House of Commons - Scrutiny of the draft Public Bodies (Merger of the Gambling Commission and National Lottery Commission) Order 2013

Scrutiny of the draft Public Bodies (Merger of the Gambling Commission and National Lottery Commission) Order 2013 - Culture, Media and Sports Committee Contents

1 Introduction

Our inquiry

1. The Minister for the Cabinet Office announced the Government's intention to merge the National Lottery Commission with the Gambling Commission in October 2010 as part of its plan to reform a number of public bodies.[1] The merger of these two regulators had been proposed by the previous Government in its final Budget Report of March 2010.[2] A provision for the merger was included in the Public Bodies Act 2011.

2. In the autumn of 2012, the Department for Culture, Media and Sport (DCMS) completed a 12-week public consultation on the proposal and on 25 March 2013 laid before Parliament the draft Public Bodies (Merger of the Gambling Commission and the National Lottery Commission) Order 2013. The Government outlined the case for the merger and how it met the provisions of the 2011 Act in an Explanatory Note[3] and an Impact Assessment,[4] which accompanied the draft order.

3. Departmental select committees have a responsibility to consider draft orders which are laid by their corresponding Government Department,[5] but they are not obliged to inquire into each order should they not see merit in doing so. In this case, we considered a closer examination of the appropriateness of the merger necessary. Therefore, on 28 April 2013, we invoked an extension to the scrutiny period available from 40 to 60 days under the super affirmative procedure in order to allow sufficient time to hold a short inquiry.[6] At the same time we issued a call for written evidence requesting views on the following issues:

The merits or otherwise of the merger of these two bodies;
Any potential conflict of interests which might arise as result of a merger and the governance structures which might overcome these;
The readiness of the Gambling Commission to integrate the National Lottery Commission into its own structure; and
The accuracy of the projected savings which would follow from a merger.

4. We are grateful to the 11 organisations that submitted written evidence to our inquiry.[7] On 4 June 2013, we took oral evidence from Camelot UK Lotteries Ltd, the National Lottery and Gambling Commissions, and the Permanent Secretary of the Department for Culture, Media and Sport.

Background

GAMBLING COMMISSION

5. The Gambling Commission, the successor to the Gambling Board, was created by the Gambling Act 2005. It is an independent non-departmental public body (NDPB) sponsored by the DCMS. The Commission regulates commercial gambling in Great Britain covering: arcades, betting, bingo, casinos, gaming machine providers, gambling software providers, lottery operators and external lottery managers (save the National Lottery operator), and British-based remote gambling operators.

6. The Commission has just over 200 employees, mostly based in Birmingham, and licenses about 4,000 gambling companies.[8] Its work is funded by fees, paid by the operators that it licenses. Its annual budget is approximately £13 million.[9] There is currently provision for ten commissioners, which includes the Commission's Chair and Chief Executive, all of whom are appointed by the Secretary of State. Since April 2013, two National Lottery commissioners have attended Gambling Commission board meetings in preparation for the planned merger. The commissioners' role is to ensure that the regulator exercises its functions under current legislation in pursuit of the licensing objectives, which are:

to keep crime out of gambling;
to ensure that gambling is fair and open; and
to protect children and vulnerable adults from being harmed or exploited by gambling.

The Gambling Commission is the primary advisory body to both local and national Government on gambling, including the incidence of gambling and the manner in which it is carried out.

NATIONAL LOTTERY COMMISSION

7. The National Lottery Commission is a smaller body than the Gambling Commission. It replaced OFLOT in 1999, which itself had been set up under the National Lottery Act 1993. (In 1999, the governance arrangements changed and the responsibilities passed from a director-general to a board of commissioners.) The Commission is responsible for licensing and regulating the National Lottery. It also runs the competition for the licence and selects the operator of the National Lottery. Its duties are to:

ensure that the National Lottery is run with all due propriety;
ensure that players are treated fairly; and
maximise the amount of money available to good causes.

The Commission also has the following functions:

Licensing each game that the operator wishes to promote, under such conditions as it considers appropriate;
Overseeing the operator's performance to ensure that returns are maximised, in line with its duty to secure net proceeds as great as possible, subject to its propriety and player protection obligations; and
Carrying out checks on the operator's everyday work, for example on the transfer of funds to winners and the National Lottery Distribution Fund.

8. The Commission is also a NDPB, sponsored by the DCMS, operating at arm's length from Government. It currently employs 20 staff (reduced from 34 in 2010/11) and has an annual budget of about £2 million.[10] It is funded through the Consolidated Fund, which is reimbursed by the National Lottery Distribution Fund (the good causes portion of National Lottery ticket sales), net of any fees paid to the Commission by the National Lottery operator.

9. The Commission's board comprises at least five commissioners appointed by the Secretary of State for Culture, Media and Sport, who also appoints its Chair. At present, there are seven commissioners, which includes the Commission's chief executive ex-officio. Principally the commissioners work to secure the greatest possible returns to good causes as well as overseeing the other functions as listed above. The National Lottery Commission exercises its functions throughout the United Kingdom, whereas the Gambling Commission operates only in Great Britain.

THE NATIONAL LOTTERY

10. The National Lottery has been operated by Camelot Group plc under a licence since the Lottery began in May 1994. The present licence, which started in 2009, was initially granted for a ten-year period but was recently extended to January 2023. To date, over £29 billion has been raised for good causes by the Lottery.

CO-LOCATION OF THE COMMISSIONS IN BIRMINGHAM

11. Co-location of the two commissions has already taken place. In January 2012 the National Lottery Commission moved from London to Birmingham to join the Gambling Commission; the lease on its premises in London had been due to expire. Following its relocation, the National Lottery Commission has shared back-office services with the Gambling Commission for all its administrative functions. The prospective savings related to the merger are additional to the savings associated with the co-location. The Explanatory Note suggests that annual savings of over £1 million will be made through the co-location alone from 2014: see following table.

Summary of savings and costs from co-location of NLC and GC staff in Birmingham
Financial Year	Savings	Costs	Net
2011/12	£274,245	£1,056,000	-£781,755
2012/13	£1,597,000	£1,213,000	£384,000
2013/14	£1,597,000	£685,000	£912,000
2014/15	£1,597,000	£475,000	£1,122,000
Notes:
1. Savings and costs are entirely distinct from those associated with the proposed merger
2. In 2014-15 estimated savings include £800k on accommodation and £500k on salaries
3. Costs in 2013/14 and 2014/15 are mainly contingency amounts allowed for by DCMS in case savings are not delivered as expected
Source: DCMS Impact Assessment

We note that the majority of the estimated co-location costs allocated to financial years 2013/14 and 2014/15 are contingency amounts which have been provided for in its financial plan for "unexpected circumstances". We would assume therefore that the overall annual savings in 2014/15 which are derived from the co-location should turn out to be significantly higher than the estimated £1,122,000 in the Impact Assessment, and that the DCMS is being cautious in its estimate.

Previous inquiries looking at the merger

12. In 2004, during scrutiny of the draft Gambling Bill, the Government did not support the idea of the new Gambling Commission regulating the National Lottery. It argued that regulation of the National Lottery had to be separate from the rest of the gambling sector because the National Lottery Commission had a unique regulatory responsibility to ensure that returns to good causes were maximised.[11] It saw a risk of a potential conflict of interests. Our predecessor Committee concurred with this view.[12]

13. The Joint Committee on the Draft Gambling Bill reported a week later; it took the opposite view. A common argument made to it had been that the Commission should regulate the entire gambling industry to ensure a unified approach to regulation, and in particular social responsibility. It concluded:

"The Committee is attracted to the idea of a single regulator, and takes the view that there would be distinct advantages for the National Lottery if it were to be included within the remit of the Gambling Commission rather than excluded from it… ".[13]

However, the Joint Committee did not consider it would be feasible to transfer the regulation of the National Lottery to the Gambling Commission before the next licence competition for the Lottery, which was to take place in 2007.

14. More recently, in 2012, we considered the Gambling Commission during our post-legislative scrutiny of the 2005 Gambling Act. We noted then that a merger could produce savings. We concluded that the Gambling Commission should:

"continue to effect cost saving measures as part of the proposed merger with the National Lottery Commission wherever these would not interfere with its statutory objectives".[14]

However, more specifically, in respect of the Gambling Commission itself, we concluded that the Commission had not gone far enough in its efforts to reduce its operating costs. We recommended that an independent review of the Gambling Commission's expenditure be carried out once a new system for remote licensing was in place, which the Government agreed to give consideration to.[15] We continue to hold the view that a review is necessary.

1 HC Deb, 14 October 2010, col 27WS, Public Bodies Reform Back

2 Budget 2010, Securing the recovery, HC(2009-10) 451, para 6.35 Back

3 See: http://www.legislation.gov.uk/ukdsi/2013/9780111537626/pdfs/ukdsiem_9780111537626_en.pdf; accessed 10 June 2013 Back

4 See https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/73013/IA_GC-NLC-merger-july2012.pdf; accessed 10 June 2013 Back

5 See Standing Order of the House of Commons No.152K Back

6 Culture, Media and Sport Committee, Fifth Report of Session 2012-13, Scrutiny of the Draft Public Bodies (Merger of the Gambling Commission and the National Lottery Commission) Order 2013, HC 1104 Back

7 See list of written evidence on page 20 Back

8 Government Response to the Select Committee Report: The Gambling Act 2005: A Bet Worth Taking?, CM 8531, para 76 Back

9 Qq 39-41 Back

10 Qq 33-34 Back

11 Culture, Media and Sport Committee, Fifth Report of the Committee of Session 2003-04,Reform of the National Lottery, para 60 Back

12 Ibid, para 62 Back