Examination of Witnesses (Questions 320
- 339)
TUESDAY 13 JANUARY 2004
PROFESSOR LEIGHTON
VAUGHAN WILLIAMS,
MRS BRIGID
SIMMONDS, MR
IAIN WILKIE,
MR JOHN
KELLY AND
MR JIM
TWOMEY
Q320 Mr Page: If I could take you
back to the question Lord Mancroft started on remote gambling,
we see remote gambling going up day by day but it is also highly
mobile. If we get the balance between regulation and taxation
wrong, then, zonk, it is gone somewhere else around the world.
How do you see the Government getting that balance right and in
such a flexible fashion that, if there is a world alteration,
the Government can react quickly enough to make sure that remote
gambling stays in the UK and the revenue stays in the UK?
Mr Wilkie: I think, from the operators'
perspective, they know that people will use their sites if those
sites are trusted, in that the games are fair, they will be paid
out if they win and their credit card details are secure. If you
can create for the player and the operator, and, indeed, the investor,
an environment where it is known to be a strong and trusted environment,
that outweighs to some degree the advantage of lower taxation
regimes elsewhere. I think there will always be companies, as,
indeed, there are individuals, who do not like paying any tax.
To an extent, I am not sure you can really gear the proposals
to those individuals. Whatever you do in the UK, they will stay
offshore because they do not want to pay tax. I do not think the
majority of the UK operators fall into that. I think they recognise
that there is an obligation to pay some tax but, equally, if they
do come onshore and they take advantage of that trusted and respected
regime, the other side of it is that that regulatory regime has
to be properly enforced. I do not think you can expect people
to pay tax and to fit in with advertising codes (which are going
to be very important, whether it is PC or television gaming or
remote gaming) or broadcasting codes and to comply with those,
if you are not prepared to enforce those codes and the regulation
that also fits around that.
Q321 Mr Page: I am sure you are aware
of the concerns being expressed by the industry in the UK over
the way in which betting exchanges could be used by internal insider
dealing to the disadvantage of the ill-informed or uninformed
punter. I wonder how you feel the Government should react on the
whole question of integrity of betting exchanges—whether
it is a role for them at all or whether it is for other people.
Mrs Simmonds: In our evidence
we supported quite clearly the role of bookmakers, that betting
exchanges should be regulated, not in the way that they are going
to be regulated at the moment but that they should be fit and
proper in all the other ways that everyone else is regulated and,
indeed, bookmakers are. I do think that is an important part of
taking that industry forward. One of the interesting findings
of public perceptions of the E&Y study was that something
like 90 per cent of people considered that playing sport was more
important than watching it but, of those who watched it, 47 per
cent thought it was more exciting if you actually placed a bet
on it. I think that is where you are going to see an increase
in remote activity.
Q322 Mr Page: If I may follow up
on that, we had a visit to BetFair and they have a very comprehensive
paper chase, an electronic paper chase, through the betting system.
A concern was expressed that there was not the system in place
to follow up, if there were any doubts, about malpractice taking
place; that inside the whole gambling industry there was not the
necessary enforcement there to take action.
Mrs Simmonds: I think that is
going to be a very important part of the Gambling Commission's
new role. I think we would all very much support the fact that
the Gambling Commission will have the right to prosecute where
something does not go right. At the moment you only have that
ability if you are the police.
Q323 Chairman: Is there not a danger
that the growth of betting on betting exchanges could exceed the
growth of betting in other forms—which is really what we
are talking about now—given that a few years ago they did
not exist and they seem to be taking a bigger and bigger share
of the gambling market?
Mrs Simmonds: I have to say that
we do not have any of our members who are involved in that part
of the business as members. It is not an area we have considered
and I think it is too sectorial for us to go into it in much more
depth than I have.
Mr Kelly: I think it is the same,
Mr Chairman, as far as we are concerned. We would never ever say
that we were experts in betting exchanges and the forecasts that
they might put forward.
Q324 Mr Page: They are a threat to
your business.
Mr Kelly: At the moment there
is no impact whatsoever on the bingo or the casino business, in
my view, from betting exchanges. To quote Brigid, it is sectorial
and I think it will have a different area of spend from which
it will grow, as opposed to casino or destination casino or bingo
business.
Q325 Mr Page: I find it impossible
that you should say that. We had a visit recently to GamCare,
where they said that problem gambling from the internet is their
fastest growing area. If one assumes there is a pool of money
available for gambling, if this section is taking more and more
it must impact on your business. I am quite surprised to hear
the answer you gave.
Mr Kelly: To be clear, there is
no evidence at this moment in time of an impact. It is not an
area particularly, in the Cross-Industry Group, that we have addressed,
specifically because we wanted to address the economic impact
of this proposed deregulation on the business as it currently
stands.
Professor Vaughan Williams: I
think Mr Page's question confuses internet betting in general
with exchange betting. GamCare are talking about problem gambling
resulting from internet betting. I do not think they are specifically
pointing out betting exchanges, which I do not think are a major
cause of problem gambling, although I am not an expert in this
field—but, from my own research and analysis, we have looked
at the effect of betting exchanges since the 2001 Budget and margins
would have decreased significantly even if betting exchanges had
never existed. Any effect that they have is small in the study
that we have done. In large part because of high elasticity of
demand and so on, the turnover that is going through betting exchanges
is complementary not substitute for existing betting on bookmakers.
Q326 Lord Brooke of Sutton Mandeville:
There was a famous article once by the editor of the Harvard
Business Review that the problem with the shipping industry
was that they thought they were in shipping and did not realise
they were in transport! To the answers you gave Mr Page a moment
ago, do you think that article has any relevance?
Mr Kelly: I feel like taking the
Fifth on that one! I think one has to take an overall view. Clearly
you made the point yourself that there is one pot at the moment
that services the growth and the current revenues that come out
of the gambling industry. However, there is a very, very clear
view in my opinion—and it is my opinion—that at the
moment there is no obvious substitution coming out of internet
gaming or betting exchanges—of which I have very little
knowledge, so, forgive me. It is not an area that I am involved
in, not an area I am commercially involved in. Clearly, if there
was an explosion of online or internet gaming, which I do not
see occurring, luckily—and Iain Wilkie has already given
evidence that there are one thousand sites available to play at
this moment in time—were there to be a massive explosion
either of those or, indeed, betting exchanges, then there might
be some on destination-based activities. But I am not in the business
of just providing gaming, nor at the moment are the Cross-Industry
Group; we are in the business of providing destination leisure
opportunities through which gaming is delivered. That is a very,
very different market from somebody betting at a betting exchange
or on internet gaming.
Q327 Jeff Ennis: In response to an
earlier question, Ms Simmonds referred to the fact that the Gambling
Commission will have powers to prosecute where we get offenders
under the new regime, as it were. How often and how extensively
do you envisage the Gambling Commission will have to resort to
prosecution?
Mrs Simmonds: I do not know how
much they resort to prosecution now. I do not think I would see
it as a huge amount but it would depend on how seriously they
work with the police in this matter and how seriously the police
take this. At the moment, I do not see a lot of resource going
into, for example, checking that children under the 18 are not
playing machines in fish and chip shops. Certainly we would support
the Gaming Board in having machines removed from those premises
where they are not properly monitored. I think that has to be
something that they have to work very closely with the police
to take forward and I think DCMS are involving the police in their
consultations about the changes to this Bill.
Q328 Jeff Ennis: So effectively there
is going to be quite an amount of additional resource required
to police the bill.
Mrs Simmonds: I think there is,
yes.
Q329 Jeff Ennis: The new conditions.
Mrs Simmonds: Yes.
Chairman: Lord Donoughue wants to ask
more about displacement.
Q330 Lord Donoughue: Yes. Increased
spending on gambling may lead to displacement from other parts
of the leisure industry. This has already been touched upon. I
would welcome it if you would tell us the significant differences
between substitution and displacement. Could you go back again
and summarise for us the industries or sections of, say, the leisure
industry which will be damaged by the expansions in some areas
which are proposed under this bill and perhaps indicate the sections
which will benefit. Could I finally put to you a more general
point: Is it possible that after all this process of movement,
of displacement, of substitution, that on a national economic
basis there will only be a little—and I do not say none
but a little—economic gain, but actually a movement, a displacement,
from one sector to another?
Mrs Simmonds: If you go back,
you will be aware that in 1998 BISL commissioned KPMG to undertake
the first study. In that study we looked at percentage of leisure
spending. About 10 per cent of GDP we spend on leisure, and 1
per cent of GDP on gambling. I think the changes that we see coming
about in terms of spending would be from other forms of leisure.
We do not see it being that people will stop buying household
essentials and turn to gambling but that they will use the money
they have already spent on leisure to spend on other forms of
leisure. That happens all the time. That is just like the argument
about whether you have takeaway and you drink your beer at home
or whether you go out to drink it in a pub. All the evidence so
far—and I am sure Iain will have a view on this—is
that leisure spending is continuing to grow. I do not see the
change in gambling in having a huge effect on that. There is obviously
the tourism issue to which we can perhaps return.
Mr Wilkie: I agree. Leisure service
spending is continuing to grow at the same time as within society
there is a growth in the number of people who are essentially
money rich but time poor. There are some quite interesting trends
going on in terms of not only how much money people spend on leisure
but where and when they spend it. In terms of sectors to gain,
to come back to your specific question, we ought to put tourism
on the table. We have looked at the impact of tourism and that
is quite complicated, in that there is tourism that is commercially
driven, there are people who come to the UK because there are
conferences or exhibitions, there is leisure tourism, there is
holiday tourism and there is short haul and long haul. We believe
that certainly the short-break market within Europe—and
of course that is tied in with the low-cost airlines as well—will
be stimulated: people will come into the UK partly for conferences
and while they are here they will play at the new style casinos;
people within the UK, we believe, will choose not to take some
short breaks abroad but to take them in the UK as well. We believe
there will be some tourism stimulation from this.
Q331 Lord Donoughue: No damage. I
asked if the industry will be damaged.
Professor Vaughan Williams: I
have looked at a number of international studies over the economic
impact, the growth of casino and gaming establishments, and, to
be honest, they generate widely divergent results, often dependent
upon who is sponsoring the report, who is funding the report.
An Arthur Andersen report for the American Gaming Association
argued there were no substitution effects because gambling promotes
economic growth, whereas a study for the US so-called "Better
Government Association" contends that casinos have had a
negative impact on the local economy. A mainstream view, in my
opinion, published in a well respected US academic policy journal,
found evidence of significant substitution between gaming and
its closest substitutes; that is businesses in the entertainment
and amusement sectors. Evidence about the likely displacement
of consumer expenditure from commercial retail establishments
is much more mixed. I think the balance of opinion is of the view
that gambling succeeds as an economic activity when it is effectively
exported to residents from other communities outside the area
where it is located, based on the idea that people will travel
to gamble.
Mr Twomey: You raised some important
issues. I think right at the outset of this exercise we were very
clear to the Cross-Industry Group that we would be taking a sophisticated
look at the issue of displacement and we would be considering
the issue in great detail. In some ways I can cope with Professor
Vaughan Williams' view, in the sense that we are quite convinced
there will be some dispersement effects from certain other leisure
sectors, particularly areas such as pubs and maybe restaurants—nightlife
type activities.
Q332 Lord Donoughue: They would be
losers.
Mr Twomey: Well, you also raised
in your question an interesting point. You placed a negative effect
on displacement, but clearly from an economic perspective the
process of displacement is a key driver into the way in which
economies develop and in which products emerge and produce efficiencies,
and consumers benefit through the process of gaining what we would
call consumer surplus; in other words, they put their money where
they feel they get the best reward for their pound. Widening the
opportunities in deregulation may provide higher levels of consumer
surplus and consumers may benefit from that process. The process
of displacement generally has negative connotations but we should
be aware of the fact that displacement is the battlefield through
which progression and improvement takes place.
Q333 Lord Wade of Chorlton: In coming
to these conclusions did you take account of the black economy?
Mr Twomey: In terms of this report,
we do not make any conclusions about the black economy.
Q334 Lord Wade of Chorlton: In coming
to the conclusions you do, do you take account of the black economy
on the figures you are dealing with—or the figures in the
public domain?
Mr Twomey: I do not think we do.
Q335 Lord Faulkner of Worcester:
Can any of our witnesses tell us whether they carried out any
work into the displacement effects of the National Lottery, where
there was a new gambling product . . . how many years ago? It
clearly had a devastating effect on its closest competitor, which
was the football pools business, wiping out around about three-quarters
of their business. Where else did the revenue for the National
Lottery come from?
Professor Vaughan Williams: May
I refer you gentlemen to my earlier answer to the earlier question
where I said that work in the US suggested the expansion of slot-machines
was associated with a reduction in the lottery revenues, the strongest
displacement effects being found from the big-prize games. My
own research into the UK market found that gaming machines and
gambling were substitutes for lottery spending.
Q336 Lord Faulkner of Worcester:
Yes, but where did the lottery money come from? Where did the
money that people have been spending on the lottery in the last
eight years come from?
Mr Kelly: Certainly, as you have
quite rightly articulated, the pools were almost devastated by
the lottery. I do not think they would describe what happened
with any other word. Bingo had about 12 per cent of its revenues
. . . Not from the lottery, but from scratch cards—and I
am assuming that is generically what you are referring to—
Q337 Lord Faulkner of Worcester:
Yes.
Mr Kelly: It was scratch cards.
Actually about 3 per cent was lost out of bingo at the time the
lottery was introduced and then about another 9 per cent of spend
overall was lost out of bingo when scratch cards were introduced.
Mrs Simmonds: I think that on
a lot of the work that has been done, looking at the National
Lottery, people see the National Lottery as very much akin to
a charity raffle and a lot of people would say they do not gamble
although they do play the National Lottery.
Q338 Lord Faulkner of Worcester:
That is a subject we are looking at in this Committee.
Mrs Simmonds: It is a subject
that is worth looking at—and I have to declare some interest,
obviously, as a member of Sport England, in this subject. I actually
do not believe that people who play the National Lottery are going
to be people who are then going to be moving to playing casinos.
I think you are talking about really a very different market there.
Q339 Lord Faulkner of Worcester:
That is not the question I was asking. I was asking what the consequence
of the National Lottery was in terms of displacement.
Mrs Simmonds: Yes. There has been
a consequence and I think there will be a consequence on displacement
of the National Lottery.
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