Joint Committee on the Draft Gambling Bill Minutes of Evidence

Examination of Witnesses (Questions 305 - 319)



  Q305  Chairman: May I welcome, first of all, Professor Leighton Vaughan Williams; Brigid Simmonds who is representing Business in Sport and Leisure; John Kelly who is representing the Cross-Industry Group on Gambling Deregulation and who is accompanied by Jim Twomey of Pion Economics; and also, last but by no means least, Mr Iain Wilkie from Ernst & Young. We also have here Elliot Grant from the Department, from the bill team, whom we can consult, should any point on what is in the bill become contentious, for clarification. Could I also ask you to note that a transcript of this meeting will be produced and placed on the internet. In the extremely unlikely event of a division, the Committee will suspend for 10 minutes and the public gallery will be cleared, but I do not anticipate any division this morning. Could I also ask you to note that a full declaration of interests was made at the beginning of the first meeting and information for the public and a note of members' interests is available. On that—and I am not sure it is an interest—could I make the observation that Brigid Simmonds and I sit as trustees together under the Register of Exercise Professionals of which I am the honorary Chairman. Could I remind witnesses and members of the Committee to speak up as the acoustics are not good here. On a point of information, the second witness session this morning will be with the Minister John Healey, who is in standing committee until 11.25. We expect to begin to take evidence from him at around 11.30-11.35. It is my intention, if we can get through the business with these witnesses, that there should be a brief pause in between but not a formal suspension of the Committee. Could I also make the observation, as there are five of you: please do not feel that you should all make a contribution in answer to every question. Some of the questions will clearly be directed at particular witnesses but if any of you has an additional point to make we would wish to hear it. The Cross-Industry Group and Pion report, the Gambling Deregulation Impact Study, suggests that the modernisation of gambling legislation will be very beneficial for job creation, public finance contributions and inward investment. Gentlemen, how accurately can you estimate the likely increase in demand and spending if the provisions in the draft bill became law? By what methods do you think the growth in gambling spend should be estimated?

  Mr Kelly: Mr Chairman, the issue we have to respond to on that—and I make the point very firmly—is that the Pion report is not a forecast. I think that is fairly key to everybody's evaluation of it. It is an economic model based on a base case which has been delivered by the members of the Cross-Industry Group to Pion, and Pion have then extrapolated that base case forward. So it is not a forecast; it is a mathematical economic impact document. We are not suggesting that this is a forecast of what is going to happen. This is, if you like, an equation by which we arrive at certain conclusions regarding the possible impact of deregulation. I think we would freely admit, therefore, that there is nothing we could say which would convince the Committee that this is an absolutely accurate estimation of what will happen. This is our best view, given the aggregate investment intentions of the Cross-Industry Group, delivered to Pion. Pion have then made certain assumptions on the basis of the aggregate investment intentions that they have taken from the group and have then moved forward to arrive at the conclusions of which I know you are aware. However, I would make the point, I think, that we believe, because of the make-up of the Cross-Industry Group, because of the experience and because of the business expertise of those within the Cross-Industry Group, this is a pretty robust base case. So I would say that, although this is not going to be accurate to the nth degree, generally the Cross-Industry Group believes that, although this is an independent document, it is   an independent document based on good assumptions. My view is that there will be other views; those views will be defensible. We are here to give information to the Committee on the Pion report and the Cross-Industry Group has mandated me as their spokesperson because they do have confidence in the way that the Pion report has been compiled. That is a short answer to your question but I do not know whether Jim Twomey would like to add to that from the perspective of the author of the report.

  Mr Twomey: Mr Chairman, in response to the second issue you have raised, in terms of forecasting, I think we are in a terribly difficult situation here, in the sense that we are facing what could be a very complex structural change in the nature of the industry. I think, therefore, that concentrating on previous transient patterns is useful but may not actually give us too much in the way of information because of the nature of the change that is about to take place. In our report, quite clearly, we have looked at some of the evidence from other jurisdictions which has formed part of the process and we have taken quite seriously the perspectives and the investment intentions of members of the group, because at the end of the day, I think, these are the people who are standing by, willing, ready and able to make concrete investment decisions based on strict and sound commercial principles. If the Committee is looking for a way of forecasting the future, I would advise the Committee to stop at that point. It is a complex issue and a range of considerations come to form the perspective of the future.

  Professor Vaughan Williams: I would make a semantic point really: an economic impact study effectively does forecast—or at least anyone who reads it will say, "This is what is going to happen." How is it different? I am not convinced that it is. I am also a bit more confident that you can predict, than these two witnesses on my right. For instance, when my team and I produced the consultation for the Customs & Excise prior to Budget 2001, we had to look at the impact of a radical change to the structure and nature of taxation in this country. On the estimates that we made (according to Customs & Excise's own report): Exchequer receipts, after one year, were within 1 per cent of our initial projections. That was a forecast based on econometric and economic techniques. So I say it is possible to forecast. Sometimes it is harder, sometimes it is easier, it does not mean that every study is going to be right or even that any study is going to be right, but I just think I could be more optimistic that we can gauge what is going to happen, that we can use economic impact studies, than the two gentlemen who spoke before me.

  Q306  Chairman: At the moment the law does not allow demand to be stimulated and proof of need always comes across as a major requirement of licensing of new premises. When that changes, have you taken into account in these studies what stimulation might be?

  Mr Twomey: Yes, indeed, we have. We had a very long and detailed discussion within the group of the nature of the participation once certain of the restrictions you are talking about are removed. We have had very detailed discussion and the nature of the content of the report here details that the group came to a decision that participation in casino gambling would increase from round about 3 per cent currently to about 10 per cent over the course of the first five-year period.

  Q307  Chairman: Estimates of the likely increase in spending and employment vary greatly. The DCMS has estimated that modernisation will lead to an increase of spending on gambling. Your report suggests £2.2 billion. How do you account for such discrepancies?

  Mr Kelly: There are variances as opposed to discrepancies, Chairman. Excuse me getting into a semantic debate on this—and I do not intend to—but I think the issue is that there will be different views. We have taken the views of a significant number of both domestic and overseas operators, so we have blended the experience of the way that we believe the consumer will respond to a new landscape, new gaming environment. We have taken a view, as Jim has mentioned to you, about how they will respond in the light of other experience in other jurisdictions. Through that process, by establishing that base case and moving forward and arriving at some conclusions, we absolutely accept that other people may take different views about the way that they respond. I think the point Jim made is an important one: we are talking about a structural change in the landscape here. This is not necessarily just playing in the margins of an environment of legislative changes; this is a structural change and, therefore, I think we would all accept there are going to be different views as to how the consumer might respond. One key one is, of course: Will the participation rates in the adult population in casinos, for instance, move from 3 per cent to 10 per cent? That is, to an extent, a subjective figure. It takes into account the experience in other jurisdictions but that is a very sensitive number. If that number were 7 per cent or if that number were 12 per cent, the economic conclusions would be dramatically different.

  Q308  Lord Brooke of Sutton Mandeville: When we were in Blackpool on an informal basis before we started taking formal evidence, we cross-examined the North West Development Team about a forecast which they were making about particularly the increase in jobs that would be involved. When we asked the supplementary question: How many jobs would be lost?—in other words, what degree of substitution is occurring—they referred us to you. Would it be possible for you to let us have a note—not now, but in writing afterwards—as to how that calculation came out?

  Mr Kelly: I am sure we could do that. We would be happy to.

  Q309  Chairman: We are going to come on later to potential displacement. It is a question that it is easy to push to one side. There is bound to be some balancing.

  Mr Kelly: We will provide a note, Mr Chairman.

  Chairman: Thank you very much.

  Q310  Lord Wade of Chorlton: We have received evidence suggesting that, while some sectors of the industry will gain greatly from the proposals, others will suffer serious economic harm. What impact are the proposals in the draft bill likely to have on the existing industry?

  Mrs Simmonds: Lord Wade, if I could pick that up, I think the studies that we have done have shown that bookmakers and pools are unlikely to be affected by the Gambling Bill, but, because many people travel to bingo, there will be an effect there. We have supported the British Beer & Pub Association submission, which shows that pubs without four machines of right could lose as much as 20 per cent of their custom, which will put some of those marginal outlets out of business. Certainly Business in Sport and Leisure thinks it is terribly important that this is a balanced bill. Balance is not only about expansion but about controlling what we have now. It is quite clear from the intentions of the Government that people will have to control access to machines in various premises. It will have to make sure that they are properly managed. It will not be good enough to show that it is done by CCTV. Certainly all our members are very clear that social responsibility in this area is hugely important. It is getting that balance right, between the economics of what you are going to take away and actually seeing the expansion that is important.

  Q311  Lord Wade of Chorlton: Are you satisfied that the balance is being struck?

  Mrs Simmonds: I certainly think we would support the BBPA, that pubs should have full machines of right. There is very little evidence to suggest that they have caused a problem in the past, why are you therefore making a restraint on something that is not causing a problem?

  Q312  Lord Wade of Chorlton: Following on from that, the Pion impact study for the Cross-Industry Group notes that "increasing casino gambling may have some substitution effects on bingo activity." You have already commented on this. How significant do you think this could be?

  Mr Kelly: I think, Lord Wade, we have said that about 10 per cent of the additional spend that will come out of the deregulation (which is not related to increased income and therefore is just related to deregulation itself) will come from bingo. If you then transmit that over to bingo earnings, that is some way between seven and 10 per cent of bingo spends could well migrate into the wider gaming landscape as a result of the proposed legislation. Having said that, I have the honour of being responsible for the country's largest bingo operation and my view is that bingo is an enormously robust business. It is embedded in the social infrastructure of the UK, it has a great part to play. I would say that, wouldn't I?—it is a major part of my business—but I am not personally projecting that there is going to be a significant impact on bingo. I believe that having a wider opportunity and high volume/low ticket gaming for a greater part of the population, without the barriers to entry which currently exist—and of course the proposed legislation is suggesting they would be removed—could in many ways benefit bingo. So I take perhaps a less bleak view but I understand entirely from an economic impact document perspective and from Pion's perspective that they had to make certain assumptions about migration. I hope that puts it in context in terms of my view on it.

  Q313  Lord Wade of Chorlton: Because of your involvement, how do you think the actual bingo industry is likely to respond to these feelings?

  Mr Kelly: I think it will be patchy. I do not think one can say it is going to be homogeneous activity across the whole of the UK and that different parts will change. It depends very much on the deployment of the new opportunities and new offers across the UK landscape. I am just intuitively, instinctively, hugely confident about the bingo business. I have worked with it long enough to know that our customers are enormously committed to this product. I do not necessarily see an enormous migration from what is a very specific and very well-defined product and environment into what will be a totally new and different environment. That is not the way that heretofore our patrons have behaved, and therefore I think there will have to be a response in terms of the bingo industry being aware of how it should conduct itself in a new gaming environment but I do not think that necessarily means to say it will be in distress—in fact, I would think quite the opposite.

  Lord Wade of Chorlton: Thank you.

  Q314  Chairman: Is it not a real concern that some bingo opportunities will be lost if the bingo club becomes a casino?

  Mr Kelly: I think that is an issue, Mr Chairman, and I accept that entirely. Equally as much, I think, you could talk to a number of different bingo operators across the landscape and some would say they believe that a significant proportion of their bingo clubs should be transferred to casinos and others would not. My personal view—and I am not talking now about the Cross-Industry Group but of my own personal view, because you have put the question to me—is—

  Q315  Chairman: We will look at that when the bingo people come to talk to us. Professor Vaughn Williams wants to answer the question and then Lord Mancroft has a supplementary

  Professor Vaughan Williams: If I may answer this question more generally. I have conducted an extensive review of the international literature on substitution effects within the gambling industry between one form of gambling and another. If you look at the US work, there tends to be an agreement that the expansion of slot-machines there has been associated with a reduction in lottery revenues, the strongest displacement effects being found for the big-prize lottery games. My own research into the UK markets supports this analysis. I have found that gaming machines and casino gambling are substitutes for lottery spending, at least up to this point. I have found only weak evidence, however, of substitution between casino and gaming spend and betting and only weak evidence to date of a substitution effect between gaming activity and bingo activity.

  Q316  Lord Mancroft: You have not mentioned at all the issue of remote gambling. We are going to end up presumably with a brand new and enhanced remote gambling industry, probably leading the world. Bearing in mind the massive change there has been between high street retailing and internet shopping and the extreme change in casino establishments in a very short period of time, what effect is the arrival of a considerable remote gaming industry going to have on the terrestrial industry?

  Mrs Simmonds: I think it partly depends on how it is regulated. Gambling is available on every internet site you visit now—in fact, I am horrified in some cases, if I visit sites educationally for my children, to be offered the opportunity to gamble. I think we are all agreed that it is hugely important that internet gambling is well regulated, because only if it is well regulated, and those who regulate their sites well are encouraged by the regime to come here, will it work and we must take action against those who do not abide by regulation. I think only time will tell. As an overall theme, if you see gambling as part of leisure—which we very much do—leisure is fashion-led and fashion changes. You will get changes in fashion and you will come back to change. If you look at the cinema industry, the enormous expansion of cinemas did not mean that we shut down every small cinema; it actually increased the number of people who went to the cinema. I think you will see that change in gambling as well.

  Mr Wilkie: I think remote gambling is here already. There are already, it is said, in excess of one thousand internet casino sites. For those to be strongly regulated is a real positive. At the moment, UK operators are not able to get an online casino licence regulated in the UK. It is a question of trust for the customer. I think the customer will be more attracted to an online casino which they know is strongly regulated and that regulation is enforced. I think that regulation also needs to be tied into enforcement around advertising codes and enforcement around broadcasting codes. I think that enforcement then protects those operators who do come onshore, and who are accepting and, indeed, supportive of strong regulations, which means that those who stay offshore and do not accept strong regulation therefore have to be taken to task over that—unlike the existing situation. In summary, I would say it is a very positive thing to bring remote gambling regulation into the UK, so long as it is of a high level and it is strongly enforced.

  Q317  Lord Mancroft: But you do not see it as having a negative economic effect on the industry.

  Mr Wilkie: No.

  Mrs Simmonds: No.

  Q318  Mr Meale: Mr Kelly, you have described the bingo industry as being very robust and one which will adapt. Taking the Chairman's question a little bit further, the bingo industry has probably the best voluntary code in the whole gambling industry in how it supports and redistributes back monies to the   customers—about 11 per cent, I think. If bingo establishments do adjust into casinos or a bit of both, do you still see the industry retaining that voluntary code of redistribution and support?

  Mr Kelly: Absolutely. I think there are some key characteristics of bingo which you have just articulated—one of them in particular. I think that is not just a cosmetic characteristic, I think it is absolutely inherent in the offer and why that offer has been so robust and so defensive, if you like, over the past 20 to 30 years. It is an intrinsic part of the product offer and I do not think that will change one iota in a revised environment.

  Q319  Mr Meale: I think that is very comforting, but do you think that from the casino side they will equally match that statement you just made?

  Mr Kelly: I cannot say on behalf of the Cross-Industry Group because we have not had that debate specifically about how individual companies will operate their businesses, but there will still be a significant degree of regulation of casinos. That regulation will be in many ways economically led in terms of the returns to customers. One of the things we have to be very clear and have been clear on in the casino industry for a number of years now is that one is transparent about what the return to the customers can be. I would not see that changing one iota in a revised environment. I do not know, bluntly, any fellow operator of casinos who would want to change that. I think that is a very important part of our relationship with our customers as well as part of the regulatory environment.

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