Culture, Media and Sports - Minutes of EvidenceHC 256

Back to Report

Oral Evidence

Taken before the Culture, Media and Sport Committee

on Tuesday 4 June 2013

Members present:

Mr John Whittingdale (Chair)

Rt Hon Ben Bradshaw

Angie Bray

Conor Burns

Tracey Crouch

Philip Davies

Steve Rotheram

Mr Gerry Sutcliffe


Examination of Witnesses

Witnesses: John Dillon, Director of Legal Services and Company Secretary, and Daniel Dyball, Head of Regulatory Affairs, Camelot UK Lotteries Ltd, gave evidence.

Chair: Good morning. The Committee has decided to have a short examination of the draft Public Bodies (Merger of the Gambling Commission and the National Lottery Commission) Order 2013. We therefore have three short panel sessions this morning. For the first one, I would like to welcome John Dillon, Director of Legal Services and Company Secretary of Camelot, and former adviser to this Committee Daniel Dyball, who is now Head of Regulatory Affairs at Camelot. Welcome.

Q1 Mr Sutcliffe: Good morning, gentlemen. I am very interested in this merger, for lots of different reasons. It would be interesting to hear what you think the advantages and the disadvantages of the merger are. I understand the political will and the reason for the decision, but how do you see it from your perspective?

Daniel Dyball: We are supportive of the merger, and due to the collocation of the two bodies, since January 2012 we have been seeing things work quite well in practice. In terms of the advantages, I think there is a real opportunity here to accelerate the good work that we have been doing with the National Lottery Commission on a better regulation agenda; that is, moving to a simpler, more proportionate and transparent licensing system for the National Lottery. I think there is something in taking the best of what the National Lottery Commission does, and the Gambling Commission, to look at how we move to a better regulation framework for the National Lottery.

In terms of the challenges, I think that currently there is a mixing of the two regulators’ duties. There is a lot that is consistent at the moment, such as duties to protect players, integrity, and fairness. However, there is one duty for the National Lottery that is unique, which is the duty to maximise returns to good causes. This is fundamental to the National Lottery and what we do. It will be important for the merged regulator to navigate how that duty is fulfilled.

Q2 Mr Sutcliffe: That hits on the point, Daniel, in the sense of the National Lottery Commission maximising the income for good causes and promoting the games. Who took the decision to go from £5 to £10 as the minimum spend online? Was that a Camelot decision or a commission decision?

Daniel Dyball: I think you are talking about the change in the minimum wallet load: the move from a minimum of £5 to £10 for online players. That was something that we developed as a Camelot proposal and consulted the commission on. It was something that we trialled for a period, because Camelot and the National Lottery Commission are always looking at this through the prism of player protection, as well as returns to good causes. It was something that was started jointly, between us and the regulator.

Q3 Mr Sutcliffe: I want to be clear. It was a Camelot decision that was agreed by the commission?

Daniel Dyball: I think it is currently in a trial, but it is ongoing.

Q4 Mr Sutcliffe: I raise that issue because of the conflict I see between the two organisations. The Gambling Commission are there as the regulators, and the National Lottery Commission as the promoters of returns to the good causes. Are there any other areas of conflict that might be a problem?

Daniel Dyball: I think it cuts both ways, on that conflict. The Lottery commissioner has that duty to maximise returns for good causes, but the Gambling Commission does not. I think there is a risk that, on the flip side, the Gambling Commission is in a place where it does not have that duty, and it may take decisions that might harm the ability of the Lottery to maximise returns to good causes.

John Dillon: We think that it is a perceived conflict rather than an actual conflict, because the proposed legislation seems to us to be very clear, in that the duties that will be exercised by the Gambling Commission post-merger, in relation to the National Lottery, are only in relation to its functions as prescribed under the 1993 Act. It will not have a general duty otherwise to promote the interest of the National Lottery; it is only when it is actually exercising those functions. Otherwise, in its other duties, it will carry on as it already does under the Gambling Act.

Q5 Mr Sutcliffe: Chairman, I should have declared an interest. I am a Director of the Responsibility in Gambling Trust, and they have a problem around problem gambling and the concerns that I have about the conflict. However, you are right, John. It can be distinct. What are the practicalities? What is the timescale of the merger, and is it all going according to plan?

Daniel Dyball: The bodies have been collocated since January 2012, and we have seen the staff moving in. There has been a good continuity of senior staff, with the Chief Executive and the Director staying with the merged body, which I think has been really helpful for Camelot in navigating the merger. We are all keen to get this resolved as soon as possible, so we can have a merged regulator that we can all work with under the statutory framework.

Q6 Tracey Crouch: I just wanted to follow up very briefly on conflicts of interest. One of the issues is about sharing commercially sensitive information, and I just wondered if you could perhaps express your own views on that concern, which has been identified by others?

John Dillon: In principle, I do not think we have any concerns about confidential information, because obviously we have confidence that the Gambling Commission will put in place appropriate arrangements to protect it. There is a difference, though, between the nature and the extent of confidential information that we provide to our regulator currently, and what the rest of the gambling sector provides to the Gambling Commission. We take it that, generally speaking, information that is provided by the rest of the gambling sector tends to be retrospective sales data, and so on and so forth. Of course, we provide a lot of detailed commercial information up front to the regulator, to enable them to evaluate whether to license a new game, or to amend the licence for a game, and so that information is inherently extremely sensitive for us. Therefore, we would be particularly concerned to satisfy ourselves that the arrangements in place within the commission are appropriate.

I think it also then leads quite neatly into our discussion, which is ongoing with the National Lottery Commission, and we hope we will continue with the Gambling Commission, on better regulation. We will be looking carefully at the nature and the extent of the information we provide to the regulator in the licensing process, just to make sure that we are not providing too much that is not needed, strictly speaking, for the regulator to exercise its duties in the correct way.

Q7 Tracey Crouch: Do you think the Department has dealt with this issue? When the Department perhaps publishes some of its guidance going forward, do you think that all of this will be handled correctly, and that there will be those Chinese walls, effectively?

John Dillon: Yes, we are confident, and we noted that the Department itself, in its consultation on the merger, was of the opinion that the commission itself should be left to sort out what the arrangement should be, rather than having it written into statute. We agree with that. We think that the best body to decide how to do it, and to have the necessary flexibility, is the regulator itself, because it is closest to the issues and, therefore, has a better view.

Q8 Chair: I find it hard to think of another example of where a Government-appointed regulator is given the task of overseeing one single company. In the evidence that has been submitted, it has been suggested that the National Lottery Commission, which does employ quite a lot of people and has rather a large budget, simply for the job of dealing with one company, has in the past micromanaged, or attempted to micromanage, Camelot. Have you felt that the National Lottery Commission’s activities have gone beyond the simple task of regulation and become too intrusive into the way that Camelot is operating?

Daniel Dyball: You are right to point out that it is a unique situation, having a onetoone regulatory relationship, which of necessity means there is going to be more scrutiny of the regulated body’s activities. We hope that as a result of the move to the Gambling Commission, which has that one-to-many relationship, some of the Gambling Commission’s practice and ways of working will rub off on to the National Lottery Commission.

Q9 Chair: With the move from a one-to-one to a one-to-many, would it be fair to say that the employees at the Gambling Commission will have quite a lot of other challenges facing them, not least the extension of their remit to remote gambling operators, and that they therefore may not feel the need to justify their existence by spending their entire time scrutinising Camelot?

Daniel Dyball: The National Lottery Commission, when merging with the Gambling Commission-the collocation-have brought along a lot of key staff, which has certainly helped that. They have been very good in managing our issues, and from the evidence we have seen, we have not seen a situation where Gambling Commission staff have been complaining that they are being diverted from National Lottery scrutiny. I think the National Lottery Commission has a good cadre of staff that have gone over, and we have been working quite closely with them in that period.

Q10 Chair: As Head of Regulatory Affairs, can you just give us an idea of the extent to which you are the day-to-day contact with the National Lottery Commission, and the kinds of things that they are seeking to oversee and get information about?

Daniel Dyball: Sure. The regulatory relationship between Camelot and the NLC is quite close, given that one-to-one relationship, and there is daily contact between me, my team, and NLC officials. There is the usual practice of licensing-game licensing launches.

Q11 Chair: You are not launching a new game every day.

Daniel Dyball: No. The launch process for a new game takes one or two years, from the time it starts in the innovation pipeline through to when it comes to launch. There are other activities like compliance activities and enforcement activities, where there may be incidents that need to be investigated. There is both a forward-looking element of licensing launches, and then a reactive element of compliance and enforcement that keeps my team quite busy.

Q12 Chair: Would your expectation be that the degree of contact between you and the regulator will remain roughly the same after the merger, or do you think that it may reduce?

Daniel Dyball: One of the things that we are looking for is really to progress the good work that we have been doing with the NLC on our better regulation agenda. This started four or so years ago, with a paper called Regulating with Excellence, which was about taking forward work to avoid the operator, Camelot, being tied up in unnecessary red tape. We have made good progress along that route, and, with the merger, there will be the opportunity to move further along in that direction.

Q13 Mr Sutcliffe: Just quickly, on that point: given the uniqueness of the National Lottery Commission and the relationship with Camelot, do you think that the National Lottery’s unique position may be weakened by the merger, in the sense of problems with potential competitors? Do you see your situation being stronger or weaker as a result of the merger?

Daniel Dyball: That is certainly a risk. One of the things that has changed is the competitive environment, and we are in a world where there is certainly much more competition for people’s incomes. In the gambling and gaming space, we are seeing more competition from games such as lottery-style betting games. We are seeing more competition from society lotteries. I think the challenge for the merged regulator will be how to reconcile those duties in relation to the National Lottery and its broader duties that the Gambling Commission brings.

John Dillon: We think it is particularly important that the merged commission establishes that very, very clearly for the market, so that the market understands the clear distinction between the duties. To take an example, obviously there is going to be a consultation on increasing the contribution to good causes made by society lotteries, and we would expect that the merged body would be able to do exactly what it has done in the past, so the commission will obviously be advising the Government and providing industry data. We would also expect it to arrange itself in such a way that the part of the Gambling Commission that is responsible for regulating the National Lottery will be able to do what the National Lottery Commission has always done in such cases, which is to make representations that are in the interest of maximising returns to good causes.

Q14 Mr Sutcliffe: I understand that, but part of the problem is that you can buy a National Lottery ticket at the age of 16, and you cannot go into a betting shop till you are 18. There are some conflicts in terms of policy areas. What is going to happen?

John Dillon: I would say that there are differences in policy areas rather than conflicts. The National Lottery is a different institution from the rest of the gambling sector, and it has a different regulatory regime-to state the obvious-because Parliament set it up on that basis. Therefore, it comes back to this issue of conflict or perceived conflict. We do not believe that there is a perceived conflict or preferential treatment-that rather loaded term-for the National Lottery; it is just a different regime. We are confident, based on the current proposals, that that would be able to continue after the merger, as long as the Gambling Commission-as I am sure it will be-is very clear with the industry about exactly how it is going to exercise its duties.

Q15 Angie Bray: In the past, Camelot unsuccessfully challenged the Gambling Commission’s decision in the High Court about continuing the Health Lottery, which obviously puts you on different sides of that particular argument. Do you foresee any future problems over decisions of that sort, or do you think you are now going to find a different way of working, so that you are not going to end up in the High Court?

John Dillon: We do not foresee any problems. We took that challenge against the Gambling Commission for very serious reasons, taking our function of maximising returns for good causes very seriously, and it was a decision we did not take lightly, knowing then, of course, that we were taking to court the body that was going to become our regulator. We pursued it in a commercial and professional way, as did the Gambling Commission. We did not win in court, and we have all moved on. We are confident that has not adversely affected the working relationship that we will have with the Gambling Commission.

Q16 Angie Bray: But it flags up the potential for conflicts, doesn’t it?

John Dillon: I think it certainly shows that we have an arm’s length relationship with the regulator, and obviously that was before the merger. After the merger, we believe that as long as the commission is able to arrange its affairs in such a way that the part of the commission that is regulating the Lottery is still free to make its views known and act appropriately, there should not be a conflict. That is why it is very important for the new commission to explain very clearly to the sector, and not be ashamed of it or shy away from explaining, exactly how it is going to work, so that there is not undue pressure, or the Gambling Commission does not feel undue pressure from the rest of the gambling sector when it is exercising its duties.

Q17 Angie Bray: But you would be unable to go to court again, wouldn’t you? It would make it much more difficult for you to challenge.

John Dillon: We did take the National Lottery Commission to court in 2000, so we are not shy of taking our regulator to court if we feel it is necessary to do so. It is obviously something we would not want to do.

Q18 Philip Davies: I apologise for missing the first bit of the session; if we are covering old ground, I apologise for that. I have just been puzzled by the answers that you have given as to whether or not you consider yourselves to be gambling. I get a different feeling from the different answers that you have given to questions. Do you consider that you are part of the gambling industry-the wider gambling industry? Do you consider playing on the National Lottery to be gambling?

John Dillon: From a technical point of view, it is gambling. The Lottery is defined in the Gambling Act 2005, as you know, and therefore we promote lotteries. I think the subtle distinction is that, as far as the Gambling Act itself is concerned, the National Lottery is effectively excluded from the definition of gambling. Therefore, I think that is a recognition of the different position of the National Lottery. It does not mean that, from a technical point of view, playing the Lottery is not gambling; it plainly is gambling, but it is regulated in a different way. We would say that there is clear blue water between the way the National Lottery is regarded, and should be regarded, and the rest of the sector.

However, I think that is reflected in one way, for example, in the fact that the Gambling Commission itself has no duty to promote the interests of its regulated bodies. It simply has duties to promote the licensing objectives. For the National Lottery Commission, the regulator does have duties: effectively, to promote the National Lottery. It is a form of gambling, but it is regulated differently.

Q19 Philip Davies: Just to press you on the pertinent point that Gerry Sutcliffe made, about the fact that you can play the National Lottery at the age of 16 but you cannot indulge in any other form of gambling until you are 18, can you explain to me-because nobody has yet successfully managed to do so-why it is absolutely fine for a 16-year-old to buy five scratch cards for the National Lottery, but it is absolutely unacceptable for that same 16-year-old to put a £5 bet on the Grand National?

John Dillon: We work very hard on our player protection strategies, and particularly on preventing underage play. However, it is a policy matter, I suppose, which Parliament decided.

Q20 Philip Davies: I appreciate that Parliament decided that, in its wisdom or otherwise. I am not asking about Parliament; I know that. What I am asking you is: can you justify why it is absolutely fine for a 16-year-old to buy five scratch cards, but it is absolutely unacceptable for that same 16-year-old to put a £5 bet on the Grand National? Why is one so much better and less dangerous than the other?

John Dillon: I think our view is that it is not as dangerous.

Q21 Philip Davies: Why?

John Dillon: For whatever the reasons are why harder gambling products are potentially more dangerous for vulnerable players.

Q22 Philip Davies: Why is a scratch card a less dangerous gambling product than a once-a-year bet on the Grand National? Why is that less dangerous? I genuinely want to know, because I am puzzled by this.

John Dillon: I think all one can say is that the evidence does not show that selling scratch cards to 16-year-olds is a dangerous thing.

Q23 Philip Davies: What evidence is that? What evidence is there that betting on the Grand National is more dangerous than buying scratch cards?

John Dillon: I cannot comment on that.

Q24 Philip Davies: You cannot give a justification for why one is fine and one is not?

Daniel Dyball: We work within the regulatory framework that is put in front of us, and in terms of the difference between the National Lottery and gambling products, it is the level of player protection and integrity that is built into the regulatory framework for lotteries, which means that, for one reason or another, when Parliament set up the framework, it intended that there would be a different age limit for the two products. In the Lottery framework, there is so much player protection, and we won the World Lottery Association responsible gaming award in 2012, in recognition of the fact that we are doing a lot to prevent underage playing. There are those other elements in the lottery framework, which I think distinguish it from gambling.

Q25 Philip Davies: If you are so confident that your products are less harmful than other forms of gambling, would you welcome this united commission looking into the respective ages at which people can gamble on different products?

Daniel Dyball: We think that player protection is a very important issue, and we would be happy to look at any proposals around those rules.

Chair: I think that is all the Committee has for you. Thank you very much.

<?oasys [np[pg6,cwe1] ?>Examination of Witnesses

Witnesses: Philip Graf CBE, Chair, Gambling Commission, Jenny Williams, Chief Executive, Gambling Commission, Dr Anne Wright CBE, Chair, and Mark Harris, Chief Executive, National Lottery Commission, gave evidence.

Q26 Chair: I welcome, for the second part of this morning’s session, Dr Anne Wright and Mark Harris, the Chairman and Chief Executive of the National Lottery Commission, and Philip Graf and Jenny Williams, the Chairman and Chief Executive of the Gambling Commission.

Q27 Mr Sutcliffe: Good morning. I will start in the way I started the previous session. What are the advantages and disadvantages of the merger? What are the challenges that you face, and what is the timescale for the merger to be complete?

Philip Graf: I think the advantage is around us having a coherent approach across a range of gambling activities, particularly given the changes in technology and the changes in the types of games that are around. As a regulator, we can take a clearer look at that, and we can look across that area as a single regulator looking at the questions of player protection, particularly as we move in an online world, with these changes in technology. That is the core of it, in terms of the advantages: that ability to take a coherent view around player protection in a changing world.

I think the challenges have been identified. In some ways, I think people have slightly misunderstood. In some of the evidence I have seen, they have misunderstood this question of the conflict, because-as identified very clearly by Mr Dillon-there are two sets of duties, and it is a question of making sure that we are clear and transparent about when we exercise those two sets of duties. One is to do with gambling, the Gambling Commission and the Gambling Act, and secondly it is about governance, in terms of the Act and the legislation, when we are regulating the Lottery, and making sure that we set up a transparent and clear process that enables people to see that.

Q28 Mr Sutcliffe: Do you think there is a problem, though? The Gambling Commission are relatively new, following the Gaming Board, in working with your customer base and getting them to understand what the Gambling Commission can and cannot do, and here we now have a wider remit. How are you going to get the message across to your customers and clients about the difference in duties? Picking up Philip’s point about 16-year-olds and 18-year-olds, somebody looking from outside would be confused by the difference in policies. How are you going to deal with that?

Philip Graf: Hopefully, sessions such as this, and the evidence we give to this session, will begin the process. Secondly, there will be a management agreement between us and the DCMS, and clearly we need to communicate that properly to the industry. As we meet and talk to the industry and hear any specific concerns, we must make sure we articulate and clarify the issues. In our minds, it is not so much a question of conflicts of interest but of commercial confidentiality. We understand that, and we will be very concerned to make sure that we do make that clear to people. We have to do that, and clearly it is a challenge for us.

Q29 Mr Sutcliffe: Anne, given the uniqueness of the National Lottery, considering its prominence and the maximising of good causes, are you worried about the potential damage to the National Lottery? We talked earlier about the challenges the National Lottery faces from other lotteries, and the commerciality and competitive nature of the gambling industry at the moment.

Dr Wright: We see that there are likely to be significant benefits, as Philip has been saying, from the economies of scale and the overview as a single organisation. However, of course, as you say, it is absolutely essential that the National Lottery is preserved and maintained in the public interest. The short answer is that, as we approach the merger, we are now confident that it will be a basis for effective regulation of the National Lottery, as there has been, so far, for the last 18 years.

There will be challenges to overcome, and I think the main one, as you pointed out, is handling the respective duties within the two sets of legislation-the Gambling Act and the Lottery Act-and particularly having regard to all three of our statutory responsibilities, which we hold very close to us in our regulation. There is common ground, of course, on player protection and propriety between the two commissions, but the key element is the maximisation of returns.

We have looked at this; we have looked together-the two organisations-at potential conflict scenarios. We have concluded that there are no major risks or hurdles, but that what it requires is consistent attention and appropriate governance, acting within the right legislation. We are confident now that it can be done. There are other additional benefits from having, for example, a stronger research function across the organisation, economies of scale, and so on. In the changing gambling and lottery worlds, which I think are fairly distinct, the kind of technological advances mean that it is more important than ever to have a view of player protection. If we take player protection as an example, there should be real benefits there. There are challenges, but I think we are confident, as we have been working towards this merger, that the governance and management arrangements will be in place, to make that effective regulation.

Q30 Mr Sutcliffe: Can I just return to the minimum wallet going from £5 to £10 for online spend? I was quite shocked by that, because it is double. Where are we at with that at the moment? Has a decision been taken? What role do the commission play?

Dr Wright: Perhaps Mark will tell you exactly where we are up to with the implementation. Certainly it has come to the commission, as a commission, to look at this. As with any novel or contentious proposal that comes to us, we take great care in looking at that, and thinking about all the duties, as I have said, such as propriety, player protection and returns to good causes. Yes, we did take that one very seriously, and it gave us a lot of pause for thought. I think Mark will be able to say what stage of implementation it is at. In taking it forward we are always concerned that there are appropriate monitoring arrangements in place, and that we will be able to evaluate that with Camelot. We want to ensure that Camelot can do that research, so we can be satisfied that it will not lead to excessive play. That is our concern. We take great care before we give even limited approval or a pilot for proposals like that, and then usually put in place conditions that allow us to withdraw it. If it does go wrong, which is unlikely, we would be able to withdraw it.

Q31 Mr Sutcliffe: My concern, knowing a lot of lottery players, is that they pick their numbers, they back the same numbers each week, and if it goes from £5 to £10, they are going to continue to do that, so their cost has doubled. I would be really interested in the evidence and the issues around what it has actually meant, in terms of spend.

Dr Wright: I am not sure I have the details of those.

Mark Harris: It is important to start with the point that what was changed was the minimum amount that could be loaded into the wallet. The way the player chooses to spend that amount is entirely up to the player. There was no pressure on players to change their rate of spend.

Q32 Mr Sutcliffe: It is a bit like how the old football pools were. People get committed to a set of numbers, which they play each week, and if they cancel or withdraw those numbers, there is a doubt in their minds. People generally just spend, on the basis "I want to keep those numbers there". I am just a little concerned, in the difficult times of a recession, that we are encouraging people to gamble a bit more.

Mark Harris: With the wallet load, it is the amount the players load into their wallet. It does not represent a difference in the cost of playing their particular set of numbers at that point in time. For example, it is a bit like how I use an Oyster card with auto top-up. My auto top-up used to be £10; it went up to £15, it went up to £20, but the cost of the journeys is still the same. It is up to the player how they apply the amount in their wallet.

The other point to make, as Anne said, is that when Camelot came forward with this as a proposal, it required our approval-just to be absolutely clear about that. What we gave was limited approval while Camelot collected evidence about whether or not there was evidence that players were significantly changing their behaviour, or that it was impacting on a significant number of players who previously had loaded only £5 and were now playing more regularly. In practice, a lot of players, although the minimum level was £5, would put more than £5 into their wallets at a time. It was a matter of player choice.

Q33 Chair: Can I just explore the area I was probing Camelot about? What is the budget of the National Lottery Commission?

Mark Harris: The budget in the current year is around £2 million.

Q34 Chair: £2 million. And you employ 15 people now?

Mark Harris: We employ 20 at present.

Q35 Chair: Twenty people? What do they all do?

Mark Harris: There are three key areas of work. The first is licensing work, and there are two strands to that. Firstly, Camelot has a licence that it applied for in competition. That licence contains a large number of terms about how the Lottery runs, but also terms that are designed to safeguard the nation’s long-term interest during and after the licence period. There is a lot of protection in there to make sure that the terms of the competition continue to be enforced during the term of the licence and that we can carry out an effective competition at the end of the licence period.

Q36 Chair: I understand that, but you are overseeing one company, which has licence conditions.

Mark Harris: Yes.

Chair: How often do you need to go and check that they are complying with their licence?

Mark Harris: We check on a regular basis that they are compliant. We check on a risk-based assessment. You have heard from Camelot that we have been reducing the work we carry out in that area, in order to ensure that it is proportionate and to ensure that we recognise the past performance of Camelot. However, we carry out work across the range of licence conditions. We also have to carry out work that is part of the process of ensuring that all due amounts are actually paid to the good causes, and the good causes receive all that they are entitled to under the terms of the licence.

You have picked up a second area there. Just going back to your original question, firstly, we deal with licensing and maintaining the current licence. Secondly, we issue game licences, and again, that is a statutory requirement. If Camelot want to introduce a new game, it requires our approval. Again, we are seeking ways to simplify that. Some time ago, we introduced class licences so that games that are essentially the same, like a renewal of an existing scratch card, do not need to go through a full licensing process.

Q37 Chair: How often do they introduce a new game?

Mark Harris: Camelot typically would introduce probably one new game, or significant revision to an existing game, a year. It may be more, just depending on market circumstances. They also introduce changes to scratch cards on a regular basis. There is a wide portfolio of scratch cards. Some of those scratch cards clearly fall within the class licence arrangements I talked about, but where Camelot are pushing boundaries or introducing scratch cards that introduce fundamentally new concepts in terms of price, prize or payout, we would expect to license those individually. There are game licences as well.

The third area we carry out is oversight of Camelot’s performance. Again, we seek not to get into the commercial operation of Camelot. The whole point of our regime is that we have an effective structure to have a commercial operator who makes commercial judgments. What we are doing is looking overall at Camelot’s performance, and trying to make sure that strategically and directionally they are working in a way that gives us confidence that our third duty, maximising returns, is being met.

Q38 Chair: You can see where I am coming from. It does look like there is a very large number of people spending an enormous amount of money to monitor one company, which introduces a new game once a year and whose licence comes up for renewal about once every 10 years.

Mark Harris: The fundamental point that I would make is that the National Lottery is different from the regular gambling industry, in the sense that the National Lottery is effectively a state-operated entity. It is run for public benefit; it is run to raise funds for good causes. However, the licence is granted only after a competition, and a competition freely entered into by Camelot, where there are terms that are designed to safeguard that national interest. A lot of the work we do is overseeing that relationship. It is not simply saying: "You are a commercial operator and we need to safeguard for propriety and player protection purposes." It is not just social regulation; it is actually more akin to an outsourcing of a national function, where you would expect there to be sufficient strength on the side of the outsourcer to make sure that the deal is being stuck to.

Q39 Chair: How many people does the Gambling Commission employ?

Jenny Williams: About 200 at the moment.

Q40 Chair: How many companies do you oversee?

Jenny Williams: It is about 3,000.

Q41 Chair: What is the budget of the Gambling Commission?

Jenny Williams: About £13 million.

Q42 Chair: So you employ ten times as many people to oversee 3,000 times more companies, at a cost of five times the budget. There is something of a contrast between these two, is there not? How many people do you expect to employ in overseeing the National Lottery once the merger goes through?

Jenny Williams: We would start with very similar numbers, until we get a better feel. I would echo Mark’s point about the third function being very different. If you think about it, it is overseeing a franchise with some very large numbers involved. It is a very big and, as one would expect, commercially aggressive company, because that is what you want exploiting your national asset. You want people who are capable of being as aggressive as you would want on behalf of the nation, but also that they do not exploit their position.

Q43 Chair: When you say "a commercially aggressive company", it is a monopoly.

Jenny Williams: Yes, but-

Chair: Who is it being commercially aggressive against?

Jenny Williams: My point was that, as a monopoly, you want it to be commercially aggressive.

Chair: It does not have any competitors to be aggressive against.

Jenny Williams: It has other leisure products. My point is that it is raising very large sums of money for the nation. There are requirements on it, as Mark has said, to oversee and make sure the money gets in, and also to make sure that they are performing up to speed and not exploiting their position improperly. I am not sure yet, and obviously we will be working very closely to get any further synergies.

Philip Graf: Yes.

Q44 Chair: Do you expect that the degree of scrutiny that is currently carried out by the National Lottery Commission will continue with the same intensity once the merger has taken place?

Jenny Williams: To start off with, I cannot see any reason why it should change, because the National Lottery has cut back enormously over the last three to five years on the number of people. My concern, if anything, is to make sure that we have enough commercially experienced people to stand up to a large company, and make sure that they are doing everything that one would want on behalf of the nation.

Dr Wright: I think it is worth repeating that we have made great strides in better regulation. Better regulation is not just a kind of moral improvement; it does result in reduction of the burden both on Camelot and on us. As Jenny has just said, we have had considerable reductions in our headcount over the last few years, so those efficiencies are already being found. We continue to look at that. Effectively, it is a kind of delegation to lessen the work of the Lottery Commission and its staff over time, as Camelot is able to provide more assurances itself.

Philip Graf: In the short-run, I think our major concern is to make sure that we manage the risks and gain a proper understanding amongst the commission, and the senior management of the Gambling Commission, of the nature of what it means to be regulating the National Lottery. In a sense, there are two things. There is a transition period, while we get to understand completely, and make sure we do not drop any bloomers while we conduct this. In a sense, Mr Sutcliffe’s question is about one issue, and there are other issues around. We need to make sure we understand those issues, and make it clear that we are properly regulating in that context. I think it is a critical point for us in the short term. Then, as I said, there is continuing the good work that the NLC has done, which was mentioned by Camelot, in improving this regulation and having a better regulatory approach. There are limits in that, and perhaps we will come back to that in other questions. I think that has to be our proper approach to this in moving forward.

Q45 Chair: Do you think it was the right decision, when the National Lottery was set up, that it should have its own regulator and not come under the Gaming Board, as it would have been at the time?

Dr Wright: I was not engaged with it. I was not playing the lottery, but my parents played the lottery then, which was very nice. It is difficult to say, but it seems to make sense to do that, given that here we are, 18 years on, with a huge national asset. Looking back, for hundreds of years there had been a debate about setting up a national lottery, and it has been extremely successful. Essentially, you could say, "Well, the proof of the pudding so far has been in the eating." Whatever the debates might have been at the time, it has proved of great value to have a single, independent, strong and effective regulator of the Lottery. It is now a mature institution with a mature operator, and it makes sense to be able to reap the benefits of having a merged body, provided that the risks can be met.

Q46 Chair: So for 18 years it was of huge value, but now it is no longer of value?

Dr Wright: No, I am not saying that at all, provided that the duties can be maintained. One of our main concerns in leading up to this, while talking with the Department, Camelot, the Gambling Commission and others, has been to satisfy ourselves, as the guardians of that national asset, that the duties will be maintained, and particularly the third duty: to maximise returns. We could go into great detail about why that is important in terms of the scale of the endeavour, but we have been very concerned to ensure that that does continue, and it is going to. We are satisfied that, with that in place, and with good governance, as I have said, it can be carried forward on this new basis.

Q47 Angie Bray: How would the new unified commissions’ combined regulatory responsibilities work in practice? Perhaps I will ask Jenny Williams that first.

Jenny Williams: As has already been outlined, it is not that different from what happens at the moment. We work closely with the National Lottery Commission on issues of player protection, and the impact of society lotteries on the National Lottery. We know what our statutory duties are. We will know which set of statutory duties we are operating under for any particular issue, whether it is one of the Gambling Commission licensees or the National Lottery. That will carry on. We will need to put in place formal arrangements for guarding commercial confidentiality. We have it anyway, because we deal with a lot of commercially confidential information. We deal with a lot of security information, such as law enforcement information that we have to keep very secure; we are used to keeping information secure. We are also used to a very disparate gambling sector, and working out things like, "Are we looking at a betting product? Are we looking at a society lottery? Are we looking at a casino game?" We are constantly looking at which particular of the Act we are operating under, what the law says, and then the duties. I do not see that in that sense, it will be that different. We will take on this new function, which is the investor-type function, but the people who are doing that at the moment are coming with that, and they will be somewhat ring-fenced. It is like machinery-of-government changes; we have a new function added on, but everybody else will carry on much as before, with careful governance.

Q48 Angie Bray: Bringing these two separate organisations together, specifically, are decisions going to be streamlined out of one body? Or, for instance, do you think that you will have to keep a National Lottery body in place within the Gambling Commission?

Philip Graf: There will be a single board of commissioners. We will have a committee of that board that will look specifically at National Lottery issues, but in fact, if it is a major issue-and we are just working our way through this at the moment-it will come to the main board, and the main board will make the decision. It is not going to be two boards. That board will be a sub-committee of the main board of commissioners. That is the way we will make sure that proper attention is given to the National Lottery issues.

Q49 Angie Bray: Do you feel that is going to be adequate for the purposes of the National Lottery?

Dr Wright: From our perspective, the safeguard is that there is a distinct committee, which can take any particularly sensitive issues, or issues that need to be taken at that kind of level of detail. However, I am also reassured that it is a single board, and that the main board will make the key decisions. As we have said, the key decision on the next competition may be a long way away, but it is important that the overall board takes an important decision like that, to issue the licence to operate. It is also important to have this separate committee.

Q50 Angie Bray: Is this separate committee going to be quite a powerful committee? Is it going to make the merger a bit more cosmetic than real? How do you see the powers within that committee?

Dr Wright: I think that is for Philip.

Philip Graf: It will be a powerful committee in a number of ways. It will be chaired by Graham Sharp, who is one of the Gambling Commission’s present commissioners. One of the things we have been very careful to do over this period-and working very closely with Anne and her fellow commissioners-is to get a lot of sitting down together, observing gambling commissioners at NLC meetings, understanding and talking to commissioners. As you will have seen, the two recent appointments to the Gambling Commission are currently members of the National Lottery Commission. The intention of that committee is to be a strong committee. It will, as Anne has indicated, with very particular, specific issues, take those issues in detail. It will look at the day-to-day issues regarding the National Lottery as well. We will also look at whether or not, in this context, we can ask the executive to do slightly more than they currently do. We are going to look at the schemes of delegation here, as we sit down together. That committee will be a strong committee, but the backstop, if you like, is that the main board will be there taking those decisions. This is not a duality.

Q51 Angie Bray: How are you going to ensure adequate separation of duties so that you avoid conflicts of interest that may arise?

Philip Graf: As Jenny has indicated, the issue here is not so much separation of conflict of interest. It is an issue about commercial confidentiality.

Q52 Angie Bray: But there will be conflicts of interest, potentially.

Philip Graf: There are clear duties laid down under the Gambling Act. If we are looking at a Gambling Act issue, we have to follow those duties. If it is a National Lottery issue we have to follow those duties. That is the way we would operate. We have looked very carefully at a whole set of scenarios, and we cannot see where there is a specific conflict of interest. We can see where there is a real need to keep information confidential and separate.

Q53 Angie Bray: One of the differences, surely, is that, because the NLC is looking at maximising money for good causes, it may mean that they are not so interested in maximising the competitive gambling market. It seems to me that there could well be conflict. Can you not see that?

Philip Graf: When the commission exercises its powers to do with the National Lottery, it must exercise those duties, including the third duty. When it looks at something, it must take into account the need to maximise returns for good causes. When it is exercising its Gambling Commission duties, it has no need to look at that whatsoever. It depends where it is exercising its duties, and what it has been asked to do. It is quite capable of saying, "In this particular case, these are the duties we have been asked to exercise, so we exercise them in this way." We are very clear about how we do that. It is carefully minuted and carefully set down in the papers. Alternatively, "We are exercising our duties in this area, and therefore we must exercise them in this particular way."

Q54 Angie Bray: So much of this is to do with having confidence in this new body. Will there not be the possibility that in the future, a new competitive type of gambling wishes to be licensed but does not get a licence? There could be a suspicion that they are being held back because they might in some way damage the fundraising causes for the National Lottery.

Philip Graf: There are two things. It is very important, and I think you are quite right to push us on the fact that this needs to be transparent and clear. Mr Sutcliffe made the same point. I think that is important. The second thing to say is, do not forget that we have a duty to permit.

Q55 Angie Bray: How do you deal with this perception?

Philip Graf: Jenny can explain the detail, but we have a duty to permit. What we are interested in here, in exercising that duty to permit, is that the gambling is fair and open, free from crime, and that there is sufficient player protection in the process. We are protecting the vulnerable. That is what we are looking at when we get an application for a licence for something new and innovative, and that will remain exactly the same. It will not change in any shape or form.

Angie Bray: Do you want to say something?

Jenny Williams: I think it is partly spelling out very clearly the basis on which you take a decision. As I say, we have a lot of this at the moment, with the different sectors saying, "We’re favouring x," or "We’re favouring y," and we have to explain why we are taking the decision, in the light of our powers. Of course the Health Lottery, which has already been mentioned, demonstrated to people how we actually exercise the powers. We had to explain; we were taken to court, and our approach was confirmed. We said, "This proposal is, in our view, legal under the licence of the Gambling Act. It is likely to have an impact on the National Lottery, but that is not our concern. We will therefore point this out to the Department, and the Department can take action if it wishes to." I think we have already demonstrated that we are perfectly capable of operating within the statutory framework but drawing proper attention to the impact on other sectors.

Q56 Angie Bray: Mr Harris, do you feel that because Camelot did take this court case because of the decision over the Health Lottery, there is going to be pressure from the other side to say, "We don’t want anything to damage our ability to maximise the money we raise for good causes"? Is that going to be a more difficult conflict within one organisation?

Mark Harris: I do not believe it will be a difficult conflict for the organisation, for the reasons given, and in particular the reasons given when Camelot gave their evidence. The duty to maximise returns to good causes only applies when the merged commission is looking at National Lottery functions. I think in terms of actual conflicts of interest, we cannot see a set of circumstances. I was involved in the work to bring a National Lottery perspective to considering and trying to identify scenarios where there would be a genuine conflict of interest. We believe that, as a proper public body, the evidence is that, as long as you consider the things that you ought to be considering in exercising the National Lottery functions, there should not be a real conflict of interest.

The other area that you raise is the perception of the industry that there is a conflict of interest, even though, technically, there is not. Philip has outlined the structures that he intends to put in place within the merged body. We believe those should go a long way to resolving any potential conflict. Anne and Jenny have spoken about transparency, and it is about explaining decisions, and explaining why they have been made and what matters were taken into account. This will be important in generating that trust across the piece that the right powers are being exercised in the right way on the right issues.

Q57 Philip Davies: Can I press you on the point that Gerry Sutcliffe raised about the different ages for gambling? Is it the view of this unified commission that people aged 16 or 18 should be able to gamble?

Philip Graf: I am quite happy to answer the question, but I just wonder if it would be helpful if Mark gave the background as to why the difference exists.

Mark Harris: My understanding-and you will appreciate that it was considerably before my time when the National Lottery came into being-is that Parliament applied an age limit of 16 to games that were played not in licensed premises, broadly, and so that applied to lotteries and pools. The National Lottery was put into that category. Other forms of games that were played in licensed premises had an age of 18, and that applied to bookmaking and so on. That is my understanding.

Q58 Philip Davies: I am not asking about the background. I am asking about your opinion as a regulator. One of the key roles of regulation is player protection, and the Gambling Commission have made a big play that it takes this seriously. In terms of player protection, do you believe gambling should take place at the age of 16 or 18?

Philip Graf: Let me say what we have done, and what we are intending to do. We are setting up a group within the commission-cross-commissioners-to have a look at the whole question of player protection, both in terms of the National Lottery, as it sits at the moment, and the Gambling Commission. What we wanted is to have a look at-to understand, which is the point you have made, Mr Davies-the implications and the issues around that. I think it is right for us to have a look at that, and look at it in the whole context of player protection because, as you say, that is one of our key issues.

Q59 Philip Davies: I am grateful for your indication that you are going to look at this, but in essence it is not really a difficult question. I am asking: do you think that gambling should take place at the age of 16 or 18? I would not have thought it was a difficult question.

Philip Graf: As you may know, there are some forms of gambling, beyond the National Lottery, that take place at 16 as well. From my understanding there are certain lotteries, and certainly category D machines. There are places beyond the National Lottery where people under the age of 18 can gamble. It would be very easy to make a nice black-and-white case of it, and I understand the question. I would prefer us to have a look at the whole thing, and be able to come back in a way that is coherent and defensible.

Q60 Philip Davies: So you are not sure whether gambling should take place at the age of 16 or 18?

Philip Graf: I think some gambling clearly does take place at 16.

Q61 Philip Davies: We all know what the current position is. I am asking for your opinion as the regulator.

Philip Graf: My opinion as the regulator is that I would like to sit down and understand it more carefully before I give you a formal opinion.

Q62 Philip Davies: So the regulator of gambling in this country does not have an opinion and does not know whether or not gambling should take place at the age of 16 or 18? You would think that was one of the fundamental, basic things you might have grasped already as a regulator.

Philip Graf: As I say, I would like to base my opinion as a regulator on some evidence and some clear understanding, and that is precisely why we have set up this group of people to have a real look at this immediately. It is not a question of kicking it into the long grass. It is a question of us being able to come back and say, "We’ve had a look at this," and therefore, "Here is a sensible way of looking at the question of 16 and 18-year-olds gambling" across the whole range of issues, including the National Lottery, and to be able to have a coherent and defensible position.

Q63 Philip Davies: Off the top of your head, can you explain to us why buying five scratch cards each week is safer than having a once-a-year £5 bet on the Grand National? At the moment 16-year-olds are allowed to buy five scratch cards a week without any problem at all, but they are not allowed to have a once-a-year £5 bet on the Grand National. Can you explain? Nobody has yet been able to explain to me why one is much safer, in terms of public protection, than the other. Can you have a stab for us, to help me understand this one?

Philip Graf: Much as I would like to help you, Mr Davies-because I know you are a man who likes to get help from the Gambling Commission-at this stage I would be grateful if you would give me a chance to get the evidence, and then perhaps I can explain it to you.

Q64 Philip Davies: When can you commit that you will come back with your report into the merits or otherwise of gambling at 16 and 18 for different forms of gambling?

Philip Graf: I would hope that we will be able to have a clear view on that over the next 12 months.

Q65 Philip Davies: I thought you had set this up for somebody to look at?

Philip Graf: Yes, we have.

Q66 Philip Davies: Have you given them a timescale, and said, "This is your deadline to come back with your report"?

Philip Graf: Of course I have given them a timescale.

Q67 Philip Davies: What is that timescale?

Philip Graf: The timescale is the 12 months. However, considering that we had hoped that the merger would have taken place much earlier than this, you can understand why I expressed it in terms of hope, as opposed to absolute certainty. I would not want to mislead you.

Q68 Philip Davies: We know the wheels of regulation move slowly, but can you explain what the rationale was for a 12-month deadline? What takes 12 months to look at? The merits of gambling at the ages of 16 or 18? Why did you decide to give them 12 months and not, say, 10 months, eight months or six months? Why did it need 12 months for this particular task?

Philip Graf: First of all, as I hope I have explained, it is not simply looking at 16 and 18. It is looking at the whole question of player protection, and it is also looking not just at what the situation is but what we might be able to do, and to have some clear and firm proposals that we can make on the issue. I would prefer us to get it right than to do it too quickly. However, if we can do it before 12 months, we will clearly do it before 12 months.

Q69 Chair: Before we finish, can I just come back to the National Lottery Commission? Regarding the enforcement of licence conditions by Camelot, how many breaches of licence conditions have you found?

Mark Harris: Relatively few in recent years.

Q70 Chair: When you say "relatively few", do you mean one or two?

Mark Harris: Very few. One or two a year.

Q71 Chair: One or two a year, right. Would you say that you were on top of that, fairly frequently saying, "Hold on Camelot. If you do that, that’s in breach of your licence. You can’t do that"? Are they pushing at the boundary? Are they an aggressive company that is constantly testing whether or not they can get away with a licence breach?

Mark Harris: They are a company that will clearly test boundaries and look at boundaries, but they are also a responsible company in the sense that they will test boundaries by having a discussion with us-by coming to us and saying, "This is what we would like to do. Is there a way of achieving this?" Part of our approach to better regulation is trying to make sure that, if the licence contains terms that require Camelot to do things in a certain way that does not work for them, they come and talk to us. We can then make changes as to how they do things, so that we are focused on the outcome that we are trying to achieve.

Q72 Chair: How often does that happen?

Mark Harris: That happens on an ongoing basis. It will depend: sometimes there are significant issues; sometimes there are relatively minor issues. A lot of the dialogue that you heard Camelot talk about are those sorts of things-about trying to make sure that things work effectively and sensibly.

Chair: I think that is all the Committee has. Thank you very much.

Examination of Witness

Witness: Jonathan Stephens, Permanent Secretary, Department for Culture, Media and Sport, gave evidence.

Q73 Chair: I finally welcome, for the third session this morning, Jonathan Stephens, the Permanent Secretary at DCMS. Do you think this is going to be your last appearance before us?

Jonathan Stephens: I think so, unless you have a surprise.

Q74 Chair: Unless something goes horribly wrong. When are you-?

Jonathan Stephens: The end of July.

Q75 Chair: Well, if it is, can I say that it is good to have you for our valedictory session?

Jonathan Stephens: Thank you.

Q76 Mr Sutcliffe: Good morning, Jonathan, and congratulations on all the work you have done in the Department.

Jonathan Stephens: Thank you.

Q77 Mr Sutcliffe: Has the Government devalued the National Lottery by this merger?

Jonathan Stephens: Sorry. Has the Government devalued the National Lottery?

Mr Sutcliffe: Yes, has the importance and the significance of the National Lottery been devalued by the merger?

Jonathan Stephens: I do not think so. That is certainly not the intention. The Government attaches a very high degree of importance to the National Lottery. It generates something like £1.9 billion of income for good causes, which is extremely valuable income that the Government obviously wants to see protected and indeed growing, as it has been over the last few years. I think the National Lottery Commission has done a very good job on that, particularly in the awarding of the last licence, which is perhaps their biggest, most challenging task. I would just like to pay tribute to Anne Wright and Mark Harris for their role in that. That licence has grown very significantly, in terms of the income from the National Lottery. The Government also sees these two bodies as closely related, operating in the same sort of field. There are opportunities to share research analysis and approaches to common problems, and it makes good sense to bring them together now.

Q78 Mr Sutcliffe: With the DCMS’s influence in the wider range of bodies that it deals with, I can understand the political requirement in austere times for this type of merger, but is it a little bit too convenient? The National Lottery Commission was there for a set purpose, and I remember being on the Public Accounts Committee at the time. That is what the committee was saying at the time, in 1994, when it was setting up. Does the Department have enough resources to be able to deal with the policy conflicts that are going to come from this merger, which we have already heard will throw up some difficulties?

Jonathan Stephens: I do not think, in terms of the Department, that there will be any more conflicts and challenges around the policy issues than there are now.

Q79 Mr Sutcliffe: Mr Davies and I will be asking the Minister, very shortly I think, "When are you going to make up your mind about 16-year-olds and 18-year-olds?"

Jonathan Stephens: Yes, and that was always, essentially, a policy issue for the Government, and then put to Parliament to decide. That is the current situation. This merger is not going to fundamentally alter that. What we will have in the merged body is one body able to take an overview in terms of offering its advice to Government on the broad range of the sector as a whole, while being careful to exercise its distinct statutory functions in different areas. I do not think that in terms of policy there is any more of a conflict or challenge than there would be currently.

Q80 Mr Sutcliffe: Post the Olympics and the Paralympics, the number of staff in the DCMS has reduced, as we knew it would, given the rise in the work for the Olympics and the Paralympics. The Department has now moved into the Treasury building. There are rumours that, in the future, the Department will no longer exist. What are your thoughts and views, as you are coming to the end of your time in the Department, about where the Department will lie in two to three years’ time?

Jonathan Stephens: I am very confident that the Department has delivered and had a very successful few years. It will continue to build on that success for the future. I am looking forward to my successor being appointed as Permanent Secretary for the Department, and taking forward the Department into new challenges. Our staff have reduced, but at the same time, we have also taken on significant extra responsibilities, so that we are now responsible for sectors that constitute something like 17% of the economy-the whole of the telecoms sector and the internet communications, in addition to the traditional culture, media and sport sectors-as well as the extra responsibilities for promoting fairness and equality. I think we have demonstrated incredibly good value for the taxpayer, if I can put it like that, in terms of increased responsibilities at the same time as reducing staff.

Q81 Mr Sutcliffe: So the rumours that the Department of Communities and Local Government and the Home Office are trying to get gambling back into their domain are false?

Jonathan Stephens: Yes, there is no change of machinery of government on the cards.

Q82 Chair: When the Public Bodies Bill was being debated, I think the Lords Minister said that the merger was going to be achieved by summer 2012. Then the Gambling Commission said it was going to be completed by April 2013. We are now in June, and we are debating a draft order. Why has it taken so long?

Jonathan Stephens: It is worth saying that the substance of the merger, the collocation, the bringing together in common offices, was actually achieved in January 2012, and that has contributed a very significant slice of savings. I think the passage of the Bill took longer than was originally expected, and, during its passage, significant extra consultation stages were added. This Committee has decided to take a longer consultation period, but I would just emphasise that in a sense we are right at the end of tying the ribbon on the bow of the merger, because the substance of it, and indeed the bulk of the savings, were actually achieved at the beginning of last year. It is important, and I strongly support seeing this through and bringing that process to a conclusion. However, the bulk of the savings were achieved last year.

Q83 Chair: Dr Wright suggested earlier that when the Lottery was first established, it was a different new body and it needed to have its own regulator, but now it is mature, well practised and functioning. Why has it taken 18 years to get to that stage?

Jonathan Stephens: I was struck by your question. I think that might be an interesting historical treatise for some academic to explore.

Q84 Chair: Do you mean that it is your view that it should have been done-it could have been done, at least-a long time ago?

Jonathan Stephens: It certainly could have been done. Equally, the Gambling Commission is actually the more recent body, which originates from reform to the gambling legislation. The National Lottery Commission, as I said, has had a good record, particularly over the course of the third licence, in terms of exercising very significant functions. It is not surprising, in a sense, that if something is working, you know, "Do not disturb it". However, the new Gambling Commission has now bedded down, and the National Lottery Commission has continued to build on good performance. The Government also has a programme of reform of public bodies, to seek to reduce the number of public bodies, to secure savings, and to streamline them. It all fits in with that.

Q85 Chair: Do you think that the National Lottery Commission, with its £2 billion budget and 20 staff overseeing one company, has delivered value for money to the taxpayer?

Jonathan Stephens: I think so, in the sense that it is there to secure and protect £1.9 billion of income for good causes, which is a form of public money. It is generated by creating a legal monopoly, which undoubtedly does require regulation. I was just doing the sums in my head, so if I have got them wrong, apologies, but I have worked it out as one-tenth of 1% of the income of good causes. I think it is a fundamentally different role from the one that the Gambling Commission has been applying to a very competitive market, where its role is primarily about probity and protection, whereas with the granting of a legal monopoly, it is also important that there is a regulator who is ensuring that Camelot is working hard to generate proper and maximum returns.

Q86 Chair: If it is a fundamentally different role, why are we merging them? Is it not going to result in two separate bodies sharing one building with a common name, but essentially carrying out two different functions?

Jonathan Stephens: I would characterise it as one body carrying out different functions in respect of different parts of the sector, but with some functions having a good deal of commonality. Although that function that I was just describing, around the economic regulation of a monopoly, is obviously unique to the National Lottery, nonetheless the functions that the National Lottery Commission has around ensuring probity, fairness and protection of players are similar. They certainly have a degree of common areas with the Gambling Commission’s responsibilities, in respect of the wider sector. So although the two functions are not identical, there are significant areas where they are seeking to tackle common problems, common issues, and where a common view on things like research and analysis will aid the unified commission.

Q87 Chair: What amount of staff reduction do you anticipate that will result in, for the merged body?

Jonathan Stephens: I think the bulk of the reductions have come from the collocation of the two bodies, and the sharing of common shared services.

Q88 Chair: But that does not mean staff reductions?

Jonathan Stephens: The two bodies have both reduced significantly over the last few years. The National Lottery Commission has almost halved its number of staff; the Gambling Commission has also come down. Some of that is efficiency saving, and some of that is the sharing of common services: common finance, HR and back-office services. The actual savings from this final step, the ribbon on the present, as it were, of the formal merger, comes from the reduction in the number of commissioners, and, obviously, going down from two chief executives to one. I would not want to pretend that the savings from the formal merger, this final step in the process, are huge. They are not particularly. However, the savings from the process as a whole are quite significant.

Q89 Chair: That was essentially as a result of collocation. It is a bit like DCMS moving in with DFID. You know, you save on the electricity bill. You see this as being more than just sharing office space?

Jonathan Stephens: It is, very definitely, and that is because there has been a very clear direction of travel towards a merged organisation. That means that the back office services can be shared, so they are not just two bodies sitting in the same office but actually becoming a merged body with a common finance function, a common HR function, a common secretariat supporting the board, and so on.

Q90 Tracey Crouch: The House of Lords Scrutiny Committee recommended that the Department publish guidance on how it will oversee the new arrangement for the merger. Is that being drafted?

Jonathan Stephens: We envisage that being in a management agreement, which we will draw up so that it is published and available when the merger becomes complete and formal.

Q91 Tracey Crouch: Will it include measures to ensure that impartiality will be maintained despite the potential conflicts of interest that have been identified both before and during this Committee?

Jonathan Stephens: That is obviously a critical area, and that will be covered in the management agreement but also, as the Chair has been describing, in the governance arrangements that the Gambling Commission, the new merged body, is itself putting in place to manage any potential or perceived conflicts of interest.

Q92 Tracey Crouch: Can the management guidance be sent to this Committee? Would that be possible?

Jonathan Stephens: We are very happy to do so. It will be transparent and published.

Q93 Tracey Crouch: There was a question earlier from Mr Sutcliffe about conflicts. How does Parliament counter any potential concerns that operators might have, for example, that they will be treated less favourably than Camelot?

Jonathan Stephens: Of course it is very important that the merged body treats, and is seen to treat, all areas fairly and impartially, and properly applies its statutory functions to the relevant areas. Like the Gambling Commission and the National Lottery Commission, I think that this is a perceived rather than a real conflict of interest. The objectives of both bodies are pretty closely aligned. Both are about ensuring the probity of the process, providing protection for vulnerable people, and then within that, either enabling gambling or ensuring that returns to the National Lottery are maximised.

It is important to understand that there is no change to those underlying statutory functions and statutory regimes. As Philip Graf was explaining, when the unified body comes to consider an application under the Gambling Act, it will apply only the Gambling Act statutory requirements and criteria. It will not be applying the National Lottery requirements and criteria. As with any basic piece of administrative law, you take into account relevant factors and you must ignore irrelevant factors. It is very clear that, when considering a Gambling Act licence, it is not relevant to take into account the impact on the proceeds of the National Lottery. That is a relevant consideration only when considering the licensing of the National Lottery.

Q94 Tracey Crouch: Will that be written into the management guidance and be very transparent?

Jonathan Stephens: Indeed, it is fundamental to the underlying legislation. It can certainly be brought out, because it is the fundamental answer to why there is not, and should not be, a conflict of interest.

Q95 Tracey Crouch: Do you think that will allay some of the fears that people have about sharing commercially sensitive information as well?

Jonathan Stephens: Obviously it is important that there is trust and confidence that the Commission can properly control commercially confidential information. It does so at present. However, it will obviously need to make arrangements to make sure that there are effective controls over the sharing of that information across its different responsibilities. That is a classic area in which, by its management arrangements and the management agreement, it will need to set out what those protections are.

Q96 Tracey Crouch: Can I just ask one more question about departmental consultations? Last year it was announced that the Department was going to consult about the amount that society lotteries could give to good causes. Could you just explain where this consultation is currently at?

Jonathan Stephens: We have not launched the consultation yet. We have undertaken research on the background to this. Ministers intend to launch the consultation shortly.

Q97 Tracey Crouch: Do you sympathise with the view from the Lotteries Council that this review should take place before any merger of the two bodies, to give that transparency about what is going on?

Jonathan Stephens: Frankly, I do not think that it is linked. I would be keen now to see the merger proceed as quickly as possible, and as quickly as the parliamentary procedures allow, so I would not want it held up for anything else. I think that the consultation is about whether the existing controls on proceeds from society lotteries to good causes should be changed. That is essentially a policy issue for the Department and for Ministers, and ultimately to bring to Parliament. I do not think that it is linked to the merger of the two commissions.

Q98 Chair: You are probably aware of the view of Camelot, which is that the Health Lottery is in breach of legislation. That was not the decision of the Gambling Commission. This Committee has previously expressed the view that whether or not it is in breach of the actual wording of the legislation, it may well be in breach of the spirit of the legislation. What is the view of the Government?

Jonathan Stephens: I think that has been tested in court. Camelot, as they are perfectly entitled to, brought a judicial review, and the review upheld the Gambling Commission’s decision. That upheld that it was a lawful and reasonable decision in the circumstances.

Q99 Chair: That is on the basis of the law as it stands, but if the Government thinks that the original intention was that there should not be something that looks like the Health Lottery, then obviously it is up to the Government to change the law so that that does become clear. Do you think the Government has any intention of looking at this?

Jonathan Stephens: What the Government has said is that it is keeping this whole area under review. It commissioned research to consider the impact on the proceeds to the National Lottery. That research suggested that, at this stage, the impact was insignificant. Nonetheless, the Government has also said that it will consult on whether there may be a case for changing the arrangements governing proceeds from society lotteries to good causes, and the Government will be launching that consultation shortly. It is reviewing the area, looking for the evidence about the impact of any of this, and we will keep an open mind on whether the evidence suggests that action should be taken.

Q100 Chair: This is hypothetical, but if every individual Tesco store launched their own store lottery, which then all came together under the heading "Tesco Lottery", which in effect would be a national lottery, is that something the Government would think of as a breach of the law, or something that should be dealt with through the law?

Jonathan Stephens: Just to be clear, the definition of a breach of the law has been reviewed in the courts, and as one would hope with the regulator, the Gambling Commission’s decision has been upheld as lawful, proper and reasonable. As to whether a change in the law is required, that is going to be governed by the evidence and the impact.

Q101 Chair: But is it still the view of the Government that there should be only one national lottery?

Jonathan Stephens: Yes, absolutely. That is set out in legislation. At the same time, existing legislation has worked well to reflect the fact that there is an appropriate role for society lotteries operating in a different way at a lower scale. This whole area is constantly changing and developing. The Government will keep the evidence under review, and will act if it thinks the evidence justifies it.

Chair: Philip, did you want to ask a question? No? Very restrained. Angie Bray.

Q102 Angie Bray: I wonder if I could use the opportunity of your valedictory appearance to slightly tweak your attention towards the online Gambling (Licensing and Advertising) Bill. It is the final opportunity to ask you why this Bill has not included the recommendation that this Committee made in its own report-that bricks and mortar casinos in this country should be allowed to include online gambling.

Jonathan Stephens: The fundamental purpose of the Bill is obviously to change and improve the regulation of online gambling. It was not the intention to review the regulation of gambling as a whole and the operation of casinos as a whole. Government has chosen to keep it focused on that original purpose, and thinks that as yet there is not a case for changing the fundamental regulation around what can or cannot happen within casinos.

Q103 Angie Bray: Perhaps the changes that you are looking at making in terms of online gambling have made the case for changing the other aspects, simply because you are changing the playing field for so many of our own casinos based in this country in bricks and mortar. Surely it would have been the perfect opportunity to clear up the whole thing in one go. Why have you not done that? Why have you not taken that opportunity? We have raised it in this Committee. It is one of our recommendations, so it is out there, and yet you have ignored it.

Jonathan Stephens: The fundamental purpose of the Bill is to bring back on shore the regulation of most online gambling, and to make sure that most online gambling undertaken by people in the UK is regulated by the Gambling Commission, is regulated by the UK regulator, and is regulated at the point of use. It was not the purpose of the Bill to review gambling regulation across the board and make changes in other areas. The change in terms of bringing the regulation of online gambling back on shore does not fundamentally affect the position and the arguments, which I quite understand, that have been advanced by the casino industry as to whether it is fair or unfair.

Q104 Angie Bray: You are having a direct impact on their business, so surely you have a duty of care, in some respect, to be interested in the fall-out from what you are now proposing. There is a direct link. You cannot simply say, "Well, I hear it, but actually it’s irrelevant." It is not irrelevant. It becomes directly relevant to the health of their business and their ability to compete. I cannot believe that you do not think that is relevant to what you are doing in this Bill.

Jonathan Stephens: Yes, but I am struggling to see the specific impact of the specific change proposed in the Bill, compared with what is possible at the moment.

Q105 Angie Bray: I think you yourself are on record as saying, last July, that you recognised that the gambling industry in this country, in bricks-and-mortar casinos, had a case to make, and that they would have their chance to be heard. That was a year ago. They still have not had their chance to be heard. Having said that, I understand that you have never yet proffered an invitation for them to come and make their case. Is there any particular reason why you are not interested in hearing what they have to say?

Jonathan Stephens: They have every possibility of making their case to Ministers in the way that any other sector of the industry can. We are certainly not ignoring them. Ministers have regular contact with a range of contacts from across the industry.

Q106 Angie Bray: But I think you had said that there was going to be an opportunity for them to make their case formally, and that they were going to be listened to by people like you. Clearly that has not happened. In a sense, you are saying on the one hand, as I understand it, that they have not made their case. However, they have not actually had a chance to make their case in the way that they hoped they would have, which is to sit down in front of you and formally discuss this with you.

Jonathan Stephens: As I said, they have a range of ways in which they can present and make their case. We are certainly aware and very conscious of the issue. We are open to evidence on it, but there are a whole range of differences in the ways that casinos, online gambling and other areas of gambling are regulated. It was never the intention of this specific targeted legislation to undertake a review of all those areas. I am sure Ministers will want to continue to listen, but Ministers’ decision is that they want to keep this Bill targeted on the specific issue.

Q107 Angie Bray: My final thought is that casinos in other countries are going to be able to advertise in this country: "Come to this lovely beach with a fabulous casino," and advertise all the products that are available in that casino, which will include online gambling. Yet our own bricks-and-mortar casinos will be unable to compete with that. That is not a level playing field any longer. We need to look at that, because we want our own bricks-and-mortar casinos to continue in a healthy way.

Jonathan Stephens: Indeed, they are a valuable part of the sector, but there are a whole range of differences. Casinos in Las Vegas can do a whole range of different things from casinos in the UK. That is in the nature of different approaches in different national markets. I do not think that this Bill fundamentally changes that.

Q108 Chair: Mr Stephens, we are conscious that you have another engagement to get to. I am sure you will understand if I say that I hope there is not cause for you to appear before the Committee again. Thank you for the help you have given to the Committee during your time as Permanent Secretary. We wish you well for the future.

Jonathan Stephens: Thank you very much indeed. Can I thank, in turn, the Committee for its help and support, as well as challenge-as is quite proper-across the range of our sectors? I have very much enjoyed my seven years. It has been a period of enormous challenge, change and achievement, summed up with the very successful year last year, with the Games and many other things. I would just like, if I may, to take this opportunity to pay tribute to the civil servants in the Department who, as well as going through a huge period of change, with increasing efficiency and reducing costs and numbers, have actually-and particularly last year-delivered a huge amount for the Department, for the country, and for people who treasure the sectors that we work with. They delivered with a huge amount of commitment, expertise and real dedication. I am very proud of what they and the Department have accomplished. Thank you very much.

Prepared 4th July 2013