Examination of Witnesses (Questions 940
- 959)
TUESDAY 27 JANUARY 2004
MR NICK
HARDING, MR
ANTHONY BRENNER
AND DR
MARTIN RAWLINGS
Q940 Chairman: Is the uncertainty
on grandfather rights impacting on decisions made by businesses
in your sector?
Mr Brenner: Very definitely. In
relation to my own business, for instance, we are seaside piers—and
I am just one example from our membership—we have had to
suspend the second phase of a major regeneration project to keep
up to pace with fire regulations because of the uncertainty. This
has been at the cost of a whole year's turnover and therefore
until this Bill is enacted we are standing still. I believe that
is the case with quite a lot of seaside businesses.
Dr Rawlings: If I could quote
the Minister formerly in charge of the Gaming Bill, he said "uncertainty
is an expensive commodity for business". We certainly would
not disagree with that. Grandfather rights have been a bone of
contention throughout this discussion. To go back again in history,
we only found out just before publication of the Licensing Bill
that grandfather rights would not be allowed and only a last-minute
intervention by the Minister reversed that. That would have had
very serious consequences for this industry and many others. Equally,
the same applies here, that many people in their business contracts
have to preserve those rights into the future and I think what
we are still not certain about, even with the undertaking now,
is how long those grandfather rights will exist. There is a question
as to whether they will come up for renewal in themselves and
that to my mind is not a grandfather right, that is just a delay
of execution.
Q941 Chairman: We will come on to
machine numbers in a moment but could I ask you this as well:
is it satisfactory in your view for the four categories of gaming
machine to be defined in regulations made by the Secretary of
State, which can be changed without consultation with your industry
and with only limited parliamentary scrutiny? It is a very leading
question I know.
Dr Rawlings: It is a very easy
question to answer; absolutely not. It is crucial the way the
machines are categorised. They are categorised for a purpose.
At the moment we have got four categories. We would probably argue
there should be an A* category for unlimited prize machines. I
think there certainly needs to be proper consultation and there
needs to be proper parliamentary scrutiny. We would not object
to this necessarily in primary legislation but secondary legislation
must be by positive resolution and after consultation with all
interested parties, absolutely.
Mr Brenner: I would echo that
absolutely.
Chairman: Thank you. Lord Brooke?
Q942 Lord Brooke of Sutton Mandeville:
This is a question for Mr Harding. You have recommended that "the
Government should, before proceeding any further, undertake its
own independent study of the wider economic and social impacts
of the proposals." Why do you think that is necessary?
Mr Harding: I think we were very
concerned that initially the only research seemed to be coming
from, for instance, REPILE the cross-industry group. More recently
obviously we have welcomed in the current publication of BACTA
the Henley Research, and whilst I would imagine that the members
of BACTA probably have a vested interest, nevertheless, I think
you have to recognise the fact that it is a very broad church
and has as part of its membership people with casino machines,
operators of pubs, people like ourselves, operators of amusements
at seasides, and so on. I think the Henley Research is probably
pretty objective and we would welcome that. We were concerned
that again such an important piece of legislation appeared to
be appearing before us and nobody really knew what the dynamics
of the industry were currently and they were not able to make
any reasonable predictions as to what might happen in the future.
Q943 Lord Brooke of Sutton Mandeville:
You also recommended a cautious approach towards any change in
the gambling industry. In your view, given that we now have the
majority of the draft Bill, do you think that does represent such
an approach?
Mr Harding: No. We feel and I
feel that what is being proposed currently represents more of
a big bang. I think we are very concerned about the possibility
of large numbers of large casinos with unlimited numbers of machines
appearing around the country. We run the risk of creating a situation
from which it would be very difficult to withdraw. The gambling
industry in the United Kingdom is very mature. It has sprung up
over a number of years and through different pieces of legislation
it has almost been "salami sliced" and that seems to
work because if a new piece of legislation is introduced if it
is clearly not appropriate then you can take a step back. As it
is being framed currently, we have big concerns about the numbers
of casinos that will appear—not only the effect that it
will have on the mature gaming industry in the United Kingdom
but also the other corollary which we think will result which
is a large increase in the number of problem gamblers as a result
of those casinos.
Q944 Lord Brooke of Sutton Mandeville:
In recommending a step-by-step approach—and I follow why
you do that—is there any risk of that being an example of
the British disease of always thinking of reasons for not doing
something?
Mr Harding: No, I do not think
so. I think the deregulation process has worked very well. I have
worked in the industry for almost 30 years and it has served us
well. We have recently received another piece of deregulation
which allows us to put notices in machines for credits. It was
quite a long, painstaking process but we got there, we ticked
the box and we can move on. I do not think it holds us back at
all.
Dr Rawlings: If I could just add,
certainly in the pub sector we have taken that cautious approach
ourselves over many years with the Gaming Board and I think that
is quite a consistent approach to that. This would not be a scrutiny
committee if there were not some concerns about that. One only
has to look at the effect of fixed odds betting machines of which
there are now 20,000. We already know the effect of that on the
market, which is bad. What we do not know yet is the effect on
problem gamblers. That was a big bang that was not looked for,
so I would certainly echo what was said.
Q945 Mr Wright: I think my pile of
questions has been touched on but could you give us an overview
in terms of the associations that you represent as to what you
expect the likely impact of the Bill as it currently stands will
have on your relative industries.
Mr Brenner: Yes, our main concern
is the future viability of seaside businesses, parks, piers, piers
especially, which are Victorian buildings and fantastically expensive
to maintain. We see that these will be the major losers of this
Bill if it goes ahead as drafted. I just cannot see that it is
right for the trivial end of business to suffer to such a degree,
ie, freezing of stakes and prizes, the threat of imposed age restrictions
and actual reduction in certain prize values for redemption machines.
We see that the freezing of stakes and prizes will impact heavily
on profitability in the future and as we would not be able to
keep pace with inflation with increased wages, especially the
national minimum wage, and the ever increasing tax burden, it
would seem grossly unfair to us to put us in that position. The
imposition of an age restriction for Category D machines would
have an enormous impact on our customer base, which is mainly
in the family fun sector, and we would see a large reduction in
visitor numbers who mainly attend as a family unit. Our ambition
is to maintain our successful formula which has been developed
over several generations of family-owned entertainment centres.
Almost 100 per cent of our coastal amusement centres are family
owned. In many cases these have been able to reduce the rate of
decline and play a positive role in the regeneration of the resort.
They are commercially successful at the moment because of the
mix of equipment. Sorry to put everything in one answer.
Q946 Chairman: It is very helpful
to that have publicly on the record. Dr Rawlings, did you want
to add?
Dr Rawlings: The Committee will
see that KPMG carried out research for us and that is attached
to our evidence. Their findings on that projecting through to
the year 2009—and this is a forecast not an economic study—are
that we would see a 20 per cent reduction in pub gaming income
over that period and that is quite a substantial amount of hard
money for pubs to lose. So we have not been able yet to even think
about evaluating the effects of what these large resort-style
casinos might do in terms of the local effects on the economy.
Essentially these are huge pubs. They offer gambling, food, alcohol
and entertainment, all of which is in pubs apart from hard gaming,
we are the soft gaming side. We are slightly concerned at the
economic effects of this 20 per cent of £500 million net,
which is quite a lot of money, and it has to be found somewhere.
Q947 Chairman: Mr Harding?
Mr Harding: It is difficult to
predict obviously what sort of percentage drop it will be. There
will undoubtedly be cannibalisation and substitution of the existing
business. If we were to see the so-called "cruise away"
casinos appearing in towns and cities I think our particular sector
might lose 20 per cent as a reasonable estimate, and I have to
say running a business operating on a 15 per cent margin that
it would close, it is as simple as that. It would be quite devastating
potentially.
Q948 Mr Wright: I know it is very
difficult to give hard and fast figures, but we have always been
told during the process of this Bill that we stand to gain many
more jobs and more money for the economy. What you have given
is obviously, certainly in the seaside resort of the type that
I represent and obviously within the beer trade, a gloomy picture.
What would you estimate that the probable job losses would be
in terms of the current Bill as it stands at the moment, bearing
in mind your comments?
Mr Brenner: We do not really know
the figures as the Bill stands at the moment but I foresee that
within five years on the expected prevalence studies we would
go down by half perhaps and I would have thought that by the end
of 10 years, listening to this Henley Report that BACTA has instigated,
it is going to be almost terminal. When I came here this morning
I was worried sick about the future viability of our business
and now I really am prepared to offer my seaside pier for sale
if anybody wants to buy it!
Q949 Chairman: Substitution is what
always happens when you bring new competition into any market
with new products.
Mr Harding: Chairman, I would
not disagree with that and, of course, that is the free market
and that is the commercial environment within which we work. We
find it difficult. We have absolutely no doubt whatsoever that
we will see a large increase in problem gamblers. If you create
a situation where you get cannibalisation from the existing businesses
in the United Kingdom and the United Kingdom gambling betting
industry and you get cannibalisation as well which means that
you do not get a large increase in tax revenues and the offshoot
of that is a large number of probable gamblers that are appearing,
I just do not see the sense in doing that.
Q950 Lord Brooke of Sutton Mandeville:
This question is addressed primarily to Mr Brenner but the others
can answer if they wish. What is your view of Bill Slim's observation
in World War II in 1945 that "no news is ever as good or
as bad as it first appears"?
Mr Brenner: We have been looking
at this for some considerable time and discussing it within our
associations for two years. How long does it take?
Dr Rawlings: Could I come back
and perhaps say for the record, Chairman, that there are just
under 60,000 pubs in the country. That is a fairly good round
figure. There are about 80,000 machines in there. I certainly
would not disagree with Lord Brooke in that observation and we
are certainly quite reticent to go round screaming foul and loss
of jobs, but if you look at the way the market is structured it
is not unreasonable to look at the bottom end of that and 1,000
was mentioned earlier as being under real threat. Those are at
the tail end of the market where the income to the publican is
very low. The amount a machine could contribute to that could
be relatively high in proportion. We would say the 5,000 at the
bottom end—and we measure that in terms of pubs that qualify
for rate relief under the rural rate relief scheme and the rates
are linked to turnover so they are a measure of their success
or failure—is a reasonable number to look at. If you took
that 1,000 number as under serious risk that is a lot of businesses
and jobs, never mind the effect of that income being lost across
the market.
Q951 Lord Mancroft: Could I ask you
to look at that in slightly more detail. Some pubs do not have
any machines at all, some have three or four. How important is
this machine income for pubs as a proportion of income? What would
be the effect of limiting the number of Category B machines in
pubs to two by right?
Dr Rawlings: It is a complicated
question in a sense because it is horses for courses. Those pubs
that do not have machines will be at both ends of the market.
There are those public houses that are much more restaurant or
entertainment based and they do not encourage or have any machines,
and that is seven per cent of the market which do not have machines,
and at the other end the very small pubs may not have a market
at all because there is a price for entry for machines as well,
so you have both of those effects. In the general terms in the
middle of the market the income is very important because it is
the difference between a successful business and a non successful
business. Of course the larger the number of customers you have
the larger the number of people you have who want to play machines.
Fifteen per cent of the adult population play machines in pubs,
75 per cent of people go to pubs, or in other figures there are15
million pub visits a week, so a lot of people go in there and
a lot of people enjoy playing machines. It is about entertainment
at this end of the market, so they are crucial from an income
point of view and from getting the product mix that is right across
the board for those pubs.
Q952 Lord Mancroft: You may not be
able to answer this: the pub industry is very vulnerable at the
moment, and I think everybody knows that, but how much income
is coming into pub landlords from their machines? I am told that
the turnover is about £3 billion a year machine income.
Dr Rawlings: I will try and illustrate
this as well as I can. If you took the average income per week
of money coming in before cost it is something around £240
a week and so you can multiply the figure up. I can give you a
more real example perhaps. I can recall that we wrote to the Minister
some while ago about rural pubs. If we take a pub with a turnover
of £100,000 it might take £6,000 on a machine, out of
which it nets £3,000 as gross income. That guy running that
pub would probably only take home about £10,000 a year and
some pubs take quite a lot less than that, and the reason for
them being there is they get accommodation and so forth or they
enjoy it. £3,000 out of £10,000 is an awful lot of money
to that pub and it is the difference between carrying on and not
carrying on.
Q953 Lord Wade of Chorlton: Just
following on from that, how persuaded are you that the regulatory
system over access of people under 18 to machines in pubs is controlled?
Are you satisfied that is not happening or do you believe in many
instances people under 18 can access machines in pubs?
Dr Rawlings: This is something
we have looked at very closely over the last few years. I have
to say we have argued and asked the Government for a number of
years for a regulation in place to ensure that under-18s are not
allowed to play. Could I remind the Committee that it is not against
the law for under-18s to play machines in public houses but we
did put it in our Code some years ago. We were the first outlets
to have a Code and we asked and persuaded suppliers to put notices
into machines and all cash machines now have an under 18s sticker.
We are very satisfied in our own mind that under-18s do not go
to pubs to play machines.
Q954 Lord Wade of Chorlton: Following
on from that, would you accept something in this Bill that said
that only people 18 and over should have access to machines?
Dr Rawlings: We would positively
welcome that.
Q955 Lord Wade of Chorlton: You would
welcome that?
Dr Rawlings: Absolutely.
Q956 Lord Mancroft: Could I ask you
to come back to the issue of two Category C machines by right,
bearing in mind that some pubs have none and some currently have
three or four. That is going to have an effect, is it not, if
they can only have two?
Dr Rawlings: If they were restricted
to two, undoubtedly. Our estimate is that about 18 per cent of
pubs have over two machines now, that is about 11,000. Those 11,000
will be at the larger end of the market so in terms of turnover
of the market I have not done the sum but I think you could safely
estimate that somewhere between 35 and 40 per cent of the market
are dependent on the machines that they have in place to generate
the income and so forth, so yes they are hugely important.
Q957 Lord Mancroft: Putting aside
grandfather rights, is there a number of machines by right that
you would want or you would like?
Dr Rawlings: We have asked the
Government through the Home Office and Gaming Board for about
eight years to have four machines as of right. The reason for
that primarily is that nobody can actually tell us why you should
not have more than two nor on what criteria do you base whether
you should have more machines. We quite accept that there need
to be controls on machines. We are certainly not looking for any
Australian-type public experience, absolutely not. If you were
to allow four machines by right you would not need to have applications,
you would have no appeals, the market we reckon would probably
only increase by about five per cent and that is only because
it is artificially constrained at the moment by many magistrates
who will not allow more than two, in fact, some will not allow
more than one but on what basis we know not.
Q958 Lord Walpole: Mr Brenner, I
think you have answered most of the question I was going to ask
you by saying that you wish to sell your pier! We have heard a
great deal about the contribution which resort-style casinos could
make to seaside resorts and you have told us already the contribution
that your family-owned amusement arcades are already making and
that the Bill does threaten them, but how many of your own members
are looking at trying to become resort casinos and take on the
competition that may come in?
Mr Brenner: This is open to them
obviously but I do not see that the country can support very many
of these resort casinos when you look at the size and the cost.
It is not in our sector's field really but I believe there is
one and it is Blackpool that we are looking at because that is
the one that has been suggested so far. I think our existing smaller
resorts will not even manage to support a single casino but the
customers will gravitate towards one in a neighbouring area.
Q959 Lord Wade of Chorlton: How would
you describe your experiences with the way that local authorities
approach gambling matters and does this experience suggest that
local authorities should be required to follow Gambling Commission
guidance? Dr Rawlings, you have already referred to that in your
opening question but maybe you might enlarge on that a little
bit.
Dr Rawlings: I would be happy
to. We do not have any experience of local authorities at the
moment in terms of gambling because they do not regulate us at
the moment but since the new Licensing Law will be administrated
by local authorities we think it is entirely logical therefore
that they cover machines. What we do want to do and what we did
with the Licensing Bill is to work with the LGA and LACOTS to
have guidance where we all understand where we are. I think that
is equally important for local authorities as it is for industry.
I think it is very damaging not to have that guidance alongside
the Bill. It was actually promised with the Licensing Bill and
did not happen. It caused all sorts of ructions as your Lordships
who were in the House know and they will know how much time that
took up in the House of Lords. I would really make a strong plea
that any guidance occurs in advance so that everyone can see before
we get going in debating the Bill that there is a problem.
Mr Harding: Our experience is
that local authorities are not always objective in their approach
to gambling matters. We see it first of all through the planning
process. We have many experiences where local authorities will
say to a planning officer who has already proposed that the planning
application be approved that the planning officer should go away
and find a reason why it should not be approved and then we subsequently
win on appeal because we go for very objective proposals. We think
that there should be strong guidance to prevent ambiguity. We
think that there should be a strong judicial appeal system with
all appeals held de novo to enforce consistency in the
country.
Mr Brenner: We are rather concerned
that political and possibly personal considerations could have
an adverse effect on decisions. We consider that strict Gambling
Commission guidelines should be in place so that there will be
a national standard. If you have a strong Gambling Commission
with a strong Code which the local authorities are bound to follow
it would produce a level playing field under which we could all
compete.
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