Deregulation Bill

Written evidence submitted by the Lotteries Council, the Institute of  Fundraising and the Hospice Lotteries Association (DB 17)

1. Lotteries Council

The Lotteries Council is an umbrella group for society lotteries in Britain. Last year, the sector’s fund-raising for good causes across Scotland, England and Wales – including a range of well-known national charities, as well as hundreds of local organisations - generated £155 million. The figure represents a 65% increase in proceeds to good causes over the last five years and demonstrates the fact that society lotteries are an increasingly popular model for incentivised fund-raising in Britain today - having grown their player base and charitable contributions alongside the equally successful National Lottery. In September 2013 there were 742 society lottery licences in the UK, up from 542 in March 2009, over a similar period the National Lottery’s revenues have grown by more than one fifth or £1.5bn in real terms.

2. Executive Summary

The Deregulation Bill is designed to remove unnecessary legislative burdens and red tape. We believe that there is scope in the Bill to introduce a section seeking to reduce current unnecessary restrictions on society lotteries, thereby helping society lotteries to generate more income for good causes across Britain. In particular, we find it odd that – unlike any other form of charitable fund raising - present rules place a cap on the sales of individual society lottery tickets. We would therefore like to see the rules streamlined to:

· Raise the sales limit per draw and annum

· Raise the prize level per draw

· Allow a transition period for minimum contributions for new entrants

Below we set out our evidence and arguments as to why we believe these changes would boost the UK charitable sector without having any impact on other important fundraising activity.

3. The cebr report

In February 2014, the Lotteries Council and the Institute of Fundraising commissioned a report, which was undertaken by the Centre for Economics and Business Research, to examine the case for change. The report noted that at a time when economic circumstances had placed other revenue streams under pressure, the UK’s society lotteries were a ‘welcome source of financial respite’ within the charity sector. It further concluded that some deregulation of society lotteries would be beneficial and suggested that changes could be made to the minimum 20% contribution rule, along with the relaxation of caps on prizes, draws and overall revenue. Importantly, the cebr report also suggested that these relaxations would increase society lottery donations to good causes and ‘complement rather than detract’ from those provided by the National Lottery.

4. Present restrictions on society lotteries – sales

The current limit on the maximum value of tickets that can be sold for one draw is £4 million with the maximum aggregate value of lottery tickets that can be sold in any calendar year under one licence standing at £10 million. In other words, society lotteries who could sell more tickets to their supporters are prevented from doing so by the present restrictions. One well known national charity has had to take out two licences to satisfy demand and maximise its returns to their good cause. Moreover, the way the restriction operates means that it is likely that the bigger society lotteries cannot take advantage of economies of scale, thereby limiting the proportion and quantity of proceeds going to the good cause than would otherwise be the case. The cebr report found that 11% of lotteries would prioritise relaxing this regulation as their number one priority.

5. Present restrictions on society lotteries – caps on prizes

Under the current rules, prizes are limited to £25,000 or 10% of the total proceeds of the draw, taking the maximum permissible prize to £400,000 (ten per cent of £4million worth of tickets). Clearly, the 10% rule is a significant regulatory risk as the size of the prize money is declared in advance of sales. At the same time, however, the success of the lottery is, in part, going to be determined by the size of the prize. Enabling the size of the prize to be increased has the potential to be an effective method for achieving growth in the sector. The cebr report found that relaxing the cap on prizes was the top priority for 32% of those surveyed.

6. Present restrictions on society lotteries – 20% rule

All society lotteries must donate a minimum of 20% of their proceeds to their allotted good cause, with the remainder divided between prizes and ‘reasonable’ expenses. As an average, Lotteries Council members donate 45% of the funds they raise to good causes, whilst spending 38% on operating expenses and 18% on prizes. The figures also show a pattern of higher charitable contributions skewed towards the more mature lotteries. The 20% rule can and does create difficulties for new lotteries which need to invest heavily to build a player base and gain momentum. Evidence suggests that society lotteries under five years old typically provide 22% of their proceeds to good causes. A relaxation of this rule for new, smaller society lotteries could encourage more start-ups and grow the sector. The cebr report found that 41% of lotteries wanted to see the relaxation of the 20% rule as a top priority and recommended aggregating the rule over three years.

7. Removing present restrictions

For many society lotteries, relaxing all three of the present regulatory requirements would be their preferred option. On the whole, larger lotteries are more focused on relaxing the constraints on revenues and prizes and giving more to good causes, while the smaller lotteries have a much stronger preference for relaxing the 20% rule, according to the cebr report.

8. Society Lotteries and the National Lottery

Concern has been expressed in the past that deregulation of society lotteries could undermine support for the National Lottery, leading to a reduction in the amount of money going to good causes through the National Lottery. However, a 2012 report by NERA Economic Consulting, commissioned by the Department of Culture, Media and Sport and the Gambling Commission, did not find evidence supporting the notion that a more buoyant society lottery sector had impacted the National Lottery. In December 2013, figures from the Gambling Commission reinforced the message that a diverse society lottery sector, from small-scale to External Lottery Managers, was having a beneficial impact on good causes with donations reaching their highest ever amount at almost £155m.

9. Conclusion

We are grateful to the Committee for the chance to put our views forward on the potential for deregulation in the society lottery sector and look forward to the progress of the Deregulation Bill.

March 2014

Prepared 26th March 2014