House of Lords - Merits of Statutory Instruments

Select Committee on Merits of Statutory Instruments Fourteenth Report

Instrument drawn to the special attention of the house

The Committee has considered the following instrument and has determined that the special attention of the House should be drawn to it on the grounds specified.

Draft Gambling (Geographical Distribution of Large and Small Casino Premises Licences) Order 2008

Summary: Last March, the House rejected the draft Gambling (Geographical Distribution of Casino Premises Licences) Order which would have allowed the 17 local authorities named in the order each to issue a casino premises licence for the 1 regional, 8 large and 8 small new casinos allowed under the Gambling Act 2005. Most of the controversy surrounded the proposed allocation of the single regional licence to Manchester. The order now before the House proposes that the same 16 local authorities as originally proposed issue premises licences for the 8 large and 8 small casinos, but does not propose the issue of a licence for a regional casino.

The Secretary of State acted on advice from the Casino Advisory Panel, which recommended the 17 local authorities on the basis of selection criteria set by the Secretary of State. We took evidence on the selection criteria and process and had the following concerns (13th Report, 2006-07):

the extent to which the Gambling Act's licensing objectives of preventing crime and protecting the vulnerable from harm had been reflected in the selection criteria;
that the primary objective set for the Panel was to select bids which would provide the "best possible test of social impact": the Panel gave great weight to traceability, with the result that urban sites were preferred to destination casinos; and
that the Order allowed the local authority to issue a licence for any site within that authority's area and was not limited to the site (if any) proposed to the Panel.

These concerns led us to conclude that the Order might imperfectly achieve its policy objectives. The same concerns apply equally to the current Order because no new process was conducted to arrive at list of local authorities.

This Order is drawn to the special attention of the House on the grounds that it may imperfectly achieve its policy objectives and that it gives rise to issues of public policy likely to be of interest to the House.

The Department for Culture, Media and Sport (DCMS) have laid this draft Order under sections 175 and 355 of the Gambling Act 2005 ("the 2005 Act") together with an Explanatory Memorandum (EM) and Regulatory Impact Assessment (RIA).
We have not taken fresh evidence on this draft Order: this Report summarises our Report on the original Order[1] but also takes account of developments since that Order was rejected, in particular the Department for Communities and Local Government's Review of the alternative approaches to regional casino-led generation[2] and DCMS's Code of Practice for the process to be followed by the licensing authorities[3].

Purpose of the Order

The 2005 Act provides for up to one regional, eight large and eight small casinos, the geographical distribution of which is to be determined by the Secretary of State. Last year, the Secretary of State proposed the geographical distribution for all 17 new casinos but that Order was rejected by the House[4]. This new draft Order omits the regional casino and proposes the original geographical distribution for the 16 large and small casinos.
The draft Order permits the 16 selected licensing authorities to issue one premises licence each in the specific casino category allocated to them (large or small). Each licence can only be issued after the authority has held an open competition for proposals (in compliance with Part 8 of and Schedule 9 to the Act) and once the winner has obtained planning permission and other necessary licences. The Order is accompanied by the Gambling (Inviting Competing Applications for Large and Small Casino Premises Licences) Regulations 2008 (SI 2008/469), which specifies the procedure to be followed, and the draft Categories of Casino Regulations 2008, which (as expected) define "large" and "small" casinos by floor area[5]: large casinos will have a minimum gambling floor area of 1,500m²(but less than 3,500 m²);small casinos of 500 m²(but less than 1,500 m²); andexisting casinos licensed under the Gaming Act 1968 may not exceed 500m².

Background

In our Report on last year's draft Gambling (Geographical Distribution of Casino Premises Licences) Order (13th Report, 2006-07, HL Paper 67), we set out the background to the proposed increase in the number of casinos, Parliament's concerns during the passage of the 2005 Act (in particular those identified by the Joint Committee on the Draft Gambling Bill (Regional Casinos)[6]) and much of the background to the selection process. That Report included evidence from the late Professor Stephen Crow CB, Chairman of the Casino Advisory Panel and from Rt Hon. Richard Caborn MP, then Minister of State, DCMS[7]. We wanted to clarify how and why the Government had set the selection criteria for the Panel and how the Panel measured the bids against those criteria, so that we could assess whether the draft Order seemed likely to fulfil the licensing objectives set by section 1 of the 2005 Act and by the Government's Statement of National Policy. (The Government's statement and the Panel's terms of reference are reprinted in this report at Appendices 1 and 2.) Although we found the Panel's Report[8] clear and straightforward in its explanation of the sequence of events and of the difficulties that they faced, we felt that there were gaps in the account of how the Panel had exercised its expertise to compare quite disparate bids. The evidence submitted to our inquiry at the time includes submissions from most of the local authorities affected by the current Order[9].

The degree to which minimisation of harm had been taken into account

The degree to which the Panel took the prevention of harmful effects to the community into account was relevant to understanding the degree to which the draft Order complied with the licensing objectives set by the 2005 Act, section 1 of which provides:

"In this Act a reference to the licensing objectives is a reference to the objectives of—

(a) preventing gambling from being a source of crime or disorder, being associated with crime or disorder or being used to support crime,

(b) ensuring that gambling is conducted in a fair and open way, and

The Minister said that the minimisation of harm from gambling was implicit in the Panel's terms of reference (Q81-4)[10]. Yet, in relation to the regional casino, paragraph 92 of the Panel's Report says: "The 'gold standard' …is a regeneration that would not only provide jobs and demand for local services in the casino itself, … but set in train spontaneous growth that would continually revitalise the local economy." We noted that this definition did not make reference to any of the Act's objectives of preventing harmful effects to the community.

A significant body of evidence referred to in the Report from the Joint Committee on the Draft Gambling Bill (Regional Casinos) states that, to minimise the opportunity for "casual" problem gambling, a casino should not be located in close proximity to residential properties[11]. This was supported by Professor Collins' written evidence to us which said that "an increase in problem gambling is likely to be inhibited… if casinos are located where they are unlikely to encourage people to gamble on impulse", that is "destination resort casinos, with a very wide catchment area, are more likely to bring greater benefits with less costs to local communities than are urban casinos whose customers come mostly from within the jurisdiction"[12]. We note that a number of the authorities on the current list are urban, and many of the suggested sites for potential casino development are city centre (for example Bath, Luton, Swansea, Hull, Leeds, Milton Keynes).
The Panel acknowledged the research but responded (paragraph 88 of the Panel Report) that "problem gambling is more a town planning consideration rather than one for us, though we have noted in our appraisals where it is proposed to locate a casino near to an area of deprivation. In the event, this consideration has in no case been determinative."
The Panel's digest of the international research[13] confirmed that the choice of location can be important in minimising the negative impacts of a casino, but that report was delivered only in November 2006, and was not used in the Panel's selection process. For example paragraph 3.3.1:

"it would be seem most appropriate to locate casinos in areas with the following characteristics to lower the possible social impact casino developments will bring to the host and the surrounding area:

Areas which can stimulate 'destination travelling' by having a distance buffer, i.e. gamblers have to travel for a purpose
Areas that have no schools
Areas with a low percentage of children and teenagers
Areas with a low percentage of elderly population"

The Panel Report's commentary on Middlesbrough's bid states: "Although one or more of the sites proposed would put the casino close to further and higher education campuses, consultation with the institutions concerned indicates that no problems are likely to arise"(Paragraph 368) which struck us as an assertion.

Although the Panel Report's summary of each of the authorities listed mentioned that the council was considering some measure of mitigation for the harmful effects, there was wide variation in the degree of preparedness. The Panel Report's commentary on Torbay states: "The council does not expect the location of a new casino in an area of deprivation to lead to an increase in social problems" (Paragraph 498): a further assertion.
We felt that, when the objectives were in tension, the Panel gave greater weight to their specific terms of reference with their emphasis on the research testing of impact rather than the minimisation of harm (Q83) (Panel Report paragraph 18).

Selection criteria

The Government's original Statement of National Policy expressed the selection criteria as:
- "a good range of types of areas, and a good geographical spread of areas across Britain;
- The Panel will also want to ensure that those areas selected are willing to license a new casino.

Subject to these criteria, the Panel will be asked to choose areas in need of economic development and regeneration (as measured by employment and other social deprivation factors) and likely to benefit in regeneration terms from a casino."[14]

By the time the Panel's terms of reference were issued in August 2005[15], it had changed to "the primary consideration will be to ensure that locations provide the best possible test of social impact". We felt this change was significant and asked the Minister why these criteria had been chosen (Q81). The Minister did not explain why the licensing objectives had not been part of the Panel's terms of reference but said that the Government wished to examine the impact of new casinos on social regeneration.

Differences in the interpretation of "social impact" and of "regeneration"

The written evidence we received showed that the terms "social impact" and "regeneration" were open to significantly different interpretations: indeed different locations could be recommended depending on which meaning was adopted (QQ29-32). The Panel's Report states that bids required the Panel to use their "expertise and judgement to assess the likely comparative employment and other regeneration benefits"[16]: Professor Crow said that this was necessary because some of the claims made in the bids were "far fetched" (Q21). We would have welcomed more detail of the Panel's assessments to have been set out in their Report.
We asked both Professor Crow and the Minister to give their interpretation of these terms. In relation to regeneration their views were closely aligned. They also agreed that the outcome was dependent on the how active the local authority was likely to be. Professor Crow related that the citizens of Dortmund (Germany) reported that virtually no regeneration had resulted from their very much bigger casino (Q19). The Minister said it was down to the selected local authorities "to have a beauty contest… to make sure you get as many as possible to bid for those licences so you can extract the maximum out of that" (Q89) and that was why the Government brought the premises licence into the Act. Local authorities have a very powerful tool in the planning obligations in Schedule 9, which should bring "great potential for investment way beyond the infrastructure of the casino itself" (Q92)[17].
Professor Crow interpreted social impact widely, considering both the positive and negative effects (Q7).The Minister's definition was narrower; he said "in crude terms, it is the effect in terms of problem gambling"(Q84). He added: "If we get economic regeneration, that is fine but we will make sure that we actually keep any social impact to a minimum."(Q84) We felt that this demonstrated a difference in the interpretation of social impact, with the Panel's interpretation giving greater prominence to economic factors and less to the prevention of harm.
The Department for Communities and Local Government published in February "A review of the alternative approaches to regional casino-led generation"[18], which indicates that, while the scale of economic benefits that would be secured through a regional casino is likely to be significant, the additionality of such benefits are hard to determine, particularly in the degree to which they may displace jobs and spending from other facilities in the area (paragraphs 3.26-9). It concludes that the potential economic and social costs of a regional casino may largely offset and indeed eliminate the economic advantage that such a development may appear to offer above alternative regeneration projects such as those based on housing, retail or other leisure pursuits. The review states large or small casinos would present the same issues: although the risks and costs associated would be lower, so would the direct benefits in terms of job creation and increased visitor numbers, and the multiplier benefits are also likely to be lower (paragraphs 5.3-5).

Traceability of social impact

It was clear from the written evidence to our original inquiry that the Order's objective was not well understood: the Panel's task was not to select locations which were most in need of regeneration, or where problem gambling was likely to be minimised, although both of these aspects were taken into account (Panel Report paragraph 12). The Panel regarded its prime objective as the selection of locations where the effects of social impact and regeneration were most identifiable and traceable: (QQ13, 15, 17, 23-7) but this was subject to the aggregate list providing a structured sample (Panel Report paragraphs 64-68). That list was compiled to include the Regional Casino in Manchester, and the Minister was adamant at the time of our evidence session that splitting the list would skew the sample (Q79 & 88).
In essence, the Panel was selecting candidates for a research project. The Statement of National Policy requires "the impacts to be assessed in a range of areas and types of location that might be suitable (including, for example, urban centres and seaside resorts across different parts of the Britain)" (paragraph 5). This explains some of the panel's less obvious choices: although Wolverhampton scored quite low in the initial rankings it was recommended for permission to issue a licence for a small casino largely for its novel concept of a casino linked to a floodlit race course. Similarly, "while Bath does not have the same level of pressing regeneration needs that many others face it offers an opportunity to examine the impact of a small casino aimed at well-to-do gamblers in a heritage setting." (Panel Report paragraph 227). The House may wish to consider whether this emphasis on the needs of the research process may have over-dominated the Panel's recommendations to the detriment of the issues of where there would be least harm or where the regenerative power of a regional casino might matter most.
The traceability of the effects of a casino will depend on further factors, such as the effect of competition on the bidder: casinos already exist in a number of the 16 recommended locations (for example Leeds has five, Great Yarmouth and Scarborough each have two). We question how the incremental impact of the new casino will be distinguished from the effects of the current casinos, and whether a new casino might displace custom and employment opportunities from existing attractions. The economies of a number of the authorities selected are already dependent on tourism, particularly Bath, Solihull (the NEC) and various seaside resorts: even here, we wonder how the casino's contribution will be distinguished. Similarly, a number of bids see the casino as one element of a pre-existing wider regeneration plan (for example Milton Keynes, Scarborough, and Newham): we wonder how any positive social impact of a casino will be separately identified from the wider regeneration.
The local authorities proposed have very different regeneration needs: Newham and Hull are the 6th and 11th most deprived areas of England, whereas Bath (259th), Solihull (233rd) and Milton Keynes (220th) only have pockets of deprivation.
A number of the bids seek to draw their clients from transient populations passing through a local ferry or airport: it is unclear how the negative effects of gambling will be monitored and evaluated amongst this group.
It is important that the effects of this first wave of casinos can be clearly determined, not only in assessing whether this instrument will meet its primary objective of providing the best test of social impact, but also because the results will inform the future consideration of whether the numbers of casinos may be increased. The Government also states that "the provision of a regional casino will not be made until an assessment of the social and economic impact of the 16 large and small casinos has been carried out. Such an assessment is unlikely to be completed until 2013" (EM paragraphs 7.3-6)

Next steps

If this draft Order is approved by both Houses, the local authorities set out in the Order would be required to make the opportunity of obtaining the licence open to all operators[19]. If there is more than one proposal that satisfies the regulatory requirements set out in the Act, then the local authority is required to run the second stage of the process as a competition. Paragraph 5(3)(a) of Schedule 9 to the Act requires the authority "to determine which of the competing applications would, in the authority's opinion, be likely if granted to result in the greatest benefit to the authority's area". Paragraph 5.7 of the Code of Practice[20] indicates the criteria to be considered in determining "the greatest benefit". The chosen operator will also need to obtain an operating licence and planning permission and the Government states that "the fact that an applicant's proposal may be the preferred option in the competition will not guarantee planning permission."
We sought evidence last year as to how the competition for the licence could be fair, when some authorities have already identified a preferred operator; for example, in Southampton City Council's written evidence they state that their initial submission was subsidised by an interested operator which commissioned £35,000 of information and data for them[21]. Professor Crow said that the Panel had deliberately not considered this, as they regarded it a matter for the next stage of licensing (Panel Report paragraph 24). The Minister confirmed that Schedule 9 to the Act requires licensing to invite competing applications, and the new Code of Practice states that "a licensing authority must ensure that any pre-existing contract, arrangement or other relationship they have …does not affect the procedures so as to make it unfair (or appear unfair) to any applicant" (Code, paragraph 3.3).

Degree of local support

When a licence application is being considered, the premises licence procedure allows for interested parties, including local residents and businesses, to express views against the licence. We note that the view of the regional planning body was not always given and that, when it was, the location chosen was not always the first choice in the Regional Spatial Strategy. In oral evidence we asked how local consultation could be genuine, given that each local authority has invested heavily in its proposal. We also asked how sure the authority could be of local support, as the Panel had described the bidders' approach to consultation with local people as "unexpectedly patchy" (Panel Report paragraph 106)(Q35). We note that in Dumfries and Galloway (Panel Report paragraph 281) and in Bath (Panel Report paragraph 226) there is some local opposition to the principle of the proposal, and that Newham is currently consulting residents on whether they want a casino (EM para 7.16). There is no current reserve list from which an alternative authority could be substituted, if, as a result of local opposition, any of the applicant authorities decides to withdraw their application[22].

Conclusion

Our consideration of the policy objectives of this Order's precursor was on two levels: first, its compliance with the licensing objectives in the Gambling Act 2005 (which requires the prevention of harm from gambling); and secondly, whether the authorities selected, if allowed to license a casino, would offer "the best possible test of social impact".
It was clear from the evidence we took last year that, although aware of the concerns of the Joint Committee and others, the Panel's interpretation of their sift criteria did not give high priority to the prevention of harmful effects to the community from gambling. The Minister stated that this objective was implicit in the Panel's terms of reference (Q81) and would in any event be addressed in the later stages of the process (Q82). We note that the consideration of "greatest benefit" set out in the new Code of Practice includes factors relating to the minimisation of harm and protection of the vulnerable but this will only apply at the second stage of the licensing procedure, if reached. Whether the Panel's interpretation of their terms of reference, and the list of authorities they recommended as a result, sufficiently reflect the 2005 Act's licensing objectives is an issue of public policy likely to be of interest to the House.
In relation to the "best possible test of social impact", the Minister made clear that the list of 17 authorities comprised a structured sample for testing the social impact, and to alter it would skew the sample (Q79). While the residual list still appears to meet the criteria of a good range of types of areas and a good geographical spread, for some of the areas proposed, particularly those in urban locations or where a number of casinos or other attractions already exist, we have doubts about the traceability of these effects and therefore whether the Order's policy objective may be achieved.
We also note that the casino can ultimately be located anywhere within the licensing authority's boundary. The Minister confirmed that: "It is the local authority that now has the licence, not a particular site."(Q96). For some of the authorities listed this is a logical consequence to their bid, for they offered a range of sites and will now select the one that offers the greatest benefit to their area. For others, however, we raise the concern that this flexibility has the potential to undermine the premise on which the bid was selected: first, because the Panel seems to have been strongly influenced by some bids attached to specific sites (for example in Wolverhampton and Solihull); and secondly, because it is not clear that, in drawing up its shortlist, the Panel considered whether social impact could be adequately traced in any location within an authority's boundaries. This is of particular concern for city centre sites such as Leeds and Newham.
The Government deliberately set the "best possible test of social impact" as the Panel's primary objective. We heard in evidence that the Panel gave great weight to traceability of social impact in making its selections and that this significantly affected its recommendations, ruling out some locations where it felt it might be more difficult to trace the impacts as compared to others. The flexibility of the second stage of licensing casts doubt over the ability to trace social impacts at the actual site chosen, which could ultimately be worse than in some of the sites in authorities rejected by the Panel.
The importance of the outcome of the test of social impact has been enhanced by the Government making clear that any expansion in the number of casinos licensed (and the decision to license a regional casino) will depend upon the results obtained. We therefore conclude that the locations chosen in consequence of this Order may not necessarily provide the "best test of social impact" and draw the Order to the special attention of the House on the ground that it may imperfectly achieve its policy objectives.