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

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

CULTURE, MEDIA AND SPORT

GAMBLING

THURSDAY 19 JANUARY 2012

PHILIP GRAF, BRIAN POMEROY and JENNY WILLIAMS

JOHN PENROSE and MISS CHLOE SMITH

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Culture, Media and Sport Committee

on Thursday 19 January 2012

Members present:

Mr John Whittingdale (Chair)

Dr Thérèse Coffey

Damian Collins

Philip Davies

Paul Farrelly

Steve Rotheram

Mr Adrian Sanders

Jim Sheridan

Mr Gerry Sutcliffe

Mr Tom Watson

Examination of Witnesses

Witnesses: Philip Graf, Chair, Gambling Commission, Brian Pomeroy, Chair, Responsible Gambling Strategy Board, and Jenny Williams, Chief Executive, Gambling Commission, gave evidence.

Q662 Chair: Good morning. This is a further session of the Committee’s inquiry into the Gambling Act, and I would like to welcome for our first part this morning Jenny Williams, the Chief Executive of the Gambling Commission, Philip Graf, the new Chairman of the Gambling Commission, and Brian Pomeroy, who chairs the Responsible Gambling Strategy Board.

May I ask you to start by saying what your experience has been of the Act? You have told us that you think it is broadly fit for the purpose of regulating gambling, but have you had any problems with the Act in any area?

Jenny Williams: The Act has the powers that, broadly speaking, are needed. It is a very flexible Act and is largely future-proof. It provides lots of powers both for the Commission and for the Department to set conditions or to change regulations. For example, they can decide that something is a sport or is not a sport; they can change lots of definitions.

The Act is not drafted easily, it is quite complex. We have had a lot of issues understanding what different sections mean. There are some awkwardnesses in some of the ways that the different licences are set up, and you have to navigate around, but you can do that. The main issue that we have, which indeed the Government have, is obviously remote gambling. We would support the Government’s view that a change is needed there. Broadly speaking, that I think would be our view.

Chair: We will be coming to remote gambling in more detail in due course.

Jenny Williams: May I add that there is an issue in Scotland about the powers for local licensing authorities? Again, one can get around the problem at the moment, but with a lot of extra resource and effort. A lot of these things you can get around, but additional powers in Scotland would be helpful.

Q663 Chair: In terms of the relationship between the Commission and all the different local licensing authorities, there has been complaint in the past that the sharing of responsibilities is not fully understood. Is that something that you think is still a problem?

Jenny Williams: Yes, I think it is still an issue, and it is one of our priorities for this year. Again, the concept of local licensing authorities policing the high street-they are there, they are on the spot, they are in and out of premises-makes a lot of sense, with us providing a national overview and expertise, and dealing with more nationally and regionally based companies. All of that makes sense, but there has been a struggle getting the local authorities-for understandable reasons, because they are under huge pressures-to give it the priority that we would like. We are working quite hard on that, to make it easier to provide expertise and quick guides for the local authorities, and I think we are making some progress; not as fast as we would like, but as I say, we are making it a priority.

It is not being helped, of course, by the changes at the centre of the Local Government Association, which has just disbanded its central co-ordinating organisation, which we used to liaise with quite a lot; we had a concordat and would provide centralised advice to local authorities. But what we have done there is to take one of the lead people-the gambling lead-into the Commission, so she is now helping us and we are setting up a local authority liaison unit to be a single point of contact. We are hopeful that we will make progress, but it is resource-intensive and time-consuming, and we can only go so fast.

Q664 Chair: In terms of local authorities, you will be aware that some have said that they do not think that they have sufficient powers to control the number of gambling premises, and they have looked for specific licensing use classes. Is that something you have sympathy with?

Jenny Williams: You have to go back to our licensing objectives. Essentially, we are concerned with keeping crime out, and with fairness and openness and protection of the vulnerable. Local authorities have the powers to deal with crime and disorder, that is perfectly clear, and between us we have the powers to deal with the protection of the vulnerable, in terms of properly protected licensed premises. The main problem in terms of the clustering issue, which is what it is really all about, and the high street is, broadly speaking, a planning issue, to do with, "Do you like the way that the high street is developing?" From a personal and individual point of view, I might have some sympathy with having more control, but from a Gambling Commission point of view, in a technical sense it is irrelevant.

Q665 Mr Sutcliffe: The gambling industry makes a major contribution to the economy, both in terms of its size and the number of people it employs. When you talk to people in the industry about that, their concern is that the regulation sometimes affects their ability to grow as an industry. The Gambling Commission gets caught in the middle, if you like, because it is your problem that they are not able to move forward. You say in your written evidence that the Act has been evolving and you are learning things. We are now five or six years into the Act, which is the first piece of major legislation for 40 years. Do you think you have made sufficient progress? Do you think there are things that you could have done better that you have not done? What do you think is the current state of play in your relationships with the industry?

Philip Graf: My sense of it-I have been with the Commission for about nine months-is that the Commission has made quite a lot of progress. The Act brought in substantial changes in responsibility and scope for regulation. It brought new people under regulation, so inevitably there was, from what I can see, quite a bit of bedding down and learning to be done. It is clear that if you move towards risk-based regulation, that requires knowledge and information on which to build your risk base. The Commission has made quite a lot of progress in this area. Could it have been faster? Perhaps.

There was quite a transition to be made. The move to Birmingham was not so much about the geography of the move, but about upscaling the industry, changing people’s understanding of how regulation would work under a new regime and bringing in new people. All of that meant that there was a bedding-in process and a learning process for both the Commission and the industry-the industries, if I may say so. A lot of progress has been made in understanding the industry, and the Commission, from my knowledge, has built a fair degree of credibility. It is working very hard to make the risk-based approach more sophisticated. Yes, we would like to be able to go faster.

Q666 Mr Sutcliffe: Sometimes the Commission is accused of being over-bureaucratic. I am sure that is aimed at lots of people sometimes, but are we now at a time when there ought to be an independent look at the Commission’s progress? At the moment, the ball is very much in the Commission’s court about how it grows and develops. Do you think there is a need now to take an outside look, given the nature of change in the sectors?

Philip Graf: My instinctive reaction is no. There is still work to be done, and I think we are making progress in the work. My experience over the last nine months, and the evidence to the Committee supports this, is that although people in the various industries have various issues, there is quite a lot of support for the Commission and its approach, while there is understandably a desire for us to continue to get more efficient and make sure that we are focused and proportionate. I think the Commission is very much focused on that. The challenge for us going forward, and I am sure we will come back to this, is the global nature of the industry and the technology implications. That goes to the whole nature of what you regulate, how you regulate it and the question of protection, which is a significant issue that applies not only to this industry and this regulator, but to others.

Q667 Mr Sutcliffe: As the regulator, do you also see yourselves as advocates for the industry?

Philip Graf: I do not think it is a regulator’s job to promote an industry, to be frank with you. First, in our particular case, we are not an economic regulator. Sometimes people who have advocated that we should be a promoter of the industry, as it were, perhaps confuse us with being an economic regulator. But even the responsibilities of those economic regulators-Ofcom, for example, of which I have some experience-are not about promoting the industry. They have duties towards the citizen and the consumer, which are their principal duties; the subordinate duties are about developing services and products for the benefit of the consumer.

The other point here, which you made right at the beginning, is the issue of balance and of where the Commission is. If we were to end up promoting an industry, it would cause real issues for our credibility with wider stakeholders and our ability to be properly objective and to fulfil our duties. I think our job is to provide solid, good regulation, which encourages a responsible industry and ensures a competitive industry.

Q668 Philip Davies: When I speak to people in the gambling industry about the Gambling Commission, the most common feedback I get is, "Gambling Commission. Yeah. Very nice people. Don’t know anything about gambling." How would you respond to that?

Jenny Williams: At one level, they would say that, wouldn’t they? People do not like people challenging and interfering in their business. It is perfectly true that when we were set up, we had relatively few people in the organisation who knew about the betting sector. We were completely open about that.

Picking up on the earlier point about reviewing, from my perspective, it seems like we have been under continuous review since we started, because our whole set-up is that we consult and we talk. We consult the industry. They tell us what they think. We listen carefully. We have to put stuff out for consultation. From where I am sitting, I feel that I have been under continual review since we started. That has meant that we have gone very rapidly up a learning curve. We have people from the industry in the Gambling Commission. Privately, quite a lot of the industry says to us that actually it has not been nearly as bad as they had feared, and that we are not doing such a bad job. But clearly, we are a constraint on what they want to do, so I would expect them to say that.

Q669 Philip Davies: Can you just remind us, Jenny, how much you are paid?

Jenny Williams: Yes. I am paid £164,000 or £165,000. That is not comparable, to anticipate the next bit, to most other people’s salaries, because I have no pension contributions. It is about equivalent to the sort of salaries that are knocking around at about £135,000.

Q670 Philip Davies: It is about equivalent to, and probably more than, what the Prime Minister gets paid. Do you think there is any justification that you should be paid at the same rate as, or more than, the Prime Minister? If so, what is the justification for that?

Jenny Williams: I didn’t set my pay. I got the job in open competition. It would have been unusual for somebody to say, "No, I’ll take half the pay, thank you very much."

Philip Graf: I understand the question about the Prime Minister. Without wishing to get into the other issues that the Prime Minister may or may not get as part of his overall remuneration package, the context for Jenny is a situation where she was recruited through open competition. She was awarded a pay salary. She has not had a pay increase for a number of years. She has turned down her bonus for the last couple of years. I think, absolutely, she is value for money in the context of running the Commission.

Q671 Philip Davies: The reason why all this is relevant is that all the income for the Gambling Commission comes from the gambling industry-not just big companies, but many small companies as well. They want to make sure that the money that they are working hard for is properly justified and properly spent.

I want to touch on fees. We seem to have a rather bizarre situation, and I just wondered what your take on it was. We have bookmakers such as Geoff Banks, who has 200 credit telephone clients. That’s it. That is his business-200 credit telephone clients. He pays, I think, £2,300 in fees. If he was to offer them a facility to e-mail their bets to him, rather than telephone those bets to him, he would be asked to pay a further £13,500 in fees. So, for understandable reasons, he does not. Why on earth do you have a fee structure that prevents small operations like that from expanding and delivering something for their customers that presumably they would want?

Jenny Williams: This is an almost unique example. I know the case well. It is to do with the legal interpretation of remotes. It is actually one that worries me slightly, the legal interpretation, but that particular case is almost unique.

Q672 Philip Davies: But that doesn’t make it any better, does it?

Jenny Williams: I am just saying that the legal interpretation that we were given-funnily enough, in the office yesterday I was talking about whether we need to go back to it-was that that would come into a remote licence, which is why he would trigger the additional amount.

Q673 Philip Davies: What are you going to do about things like that?

Jenny Williams: I have just explained that we were talking in the office about whether we need to review that. Hard cases make bad law, as it were. We reviewed a lot of licences and a lot of other fees proposals. We have cleaned up and improved things. I have mentioned that one of the problems with the Act is the complexities of the two sorts of licences, the different charges and trying to get fees that are sensible for the majority. You are bound to get oddities, but as I said, that example has concerned me and we are looking at it.

Q674 Philip Davies: You say that hard cases make bad law and we just want fees that suit the majority. This person has a business; their livelihood is at stake.

Jenny Williams: I understand that.

Philip Davies: They cannot have a regulator who says, "Oh, well, there’s always bound to be the odd one." Surely the Gambling Commission must produce fees that suit and apply properly to every business. It should not write off ones that happen to be hard cases.

Jenny Williams: I am sorry. I just think that, in reality, you cannot have fees that fit absolutely everyone-they will not fit some well. It does concern us.

Q675 Philip Davies: So it’s hard lines for poor old Geoff Banks. I’ll give you another example to chew on. I don’t know whether you read the Betview magazine that comes out each month. In December’s issue, there was an interesting interview with Howard Chisholm, who runs Chisholm bookmakers. He was asked about his plans for expansion in the future. I’ll read out exactly, word for word, what he said: "In the last few years we have completely stopped buying. The recession has kicked in and there is a very significant reason we aren’t going above 50 shops." He has 49 shops at the moment. "The Gambling Commission charge according to the number of shops in your estate and these charges apply in bands. We would end up paying an extra £23,210 for one shop over the 50 limit. If the Gambling Commission’s current fee proposals take effect in April 2012 that figure will increase to £27,512-a ludicrous situation. The bureaucrats within the Commission have decided that was the way to do it and once decided they can’t be seen to change their minds as it would look as though they didn’t know what they were doing in the first place. We are looking at a couple of new licences but if we take those shops we’ll close two existing units to keep under 50."

What do you say to the staff in those two Chisholm bookmakers that would have to close in order to allow the company to buy those two licences, simply because of your ludicrous fee structure?

Jenny Williams: What we say is that there are practical problems in having a completely sliding scale, which would be much more resource-intensive and difficult. If you have a banded system, you will get boundary problems. We would say to Mr Chisholm, "If you think you are only going to buy two more shops, and no more, take out a separate licence. You can do that, and that will get across the boundary problem."

This structure is to allow for people who are going to expand much more, and then you get into a more reasonable fee. That is the problem with banded fees. There are all sorts of problems with having sliding fees, which would be much more resource-intensive. I’m afraid that in the real world there are practical trade-offs to be made.

Q676 Philip Davies: In the real world, this is a business that is not expanding simply because of you and your fee structure. That is what is happening-it’s here, in black and white, in this magazine.

Jenny Williams: But I have explained how Mr Chisholm could expand without closing the shops.

Q677 Philip Davies: Is that the system that you should have? Because of your system, people have to go round it in a different way. Why not just have a more sensible structure, where somebody doesn’t have to pay an extra £27,500 just for opening one or two new shops?

Jenny Williams: If you have lots and lots of bands or a sliding scale, you will have much more bureaucracy and coming and going with changing fees. There is a trade-off to be made. We have changed the bandings, or are proposing changing them, to get round some of the big step jumps. We may not have got it right. We consult, we talk to the industry, but in the end, we have to take a sensible overall view. There will be problems at the boundaries.

Q678 Philip Davies: Do you think that these situations are sensible ones to be in?

Jenny Williams: It seems the sensible trade-off at the moment. I might take issue with your saying that we would not change our minds; we have been changing our mind in response to points put to us the whole time. We learn, they learn, but we cannot make a fee system infinitely variable without huge bureaucracy, so there is a trade-off.

Q679 Philip Davies: Finally, can I ask you to go away and think a bit more about the two cases that I have highlighted to see whether you could do anything more sensible that will not prevent these businesses expanding?

Jenny Williams: Yes, I will. As I said, we are thinking about the first one. We have been thinking quite a lot about the second one, and the Department will be responding on the current fees consultation shortly.

Q680 Jim Sheridan: Jenny, even without a pension, £160,000 is not a bad deal.

Jenny Williams: I accept that.

Q681 Jim Sheridan: That’s quite good money. Philip answered on your behalf that you had turned down bonuses in recent years. How much were those bonuses? What sort of benchmarks were used to give your bonus?

Jenny Williams: I do not know how much I would have been awarded, but they would not have been large sums. It would have been in the £4,000-£5,000 ballpark, so I am not making great claims for that. It would have been for exceptional performance or reasonably exceptional performance.

Q682 Jim Sheridan: How do you measure that?

Jenny Williams: It is a judgment for the board.

Q683 Jim Sheridan: If Gerry does an exceptional job, he does not get a bonus for it. What is the benchmark?

Philip Graf: The remuneration committee of the commissioners would set that. An exceptional performance would be measured in terms of the outputs that we deliver, and also in terms of the cost reductions that we seek to deliver as well, because those are areas that are of particular concern. I do not think that Jenny is involved in that process. That is why I am answering the question, Mr Sheridan. I do not want to let her answer questions if she is not involved in that particular process.

Q684 Mr Sutcliffe: To take that further, I go back to Mr Davies’s point that the industry are paying the fees and are therefore concerned about remuneration. The issue is about their understanding of what the benchmarks are. In terms of representation of the industry with the Commission, how does that work? In terms of liaison and dialogue with the industry, how does that work in helping them to understand?

Philip Graf: Jenny can answer in terms of the executive. Over the past year, I have had more than 30 meetings with different stakeholders in the 39 weeks that I have been there. I see it as part of my job to establish and build relations with the industry and to be there to listen and understand the industry’s concerns. I have had regular conversations with the industry and there have been regular debates about fees and costs, but I have not heard one person raise Jenny’s salary with me in any conversation. They have obviously raised questions about the cost of the Commission-I understand that completely-and other issues that the Committee is rightly asking us questions about, but I have never heard one person raise the question that Jenny’s salary was an issue for them.

Jenny Williams: May I make a point not about my salary but about staff salaries? One of the problems we have in retaining people and in getting people from the industry is that the industry pays a great deal more. There is an issue for regulators about getting some of the expertise that we need to stand up to some of these big companies and the experts that they can bring in.

Philip Graf: I am sure that is not the first time you have heard that from regulators.

Q685 Mr Sutcliffe: How would you describe the move to Birmingham and what has happened in Birmingham?

Jenny Williams: There is a popular myth that the move to Birmingham was a disaster. In fact, as Philip has already pointed out, the issue was the fact that we were taking on new people in the new sectors and there was a new Act. That would have applied whether we were in Birmingham or London. The field staff, the home-based staff, were not affected by the move. They were the people who knew the existing sectors very well and knew about regulation. Given that we had to recruit large numbers of people in fairly short order, Birmingham was a very good place to do that. It was probably much easier to get the large numbers of people needed to re-license the industry in somewhere like Birmingham. Of course, we had large savings on accommodation, so we were able to move into very efficient, good accommodation in terms of working together. It was much better than the rabbit warren we used to inhabit in London. There were lots of positive things about the move to Birmingham, but it was a big learning curve-no two ways about that.

Q686 Chair: There have been a couple of specific criticisms put to us. Despite the large number of people employed by the Gambling Commission, it has been suggested that you have not been doing enough to tackle illegal gambling, particularly illegal poker clubs. How do you respond to that?

Jenny Williams: What is enough? We have done a lot on poker, but illegal poker, by its nature, is played in individual clubs, as opposed to legal poker, which is in casinos. It is very much a local matter for the local authority. What we have done, though, because it is new to quite a lot of local authorities, is to work very hard with the local authorities and provide guidance to their licensing officers. We have helped them with various actions, and I will give you a particular example. A small group of poker clubs opened up-one, two, three, four, five-of which four have been closed down and the other one is either dying or dead. I am not sure where it has got to, but it is in trouble. There is tangible evidence that the system is working.

You can understand the legitimate industry-the licensed industry, the casino industry-feeling very sore about such clubs. That is one of the reasons why it has not been done quickly enough, but I think we are making real progress there.

Q687 Damian Collins: May I follow the question from Philip Davies, and then move on to something else? On the question of fees, I have an example from my constituency, which is relevant to some of the problems that we have encountered during the inquiry, namely the disproportionate cost of fees for independent bookmakers versus national chains. In the high street of a town in my constituency there is an independent bookmaker paying out over £1,000 in fees, and a national chain a few doors down where the individual shop’s contribution is probably about £150. Why does the system work in that way?

Jenny Williams: Because essentially we regulate operators. It is different, obviously, at the local authority where you are paying on a shop basis-the premises fees. We regulate operators, and there are huge economies of scale in regulating a big chain. You can get them to do a lot of the compliance work and demonstrate what they are doing, so although you still have to sample visit, there are huge economies of scale. In terms of reflecting the cost, there is a fixed cost in regulation. Parliament said that we had to regulate the small, independent bookmakers. We are trying to get the amount down and, as you will have seen from the fees proposal, the amount is coming down a bit despite upward pressures on cost inflation and that sort of thing. It is coming down, but it is quite hard to see how low you can get it.

Q688 Damian Collins: The fees are a lot higher now than they used to be. That is certainly true, and it is something that all these bookmakers complain about.

Jenny Williams: Absolutely.

Q689 Damian Collins: There is no question about that. I appreciate that if it is a new company, there might need to be a slightly heavier regime, but what about if you have an operator that has been in business for 30 years in the same premises, which has never been a problem and always gets a clean bill of health, and yet it is paying nearly 10 times in fees what someone else is paying a few doors down the road? That is just wrong.

Jenny Williams: There are two separate issues, aren’t there?

Damian Collins: Well, I would say that they are both wrong.

Jenny Williams: One issue is why bring in regulation after 30 years of impeccable behaviour? The reason, as the Committee will know well, was concern about machines and technological development. The view was taken that it was not acceptable any more to have such light-touch regulation of betting-once operators got licensed, I think they paid something like £30 a year. That was not being regulated in the way that Parliament decided it wanted bookmakers to be regulated. That is one change, and there was inevitably going to be a big increase in fees from that point of view. Now we have learned more about the industry, and the industry has learned more about the Act-there were some quite big changes in terms of the social responsibility measures, such as age verification-we are trying, as the latest fees proposals show, to bring those costs down. It is a different ball game now with machines from what it was 30 years ago.

Q690 Damian Collins: Do you think it is wrong to have such disparities in fee structure, particularly with businesses that may have had an impeccable trading record for a number of years?

Jenny Williams: We do our best to make our fees cost-reflective. We are looking to see whether we can bring down the cost of what we do, but if the Government want us to regulate small independent bookmakers, there are costs involved. There are also costs involved in keeping an eye on what is happening in processing regulatory returns, and in being able to advise Government-

Q691 Damian Collins: I am sorry to interrupt. We understand that, but we are trying to learn from what has happened since the Act and look forward. There is a lot of concern about the issue in the independent sector. Do you think we should look at a change in the regulatory environment and a change to the system so that there could be a slightly closer relationship between the fees paid by independent operators and by national chains, certainly when they are operating in the same neighbourhood, side by side?

Jenny Williams: There is a bit of a move, because we have been through the educational phase and we are doing less with the independent sector. A lot of the things that we are spending our resources on, such as getting integrity and tackling illegal machines, are being loaded far more on the big chains because that work is being spread across them in relation to their size. There is a bit of a readjustment going on anyway.

Q692 Damian Collins: I am sure that you are doing your best, but what I want to know is whether you are content or whether you think it should change. Do you accept my view that this is unfair and wrong and therefore the system should be changed to make it fairer, or do you think that this is the best way to do it?

Philip Graf: One of the challenges here is what would be fairer. I understand the frustration that you are expressing, Mr Collins, and that your constituent might express. In a sense, the challenge is how you spread it fairly. What is a fair way of doing it that reflects the burden on us? Given that we wish to reduce costs overall-we are absolutely on board with that-how do we develop something that is seen to be fair? We are not against something like that. We are interested in understanding how we might be able to do it.

Q693 Damian Collins: It is time to move on to a different topic, because I think we have exhausted that one. Do you think there is a relationship between the accessibility of gaming machines, particularly B3 machines, and problem gambling?

Philip Graf: B3 machines?

Q694 Damian Collins: Do you think there is a relationship between gaming machines that are available for people to play, the numbers of them and where they are and problem gambling?

Jenny Williams: There is no doubt that there is a relationship between the accessibility of machines and gambling, and there is a relationship between the amount of gambling and problem gambling. It is very unclear how tight that relationship is. It is one of the things that we spend a great deal of our time looking at. We look at research from this country and from other parts of the world to see that relationship, but it is very unclear how tight that relationship is.

Q695 Damian Collins: The reason I asked is that it is stated in the impact assessment that was prepared for the Department when the Minister approved the raising of the stakes for B3 machines that there is "no evidence that the availability of £2/£500 machines in unlimited numbers prior to the implementation of the Gambling Act adversely affected the levels of problem gambling in Great Britain and the Gambling Commission advise that proceeding with a more flexible B3 entitlement without a cap on numbers is unlikely to adversely impact on the licensing objectives of the Gambling Act." Is that your view? That suggests that there is an unproven case as to whether the accessibility of these machines is driving problem gambling.

Jenny Williams: Yes, our view was reflected. We were talking about the fairly low-stake machines and the machines that were available at the £2 stake in some numbers before the Act came in. In a sense, one had a bit of history to look at. There was also a question in terms of the relativities within the industry. Again, within the sort of parameters that one was looking at, there was no evidence to suggest that that would cause a problem. As I said, it is a much more complex relationship than simple numbers.

Q696 Damian Collins: In that case, if you were asked for a view on further liberalisation, would you support that because there is no evidence to suggest that problem happened?

Jenny Williams: I think the Commission, as with the Government, takes a precautionary view. Our gut feeling generally is that in itself putting limits on numbers of machines, stakes and prizes is a rather crude way of tackling problem gambling. We would like to be able to move-it is our dream in the longer term-to something that is much more focused on people and on social responsibility measures, so that it is much more targeted. That is not possible with the current set-up and the current state of investment in the industry.

If you look at what is happening, for example, in Norway, Nova Scotia or, probably, Australia, where they are introducing pre-commitment levels, so that people can limit the amount they gamble and the time they spend on it, you can see a direction moving there. You might then be able to relax those rather crude limits on machines, stakes and prices, but at the moment, that crude measure is one that people use around the world as a precautionary way of dealing with problem gambling.

Q697 Damian Collins: Do you think that there has been a significant increase in problem gambling since the Gambling Act?

Jenny Williams: I know you have heard a great deal of evidence from people who are a great deal more expert than me. In all probability, the last prevalence study showed that there was a just statistically significant increase in problem gambling. What the researchers said, as you know, was that it is unclear yet as to whether that is the start of a trend or whether it is a statistical fluctuation, because the previous one showed no increase. Yes, in all probability there has been a bit of an increase since the last prevalence study.

Q698 Damian Collins: But do you regard that as statistically significant?

Jenny Williams: I am advised, as it were, by people greatly more expert than me that it is yes: "on the margins of", is what they say, but I turn to Brian because he is very much involved in this.

Brian Pomeroy: There were two tests applied. On one of them the increase was taken as statistically significant. It was only just, but none the less it was statistically significant but on the other it wasn’t. That is what has led to a slightly not completely clear-cut result. I think the sensible interpretation, frankly, is that there has been, or there is likely to have been, an increase and to work on that basis; but since, as the researchers point out, it is not clear, as Jenny says, whether it is a blip or a trend, to monitor that and to try to get as frequent future data points as it is possible to do to establish whether there is a trend.

Q699 Damian Collins: Do you think therefore that the prevalence study should be continued in its current format?

Jenny Williams: Our view-we have been working a lot with Brian on this and he may want to comment-is that the prevalence study is world-class, the ones we have had. That is generally recognised. But, arguably, it is too large for prevalence. You don’t need anything as big as that for the prevalence of gambling and it is too small to get what is really interesting about problem gambling, which is the causes. So we want to decouple the two. We have various tracker surveys that monitor the prevalence of gambling, which we are carrying on with. What we are looking to do is to piggy-back on some health surveys for a more detailed look at problem gambling and the correlates that will help us look into possible causation. We are also developing-we have put some real effort into developing with some worldwide experts-a mini-screen that we are piloting alongside these health surveys. It will only be a fairly crude measure, but if the mini-screen gives us a measure we will be able to run that with our quarterly survey, which will give us a much more frequent, albeit fairly crude, measure of whether problem gambling is increasing or not. So that would be a great advance if we can get it to work.

Q700 Damian Collins: Do you think the prevalence study has been flawed in its failure to analyse some of the social causes that lead to problem gambling?

Jenny Williams: It was not designed to do that. It was designed to do just what it said on the tin-the prevalence of problem gambling.

Brian Pomeroy: It was designed to measure the state as it is at the time that the field workers go into the field. In other words, it is designed for how many people gamble, how many problem gamblers there are and it also looks at attitudes and so forth. It was not designed to establish causation.

Q701 Damian Collins: That is why I asked. I am not asking whether it failed to do what it was designed to do. I am asking whether it was badly designed. Should it have been designed to take into account other factors as well that might now have been more helpful for us?

Jenny Williams: There is an enormous debate about what else could be done. You have probably picked up the debate about whether there should be a longitudinal study tracking people. Problem gambling is a significant problem for a significant number of people, but there are actually very few when you are looking for them to get the sort of studies that will be able to look at the big surveys that will pick up enough people and then track them over a period. That is why we are moving to a different way of trying to look at it, to drill down particular groups and see if we can get at it that way. As I say, it was fine for what it was designed to do, but that is one of the reasons why we are moving away from that.

Q702 Damian Collins: One of the frustrations we see several years on from the Act and two prevalence studies, is that people seem to say, "We just don’t know." Nobody knows what causes problem gambling. We don’t really know how much there is and we don’t really have any kind of analysis of how it works in different social groups. That to me would seem to be a failure of information gathering and research.

Jenny Williams: We have a pretty good idea about the size of the problem, within a fairly broad margin. We have a pretty good idea of the types of people who are affected. What gets them to that is the problem and that is why we need to drill down. It has been pretty valuable in terms of things like showing that, contrary to a lot of popular opinion, problem gambling is not restricted to one particular sort of gambling. The one thing that you can say about problem gamblers is that they gamble a lot and they gamble on a lot of different things. That comes out very clearly from the prevalence study. I think that has been a really useful bit of learning for everybody and it has come out very clearly. That helps you to direct some of your further inquiries. It also gives us enough to be able to know where you direct attention for prevention and education. If you know that the young, the unemployed, the single-those sorts of people-are more likely to be problem gamblers then you can direct preventive efforts towards them. You don’t know exactly the mechanism, but it does help you to direct help.

Q703 Damian Collins: The Government’s impact assessment, which I referred to earlier, states: "It remains extremely difficult to ascertain whether certain social groups or particular agendas might be susceptible to problem gambling. The research is inconclusive." Is that a conclusion that you share, and do you think there is a problem with the way the research has been conducted so far?

Jenny Williams: I suppose it is a generalisation. You notice that more men than women are problem gamblers.

Brian Pomeroy: The prevalence survey actually picks up quite a small absolute number of problem gamblers, and that creates its own problems of statistical interpretation, but what the prevalence survey does do is give you demographic data of those people who show up on the screens as problem gamblers. There is certainly scope for follow-up studies. Among the strategy board’s projects-as you say, I started chairing it just three weeks ago, so I am very new to it-is, for example, looking at machines. The prevalence survey does not give you causation, but some kinds of gambling clearly cause public concern. There is anecdotal evidence. A research programme was set in train before I became chair to look at specific areas, machines being one, and there has been discussion about doing something with the internet. Although the prevalence study tells you something about demographics, it does not tell you everything, and there are other avenues that are being explored to get better insight into the question we are discussing.

Jenny Williams: There are probably more men than women problem gamblers, and there are more men than women gamblers, but as more women are gambling online, we want to look very carefully at whether there are more women problem gamblers. It is the interaction of those two factors.

Q704 Damian Collins: What you get from the study so far is that problem gamblers tend to be in lower social demographic groups, and they tend to be male and living in poorer areas of the community. That would be common sense to most people, but that is what we have been told so far. I suppose the slight frustration is why do we know more about that, given that most people could have guessed that was the entry level.

Philip Graf: Without wishing to repeat what my colleagues have said, in a sense there are two challenges. You are quite right that the challenge is getting more detailed information, and the small sample size is a real issue. The other question is about causation, which in a sense, as you quite rightly point out, the survey was not designed to cover. People advising you will say that the issue of causation is not something that we are trying to get to the bottom of, but it is a global issue trying to understand the causation issue that takes you into this area. As Jenny said, it has helped us in a number of areas in terms of giving us information and a sense of direction on this. It has also been helpful, I think, in understanding that it is more complex than simply one machine or specific form of gambling being linked with problem gambling.

I hope that the work that we are seeking to do following on from this will go down the lines you are talking about. We recognise that we must do more detailed work on causation and the whole question of problem gambling. We clearly recognise that.

Q705 Steve Rotheram: Despite the issue having been pretty comprehensively probed by my colleague, there is an argument about whether the percentage increase in problem gambling is marginally statistically significant, or more robustly significant. Perhaps all three witnesses will say how significant an issue they consider problem gambling to be. Which side of the argument do you come down on?

Brian Pomeroy: What the statistics show is that it is statistically significant. On one of the tests, there was a statistically significant change, but only just over the boundary. That is just a statistical fact. That is what it showed. Does that fully answer the question?

Philip Graf: I am sorry to cut across a colleague. For a small number of people it is a significant problem, so there is a significance around the problem itself. The increase in one of the measures in the statistics, as Brian said, is at the margin of being statistically significant, but it is statistically significant. The question, as Jenny has pointed out, is whether this is a trend or a one-off situation. What we are seeking to do, going forward, is to see whether we can measure that more often and better to find out what is happening. Of course, for that small group of people and the people associated with them-their families and everyone else-it is an issue and a problem. We wish to make sure that we understand that problem as well as we can, both its causation and prevalence.

Jenny Williams: If we can find ways-as I say, with more targeting-to improve the prevention, then we hope to bring that figure down, because it is a significant number, and with the families an even bigger number of people is affected.

Q706 Steve Rotheram: Would you contend against the Methodist Church evidence to us that argues that the problem of problem gambling is on the increase?

Jenny Williams: In all probability, I think that all three of us would say that the last prevalence study almost certainly showed an increase in problem gambling. As I say, whether it is a trend remains to be seen. From a policy point of view, what we know is that we have, broadly speaking, 400,000 people with all the family affected, and that is a serious issue for us, with our third licensing objective. In policy terms, that is good enough for us to be devoting real time and attention to it and to be commissioning further work.

Q707 Mr Sanders: Under the 2005 Act framework, are UK citizens at risk from unregulated or poorly regulated providers?

Jenny Williams: Obviously, the black market is out there and people are at real risk. If you mean how much, the current position is that most people who market actively into the UK are big, well-regulated chains. People can find all sorts of people on the internet, but we put out stuff advising people to check where providers are regulated and that that they are playing on properly regulated sites. There is always a risk on the internet, and people can find unregulated or poorly regulated sites if they look for them.

Q708 Mr Sanders: Do you recommend that people only go to the white-listed, regulated companies?

Jenny Williams: Only white-listed or EU-regulated companies are allowed, so we certainly recommend that people only go to legally allowed ones, yes.

Q709 Mr Sanders: In terms of the white listing, how are jurisdictions assessed for their suitability?

Jenny Williams: This was done by the Department, of course, but advised by us. At the time, only a limited number applied and they were for the most part well-established jurisdictions with a track record that could be looked at. The Department, advised by us, had a look to see whether their regulations were broadly comparable and, in some cases, they adjusted their regulations to make them broadly comparable with the UK ones.

Q710 Mr Sanders: Has the Gambling Commission inspected any of the white-listed jurisdictions?

Jenny Williams: No, that is not part of our powers or functions.

Q711 Mr Sanders: Should it be?

Jenny Williams: As I said, when it was set up, there were well- established jurisdictions and a limited number of companies licensed by such a jurisdiction, and we had tended to license their terrestrial arms, so we knew a great deal about them. Going forward, it is a rather different view, because you have got a lot of European jurisdictions moving into online gambling regulation, which they have not done before, or they are doing it in different ways; you have also got a lot more operators moving into the remote space, such as new start-ups, which again was not the case when the white list was first set up. We are with the Government that the way to go forward is not to carry on with the white list but to look much more on an operator basis and to go for domestic licensing. As I say, we are moving into a rather different world, with a lot more players coming into it.

Q712 Mr Sanders: The Gala Group advocates new legislation requiring any operator trading with or promoting to British residents to be licensed and regulated in Great Britain. Would you recommend such a requirement?

Jenny Williams: Yes, I think that makes a lot of sense. It does not necessarily mean that they have to bring their servers onshore or anything, but they have to be subject to our regulation and our standards-common standards-so that anyone gambling remotely in Great Britain knows that they are facing the same standards, the same type of regulation, the same probity checks and the same age verification checks, and they can have confidence. If they have got problems, they don’t have to go to lots of different regulators with their queries, which is one of the problems as more and more places are opening up.

Q713 Mr Sanders: Given that we are not there, and that there isn’t yet a proposal for such a regime, are you still in favour of allowing non-British companies to advertise in the UK?

Jenny Williams: As I say, at the moment, the people who are allowed to advertise are those in the white list plus the EU. The vast majority of those are well-known brands and people that we license on the terrestrial side. I do not see that there is a huge problem at the moment, but the direction of travel is worrying as more and more jurisdictions are going into the online business without a great deal of experience. There are different cultures and different expectations.

Q714 Mr Sanders: You say that there isn’t a problem, but other countries have banned such advertising. Why do you think they would do that if there wasn’t a problem? The fact that you don’t know there is a problem does not mean that there isn’t one.

Jenny Williams: I’m not quite sure when you say that other countries have banned such advertising-some countries have prohibited online gambling, so obviously they try and ban it and there is usually a huge black market in those countries. Some countries are protecting their own state monopolies and do not want competition from other people. I am not quite sure which countries you are thinking about.

Q715 Mr Sanders: I think Australia has banned television advertising of gambling for live events.

Philip Graf: There is no doubt that regulators around the world often come from very different perspectives. Often, there are issues around prevention or banning. I am not commenting on the Australian situation, but certainly when I went to a regulators conference it was interesting to see-you can see this in the situation in the European Court-that regulation has often been used as an economic weapon, but not as a social weapon. In other words, it is designed to protect. Equally, certain regulators have duties that are much more geared around protection rather than the nature of our duties. Different regulators will come at this in different ways. In some countries, it would seem that a lot of the regulation banning online gambling is to do with the protection of in-country businesses or monopolies. That shows a different attitude to the whole question of competition to that taken by this country.

Q716 Mr Sanders: I don’t know whether there is a problem; I am not naturally against these things, but it strikes me that television advertising of gambling is probably the most effective advertising of all. It is not like advertising a sofa where you have to wait for the shop to open before you can go and view it; you actually respond to that advert instantly. If that is within the context of a live sporting event-

Philip Graf: As the Chairman will know, in my previous existence, I had some involvement with the question of advertising and the types of advertising on television. It is a question that the ASA and Ofcom have certainly looked at. One of the problems that I think you get to in this whole area if you look towards restrictions is about how you make them proportionate and targeted, and whether the restrictions are actually effective, given freedom of expression and the other side of the argument. I know that it is quite a difficult area for the advertising regulators.

Q717 Mr Sanders: But advertising of financial services comes with a warning that investments can go down as well as up. These adverts do not come with a warning that you might not get your money back.

Philip Graf: Do you think that people who bet think they are always going to win?

Q718 Chair: You said that you had some involvement in advising the Department about the suitability of jurisdictions for white-listing. You also said that you have not actually been to any of the white-listed jurisdictions. How do you advise the Department if you do not go there?

Jenny Williams: I explained our rather limited role, which was to compare the regulations that had been set up, and say what we knew about their track record to date. I said that they had an established track record, and that one knew quite a lot about the companies that had regulated. So, as I say, it was a rather different ball game then. We were not set up to be, as it were, an inspector of other regimes, and I do not think that that would have been a feasible-

Q719 Chair: But it is now proposed that you should be.

Jenny Williams: No. What is now proposed is that we license operators. We are capable of looking at operators with our systems and our integrity checks and our source of funds, that sort of thing. That is what we can do.

Q720 Chair: You are potentially going to be required to license operators who are scattered all over the world.

Jenny Williams: Yes, and we already license people who have some key equipment here, but have equipment elsewhere. That is not, as it were, a particular issue. There are resource implications and scaling up, but the methodology works perfectly well with people in other places.

Q721 Chair: If you were required to issue a licence to all those offering gambling opportunities to people resident in the UK, have you made any estimate of how many additional operators you are going to have to issue licences to?

Jenny Williams: No, not precisely.

Q722 Chair: Have you got a ballpark figure? We are talking hundreds, presumably.

Jenny Williams: Oh, yes, hundreds. Denmark, a much smaller jurisdiction, I think issued about 39 licences. A lot of the people will be already licensed by us for their other arm, if I can put it like that. We have already said very clearly that we would expect to co-operate with the home regulator, and if they have done the checks, and if they are doing the audits, we do not want to duplicate. We are not empire building. We are very happy to allow information from other regulators; but we do want to see the homework. What we do not want to do-picking up your point-is to try to do a second-hand assessment of their ability. If they have done the work and they can share it with us we are very happy. I do not think there will be a huge duplication or need for one-for-one additional resource, because where they are properly regulated and the work has been done we are very happy to use that. As I say, we work with other regulators.

Q723 Chair: Do you anticipate that you are going to need more resources and more staff to take this on?

Jenny Williams: We would need some, obviously. A lot would depend on the extent to which other regulators can-"act as our agent" are not perhaps quite the words-carry on doing their regulation and share what they have done. To the extent they do that we will not need that much more. We would need some, clearly.

Q724 Chair: We heard from some of the offshore operators-I do not know if you saw the evidence-that they were complaining that they had almost no communication with the Gambling Commission at all; particularly Gibraltar and Jersey.

Jenny Williams: Yes; to be honest I was a little bit disappointed, because I have a great deal of respect for Phil. He was a colleague of mine. I think I have a lot of communication with Phil. We exchange information.

He has a problem. He has a much clunkier regulatory set-up than we do. If we need to get information from him for criminal investigation purposes we have to go to our police, across to their police and down, so it is quite clunky, whereas we can just provide information, under our powers, much more straightforwardly. I am not sure why he was quite so feisty, if I may put it that way, because, as I say, we do exchange quite a lot of information. He is on my working party on e-gambling. Bad day, I guess.

Q725 Dr Coffey: What would be the advantage of the UK regulating remote gambling on a point-of-consumption basis?

Jenny Williams: Sorry-what would be the advantage?

Dr Coffey: Yes. What is your view of the primary advantage?

Jenny Williams: There would be a number. From the UK consumer point of view, they would have confidence that there would be the same standards. We deal with a lot of people phoning up because they think that we regulate them-not unreasonably; quite often the thing will be .co.uk or something like that. It will look like a British operator, and we have to say, "No, you have got to go to that regulator or this regulator." I am not saying there is anything wrong with the regulation, but you have to hand them on, so the consumer has to deal with a lot of people.

We are charged with advising the Government on the regulation of gambling, and the impact of gambling. At the moment, we only regulate about 20%, at the smaller end of the remote business. Now, increasingly, we do not have the information on which to advise properly. The other thing is that we do not have, as of right, information on suspicious transactions or unusual betting patterns from the people we do not regulate. We may get them, but we do not have them as of right, which does limit our betting integrity work.

Q726 Dr Coffey: I know you do not have the right, but have you ever been refused information?

Jenny Williams: Yes, there are problems and it can be quite clunky in terms of getting it.

Q727 Dr Coffey: How many times have you been refused information?

Jenny Williams: That I don’t know, but I can think of several examples in the past year, or times when it has taken a long time or when operators have told us that they are not able to provide it to us directly.

Q728 Dr Coffey: I hear that betting integrity is a problem. Normally, the origination of any information about betting integrity comes from the operators themselves because they are the ones who are losing out.

Jenny Williams: My point is that the ones that are overseas do not necessarily provide it directly to us. Sometimes we have to go through their own regulator.

Q729 Dr Coffey: Is it not also fair to say that the main advantage will be tax revenue?

Jenny Williams: That is not, as it were, Gambling Commission. It is a bit of an interest to us.

Q730 Dr Coffey: It might help reduce the fees for people based onshore?

Jenny Williams: If you could get the Treasury to give us some money, possibly, but that tends not to be the way that it works with the Treasury.

Q731 Dr Coffey: What if you had a wider number of licences?

Jenny Williams: We would get more fee income.

Q732 Dr Coffey: Hopefully, you will be able to reduce your fees.

Jenny Williams: Spread the cost, absolutely. That is right. On the level playing field, there is obviously a structural stress at the moment because people licensed offshore can undercut the people who are licensed here. It is not a level playing field at the moment, which has regulatory implications.

Q733 Paul Farrelly: I want to break a little new ground. Just for clarity, in the future, a licence is a licence is a licence, irrespective of where the servers or equipment are located. Is that right?

Jenny Williams: That is the proposition.

Q734 Paul Farrelly: Does that mean that the provision in the Gambling Act 2005 about siting equipment has not worked well or was really a distraction?

Jenny Williams: The view the Government took was that, loosely speaking, remote gambling would be licensed on the basis of where it was supplied from. The Government are now taking a different view, partly because of the way in which things have been developing in Europe. They feel that it is better to concentrate on the point of consumption. Yes, with the benefit of hindsight, that was a mistake.

Q735 Paul Farrelly: We clearly have more and more countries moving in to regulate in Europe. We have a number of successful online operators here who are concerned about not only having to satisfy this regulation here or those conditions there, but the potential for double taxation in the future in the different regimes. We are going down a route where we are going to license on a UK basis only, so it is replicating what is happening increasingly around Europe. Is there an argument for operators to be allowed a UK gambling licence if they are already licensed by another European Union country?

Jenny Williams: In a sense, that is the current position. If you have a licence in a European country, you can advertise and market in the UK. The problem is the variation in standards and capability as new people come in, and the difficulty in dealing with UK consumers. The holy grail, the answer, is for us all to agree on common standards and a common way of compliance and enforcement. That is something that I have been pushing for, but we are a long way off it at the moment.

Philip Graf: What I found extraordinary at the regulators’ meeting was the variation in not just standards but philosophy and approach. Some of the regulators were part of the Government; some were not. There were very different objectives. So getting to that point in the short term would be extraordinarily difficult.

Q736 Paul Farrelly: Picking up on what John said, if you were to get to that point, you would necessarily have to check how well regulations worked in other countries and how fit for purpose they were and, therefore, vet other regulatory regimes.

Jenny Williams: Sorry. You have slightly lost me. If everybody had common standards and, a bit like in financial services, there was a common understanding about how you do things, that is a very mature regulatory position. We are a long way off that. We are all still learning in remote gambling regulation. If you take something like money laundering, it took something like 14 years to get to the position where the best taskforces in different countries go and assess the capability of money-laundering regulations in other countries. In the longer term, I think we will be able to get to that sort of position, but we are a long way off that at the moment. As I say, we are still learning together.

Q737 Paul Farrelly: A final question on this point: to be helpful, could you name to us any European jurisdictions where, at the moment, you would not consider their licensing to be up to your standard? Would you therefore baulk at automatically granting anyone licensed in those countries a licence without actually vetting the operator yourself?

Jenny Williams: It is a problem of a lack of knowledge, isn’t it? We do not know enough about the way they do things. We do not know enough about the competence of their staff. We do not know enough about their approach, and it would be very time-consuming to find out. It is not proven, if you like. We just do not know. We could not provide the assurance to the consumer.

Q738 Paul Farrelly: Let me try to help you. Let me reduce 27 to just one. This is not pejorative at all, but let me just pick out Malta. What would your view be on Malta?

Jenny Williams: My view on Malta, based, as I say, on not having crawled all over it, is that we had some issues about the way Malta used to approach it, because it used to give what were effectively provisional licences. Somebody would apply and they would get a provisional licence. We do not do that, so we were uneasy about that. Now, that has changed. In my dealings-they are fairly superficial; I cannot pretend anything else-with the current regulator there, I am very impressed. He has been very useful in some discussions about another topic that I know you are interested in, which is the protection of player funds. He has very interesting insights into the way they do it there and the issues. At that rather superficial level, I would have more confidence now, but I could not assure the UK Government or the UK consumer, because I just do not know enough about what they do and how they do it.

Q739 Paul Farrelly: Let me just hop to another island that is outside the EU-Gibraltar. As a second example, what about Gibraltar?

Jenny Williams: As I have already said, I have a lot of respect for Phil Brear, the regulator there. They have a very different approach, as he himself pointed out. They limit the number of licences. As it were, they select people who have a very strong track record and, to some extent, they rely on their reputation to carry them forward and on very close personal regulation, if you like. That is a very different style from UK regulation. It may work perfectly well. Again, without crawling all over what he does, there are no obvious problems, if you like, with the people he regulates.

Q740 Paul Farrelly: What do you mean by personal style?

Jenny Williams: I meant that, as he described, he relies very much on what is a bit like the old-style City regulation-the nod and the wink-and the Governor saying, "I don’t like that: stop it". It is a different style of regulation. They are moving-they have consulted on and I think they have just put in place regulations-to a much more open regulation-based type of approach. As I say, you can do that with 20 big operators. We would not be able, and I do not think anybody here would expect us, as it were, to have a restricted market and simply say that only a limited number of people can come. That would probably not help the consumer either, because you would not get the competition.

Q741 Paul Farrelly: Looking to the future-this question is for Philip as well-people have clearly got to have confidence that the Gambling Commission is well set up to monitor the bona fides of the expected influx. One of the comments that the Gibraltar regulator made when we saw him last week was that your main online gambling adviser-you are waiting for this, of course-is based in Australia. It reminded me of the BBC relocation manager to Salford who is flying in from the United States. Can you just say a bit more about that?

Jenny Williams: I was terribly surprised at that being seen as a weakness.

Paul Farrelly: I don’t know whether it is true or not.

Jenny Williams: He is not our lead adviser, although he is an important adviser. He is a guy, who we recruited when we set up, from Australia. He was one of the very few people worldwide who had already been regulating online in Queensland. He was responsible for setting up a lot of the international technical standards. We were very pleased when we recruited him. He came and helped us set everything up. After four years, he wanted to go back to Australia for family reasons. We persuaded him to take a career break, which he did. We have other staff on the remote side. When, at the end of that year, he did not want to come back just yet, we persuaded him-I am very pleased that we did-to take on a part-time advisory role for us. It works extremely well with modern technology. He is, of course, much closer to what is happening in Australia and that part of the world. We were talking to him last night and we talk to him most weeks. I regard it as a great strength that we have someone with 14 or 15 years remote experience.

Q742 Paul Farrelly: How big is your online set-up?

Jenny Williams: The reason that I am hesitating slightly is that, because we have a very different set up-

Q743 Paul Farrelly: How many people?

Jenny Williams: We have people, for example, who cover both remote and non-remote. My machines experts-I have two of them who do both, as it were.

Q744 Paul Farrelly: The machines experts are experts in slot machines?

Jenny Williams: Yes, but they are server-based machines increasingly.

Paul Farrelly: Treat me as a novice.

Jenny Williams: There is enormous convergence between land-based and remote, because people are providing stuff electronically. The expertise that you need for technical standards, for test houses and for that sort of thing is increasingly the same for land-based and for remote. I can draw on my non-remote experts in all sorts of ways. I draw on my land-based people for things such as money laundering, which is an important issue in the remote space. I have a big intelligence unit with 10 or so, which cuts across both remote and non-remote. I have about four or five who are dedicated almost exclusively to remote, but I draw on experts across the commission.

Philip Graf: This touches on quite an important point. Looking forward, the issue about convergence and technology, whether it is remote or land-based, is significant for us. You look at these machines and effectively they are servers and the slot machines, as you would call them. The whole question of understanding and dealing with technology is one of our ongoing challenges. It is the same for all regulators: the question of how you keep up and how you have the staff to do so. Finding and attracting the staff is another question. That remains one of our key challenges going forward. Whether it is remote or land-based, it is a little incoherent.

Jenny Williams: We have more staff than Phil has, on remote.

Q745 Paul Farrelly: I have one quick last area. Clearly, you will only know whether you are fit for purpose when you have a problem. Full Tilt- there but for the grace of God-happened in Alderney. I was rather surprised last week to find that you had put in a submission about Full Tilt, which almost seemed to be on behalf of Alderney, which I am not sure was terribly well advised. I do not want to make too much of it, but when I read the submission-you will have seen last week’s transcript-I was rather surprised about some of the arguments that you were using to justify the caveat emptor approach, which does not require player funds to be protected in any way from the money the operator uses for the business. One of your reasons was: "Players should be allowed to choose to transact with operators that do not protect funds and take the slight risk to their funds." I invite you, before you write that sort of stuff again, to replace "players" with "pensioners", and "operators" with "Robert Maxwell". It is not really a great consumer choice.

Jenny Williams: I am glad you raised that. Can I just make it clear that we were not putting in evidence of behalf of Alderney? Dr Coffey had a briefing from us, largely on betting integrity and issues such as that. She asked us about Full Tilt but there was not time to go into that. We thought helpfully to provide some factual briefing. I am sorry if you got the impression that we were doing it on behalf of another regulator. We speak for ourselves and only ourselves.

I was also a little taken aback when you described this as complacent.

Q746 Paul Farrelly: No. I think I wrote "astonishingly complacent".

Jenny Williams: All right. I was astonished, too, because I am not remotely complacent. I don’t think anybody before has ever accused me of complacency; over-worried, possibly. I was trying to explain that there are a lot of issues. If you insist on true, 100% consumer protection, as for pension funds and banking deposits, which only goes up to £80,000-you do not have protection on bank deposits over £80,000-that will come at a very big cost. You can get partial protection. What you will do is drive consumers into the black market where they will get a much cheaper deal. All the evidence shows that if you build in too expensive protection that is what happens.

I was saying that there are arguments for our present position, but I also said-which is why I don’t think we are remotely complacent-that the moment the Full Tilt episode occurred we got in touch with Alderney and were very open. We have been working closely with them looking into it. We have been talking to other regulators; we had a session last time with the regulators comparing notes-I mentioned what Malta was doing-and we have another session next week when we are going to talk about this. We are not remotely complacent. You must not mislead consumers, either. It is very hard to give 100% protection without huge costs.

Q747 Paul Farrelly: Philip, before we move on, would you like a final word on lessons to be learned about player protection?

Philip Graf: Jenny has explained the lessons very well. We are looking to learn. Peter Dean is doing a report for Alderney. Jenny chairs a national committee of regulators. One important thing to recognise is how much Jenny is in the lead in areas such as this. It is an area where we are concerned to get it right. To get it right means to get it right for the consumer both in terms of understanding what can be done, and making sure you do not have the law of unintended consequences, which, because you make it very expensive and gold-plated, you end up driving consumers somewhere else. It changes the way you do it. Going back to the beginning about the balance the regulator has to strike, I am very confident that neither Jenny nor the Commission is complacent on this subject.

Chair: We have two last areas we need to cover quickly. Gerry.

Q748 Mr Sutcliffe: On gaming machines and the review of stakes and prizes, the Government made a recent announcement. Who is going to take the lead on that? Will it be the Commission or the Government? This is an area where I have always found a great concern about the categorisation and lack of science in relation to machines. Would you like to say something about the review?

Jenny Williams: As you know, the Department will be in the lead, because, in a sense, the Department has to exercise the trade-off between the economic advantage to the industry against any possible risk to the consumer, so the Department will be in the lead. We will look to Brian and his colleagues for expert advice or informed judgment on what is known about the possible implications. With the benefit of that advice, we will feed into the Government’s process.

Q749 Mr Sutcliffe: I am concerned that there is a lack of science in how to deal with these categories. I think certain sectors of the industry have had problems because of that lack of science. What would you say about that? When the review is conducted, will that be an area you look at? What is the science? If it is a casino, it is linked to the number of tables and machines. If it is a seaside venue-there are so many complex issues in relation to these categorisations. I would argue: is a betting shop a casino in terms of FOBTs and the issues around that? How are we going to get to a situation where we can understand the categories or why there is a need to have these different categories?

Jenny Williams: You start with where we are, and it is a question of changes from where we are. The categories that were put in place were, essentially, a result of discussion-trade-off, whatever you call it-in Parliament at the time about how precautionary the then Government felt they wanted to be. There are stresses in the structure. The obvious one is the fact that people can play any number of any stakes on their iPads, yet if you go into a licensed venue, you are limited, so it surprises. I said before that there is not a huge amount of science. It was pragmatic. We would like to move away from these rather crude measures, but we are not there yet. We have neither the technology nor the information.

Philip Graf: I agree with Jenny. It seems to be in the way that the Act was constructed. When we heard some of the evidence recently, it was a fully pragmatic exercise, right? Moving away from it, there is work that we have asked RGSB to do. We are also very conscious of what is going on round the world in terms of this exercise. It would also be extremely welcome if the industry, which wants to make the changes, makes the case on an evidence base. I am sure the Minister would be delighted to get good, solid evidence on that basis. Again, you know our view about the longer term and the way you’ve got to go in dealing with this.

Q750 Mr Sutcliffe: As you said, in evidence, the former Sports Minister said that the wash-up made a difference to the outcome of the Act. As the Minister who followed him, I understand that well. We are seeing that different sectors of the industry are having problems with growth and development because of an unscientific situation.

Philip Graf: The argument about social responsibility is inevitably conflated with the one about competitiveness-no doubt about that. One would like to find ways through that, and we are anxious to see what evidence we can find. However, as Jenny has said, machines are a pretty crude, if necessary measure as things stand.

Q751 Dr Coffey: May I ask about society lotteries, specifically the Health lottery? Why did you agree to issue the 51 licences when each CIC has the same three directors and they are all registered in the same place? To the man or woman on the street, that seems like one big lottery conveniently legally created.

Jenny Williams: I understand entirely the point you make. They met the legal criteria. In other areas a single operator has multiple licences for various commercial reasons, and they will have the same directors. They met the legal criteria. They were fit and proper people-source of finance. They chose to structure themselves and they were legally entitled to do that.

That is the question of licensing. Then there is the question of whether they are operating separate lotteries. There is a question of licensing to run a scheme and then whether it actually works in typical schemes. We have issued guidance about what we expect to see from lotteries that are marketed under a common umbrella.

Q752 Dr Coffey: In reality, it is just another National lottery. Only 20%, effectively, goes to the projects as opposed to other bits. I know that the CICs make those decisions, but it is the same three people deciding where the money goes, it seems, all round the country.

Jenny Williams: You originally asked why we licensed them, which is why I explained.

Q753 Dr Coffey: Yes. I ask the question because it seems to be one National lottery, because they are, effectively, working together.

Jenny Williams: They are combined for a marketing purpose and other society lotteries do that. The Act provides for people to be able to employ an external lottery manager to work on their behalf, so that is allowed in the law. If you are asking whether this was a scheme designed to get around the lottery limits, yes, clearly it was.

Q754 Dr Coffey: Would you mind sending us the legal advice that you obtained on the Health lottery, please, that we can then publish?

Jenny Williams: May I give some thought to that?

Dr Coffey: I am sure you can. I am sure we will send a follow-up letter requesting it anyway.

Jenny Williams: Yes, I will give some thought to it.

Dr Coffey: I appreciate that you may not want to answer now.

Philip Graf: Be assured that it was looked at in great detail and very carefully.

Dr Coffey: I am sure that you did it, but we would still like to see it.

Chair: I think we should draw a line there, because I am conscious that we need to move on to our next session. Thank you.

Examination of Witnesses

Witnesses: John Penrose, Minister for Tourism and Heritage, Department for Culture, Media and Sport, and Miss Chloe Smith, Economic Secretary to the Treasury, gave evidence.

Q755 Chair: Good morning. We have the Minister with responsibility for tourism, John Penrose, and the Economic Secretary to the Treasury, Chloe Smith. I apologise for keeping you waiting. Thank you for your patience.

I will start with you, Minister. How do you see your role as responsible for gambling? Do you regard gambling as something that needs to be regulated and that is fraught with danger, or do you see it as an economic activity that is beneficial to the country and that should be promoted?

John Penrose: At danger of sounding far too much like a politician, my answer is both, because for the vast majority of the population, gambling is a bit of harmless fun and it employs a lot of people, contributes quite a lot to our GDP and so on. In that respect, it is something that we should welcome and it lightens up everybody’s lives. For a small but significant percentage of the population-I heard you asking questions about this earlier-gambling becomes a real problem and becomes an addiction of some kind. That is very serious for those people and for their families and the communities in which they live. Therefore, we have to treat it with great care as well. It has this worrying, dark side to it, if I can put it that way, so clearly it needs regulation, but we need to strike a proportionate balance, because for the vast majority of us, having a flutter on the Grand National is a bit of fun and should remain so.

Q756 Chair: It is also, obviously, quite beneficial to your colleague sitting next to you.

John Penrose: I am told so. I am sure that she will expand on that when you ask her.

Chair: We will come on to that in more detail.

Q757 Damian Collins: We have had some consideration of the powers that local authorities have over the number of gambling premises in their areas. Do you think they have enough power and discretion over permitting new operators to come in? Do you think they have enough powers to stop betting shops coming in that they don’t want?

John Penrose: I am rather guided by the submissions and comments that we are getting. There seems to have been a shake-down process and a period after the Act came in, and I think you have been asking questions along those lines of other people who have appeared in front of you as well. From what I can see, the majority of those problems have been either teething problems of one kind or another, or individual local authorities getting used to running this process. Not many people have come to the Department and said that they think there is a fundamental problem with the way in which the powers are framed and that they should be drawn in a different way. Clearly, now that the shake-down process is largely done and we have had a period for everybody to get accustomed, if people come back to us, we will listen to that very carefully, but up until now, that has not been a major theme of what people have been saying to us.

Q758 Damian Collins: It was put to us by the Local Government Association and one of the local authorities that appeared alongside it that, effectively, there is nothing that a local authority can do to prevent a betting shop from coming in if it does not want it.

John Penrose: There are two issues, one of which is planning policy, on which, in fact, the Department for Communities and Local Government is about to issue some consultations, which will include questions about this sort of stuff, so I don’t want to park my tanks on their lawn or anything like it. One of them is about gambling regulation and making sure that we have got things that are proportionate to the risks of gambling. We have an escalating pyramid of severity of regulation, heavy-handedness of regulation or intensity of regulation depending on the perceived risk of what kind of occupation is going on.

I am not sure what people would suggest that DCMS changed in order to correct any perceived problems that you are describing. It may be that those problems do exist and, as I said, I am very, very happy to look at them. One of the advantages of your inquiry, of course, is that this is the right moment to present that and to come up with suggestions. But this is one of the ones where we have got to proceed quite carefully, because it is going to be a double action between DCMS and Communities and Local Government to make sure that the interplay between gambling regulation and planning is rightly based.

Q759 Damian Collins: Do you see yourself as a localist, when it comes to gambling?

John Penrose: I see myself as a localist on pretty much everything.

Q760 Damian Collins: So your presumption, coming into office and looking at things on your desk, would be that we should be looking to give communities more control over what goes on in their area. If people want to attract gambling facilities into their area, we should be supporting them to do that, too.

John Penrose: Yes. There is always, inevitably, a tension between giving as much discretion to local communities to decide what they want their community to look like and feel like, and making sure that, if you travel from Shrewsbury to Weston-super-Mare and you want to go into your local branch of William Hill or whatever else and have a flutter on the 4.10 at Newmarket, you have the same level of protection from the wrong kind of gambling.

Yes, I am a localist. There are boundaries on localism and boundaries on centralisation, but yes, of course, we want to devolve powers wherever possible.

Q761 Chair: It was always a principle that the harder forms of gambling-the ones where potentially the losses could be greater-were going to be in the more controlled environments. So the more control you have, the more you were going to allow quite significant amounts of money to be won and lost. Do you think that it was a mistake to allow B2 machines into the high street in betting shops?

John Penrose: I guess that I work on the basis of available evidence, and there are a number of people who are concerned about the level of B2 machines and a number of people who are concerned about the number of betting shops, although interestingly, the number of betting shops is actually lower than it used to be-quite substantially lower. I hear the concerns. I guess that most Ministers would respond that, if we can prove that they are causing a problem, as opposed to causing concern-if there were data to show, for example, that problem gambling is increasing in areas where there are more B2s rather than fewer-they would take that extremely seriously. But I have to proceed on the basis of evidence, otherwise we are playing with people’s jobs and economic well-being, as much as anything else. We shouldn’t be undermining that unless we have a jolly good, social evidence base to back up the assertion that it is causing a problem. If it is, that is a very good reason for interfering. But we have to have that evidence base first.

Q762 Chair: If there is no evidence that it is causing a problem, would you be sympathetic to the calls of the industry to increase the number of B2s allowed in betting shops?

John Penrose: I am afraid that the problem with the evidence base cuts both ways. One of the things that horrified me and, I suspect, horrified my predecessor-I am looking at Gerry here-is that, when you say, as a public policy issue, "What happens if I was to follow the suggestion"-of whichever group of the industry had been in to see you most recently-"and double the number of machines, halve the number of machines or increase the number of casinos by x, or reintroduce the membership requirement? What will happen to problem gambling if I approve that?" At that point, there was a long silence and everyone looked at their toes, because no one really knows. There are a lot of strongly held opinions and genuine, devoutly held opinions. Some of the opinions are quite professionally well informed, but we haven’t got the evidence either way. Therefore, it is extremely difficult to argue for either increases or decreases in the number of machines. In fact, what I said to BACTA was that I would love to look at some of those things because there is a great deal of frustration in the industry as much as anything else, but we move away from what is currently there at our peril, without a solid foundation of fact and understanding.

Q763 Chair: So what are you doing to get it?

John Penrose: You have just had Brian Pomeroy and various others in front of you. We, or I should probably say they, are working extremely hard with vigorous encouragement from me in the Department, to try and improve the arrangements we have for education, research, training, treatment and so forth. There has been quite a lot of criticism of those arrangements in the past, and there have been some changes recently. One of the things that I am pushing for is to say, "We need to have a process that identifies what we know and don’t know about the risks of different kinds of games, environments, and different kinds of people playing different kinds of games, and how those all work." You have heard already that we do not know nearly enough about that at the moment, and we need a proper programme of, not so much fundamental research, but practical research to say, "If you double this number of machines or halve that, what will happen to problem gambling as a result?" They are working on creating a process, a system that will start to address those issues. It will take some time, but we have to start from where we are.

Q764 Chair: You have also cut back on the amount of money available for funding gambling prevalence surveys.

John Penrose: We have always taken the view-in fact, we agree with the previous Government on this-that the Gambling Commission, and dealing with problem gambling, research, training, treatment, and so forth, is something that the industry needs to fund. That rightly is one of the quid pro quos, if you like, for having a comparatively open market that is carefully regulated; that the industry itself must pay for the things that deal with any problems they create. It is not really so much a question of what the Government will pay. The industry needs to be responsible about this, and to be fair, particularly the large firms, but many of the smaller ones too, understand that and are very willing to step up to the plate, and I expect and hope that they will continue to do so.

Q765 Mr Sutcliffe: Briefly, on that point-I agree with what the Minister is saying-there are unintended consequences of the Act. We have had evidence from previous Ministers about those consequences, and I understand the dilemma about the risk, but there are businesses and companies in which growth is not taking place because of the restrictions there. You have just said that it will take a long time, which I understand, but there is no science to this, as we have been told. It is about the linkages from casinos, to tables, to machines and all of that. Can you understand the frustration from a sector that there is no clear position? I pose the question: what is different about a betting shop and a casino, in terms of B2 machines?

John Penrose: The short answer is yes, I understand the frustration. I feel it, too. Anybody would feel frustrated looking at this, but the difficulty is that we cannot be naive enough to try and reopen the Pandora’s box that was opened during the passage of the 2005 Act. Everybody in the industry-there are one or two people around this table who had a ringside seat to the 2005 Act, too-still has scars on their backs from the process that was gone through. I do not think anybody would seriously argue that the 2005 Act was an exercise in brilliantly-judged legislating, or that it was a controlled process. It got pushed around an awful lot and I think you have heard evidence of numbers being pulled out of the air, and so on. Therefore, yes, there is a great deal of frustration. The problem is how you fix it.

I think it would be a huge mistake for us to try and rerun the 2005 Act without enough facts, because all you would get is whoever has the best hotline into the largest circulation daily newspaper having a competing dialogue via megaphone, which is what happened then. Everyone saw the results and no one was particularly happy with them. So I share your frustration; my problem is how we move forward. I think the only way we can move forward is to cut down the volume-of-megaphone stuff by having facts instead.

Q766 Mr Sutcliffe: I agree with that, but there is flexibility in the Act, as we heard from Jenny Williams, in terms of secondary legislation and the ability to change small things that are wrong. Would it not be better-given the economic circumstances that we are in, when we are talking about growth and wanting to develop more revenues-to have a speedier look at those obvious ones on which there is agreement within the sector, about something being an unintended consequence?

John Penrose: You are absolutely right. We can do some things. For example, we are launching a tri-annual review of stakes and prizes, which has been much called for. We have done something on B3 machines-that was a manifesto commitment-which I think looks like it has worked, and has been very well received by the industry. There are a number of things we can do. We are also hoping to issue some stuff on airside bars, for example, which is a very small issue, but one that is coming up. So yes, there are some things.

The thing that I would just caution everyone about, however, is that it is not enough for us to say, "Well, it’s uncontroversial within the industry"; this has got to be something that gains acceptance from a much wider group of stakeholders. You have had evidence from many of the religious groups that are very concerned about gambling and there are many medical people out there who are very concerned about gambling addiction, for entirely legitimate reasons. So it is not just a question of the industry and politicians getting together in a cosy huddle. This has got to be something that has credibility and acceptance across a wider group of stakeholders. That cuts down very dramatically the number of things that we can do, until we have got the evidence base.

Q767 Damian Collins: Briefly, you have mentioned the B3 machines. Earlier, you said that there was a problem and the lack of research cuts both ways, but you have approved an instrument that allows up to 3,000 new B3 machines in bingo clubs and adult gaming centres. You weren’t concerned about the lack of evidence there.

John Penrose: There are two things. First, it was a manifesto commitment made before the election, which I picked up, and it was common, so it was something that we promised to do, and I thought that I would be unusual and actually be a politician who delivered on some promises. So I was quite proud to do it.

Secondly, on that rather narrow basis you can advance an argument that most people will accept, namely that the problem with B3s was that they had become far less attractive compared with B2 machines. There are more B2 machines on the high street, as your Chairman pointed out. Therefore, by restating or reinventing B3 machines to be a little bit more attractive, and because they are slightly less about hard gambling and slightly less risky than B2 machines, you can argue that B3 machines will attract people away from B2 machines. We wait and see. I do not want to push the analogy too far, because you are exactly right-I did this mainly because it was a manifesto commitment and I do not want to push it any further, because we do not have solid ground beyond that.

Q768 Damian Collins: If, for example, the casino industry came along and said, "Could we have another 3,000 machines with the same £2 stake?", would you be minded to give the industry those machines as well?

John Penrose: I do not think that the stakeholders that I was just talking about would wear it; it was not in the manifesto; and I am afraid that, at that point, I have to retreat very rapidly inside the notion that we need research before I am sure that that proposal is safe.

Q769 Damian Collins: So the message is, "Get it in the manifesto if you want to see it done?"

John Penrose: I am afraid so, yes. You need to have got it past your colleagues.

Q770 Philip Davies: The two words that have not yet cropped up that seem to me to be particularly relevant in all this are Daily Mail. You were saying that we all need evidence, and evidence on either side. There is a sort of belief among many people that what is mainly driving the Government’s policy-their reluctance to do anything in terms of liberalising the restrictions-is the Daily Mail, and that Ministers are petrified of the Daily Mail. So, while that is in play, they are not going to do anything because they do not want to incur the wrath of the Daily Mail, and that is the end of the story. What would you say to that?

John Penrose: I do not think that I would accept that, for a start. I would use a different analogy. Because the 2005 Act was so ghastly for everybody involved, just saying, "Let’s go back and do it again" is rather like charging the guns at Balaclava and then the few survivors getting back to base camp and saying, "You know what? That was so much fun, I want to do it all again and I’m not going to change a thing." The Daily Mail was part of it-absolutely right-and so were many other newspapers and stakeholders, some with very powerful groups behind them. But at the end of the day, just as a matter of practical common sense, we cannot start moving forward unless we have got some sensible facts to justify changing what is there.

Q771 Philip Davies: But if you are satisfied with the evidence, you are prepared to take on the Daily Mail, because it is not going to propose any extra liberalisation of gambling? You are prepared to take the Daily Mail on, if there is no evidence to suggest that there is a problem?

John Penrose: If the evidence is there, I will take on anybody, but I would hope that I would not have to take them on head to head, because they have been convinced by the evidence, too. But, yes, we will need the evidence first and then we can move.

Q772 Philip Davies: Finally on this point, if you haven’t got the evidence, may I appeal to your logic about the number of machines? I asked the previous Administration, "What evidence is there that the number of machines has any impact at all on problem gambling, either in casinos or betting shops?" The answer that came out was, "None." There is absolutely no evidence that there is any impact. And there is a logic behind that, isn’t there? Four machines are allowed in betting shops and you can play only one at a time; if you are particularly proficient, you might be able to play two at a time. So, whether there are four, five or six machines in a betting shop, you don’t really need a great deal of evidence. Logic dictates that you cannot make any difference to an individual’s problem gambling, because as long as there is one in there, they might have a problem. Whether there are four, five or six in there makes no difference to any particular individual’s problem gambling. That is obvious, isn’t it? You do not need a great deal of research to tell you that.

John Penrose: It is an internally logical statement-you are absolutely right. The question is whether your analogy is the correct one in fact; whether gambling addiction works in the same way that you are describing it. That is the bit that we do not know.

Accessibility is certainly a factor in problem gambling and addiction. It could be that you walk in and find two people, both of them highly skilled and both playing two machines. They are all in use in that betting shop, so you cannot play and you have to queue. That might cool you down. It might calm you down and mean that you are less likely to go on the machines. You cannot physically get on them for a while, because you have to wait, and therefore you cool off and do not feed your addiction quite as readily.

Now, it may also be that you then walk down the road to find another betting shop and go into that one, but the point is: we do not know. You are right-your analogy is internally logically consistent. I am just not sure if it is objectively and externally factually correct.

Q773 Dr Coffey: Moving on to tax. The issue of bingo has been going around for some time. I believe that the Treasury says that it is historical that it pays different tax. Why is bingo taxed at 20% when most of the rest of the gambling industry pays tax at 15%?

Miss Smith: First, good morning to the Committee and thank you for having us here.

The basic answer is that that rate was set by the previous Government. It changed a number of times in the final phase of that Government. You would perhaps have wished to direct that question elsewhere, and no doubt you did when you had Tessa Jowell and co. in front of you here.

To offer a few reflections on it, as the choice faces the current Government, to put the facts to it, a reduction in bingo duty to, for example, 15% would cost the Government around £25 million to £30 million per annum. That is the price tag of the decision. But I would also note that the rate at which bingo tax currently sits puts it within the same effective tax rates as the National lottery and casinos.

Q774 Dr Coffey: Why have one rate for one type of gambling as opposed to another? It does not seem very fair.

Miss Smith: There are seven different rates in operation at the moment across all gambling. Unfortunately, almost no Government start with a blank sheet of paper; perhaps South Sudan did, I don’t know. We certainly are not in a position to do so. So it is a historical question, unfortunately, as to why there are seven different rates.

The decision of harmonisation is incredibly complex across all seven. There are lots of aspects to it. Perhaps the Committee appreciates that I would not be able to promise anything for Budgets coming up-I make that as a general statement across any questions that might be asked of me. Rates would, of course, remain a question for the Chancellor at Budgets.

Q775 Dr Coffey: Without trying to trample on the Chairman’s question, is the Treasury looking at harmonising tax rates and levies between different forms of gambling, whether they are onshore, offshore, bingo or betting? Are you doing a study at the moment to look into that?

Miss Smith: No, not actively. As I say, the Chancellor certainly keeps all tax rates under review, and would do for any Budget. I would be very happy to go into discussion in more detail of online, offshore and so on. I would also note that we have recently undertaken some sizeable reform in the area of machine gaming duty, so there is reform occurring. But are we going to be in a position to harmonise the whole lot? That is certainly a fairly major piece of work.

Dr Coffey: So bingo is staying at 20%. Thank you.

Q776 Chair: The Minister has referred to our experience with the Gambling Act, and a number of us were involved. One of the great ambitions of the Act was that we were going to make Britain the centre for online gambling. Afterwards, almost every online operator moved offshore. It is widely believed that the person who sabotaged our ambitions in this area was the Chancellor, who brought in punitive tax rates that made sure that nobody wanted to stay in this country. In the long term, without going into what might or might not be in the Budget, do you see an opportunity, perhaps particularly with these new proposals for licensing all the operators who have UK customers, to achieve really quite significant reform in gambling taxation and perhaps bring down the overall rate?

Miss Smith: I would certainly say-indeed, my predecessor announced last summer-that the Treasury wishes to review remote gambling taxation in the same way, so there is certainly a parallel piece of work there.

Q777 Chair: If you decide that you can widen the tax base as a result of these new proposals, would you accept that that should allow you to reduce the rate and still achieve the same revenue?

Miss Smith: It would be mathematically possible and internally logical, as my colleague has already tried to set out this morning. There are two separate questions here: there is the question of regulation, as John has gone into-or will go into-and, separately, there is the question of the tax base of that. I would note that, of course, there is a revenue-raising reason behind gambling taxation. We can go into detail on the particular ones among the seven, by all means, but overall, of course, revenue is welcomed into the Exchequer for many good public spending purposes.

Q778 Chair: As a reforming Economic Secretary, would you hope in the long term to be able to achieve a much more harmonised and, hopefully, lower tax rate across the whole of the gambling industry?

Miss Smith: I am afraid, as I say, that much of that decision would go to the Budget and to the Chancellor. Specifically in the context of remote gambling taxation, there are two very good reasons for looking at that: first, as we say, it encourages legitimate activity taking place in the UK to contribute to the Exchequer of the UK and, secondly, for consumers, it clarifies or assists in the clarification of where their activity links to taxation. Those are certainly two things I am looking for in that review.

Q779 Chair: While I understand the sensitivity, with the proximity of the Budget, are you also concerned at the evidence that has been produced by the industry about the difficulties facing particularly bingo clubs? The Minister has already referred to the reduction in the number of betting shops. There is a general view that they are struggling to survive in the current tax environment and that any increase would make them unviable.

Miss Smith: I am well aware of those views. Indeed, as John will do in his Department, I meet various stakeholders in the course of my role, and I am certainly well aware of the arguments made.

Q780 Mr Sanders: Does the current 15% upper duty rate for UK land-based casinos put them at a competitive disadvantage?

Miss Smith: Compared with non-UK casinos, are you asking?

Mr Sanders: Yes.

Miss Smith: Right. I am not going to get drawn into international tax codes. I am not fully equipped to do that this morning. The point I would make about casino taxation is that it is linked to profitability. I think that is a fair basis on which to do it. I certainly recognise some of the arguments made around casinos’ level of regulation and supervision, which no doubt we will jointly talk about, but I think that that is a fair basis on which to tax.

Q781 Mr Sanders: We learned on a recent fact-finding mission that 70% of the income of casinos in other parts of the world can come from the high rollers, who tend not to be domestic players. The tax rate in those casinos is rather important, in terms of being able to attract high rollers who are the main funders of those casinos. It is actually an important issue, and perhaps one that the Treasury might look into. What assessment, if any, has the Treasury made of the commercial viability of the UK casino sector?

Miss Smith: That is not an assessment I am presently making in terms of the work I am doing in that area. The overall rates of taxation go into the Budget, as I keep saying. I am aware of the broad issues that you raise. Could you clarify whether in your question you are referring to high-rolling customers, as it were, or high-rolling suppliers?

Mr Sanders: High-rolling customers.

Miss Smith: I am not sure that I would wish to be an Economic Secretary who gave them more tax breaks than others.

Q782 Chair: There are jurisdictions that do. We are talking about people who will lose £2 million or £3 million in a night. They are highly mobile, and we have been told that they will go. Why they should worry too much about the amount of tax they are paying, given the amount of money they have, is not clear. They are, nevertheless, influenced by tax rates, and there are jurisdictions that have more competitive tax rates deliberately for those groups. That is not something that you would find particularly persuasive, then?

Miss Smith: I must say that the economic objective of the Government at present is deficit reduction, and everybody must play their part in that. High rollers perhaps have a particular part in that.

Q783 Mr Sanders: Overseas high rollers?

Chair: I think the argument would be that they would help to reduce the deficit if we could get them to come here.

Miss Smith: Indeed. No doubt they look across the globe at many, many different choices. The tax status of casinos is but one of the elements that I am sure they look at when they decide where to take their yacht next.

Q784 Mr Sanders: May I come on to something quite parochial? Obviously this will be of interest to the Minister, Mr Penrose and me. Why do amusement arcades seem to be of the opinion that this Government have it in for them in the proposed tax changes? Why do you think that is?

Miss Smith: This Government do not have it in for amusement arcades, absolutely not. We are, as I briefly referred to earlier, in the process of reforming what used to be AMLD, which will, plus the VAT, become machine games duty as of 1 February 2013. The Government recently published our consultation response, of which I am sure you will be well aware, and there are a number of measures in there that we are trying to take in order to assist businesses in seaside towns such as Torbay and others, but it must be said that our aim is to put the tax revenues from machines on a sustainable footing.

Q785 Mr Sanders: What sort of representations have you had from seaside resort areas on these changes?

Miss Smith: As I say, I have met a range of stakeholders in my relatively brief tenure in this role, as did my predecessor when she began the exercise of reform, and I am aware of the arguments they put. I have tried to explain to them and, indeed, in much of my correspondence, perhaps with some of your constituents, that this is by no means an attempt to make life more difficult for them but it is, instead, an effort to put the UK’s revenue from machines on a more sustainable footing, and to do so in a way that ensures fair payment of taxation into that.

Q786 Mr Sanders: They are not yet convinced. Is it possible that the consultation process could lead to what would need to be fundamental changes to these proposals? Is it feasible that there would be a change?

Miss Smith: As I say, we have set out the response as a Government to that consultation, and we have been very clear within that about what we intend to do. Talking purely procedurally, if that is what you are after, the remaining part is the setting of rates, which of course would be for the Budget, but the characteristics of what we are planning to do with machine games duty has been set out fairly clearly. I would reiterate, and I ask you to reassure your constituents of this, that it is intended to be revenue neutral. We are not aiming to raise additional revenue from the exercise. The tax will be linked to takings so, again, it almost refers back to the point about profitability. It is our intention to try to be fair within that.

I have mentioned sustainability, specifically with reference to the VAT treatment of different machines. It is important to make that clear, both for operators and the UK Government. There will also be some measure of predictability. There will be technological changes in future, which will come down the line, and this measure is intended to place that on a footing that can be easily understood.

Q787 Mr Sanders: There is always a great fear that when any Government say "revenue-neutral", they are looking at it as a whole. What is actually happening here is that there is a specific sector of the entire industry that tends to be in seaside resorts where the revenues will go up if they are able to stay in business. It is possible it might be revenue-neutral because they go out of business and revenues go down. That is the fear-that some of them will cut back on the amount of business they do, or indeed could well look at going out of business altogether. It is a very serious issue in the seaside resorts, as Mr Penrose should know.

Miss Smith: I do recognise that. As I say, I have engaged particularly with the representative bodies for many of those resorts, and my predecessor did plenty more as well. One example that I hope would be helpful to such resorts would be the treatment of category D machines under the design of the future tax, which would benefit from a lower rate. We have said there would be a two-rate structure. Obviously, I cannot tell you what that rate would be in this session. We have specifically put category D machines within that, which coincides at present with those that have stakes of up to 10p and prizes of up to £80. Benefiting from that lower rate is a way we have endeavoured to make clear to seaside resorts and others who may, as you say, fear this change, that we are aware of the need for treatment at that end of the scale.

Q788 Philip Davies: Given that nobody actually believes-apart from you, perhaps-that this will be revenue-neutral, and that this is just an attempt to raise taxes in a rather stealthy manner, will you make a promise that if it proves that it is generating more revenue than before, you will cut the rate to make sure that it is no more than revenue-neutral?

Miss Smith: I will personally give a transcript of this session to the Chancellor for his consideration on that point.

Q789 Philip Davies: I want you to go further than that. You are saying to me that the intention is to be revenue-neutral. If that is genuinely the Government’s intention, why can you not give a commitment that, if we find out that it has raised more, you will cut the tax to make sure it is? Why will you not do that if that is the Government’s intention? While you are not prepared to do that, we will all be left with the impression that this has got nothing to do with being revenue-neutral at all.

Miss Smith: All I can do is reassure you of the intention to be revenue-neutral. As I say, much of this decision verges on Budget territory, so I am unable to go into arithmetic with you, but as a very general point on the way tax works and what it is for, I am afraid to say that it is not actually for me or others to go and sit on vast money bags shaped like a sofa. It is actually for public services. If the scenario you described came about, which I assure you it is not our intention to have, that money would clearly go into public services, and indeed the paying off of our deficit.

Q790 Philip Davies: You are the one who was going on about being revenue-neutral.

Miss Smith: Which I am assuring you it is.

Q791 Philip Davies: You did not say, "It is revenue-neutral, but of course if we get a bit more, that will be great because we can put it into public services or paying off the deficit." You were the one who said it is going to be revenue-neutral, so why will you not give a commitment to make sure that it is revenue-neutral?

Miss Smith: It is my intention that the tax is revenue-neutral.

Q792 Philip Davies: On bingo tax, you said it was going to cost the Treasury money to reduce the burden of taxation on the bingo industry. Ernst and Young produced a report that said exactly the opposite. They said that revenue that the Exchequer was getting from bingo has been falling massively over recent years, largely because of the increase in tax, and that, rather than costing money, a reduction in tax on the bingo industry from 20% to 15% would actually lead to an increase in receipts for the Exchequer by a total of over £65 million from the period 2011 to 2014. Why are Ernst and Young wrong in that?

Miss Smith: Clearly, they have put forward analysis. Clearly, the Treasury-and indeed HMRC-undertake significant analysis for the decisions they take. We are happy to receive all such data.

Q793 Philip Davies: Will you look at that? It seems to me that the Treasury is saying, "This is what we are getting now. Based on exactly the same behaviour, with a lower tax rate, we’re going to get in less." That doesn’t seem to be a great analysis; it seems a rather simplistic one. I hope that, as a Conservative, you would accept the premise that lower tax rates can often lead to increased tax revenues, and that what the Treasury should be interested in, in terms of getting the deficit down, is increased tax revenues but not necessarily increased tax rates. Do you not accept that?

Miss Smith: I accept that that principle can often come into the world. Indeed, as a perfectly good Conservative I do share your desire to see people freed up in many possible ways, but the point here is that there is an extremely complex landscape around all the different gambling taxes, and the decisions across all of them need to be taken with reference to many other factors. As I say, this Government’s overriding priority at present is deficit reduction, and we would have to take any such decision on gambling rates with reference to that.

Q794 Philip Davies: On that basis, if there was a tax rate for remote gambling of about 5%, the likelihood-the indication that the industry has given-is that the companies would all come back to the UK, that they prefer to be back in the UK and it is the tax rate alone that is preventing them. Given your keen interest in reducing the deficit, can you just tell us in general principles whether the Treasury’s official policy is that it prefers 15% of nothing or 5% of something? In your own personal view, which option would you choose if you were offered those two?

Miss Smith: Neat though it would be to be able to answer that question for you, I am afraid to say that there are other factors involved in companies’ decisions to locate in place A or place B. I am aware that the Committee has heard evidence from a number of them in the course of this inquiry. The Treasury believes that there are many factors at stake. Of course, taxation rates do send signals to business-naturally that is the case. But, as you will have heard in response to an earlier question-perhaps we will both deal with this in terms of remote gambling and what we are hoping to achieve with the reviews we are doing-I have set out why I want to encourage a place-of-consumption tax. Let me deal with that first, and then let’s go on to the onshore points.

Taking remote duty to a place of consumption is so that things are clearer for consumers, which is very important; they also send a signal to the businesses with which they interact. I also want to make it clearer and more positive for the Exchequer to receive the revenue that rightly links to activities that take place on our shores. In terms of onshore, it is absolutely desirable to have businesses here, with the jobs that that entails, and that is something that we absolutely have regard to throughout the place-of-consumption-based review and other Treasury activity.

Q795 Philip Davies: That’s a neat dodge, but just humour me for a minute. If the industry, or a large swathe of it, committed to coming back onshore for a 5% tax rate-you say there are other factors at play-and said, "If you reduce the tax to 5%, we, as an industry, or a large swathe of the industry, would come back onshore, pay the tax and create those jobs back in this country," would the Treasury do it?

Miss Smith: We would consider their evidence, as in fact my colleague set out. There are cases to be made, and there are cases, clearly, that Departments listen to on an evidence-based approach.

Q796 Philip Davies: You used to work for Deloitte, didn’t you?

Miss Smith: I did indeed.

Q797 Philip Davies: Is it a highly regarded company, in your eyes?

Miss Smith: I can’t answer on behalf of the Government, but certainly I enjoyed my time there as an employee.

Q798 Philip Davies: Can I encourage you to read Deloitte’s report of the impact of a point-of-consumption tax on the remote gambling industry?

Miss Smith: It has not yet sent me a copy, but perhaps it will now, after this.

Q799 Philip Davies: I hope you will read it, and will bear it in mind.

Q800 Dr Coffey: Moving on to some of the impact of the 2005 Act with regards to remote gambling, I will cut to the chase on the Health lottery: what exchanges have the DCMS had with the Gambling Commission on how the legal situation is such that it has been allowed to operate?

John Penrose: We have had some exchanges. We have to be careful here, because clearly it would be wrong and inappropriate for politicians to act as policemen-that is a very dangerous place for any Government to go. The Gambling Commission is the official policeman and regulator of the industry, and has to take the regulatory decisions independently of any political interference. As you would expect, we have asked to be kept informed, but we cannot pry too deeply into individual cases, because that would be wrong. If there were problems with any lottery or anyone else, we would expect to be notified of them, but only as the Gambling Commission was acting to fix them.

Q801 Dr Coffey: We heard earlier from Ms Williams that its view-I hope we will see the legal advice at some point-was that, under the terms of the law, it had no choice but to allow it. I cannot believe that that was the intention of the 2005 Gambling Act. Are the Government going to seek to address that and other unintended consequences, through primary legislation?

John Penrose: You will have to ask other people whether or not that was the original intention behind the Act. I think you have heard evidence to say that the original intentions behind the Act got rather twisted and pushed around during the course of its passage, so divining its eventual intention is an advanced and difficult art.

The point that I would make is that there are people who are worried about the Health lottery in particular. We have to be really careful, though, because there are really good examples of other kinds of lotteries that are similar in structure-not identical, but similar-which I think we would all regard as sensible. External lottery managers-ELMs-are growing. They are increasingly large-scale and common, from quite a small base. They are collecting together groups of small, local society lotteries for your local hospice, this or that good cause or whatever it may be, and saying, "If you let us run your lottery, we can cut your back-office costs and there will therefore be more and more money available to go to the good cause you are raising money for." There are other examples of ELMs out there that are doing legally the same thing as the Health lottery, which I think we would all be thoroughly in favour of. We would need to be really careful to make sure that we were not hamstringing them, and we would need to have really strong proof that the Health lottery was doing something bad before we started to move ahead.

Q802 Dr Coffey: The Hospice Lotteries Association suggests that the average return for the independents, whether they are clubbing together or not, is about 50% or 60%, as opposed to 20%. There are other concerns. The Lotteries Council says that it felt that an arbitrary restriction was put in-to protect the National lottery-of £2 million per lottery or £400,000 per draw. The bingo clubs have also talked about the requirement for separate ancillary remote licences and there is a perception that that was not what was intended by the 2005 Act either. Quite a few little bits have dropped out of the 2005 Act that perhaps a friendly Back Bencher could take through on a ten-minute rule Bill.

John Penrose: If you are volunteering, Thérèse, I’m sure we can find something. Your examples have all been raised by different groups-you are absolutely right-but I think it is difficult to stitch them all together into coherent issues around either remote gambling or society lotteries, because some of them affect society lotteries and some do not. We probably need to pick them off one by one and say that we can fix certain ones but not others, because we do not have the unanimity across stakeholders that I talked about earlier in response to a question from Gerry. Yes, I am happy to address some of those on an individual basis, but I think it is quite dangerous to start stitching them all together into an overall problem. There are individual problems-some are fixable, some are not necessarily fixable, and some may not be problems but just concerns that do not hold up.

Q803 Chair: Do you not accept that it looks a bit strange that you are setting these caps on individual society lotteries, particularly those benefiting hospices, which we would generally recognise as being a good thing, and that the justification of those caps was to protect the National lottery? At the same time, you now have the Health lottery, which is yielding rather less money for good causes than the National lottery, and which is apparently able to go ahead without any legal impediment.

John Penrose: We are watching very closely. The Health lottery is still fairly young. It has only been going for a couple of months. So we are watching very closely to see whether it has an impact on the National lottery or other society lotteries. We need to let it settle down. By being innovative, they may have shown opportunities to other existing society lotteries which they were not aware of before and which they may now want to copy. If they decide that they do, they might then also get very annoyed if I start closing stable doors on them just as they are about to walk through them.

Q804 Chair: So your view is that it may turn out that the protection afforded to the National lottery originally is no longer necessary?

John Penrose: If I said that, that was not what I meant. What I am trying to say is that we need to tread very carefully here. We need to see how the Health lottery grows. It is still relatively early days. We don’t know whether it is having any impact at all, if it is cannibalistic or additive, on either the National lottery or other society lotteries at the moment. There just isn’t the fact base because it has not been going for long enough. It also may be that the new facets that they brought to bear-this new structure that they are applying which the Gambling Commission says is within the terms of the Act-are something that others want to copy. If they decide that it is to their advantage and other good causes want to do that, we would need to have very good arguments about why we would want to stop them doing so.

Q805 Paul Farrelly: I was taken by your categorical statement that it would be dangerous for politicians to be policemen. Do you not consider yourself as a politician and a Minister as very much a day in, day out metaphorical policeman of the public interest?

John Penrose: Metaphorically, yes. Legally and regulatorily, no.

Q806 Paul Farrelly: But there is a policing role for you in a metaphorical sense?

John Penrose: Yes. The point I was trying to make is that in the same way as you do not want politicians interfering in the conduct of individual cases in front of judges in the judicial system-that would be a very dangerous thing-we do not want to have politicians interfering in the way that regulators handle individual cases in this industry or any other. That would also be dangerous. However, you are absolutely right: all of us here have a role in fulfilling the policing of the public interest.

Q807 Paul Farrelly: Irrespective of its impact, because it is early days, would you accept the common-sense view that in terms of structure and approach, the Health lottery has been set up as a competitor to the National lottery?

John Penrose: No. I don’t think I would. First, it is raising money for something which the National lottery doesn’t. It is on an entirely different part of the playing field in that respect. Secondly, the games are designed differently and so on. So I do not think it is trying to take on the National lottery head on and if it is, it will have a very difficult time of it because their relative sizes are vastly different. We have to be a bit careful as well because the 2005 Act explicitly allowed for-sensibly allowed for-society lotteries to carry on existing. They said these are sensible things and we want them to continue in existence. If you advance the argument that the Health lottery is competing against the National lottery I am not sure where you stop about arguing that your local hospital lottery is not competing against the National lottery in that area as well.

Q808 Paul Farrelly: One final question. Clearly there are protections for the National lottery. Bookmakers cannot offer bets on the outcome of the lottery because otherwise they would offer better odds. So there is a very strict protection there. You mentioned impacts and it is early days, but were there to be a significant impact on the National lottery as a result of this very clever construction taking advantage of all the loopholes in the legislation, when you say you are studying the impact, if the impact is great then you are saying effectively there may very well be a case for intervening in the future.

John Penrose: If the impact is great we would want to consider action very carefully. I cannot prejudge what that might be and we do not know whether there is any impact yet. We have some research going on. We would certainly want to look at it very carefully and we are keeping a watching brief on it for that reason.

Q809 Chair: Regarding your proposals for requiring a licence of all operators who serve UK-based customers, you are pretty much convinced that that is the way to go. What is the time scale for the introduction of that?

John Penrose: At the moment we are bidding for legislative slots in what I am sure everybody here will appreciate is an extremely crowded parliamentary timetable. That has not been announced, and we will not know until the Queen’s Speech, but we want to move forward with the legislation as fast as the parliamentary timetable allows. That said, I am acutely conscious of the fact that I am one among many people bidding for a very limited number of slots, so there is a queue. We are arguing as strongly as we can about the vital importance of this to the national interest, but there are other people with strong arguments too.

Q810 Chair: So despite what you said earlier, DCMS is bidding for a gambling Bill in the next Session?

John Penrose: We are bidding for a remote gambling Bill as soon as we can get one, to get our clauses in.

Q811 Chair: As you rightly say, there is a lot of competition. There will not necessarily be huge enthusiasm among those who have experienced previous gambling Bills to go into a Committee on the subject again. In the meantime, you have closed the white list. What about those people who would like to join the white list but have been told that because of the changes they cannot do so, who may be left in limbo for several years to come?

John Penrose: I take your point. This may be a non-issue if we manage to get a place early in the legislative queue, or it may be quite significant if we get a place but it is some way hence. There are only one or two people in the situation you are describing at the moment who are concerned, and Jersey is a good example. I have said to those people that if it turns out that we get a place further down the legislative list, we need to look at other alternative interim measures that will not disadvantage them. At the moment that is slightly premature, because we do not know where we are on the legislative timetable.

Q812 Chair: If we do move to this new position where you are licensing operators around the world to operate in the UK, at the same time will you be moving to take action-perhaps through site-blocking or financial prevention of transactions-to attack the illegal market?

John Penrose: The short answer is that all options for enforcement are on the table at the moment. There are a number of different techniques that you can use. The two you have just cited might work, but they come with some significant practical concerns. We are looking at those along with a whole raft of other bits and pieces.

Q813 Chair: But it would be your intention to take action to prevent illegal sites?

John Penrose: We will certainly take action, whether those two options specifically or other things-yes, absolutely.

Q814 Paul Farrelly: In changing the approach to the regulation, what in your mind is the main problem we are trying to fix?

John Penrose: On remote gambling?

Paul Farrelly: Yes.

John Penrose: At the moment the problem is that if you or I, as punters based in the UK, go online and start gambling on a particular gambling site, it is quite hard to tell whether it is run by a responsible and well-regulated operator based either in the UK or somewhere else that has a decent gambling operator, or by the equivalent of Arthur Daley Dodgy Gambling Inc. based in North Korea. That is a very dangerous place for punters and consumers in the UK to be. Because it is hard to tell when you log on to a gambling site where it is based and, therefore, what degree of protection you have got, I would like to make sure that people have the protection they expect. I think what people expect is that they get the same sort of protection as if they walked into their local high street bookie’s office.

Q815 Paul Farrelly: Bearing in mind Full Tilt, would you expect that what happens in the pensions industry and the financial services industry-customers’ deposits, effectively, are kept separately from the business’s funds-is a lesson learned from that saga?

John Penrose: I would put it more broadly than that. There are a whole range of precautionary things that you would expect to see in a well-regulated industry, and I do not particularly want to pick on that one. There are a whole range of other things to do with machine design, making sure that machines cannot be tampered with, the training required of staff who operate the machines and all sorts of other things. If you are going to license someone to provide either remote gambling or onshore gambling-increasingly, the line between those two things is blurring, as you have heard-you have to make sure that they are ticking a whole number of boxes. If they do not tick any of them, you start to add up the total number where they are falling short. As you say, because the industry is changing so fast, technologically as much as anything else, and because it is internationalising so fast, this is an area of consumer protection that can only get worse if we don’t fix it now.

Q816 Paul Farrelly: So our current structure, as has been shown in Alderney, does not protect against people lying to you, but the protections were not there for Full Tilt. Our system is flawed in the same respect in not giving any protection.

John Penrose: I am sorry, I am not equipped to talk about Full Tilt; it is being regulated elsewhere. If you have a specific question about whether the issue of Full Tilt could happen here, I cannot tell you whether it could or could not. I am happy to write to you if that is particularly what you are after, or are you making a more general point? I am cautious about commenting on individual cases, as you can appreciate.

Q817 Paul Farrelly: No, it’s the system point. Let’s take a hypothetical case, as we have taken metaphorical policemen. I could just read you the Gambling Commission briefing: "Alderney, like the UK, does not require player funds to be protected in any particular way." We have the same approach here, which has proved to be flawed elsewhere. That is something that you would want us to fix.

John Penrose: I don’t know, is the simple answer. I would need to go and check on that one. I am afraid I do not know whether that is likely to be duplicated again. Is Full Tilt a sad but isolated example or is it part of a wider pattern? If it is, we would want to take it very seriously. Therefore, rather than generalise from an individual but serious case, if you don’t mind, I am going to write to you on that one to ensure you have a proper answer.

Q818 Mr Sutcliffe: Returning to the 2005 Act and the casino policy, I think we all bear the scars of what happened. The Committee was fortunate enough on Tuesday to go to Aspers, the new casino at the Westfield development, at the Olympic site. We were pleased to see that the success of that casino had exceeded expectations. It opened on 5 December and it has been doing very well; it has increased the number of staff and the training and development. I think that reinforces the argument about the regeneration opportunities that casinos could give. Those were the main arguments that we used at the time of the policy.

What happened with the 2005 Act was that the permitted area policy has stayed and there is no flexibility now in terms of the portability of casino licences. I want your comments around that and what you see as the future of the casino policy. It may now be outdated in terms of the floor space for small casinos. I understand that this is an area that, as you said earlier, people might not want to revisit. This is a sector that can grow and can help in the growth of the economy. Have you any thoughts about how you would want to pursue that?

John Penrose: This is a really good example of one of the points we talked about earlier about frustration within the industry. It is not the only example; there are other sources of frustration, too. This is clearly one. There are all sorts of things you could do here. You have just given a couple of classic examples. There is an overall point I would refer back to, which is our earlier conversation about evidence and knowing what is safe. That is the thing that is casting a shadow or blight over an awful lot of our ability to act in gambling at the moment. Until we have sorted that issue out-I won’t go over that argument again, we have already discussed it. That limits what we can do quite severely.

On the point about portability of licences and some of the new 2005 Act licences, the one you just mentioned, the Aspers casino, is the first large one to open. There are others that are in train, but it is a very slow and tortuous process to get to opening day for many of them. I am cautious. If you have operators who have applied in good faith for operators’ licences under the new Act in specific places and they know how that interacts with their existing casino estate, then we start changing it before they have even got through the bidding process for the new licences, and we start altering other things, an awful lot of the business cases they have for their new Act licences may well be undermined unfairly. It would be fairer to let those processes finish, grindingly slow though that is in some cases. Then we will need to look at how they have worked and go back and consider whether it is possible to address some of the issues, like portability.

Portability is one of those things that other stakeholders have really strong views on-understandably so. There are an awful lot of unused licences, and if you allow portability, an awful lot of them will come into use very quickly. At that point, effectively, portability means that people will say, "Well, we allow another 40, or however many extra licences are currently unused, to open quickly." That is something that many people out there are very nervous about, for the reasons that we discussed.

Q819 Mr Sutcliffe: I understand the reasoning behind that. Could you give a time scale for what you think is a reasonable bedding-in, given that this is the first one for a long period of time? The sector believes that it does not have a level playing field, in that it is affected by issues around the number of machines, tables and so on. They are restricted in their growth in what we saw as an opportunity for creating employment and revenue for the trade.

John Penrose: There are a number of competitions under way. I have a list. There is Bath, Great Yarmouth, Luton and a series of other large and small-sized casinos. A number of others are expected to be launched this year. Some are delayed, and people are starting to question whether they will happen. We need to let the ones that are under way finish-manage to get built and start trading-and it would probably be unfair to exclude the ones that are launching this year.

At some point, it will become clear that that process is finished and that the ones that have not yet started are never going to, for economic reasons as much as anything else. As soon as we have a clear picture about how those work, we will be able to take stock properly, then we can start looking at some of the others, but we will still be subject to constraints about what is safe and what is not, which I was talking about before.

Q820 Mr Sutcliffe: A final question in relation to the Department and earlier questions to the Gambling Commission: are you confident that the Department has enough staffing resources to deal with the many issues that the gambling industry faces?

John Penrose: Yes, but we are having to tighten our belt as much as anyone else. Everyone in the public sector is having to make cuts; we are having to do the same. Therefore, we are having to work smarter and be nimble to make this work. You are right that we will have to keep a close eye on some parts of the gambling industry, so we will make sure that we are properly resourced in this area on an ongoing basis. I suspect that the demands that will be placed on us will partly depend on how your report comes out and what other things must be done to continue the tidying-up process after the 2005 Act. You cannot predict some of that stuff-things happen.

Q821 Chair: I have to take some responsibility for the fact that the Act finally emerged allowing just one regional casino licence to be issued. That remains on the statute book. It would require the Government to move secondary legislation to allow a particular licence in an area to be issued. Do you have any appetite to reconsider establishing a regional casino in the UK?

John Penrose: This is the "guns at Balaclava" moment that I mentioned before. I remember the last Parliament and the previous Government’s tortured process trying to work out whether Blackpool should have it. Then Manchester suddenly, magically materialised as the successful bidder and everyone said, "What?" It is not a process or experience that anyone is anxious to reopen in the short term.

Q822 Chair: The Committee had this discussion in The Venetian in Macau. I do not think we anticipated that anything on quite that scale would be likely to be built in the UK. Nevertheless, the operators suggested that, potentially, there was at least one location that they would be interested in, and it could deliver a huge investment, but you don’t want to go there.

John Penrose: Partly because it doesn’t pay to be naive in this area. It is so difficult and we have had recent proof about why it is so difficult. One of the reasons why it was so difficult was because people were increasingly questioning some of the balance of social costs and harm versus regeneration benefits. There is no doubt that there could be some regeneration benefits, but people were increasingly questioning the balance of the cost and the opportunities there. It is not just a question of concern about the process; it is also that people were genuinely asking whether or not this was something that was a good idea per se, which I suspect was at least part of the reason why the number of regional super-casinos was cut down to just one in the original Act in the first place.

Q823 Damian Collins: To follow up with a couple of questions about casinos as well, this is a question that I put to Richard Caborn last week: do you think it is right that a small casino needs to have more gaming tables to maximise its allowance for machines than a large casino, which is what the current Act provides for?

John Penrose: The short answer is I haven’t got a clue, nor has anyone else. We heard from Richard that an awful lot of the numbers in the Act were plucked out of the air and were altered on an unscientific basis as the Bill went along. We are where we are, but the one thing that I am sure of is that those ratios may be based in some cases on professionally educated instincts and the best available information that we have got. However, to go back to my earlier point about the lack of research and the lack of solid evidence base, they aren’t based on that.

As I think Richard said, they could have equally well have chosen a different set of ratios, and that is where they ended up. I don’t think that anyone is claiming that it has got a vast amount of science behind it. The problem is that, if you leave what Parliament has decided and move to something else, you’ve got to show that it’s better. Until we have the evidence, we cannot show that.

Q824 Damian Collins: But wouldn’t common sense dictate that-a large casino would be bigger and needs only 30 gaming tables to maximise its machine allowance, and a small casino needs 40 to do the same job-those numbers are simply the wrong way round, so the ratio should be changed?

John Penrose: Again, my problem is simply this: if I start to alter the number of machines in a high street bookie or the number of tables in a particular kind of casino, everybody else in all other parts of the industry is going to say, "Ah, but you are benefiting that group competitively compared with us. You are making us more or less attractive to gambling punters. Now you have changed that, we want you to change all of ours, too." It is not something that you can do just a little bit. If you open Pandora’s box, you’ve got to do the whole thing. You can’t start tweaking a bit here and a bit there. It doesn’t work that way. We got quite a lot of flak from other parts of the industry about the B3 change.

Q825 Damian Collins: You have done a bit of tweaking already. You’ve opened Pandora’s box once.

John Penrose: And my only defence there was that this is a manifesto commitment, so don’t ask me if it wasn’t in the manifesto. I can’t make that argument about anything else. The problem with it is that you can’t start twiddling at one end, without everybody else in the industry making the same argument. You’ve only got to listen to, "BACTA is concerned about B2 machines in high street bookies", "High street bookies are concerned about BACTA’s members" and vice versa. The moment we change one thing, they will all come knocking on your door. If you have done it for one, why wouldn’t you do it for another? You’ve got to have a very good reason. At the moment, there is no good reason out there because there is not an adequate fact base.

Q826 Damian Collins: Certainly, small casinos say that there is a pretty good reason for doing it.

John Penrose: I am sure they would.

Q827 Damian Collins: Do you think that there is a strong case for having one ratio? There seems to be a perverse outcome to the ratio set by the last Government that even previous Ministers-we could ask Gerry for his view as well-accept. I appreciate the complexity, but it would be useful to know whether the Ministers feel that this is something that came out of the old Act which just doesn’t make any sense.

John Penrose: The short answer is that there are all sorts of things in the Act, which I would love to be able to consider for changes. How you would change them is a huge debate and, at the moment, it is incredibly dangerous to change. It would be naive to think you can change them and expect to end up where you were initially aiming. What happened with the last Act was that they were aiming for one place and ended up somewhere very, very different. That is what would happen again if we tried to do this. It is not that I do not want to do it; it is just that it would be naive to think that we would be treated differently if we started doing it, compared with what the previous Government did when they tried.

Q828 Damian Collins: Gerry asked about the portability of licences and, again, Tessa Jowell and Richard Caborn indicated that they felt that this could be looked at again. You mentioned that there are licences that have not been taken up. There are 37 unused licences at the moment. There are 35 local authorities that unsuccessfully bid for licences in the past. Jonathan made the reasonably compelling case that there is a market for the portability of licences. If the Gambling Commission and the individual local authorities are satisfied that this is what they want, this is something that you, as a localist, as you said at the beginning, should support.

John Penrose: You are absolutely right, I think that there is a market for it. However, again, there is also a very large constituency of people out there who would be horrified at the thought of nearly 40 extra casinos opening up at some point in the next year or two. Therefore, unless you and I and the Department as a whole can say, "No, we have got research to show that this will not vastly or significantly increase the number of problem gamblers", we are on extremely dangerous ground.

Q829 Damian Collins: But isn’t it a problem that the licences have been created, but not taken up? Perhaps the new licences have been granted to the wrong parts of the country and should therefore be reviewed. We are not asking for additional licences; we are simply asking for the quotas that are available to be used.

John Penrose: The licences granted were granted in the permitted areas, as allowed under the old Act. They knew where they could and could not be used. The suggestion is, "Please deregulate this chunk of the market significantly to allow something like 40 new casinos to start up at some point in the next 18 months." That is a pretty big thing and there are an awful lot of people out there who would be completely horrified by it and would say, "How can you show us that there will not be a very large number of extra problem gamblers as a result?" The problem that all of us would face is that we cannot prove that and the precautionary principle would be expected to be applied by an awful lot of people.

Q830 Damian Collins: But, as I have said, you can equally ask them, "How do you know that they will?", because they do not know either.

John Penrose: Yes, you could, but look what happened last time.

Q831 Damian Collins: But would you be sympathetic to saying that, if there are licences assigned to areas, which have been unused and the local authority has no appetite to take them up or there is no business case for doing it any more, on those cases there could be a review and you could reopen the application process that was run previously under the last Government, so that local authorities that would welcome a casino licence could bid for one that another local authority could not now fulfil.

John Penrose: The free-marketeer in me says yes. Economically, that would be a sensible way to redeploy existing resources in what might be a more productive fashion. That would be a good starting point. However, as we started off with the Chairman’s initial question about how we view gambling and the fact that it is great for most people, but a real problem for some, we need to be really sure that the additional casinos resulting from that move would not change the number of problem gamblers. Problem gambling, for those people who suffer from it, is a serious addiction that blights lives and blights families. There are proposals going round, for example, suggesting that we redeploy the existing casinos so that there will be no net increase in the number of casinos. That is an easier thing to suggest and an easier thing to sell, but it is not something to which the casino industry has been particularly receptive up to now.

Q832 Damian Collins: Again, our job on this Committee is to review the old legislation and how it has been implemented and how it is working. There seems to be this odd situation now whereby, because of the concern about the increasing availability of gambling through more gambling venues, the Government want to have casino licences in parts of the country where they know that casinos will never be built as a way of restricting the number of casinos, rather than saying, "We have a regime of licences. We have set those limits already by law. That can be fulfilled, but no further."

John Penrose: I don’t want to sit here and try to justify the 2005 Act, because it was not my Government that put it in place. We have all heard about how it got messed around and ended up in a place it was not expected to. You are right. There are all sorts of inconsistencies in it. You just clearly illustrated a couple. My problem is: how do you change that? How do you move safely from what Parliament has decided to somewhere else? As a practical matter of getting legislation through Parliament, I don’t think we can do that. I think it would be naive to expect that if we tried again to do what the last Government tried and failed to do, we would have a different outcome until we have a solid basis of facts and evidence to guide our course.

Q833 Damian Collins: But this could presumably go in the gambling Bill that you referred to earlier.

John Penrose: The gambling Bill is a remote gambling Bill. It is a very short Bill. For the benefit of anybody who is involved in putting the parliamentary schedule together, it is a very short piece of Government legislation which I hope is entirely uncontroversial and so would hardly take any time at all.

Q834 Damian Collins: Just for clarification, remote in that it is about remote gambling rather than remote in that it is a quite a long way off yet?

John Penrose: The former, not the latter.

Q835 Damian Collins: We discussed the prevalence study in the previous session and the fact that there is not the funding to continue that. Do you think that that sort of research should be funded by means of a levy imposed on the industry?

John Penrose: That is always a possibility. It would be far better if the industry made a series of voluntary contributions, which they have started doing and have done up until now. To do it themselves would be less of a regulatory burden, for a start. There would be less red tape, less bureaucracy if they did it voluntarily. I am hopeful, but I am not counting any chickens at this stage that the new structures and approach that are under discussion will get us to where we need to be. It would be more efficient in terms of the costliness of running the organisation, it will have the kind of independent clout that we need and it will be financed voluntarily. If not, a statutory levy is always a possibility, but it would be better if they do it themselves.

Q836 Mr Sanders: Is there not a case for seaside resorts, for example, which want to improve their infrastructure, to go upmarket with their cuisine, to improve the quality of the accommodation that is available, to have all-weather facilities, to attract families-that that sort of leisure complex could fulfil that need and could be viable if it had an adult entertainment centre attached to it? Our hang-up seems to be calling these things casinos, because they are actually far more regulated than any other form of betting. I am just wondering whether there is not, even in the Act, scope for the Government to assist if there were such a proposal for that resort, be it Blackpool or Weston-super-Mare, or would the Government say, "Oh no, we’re not going to touch it"?

John Penrose: Coastal resorts and others had that opportunity quite recently. They had a chance to bid for 2005 Act licences. Some of them decided that they wanted to. Plenty decided that they didn’t and some of the others who decided that they wanted to have taken a closer look at the numbers and decided not to. But there are some that are under way. The choice was offered relatively recently. It is not currently on the table unless we manage to resolve some of the portability issues which Gerry and Damian were asking about just now. It might become so if we could resolve those issues. But even without that, there are already adult gaming centres which are part of amusement arcades predominantly in seaside towns which could be upsized and included in modern facilities. Many of them are. Many resorts are thinking in that way at the moment and I would encourage them to do so. It is the sort of thing that, under the existing legislation, is an integral part of modernising the offer and keeping seaside towns with a modern appeal.

Q837 Philip Davies: I want to ask about two final, unintended consequences of the 2005 Act and to find out what you intend to do. The first relates to snooker venues. The 2005 Act prevented them from being able to offer £500 top prizes from their machines, leading to a huge loss of revenue to them, and lots of snooker clubs have closed down as a result. The contention, which appears to have been accepted by the Minister at the time, is that this was an unintended consequence of the 2005 Act. It was not intended to affect commercial snooker venues. So, given that, are the Government sympathetic to trying to rectify what was an unintended consequence?

John Penrose: We are sympathetic up to a point. I have had conversations with Rileys, which is the largest firm in the sector and suggested that we would like to find ways in which they can work within the existing legislation. For example, they could, if they wanted to, open up AGCs-adult gaming centres-adjacent to, but not as part of, their premises. They would be technically separate, but they could be very close by, which would give them much of what they want. They are not sure about that, and they are worried about some of the ways in which they currently interact with local licensing authorities. We have encouraged them to discuss that in more detail to see whether a sensible accommodation can be reached.

I would like to encourage that as a starting point. It is not precisely what people like Rileys are proposing. The difficulty is that if you start doing precisely what people like Rileys are proposing, which is a carve-out and an additional chunk of the Act, you potentially have the thin end of a very large wedge, because if you allow cue sports clubs to have more gambling machines, pretty soon it will be hard to make a distinction between cue sports clubs and, for example, ordinary private drinking clubs of one kind or another-British Legion clubs, Conservative clubs, Liberal clubs, working men’s clubs or whatever it might be. It is hard to see why they should be treated very much differently.

I am worried about their specific proposals opening a much bigger door, but I think there may be other solutions that we can pursue, and we are trying to help them to do that within the existing legislation.

Q838 Philip Davies: But the problem of not doing it is that they have already had to close 65 clubs and lost hundreds of jobs, and that problem may well only get worse while the Government do not do anything about it.

John Penrose: I think it is not necessarily clear or proven that the problems which Rileys and others have had is just as a result of losing a few machines in their clubs. As you will know, I am sure, there has been a widespread problem with pubs closing down right the way across the country, with all sorts of associated knock-on effects. Cue sports clubs have very many similarities to pubs and clubs, and they have been suffering as well. I guess the question is whether we would be asking whether other pubs or clubs should be allowed to have additional gambling machines as a way of saving them, or whether we would expect them to do other things, like offering food and all the other things that successful pubs are doing. There is an overall piece of economic weather which they are suffering under and which is much broader than this. I am not sure whether it is necessarily fair to say that this is just due to the fact that they lost one or two particular kinds of gambling machines as a result of the 2005 Act.

Q839 Philip Davies: The final unintended consequence, which Richard Caborn helpfully made clear was a totally unintended consequence of the 2005 Act, relates to on-course bookmakers and their rights to their pitch allocations. Most of the race courses and bookmakers have come to an agreement, but some are still outstanding-Jockey Club race courses is the main one that is still outstanding to have an agreement.

The previous Minister was very helpful in the sense that he made it clear to the race courses that if they did not come to a reasonable agreement, he would consider legislating to force them to go back to the old system, if necessary, because it was an unintended consequence of the Act. Will you do something similar to make sure that Jockey Club race courses do not abuse an unintended consequence of that Act-to put on-course bookmakers, who are already struggling very badly, in a position which will make them totally unviable for the future?

John Penrose: On this one, I have been taking a leaf from the position that Gerry set out when he was the Minister on this one. What we have been saying, very consistently, is that we expect the courses and the bookmakers to come to an agreement. To be fair, some of them have, as you have already mentioned. Arena and Northern, and at least some of the independents that are not RMG data rights companies, either have already signed up or are on the way to signing. In total, that is about half the race-course estate. The other half, which are Racecourse Media Group clients, are still in negotiation. From what I understand, the main sticking point is the issue of data rights.

The point I am making to them repeatedly-it has got to the point where Simon Bazalgette from the Jockey Club flinches when he sees me coming, because he knows what I am going to ask him-is that we need to get this fixed. The clock is ticking: it has got to be done by September. I think that we still have time because, once we get Jockey Club race courses over the line, the remaining independents should follow because that will provide a template for them. But we have not got that much time, and they need to move along. Without going into too much detail about what options are open, because it will depend on who has already signed contracts and who has not and why not, all options remain open to me at this point. I hope not to have to use any of them.

Q840 Philip Davies: But will you be prepared to, if Jockey Club race courses do not come to a reasonable agreement with their bookmakers?

John Penrose: I do not want to start taking sides about one side or the other being the recalcitrant one until that is abundantly clear, and I want them both to reach an independent agreement. The point I have been making to both sides is that if you end up with a politician intervening to create a deal, it is almost certainly not going to be as good as one you have reached yourself.

Chair: Thank you for your tolerance and your attendance.