Gambling

Written evidence submitted by BACTA (GA 51)

Who is BACTA

BACTA is the voice of the British amusement industry representing large manufacturers through to small seaside arcades. BACTA was formed in 1974 and represents the interests of over 500 companies and over 1,000 individuals. BACTA is the largest and most influential lobbying body in its sector. Formed in 1974, it promotes the interests of over 500 companies plus over 1,000 individuals the British amusement industry employs over 20,000 directly and entertains millions of people every year. Through its national and regional charity partnership’s including Macmillan, BACTA members have raised millions of pounds to provide information and support to the vulnerable in local communities.

Executive Summary

BACTA would welcome the opportunity to give Oral Evidence to a House of Commons Select Committee.

BACTA fully supports appropriate regulation. Before the Gambling Act 2005 was implemented we already had a long history of working with the existing regulator, the Gaming Board for Great Britain. Prior to the Act, the UK had already developed a worldwide reputation for proportionate regulation and industry compliance with one of the lowest rates of problem gambling in the world. One of the main justifications for new legislation by Government was that ‘deregulation’ was appropriate considering the industry’s enviable record.

The Act was designed to address technological advances, such as the internet, to introduce a new casino regime which would include Las Vegas style gaming into the UK and to create a new super regulator with powers and resources to regulate what would be a vastly expanded industry. The final shape of the legislation was unfortunately largely reflective of political battering during the ‘wash-up’ period, rather than principles such as consistency, evidence based regulation, and fair competition.

Nearly four years after implementation of the Act, the internet remains largely unregulated with most operators still located offshore, the Las Vegas style casino regime has not come to fruition, and a ‘gold plated’ regulatory framework, which includes a regulator three times the size of the Gaming Board for Great Britain, no longer appears to be fit for purpose.

The traditional gambling industry has suffered one of the most severe economic downturns in recent history. The operational and financial burden of disproportionate regulation continues to cripple businesses already hit by the worldwide economic crisis and the smoking ban.

Inconsistencies in the Act also removed machines from certain sectors, which were fundamental to their business models resulting in more than 200 amusement arcades closures in the last 18 months, manufacturing of amusement machines falling from 55,000 to approximately 10,000 per annum, and hundreds of jobs having been lost.

The recent Prevalence Study showed that playing on amusement machines had actually decreased and there was no cause for concern regarding problem gambling from the traditional amusement machine sector. BACTA helped to form Britain’s leading treatment agency for problem gambling – GamCare. BACTA members have continued to support GamCare’s work, however, the previous Governments action in introducing unnecessary and costly Quango’s now threatens the vital work that GamCare undertakes. An urgent review of research, education and treatment in relation to problem gambling is needed to protect existing treatment agencies and reflect Parliaments decision that the Gambling Commission rather than well meaning but bureaucrat Quango’s should have the primary role to advise the Secretary of State.

A full scale dismantling of the 2005 Act would cause instability and uncertainty and therefore we are urging the Select Committee to use this opportunity to recommend a number of rebalancing measures to address the unintended consequences which have become a hallmark of this well-intentioned, but ill-executed piece of legislation.

A summary of this submission’s requested changes are as follows:

· Consistent regulation between adult premises / parity for all adult premises

· Return of the triennial review i.e. stakes and prizes review every 3 years

· Effective  and equivalent regulation (and taxation) of  all forms of gambling including the National Lottery, regardless of the distribution method (ie scratch cards, online etc)

· A reduction in Gambling Commission and local authority fees and simplification of regulation

· Research, Education and Treatment funding to be streamlined and GamCare protected

Additional requests

· No differential between social law and tax definitions

We are eager to assist the Committee by presenting evidence at the earliest opportunity. Two annexes are attached to this submission by way of background and in support of our response.

Select Committee Questions and BACTA Answers

1. How effective the Act has 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;

Answer

Firstly, a distinction should be drawn between the principles behind the licensing objectives under the Act, which the whole industry supports, and the execution of powers by the Gambling Commission to promote such objectives. There are concerns that the Gambling Commission adopts a bureaucratic approach to dealing with issues of illegality which can often mean delays in taking action and a disproportionate amount of time is being spent on ‘soft targets’ ie not focusing on matters where there appears to be ample evidence requiring investigation or disproportionately dealing with matters of a trivial nature. Further information is set out under the section below regarding value for money of the Gambling Commission.

Secondly, we believe that the legislative framework is wholly inadequate in relation to online gambling. Remote gambling is simply another form of distribution of gambling services and there is no justification for allowing regulation via white-listing when there can be no effective sanction or enforcement. We refer to this further in our answer to questions 4 below.

2. The financial impact of the Act on the UK gambling industry

Answer

The traditional British amusement industry is suffering one of the worst downturns in its history. Whilst this is partially due to the worldwide economic downturn and impact of the smoking ban, the Act introduced changes which have been financially devastating to the UK gambling industry. Treasury seems currently determined to create even further damage by fundamentally changing the tax structure of our industry which is estimated to damage both the seaside tourism industry and revenues to the Exchequer. We urge that lessons should be learned from implementation of the Gambling Act 2005 and that Treasury should abandon its ill considered proposal.

Such costs include, the new licensing regime, removal of Section 16 and 21 machines from arcades and bingo halls, new amusement machine technical standards, implementation and training for new licence conditions and codes of practice, change of premises structures to address new requirements of the Act, professional advice from lawyers and accountants in making application for licences and preparing and submitting regulatory returns.

The competitive situation was also unfairly altered with betting shops with the same regulations as arcades, being allowed casino gaming machines harder than you get in a much more highly regulated casino, so not surprisingly they are financially doing well, strong gaming and low cost regulation.

Whilst DCMS previously published a report indicating that there had been a diminution in the regulatory burden, we strongly submit that that study was grossly inaccurate as it failed to include many of the costs which were borne by the industry including the loss of machines and the increase in licensing costs. A more detailed note of the financial impact is contained in Annex A.

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

Answer

The new legislation provided a ‘gold plated regulator’ in anticipation of a boom in the UK gambling sector which would see Las Vegas style casinos regulated by demand and online operators relocating to the UK. The approach of the new Gambling Commission was to develop a UK model reflecting worldwide best practice and therefore, rather than starting with the already existing and tested regulatory regime, looked to jurisdictions such as Australia, Canada and the USA where the style and scale of gambling are vastly different to that which we find in the UK. This meant that generations of businesses have been required to adopt policies and procedures which are much more relevant to a USA style casino environment and the gaming machine technical standards reflected regimes where concerns and problems emanated from a totally different gambling tradition.

Concerns were quickly expressed that the scale and cost of the Commission needed to be recalibrated to reflect an industry, which instead of booming, was being crushed by the combined forces of economic downturn, the smoking ban, and disproportionate bureaucracy and regulatory cost which had been intended for a gambling industry that never came into existence.

The industry has provided detailed information on many occasions about the impact of these regulatory costs with representations being made at different times to DCMS, BIS, and the House of Lords. Despite these representations little tangible progress appears to have been made. Published reports include the DCMS Simplification Plan December 2008 which concluded that DCMS have taken significant steps to reducing administrative burdens through simplification and deregulatory measures, exceeding its baseline target to deliver a 43% reducing in administrative burdens. It cited in particular changes under the Licensing Act 2003 and the Gambling Act 2005. It went on to note that using the Standard Cost Model it found that "the administrative burden of the 2005 Act stands at £17.4 million which is significantly less than the cost of the previous regime which was estimated at £74 million". Stakeholders have been dismayed that the methodology used to prepare such a report was clearly self-serving and serious consideration must be given to challenging this style of reporting and value of producing such reports.

Numerous meetings were held between BERR, BIS and the BRE with the industry again providing specific instances of excessive bureaucracy. These culminated in the Hampton Implementation Review Report which was welcomed by the Gambling Commission in April 2009. The Hampton Review noted that improvements could be made but there was a lack of practical implementation and again the utility of preparing such a report in the absence of tangible benefit must be reviewed, not just in relation to the Hampton analysis of the gambling sector, but of regulatory review generally. A report was prepared by Baroness Golding and Lord Mancroft for the then Minister, Gerry Sutcliffe, highlighting the industry’s concerns regarding disproportionate bureaucracy, but again no action was taken of which we are aware.

There is a view that in an environment where "Quango cutting" is clearly on the agenda, the Gambling Commission must demonstrate that it represents value for money. It is noted that as an independent non departmental public body sponsored by DCMS, the Commission might have been vulnerable to cost saving measures but some commentators believe that as it is largely funded by fees from the licences it issues to gambling operators, it will escape ‘the axe’. We submit that the source of the funds should not prevent reforms being implemented which would then also enable licence fees to be reduced and stimulate the economy. It has also been noted that DCMS has announced it will deliver savings by merging the National Lottery Commission with the Gambling Commission and the Gambling Commission has noted that it intends to cut its budgets. The savings and cuts suggested, while welcome, do not address the main problem in that the baseline costs are probably 50% greater than they should be.

We believe that a small review board comprising members of the previous regulator, the Gaming Board, representatives of industry, representatives of GamCare and the National Audit Office might work to find practical savings which in no way prejudiced the Licensing Objectives.

4. 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

Answer

Our perspective is as follows: 

· The current situation under the Gambling Act 2005 is a failure.  The concept of white-listing was flawed from the beginning and some fundamental principles need to be set out both in terms of social protection and taxation. 

· Whilst there are practical challenges dealing with the internet, a clear announcement from governments in other countries ie USA and Germany instantly impacts the stock price of offshore operators and therefore while enforcement might not be perfect, a clear expression on intent appears to be needed.

· The principle should be that the provided gambling services should be subject to the same regulation to protect consumers and the same taxation rates as applied to the existing bricks and mortar industry.  It is fundamentally wrong that a company can monetise UK consumers without contributing to the Revenue which will be used to support the infrastructure for the UK customer base.  Effective enforcement can only be achieved if the operating company has assets and personnel within the jurisdiction.  It should be clear that UK customers cannot be targeted unless the operating company is licensed in the UK and pays UK taxation in relation to profits from the UK customer base and that penalties will be levied against any party who facilitates the provision of those services where the operator is not so licensed and liable to UK taxation.  Effective enforcement means that directors and assets of the operating company must be within the grasp of UK courts.  This would be underpinned by criminal sanctions against directors of any facilitator of illegal provision from technical communication, ISPs, marketing, advertising and payment facilities.  We understand that Treasury has advised the Minister that they do not have the resource to deal with this issue currently because they are fully deployed on their GPT/MGD exercise.  We believe that the GPT/MGD exercise will mean the closure of many more of the ‘soft’ amusement businesses and force more UK customers onto the internet. 

5. Why the Act has not resulted in any new licences for casinos or "super" casinos;

Answer

We refer to the response from the National Casino Industry Forum.

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

Answer

This question can be divided into – (i) locations of gaming machines, (ii)stakes and prizes, (iii) technical standards and (iv) dealing with illegal operation.

(i) Location

The Act has caused a major inconsistency in that adult only premises do not have the same ability to site equivalent machines. In particular LBOs are entitled to B2 machines while equivalent machines called Section 16 and 21 machines were removed from arcades and bingo establishments. All adult premises which do not contain casino games should be entitled to the same machines. The primary purpose of the gaming establishment should also reflect the machine entitlement ie is it right that betting offices whose primary purpose is betting should be entitled to site the most powerful types of remote machines, while machine based premises with the same over 18 policy, should be denied to compete for customers?

(ii) Stakes and Prizes

Under the 1968 Gaming Act a system had operated for many years in which stakes and prizes for gaming machines was reviewed. The Gaming Board considered representations from all sectors of the industry and after taking evidence made a recommendation to the Secretary of State. This meant that there was a three year cycle in which manufacturers could develop machines, and the industry developed a buying cycle so that their investment could be planned. The Gambling Act 2005 unintentionally disrupted this cycle and it is our strong submission that a Triennial review must be reintroduced in which the initial focus will be the following:

(Category C £1 / £100, B4 £2 / £500 and discuss Category D subject to conversations with the Commission and DCMS)

(iii) Technical standards

The new technical standards have meant that legacy machines continue to be more popular with customers and BACTA has recently been in consultation with the Gambling Commission concerning ways in which to amend the technical standards to develop a more satisfying game for a customer without any prejudice to the licensing objectives. We believe that the testing regime should be amended to allow for a limited number of machines to be used for commercial testing so that manufacturers can engage customer reaction before going through a lengthy process of regulations, standards and notification to Europe which might ultimately prove to be popular with the player.

(iv) Illegal operation

The industry supports tough regulation and licensed operators are eager that the Commission exercises its powers to address illegal operation of gaming machines in an effective way. There are however concerns that the industry has provided the Gambling Commission with evidence that appears to mandate immediate action and the Commission has delayed making a statement or effectively dealing with the situation. We refer the Committee to the Commission’s dealing with an operator known as Agora. Despite numerous complaints being made to the Commission, action was tardy and more than 12 months after issues were identified, the Commission seemed to remain focused on ‘soft targets’ without addressing serious issues which impact the licensing objectives in a material way.

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

Answer

The recent Prevalence Study indicated that playing on traditional amusement machines had actually reduced and that they did not raise issues regarding problem gambling. Of greater concern is the way in which the Act has seen development of a policy by DCMS which threatens existing treatment agencies, in particular GamCare. Parliament determined that the Gambling Commission should have responsibility for advising the Secretary of State. Since the Act an unnecessary bureaucracy has been constructed which must be reviewed. There is a strong argument that all research should fall within the Gambling Commission, in order to coordinate and give strategic direction. The current Strategy Board is in a sense brought in expertise to advise the Gambling Commission and the Strategy Board and the RGF should effectively have their functions subsued into the Gambling Commission utilising the Commission’s current staff and structures, including their expert panels, research department and Commissioners. A summary of the issues is attached as Annex B.

July 2011

Annex A

Summary of Costs

Note the costs below are calculated based upon industry knowledge and experience relating to legacy machines remaining in the market. The definition of legacy machines has yet to be confirmed, however, we are seeking confirmation that it includes all machines which are produced prior to 1 September and will include stock.

It is assumed that the only cost arising from the Section 240 regulations is the cost of labelling and that is broken out for each sector (see individual sheets). The cost of the loss of Section 16 and 21 machines includes loss of revenue and is projected forward for 10 years.

* Note M/C represents machines

Total including Section 16/21 machines

Total loss attributable to Section 16/21 machines

Total excluding Section 16/21 machines

Breakdown by sector

FECs

Total including Section 16/21 machines - £1,142,953,142

Total loss attributable to Section 16/21 machines - £1,142,663,000

Total excluding Section 16/21 machines £5,042,142

AGCs

Total including Section 16/21 machines - £257,393,920

Total loss attributable to Section 16/21 machines - £257,296,000

Total excluding Section 16/21 machines £97,920

M/C Suppliers (pubs & clubs)

Total cost = £8,760m

Total cost of conversion = £5,625,000

Total cost of labelling of all M/C’s (one off cost) = £3.135,000

Manufacturers

Total cost of implementation £11,000,000

Bingo

Total including Section 21 machines - £821,550,000

Total loss attributable to Section 21 machines - ££816,312,297

Total excluding Section 21 machines - £5,238,703

Family Entertainment Centres (FECs)

Total including Section 16/21 machines - £1,142,953,142

Total loss attributable to Section 16/21 machines - £1,142,663

Total excluding Section 16/21 machines - £10,286,868

Current assumptions – Pre 1 September 2007

960 Sites

Category D

Category C

Section 16

M/C No’s

41,080

13,618

8,558

Average Annual Revenue M/C (ex VAT)

2,419

5,106.40

22,127.56

Cost new M/C

£1,145

£3,120

£4,995

Life

5 yrs

5 yrs

5 yrs

Current assumptions - Post 1 September 2007

Section 16 will not be permitted in designated areas of FEC’s, therefore FEC’s or around 50% are applying for AGC licences instead of designated areas. Costs include conversion of Section 16 machines to Categories B3 and C (although some operators would prefer not to convert machines and would prefer to buy new machines, where the cost would be higher) loss of revenue projected forward for 10 years and costs of FECs converting to AGCs. In addition there are labelling costs to comply with the Section 240 regulations.

Conversion costs from Section 16 to Category B3 and C

Assume that 480 sites (half existing sites) will retain 4 B3 M/C’s which will be converted from existing Section 16. 1,920 M/C’s (4 x 480) at £1,495 conversion cost

Total conversion cost of Section 16’s to Category B3 = £2.879,000 (one off cost)

All other Section 16 machines (ie 8,558 – 1,920 = 6,638) will require conversion to Category C again at £1,495

Total conversion cost of Section 16’s to Category C = £9.924,000 (one off cost)

Revenue loss – ongoing cost

Assuming the 1,920 converted B3 machines take the same revenue as the existing average Section 16 whilst lower stake at £1 the assumption being that 4 M/C’s instead of 8.915 per site will be played more thus compensating for 50% loss in stake.

The remaining 6,638 will revert to Category C with a revenue loss of 6,638 x (£22,127.56 – £5,106.40) = £112.986M per annum

Total revenue loss = £1,129, 860,000 over 10 years

Cost of conversion from FEC to AGC – ongoing cost for licences

The 480 sites requiring change to Adult Gaming Centres will need the following:

Operating Licence

Premise Licence

Planning/Drawings

Building Work etc.

Assuming this to be in the order of £10,000 per site = 480 x £10,000

Total cost of conversion from FEC to AGC = £4.800,000

Cost of labelling (one off cost)

Labelling all machines 63,256 fruit machines plus 17,458 other Category D machines x £3 (cost of label + labour)

Total cost of labelling = £242,142

Adult Gaming Centres (AGCs)

Total including Section 16/21 machines - £355,216,000

Total loss attributable to Section 16/21 machines - £257,296,000

Total excluding Section 16/21 machines - £97,920,000

Current assumptions – Pre 1 September 2007

800 sites

Category D

Category C

Section 16

M/C No’s

8,400

19,840

4,800

Average Annual Revenue per M/C

(ex VAT)

£3,301.45

£5,709.60

£26,553.19

Cost new M/C

£1,145

£3,120

£4,995

Current assumptions - Post 1 September 2007

All AGC’s restricted to maximum 4 B3 machines, ie 3,200. £1 stake £500 prize. All Section 16 converted either to B3 or Category C £1,495 x 4,800

Total conversion cost from Section 16 to Category B3 and C machines =£7.176m (one off cost)

Revenue loss – ongoing cost

3,200 Section 16 machines converted to Category B3 or C machines (4,800 – 3,200) = 1,600 x (£26,553.19 – £5,709.60)

= 1,200 x 20, 843.59 = £25.012m per annum

Total revenue loss over 10 years £250,120,000

Cost of labelling (one off cost)

32,640 x £3 (cost + labour)

Total cost of labelling = £97,920


Manufacturers

Total cost of implementation £11,000,000

Cost of the new Technical Standards and Section 240 regulations depending upon the final legacy position.

Stock write offs redundant parts = £1m.

New M/C additional cost

Assume minimum of 40,000 sales per annum @ £25 per annum (ongoing cost) = £1m over 10 years = £10m

Testing

Test procedures unknown. If Category C are involved in independent testing by external companies this adds to the cost of a new M/C.

However, more importantly it adds to the lead time of developing new machines.

Any major increase in time to market would destroy the principle of supplying the pub market. Machines are changed every 8-12 weeks as there are normally 1 or 2 per site and customers get used to the M/Cs and look for something different.

Machine Suppliers (to pubs and club sector)

Total cost of conversion = £5,625,000

Conversions £101.00 x 50,000 = £5.050m

Conversions Labour £11.50 x 50,000=£575,000

Total cost of labelling of all M/C’s (one off cost) = £3.135,000

100,000 @ £14.50 high labour costs due to M/C’s located around pubs and involving service engineer visit = £3.135m

Bingo

Total including Section 21 machines - £821,550,000

Total loss attributable to Section 21 machines - ££816,312,297

Total excluding Section 21 machines - £5,238,703

This area comes under the Bingo Association. Note that the Bingo Association have said they would convert the numbers and if they are materially different we will revise the figures.

There are approximately 4,099 Section 21 M/C requiring conversion to Category C or B3 @ £1,200

Total cost of conversion = £4,200,000 (one off cost)

Write off of 4,099 older Category C M/C’s @ £300

Total cost of write off = £1,050,000 (one off cost)

Loss of Section 21 revenue ([£638.30 – £255.32 x 52) 3,500

Total loss of revenue = £81.630m per annum x 10 years = £816.300,000 (ongoing)

Total cost of labelling £3 (cost and labour) per M/C x 4,099 = £12,297

Casino

Please confirm the figures below directly with British Casino Association.

800 Section 21 machines scrapped or converted @ £1,200 = £960,000

The opportunity to convert Section 21 casino machines to other product is negligible. Unlike Bingo operators casinos are entitled to Category B (20) OR   unlimited category C.  All of the casinos with Section 21 machines have the full complement of Category B (and no intention to swap them lout in favour of Cat C).

 

The opportunity to dispose of the machines is realistically limited to international markets where the prices which can be obtained for second hand product often equate to not much more than a recovery of associated costs.

 

Most Section 21 machines are sited on a 80/20 revenue share basis.

 

The requirement to remove them will result in losses as follows:

Revenue: £21,464,000 for 10 years (800 @ £450 per week x 52 weeks @ 20%) (ongoing cost)

Total revenue loss over 10 years = £36,000,000 (ongoing cost)

Removal/storage/freight costs:  £240,000 (800 @ £300.00)

Asset loss  £800,000.00 (800 @ 1500 less 800 @ 500 recovery on international market.)

Note that the cost of TITO issues regarding Section 240 and Technical Standards has not been included and is dependent upon the final legacy position.

Annex B

Background to RGSB and RGF

Prior to the setting up of RGSB and RGF, the gambling industry helped to establish GamCare and respected members of the industry remain GamCare trustees on an unpaid basis. GamCare has a long established reputation for effective treatment through its helpline and has contributed to Britain’s worldwide record on treatment of problem gambling. The industry also contributed to a voluntary fund to be applied to the treatment of problem gambling and particularly to fund GamCare. The current GREaT Foundation, formerly known as Responsibility in Gambling Trust (RIGT), was established as a charity in 2002 as Britain’s largest funding body responsible for tackling problem gambling through the funding of research, education and treatment from voluntary donations.

In May 2009, as part of the creation of RGSB and RGF, The GREaT Foundation returned to its original perceived function solely of raising funds for gambling research, education and treatment of problem gamblers. The GREaT Foundation has an annual target of approximately £6 million.

The RGSB and RGF was set up in late 2008 to advise the Gambling Commission and, in turn, the DCMS on research, education and treatment programmes needed to support a national responsible gambling strategy and associated funding requirements. Baroness Neuberger DBE is the chair, supported by nine board members.

The RGSB and RGF’s record to date

The RGSB has embarked upon a number of activities which appear to waste resource and in some instances damage the viability of providing treatment.  These activities include replacing the established GamCare helpline with a free phone helpline (estimated to cost the industry millions of pounds in implementation costs without any quantifiable improvement in the availability of treatment) and a number of research projects which duplicate currently available research and again without any evidence that such expenditure will result in improvement in research, education and treatment.

Why was the RGSB set up?

The Gambling Commission identified the need for the creation of a Responsible Gambling Strategy Board, covering England, Scotland and Wales, to develop a strategic framework and priorities for the distribution of funding for gambling research, education and treatment, to advise on the funding needed to deliver them, and to advise the Gambling Commission and DCMS on a national responsible gambling strategy. RGSB forms part of a tripartite structure comprising a single purpose fundraising body (the GREaT Foundation) a distributing body (RGF) which determines the strategy and priorities for research, education and treatment, and passes a strategic funding framework to the RGF.

What is the remit of the RGSB?

An independent expert body which:

· advises the Gambling Commission (and through them, the government) on the research, education and treatment elements in a national responsible gambling strategy

· determines and recommends to the RGF (after consultation with stakeholders and experts) what research, education and treatment is required to reduce harm from problem gambling as part of an overall national responsible gambling strategy, and the levels of funding necessary to deliver the recommended priorities.

How is the RGSB funded?

The Gambling Commission has made available £250,000 in the 2009/2010 and 2010/2011 financial years to fund the activities of the RGSB. This funding supports the core work of the RGSB.

What has been the effect on existing treatment agencies, in particular GamCare and Gordon House?

Funding 2011/12 – Position as described by GamCare

At a meeting on 8th March the GamCare Trustees discussed the current unsatisfactory position in respect of funding for 2011/12, and the implications for the fulfilment of our charitable duties. At that meeting we were advised by the Head of Charity & Community at Farrer & Co. I am writing to set out our concerns shared by all Trustees and to seek an urgent meeting with your Board to try to resolve at least some of these issues. In the meantime, though, and you need to be aware that acting on Farrer’s advice we are consulting an insolvency practitioner because of the lack of security in respect of future funding from the RGF.

Our funding from RGF for 2010/11 took the form of a single grant for our core services, so encompassing all of our helpline and treatment provision. RGF funding represented nearly 85% of our projected funding for the year. For 2011/12 you chose to separate the helpline from other treatment services, and to introduce two separate grants. These two "commissioning" processes, which began on 10 November and 29 November 2010 respectively, still remain undetermined just two weeks before the start of the financial year – indeed we have just received a further request for more information to be provided to a completely unreasonable timetable. This means that we have no funding in place for 2011/12 to support our existing services or those delivered by our Partners.

Although you still intend to award grants, you chose, contrary to normal charitable grant-making practice, to initiate "single tender" processes (which would normally lead to contracts) for existing service providers -Gordon Moody Association, the CNWL National Problem Gambling Clinic and ourselves. For the helpline you have required us to complete a two stage application culminating in a 70 page invitation to tender. You issued a specification which you are still amending and changing even at this late stage. Treatment services were also originally to be subject to a two-stage process, though this changed half way through, and you chose not to provide any specification, but rather asked us to provide evidence of need and our proposals for responding to that need. We have provided what you have asked for in both cases. In neither case did you provide any indication of the funding likely to be available until we were told on 18th February that "up to £1.75 million" could be available for treatment, and on 1st March that funding for the helpline would be capped at £800k (5% less than our helpline budget for 2010/11).

We understand that the RGF claims that it cannot make more available because of the level of funding available from GREaT. However, it is clear that the RGF has more industry funding available to it than has ever been raised before, but that funding commitments made in advance of the tendering processes for existing providers have reduced the amounts available to fund the key frontline services delivered through us, the NPGC and Gordon House. This means that you are giving funding priority to, for example, the GRaHM pilots, all of your research commitments, your commitment to the Royal College of GPs and expenditure on the RGF’s staff, administration and consultants above these frontline services. We cannot see that this is a defensible strategy for using the industry’s funding cost-effectively. Nor can we see why, in the light of the evidence of need which we and no doubt others have provided, you cannot revisit these decisions in order to release more for existing services.

Together with GREaT, and in the middle of the tendering process, you also chose to issue a statement to the trade press which effectively implied that GamCare’s current helpline service is not high quality, does not deliver value for money and does not signpost callers to other services. This was inappropriate and inaccurate. You continued to make similar points when you and Chris Bell met John Brackenbury last week, claiming that another provider could deliver the helpline specification "for £300k less than GamCare", and we gather these points are being repeated by the RGF in their contacts with the industry. You have not provided us with any evidence to support your assertions, and we are surprised that you think it acceptable apparently to approach another provider despite your commitment to a single tender.

At our meeting we were reminded by Farrer & Co that our duties as Trustees are to ensure the delivery of our own charitable objectives. We had until recently been satisfied that these objectives have been best served by supporting a collective industry funding mechanism as advocated by Ministers, the Gambling Commission and some representatives of the industry itself. An inevitable consequence of this was that we would rely for funding on others (previously RIGT, now GREaT and RGF) rather than raise funds ourselves, and this was accepted, indeed welcomed, by the other parties involved, implying a moral obligation to continue that funding. It now seems clear to us that the RGF’s new approach to the distribution of the funds raised by the industry removes any certainty of funding which we had previously enjoyed, and will also progressively remove from us the freedom to develop and design our own programmes and activities. Under these circumstances we cannot see that it is consistent with our duties to continue to support the existing collective funding mechanism merely to deliver services specified by the RGF.

It is clear, however, that it is not in anyone’s interest – the industry’s, Government’s or, most importantly, that of the vulnerable groups we are seeking to help – that the services we currently provide should be discontinued, leaving no provision for gamblers just when the latest Prevalence Study has shown participation in gambling, and the numbers of problem gamblers, both to be increasing. Yet we have no immediate prospects of obtaining alternative funding, and so without RGF funding we would have no alternative but to take action immediately to wind up our services. We therefore request that a small group of Trustees from each Board, together with the CEOs, should meet urgently to sort out contingency funding arrangements which will allow us to continue operations beyond the end of March, and avoid the collapse of helpline and treatment services for problem gamblers.

The current situation with GamCare’s funding as reported by GamCare

Julia Neuberger has written to GamCare stating that we can expect two offers of grant providing up to £50k more in funding for 2010/11. This breaks down into up to £800k for the helpline and up to £1,750k for counselling. This is indeed, in total, £50k more than the single grant of £2.5m we received this year, although the ceiling for the helpline is £50k less than we had budgeted to run the helpline in 2010/11, and considerably less than we requested to run a helpline to the RGF's new specification. We will not be able to switch funding between the two grants (unless RGF change their previous position on this). Julia also says that the helpline contract will be extended to 2 years, presumably leaving the treatment contract at 18 months.

 We have however yet to receive these offers, so do not know what terms and conditions are to be applied if we are to be able to obtain the whole of the funding on offer, or whether any funding is to be made available from 1 April and if so how much. Until we have received and been able to consider those letters, our financial position is therefore effectively unchanged. We had also of course (as you have) raised several issues with RGF about the helpline specification, the cost/benefit analysis for changing the helpline brand (including costs to the industry), their standard terms and conditions, and their use of the increasing amount of funds available to them from the industry.

The proposed solution

Making better use of industry funds for research, education and treatment

RGF were meant to deliver effective, competitive, transparent commissioning; keep bureaucracy to a minimum; and introduce three year funding. The reality is different: the RGF has no business plan, spends more than £500k pa on 6 staff and administration, in addition employs an army of consultants, has committed £1.6 million to 3 pilots which duplicate what is already happening at extravagant funding levels, has arbitrarily decided to rebrand the helpline with no regard to costs, has handed out contracts and research tenders with no open process, and has committed nearly £1m to questionable research, yet frozen funding for treatment and made no progress at all on education. All of this undermines GREaT’s fundraising.

The Way  Forward: £5m annual funding, index-linked

For £3.55m pa (CPI linked), GamCare (£3.15m) and the National Problem Gambling Clinic (NPGC) (£400k) would:

· Continue to deliver and develop an effective national helpline (it is already regarded as an exemplar internationally)

· Expand treatment coverage from current 68% to 95% of GB population, working through and developing GamCare’s Partner network

· Link GamCare Partner network and NHS services using the NPGC as an exemplar and hub of expertise within the NHS

· Develop pilot education and treatment programmes

· Use industry funds to lever in other funding (Lottery, other trusts etc)

· Provide authoritative analysis and advice for the RGSB and GREaT

A further c£350k (bringing total to £3.9m) could safeguard residential provision by Gordon Moody for referrals from GamCare and NPGC (22beds, max 6 week stay).

This leaves £1m+ for research (research priorities: prevalence, c£200k pa, and research to inform better treatment and prevention, including service evaluation) and to increase prevention measures.

How would it work?

Acting as a Development Agency, GamCare working with NPGC produces a 3 year strategic plan for education, prevention and treatment in line with priorities established by the RGSB, and submits it to GREaT and the RGSB. RGF wound up.

GREaT, RGSB and GamCare meet to discuss and agree a plan. GREaT funds GamCare and NPGC directly on basis of agreed plan. GamCare and NPGC report against targets every six months.

All programmes subject to independent evaluation

GREaT allocates an agreed annual amount (c£650K?) to fund research (including prevalence and evaluation) which is commissioned through the existing RGSB Research Panel

Benefits

Saves £500k pa admin, plus savings on consultants, which can be redirected to the frontline

Immediate expansion of services and help for those in need

Closer cooperation with NHS based on experience and links of NPGC and GamCare

Funding released to support Prevalence research

Allows industry cash to be used to lever in other funding

A coherent and realistic strategy, with immediate improvement in services but also recognising the reality of current economic circumstances by setting industry fundraising target at £5m pa Exemplar of the Big Society: charities, industry and NHS working together

Prepared 17th August 2011