2 Assessing the case for a merger
Is there support for the merger?
15. The legislative effect of the draft order
under section 2 of the Public Bodies Act would be to abolish the
National Lottery Commission and bring its functions into the Gambling
Commission. The DCMS explained that merging the two commissions
in this way would achieve the main aims of the Public Bodies Act
whilst preserving the appropriate and effective regulation of
gambling and the National Lottery.[16]
There were 11 responses to DCMS's public consultation seeking
views on the proposed merger. The Government suggested that the
low response rate was an indication that few had concerns about
the proposed changes.[17]
Out of the 11, eight respondents were content for the bodies to
merge, but several of the eight expressed some concerns, mainly
to do with the fundamental difference in the regulators' statutory
duties; three opposed the merger.
16. All but two of the respondents to our call
for evidence generally agreed in principle with the merger though
some qualified their support highlighting certain concerns. Camelot
was in favour of the merger and understood the rationale as being
the reduction of bureaucracy and duplication, which would lead
to savings for both the regulator and the regulated.[18]
Camelot told us that:
"There is a lot that is consistent at the moment
[between the regulators], 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 return 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."[19]
The People's Postcode Lottery, an external lottery
manager, similarly expressed overall support for the proposal
but thought safeguards had to be put in place owing to the conflict
of interests that could arise when dealing with matters pertinent
to all lotteries.[20]
In written evidence, MyLotto24 Limited, another external lottery
manager, said that it considered the potential conflict of interest
between the respective statutory duties of the Gambling Commission
and the National Lottery Commission to be significant enough to
render the merger "without benefit and unfavourable for existing
gambling licensees".[21]
We consider the difference in the regulators' statutory duties
and the problems that could arise as a result below (in paragraphs
25 to 31).
Are the purpose conditions in
the Public Bodies Act satisfied?
17. Section 8 of the Act stipulates how a proposal
must meet the purpose of improving the exercise of public functions.
Section 8(1) states that a Minister can make an order only if
he or she believes that it will serve this purpose. In making
the case for a merger it provides that the Minister should have
regard to: efficiency; effectiveness; economy, and securing appropriate
accountability to Ministers. We consider whether these criteria
are met below.
18. Section 8(2) states that a Minister may make
a merger order under section 2[22]
only if he or she considers that:
- the order does not remove any
necessary protection, and
- the order does not prevent any person from continuing
to exercise any right or freedom which that person might reasonably
expect to continue to exercise.
The Minister considers that the conditions
in section 8(2) of the Public Bodies Act 2011 are satisfied by
this proposal. We agree.
EFFICIENCY, EFFECTIVENESS AND ACCOUNTABILITY
19. According to the DCMS, the merged Commission
would be a more efficient body with its overall board membership
reduced from 15 to 10 members and its executive functions fully
integrated under one chief executive, building upon the shared-service
arrangement already in place. Jonathan Stephens, Permanent Secretary
at DCMS, told us that a merged body would be able to advise Government
on the basis of a broad overview of the gambling sector as a whole
while being careful to exercise its distinct statutory functions
in different areas.[23]
The DCMS explained that the unified regulator would:
- Act as a single authoritative
source of advice for Ministers across both sectors which would
help ensure, where appropriate, a common regulatory response to
similar issues.
- Make evidence-based regulation easier to achieve
and create synergies in understanding game and technological developments;
and
- Facilitate common regulatory responses to similar
issues.[24]
20. We accept that this new arrangement would
facilitate rounded responses to Ministers on matters that are
relevant to both the National Lottery and the gambling industry.
Two imminent reviews will test the effectiveness of this new arrangement.
We were told by the Gambling Commission that it is to look into
the question of player protection and the minimum ages for playing
the National Lottery and other forms of gambling.[25]
Presently players of the Lottery must be at least 16 years of
age but for most other forms of gambling participants must be
18 or over. This is clearly an anomaly and we welcome the commitment
of the Gambling Commission to examine this. The DCMS is also due
to conduct a consultation on whether to change the minimum amount
of proceeds that society lotteries have to return to good causes.
No doubt the Commission will have a role in advising Minsters
on this matter too. These reviews would clearly test the merged
regulator's authority and ability to advise on matters in an impartial
manner.
21. We do not believe this proposed merger will
necessarily enhance accountability to Ministers, Parliament and
the devolved administrations, except insofar as there will be
a consolidation of responsibilities under one Commission. This
will go towards meeting the Government's objective of reducing
the number of public bodies. Equally, though, accountability would
not be weakened in any way.
ECONOMY
22. After 2014/15, once the transitional costs
of the merger have been accounted for, the DCMS estimates there
would be annual savings of approximately £170k (2009 prices)
from the merger itself. The Impact Assessment suggests that the
merger would involve initial costs of £800k (see table 2
below for a breakdown of costs) but over a ten-year period it
is forecasted to deliver a net saving of £330k.[26]
Given the co-location
costs have been accounted for separately, we find the costs associated
with the merger itself surprisingly high. While we received no
evidence questioning the accuracy of the projected savings and
costs given in the Impact Assessment, we believe that the transitional
costs associated with the co-location and formal merger should
not be as high as the DCMS anticipates and consequently the overall
savings delivered should be greater. It will be incumbent on the
new Commission to avoid any unnecessary expenditure in bringing
National Lottery regulation into its fold.
| Table 2: Costs of merger 2013/14
|
| Description of cost
| £000
|
| Redundancy
| 385 |
| Stakeholder engagement on merged body
| 150 |
| Transition of IT systems
| 150 |
| Transition of working practices
| 26 |
| Establishment of NLC sub-committee
| 10 |
| Auditing costs
| 30 |
| Payroll and pensions
| 10 |
| Website development
| 20 |
| Total |
781 |
| Source: Impact Assessment
| |
| |
23. According to the National Lottery and Gambling Commissions
the savings would mainly result from the reduction in the number
of board members and some modest savings in sharing "top"
management.[27] Savings
would also be derived from combined auditing and annual reporting,
and through unified payroll and pension administration.[28]
In addition, a merged body would be likely to deliver some other
small efficiency savings. Jonathan Stephens described the final
step, the formal merger, as "the ribbon on the present".[29]
He said that the savings from the formal merger would not be huge,
but those from the entire process would be quite significant.
24. MyLotto24 Ltd pointed out that the financial
benefits had already been largely realised with the co-location
and that negligible additional benefit would be realised through
the merger itself.[30]
While it did not contest the accuracy of the estimated savings
provided by the Department, it did not believe the financial basis
for the merger justified the conflict of interests it could create.
Potential conflicts of interest
25. For us the crux of the matter is the appropriateness
of bringing these two bodies together and whether the new merged
regulator would be able, and importantly be seen to able, to maintain
an even hand between the National Lottery and the competitive
gambling sectors in the course of fulfilling its combined statutory
duties. As was pointed out by Professor David Miers in response
to DCMS's consultation on the merger, a single, unified regulator,
if its rulings favoured gambling operators, could be accused of
undermining the Lottery's capacity to fund the good causes.[31]
This is just not a theoretical risk: there has already been litigation
when Camelot unsuccessfully challenged in the High Court the Gambling
Commission's decision to allow the Health Lottery to continue
managing 51 society lotteries in its current form.
26. Conversely, the merged Commission could be
at risk of complaints that it was discriminating against commercial
operators in order to advantage the Lottery. The Health Lottery
said its main concern was that a regulatory body incorporating
officers whose duties were to protect a monopoly could result
in the newly merged regulator having a bias against the Health
Lottery, in particular, and the society lottery sector in general.
It questioned how a single regulator could fairly regulate all
lotteries if its core function was to prioritise one operator
above all others.[32]
Similarly, MyLotto24 Ltd anticipated that the merged body would
regularly be challenged to demonstrate its governance controls
and to defend with greater frequency its decisions where it could
be argued that influence had arisen from competing statutory duties.
It suggested that this in itself could place demand on the Commission's
resources and limit or cancel out any financial benefits for licence
fee payers and the public.[33]
27. The Lotteries Council pointed out that its
members had been concerned by the contrasting approaches that
the Gambling Commission and National Lottery Commission took when
the variations on the monetary limits to society lotteries were
increased in 2009. It argued that the Gambling Commission had
taken a constructive and progressive approach to regulation of
charity lotteries in supporting the increase in monetary limits,
whereas the Lottery Commission had been against this move. The
Council's key concern now was how the two Commissions would reconcile
their differing strategic priorities.[34]
The Lotteries Council called for DCMS to announce a timetable
for a further review of the monetary limits that apply to society
lotteries before the merger took place.
28. The Gambling Commission likened the merger
to a machinery-of-government change where it had a new function
added on, but all its other duties would be performed much as
before, with careful governance.[35]
Philip Graf CBE, Chair of the Gambling Commission, explained:
"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
… it will come to the main board, and the main board will
make the decision".[36]
"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."[37]
29. Camelot said that it thought that any conflict
of interest would be likely to be a perceived rather than an actual
conflict, because the proposed legislation seemed very clear,
in that the duties that would be exercised by the Gambling Commission
post-merger, in relation to the National Lottery, would be only
in relation to its functions as prescribed under the 1993 Act.
It would not have a general duty otherwise to promote the interest
of the National Lottery.[38]
30. The DCMS has noted that the merged body would
need to demonstrate through its accounting that there was no cross-subsidy
between the National Lottery and gambling functions.[39]
The Department has said that the existing accounting requirements
to which both commissions were subject would be amended so as
to show the merged organisation's income from the various sources
and its expenditure on discrete areas of activity.
31. The merged Commission will also need to put
in place arrangements to protect the confidentiality of commercially
sensitive information provided to it by Camelot, for example when
the regulator is evaluating whether to license a new game. Camelot
said that such information was inherently extremely sensitive
and, as such, it was particularly concerned to satisfy itself
that the arrangements that were to be put place to safeguard it
were appropriate.[40]
Readiness of the Gambling Commission
to integrate the National Lottery Commission
32. Two respondents to DCMS's consultation referred
to our 2012 report into the 2005 Gambling Act in which we found
the Gambling Commission to be "an overly expensive, bureaucratic
regulator".[41]
We recommended that an independent review of the Gambling Commission's
expenditure be carried out as soon as possible after a new system
for remote licensing was in place. BACTA[42]
said that as our report had raised the issue of cost, effectiveness,
value for money, priorities and confidence in the Gambling Commission,
it did not believe that the merger should take place prior to
the completion of the review.[43]
In fact, BACTA went further in not agreeing that the merger of
the two bodies satisfied the purpose test under the requirements
of the Public Bodies Act 2011.
33. As noted above, we continue to believe an
independent review of the Gambling Commission should take place
once the regulatory regime governing remote gambling is in place.
As of 2 July 2013, the Gambling (Licensing and Advertising) Bill—which
imposes a new regime on remote gambling—was awaiting its
second reading in the House of Commons. However, we do not share
the view that the review of the Gambling Commission must take
place before a merger goes ahead. The review of the Gambling Commission's
costs and fees in respect of the wider industry is a separate
matter which is not directly relevant to the public test that
needs to be satisfied when looking at the merger of these two
regulators under the Public Bodies Act.
16 DCMS Explanatory Document Back
17
DCMS Explanatory Document, para 9.2 Back
18
Ev 16 Back
19
Q1 Back
20
Ev 25 Back
21
Ev 27 Back
22
Section 2 of the Act lists those bodies where some or all of their
functions would transfer to a merged body Back
23
Q79 Back
24
DCMS Explanatory Document, para 7.14 Back
25
Q58 Back
26
DCMS Impact Assessment Back
27
Ev 20 Back
28
DCMS Impact Assessment Back
29
Q88 Back
30
Ev 23 Back
31
Professor David Miers responded in a personal capacity to the
consultation. He is deputy Chair of the Responsible Gambling Board Back
32
Ev 24 Back
33
Ev 23 Back
34
Ev 27 Back
35
Q47 Back
36
Q48 Back
37
Q52 Back
38
Q4 Back
39
DCMS Explanatory Document, para 7.17 Back
40
Q6 Back
4 41 1
HC (2012-13) 421, para 204 Back
42
BACTA is a trade body representing the British Amusement Industry Back
43
Ev 29 Back
| 
