Examination of Witnesses (Questions 305
TUESDAY 13 JANUARY 2004
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 thatand I am not sure it is an interestcould
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
Mr Kelly: Mr Chairman, the issue
we have to respond to on thatand I make the point very
firmlyis 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 forecastor 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 thisand I do not intend tobut
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
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 occurringthey
referred us to you. Would it be possible for you to let us have
a notenot now, but in writing afterwardsas 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,
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 businessbut 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 existand of course the proposed legislation
is suggesting they would be removedcould 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 distressin 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
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 viewand I am not talking
now about the Cross-Industry Group but of my own personal view,
because you have put the question to meis
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 nowin 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 leisurewhich we very much doleisure 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
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 thatunlike 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 customersabout 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
articulatedone 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.