Gambling

Written evidence submitted by The Rank Group Plc (GA 30)

Rank is one of the leading gaming-based entertainment businesses in Britain, serving more than two million customers every year. The Group’s UK operations comprise 135 licensed gaming venues (casinos and bingo clubs) and online and mobile gaming channels under its Mecca Bingo, Grosvenor Casinos and Blue Square brands. The Group employs more than 8,000 people in Britain as well as another 780 in its Spanish and Belgian operations.

Executive summary

We believe that the Select Committee needs to look beyond the legislation of the Act itself and instead address the question of whether the core aims of the Act have been achieved and if not, why not. This necessarily involves the extension of the inquiry into all facets of government policies towards the gambling industry and critically the role of HM Treasury. To ignore this responsibility would, in our view, serve only to replicate the failings of government policies over the past six years.

We summarise our submission to the Committee’s inquiry as follows:

· Government’s vision for the gambling industry has been largely unfulfilled due to confused and contradictory policy-making, for example, off-shore tax and regulatory policy versus on-shore tax and regulatory policies.

· Government departments concerned with gambling policies have failed to work together towards a common aim, and/or failed to enable and sponsor the industry.

· Government policies have served to undermine the core aims and the spirit of the Act through an absence of fairness and openness. For example, by penalising those forms of gambling with the highest levels of supervision and player protection in favour of those forms with lesser levels.

· The Gambling Act 2005 (the ‘Act’) is an important piece of enabling legislation that improved the regulation of the British gambling industry in a number of ways, for example devolving licensing decisions to Local Authorities.

· The Government has failed to provide an adequate regulatory framework to accommodate online gambling and its consequences for land-based gambling.

We summarise our key recommendations to the Committee’s inquiry as follows:

· Bingo and Casino games to be taxed at flat rate of duty (circa 15%) in line with other activities governed by the 2005 Gambling Act [See appendix A: Responsible taxation: Fairness, Simplicity, Sustainability – published by The Rank Group Plc, February 2010]. [1]

· The immediate re-introduction of the triennial Stake and Prizes review for gaming machines.

· A comprehensive review of gaming machine entitlements (numbers and categories).

· Parity of taxation and regulation for off-shore/onshore on-line providers.

· Portability of existing casino licences, subject to agreement by individual Local Authorities.

Rank’s Response to The Culture, Media and Sport Select Committee Inquiry into Gambling

1.0 How effective has the Act been in its core objectives to:

- Ensure that gambling is maintained crime-free and conducted in an open and fair manner,

- protect children and vulnerable people from the adverse effects of gambling,

- update the legislative framework with regards to online gambling.

By way of background, the GA 2005 replaced long-standing gambling and gaming legislation which had variously been in place since 1963. The GA 2005 consolidated ‘The Betting, Gaming and Lotteries Act 1963’, ‘The Gaming Act 1968’ and ‘The Lotteries and Amusements Act 1976’.

The National Lottery remains outside the scope and remit of the GA 2005, and is governed by separate legislation – principally ‘The National Lottery Act 1993’.

Spread betting remains outside the scope and remit of the GA 2005 and is regulated by the FSA under the Financial Services and Markets Act 2000.

Excise duties on the various forms of gambling are imposed under separate revenue statutes and currently there are seven types of gambling duty: General Betting, Pool Betting, Gaming, Remote, Bingo, Lottery and Amusement Machine Licence. Each duty has its own rate regime and all fall within the direct remit of HM Revenue and Customs.

1.1 Ensure that gambling is maintained crime-free and conducted in an open and fair manner.

1.1.1 As the Government noted in ‘A safe bet for success’, Britain’s "record in keeping [criminals] out [of gambling] stands comparison with anywhere in the world".

1.1.2 Since 2005, Britain’s regulated gaming and betting industry has maintained its reputation in this respect. Companies and trade bodies have continued to work closely with the regulator, the Police and other government agencies. To this extent, it may be argued that the Act has changed very little – a ‘clean’ industry has been kept ‘clean’. The credit for high levels of probity associated with licensed gambling in Britain must be shared by the Gambling Commission, the Government and the considerable efforts of the companies themselves.

1.2 Protect children and vulnerable people from the adverse effects of gambling

1.2.1 We believe that Government policies have not done enough to promote the protection of children and vulnerable people. In certain instances, policies have actually served to undermine this aim by penalising those sectors of the industry providing the highest degree of supervision and player protection, in favour of those providing lower levels. [See Appendix B: Gaming and Betting 2010: "Fairness, Responsibility and Sustainability" – published by the Rank Group Plc, March 2010]. [2]

1.2.2 Based upon available evidence, the prevalence of pathological gambling in Britain is relatively low (c0.9% of adults according to the British Gambling Prevalence Survey 2010). There appears to have been some increase between 2007 (when the prevalence survey showed a rate of 0.6%) and 2010 but given the limited sample sizes involved, we believe it is right to exercise a degree of caution in drawing hard conclusions from this data.

1.2.3 In addition, we note that GamCare, the problem gambling counselling and research organisation has recorded sustained increases in clients over recent years. However, we consider it likely that this is due in part to the organisation’s enhanced accessibility (e.g. the launch of its NetLine advice service) as well as the efforts of licensed operators to promote GamCare’s services to customers (via both promotion and intervention).

1.2.4 With respect to underage gambling, the available data is frustratingly inconsistent and as a consequence, it is difficult to gauge either the extent or the trend in underage gambling.

1.2.5 What we do know is that underage gambling does exist - and at unacceptably high levels. Moreover, there does appear to be an entirely logical correlation between levels of supervision provided and the incidence of underage gambling. Thus, licensed bingo clubs and casinos (which provide high levels of supervision, including regulated entry) jointly accounted for just 0.09% of all recorded incidents of underage gambling in 2008/9 (compared with adult participation rates of 8% and 5% respectively).

1.2.6 The 2009 report ‘Qualitative Study Into Machine Gamblers’ by GfK NOP Social Research, commissioned by the Gambling Commission, highlights the importance of sociability in combating problem gambling:

"For many regular gamblers machine gambling was seen as a social activity while for problem gamblers it tended to be more solitary; bingo halls, casinos and betting shops were all seen to facilitate social gambling…."

1.2.7 Yet, despite clear evidence of the importance of supervision and sociability in preventing problem gambling, government policy appears to have been to penalise those operators who do most to promote these aspects. The table below illustrates this approach with regard to taxation.

Supervision

Sociability

Duty rate

Bingo (in a licensed bingo club)

High

Very high

20%

Bingo (online; off-shore)

Low

Medium

0%

Casino games (in a licensed casino)

Very high

High

Up to 50%

Casino games (online; off-shore)

Low

Low

0%

Casino games (licensed bookmaking office)

Medium

Medium

15%

1.2.8 Regulation has followed a similar path with Government policies placing some of the heaviest restrictions on the industry sectors that provide the greatest degree of customer protection. For example:

a) casinos are restricted to just 20 gaming machines irrespective of the size of the casino or the level of demand for machines, representing just 1% of gaming machines in Britain; and

b) according to the Gambling Commission, only 20,300 of Britain’s total number of 248,000 gaming machines (or just 8%) are located in bingo clubs and casinos. The remaining 92% are located in venues such as pubs, betting shops and arcades where supervision may be present but where entry controls are absent.

As the author of ‘A Qualitative Study into Machine Gamblers’ states:

"If gamblers were deterred from playing machines in one venue, there was likely to be another venue where they could play in the vicinity."

1.2.9 The level of supervision is tied directly to an operator’s ability to provide the key protection noted in ‘A Safe Bet for Success’ - the "provision for players to bar themselves from gambling". Once again, the Government’s approach to regulation and taxation has been inversely correlated to customer protection. Put simply, the Government has shown itself to be least supportive to those who perform best on self-exclusion measures.

1.2.10 According to the Gambling Commission there were 65,719 instances of customer self-exclusion in 2009/10. Of these customers, 16,578 – or one quarter – were subsequently permitted to breach this exclusion. While there is more to be done to tighten up self-exclusion measures in licensed bingo clubs and casinos, these sectors accounted for just 0.1% and 3.6% of the total breaches.

1.3 Update the legislative framework with regards to online gambling

1.3.1 An original objective of the GA 2005 was to create a flexible system of regulation so that policy makers and regulators could react swiftly to technological and commercial developments in the UK gambling industry.

1.3.2 The GA 2005 was therefore much heralded as a ‘framework’ Act enshrining broad ‘principles’ with the detailed regulation of gambling contained in Codes of Practice, licence conditions (operating and premises) and statutory instruments (regulations).

1.3.3 Whilst the Gambling Act did – by definition - update legislation with regard to online gambling, it failed in its hope that "Britain can establish a reputation for itself as a world leader in the field of online gambling."

1.3.4 Instead, as a consequence of misaligned policy from DCMS and HM Treasury, there has been an exodus of online operators from Britain. Today, the vast majority of online gambling activity participated in by British citizens takes place with companies that are based outside the United Kingdom where they are not licensed by the Gambling Commission, provide little in the way of employment for British citizens and do not pay UK remote gaming duty. The list of companies that are so placed include Rank Interactive (Rank’s online and mobile gaming business) and Totesport.com, which until this year was owned by the State.

This is in stark contrast with much of the rest of Western Europe, which after a late start has gradually got to grips with the regulation and taxation of online gambling.

1.3.5 The consequence of the Government’s approach has been to place licensed land-based gaming and betting operators (paying British taxes and providing British jobs) at a commercial disadvantage to unlicensed remote gaming and betting operators.

2.0 The financial impact of the Act on the UK gambling industry

2.1 There have undoubtedly been winners and losers from Government policies towards the British gambling industry in the six years since the Act received Royal Assent. However, establishing causality between the Act and commercial success is problematic. A number of factors have determined the commercial success of different sectors of the betting and gaming industry, including Government policies (taxation and regulation), technological innovation, shifts in societal attitudes, macro-economic and demographic changes, levels of operational excellence and financial prudence (debt levels, capital investment etc).

2.2 We make the following general observations regarding the fortunes of different sectors of the industry:

· Betting shops - sustained growth in revenue and profits as a result of the continued shift away from traditional over-the-counter betting to machine gaming via Fixed Odds Betting Terminals (‘FOBTs’ or ‘B2 machines’); and the removal of the demand test.

· Bingo clubs – significant decline between 2006 and 2009 as a consequence of negative regulatory change (machines), increases in taxation and failure to adapt to the smoking ban.

· Casinos – growth in revenue but decline in profits due to successive tax increases in 2007 and 2009.

· Adult gaming centres – decline due to negative regulatory change (machines) and failure to adapt to the smoking ban.

· Online – reliable revenue data is limited but offshore exodus has led to increased profits due to non-payment of UK remote gaming duty.

3.0 The effectiveness of the Gambling Commission since its establishment, and whether it represents good value for money

3.1 Since the introduction of ‘The Gaming Act 1968’, which established The Gaming Board for Great Britain in 1969, UK gaming has been continuously, robustly and effectively regulated by The Gaming Board (for c36 years) and by The Gambling Commission since 1 October 2005. The Gambling Commission became fully operational in Autumn 2007 when all the provisions of the GA 2005 came into effect. The Gambling Commission additionally took on the responsibility for the regulation of betting and pool betting.

3.2 The Gambling Commission has been highly effective in their maintenance of the three primary licensing objectives (preventing crime, ensuring fair/open gambling and protection of the vulnerable). The Commission has been less effective and less concerned with promoting the industry, through timely and forward-looking deregulatory measures.

This is not solely the fault or responsibility of the Gambling Commission, as the GA 2005 did not expressly place an obligation on the regulator to either sponsor or protect the UK’s economic gambling base from international competition, by promoting innovation.

Additionally the GA 2005, although claiming to be a "framework", or "enabling" piece of legislation, does not allow the regulator and industry to respond rapidly to innovation as so much prescriptive detail and definition is contained in accompanying regulation, requiring parliamentary time.

3.3 The Gambling Commission is funded by the levy of licensing fees on the gambling industry. Fees are levied on Operator (company) licence applications, pers onal licence applications, changes/variations to licences and annual licence renewals. Circa 90% of the Commissions total income is received from annual licence fees.

We do not resile from supporting a well-funded regulator, which ensures that the UK’s world-wide, pre-eminent reputation for fair and responsible gambling is maintained.

We ask in return that the Commission’s use of internal resources, now that the 2005 Act has bedded in, becomes less about policy development and more about industry promotion and enabling the industry to remain globally competitive, through sensible de-regulation.

4.0 The impact of the proliferation of off-shore online gambling operators on the UK gambling sector and what effect the Act has had on this.

4.1 We reiterate our belief that the policies of the Government (particularly HM Treasury’s illogical and highly unpredictable approach to the taxation of the industry) have encouraged an exodus of online gambling operators to offshore locations.

4.2 In addition, we believe that the development of mobile gaming technologies needs to be considered within this question. As the usage of smartphones and tablets (such as Apple’s iphone and ipad) grows in Britain, so we are starting to experience a significant increase in the use of these devices for the purposes of gambling.

4.3 In our view, this development makes a mockery of some of the "irrelevant" controls on land-based gaming that have been preserved despite being highlighted in ‘A Safe Bet for Success’. As an example, it is perfectly legal for a customer in a British casino (licensed and regulated by the Gambling Commission) to place a sports bet via his or her iphone with an unlicensed offshore betting provider (with little tax or economic benefits for the UK); but it is illegal for the casino itself to provide a taxed, regulated betting facility.

4.4 While the regulation and taxation of mobile gambling is not without its difficulties, a policy that presides in favour of offshore unlicensed operators and against licensed onshore operators does not seem to be in the interests of either the UK consumer, the UK tax-payer or H M Treasury.

5.0 Why the Act has not resulted in any new licences for casinos or "Super" casinos

5.1 Technically, the Act did result in the creation of 17 new casino licences, including one for a Regional (or "Super") casino. Of these, 16 have been allocated to specific licensing authorities some of whom have awarded or are in the process of awarding their licence. To date only three licences have been "awarded", and one of these awards (Newham) is now subject to Judicial Review.

5.2 The Regional Casino has not been allocated to any licensing authority following the Government’s decision not to include it in the final regulations.

5.3 However, progress has been slow in awarding the licences and it is likely to be some time before any are in commercial operation.

5.4 We believe that this retarded progress is the result of:

a) an onerous and flawed tendering process and confusing technical standards;

b) a heavy cost burden for tenderers and Local Authorities alike; and

c) successive increases in the taxation of casino games which have served to divert any anticipated economic benefit away from the regions and towards Exchequer.

5.5 Dealing with the final point, in both 2007 and 2009, HM Treasury increased taxation on casino games played in licensed casinos (as opposed to casino games played online, in pubs and bars or via Fixed Odds Betting Terminals). The effect of these changes was not simply to undermine the existing land-based casino industry (with potentially negative effects on consumers as highlighted in 1.2) but also to change the economic model of the 2005 Act casino, thus making it less attractive to operators and less attractive to local authorities.

6.0 The effectiveness of the classification and regulation of gaming machines under the Act.

6.1 The Gaming Act 1968 provided a mechanism for reviewing stakes and prizes on a triennial basis which regrettably disappeared when the GA 2005 was introduced. Every three years the industry was able to make representations to The Gaming Board with the final decision for any changes to stakes and prizes resting with the Secretary of State.

This three year cycle, which ceased (for Casinos) in 2005, allowed the industry to more easily determine their investment strategy for purchasing/leasing machines and gave suppliers the confidence in planning for the on-going developments to their products. We would advocate an immediate return to a Stake and Prizes triennial review, given the inflationary pressures over time.

6.2 A move towards some relaxation of the existing technical standards to allow for commercial testing of new gaming products, (without prejudicing the licensing objectives), will help to stimulate investment and encourage innovation. Ultimately this can only improve the customer experience. For example, Category A machines (Casinos) could be tested in limited numbers to judge their customer approval.

6.3 The imminent Category B3 changes, subject to parliamentary approval, to offer up to 20% of the total number of gaming machines available for use on Bingo and AGC premises is seen as a step in the right direction. However, the GA 2005 still does not allow for similarly regulated adult only premises (e.g. casinos) to site sufficient numbers of gaming machines , and the sectors of the industry that provide the greatest degree of public protection continue to have the heaviest restrictions. We have already made reference to this in paragraphs 1.2.8, 1.2.9 and 2.2.

We believe that regulated establishments offering the highest levels of customer protection (Casinos and Bingo Clubs), should be allowed to satisfy their customer demand and compete on a level playing field with on-line gaming machine offers. We urge the Committee to examine the current machine entitlements (numbers and categories) with a view to recommending to government a more appropriate gaming machine hierarchy.

7.0 What impact the Act has had on levels of problem gambling.

7.1 We have addressed this matter in 1.2.

June 2011


[1] Ev. not printed

[2] Ev. not printed

Prepared 29th July 2011