Appendix: Government response
Letter from Rt Hon Hugh Robertson MP, Minister
for Sport and Tourism, dated 8 August 2013
I am writing to thank you, in your capacity as Chair
of the Culture, Media and Sport Select Committee, for your Committee's
report on the Order enabling the Merger of the Gambling and National
Lottery Commissions, published on 5 July. I am doing so, unusually,
during Parliamentary Recess as the Merger Order debate is scheduled
to take place immediately upon the return of the House of Commons
on 2 September. I have copied this letter both to the members
of the CMS Committee and to those MPs who are scheduled to appear
at the Delegated Legislation Committee to debate the Order.
The Government is committed to merging these two
bodies, as we continue to believe that the merged body will be
well placed to advise on gambling and National Lottery matters,
make evidence-based regulation easier to achieve and create synergies
in understanding game and technological development. This is in
addition to the limited economies of scale obtainable from a single
regulator. I am grateful to the Committee for recognising that
the merger remains justified, and set out below my response to
the various matters raised in your report.
CONFLICTS OF INTEREST
Paragraph 37: We conclude that the case for bringing
these two regulators together under the provisions of the Public
Bodies Act is justified but it will be important that safeguards
are put in place by the Gambling Commission to ensure its motives
and actions are clear, logical and not liable to challenge. To
counter any perceptions of bias the Gambling Commission will need
to be able to demonstrate clearly how its decisions are taken
in accordance with either the National Lottery or gambling legislation.
Paragraph 38: To mitigate any conflicts—or,
indeed, perceived conflicts—of interest arising, we recommend
that the Gambling Commission outline the governance arrangements
it is to put in place to ensure a robust separation in its duties.
We recommend that the detail of these arrangements be published
in time for the debate in the House on the draft Order.
The Government agrees with your recommendations that
the Gambling Commission outline governance arrangements that ensure
a demonstrable separation of duties and mitigate against perceptions
of bias. We have identified that, insofar as the merger may create
governance issues, these would fall into the following three categories:
- Perceptions of bias
- recognising that to address possible perceptions of bias, the
Commission will need to be able to demonstrate clearly that its
decisions have been taken in accordance with either the National
Lottery regulatory framework or, as the case may be, other gambling
legislation.
- Operational conflicts of interest
- reflecting the fact that the merged Commission must act to only
consider relevant factors during its decision making.
- The handling of commercially sensitive data
- ensuring that such information does not inappropriately inform
a decision in another area, and is not released to a rival operator.
The expectations of the Department for Culture, Media
and Sport in relation to these governance issues will be incorporated
into a Management Agreement between the Department and the merged
Commission. I have written to the Gambling Commission and we have
agreed the governance principles which will need to be applied
when exercising their functions and how they will be monitored.
Applying these principles (and incorporating them into all of
the Commission's governance documents and the Management Agreement)
will ensure that the merged Commission is able to demonstrate
that it has satisfactorily addressed and managed each of these
areas of risk. I have attached the exchange of correspondence
with the Commission discussing this (Annex A).
MONITORING
Paragraph 39: We recommend that the Department
outline what steps it will take to monitor the Gambling Commission's
execution of its combined duties and what action it will take
should there be evidence that the return to good causes is suffering
as a result of the merger, or that gambling operators are being
treated less favourably owing to the new regulatory arrangements.
The Department will continue to monitor the Gambling
Commission's overall performance following the merger, including
through regular reporting, sponsorship meetings and annual reports.
However, we have previously stated that the merger will have no
impact on regulatory decisions; consequently we do not expect
any reduction in returns to good causes or impact on gambling
operators as a result of merger.
The Department currently monitors the amount of funds
that the National Lottery provides to good causes and will continue
to do so should the Commissions be merged. This is done on a regular
basis and any significant trends are quickly identified and discussed
with the National Lottery Commission. However, Lottery sales rise
and fall in the normal course of commerce. The lottery operator
has a strong incentive to ensure that sales and distributor income
are maximised at all times. Hence, if a falling trend were to
become established in the future, it is far more likely to be
the result of developments in the gambling market than of factors
such as regulatory change. Monitoring National Lottery donations
to good causes would not be an effective way of monitoring the
effectiveness of the merged Commission's governance arrangements.
Nevertheless in on-going discussions surrounding changes to National
Lottery income, we shall continue to seek to understand all and
any issues that might be a cause.
Turning to other gambling matters, in addition to
Parliamentary scrutiny, the Department will maintain both its
oversight of the merged body (as described above) and its dialogue
with the gambling industry. Decisions relating to individual licence
or compliance work (as opposed to overall gambling policy) are
for the Commission rather than the Department. With respect to
any claim that one or more gambling operators have been treated
less favourably, any specific allegations of misuse of confidential
data or that Commission decisions have taken irrelevant considerations
into account may be actionable in law. Operators have the fundamental
safeguards provided by judicial review and their right of appeal
to the 1st Tier Tribunal (Gambling), as appropriate, as well as
(for example) a civil action for breach of confidence. In addition,
any allegations of maladministration would be appealable to the
Parliamentary Ombudsman.
MERGER COSTS
Paragraph 22: 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.
Paragraph 36: We still find it extraordinary that
the National Lottery Commission has required so many staff and
such a large budget to oversee a single company.
The Department considers that the planned costs associated
with the merger appear to be necessary and reasonable. The largest
of the costs associated with the merger are redundancy payments
and integration of the IT systems (accounting for well over 60%
of the £872k costs), and engagement with stakeholders. These
costs will be monitored by the Department (and accounts considered
by the National Audit Office and Parliament) as a result of the
reporting and accounting duties to which the merged Commission
will continue to be subject, and the Department will continue
to be responsible for approving the budget for National Lottery
regulation and the fee levels for Gambling Commission licences.
Similarly, the Government does not share the assessment
that NLC costs have been extraordinary. The NLC's role in relation
to client management provides an essential safeguard and protects
both the public's and Government's investment in the National
Lottery. Unlike the NLC, the Gambling Commission need not concern
itself with its licensees' income collection or with the effectiveness
of their marketing and games development strategy. The NLC has
to provide assurance to Government that all the money due to good
causes is in fact collected and paid over, and that changes sought
by Camelot to the terms of its bid (such as the sale of the company,
its subsequent corporate restructuring and the proposal for a
licence extension) do not prejudice the interests of the public,
the Government or good causes. That said, the Government agrees
that regulatory costs should not be unnecessarily incurred, and
notes that the NLC's costs have reduced significantly over the
last few years, from £4.2m to £2m, in part in anticipation
of the merger. It should be noted that the cost of regulating
the National Lottery represents 0.04% of National Lottery income
(and 0.14% of returns to good causes), and the current National
Lottery licence the NLC successfully negotiated with Camelot in
2009 is generating well in excess of an additional £60m per
annum for good causes.
NATIONAL LOTTERY REGULATION
Paragraph 36: Given that the underlying rationale
for this merger is about efficiency, effectiveness and economy,
we believe that the regulatory mechanism should be adjusted to
give Camelot more licence to act.
The way that Camelot is regulated is set out in the
licence that they bid for, following a competition to test the
market, which explained the terms. Many of these terms are to
safeguard the national benefit during the current licence and
to enable future licence competitions to be run fairly and in
a manner that attracts strong competition. As a state undertaking,
the Government has an enhanced interest in ensuring that the National
Lottery is run properly and effectively, as poor performance by
the operator will cause reputational damage which may go well
beyond the operator's licence period. To renegotiate the licence
now, without the benefits of competitive pressure, would be very
difficult and might necessitate a new competition, under public
procurement rules. Considering the associated risks, the Government
is unconvinced by the argument for revisiting the terms of the
existing licence.
ACCESS TO GAMBLING BY AGE
Paragraph 20: 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. 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.
Your report made reference to the difference in the
participation ages for different gambling products. The minimum
age of 16 for certain lotteries conducted for charitable, sporting
or other purposes was set by the Betting, Gaming and Lotteries
Act 1963. This was extended by the Lotteries Regulations 1977,
made under the Lotteries and Amusements Act 1976, which made it
a criminal offence to sell a ticket to a society's lottery or
a local lottery to anyone under the age of 16. It was therefore
consistent to replicate this longstanding policy for the National
Lottery when it was introduced in 1994. I am not aware that this
age restriction has caused any significant concern in relation
to young people's participation.
The Chair of the Gambling Commission has explained
that he has asked a 'reference group' of GC and ex-NLC Commissioners
to review the approach to player protection issues. This will
identify to what extent those approaches differ between the current
Commissions, the reasons for any differences and whether they
could be justified. The reference group was also charged with
identifying which policies or approaches should be given priority
by the merged body in terms of review and development of the merged
body's policies and procedures. This exercise will include the
approach to the regulation of products accessible to those aged
16 and 17 (e.g. lotteries and pool betting) but will be doing
so on the basis of the current statutory framework (i.e. on the
assumption of no change in legislation).
I would once again like to thank you for your scrutiny
into the merger of these two bodies. We have found the report
helpful, and are grateful to have had this opportunity to provide
you with further clarification and explanation, which I hope addresses
your remaining concerns.
8 August 2013
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