and that you can lose a lot of money very quickly. You will have listened to the evidence we had from the casino industry who displayed admirable restraint in not saying you shouldn’t be allowed to have FOBTs in the high street in your bookmakers but they did point out that they are at the top of the pyramid, subject to the greatest regulation, and yet they can only offer machines offering a £2 maximum stake. Does it not look a little imbalanced that you are on the high street offering what some people think are the most potentially dangerous type of gambling activity?

Dirk Vennix: I think our response is quite clear in terms of the way we like to approach these things, which is that it should be evidence-based. If we look at the evidence, and this has been endorsed by the Minister in a recent adjournment debate with Mr Davies, there is no clear link between problem gambling and electronic gaming machines, or FOBTs as they are being called. If you look back at when they were implemented in 2002 and then fast forward over the last 10 years, again there is no significant evidence in the prevalence study, which the Gambling Commission has commissioned over the last few years. It is interesting to see some of the statistics where they show that the participation rate has stayed the same between 2007 and 2011.

I am not minimising the figures at all. There are problem gamblers who have the problem with machines but on the other hand, like Richard was saying earlier, we think we are best placed, given our understanding of consumer demand and of our business model, to make the right decisions and have the commercial discretion in terms of the location of the shop, the geography, the demographics, the volume, the footfall, because we generate a lot of footfall on the high street. So we should be well placed to determine how many machines are in the shop, and it does differ from the south to the north, as Warwick was indicating earlier. We think there is a pretty solid business case but, given that we do accept that as responsible businesses we should make sure that the customers who use the machines operate them safely.

David Steele: I think probably the most telling statistic for me is if you look at the incidence in the prevalence study in 1999, it was 0.6. I don’t think there were any fixed odds betting terminals available in the market at that time. If there were it would be a handful. If you then fast forward to the prevalence study of 2007, it was still 0.6. During that time something in the order of 30,000 what are now gaming machines were introduced to the high street.

Q79 Chair: Even accepting your suggestion that there is not a linkage, do you have sympathy with the casino industry’s case that it looks pretty strange that they are not able to offer these and are restricted to B1s whereas you, who are arguably subject to less intrusive regulation, have B2s on the high street?

Andrew Lyman: I think the levels of regulation over high street bookmakers is a bit of a misnomer to say that they are short of the mark in any sense. If you look at the barriers to entry to the market in terms of obtaining a Gambling Commission operating licence, you look at the licensing conditions and codes of practice, which includes the Social Responsibility Code, and the obligations that there are on us as operators, it is not for us to promote the casino industry in our session but at the end of the day there may be an argument for there to be more liberalisation in the machine environment for the casino sector. I don’t think the answer is to reduce the stakes and prizes in the bookmaking sector, for example.

Richard Glynn: The overriding principle here is that the gambling and gaming sector is a mainstream entertainment activity. All of us offer different products. We all offer it, I hope, in a very well regulated, carefully controlled environment. I believe that it is the level of regulation and it is the care that we put into it that determines how we respond to those people, the unfortunate individuals who do exhibit problems. I think, as Roy said earlier, any one individual who exhibits that is one too many. The industry pays an awful lot of money every year, and willingly does it, to the GREaT Foundation to make sure that we are continuing to look into this. We spend huge amounts of money training our staff. Every single member of staff in the shops has to go through training, off the job training, to make sure that they are aware of these problems. We have systems in place. I believe that the industry has to move together as a more holistic industry to promote itself as an entertainment product, to up the standards continually of regulation and probity and to ask the Government’s permission for liberalisation and technological advances to allow us to offer strong competition on the high street, on the internet and wherever it may be.

Q80 Philip Davies: Can I link in machines with clustering of betting shops, perhaps? In terms of the limit of four machines in a shop, obviously I can see that that is nonsensical in the sense-and the Minister has admitted in the past-that there is no evidence of any link between the number of machines in a shop and problem gambling, largely because you can only play one at a time, maybe two if you are particularly proficient, but you certainly can’t play four at a time. So whether there is four in a shop or five in a shop or six in a shop clearly cannot be linked to problem gambling, I absolutely understand that. But in terms of that, if there was a liberalisation of the number of machines in a shop, how many would you want it to go up to? Would you want it to be five, six, eight, 20, 100, no limit at all? What is your view about how many machines each shop should be allowed?

David Steele: I think to Andrew’s point earlier there are physical constraints within the betting industry in terms of size of shop. Our own shops on average are probably only something like 650 square feet, so an unlimited number does not give us much by way of opportunity. I think if you look at the utilisation of machines during the course of the day you find peaks and troughs. To Mr Collins’ point earlier, it is very limited activity up until probably about lunchtime and I would think, speaking personally, five or six would certainly satisfy demand at the high points of the day for the vast majority of shops in the UK.

Q81 Philip Davies: So you are just looking for a small number increase. If, for example, the Government said there is no link between the number of machines and problem gambling, therefore there is no justification for a limit and the limit was taken away, what can you envisage the maximum number being in a Ladbrokes shop, say for example?

Richard Glynn: I think the economic reality is, as was said before, there are space requirements and overriding that there are commercial requirements. We won’t put machines in there. We have to pay money to rent the machines, we have to pay money to put staff in there. We won’t put machines in there where there is no demand. I think our penetration rate is about 3.85 at the moment in the shops so there is a number of shops there that just cannot sustain even the number of machines that we are allowed. If it was increased to five or six then I am sure if the demand was satisfied at that level we think that would be a very fair outcome.

Q82 Philip Davies: Linking that to clustering, some people in Parliament have been concerned at the number of betting shops that have sprung up on a particular high street or in a city centre or whatever it might be. Am I right in thinking that that is in some way linked to the issue of machines? In effect, just for argument’s sake take Shipley as an example, there is a demand in Shipley, perhaps, for-I had better make the maths easy so I can work it out-20 machines in Shipley and therefore, because each bookmaker is only allowed four, the upshot of that is that there will be five bookmakers in Shipley whereas, for example, if each betting shop was allowed six machines there might be three or four. There will be 20 machines, however many you allow in each shop, and this is governing the number of shops that there are on a high street or in a town. Am I right in-

David Steele: I don’t personally believe that is true. No, Philip, no, I don’t think it is. I think if you look at clustering generally-and there are a small number of high streets, all probably in and around inner London, where there has been a slight increase in numbers-I don’t believe it is anything to do with numbers of machines or caps on the numbers of machines. We are in a competitive environment. If I take two examples, which I think are quite relevant because they are often cited, and I take Hackney and Haringey, Hackney had 70 betting shops overall before the Act and it now has 65. It has five less. If I take Haringey, it had 59; it now has 63. So it has four more. As another one, Camden has four more. We are not talking about significant increases. If I look at our own estate in Hackney, we had 29 before the Act and we still have 29. If I take Haringey, we had 22 and now we have 19.

This is a competitive environment. It is supply and demand. The reason we have less is that they were not profitable in those locations. If I looked at our own estate within the London boroughs, we have moved from 651 to 628. We have gone backwards. If I looked within the M25, we have moved from 656 to 650, so within pretty much the whole of the southeast we have moved backwards. If I took Glasgow, we have moved forward one; Manchester one; Leeds two. These are not significant numbers and I think the reality is when the demand test was removed you were always going to get one or two places where there would be an increase in shops. I don’t think it is anything to do with machine numbers. This is a highly geared, fixed cost business. Nobody wants to operate the cost of an entire shop purely for machines. It doesn’t work.

Q83 Philip Davies: If the limit on the number of machines was increased you would still get the same clustering of shops?

David Steele: I think you would still get the potential for clustering. I don’t think it would move that away. If I give you another example, there has been no demand test in the Republic of Ireland as far as I am aware. We had an estate of just over 50 shops three years ago and we have progressively moved out and now it is 15. It is supply and demand. It is not around machines. When you look at the overall numbers you are talking about leisure high street, you are talking about a broad spectrum of quantity there in terms of over the counter sports betting and the machines. It is the mix. It is not just about machines.

Warwick Bar t lett: If I could just confirm the numbers of betting shops over time. In 1961 when we had the first Act there were 8,802 and today there are 8,822, after all those years, but we have had a 17% growth in population.

Q84 Dr Coffey: Can you tell us the difference between pre-Gambling Act, just before and now?

Warwick Bar t lett: Yes, I can. In 2005 there were 8,840 and today there are 8,822 as at 2010, but our research now shows that 2011 it will be about 8,500, so there has been a fall.

David Steele: You have a peak in 1968 of 15,700 and then, with one or two little bobbles in it, it just slides down to about 8,500.

Warwick Bar t lett: It is a consistent trend of decline in the number of shops.

Q85 Philip Davies: Can I just move on briefly. Warwick, you mentioned the Gambling Commission and the fees and, as you described it, the perceived unfairness of small bookmakers that they seem to pay a higher amount per shop than bigger bookmakers. Do you believe it should be a flat fee per shop?

Warwick Bar t lett: I do, and one of the reasons is that there is a decline in the independent sector. If we look at the figure, say on bookmakers’ permits, in 1966 there were 11,253 and today there are about 1,200-half of those are racecourse bookmakers, so there are 519 betting shop operators. So the consolidation that has taken place is quite distinct. If this consolidation continues and shops are continuing to close in the independent sector how is the Gambling Commission going to raise its money? Under the current fee structure they will lose that enhanced fee from the independent sector, so at some point they will have to go to a single shop fee.

Q86 Philip Davies: Richard, how would you respond to the sort of allegation that seems to be coming out that in effect big bookmakers are underpaying on the back of small bookmakers for the Gambling Commission fees?

Richard Glynn: I am going to try and adopt the casino industry’s example and take a very unified approach to this. I think that the independents are having a tough time and if there are ways in which we can help them and maintain that very vibrant sector then I think that is appropriate to do. What I would say is that when you run a large company there are many other overheads that you have to pay––the training of staff, the regulatory aspects, the probity aspects. We talked before about all of the infrastructure that you put in place for tracking trends and things, which the independents don’t pay, so I would say in certain ways there is a disproportionate cost. We only need to mention that wonderful word "the levy" to see how the major bookmakers pay a disproportionate amount. If you look at the GREaT Foundation, the three major bookmakers underwrite 70%, 80% of that. So there are a lot of initiatives there that we will underwrite for which the industry gets the benefit of. I would like to see a very vibrant independent sector as well.

Warwick Bartlett: Can I just say also that an operator with six shops under the 1963 Act used to pay £300 plus a £25 renewal for three years. He is now paying £39,000.

Andrew Lyman: If I could just come in there and talk about it in terms of the Gambling Commission proposals for fees going forward. There is consultation out at the moment. I think it would be right to say that the large bookmakers fully support the view that the costs for small independent bookmakers should move downwards, but what we don’t support is the idea that we should pick up the overhead in return for that. If you look at what the Gambling Commission is doing at the moment, it is doing well on sports integrity and it is doing well on fighting illegal machine supply. The BRE report said it needed to work harder at becoming a risk-based regulator and we feel that it probably has not worked as hard as it should in that area and needs to become more risk-based. For example, instead of suggesting that large operator operating licence cost fees should rise by 30%, which we found a very difficult figure to cope with in recessionary times, the Gambling Commission should reduce its policy and administration overhead and the costs of routine compliance visits, but not to the point where any of the three licensing objectives are undermined. The Gambling Commission has a role but simply transferring the overhead from one sector to another or from one subsector to another is not the right thing. It needs to look hard at the costs in the areas that I have identified there.

Warwick Bartlett: On another point, our smaller members ask that they can pay these Gambling Commission fees monthly-that would help them a lot-rather than having to pay thousands of pounds in one go. The other thing is if, during the course of a year, they go out of business and they have paid upfront to stay in business with the Gambling Commission there is no refund, which is unfair.

Richard Glynn: If I may, Mr Chairman, just pick up on something that Dr Coffey said earlier about the casino industry and the Gambling Commission acting as an advocate for it. I don’t think that what we are expecting is the Gambling Commission to don pompoms and start dancing around on our behalf. What we would like to see is the liberalisation to allow us the technological improvements and the level playing field by which we can then promote ourselves. We see that as their responsibility for leading and heralding the industry, not perhaps a more advertising-based approach.

Q87 Dr Coffey: Can I turn to online gambling and I particularly want to direct these questions at representatives from William Hill and Ladbrokes. The DCMS response, after its consultation on the regulatory future of remote gambling, essentially seems to move to having national licensing. Do you oppose Government plans to move to this system of national regulation for online gambling companies?

Andrew Lyman: I think we raised an eyebrow at the amount of emphasis that was put on public protection. Regulation holds no fear for us because we are at good regulatory standards in any event, UK regulatory standards; but the prospect or the description that the Minister gave of William Hill, for example, providing public protection risk to UK customers I do not think is right at the end of the day. If we deal with political reality and look at what might happen in terms of future regulation of offshore online operators, then one has to look at the business model and look very carefully at that business model; look at the much lower margins that are achieved in the online business; look at the amount of money that has to go into marketing and research and development and to fuel the growth of that business.

If we end up, on the back of regulation, with a double-figure tax rate, for example, then that growth will be significantly slowed. R&D costs would have to be cut, marketing costs would have to be cut and obviously there would be a risk to jobs. The idea that we are offshore, online and not contributing anything to the UK economy is a misnomer. There are a number of jobs in our Leeds offices that feed into the online business. We repatriate part of the profits of that business and pay corporation tax on it, for example. So it is not a simple onesizefitsall solution. The other element, again, which has been alluded to already in the previous session, is the one about: if there is a licensing system set up, who will take advantage of that system? William Hill would have to take advantage of that system, for example; but then are we going to be properly protected by enforcement mechanisms, for example? Are they effective or are people still going to sit offshore and offer better prices and effectively customers migrate to that business? There are a lot of complications in this and the business model needs to be clearly understood.

David Steele: I think the reality is the net will catch those who are prepared to be caught, UK plc.

Q88 Dr Coffey: I have had the Ladbrokes view. Could I have the William Hill view?

David Steele: You have had the William Hill view.

Richard Glynn: You would rather have the Ladbrokes view.

Dr Coffey: Sorry, the Ladbrokes view. I apologise.

Richard Glynn: I quite like the William Hill view, I have to say. I quite agreed with it. I think you have to look at the realities of it. We operate in a high-volume, low-margin industry and when the offshore operators started looking at our customers there was a very clear view that said, "If, unfortunately"-and it was unfortunately-"we, as a business, do not move offshore then our competitors will take our customers offshore." We had no option but to do that, but Ladbrokes, and I can only speak for Ladbrokes, is a UK plc. We pay a lot of tax here. We employ an awful lot of people. We are very proud to be a UK-based business. If the Government can work with us to make sure that the technology requirements that we have, the tax rates protect or level the playing field between the retail and the online, then we would probably endorse and support the proposals to bring the betting back onshore.

Q89 Dr Coffey: From what I heard, it started here from Mr Steele, there is a risk perceived by the industry that people will bet illegally in this country?

David Steele: Yes.

Warwick Bartlett: It depends on the tax rate. Denmark has achieved a differential rate that has had EU approval and I don’t think that the two industries can trade on the same tax rate. The purpose of the Gambling Act, if you remember, was to open the market up.

Q90 Dr Coffey: Online has a lower tax rate than offline?

Warwick Bartlett: Yes, in Denmark.

Dr Coffey: In Denmark.

Warwick Bartlett: The purpose of the Gambling Act was to bring the global gambling market to the UK and it was on target to do that, but the problem was it took too long for the Act to hit the statute book and become operable. So we were looking at from year 2000 with Budd going through to 2005 to get the 2005 Gambling Act. Then it came into operation in 2007. The whole world had changed by then. The offshore jurisdictions were really up to speed with this issue. So what they did is they amended their current Betting, Gaming and Lotteries Act and just added a clause to allow it. That is what the UK should have done and then revisited it with the 2005 Gambling Act. We lost the business opportunity and other countries like Malta created that opportunity, so did Gibraltar, Isle of Man, Alderney and other places. I reckon we exported 20,000 jobs. Not cheap jobs; jobs that are earning, on average, £45,000 a year. Worthwhile jobs, we exported them.

Q91 Philip Davies: Just on that particular point; what rate of tax would the Government have to introduce to get you back onshore? I mean, if it introduced a rate of tax online of 4% or 5%, something like that, would you come back or would you say, "It is still not worth our while coming back"?

Andrew Lyman: We would be quite happy to look at a proposal on that basis. We are realistic and the work that we have commissioned so far is around demonstrating the dangers in setting too high a tax rate and so if, at the end of the day, there was a political and legal imperative around a single-figure tax rate then that could work for us.

Q92 Philip Davies: Maybe it is me, I could be strange, but I would sooner have 4% of something than 15% of nothing and I am not entirely sure that sure there are many people, given the two choices, wouldn’t go for the same. Obviously if the Government-if we were to try and I can’t speak for them––but if we were to go along that line, it would be pointless if you were to come back and say, "Well, we’re still not going to come back anyway".

Richard Glynn: No, and I think the industry is very, very prepared and is already exhibiting a willingness to work with Government to examine these things to try and reach a rate and I have said-and I believe William Hill and ourselves are in the same boat-we would welcome coming back onshore. The complexities of running businesses in multiple jurisdictions are far greater than they are of being able to bring the jobs and everything back onshore. There is a secondary element to this, which is not only to allow us the tax rate that allows us to compete effectively. Offshore operators who can plough far more of their nontaxed earnings into marketing and promotions to customers are at an advantage. We can’t face that disadvantage; but, by the same token, the Act has to have teeth because there will always be people who will try to avoid the net. What we need to make sure of, those of us who will be complying it, is that the regulation has teeth to try and prevent and catch those who try to avoid it.

David Steele: Yes. While we don’t believe there is a public protection issue, we are looking at it commercially and we have had some pre-consultation discussions with Treasury. To Richard’s point, I would absolutely endorse it. It is worth nothing if there aren’t teeth to make it happen and make it work.

Q93 Jim Sheridan: On problem gambling, do you accept that there is far more likelihood that it could take place in the High Street as opposed to the regulated industries such as casinos? I base that on the point of view that if you go to many high streets throughout the UK one thing is guaranteed: you will probably see a bookie’s and a pub and usually they’re next door to each other. I don’t know if that is intentional or not but it certainly creates the impression that it could be a problem for gambling and particularly for people under 18.

Dirk Vennix: No, I don’t agree with that. We must not lose sight of what we have said earlier, that 99% of our customers bet safely and that is borne out by the statistics, and we do take our social responsibility very seriously. We increased our voluntary contribution from £2 million in 2005/2006 to £5 million in 2009/2010 and we have a duty of customer care that we take very seriously through a range of measures, whether it is the age verification testing that is now around 74%, which compares very favourably with other retail sectors on the high street.

We also have a duty, which we take seriously, among our members that there is a High Street Betting Action Plan that has a board-level champion that looks protecting children and young people, delivering the appropriate training, with the help of GamCare, commissions test purchasing of its own and reviews manager’s performance. These representatives also meet with the ABB to review the performance on a quarterly basis and share best practice to see how they can improve that.

Just to pick up that point about the pub. That does happen but I think the synergy there is that there are local communities that congregate in pubs and they also congregate in our shops. I have been in a shop recently where a shop manager will know the customer coming in, will know him on firstname terms and has a chat with him, knows his family history, his family life and also keeps an eye on him. If, say, the losses that he incurs would spiral out of control, he would have a quiet word with him. That is the responsibility that our shop staff take very seriously.

Q94 Jim Sheridan: I am a regular visitor to bookmaker shops and I don’t know very many managers who know their customers and their families. I think that is a bit Freudian. Just to this question about the £2.6 million, increased to £5 million, there must have been a reason for that, surely?

Dirk Vennix: That is because we take our responsibilities seriously.

Jim Sheridan: There must have been a problem then.

Dirk Vennix: No, it is not a problem. It is making sure that we put our money where our mouth is and so if we have dialogue and relationships, as we do with gambler charities like GamCare, and they ask us to provide more money-

Q95 Jim Sheridan: You see what I am trying to establish. If you are putting £2.6 million voluntarily into a system and then you decide to put £5 million in, there must be a reason for that. There must be a problem there in order to have an increase from £2.6 million to £5 million. Why?

Warwick Bartlett: The reason is the Government asked for it.

Q96 Jim Sheridan: The Government just asked for it?

Warwick Bartlett: Yes. They wanted us to support the charity and that is what we did, we coughed up. That is the reason.

Dirk Vennix: Seriously, we have been asked by charities to provide funding through GREaT, which is an independent mechanism. I know GREaT will be delivering oral evidence as well, so I will leave them to explain how it works, but it is basically down to gambling charities asking for funding to fund research, education, prevention and treatment of the issue of problem gambling. It is really trying to help customers and we help them with all sorts of things like self-exclusion schemes, but if we can help them by providing money to gambling charities, who obviously need that to operate, then why shouldn’t we be doing that?

Andrew Lyman: I think at the end of the day, it is an issue of proportionality, isn’t it? Nobody sitting at this table is a problem gambler denier, but at the same time I think we would say that problem gambling should not dominate the whole agenda around gambling if you look at the problem gambling rates, which are very low by international standards. There are people who have a problem with gambling and we have signposting, we have funding for treatment, we have funding for research projects that are individually identified by the Responsible Gambling Strategy Board and I think the appropriate level of funding is in place.

Q97 Jim Sheridan: I am conscious of the time and I am thinking about the under-18s. What steps are in place? I mean, a significant number of 17-year-olds, for instance, according to the research, have been allowed to bet over the counter. Is there a strategy in place to deal with that?

Dirk Vennix: I think you might be alluding to the Gambling Commission’s test purchasing report in 2009.

Jim Sheridan: A shopping survey, I think they called it.

Dirk Vennix: Yes, which did indicate compliance that was not good enough and we put our hands up and we agreed that that was not right. What we have done is a major and sustained effort to improve compliance and the 74% I was alluding to earlier was in October 2010. So you can see a marked increase in our compliance there.

David Steele: Another thing I would add to that is that we were genuinely horrified when we saw the results of that test purchase at Hills. I was part of the committee who developed modular learning for our staff. We took all our staff off-site for learning. It cost us something in the order of £500,000 to do that exercise. So when we failed, bluntly, we were genuinely shocked. What the industry did and what we did at Hills was then move to a Think 21 policy and we put in place our own test purchasing, which we routinely do, which is one of the reasons, I think Andrew said, it is perhaps now appropriate for the Commission to move more towards self-assessment because a lot of those checks and balances are actually happening now as a right with the major players.

Q98 Jim Sheridan: Just two very final brief questions. The loyalty card that runs at Ladbrokes, that is not just to track customers. I mean you offer incentives for the loyalty card, don’t you?

Richard Glynn: It is a proper loyalty-based system, yes.

Q99 Jim Sheridan: There are incentives to entice people to come into the betting shop. I declare an interest, Chairman. I have one.

Richard Glynn: I should declare an interest as well. I am delighted that you have one. In most digital-based businesses now it is about understanding the customer better so that you can reward the customer, so that you can make their experience better. The loyalty card system is no different from a Tesco club card/loyalty card.

Q100 Jim Sheridan: It is not described in the text books about somebody walking down the village green, "Oh, there’s a betting shop. I think I’ll go and put a bet on." You are enticing them to come in.

Richard Glynn: I don’t accept that at all, I have to say. The enticement for people to bet is their enjoyment. They choose to bet. It is part of their entertainment. If what we can do is reward them for that and we can enhance their experience by understanding more about them, then that is no different from a Tesco club card/loyalty card.

David Steele: Just to put some financial context around it, the modal bet in a betting shop over the counter is about £4. The average bet is about £8 and the average stake on a machine, B2 and B3 mix, is about £6.50.

Q101 Jim Sheridan: Can I just ask a very final question? A significant amount of all your profits come from fixed-odds football. How much do you put back into football?

Richard Glynn: Let us answer that. A significant amount of our profits still, thankfully, come from horse racing. We put a huge amount into horse racing. If you look at sponsorship and so on in football, I think that you will see that quite a few of the premiership clubs are sponsored by bookmakers. What I think you do need to do is draw a very clear distinction between a sport like horse racing and a sport like football. I do not think that you see many people standing outside Woolworths holding a can, shaking it for the premiership. These guys have quite a lot of money now. They do not need our money to help them sustain their industry.

Q102 Jim Sheridan: I wasn’t particularly thinking about the premiership. We have just had an inquiry into football. Premiership can take care of themselves. I mean you are using fixed-odds coupons to league fixtures and so on. What I am asking is how much money is going back in to particularly grass-roots football?

Richard Glynn: I can’t answer the question for the industry. What I can say is that what the industry does is promote sport, it works very closely with sport. I believe it is for the sports themselves to promote grass-roots football. It is not for the betting industry to do that for them. We work very closely with them to help them foster it; to make sure, as we have said earlier, that there aren’t problems with corruption. We help them with the education on things like that. The industries must recycle their own funds.

Chair: I suppose they provide some money for forward players, don’t they?

Q103 Damian Collins: I wanted to ask about just one thing on advertising. Obviously television advertising is much more prevalent now for major betting companies than it used to be. When you have big advertising spend how does that drive customer behaviour? Is it through betting online or in the shops or a mixture of both?

Andrew Lyman: It is a mixture of both at the end of the day. There are clear distinctions. There are customers who only gamble online and there are customers who only gamble in shops, but our market research has shown a significant crossover between the two. So marketing activity, particularly around the brand, drives footfall in shops and it drives activity online.

Q104 Damian Collins: Does it drive one more than the other?

Andrew Lyman: Plainly, if you are advertising at peak time in the middle of a major football match then that is likely to drive online revenues more than it would retail.

Q105 Damian Collins: What I am trying to get at is that what it is designed to do. When your marketing director comes to you and asks for his money or her money and you are analysing commercially for the business what the advertising is doing-is it being designed to do one thing rather than another, is it being pitched at driving online betting during sporting events or is it just general brand-

Andrew Lyman: Richard can answer for his own business. From our point of view we think our strength is effectively in a multi-channel offering. So the answer is it is not necessarily targeted entirely at the online market. It is targeted at the brand and the brand awareness and people betting in more than one environment.

Q106 Damian Collins: I appreciate that but from what-

Andrew Lyman: Sorry, I am not trying to be evasive. I am probably just-

Damian Collins: You are doing pretty well.

Andrew Lyman: Although some of the advertising will be specifically targeted at online and around football products, say, there will be rub-off because of the brand support into retail. What is impossible, because of the anonymity of betting in retail, is to judge what impact that might have had.

Warwick Bartlett: But most of the advertising is for online businesses.

Richard Glynn: Let’s just clarify that. Advertising is not a blunt tool. There is some advertising that is brand-promoted, which raises awareness. There is other advertising that you will see is directly focused on a mobile product, which drives mobile. I think that you use advertising now in a very sophisticated way to drive the proposition that you want to drive at a certain time. During a football match we will be driving in-play betting, but it is part of a holistic advertising mix, building on what was said before, to drive people to the Ladbrokes family or the William Hill family as opposed to just an individual product. We are hoping that a rising tide floats all boats, rather than just one boat.

Q107 Damian Collins: Sure. What I was getting at was, is that tool used to predominantly drive certain areas of the business?

Richard Glynn: At certain times it will be.

Damian Collins: So online gambling rather than, say, traffic into a betting shop?

Richard Glynn: No doubt around the Grand National the advertising will be used to drive people to the shops.

Damian Collins: I meant through the year, but I think it is reasonably clear, and I can’t imagine Ladbrokes is very different.

Richard Glynn: No.

Chair: I think we will draw a line at that point. Thank you all very much.