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

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

Culture, Media and Sport Committee

Gambling

Tuesday 8 November 2011

Clive Hawkswood, John Coates, Peter Reynolds, Martin Cruddace and Charles Cohen

Cllr David Parsons, Mike Holmes, Richard Dowson and Stuart Baillie

Evidence heard in Public Questions 329 - 453

USE OF THE TRANSCRIPT

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:

Oral Evidence

Taken before the Culture, Media and Sport Committee

on Tuesday 8 November 2011

Members present:

Mr John Whittingdale (Chair)

Damian Collins

Philip Davies

Paul Farrelly

Mr Steve Rotheram

Mr Adrian Sanders

Jim Sheridan

________________

Examination of Witnesses

Witnesses: Clive Hawkswood, Chief Executive, Remote Gambling Association, John Coates, Chairman, Remote Gambling Association and Chief Executive, bet365, Peter Reynolds, Director of Communications, bwin.party, Martin Cruddace, Chief Legal and Regulatory Officer, Betfair, and Charles Cohen, Chief Executive, Probability, gave evidence.

Q329 Chair: Good morning. This is a further session of the Committee’s inquiry into implementation of the Gambling Act. For the first part of this morning we are concentrating on online gambling, so may I welcome Clive Hawkswood, the Chief Executive of the Remote Gambling Association, John Coates, the Chairman of the Remote Gambling Association, Peter Reynolds, Director of Communications for bwin, Martin Cruddace of Betfair and Charles Cohen, Chief Executive of Probability.

You have seen pretty rapid growth in the last few years in the online gambling sector. Do you think that you can sustain that growth and to what extent do you think it is at the expense of offline?

Clive Hawkswood: I will start on that one. We certainly think there is further growth and the main reason for that is because e-commerce is growing in any case, so online retail is a growing sector. If anything, we lag slightly behind the growth in online. Things like Tesco online would be a huge one. Their growth is probably between 15% and 20% year on year; ours would be a bit below that. In terms of a growing market, yes, obviously we like to think that it might be due to the quality of the products but it is also part of that wider growth in e-commerce.

John Coates: In terms of the relationship with the land-based, having done both-and we sold our shops in 2005-we always saw them very much as different markets. One we saw very much, in terms of betting shops, as a true retail play-75% of your business coming within a quarter-mile radius of your shop, a very different demographic of person. We decided to concentrate online but we very much saw it as a different market.

Charles Cohen: We are in the brand new bit, the mobile business, which didn’t even exist three or four years ago. The level of growth that we are seeing is exponential and I think the mobile sector itself, if enough people come into it, which I hope they will, will probably eclipse the online-what you call the online and I call the desktop gaming sector-pretty quickly, certainly within the next few years. Most of our customers who are gambling on their phones, slots and that kind of thing-80% of them don’t have an account with an online desktop gaming provider, so they are new punters.

Q330 Chair: Do you know if they have an account with a traditional-

Charles Cohen: No, none. They just tell us they don’t do it.

Q331 Chair: So these are completely new gamblers?

Charles Cohen: Yes. The only other gambling that they do, not that they think of it as gambling, is the lottery.

Martin Cruddace: I think it is inevitable, Chairman, that if you look at the next generation-I have a 21-year-old stepson and watch him closely-they are not going to be as interested in offline as perhaps we were when we were that age. I think it is inevitable with the growth of broadband, as Mr Hawkswood said with the growth of e-commerce, that there will be further growth in online and it is possibly at the expense of offline as well.

Q332 Chair: Your suggestion is not that existing gamblers are switching from land-based to online but that the next generation of gamblers will go straight to online?

Martin Cruddace: Absolutely.

Chair: Which is equally bad news for the land-based industry.

Martin Cruddace: In the long term, arguably, possibly yes.

Peter Reynolds: I think there is nothing to add. I think it has been covered. If you look at the scale of the global gambling markets it is around a $350 billion a year business. On latest estimates, the online or the interactive piece is around 8% of that, 8% or 9%, which has grown from around 5%. Echoing all the points that have been made, broadband penetration, the demographic factor-which is that the younger generations are much more drawn to the interactive channel; that is how they communicate, it is how they play games, it is how they want to play games-I think it is inevitable that that penetration rate will increase. Therefore, the growth rate of the online sector is almost certain to grow at a multiple of the land-based gaming sector.

Q333 Chair: One small point that was raised with us is the rather curious restrictions that exist at the moment that prevent land-based operators advertising their own online business in their clubs. That seems strange when you are free to advertise. Can you see any justification for that?

Clive Hawkswood: No, I don’t think we can. Obviously land-based and online have the same advertising freedoms. That is a question of what they can advertise and promote on their premises so it is slightly different but, as you say, there is no obvious rationale for it.

Q334 Mr Sanders: Can I ask John Coates and Martin Cruddace this question. Do you see yourselves primarily as UK companies or as global companies?

John Coates: We are a UK company in the sense that we are based in Stoke-on-Trent. However, around 30% of our revenues are from the UK so, although it is our biggest single market, 70% of our revenues are from overseas. So I suppose we are a UK-based international company, if that helps.

Martin Cruddace: We see ourselves in our DNA as very British. We started here. We have two Queen’s Awards for Enterprise in International Trade and we employ about 1,500 people here. I joined in 2004; I was employee number 425. We now have 2,500. But a key part of our strategy is geographic expansion in the online world and we have 300 employees in California, because we own the largest advance deposit wagering, legal online company in the United States as well. So, while our DNA is British and we are proud to be British-and our headquarters, I imagine, will always be here-none the less, geographic expansion is absolutely key to us.

Q335 Mr Sanders: But you operate a licence in Gibraltar, don’t you?

Martin Cruddace: Yes. I don’t know, Mr Sanders, if later on we will come on to that but that is very much for commercial reasons that we can talk about.

Q336 Mr Sanders: How dependent are you upon UK customers for your profits?

Martin Cruddace: Very dependent. It is over half our business.

Q337 Mr Sanders: Can I ask the same question of John Coates?

John Coates: Less dependent. Between 25% and 30% of our business is from UK customers, but we are based in the UK-in other words, licensed in the UK.

Q338 Mr Sanders: Mr Reynolds, what about bwin?

Peter Reynolds: Around 10% of our revenue is in the UK, so the UK is a relatively small market for us, and of those revenues the majority come from a marketing business that we have here. It is not gaming, it is marketing.

Q339 Damian Collins: I will address this question primarily to Charles Cohen but if anyone else on the panel has any comments I would be happy to hear them. It is about technological developments from gambling with handheld devices. Where do you see the industry going in the next few years with that?

Charles Cohen: I see it going all the way.

Q340 Damian Collins: Where is that?

Charles Cohen: I think this quarter or last quarter was the first quarter where shipments of smartphones exceeded shipments of desktop PCs worldwide and obviously those two lines are going in opposite directions. Over the next few years the majority of consumers worldwide will be people sitting in meetings using their BlackBerries and their iPhones and their iPads rather than desktop computers. As I think Martin just said, that is where people go to look for their entertainment, and I think the gaming industry in all its varied forms is going to go with it. Who the winners and the losers are is yet to be seen. Obviously I would like to think that we might be one of them, but time will tell.

Q341 Damian Collins: Do you think there are any regulatory issues about gambling with mobile devices? Could there be problems with people betting on live events they are actually at, with all the various platforms and keeping up with the developing events?

Charles Cohen: I have to admit I have complete ignorance of sports betting. I have no idea how it works.

John Coates: If I may take that one. We find with advances in technology we push changes in odds out enormously quickly. We don’t see a problem. We have a slight delay on in-play bets, so you place your bet, there is an eight-second delay before it is placed just to deal with any timing issues. No, we don’t see a problem. We haven’t come across any problems.

Q342 Damian Collins: I think there were problems with betting on tennis in the past, weren’t there, with people betting on points?

John Coates: Others can answer, but we have not seen issues with it. We are very comfortable that the information we are getting is pretty real time.

Q343 Damian Collins: Mr Cohen, do you think that the betting market will develop further into social networking platforms and that handheld devices will assist that?

Charles Cohen: It already is. Half of Facebook updates now are done from a mobile device and it is pretty straightforward to embed a service like ours into social networks and particularly Facebook. They have some rules around it but they are fairly relaxed. I think they rely on us being responsible. We have a very active community of our customers on Facebook and when they complain they complain very loudly and in public, and when they are happy they do the same thing. It is part of people’s lives and therefore they expect to be able to communicate with you as a provider of a service to them through those mechanisms. If you are not there then you simply cease to exist.

Q344 Damian Collins: In your written evidence you have recommended changes to the licensing regime to operate at the point of use rather than the point of production. Why do you want to see that change being made? What difference do you think it will make?

Charles Cohen: There are a lot of people I know who would love to start developing software for gaming in the UK and they have a choice-they can either do games that people download from the apps store for free, or they could get into the gaming sector. There are a lot of fantastic ideas out there. The problem is they never see the light of day because in order to set up a company developing this sort of software in the UK you need a licence, even if it is never going to be used here. For a lot of people, particularly for start-up, it is just not feasible, it is not practical. They don’t want to have the Gambling Commission looking over their shoulder the whole time when they feel they are just writing some software that they can license to somebody else to use. Also, I would like to see the UK become a world centre for this kind of technology and I think it could be because we already have critical mass for mobile games development generally. In order to do that, people need to be able to come here freely, set up shop, start developing technology that can be used anywhere in the world, and again I don’t see why they should need to have permission just to do that.

Q345 Damian Collins: Principally that would presumably only largely benefit companies that were developing products that were not going to be used in the UK?

Charles Cohen: Yes, but it is a global market.

Q346 Damian Collins: Is that something we should be welcoming, necessarily, if a company is coming here and designing games that would not be regulated for players in the UK?

Charles Cohen: They can be regulated in the UK too but if you are developing a game, let’s say for the Chinese market, which is very different from anything that you would do in Europe, then if you can get that business into the UK you are going to help to create a centre of expertise.

Q347 Damian Collins: Do you think the current licensing regime is putting companies off?

Charles Cohen: Yes.

Q348 Damian Collins: Do you have any direct experience of that?

Charles Cohen: Yes.

Q349 Damian Collins: You do? Anything you can share with us?

Charles Cohen: Well, just conversations I have had with people over the last couple of years who had some great ideas and wanted to set something up. I have said, "You have to go and ask the Gambling Commission for permission" and they just disappear.

Q350 Damian Collins: Martin Cruddace, I understand in your evidence there is a similar but different theme about where appropriate licensing should take place. Betfair recommended that companies should not be able to advertise and market to consumers in the UK unless they hold a licence. Could you say a little bit more about why you think that change would be significant?

Martin Cruddace: The DCMS have announced the intention to regulate UK companies offering services to UK customers, which is very welcome. I think that then, it is a question of enforcement and one of the ways of enforcement is to prevent and prohibit advertising and marketing of your product to UK customers. I think without advertising or marketing, your growth or your business will start to decline. So we think it is more a question of enforcement rather than anything else. On Mr Sanders’ point, if and when the legislation comes into force it is important that it be able to be enforced. I think one of the key difficulties that regulators around Europe are facing at the moment is, how exactly do you enforce it and with what resources do you need to enforce it? You can make it criminal but it is still a question of enforcing that when you have, as fellow panellists have said, online companies all over the world. What sort of resource would be needed for those companies that don’t want to be regulated here but target the market? So that is a key issue for any government or regulator looking at this issue.

Q351 Damian Collins: I imagine that type of restriction would be quite effective for larger players who want to advertise in the UK market in a big way. There is a very long tail of much smaller operators as well who will market themselves virally or through social networks or through search. If such a system is to be robust, do you think we will have to have site-blocking measures and persuade search engines to restrict access to sites that were unlicensed but trying to target UK customers?

Martin Cruddace: All of that might be great. I think the problem here is proportionality. You go to ISPs or you go to Facebook or wherever it may be and say, "You mustn’t do that" but I think that in the online world they will find a path of least resistance. Those that want to advertise virally or through affiliates that are based in jurisdictions a long way from here but targeting the UK market might do that. It is becoming easier and easier as well to hide the origin of yourself as a customer. There are grave difficulties that we all face with enforcement because, of course, being a plc you tell us what the law is and we abide by that. There are those other companies a long way from here who really won’t be too interested, I am afraid.

Q352 Damian Collins: Do you think in that case we should have a regime that is built around the major players and not tie ourselves up in knots too much worrying about every small operator and trying to chase them?

Martin Cruddace: I think so, and I think then a central tenet is to make the regulation hit a sweet spot so you don’t have such onerous regulation that no one wants to be regulated, but make it so that those that want to be regulated and want to abide by the rules can do so without too much of a commercial risk to those that don’t want to be regulated.

Peter Reynolds: Just echoing that point, I think the best format for regulation is to make it as attractive as possible for the large quoted and regulated industry players to participate so there is a greater advantage of being in the regulated market than out of it. As soon as that balance shifts, that is when you have a problem. A classic example is in France, where they have created an extremely onerous regulated regime. In fact, we saw some figures, I think today, that have just come out saying that there has been a significant decline in the regulated sports betting market because commercially it is very difficult for regulated operators to compete with the unregulated operators. So the best thing you can do is to create a framework where there is a much greater attraction to be in the regulated framework than outside it. That is the best protection and the best regulated regime you can have.

Martin Cruddace: If I could just completely echo that, but I think as well it is very important that you understand that regulation is a positive selling point for us. We don’t see it as an unnecessary burden. I think commercially it is important and there is a fair wind behind us, given the difficulties that certain illegal operators that have targeted the United States have faced with customer funds and things of that nature, and it shows the difficulties that you may have if you don’t feel confidence as a customer in the regulated entity or the regulated authority.

Q353 Damian Collins: One final question I have is addressed to Clive Hawkswood. In the Remote Gambling Association’s evidence you cited match fixing in sports and sports betting, and this is principally an issue for sports and sports regulatory bodies rather than the gambling industry. I have every sympathy with that, but do you think there should be greater obligations in terms of data sharing between the industry and regulatory bodies? I think I have read that in France they have now introduced a statutory obligation on the gambling industry to share data and information. I know a lot of that goes on informally at the moment but do you think there needs to be more done in that area?

Clive Hawkswood: Of course, there is that in the UK, so there is an obligation to share information with the Gambling Commission. I think that is good practice.

Q354 Philip Davies: I want to go back to a point that Damian made. He was on to something and I think, John, you dismissed it-maybe a bit too quickly: how modern technology and in-running betting is affected by people placing bets already knowing the result. Martin, you will know where I am coming from here because this is predominantly something that has affected Betfair.

John Coates: I thought I had got away with that then.

Philip Davies: I wondered if you could give us your take on it. There has been an issue with people betting in running, laying a horse that has just fallen and somebody who is placing a bet does not know the thing has fallen because they are watching a TV screen that is eight seconds or so behind time. What about that issue of people who are, in effect, backing a horse that somebody else knows has fallen?

Martin Cruddace: I think there are two points to that. The first point is that the best advertisement for the integrity of the market is the depth of the market and the volume of the market, and our horse racing in-running markets are voluminous and in-depth. Secondly, of course, those that try and seek an advantage in that way can go horribly wrong as well, Mr Davies, as you might imagine, because you think it is about to fall and it may not. Thirdly, pictures are becoming a lot quicker in any event. Finally, and I think this is the most important point, before you place your bet there is a big warning sign to you on our site saying, "It is possible on any market anywhere in the world that someone somewhere may have access to faster pictures than you; you must be aware of that". Of course, for instance in relation to a football match, if there is a penalty or a red card or a goal the market is immediately suspended and there is a five-second delay. There is also a one or two-second delay on horse racing. So, effectively, if you have tried to take advantage of that your bet is going to be cancelled because the five seconds protects you.

But I am not going to sit here and say it is impossible for someone somewhere in the world with access to faster pictures to gain an advantage. That can happen on any platform, given the prevalence of in-play betting that we are seeing and the growth in in-play betting across all platforms. The warning, to me, is really important and then it is up to the individual. I am personally very pleased that the depth and the volume of our market is such that, while of course we must not be complacent about the issue, it is perhaps not as great as some would have you believe.

Q355 Philip Davies: It can go horribly wrong but it can go very right as well, can’t it? I hear stories of these punters who hire boxes at racecourses so they can watch the race live and do the in-running betting knowing that they have a massive advantage over the punter sat watching it on a TV screen or a computer screen. So if it is worthwhile enough for them to hire a box at a racecourse in order to do it, you would think it is fairly lucrative.

Martin Cruddace: You would imagine so, but I think that some of those stories may be slightly apocryphal because the point is that you have to rely on the internet access, 3G access and, given that pictures now are so real time, to me the advantages would be minimal. That said, I am not saying that there is no advantage. What I am saying is that it is very important that before you place your bet you are aware that across any platform-it could be our platform, it could be anyone’s platform-somewhere someone may have access to faster pictures than you and you must bear that in mind when you place your bet. It is a question then of how you want better to regulate that. I can’t think of better regulations than a warning before you want to do it. I happen to love in-play horse racing betting and I am very confident about doing it, but would I do it coming up to a fence? Who knows? But the position is that the warning is there.

John Coates: If I could clarify my point. In the fixed odds market it is us seeing the pictures and laying the odds so it is a different situation, hence the answer.

Q356 Paul Farrelly: I have a series of questions for each member of the panel centred on those two ugly sisters, regulation and taxation. I have to leave in 40 minutes-I won’t go on that long-to get a train for a funeral. It seems unfair to single out Betfair yet again, but why did you relocate your licence to Gibraltar in March?

Martin Cruddace: Basically for competitive reasons-to maintain a level playing field with all other operators that were not licensed in the UK, other than our good friends at bet365. The savings on GPT were such that if we didn’t, we would be unable to be as competitive as we would expect to be, and as we have a duty to our shareholders to be. So it is predominantly for commercial reasons.

Q357 Paul Farrelly: Is that in terms of the odds you are able to offer?

Martin Cruddace: Yes, and our profitability-of course, we don’t offer odds; it is other people offering odds on the site-but in terms of the commission structure and such things as well. While we pride ourselves on having better odds, the fact is the market, as I think John will confirm, has got so competitive that it is really important to have a level playing field so that everyone’s tax liability in relation to gross profits tax and in relation to gambling legislation is the same.

Q358 Paul Farrelly: I have a few questions for John in a moment, but could you just explain this. You have moved your licence to Gibraltar; what does that mean physically and operationally?

Martin Cruddace: The most important thing to realise is that under, I think, section 36 of the current Gambling Act here-and I am sure John will come on to this as well-if someone places a bet through your server located in the United Kingdom then you are liable for tax and to be regulated on that person’s bet, no matter where it comes from in the world. If we didn’t divert our business away from the UK licence you would have the following position. For a Danish customer, who is regulated in Denmark, we pay 20% gross profits tax on that Danish customer’s business, and then, if your server was based in the UK, you would go through the UK and you would pay 15% on that. That is not viable as a business.

Q359 Paul Farrelly: Physically, is it just the paper and relocation of servers?

Martin Cruddace: All of the servers and all of the customer-facing staff-it’s basically a broad brush. I could write an essay on it, and I am happy to, but basically it is the servers and customer-facing staff.

Q360 Paul Farrelly: Going from zero in Gibraltar, presumably, to how many staff now in Gibraltar?

Martin Cruddace: You don’t actually have to have the staff in Gibraltar. We have 30 or 40 staff in Gibraltar but we have 300 in Ireland.

Q361 Paul Farrelly: I just wanted to get the people side of it there. In your evidence you highlight that there is a clear failure of the Act, in that online operators have gone offshore and the Treasury has failed to secure significant online gambling revenues. You say this is due to the non-complementary structures of the regulatory and fiscal regimes. What do you mean by non-complementary?

Martin Cruddace: What I mean is that what the Gambling Act-I was here then and I went through it all-was meant to do was to regulate all forms of gambling, and of course this amazing growth environment of online gambling as well, but it was pretty difficult to do that if the UK Government insisted that for online gambling gross profits tax would be 15%, whereas in Gibraltar it is effectively zero, the same as Malta. So it was not sustainable. The fiscal policy was not in line with the regulatory policy. The other problem, of course, is that, as a requirement under section 36, if the servers are based here then you cannot even capture UK customers, you can only capture every customer going through that server, as I have said earlier. So you have the real risk, which is what John has, of double taxation, which simply makes the business completely unviable. The most important thing is that the Government did all of this work, and I think the Gambling Act is a fine piece of legislation, but it did not marry up with the fiscal strategy and fiscal policy of the Treasury at that time.

Q362 Paul Farrelly: One of the other things you highlight in the Act is that there is a demand if you get a UK licence that you locate your equipment, however that is defined, here to be able to hold it. Is the UK unique in its approach on that?

Martin Cruddace: Among all of the leading countries in Europe in terms of market size, yes. There are one or two small Eastern European countries that insist on it, but basically all of the regulations that we are now seeing in Europe-in Italy, Denmark, Spain and Germany-do not insist on servers. They seek to capture the business of that country; they do not seek to capture all of the business, so there is not a requirement to put servers in their jurisdiction. Clearly, it is not viable to have servers in every jurisdiction. It simply, again, makes all of our businesses unviable.

Q363 Paul Farrelly: I want to come to your remedy for regulation in a moment but, Peter, reading your submission, when it comes to regulation you don’t seem to have much to say. It all seems to be tickety-boo and don’t change it.

Peter Reynolds: I think we just feel that the UK regulation is working effectively. Customers have a great offer. As we have already heard, the UK is probably the most competitive market in the world, I would think, just because it is a great regime, people are able to advertise and promote their services. The customer is getting a great deal here, problem gambling is relatively low, and for us we just wonder what the problem is.

Q364 Paul Farrelly: Do you think Martin’s concerns about the way the Act is working are really a reflection of the percentage of business that Betfair does in the UK compared with yourselves?

Peter Reynolds: No. The UK is still a material market for us, it is just less material. I think we all have different operating structures so I am sure we could give you a slightly different twist on it. But I agree with Martin: I think the Gambling Act was a solid piece of legislation that has created a great environment for customers and for that reason I am not sure we see any reason to change it.

Q365 Paul Farrelly: John, could I ask you, why does bet365 split its licensing approach-sports betting here, casino games, poker in another jurisdiction? Are there particular different characteristics of each side of the business that we should understand?

John Coates: The reasons were historic. Before the Gambling Act, when we started out in 2000 you could only license yourself for sports betting under the Betting, Gaming and Lotteries Act 1963 in the UK. You could not license your casino games and poker. Therefore, we always had that structure and when the Gambling Act came through we kept that structure, so we remained licensed for sports betting in the UK but we didn’t move our gaming business.

Q366 Paul Farrelly: So it is not an economic decision?

John Coates: No. That was how we were set up through necessity.

Q367 Paul Farrelly: The big question that most people would want to ask, particularly with Betfair moving in March, is why do you keep sports betting here at all when other people don’t?

John Coates: It doesn’t make economic sense for us to do so, clearly. About 70% of our business is sport, so it is by far and away our biggest product. I think this year we will pay about £65 million in duty and that is not taking into account things like non-recoverable VAT, which was also around £20 million, which we would save from moving to Gibraltar. So it would make economic sense to move. The big issue we have in front of us, which Martin alluded to, is that we have a situation where 70% of our business is non-UK and we are starting to hit a very real problem, which is double taxation. We are already accruing for gross profits tax on our Spanish customers, which is about 6% of our business, so we are accruing for that in Spain. The licensing regime is coming in at the start of next year at 25% and we are also paying 15% in the UK. Denmark is another example where from January we will be paying 20% in Denmark and 15% gross profits tax, and that is just unsustainable. Unless there is a change and we don’t have to pay gross profits tax on non-UK customers, we have an issue facing us.

Q368 Paul Farrelly: I want to come on to that, but the question remains why are you still based in the UK and in Stoke-on-Trent?

John Coates: We employ 1,700 people in Stoke-on-Trent and we are from Stoke-on-Trent. It is not an economic decision. It is a bigger thing for us.

Q369 Paul Farrelly: I can imagine you have shareholders who don’t mind paying tax, but if you were quoted it would be a whole different thing.

John Coates: Well, the shareholders are my family, so we can make that decision. It doesn’t make any economic sense and if we were a public company we wouldn’t be able to make that decision, so I absolutely understand why Betfair made the decision they did. If we were a public company we would have had to do the same thing because shareholders would have demanded it.

Q370 Paul Farrelly: Apart from the threat of double taxation in Europe, are there any other things in the offing, that are looming on the horizon, that would make it uneconomic for you to stay?

John Coates: The big issue for us is the rate of duty, which at the moment is high anyway. You have to look at tax in terms of all the other taxes as well-corporation tax, non-recoverable VAT levy-so it is a pretty hefty tax bill and we have always to keep an eye on that to ensure that we can still run a successful, profitable business. But the massive issue for us is a need to change the basis of the tax to one where effectively we are just paying it on UK customers so we can continue to create jobs in Stoke-on-Trent for our international business.

Q371 Paul Farrelly: My colleagues want to come on to what should or should not be done at EU and European level, but I don’t know, John, whether you have read Martin’s submission on Betfair’s remedy about regulation.

John Coates: I haven’t but I am sure it is excellent.

Martin Cruddace: Thank you, John.

Paul Farrelly: In a nutshell-correct me if I am wrong, Martin-it is that the UK should prohibit non-licensed operators in the UK but with the proviso that anybody who is granted a licence in the EU should get a UK licence. Is that fair, Martin?

Martin Cruddace: In essence.

Q372 Paul Farrelly: Then there is the question of enforcement. Would you go along with that sort of approach? It seems to me that that is turning the regulatory screw in a way that the likes of the Belgians are now trying to do but is not there at the moment?

John Coates: If I look at all the major companies in this sector, although people talk about thousands of sites, the reality is to my mind in every market it is dominated by a small number of large players, and two of them are alongside me here. They both are licensed in Gibraltar, both are very reputable companies, both meet very high standards of regulation. So I don’t think there is a great ill, if you like, that we need to solve in terms of regulation because I believe the major players are very well regulated as they are.

Q373 Paul Farrelly: Clive, this is my final line of questioning, my colleagues will be glad to hear. If we were to adopt the Betfair approach the EU would be fine, Malta would be okay, but jurisdictions like the Isle of Man, Antigua, Tasmania, would not. Do you think that the failure of Full Tilt Poker means that the White List approach either has to be rethought in its entirety, or that in terms of putting countries on a White List we need to be more satisfied about the nature of regulation in those jurisdictions?

Clive Hawkswood: I think I certainly wouldn’t restrict access to EU countries only. As we said before, it is a truly international market and I think each jurisdiction should be judged on its merits. As we have seen with the Full Tilt case, that is not without its problems but I think the Gambling Commission working with reputable regulators is the best way to address those sorts of things in the future. We have heard from the companies here-they have parts of their business in different countries already, so we do need the regulators to work together irrespective of what countries they are in.

Q374 Paul Farrelly: When bet365 is paying UK tax and Betfair is calling for a change in the regulatory environment, why should we here be effectively not only subsidising but encouraging companies to go offshore to what are tax havens?

Clive Hawkswood: It depends why you want to bring companies to the UK. If it is for regulation, we understand that; if it is for taxation and the Government were open about that, we would understand that. There are EU legal issues about that. But it comes back to companies not being here because of regulation. It is wrong in this forum, I guess, where you are talking about the Gambling Act to say regulation is not the issue for us but it really is not. All the companies in the UK market, that dominate the UK market, are regulated in the same way as if they were by the Gambling Commission. They have no trouble getting their licence; compliance has never been an issue. It is the fiscal regime. We do keep coming back to it and unless there is some way to address that imbalance it just won’t work, so we won’t get the kind of change Government is looking for. We have had a lot of discussion about the stick of enforcement, but our experience in other jurisdictions that have tried it-there are lots of examples-is that it does not work in isolation. If these guys were honest, and I will be honest on their behalf, we could all work around any of those restrictions were we minded to. These companies wouldn’t do that but others would because there is a market there. What you need is a bit more thinking about the carrot so that companies that come to the UK and are licensed here can compete, and that is what it boils down to.

Q375 Paul Farrelly: I can imagine that if we stopped the Gibraltars, everybody would just hop over to Malta, so I understand that point. Charles, I probably don’t have time to go into your interesting idea about turning the Gambling Commission into an industry champion as well as a regulator, but you might want to say something about that in a minute.

A final question just on this broader point for the whole panel: what do you think about the Government’s direction of travel in terms of taxing the remote gambling industry at the point of consumption in the UK? What is the general feeling?

Clive Hawkswood: I will kick off. I think our position is that we are not persuaded that it is objectively justified in terms of consumer protection and regulation. There is no evidence UK consumers are suffering, and in fact in terms of value and choice, I think as Peter was saying, they have never had it better. But we understand this is the direction of travel for Government, and so our task in hand now is to work with Government, both DCMS and Treasury, to make sure the final regime-whenever it comes in-is one that truly works for us.

John Coates: We need it to happen in terms of being taxed in the UK on our UK customers. Without it we have a major problem with being based in the UK.

Peter Reynolds: I think I have said it all before. There may well be legal challenges in terms of, can it be done within the EU framework? But if you are going to go down that road of taxing at the point of consumption-the points we have echoed many times-the regime has to be sufficiently attractive that there is not the incentive to create the black market. There is a black market, but the point is that you want that to be as small as possible and that the volume-the vast majority of customers-is drawn into the regulated market, and to do that the regulated regime and the fiscal regime together have to be sufficiently attractive. I think you have heard that many times today.

Q376 Mr Sanders: Can I ask you a general question. Which country, in your opinion, has the optimal tax rate and levels of regulation?

Clive Hawkswood: I will break the silence. There isn’t one. What you have to remember is that most countries are still at the very early stages of this. The UK passed legislation a few years ago, in 2007. The UK was miles ahead of the rest of Europe on this. If we take out the small jurisdictions of Malta and Gibraltar, the rest were really nowhere. We can tell you what works very badly. There is no optimal system in Europe at the moment in any country. We have hopes for Denmark and Spain. Denmark is only just starting; Spain will not go live until next year, so we are still at the start of the upward curve.

Mr Sanders: You don’t have to answer unless you have different views.

Peter Reynolds: Just one comment on Spain and Denmark is, yes, we would agree and you will have seen that they are proposing to have higher tax rates, but of course they are opening the market. The difference between Spain and Denmark and here is that here, we have a fully regulated but liberal market that is open, creating a hugely competitive market. Again, I come back to, what is the consumer experience? It is extremely good here. Pricing is extremely tight, as we will all testify, and for that reason there is a significant difference between suddenly making a market open that will only attract a limited number of operators-and indeed, John and I were talking about that before we came in here. The challenges on entering new markets are significant-having to meet a whole raft of new regulatory compliance-and, of course, there is the fiscal burden as well on top of that. So I would predict that in markets like Spain and Denmark there is not going to be anything like the level of competition that you see here in the UK. Again, from the consumers’ perspective they have the best choice right here in the UK.

Q377 Mr Sanders: Do you see developments at the European Union level having a significant impact on the development of the remote gambling sector and if so in what sort of timeframe?

Peter Reynolds: I am sure we will all have something to say on this. I think we are hopeful there will be. The European Treaty was very clear about what we are trying to create, which is an effective internal market that gives a great deal for consumers. Unfortunately, what we have today is a fragmentation of the European market, particularly in gambling, and of course the great thing about the internet is it transcends borders. The whole point is it drives a great deal for consumers, but at the moment we are starting to see fragmentation and what we would like to see is a coming together so there is a commonality of approach. There are only so many ways you can do a fraud check, an age and ID verification, anti-collusion checks and so on. Let’s just agree what those are and make them the same across Europe.

Q378 Mr Sanders: So you think there should be a Europe-wide regulatory system?

Peter Reynolds: I think in certain areas. We know that the direction of travel within Europe is that Member States have to have the right to be able to control what goes on in their territory, and we accept that, but at the same time there are so many areas of our business that could be common, that are common, that we need to just cut through all this duplication. One of the comments made earlier was, let’s get the regulators all talking together and agree a common approach, because there are only so many ways you can do this thing.

Q379 Mr Sanders: Can I ask Charles, from a technological point of view what would be the challenges in implementing pan-European technical standards were they to be introduced?

Charles Cohen: Honestly, not many I would have thought, because each time you look at the technical standards that countries set they are 95% all the same, and 5% tricky. For some reason they seem to feel that just because your technology has been approved by another country, that is not good enough-you have to start the whole process again at an exceptional cost for, as far as I can tell, no good reason whatsoever. So I don’t think it would be very difficult to set up common standards because, as Peter says, there is only a finite number of ways to do certain things.

Q380 Jim Sheridan: First impressions would suggest that the industry is dominated by relatively young, male, white people. Is that a fair assessment?

John Coates: I would disagree. At Bet365 I am the second biggest shareholder but my sister is the largest shareholder in the business.

Q381 Jim Sheridan: So why is she not here?

John Coates: Because she operationally runs the business and I do the external stuff. So our business is very much dominated by a woman.

Q382 Jim Sheridan: Is that same for the rest of you?

Martin Cruddace: You are welcome to come and visit us in Hammersmith and you will see that is not the case. I think there is the point, of course, that the demographic of the sports betting customer is a male of a certain age predominantly, and people who want to work in the industry, as with any industry-you would fish from that pond. We have two ladies on our plc board, so we meet all those standards, and we try to reflect that throughout the organisation. If you come to Hammersmith you will see it is not the case that we are young, white and male.

Q383 Jim Sheridan: Is that the sort of market that you are looking for, a relatively young, male-dominated market?

Martin Cruddace: We are all chasing the same customers.

Q384 Jim Sheridan: What is the sort of comparison between female participation in gambling and male?

Peter Reynolds: It varies by product. Bingo is much more attractive to females, as it is of course in the physical world. Of course, you have great cultural differences by country. If you go to Spain, bingo is almost as popular with males as it is with females, so you do have cultural differences. Picking up on Martin’s point, there is no question-certainly two of our largest products, sports and poker, are a predominantly male hobby.

Clive Hawkswood: I think what you probably find is, compared to the land-based, there is a higher proportion of women-that might have been behind your question-and there are all sorts of reasons for that. But certainly, that would be reflected pretty much across the board with all of the products.

Q385 Jim Sheridan: On the question of problem gambling, is there any evidence that there is a major problem in the industry?

Clive Hawkswood: No, it is broadly comparable with similar land-based. I wouldn’t want to get into what are software and hardware products-it is a minefield-but if you compared, say, a land-based casino with an online casino, a land-based betting shop with an online sports book, the rates would be very similar.

Q386 Jim Sheridan: Previous evidence suggests that with face-to-face gambling at betting shops and so on they can identify quite quickly if somebody has a problem with gambling and they can take the appropriate action. What can you do?

Peter Reynolds: From an operator’s perspective, we have much more information on our customers than our friends in the land-based industry because every click, every transaction, every movement is monitored, tracked and is personal to that account. So we have a perfect audit trail of information, while of course in a land-based world it is impossible to track what everyone is doing. When they leave the Ladbrokes shop and then go into a William Hill shop there is then a complete disconnect, whereas we have a complete, perfect audit trail of everything our customers do, every deposit they make, every withdrawal they make, how often they play, what games they play, and we are able to track that. Our company has been working for the last five years with Harvard Medical School in trying to develop algorithms that can allow us to create a multi-layer protection system, so we can identify those people who may be displaying the characteristics that could result in them getting into difficulty.

Q387 Jim Sheridan: Give us an example; what do you do?

Peter Reynolds: For example, on the measures that we have in place, when people first come on to our site they are encouraged to set a deposit limit so there is then a blockage, or a break if you will, on the amount that they spend. If people find themselves getting into difficulty-and there is quite a lot of interaction through our call centres, through email traffic with our customers. One of the things that gets thrown at our industry is that because we are remote there is never any interactivity. Actually, that is definitely not the case. We have very good interactivity with our customers and we all run big call centres in various parts of the world that are conducting many millions of interactions with our customers on an annual basis. So, there are deposit limits, session timers so people know how long they are playing, and the opportunity to self-exclude. Again, because it is a system-based business, once you have decided that you want to self-exclude there is no way round that. You can’t go to a different betting shop, not your usual one; you are done.

Q388 Jim Sheridan: What I am trying to establish is, what practical steps are in place for you to say, "Mr Smith, I’m sorry, I think you’re an excessive gambler, therefore we are"-what?

Peter Reynolds: I was going to say we can close their account. Having a problem gambler is not good for our business because they become a credit risk, perhaps. It is clearly a bad PR story from our point of view.

Q389 Jim Sheridan: How many have you done that to?

Peter Reynolds: In terms of account closures, voluntary account closures, we will do between 2,000 and 3,000 account closures every year.

Q390 Jim Sheridan: What do you mean "voluntary"? That is people themselves closing them down?

Peter Reynolds: Either we close or they say to us, "Please, can you close it?"

Q391 Jim Sheridan: What I am trying to establish is to how many people have you said, "I’m sorry, we think you are an excessive gambler, therefore we are closing your account"?

Peter Reynolds: Mr Sheridan, I don’t have that data with me. I will have to check that and come back to you.

Martin Cruddace: I think it is important here, there are a couple of points. The first point is that I don’t accept that in a cash-based environment in betting shops there is any more care taken in relation to those who may have a problem than there is online, to echo Peter’s point. I worked every Saturday throughout my time in college in a shop so that is some first-hand evidence. What I would say is that it is about education and tools and, surprising as this may sound, if you work with GamCare and you work with the GREaT Foundation, sometimes forcing a person to close their account, instead of educating them with the tools that are available on the site, is not necessarily the right way to go. That comes from GamCare, not from me, and from the GREaT Foundation. What I would say, though, is tools are absolutely vital and you may think it is useful to focus on those when we think about how we are going to frame regulation.

When we talk about tools, it is things like self-exclusion, perhaps by product, setting deposit limits, as Peter said, setting loss limits. You can say, "Please don’t let me lose any more than this amount in this month". Finally, what is important as well is session timers, so you know how long you have spent on the site. It’s not like in Vegas where you have artificial light and you are there all the time; you have reality checks. Let us be clear: where you have gambling there will be problem gambling. No one is saying that there is not, but the most effective way of dealing with it is through effective tools and education, not necessarily account closure.

Q392 Jim Sheridan: I can understand all the education stuff and the tools stuff, but it is like an alcoholic who goes into a pub; they see they are drunk and they don’t serve them any more drink. Do any of you have any examples of where you have said to someone, "No, you’re over your limit, you’re excessive, we think you have a problem" and so on? Do you have any social responsibility?

John Coates: We will have those conversations. This year-I will get a correct figure-I believe 12,000 people have self-excluded from our site.

Q393 Jim Sheridan: I can understand the self-exclusion, but what steps are you taking?

John Coates: If I can continue, the self-exclusion isn’t necessarily just a one-way process. It is often a discussion we are having with the customer and in circumstances it will be us recommending that they self-exclude. I think we are painting some of these tools as if they are just a one-way, remote test that somebody is taking. This is an interactive conversation in many cases where the operator may well be encouraging somebody to self-exclude.

Q394 Jim Sheridan: The land-based casinos say that they can see the problem by the person’s behaviour, and therefore they can take appropriate action because it is face-to-face-they can see the behaviour. How do you do it?

Charles Cohen: We do exactly the same thing. We look at the numbers, because the customer is not sitting in front of us, and when we spot somebody who is on the wrong side of the curve they get a phone call. There is no messing about with emails, text messages; they get a phone call from somebody who has been trained by the GamCare people in how to handle this. They have a discussion with them and during that discussion the idea is to try and understand whether or not that customer has a problem, whether they are aware that they have a problem, and then they have complete authority to take whatever action is necessary to either slow them down or just stop them and bar them completely. We do it as often as necessary but fortunately for us, we are still quite small; it doesn’t happen that often.

Q395 Jim Sheridan: Do you make any financial contributions to GamCare?

Clive Hawkswood: I will pick up on that. The funding is through the GREaT Foundation rather than to GamCare. For our members, if you exclude the operators who are across sectors-so Ladbrokes, Rank, William Hill and Gala Coral-the rest of our members contribute over 20% of GREaT’s funding. If you include a proportion, whatever proportion, of the other four companies who pay for the whole of their business, then clearly it is well in excess of that. So we certainly donate well above our market share.

On the problem gambling, just one last comment on it perhaps is I would be wary about generalising about the behaviour of problem gamblers. It is a very complex issue, and one thing I think we have learnt is there is probably no such thing as an online problem gambler or casino problem gambler or betting shop problem gambler. There is a whole range of issues about not just whether they are problem gamblers but other problems they have-the phrase everyone quotes: comorbidities-but it is hugely complex. One of the problems we have, when you are asking what we do, we only ever see a portion of the person’s behaviour, a portion of their circumstances. For instance, if you see someone gambling large amounts that doesn’t tell you anything. We very much follow the advice of the problem gambling experts; we can’t be expected to be that. I think someone said we import training from groups, from GamCare and whoever else. Is it a perfect system? No, it isn’t, but I think alongside the problem gambling experts we are all still learning together and if there are better ways that we can do this, more effective ways, we will certainly look at those.

Q396 Jim Sheridan: One final question on the Gambling Commission who require the data to give advice to the UK Government; do you think that you should be in a position to give that data?

Clive Hawkswood: The regulatory returns or the problem gambling?

Jim Sheridan: Regulatory.

Clive Hawkswood: Regulatory returns-for the companies outside the UK it is commercially sensitive and there is no reason why they would share it with another regulator. For companies who are in the UK, yes, it is a fairly obvious requirement.

Q397 Steve Rotheram: Just to carry on from Jim’s questions, my primary concerns are for people on lower incomes, to tell you the truth, getting involved in problem gambling, but I do know that there are footballers-I know this anecdotally but I can’t say why I know it-who have run up huge debts of hundreds of thousands of pounds. I wonder how you determine, when somebody has a habit that has turned into a real problem: is it proportional to wealth? You said that you monitor each of the individual bets that they have, but how do you allow somebody, even on huge sums of money, to run up debts of hundreds of thousands of pounds, which means that companies like yourselves have to go to the football clubs to warn them of the individual’s gambling addiction?

Peter Reynolds: I would say there are two things. First, you are absolutely right, the side of the equation we don’t see-and it references Clive’s point-is that there is a part of their lives we don’t know. We don’t know what their financial circumstances are or everything else that is impacting on their lives, so we have only a very small piece of information about them, but again all the points have been made about the opportunity to engage with them and say, "Listen, you do realise that this is happening" and having that conversation with them.

With regard to sports clubs and educating players, we do think that is very important, and in fact the industry has already commenced, voluntarily, an education programme for athletes. Certainly in the context across Europe, European Athletics is a body that educates and we are using as a conduit to educate players in the locker room. I won’t say in all but in many circumstances the sporting authorities are not doing their jobs, I don’t think, in this area. They need to educate their players about what to do with regards to gambling. You should not be gambling on your own sport, for example, or your own matches or your own team, all of these things. It sounds perhaps rudimentary but these are things that are not really happening, and certainly not universally. I would welcome that the sporting bodies should be doing more to educate their players, to protect them and to protect their sport.

Martin Cruddace: The difficulty, of course, and I think, Mr Rotheram, you touched on it, is maybe £100,000 to a player of, say, Manchester City over six months may not be as damaging as £100 to someone else over six months. That is absolutely key, which is why I come back to this: it is a question of education and tools, and making sure that the site has that education and those tools available for those people. You will be surprised that people do seek that education and those tools when they fear that they may or may not have a problem.

Q398 Steve Rotheram: Peter mentioned earlier about the existence of a black market and John mentioned about a small number of large companies leading the market. According to the EU Commission, of some 15,000 online gambling sites, more than 85% were not licensed. So how great a risk to the reputation of the remote sector, you guys, is posed by unlicensed operators, regarding conducting their remote gambling business in a sufficiently fair and open way?

Clive Hawkswood: I think we would be wary about tarring them all with the same brush. Just because they are not licensed in Europe doesn’t mean they are all intrinsically evil and corrupt. But there is clearly, particularly on the betting side, a large illegal betting market-Eastern Europe, certainly the Far East- and when we look at the high profile corruption cases many of those can be traced back in that direction. So it certainly is a concern, yes.

Martin Cruddace: The FBI recently estimated that the illegal online market-and if I have this wrong I will correct it, I will write to you-is round about $250 billion in relation to sports betting and other illegal poker betting. I think it is extremely damaging to the industry if you have situations like you have with some of those illegal poker sites who are dealing with very serious legal issues now in relation to customer funds, which is why I think that the more sites and companies any regulator can bring under its umbrella, the better, to be frank. That is why there is a real danger that if you make the regulation or the tax uncompetitive or very difficult and you don’t hit that sweet spot, then there is more encouragement for those illegal operators to stay illegal.

Q399 Steve Rotheram: If there is this large illegal market, what can you guys do to help the Government to tackle rogue operators?

Martin Cruddace: Going back to the earlier question I spoke to Mr Collins about, about enforcement, I think the best thing that we can do is to work with Government, with regulators in framing regulations that do the job that they are meant to do. Don’t make them so punitive, such as having service in every jurisdiction, for example. Then encourage and educate customers that if you want to bet-and you do this with the regulator and with the Government-then do it on a licensed site. If you go to AAMS, which is the Italian regulator, they have a really big advertising campaign saying, "Don’t be eaten by a shark, make sure you bet with a licensed operator". I think that is a very interesting way of doing it, where you have a mutually beneficial and symbiotic relationship with the regulator to encourage people to bet on the regulated site.

Peter Reynolds: I think, just to perhaps put some quantification on it, in terms of this regulatory and fiscal wedge that has been driven between the regulated sites and the unregulated sites, what is the size of that incentive for someone to say, "I know, I’m going to get round the rules because there’s an incentive for me to do it"? I think it was KPMG that did a survey of the cost of getting a licence in France-€8.7 million. If I am a black market operator I am already up €8.7 million because I am choosing not to comply, and that is just to start with. That is just one concrete example of the size of the incentive. It is quite hard to get this across but what governments need to do, and what we are trying to do in all our conversations with governments, is this. The best form of regulation is to make it as commercially attractive for the regulating licence so all these people here comply with the regulations in every site where they operate. They are not the problem. What you need to do is reduce the incentive to create the black market, reduce that fiscal and regulatory weight as much as you can. Of course we want strict regulations. That is good for us because it is going to get rid of a lot of these peripheral sites. But at the same time we all have shareholders to answer to, and if the fiscal and regulatory weight is too large then you are going to come up with the wrong answer.

Q400 Chair: Martin, what you said just now about what has happened in Italy, it seems common sense in some ways and certainly originally in the Gambling Act the intention was that the UK would be the safe place where people could gamble online with confidence. Why has nothing been done to promote the idea that you should not go to unlicensed sites here, and how do consumers know whether or not the site is unlicensed?

Martin Cruddace: I think that is a very good point. I think the Commission has been in existence since 2007 and clearly it is learning and finding its feet. But to the extent that it is the regulator promoting the industry, and I think someone else talked about the Commission being a champion-that is a matter for the Commission-they would be pushing at an open door with Betfair if they needed any assistance to do that. In terms of development of a logo, on our site we have all of the logos where we are licensed to make absolutely sure. We do that because I still believe and we still believe it is of commercial benefit to do so. But as to why it really has not happened, it is not really a question I can answer other than to say that we would be more than willing to assist.

Clive Hawkswood: Could I just say, obviously Martin is right. AAMS have tried to do that, but Italy still has a huge black market. They certainly have not captured a significant chunk of that online market still. I think we have to accept the limitations of those sorts of warning notices because we have talked about how we might in some way stand in the way of black market operators. But it is the consumer who is king online. If we cannot offer a range of products at the right value with the right bonuses they will come to accept, they will find a way round to these people. As a punter-and most of us at this table, from my knowledge, are-if we were looking for the best price for the next race at Cheltenham and the UK price was much worse, I would not really care whether people were regulated as long as I was getting paid out every time I had a bet.

Q401 Chair: That is the point. If you go to a black market site presumably there is a risk you might not get any money at all.

Clive Hawkswood: I think that is the experience. I think people’s experience is that the problem with the definition of black market is there are companies who are not licensed but do pay out regularly and do offer the sort of things they want. Because of the competition we have been talking about, the first time you get bad service or don’t get paid you go somewhere else.

Martin Cruddace: It is not for me, Chairman, to disagree at all with Clive, so I am going to be careful with what I say. I think that Italy, funnily enough, is a poster child for regulation in Europe and has been ahead of the curve and has grown its market quite incredibly because of the fact that it has been very forward thinking in its regulation and has a very wide range of markets and products it regulates. Of course, there will always be a black market and that is where I agree with Clive, but I would not want anyone to go away from here and think that Italy has not done an exceptional job in regulating as much of the Italian customers’ business as possible, which-as far as I am concerned-it has.

Q402 Philip Davies: Can I just have one sentence from all of you for when we do our report. Just so I am clear, what is the one thing that each of you would like to see us do that would help your legitimate licensed remote gambling industry?

Clive Hawkswood: I think the bottom line aspect must be commercially viable.

Q403 Philip Davies: So tax, is that what you are saying?

John Coates: A nuance on that is we would like to be able to remain in the UK, and there needs to be a change in the tax regime to allow us to do that.

Charles Cohen: I agree.

Martin Cruddace: I am a lawyer, I cannot do one sentence. I think fiscal policy is important, and my plea is to work with us-those that you may think are responsible-to help frame the proper licensing conditions and regulations to make sure the UK is attractive.

Peter Reynolds: I think, as I have said earlier, the UK regime is working well from a consumer’s perspective. I think if the Government decides that it is going to go down this change route, on the basis of taxation, then it needs to be perfectly aware that that will increase the scale of the combined fiscal and regulatory wedge between regulated and unregulated, and it is that that you need to make as small as possible.

Q404 Damian Collins: Chair, can I just ask Mr Coates-Paul Farrelly has gone now so you can speak freely-your answer was slightly less clear than some of the answers you gave earlier on. Are you saying that if the regime stays as it is that you could leave the UK?

John Coates: As I alluded to earlier, we are getting to a stage where we cannot deal with double taxation now. The situation that we are starting to encounter now where we are taking licences in Denmark and Spain and perhaps Greece-it is unsustainable for us to be subject to double taxation. We would have to do something about that.

Q405 Steve Rotheram: Conversely then, if that is the case then given what Martin said about fiscal changes, would that attract Betfair to come back and relocate into the UK?

Martin Cruddace: Let us put it this way, I think that where we are licensed for the purpose of our business will depend on any number of factors. Clearly, an attractive fiscal regime in the UK will be a significant factor in any decision that we make.

Q406 Steve Rotheram: There might be a spot for you in Liverpool-I have got it all sussed out.

Martin Cruddace: That is great, thank you for that. I appreciate it.

Chair: Good. Thank you very much.

Examination of Witnesses

Witnesses: Cllr David Parsons CBE, Chairman of Local Government Association Environment and Housing Board and Leader of Leicestershire County Council, Mike Holmes, Local Government Association Advisor on Planning, Richard Dowson, Chair, Casino Network and Senior Business Development Officer, Middlesbrough Council, Stuart Baillie, Former Chair, Casino Network, gave evidence.

Q407 Chair: Good morning. Let us move to the second session this morning where we are looking at local authority responsibilities in this area. Can I welcome Councillor David Parsons, the Chairman of the LGA Housing and Environment Board and Leader of Leicestershire County Council, Mike Holmes from the LGA, Advisor on Planning, Richard Dowson, the Chair of the Casino Network and Stuart Baillie, who is formerly the Chair of the Casino Network.

Just to start off, obviously one of the consequences of the Act was that local authorities now have a role in granting premises licences. There have been complaints from the industry that no local authority has the same interpretation of the Act and the rules as another local authority, and as a result there is a lot of inconsistency. Do you think that is fair and to what extent do you think that the responsibility going to local authorities has been achieved successfully?

Cllr David Parsons: I am not sure whether it is fair or not. We are partnership bodies, as you know, local authorities, and we are used to dealing with a variety of people so we would expect the industry to become partners with local government. There are a large number of local authorities and, dare I say, we even get on with Government Departments now. We would like to see partnership working and I do not think that that is particularly fair. I think the average council now is very good at working with a variety of different organisations.

Richard Dowson: I can only speak on behalf of the 16 authorities in terms of the casino but we have made a conscious effort to work together as the 16 authorities specifically on the casino process. In terms of working together across the board, I think hopefully with the Casino Network there is some evidence of good working in that particular area.

Q408 Chair: Councillor Parsons, can I just press you a little. The LGA view is essentially that the Act was a sensible move in giving responsibility to the local authorities and that it has worked reasonably well and you have no major problems?

Cllr David Parsons: I think that is true, yes.

Q409 Damian Collins: We have heard in previous sessions from the bookmakers with regards to clustering of betting offices. I want to ask you from a planning point of view, do you have concerns about the impact of the 2005 Act? Do you feel this has prevented local authorities’ communities deciding they do not want any more betting shops in their centres and high streets?

Mike Holmes: I think it is an issue. It was almost an unintended consequence of the Act. Obviously the issues are of benefit in some high streets, but in many high streets where you get a large number of these betting shops coming, it is not regarded as attractive for the high street. In terms of the unintended consequence, I think there was no debate at the time about what the consequence was. There was a lot of debate about casinos, and the Gambling Act regulatory impact assessment by the DCMS in 2005 contained very little reference to betting shops and what would be the impact of any changes in the Act. There was a lot of attention to casinos and the culmination of that was the fact that casinos were taken out of the use class order. They were made sui generis, not in a particular use class, and that meant that planning permission would be required each time. Betting shops were not subject to the same treatment and, therefore, it was possible-taking away the demand criteria that the Act did-for betting shops to open up in places where they never envisaged they might go, using ex-banks, building societies, estate agents and that sort of thing, even takeaways. It did seem to be a little odd that there was not that consideration for what should happen at the time. I think there are issues then about when you do get planning permission, which Councillor Parsons might want to speak about. I am not saying it is an issue all over the country, but certainly in certain places where perhaps you would have concern about the social issues that arise from this, it has become an issue.

Q410 Damian Collins: Did you want to add anything, Councillor Parsons?

Cllr David Parsons: Local authorities have said to us that clustering is an issue and I think that the problem at the moment is the ability of local authorities to control that if they want to-I am a localist, so I would want them to-it is limited. There are limited planning powers and they are also pretty tight. If you are trying to control them via licensing there are pretty tight regulations that probably will not enable you to do so. The trouble is that if a locality decides that it does not want these betting shops and they make the decision locally, they would possibly be overturned nationally by the Planning Inspectorate. That I find unacceptable and I think that is somewhere where we need to move.

Q411 Damian Collins: Do you think that in practice, there is nothing that local authorities can do to stop a reasonable application to open a new betting shop?

Cllr David Parsons: It is beginning to look like that, I agree. I think if a locality wants to limit this clustering then it needs new powers.

Mike Holmes: Can I add to that? In terms of the way the Coalition Government is proposing to move with the National Planning Policy framework, it is a very high-level document and does not go into any detail to help local authorities on that side and I would suspect that many local plans of local authorities do not, at the moment, contain policies that relate to that sort of issue. Therefore, one of the concerns is if there is nothing mentioned in the National Policy framework, nothing mentioned in the local plans, local authorities do not have any degree of policy backing for any planning reviews of these issues. We can talk about Article 4 directions, and so on, which is perhaps an expense for local authorities-it is perhaps difficult to introduce potential compensation-but they do not give local authorities real control in this situation.

Q412 Damian Collins: The expansion of the number of betting shops you could say has been driven by the demand to play B2 gaming machines. That seems to be one of the resources that are commercially viable. If that is the case, would you rather have no expansion at all or would you say, rather than having more betting shops, let us just have more machines in the shops that we have and let them expand and have more than four machines?

Cllr David Parsons: I think that is up to local authorities locally. This is what we have been saying. There is an argument-I do not know how strong this is-that you only allow four B2 machines in a particular facility. They are highly profitable and so to get more of these you need to open more betting shops. I think that is a tragedy.

Q413 Damian Collins: As a localist, Councillor Parsons, do you think that councils should be able to allow adult gaming centres to have B2 machines in their arcades as well? It seems strange that you could have a betting shop next door to an adult gaming centre and one is allowed to have one and the other is not.

Cllr David Parsons: The simple answer to that is, I am not being pestered by members of the LGA to do that.

Damian Collins: You have issued the challenge now.

Cllr David Parsons: I am more than happy to take that challenge up but I have no specific instructions from my members on that.

Q414 Damian Collins: But as a point of principle, do you think there should be this distinction between different types of gaming centres? I can think of a high street in my constituency that has an adult gaming centre and two bookmakers. Should there be restrictions on what can go in one type of premises and not another?

Cllr David Parsons: I do not see the logic myself, particularly.

Q415 Damian Collins: Do you have any views?

Mike Holmes: No view. It does not seem right in one way to have that artificial divide.

Q416 Damian Collins: Just one final question. If the betting shops were here, the bookmakers were here, they would probably say that without any change in the regulations all applications will be stopped. Do you think that there is a reluctance from local authorities to give planning consent to new gaming centres because of their interpretation of what the local population wants?

Mike Holmes: I am not sure it would stop completely. It would be a decision based on the merits, but debating what the issues are locally rather than not having any control at all. It may be a good use of an existing building, or something like that-the arguments could be there-or bring some life to an area. But, on the other hand, the other issues that we have heard about-people standing on street corners and perhaps not providing the right atmosphere to attract other businesses-is to the fore.

Q417 Philip Davies: Mr Holmes, you said earlier about the social problems that clustering of betting shops brought. What social problems?

Mike Holmes: I think they create an atmosphere in an area that is not conducive to attracting businesses or customers to their businesses. It is partly to do with issues around smoking and so on, but people standing around and perhaps appearing slightly threatening in certain circumstances would not be attractive if you want to get people investing in high streets and similar areas.

Q418 Philip Davies: Where have people been standing around threatening outside their betting shops?

Mike Holmes: I have read the evidence from a number of local authorities that that is the case.

Q419 Philip Davies: Have you ever been into a betting shop?

Mike Holmes: Yes.

Q420 Philip Davies: Did you find it a threatening environment?

Mike Holmes: Not the ones I have been into.

Q421 Philip Davies: So where were these threatening environments that you are talking about?

Mike Holmes: As I understand it, there are certain areas where there are eight of these establishments in a cluster and that is the atmosphere that is created when people-perhaps down to the smoking regulations, and so on-are standing outside. It is not perhaps the family type of atmosphere that you would want.

Q422 Philip Davies: You talk about the demand test for the local authority. There is an ultimate demand test. It is a far better demand test than any local authority has about whether or not a local councillor fancies having a fish and chip shop somewhere or a betting shop somewhere-it is called customer demand. Betting shops, presumably, only open because there is a customer demand. Surely that is a more ultimate demand test than whether or not some worthy people on the local council feel that there should be a shop down a particular street or not, is it not?

Mike Holmes: It does not give any opportunity for local people to determine that.

Q423 Philip Davies: It is a demand test, though, is it not?

Mike Holmes: It is a demand that may be fuelled from outside an area, rather than inside the area or the locality itself.

Q424 Philip Davies: But if it is from outside the area-surely local authorities are for ever saying that they want people to come from outside into the town centres? If you are saying that this is providing a demand from people coming outside into an area, surely the local authority would be all over that like a rash; surely they would be welcoming this infiltration of people from outside?

Cllr David Parsons: There is a natural logic to your argument; maybe a town should consist all of betting shops, and then we would perhaps-

Q425 Philip Davies: That is a ludicrous argument, is it not? I am talking about the demand.

Cllr David Parsons: I am talking about the direction you are-

Q426 Philip Davies: There would not be the demand for that, would there? We are talking about a local authority. Betting shops open where there is a demand for their product. If there was not the demand amongst your local residents for that product they would not be opening up, would they, because there would be nobody in there?

Cllr David Parsons: I think that is what we are here to discuss. If you want a personal opinion, I would not like to live in a town that consisted of a large number of betting shops.

Q427 Philip Davies: Why not?

Cllr David Parsons: Because I want a nice, prosperous, vibrant town that has a lot of variety around it.

Q428 Philip Davies: I find this slightly nauseating, because here we have-

Cllr David Parsons: It is only a personal opinion.

Philip Davies: Local authorities have probably single-handedly done the most to run down town centres through things like high car parking charges, a restricted amount of time that people can park somewhere. We were wondering about why nobody goes to the town centres any more. I am a former retailer who used to open out-of-town shops. Why do people go to those places? Why is it that town centres have gone downhill? It is because local authorities say, "You can park here for half an hour. By the way, it will be £2 for half an hour’s parking. If you are a minute late the old warden will have put a sticker on your car; so don’t bother coming back here-there will be a £60 fine." Then local authorities are wondering why nobody wants to open up in the high street apart from local betting shops. Perhaps if you were a bit more sympathetic to the high street there might be all these people wanting to open up in the high street apart from betting shops.

Cllr David Parsons: I think there is something in that; I have to agree with Mr Davies. If he wants to come to Leicestershire he will see that we follow, broadly, the line that he is pursuing, with great benefit to our town centres.

Mike Holmes: I was just going to say many of our authorities are doing their best to recruit people into High Streets. There is an argument about all these car parking charges and congestion, and so on, which we could have another debate about. But I do not want to go there. The point I make is I can take my children into Bournemouth, Christchurch Road, for example, and they can go into all the premises in there apart from one or two betting shops. We do not have big clusters there. In other places where there is cluster, they are creating premises that are not family based. You cannot take your children into them and that creates a different atmosphere than would otherwise be the case.

Q429 Philip Davies: You just walk past that shop and into the next one that you can go into.

Mike Holmes: But if there are fewer of those other shops-

Q430 Philip Davies: The point is, though, about these betting shops-you were saying earlier that they were in ex-banks, ex-building societies. That is the whole point, is it not? The reason why betting shops are moving into premises is for one reason only-because they are vacant. Is it really the local authorities’ stance that they do not like betting shops because somebody here thinks that they are slightly threatening places, because somebody there thinks, "I don’t want a shop there that I cannot take my child into"-that because of that kind of prejudice and bias, they much prefer to have a boarded-up shop than an extra betting shop in the high street? Because ultimately, it is not a question of whether you have a bank or a betting shop, a building society or a betting shop, or a takeaway or a betting shop; it is a question of, do you have a boarded-up shop or a betting shop, is it not?

Mike Holmes: I think the situation with betting shops is they have been able to outbid a lot of other users that might have gone into those premises, and prime premises as well. That has been a consideration.

Q431 Philip Davies: Why is it so unattractive for other retailers and other people to want to open up in your wonderful high streets?

Cllr David Parsons: It is not.

Q432 Philip Davies: Why are they not doing it then?

Cllr David Parsons: I have invited you to Leicestershire and we will have a look round.

Q433 Philip Davies: Why are they not doing it? If there is all this clustering of betting shops, why are all these people not wanting to open up?

Cllr David Parsons: We are responding to our members of the LGA who say that this is a problem and we can provide you with areas where this is becoming a big problem.

Q434 Philip Davies: Isn’t it a fact that there are no more betting offices now than when the Gambling Act was first introduced?

Mike Holmes: That is true, but obviously the locations of those betting shops have changed over time as well. A lot of the older premises were not suitable for modern use.

Q435 Chair: I think it was Budd who suggested that in the spirit of localism, local authorities could or should be able to say that they do not think gambling is an appropriate activity to take place in their area and they do not want any such shops at all. Would you support that?

Cllr David Parsons: I would support that. Did you say Barnett?

Q436 Chair: Budd. The Budd Report, originally on the Gambling Act.

Cllr David Parsons: My line is that I would support local councils saying that, if they so desired, because I am a localist-as is this Government, I understand.

Chair: Let us not go down that road.

Q437 Steve Rotheram: I was interested in that because it depends on how local "local" is. Just 100 yards from where I live there are now three betting shops, with the potential of a fourth, clustering their way along what used to be quite a vibrant little shopping area. It had charity shops and other stuff and as Mike just mentioned, they have outbid the likes of the charity shops to enable them to take over these premises. But conversely, I walked down the Kings Road-having now been in London for some time-and I did not see one betting shop. It seems that they are very much located in more working-class areas than well-off areas. If it is all about cluster demand, I am sure there are plenty of people in the Kings Road who have a few bob who would not mind a flutter. I would have thought it is about the activism of the people around there preventing betting shops coming in.

Is the proliferation partly due to what was said earlier about the restriction of the B2 machines-and, therefore, if you can only have a few in each shop they would rather open more shops-which I am told generate about 50% of the betting shops’ profits?

Cllr David Parsons: I have recently met this B2 machines argument. I must admit I have never played them. It seems to me to be bizarre that more betting shops will be opened because they want more B2 machines, but this seems to be what is happening. I have already said I do not particularly see the logic of limiting that.

Q438 Chair: Can we turn now to casinos, probably to the Casino Network to begin with. You represent the 16 authorities that were successful in applying for the ability to award licences to new casinos. You know as well I do that since that process took place not a single casino has opened, although there are some in the pipeline. How confident are you that in due course new casinos will be opening in all your 16 areas?

Richard Dowson: We are very confident. You mentioned the one that is about to open next month, which will be open for Christmas. There are a number of the 16 now that are well on with their competition process and probably in the position to issue licences within the next three to six months. There are a number of others who are closely following behind in terms of launching, or are just at the outset of their competition process. The issue there is-maybe we will come back to the actual process for issuing the licences-obviously, it is one thing to issue a licence, but a lot of the proposals that have come in are for new build developments as well. The one that is just about to open next month is part of an existing development, but a number of others are coming forward with new build or major refurbishment projects. You have to build in there the time for the development of the casinos as well. As I say, in terms of the process itself, a lot of the authorities are moving forward and we are confident that the 16 will be developed.

Q439 Chair: You will be aware of the controversy over the whole casino history. What did you think of the process under which the licences were awarded?

Richard Dowson: Obviously there was a bidding process and I think it is fair to say at the time of that bidding process we were in a completely different economic climate than we currently are. Having said that, we bid and the process itself transpired and obviously, as it was, 17 authorities were issued with the proposals to grant licences. I think in our view what we were left with was an outline framework to run these competitions and issue the licences and, therefore, a lot of time and effort has had to go into developing the processes, more around stage 2 of the competition. Stage 1 is a fairly standard regulatory process but regarding stage 2, where the greatest benefit test came into play, the legislation gave no real detail as to how local authorities might undertake that process. As I said in answer to your very first question, Chair, the 17 came together in order to develop a consistent approach so that we did not find Middlesbrough coming up with a completely different scheme to Newham. It has taken a bit of time, due to other factors as well, but we think we have a fairly robust system to issue these licences now.

Stuart Baillie: If I could just add to that, Chair. In the way the Act was prescribed the authorities have been left a lot of responsibility to get their processes in place and the Network Group has been an effective group in doing that. Each of the authorities is acutely aware of the likelihood of legal challenge in the decision making, so we have proceeded with a lot of caution in the process to get to the stage that we are at today.

Q440 Chair: I think it is fair to say that when we had representatives of the casino industry in front of us they were not quite as optimistic as you about the likelihood of all these licences being taken up and new developments occurring.

Richard Dowson: In terms of the authorities that have undertaken or are in the process of their competitions, I think it is fair to say that there has been interest. Going back to 2006, you might have envisaged a higher level of interest than has transpired, but each authority that has gone through the competition to date has developed a relatively good interest in their individual competitions. I think there is one authority that obviously did not get to the competition stage but the rest are all proceeding to stage 2.

Q441 Chair: We have this slightly strange position where you have the lucky 16 who were selected in what is a fairly strange process. You then have another set of authorities who are permitted under the original 1968 Act on permitted areas, and then you have ones that are not permitted at all because they are not covered by either Act. Would you agree that that does seem a pretty unsatisfactory position?

Richard Dowson: It is the position we found ourselves in. Obviously it is not down to the 16. We had some areas that are permitted areas and others that are not. I think, from the 16 authorities that have the permission to grant licences, where we find ourselves is that when Parliament passed the Act it was very much about pushing these 16 forward as a test, an experiment if you will, in terms of liberalising some of the rules and regulations around machines and the size of the floor space, and so on. The issue of putting forward the 16 was almost a controlled measure to help see the impact of that. Obviously we are now hopefully into a process where these casinos will start to open their doors and we can start to measure that impact, and that may well come back into the argument at a later stage about whether more licences are passed, whether there is more liberalisation, and so on. As the 16, our task at the moment is very much to get these casinos up and running and see the impact of that, and it is obviously for Parliament to govern whether that leads to further changes in the regulations or not.

Stuart Baillie: Just to elaborate a little bit on that, the 16-and other authorities, indeed-went into the casino advisory panel pitching process, if you like, and had their eyes opened to that process and understanding it. They went into that process on the basis that at the time there would be 17 casino licences granted, with the new regs and requirements satisfied. I think where certain elements of the industry are coming into this-to maybe allow some of the existing 140 casinos under the 1968 Act to report into other authority areas-was not on the table when the 16 authorities pitched in for this process. It would be quite a dramatic change in the circumstances.

There is also a significant implication for the 16 authorities who are looking to attract regeneration benefits-that if another casino is allowed to move into a neighbouring area, for example, then that could be detrimental to the impacts and the benefits that could be achieved.

Q442 Chair: Perhaps I should put the question to the LGA as well, because there were local authorities that were very keen to have casinos but are not in permitted areas and are not among the 16 that were chosen. So, in the spirit of localism, would the LGA say that they should be allowed to have casinos?

Cllr David Parsons: I did check before I came and we have had no feedback from local authorities whatsoever on this issue. For us, it is a pretty niche, 16 local authority enterprise. We have had no feedback, and as for extra to the 16, it is probably a different economic climate from when these 16 were announced. We do not anticipate there will be huge interest from local authorities.

Q443 Chair: As I recall, I think 40 or so local authorities originally applied, so there were 24 or 23, I suppose, who were wholly unsuccessful. Your view is that they have just completely lost interest now and gone off and thought of something different to do.

Cllr David Parsons: The fact is that we have had no feedback from those and that is the state at the moment.

Mike Holmes: Some of those authorities do have casinos within their areas anyway.

Q444 Chair: But they will not be allowed the new ones?

Mike Holmes: That is right, but they have existing ones in their area so it might not be so much of an issue. The other issue is, if there is a new casino it will require planning permission, so it gives a degree of local input into the decision-making process.

Q445 Mr Sanders: On the casino point, how significant a blow was it to local authority regeneration plans when the regional casino concept was shelved?

Richard Dowson: I think there were a number of authorities that bid for both regional and large, or large and small, and so on. As I said before on an earlier point, 2006 was a different economic climate and I think, yes, there was a lot of potential thought around the fact that the regional casino might develop greater regeneration benefits. If we put that into play today-i.e. granted a new regional casino-there could well be authorities that wished to pursue that. As a local authority that has a large casino, or permission to grant a large casino, where we are left at the moment is that the benefits that have been proposed in my particular authority area are reasonable. To an area like mine there are some good potential benefits that could accrue out of the competition process.

I think the regional casino would rely on international operators. Forgive me-I did read some transcripts from previous sessions, and I believe the operators themselves have made the point that international operators might take up the regional casino mantle. Again, in terms of whether there is the interest from industry to do that, I am not entirely sure. It is certainly not something that has been pushed to us by operators that we have been in discussions with or through organisations such as the National Casino Industry Forum. I think originally, yes, there were some fairly grand regeneration plans that were put on the back of potential regional casino bids.

Mike Holmes: I think, as Richard has already said, the world has moved on a little bit. Things have changed since then and, speaking as one of the authorities that were unsuccessful, we have moved on and something different that is coming forward is our regeneration element. I think if it is to change, there needs to be a re-evaluation of all those benefits that potentially come forward. Of course, there was a document in 2008 produced by CLG, I think, that tried to evaluate the potential for regeneration. In my view, it was slightly inconclusive regarding the regeneration benefits. There is still a lot more understanding to be had about the subject.

Q446 Chair: The one authority, obviously, that I think still is extremely keen is Blackpool. You do not detect any others who would still view a regional casino as something that might provide major benefits?

Cllr David Parsons: Correct.

Q447 Mr Sanders: What assessment do local authorities make about the social impact of problem gambling in their localities?

Cllr David Parsons: The LGA has not made an assessment itself. As we have said, we would need powers on the issue of clustering and we have said that to stop clustering we need those planning powers. But we have not made an assessment.

Q448 Mr Sanders: You have not got a composite view of the extent of problem gambling, just a problem of clusters?

Cllr David Parsons: Yes.

Q449 Mr Sanders: Would the answer be to change their designation within the planning regime-betting shops?

Mike Holmes: I think they should be made sui generis in the way casinos were made sui generis. It would have enabled local authorities to have an input into the decision-making process, which they do not have in many cases at the moment.

Q450 Mr Sanders: Am I right in thinking that if a bank closed, you do not need a planning change? A betting shop is not a bank.

Mike Holmes: Or if a takeaway closes, or something like that.

Q451 Chair: Finally, obviously the enforcement role is now primarily one undertaken by the Gambling Commission, but local authorities do have an involvement as well. How is that working and what sort of relationship is there between local authorities and the Gambling Commission?

Cllr David Parsons: I am told that that is good. I do not have personal experience of that but I am told that the two bodies used to meet bi-monthly.

Q452 Chair: When you say two bodies, the Gambling Commission is one?

Cllr David Parsons: The LGA and the Gambling Commission. I am told they get on well and that there is a degree of understanding between the two bodies.

Q453 Chair: Your members essentially have confidence in the Gambling Commission-in what they are doing?

Cllr David Parsons: Yes.

Chair: All right, I think that is all we have. Thank you very much.