Supplementary memoranda from The Rt Hon
Tessa Jowell MP (DGB 169)
Andrew McIntosh and I were pleased to have the
opportunity to give evidence to the joint Committee on the Draft
Gambling Bill on I March. I would like to reiterate that I see
the work of the Committee as integral to the process of developing
and taking further this draft legislation.
It was unfortunate that time did not permit
us to explore all the policy issues that you proposed to cover
on the day. I am grateful for the opportunity to answer your remaining
questions, in writing.
QUESTION 20
Do you agree with the general position that
services should be regulated in the same way, regardless of whether
or not they are provided online?
Answer
In broad terms I believe regulating remote and
other forms of gambling in the same way is correct. All forms
of gambling need to be subject to the same licensing objectives;
so that, for example, the Gambling Commission will carry out checks
on the integrity and competence of all prospective operators in
order to ensure that people who want to gamble on an internet
site with a Commission licence have the same degree of confidence
that it will be run fairly as people who gamble in a licensed
British casino. These checks will be of equal rigour in all cases.
However, because of the way in which remote
gambling is made available to customers there are different, and
additional, regulatory risks which do not arise in the same way
as with traditional gambling activities. One obvious risk is of
participation by children; hence the need for effective age verification
systems of a kind for which there is no "bricks-and-mortar"
parallel.
There have already been cases in Europe of wireless
internet gambling without adequate safeguards against participation
by children. I explained when I appeared before you our commitment
to protecting children, and this is a good example of why remote
services require different regulation from premises-based services.
The nature of the medium used for remote gambling
also requires specific safeguards against uncontrolled play, such
as so-called "reality checks" and a displayed running
tally of gains or losses per session of play. The positive aspect
of remote gambling is that the technology, as well as posing new
regulatory risks, also provides new opportunities for such safeguards.
The comprehensive package of measures which we published last
year in our position paper on remote gambling gives a good indication
of the considerations which the Gambling Commission will need
to discuss with the industry in drawing up licence conditions
and codes of practice specific to remote gambling.
QUESTION 21
Are you concerned that remote gambling operators
will argue for lower taxes and licence fees, and insist on less
stringent regulation on the basis that they can relocate to other
jurisdictions relatively easily?
Answer
Remote gambling operators compete in a truly
international market. This is another way in which they are different
from their counterparts in other sectors of the gambling industry.
Owing to this level of competition they tend to operate to tight
margins and, when considering whether to base themselves in this
country, it is only to be expected that they will look at the
balance between the costs and benefits of doing so. From our extensive
discussions with potential operators it is clear that the two
biggest factors in this equation are the levels of taxation and
regulation.
It is normal for commercial operators to argue
in favour of low taxation and against over-regulation. On the
taxation point, they have made their case to Customs & Excise
and the Treasury. It is currently under consideration; but the
decision will rest with the Chancellor. My understanding, from
our discussions in the US, is that offshore operators have good
reason to welcome strong regulation, and are likely to accept
the tax consequences.
With regard to regulation, my understanding
is that they favour a robust regime that will compare favourably
with those already in place around the world. That, and their
presence in a well regarded jurisdiction, will be a selling point
for them as they seek to promote their products in the global
market. Our intention is that licensing and monitoring costs will
be set at the level required to do the job properly and there
are certainly no plans to limit the numbers of licences or to
charge a premium for them as is the case in some other jurisdictions.
I believe that we are well on the way to setting
this package of measures at the right level and that it will be
one that will attract a number of reputable operators.
However, we will definitely not get involved
in a race to the bottom with any other jurisdictions; or be willing
to lower our standards by foregoing necessary safeguards.
QUESTION 22
What can DCMS do to ensure that the Gambling
Commission has the expertise to effectively regulate this fast-moving
area of technology?
Answer
There is no doubt that effective regulation
of remote services will be a challenging role for the Commission.
We all acknowledge that it is a fast-moving area of technology.
Work is beginning now in considering how that challenge is to
be tackled and the transition team at the Board is thinking about
what staffing and expertise is required for the new role.
My officials, and the Board, are engaged in
ongoing discussions with representatives of the industry, and
Gamcare, to improve further our understanding of the regulatory
challenges presented by remote gambling, and the internet in particular.
When the Commission does get under way, it will want to make sure
that its staff have the most up to date knowledge and expertise,
and they may also wish to consider appropriate secondments from
the industry and elsewhere.
I acknowledge that there is a task before us
on this, but I think it is important to acknowledge too the very
positive role played by the industry to date. They are an industry
that wishes to be seen to be regulated, and in co-operation with
them, I am sure we can achieve effective regulation here.
QUESTION 23
Why did you decided to require separate operating
licences for the provision of remote and non-remote gambling?
Should those who provide software for remote gambling be required
to be licensed?
Answer
As mentioned in my earlier answer, remote gambling
takes place in a different player environment, and presents particular
regulatory risks. Therefore, I think specific control measures
are required to deal with remote gambling. We concluded that this
could be best provided by separating operating licences between
those for remote services and those for non-remote services. This
allows the use of appropriate licence conditions and ensures the
sectors are sufficiently regulated, and not over-regulated.
It is our intention that, as with software in
gaming machines, providers of gambling software for use remotely
will require operating licences. Such companies, like gaming machine
suppliers, perform an important gambling function, and they need
to be licensed to ensure that they are suitable and competent
for those tasks. We are considering whether amendment of the Bill
is required to provide further clarity on the meaning of providing
facilities for gambling in this context.
QUESTION 24
When Lord McIntosh appeared before the Committee
in December, he said that DCMS was reviewing the wording of Clause
79(2), which would prohibit the sale of society lottery tickets
less than 24 hours before the draw. Despite this, the Clause remains
unchanged. What evidence is there to give you cause for concern
about rapid-draw lotteries? Do you intend to amend this clause
or have you concluded that a gap of 24 hours is necessary to prevent
any perceived risks?
Answer
We are looking again at clause 79(2) which was
intended to prevent fast-draw lotteries. We agree that in its
current form, this clause prohibits activities which do not cause
any harm, and which there is no reason to prevent, for example
a lottery at a football match where tickets are sold right up
until the draw at half time. Properly run, these types of lottery
are harmless forms of entertainment.
Whilst there is no evidence that there are problems
being caused by rapid draw lotteries at the moment, we are concerned
that there may be potential for problems in the future, particularly
since the Bill relaxes controls on these lotteries such as allowing
rollovers and the sale of tickets by machine. Rapid draw lotteries
for potentially significant prizes where people are more likely
to "chase" their losses, spending increasing amounts
of money to try to win back what they have already spent, are
a real concern, and pose a particular risk to vulnerable people.
A potentially harmless activity could therefore turn into something
far more serious.
These draws will also generally take place in
pubs or other premises, which are not specifically licensed for
gambling and where alcohol adds to the potential risk. It would
also be inconsistent to maintain strict limits on machine gaming
that are allowed on these premises, yet allow another form of
gambling sharing some of the key characteristics of these machines,
whilst offering higher prizes.
We have not yet been able to bring forward a
revised draft clause to meet these concerns, although we are looking
into the options for reserving a flexible power to deal with these
types of lotteries.
QUESTION 25
The Committee has heard a great deal of criticism
of the policy announcements relating to the regulation of the
National Lottery. When will these clauses be published and do
you accept that some informed observers believe there to be very
serious flaws in the policy?
Answer
We will bring forward clauses as soon as they
are available—although this will probably not be before
you publish your report. I wish it had been possible to produce
all of the draft clauses, but I hope you found the detailed policy
note on this subject, which we published in February, of some
assistance.
Without legislation the National Lottery Commission
(NLC) could make only limited improvements to the arrangements
for selecting a National Lottery operator next time. This may
not be enough to ensure that there is effective competition at
the end of the current licence. The National Audit Office and
the Committee on Public Accounts also expressed this view. That
is why I concluded that we need a radical new approach to licensing
the National Lottery. We must inject significantly greater competition
into the process next time.
The proposals I have put forward would offer
the option of moving away from a major single licence competition
by allowing the NLC to offer for competition a small number of
licences, which could be of different lengths. This should deliver
greater competition into the operation of the Lottery.
I do not believe that the proposals are flawed
as they offer flexibility for the future. Decisions do not have
to be made now about which approach is best: this will require
an assessment by the NLC nearer the time, after undertaking research
and talking to potential suppliers. We recognise that it is important
that in preparing proposals for new licensing arrangements that
the NLC delivers competition for the market, whilst ensuring that
the structure of the licences provides clear incentives to avoid
the potentially adverse effects of competition within the market.
We do not accept that the new arrangements would lead to less
money for good causes. Under the current arrangements there is
a risk that there would not be effective competition—the
unsuccessful bidder last time has already said that it will not
bid next time. The proposal offers the possibility of greater
competition as it offers scope for a wider range of companies
to participate, so maximising returns to good causes. And the
NLC will be responsible for structuring the licences to ensure
that everyone pulls in the same direction to secure the long term
health of the Lottery and returns to good causes.
QUESTION 26
Lord Mcintosh has stated in evidence to this
Committee that the definition of "lottery" in the Bill
is trying to "introduce an element of clarity". How
do you respond to the evidence we have received stating that in
many respects the definition is now even less clear than the existing
law? Do you intend to review the wording of Clause 208 in light
of the rather damning criticism we heard on 24 February?
Answer
The essential point here is that we need to
establish a meaningful test of what is a lottery and what is not.
That is what the Bill tries to do, but I entirely agree that this
is an area that we must handle very carefully. The comments on
it which you received at your session on 24 February were helpful
and, if I may say so, constructive. The current law is far from
clear and many of those who responded to the consultation paper
that we issued in May 2002 on the law on prize competitions and
lotteries were of this opinion.
As distinct from prize competitions and prize
draws, lotteries are decided wholly by chance, and they require
payment for entry. But law on both these points has broken down
in recent years. We have tried to clarify the meaning of "payment"
in schedule 7 of the Bill, closing off routes for avoidance which
have emerged in recent years. Clause 208(4) is designed to clarify
the meaning of "wholly by chance", which is the other
key area of debate.
Under the current law, there is no statutory
definition either of a lottery or of a prize competition. The
proposals in the draft Bill provide a statutory definition of
a lottery, but the Bill does not define or regulate prize competitions
in any way.
Our reasoning is that, where a scheme fulfils
the definition of a lottery— in that its outcome is decided
wholly by chance and it requires payment for entry—in order
to be lawful it will have to fall within one of the categories
of lottery which are lawful under the Bill, and comply with all
relevant provisions. If it does not, then the Gambling Commission
will be in a position to proceed against the operator, as it would
proceed against the provider of any unlawful gambling.
Section 14 of the Lotteries and Amusements Act
1976 provides that it is an offence, in certain circumstances,
to conduct competitions "in which success does not depend
to a substantial degree on the exercise of skill". The provision
has largely fallen into disuse, and we consider that the main
reason for this is that there is considerable uncertainty about
what "depends to a substantial degree on . . . skill"
actually means. For these reasons, the current law has not had
the desired effect of limiting such prize competitions to their
proper place, thereby undermining the special place of lotteries,
which should only be for good causes.
The real problem is that there is great difficulty
in setting out objective standards as to what, in practice, would
constitute "depend[ing] to a substantial degree on . . .
skill". We do appreciate all the attempts made so far to
suggest alternative solutions. Many of the suggestions received
are based on the present s. 14, but we are clear that any other
formulation which relies on qualitative or quantitative assessments
of the amounts of skill involved will encounter the same problems,
and will not, therefore, do anything to clarify the law or to
protect lotteries as the preserve of good causes.
We can see no advantage in reintroducing terms
such as "genuine" or "substantial" skill into
the Bill, and in clause 208(4) we have come up with an alternative
approach. We are however reviewing with close interest the evidence
which your Committee heard from Susanna Fitzgerald QC and Philip
Circus on 24 February, the burden of which was essentially that
clause 208(4) is trying to do too much and might need to be expanded
to ensure that there is no room for confusion as to the point
at which a lawful prize competition can tip over into being an
unlawful lottery.
We have made it clear that we will give further
consideration to this issue, and I very much want to hear any
suggestions the Committee may have for improving this clause.
One thing I think we all agree on is that this is a difficult
issue, and we welcome fresh ideas for dealing with it.
SUPPLEMENTARY
QUESTION 1
What is the Secretary of State's response to
the comments in the Henley Report that there will be very little
net increase in employment as a result of the proposals in the
draft bill (a net increase in direct employment of under 2,000,
section 25.2)?
Answer
The Department has only recently seen the Henley
report, which is substantial, and is now analysing it. It would
not be right at this stage to comment on its findings, beyond
noting that it has been commissioned by a trade association with
a direct interest and is one of a number of similar reports—offering
different forecasts—now in the public arena.
Supplementary
QUESTION 2
Will DCMS confirm to the Committee the details
of any agreement reached with ODPM about the definition of "regional
significance" in the context of casinos, and what is the
likely timescale of progress towards agreement?
Answer
When Yvette Cooper gave evidence to the Committee
on 2 March, she made clear that discussions between our Departments
on this point were continuing and that it should be possible to
announce firm conclusions by the Summer. We shall of course want
to make most of the Committee's own views.
OTHER POINTS
When he gave evidence before Christmas, Andrew
McIntosh said that he had written to a number of the key gambling
industry bodies to impress on them the value that the Government
attaches to the success of the Responsibility in Gambling Trust
(formerly the Gambling Industry Charitable Trust) and to learn
what financial commitment they or their members were planning
to make to the Trust in future years. I am pleased to report that
all the bodies concerned responded positively, making firm commitments
to the future of the Trust. The Committee asked specifically about
Camelot, and they too have given us this commitment in their reply
to Andrew.
I would like to reiterate Andrew's comment to
you that it is right and proper that funding decisions for the
Trust are made between the Trust and the gambling industry. There
are a number of mechanisms the industry can use to demonstrate
its commitment, as the Committee has heard, on a national and
local level. We look to the industry to continue its initiatives
to support the Trust.
Andrew agreed, also, that we would write again
when we had explored, further, our legal obligations concerning
the use of a Commission kitemark scheme in relation to remote
gambling. We have now established that a formal kitemark or accreditation
scheme organised or authorised by the Gambling Commission would
be open to challenge under EU law. As a result, the Bill cannot
make provision to enable or require remote operators to use a
Commission kitemark. It will be open to licensed remote operators
to refer to the fact that they are licensed by the Gambling Commission
when providing their services.
We will send you the rest of the supplementary
information that Andrew and I have promised, in due course, including
the note of my meeting with children's interest groups, to discuss
any concerns they may have, which is scheduled for 31 March.
I look forward to receiving the Committee's
report on 7 April.
March 2004
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