Gambling Harm—Time for Action Contents

Chapter 9: Lotteries, including the National Lottery

629.As explained in Chapter 2666, at its simplest a lottery is a type of gambling where payment is required to participate, one or more prizes are awarded and those prizes are awarded by chance. Lotteries can only be run for the benefit of good causes, and there are two main types of lottery—the National Lottery and society lotteries.

Society lotteries

630.The Small Lotteries and Gaming Act 1956 introduced society lotteries, conducted by societies established for charitable or sporting purposes, but not for commercial gain. The Lotteries Act 1975 made provision for local authorities to promote lotteries on the same footing as societies. The law on lotteries was consolidated in the Lotteries and Amusements Act 1976.667

631.Society lotteries are promoted for the benefit of a non-commercial society. A society is non-commercial if it is established and conducted:

632.A small society lottery:

633.A large society lottery:

634.Society lotteries pre-date the National Lottery and there have been limits on their maximum size of draw, annual proceeds and top prize since at least 1963. When the National Lottery was launched in 1994, the limits imposed on society lotteries were increased as a concession for the creation of new competition. Since then, the framework of limits has served to keep society lotteries distinct from the National Lottery.

635.In June 2018, the Government launched a consultation671 seeking views on amending the sales and prize limits for large society lotteries. In its response672 to the consultation in July 2019, the Government announced that it would:

636.In January 2020 the Government laid the draft Gambling Act 2005 (Variation of Monetary Limits) Order 2020673 before Parliament. The Order came into force on 7 April 2020 and will take effect in July 2020 when the Gambling Commission’s corresponding alterations to lottery licences come into force. The Order increases the individual per draw sales limit from £4 million to £5 million, and the annual sales limit from £10 million to £50 million.

The National Lottery

637.The National Lottery was established by the National Lottery etc. Act 1993, and launched in November 1994. The National Lottery is not governed by the Gambling Act 2005, but rather by a distinct body of legislation. It was initially regulated by the Director General and the Office of the National Lottery, followed by the National Lottery Commission, which was then abolished, with its responsibilities being taken over by the Gambling Commission.

638.The National Lottery is operated by Camelot Group, which has been granted the operating licence in 1994, 2001 and 2007. The current National Lottery licence is due to expire in 2023 and the Gambling Commission will run the competition to award the next licence. According to the Gambling Commission, “the role of the Gambling Commission is to design and run the National Lottery licence competition, and subsequently regulate the next licence … 674

639.In a blog post from 2018 on the National Lottery Licence Competition website, Mr McArthur wrote:

“We want to build on the tremendous success of the National Lottery and we are determined to run a fair and transparent competition process that maximises the opportunities for innovation and creativity whilst protecting the special status of the National Lottery …

This is why we need to see a fourth licence competition that is robust, fair and ultimately that ensures we continue to have a world class lottery that the nation can be proud of. Although the formal bidding process won’t start for some time, it is essential for us to start talking to businesses and investors, including technology and financial firms, from across the globe about their ideas, possible innovations and experience.”675

640.The National Lottery started life as a weekly lottery draw, but has developed various products, including the Lotto, EuroMillions and Set for Life draws, alongside scratchcards and online interactive instant-win games.

Gambling prevalence for lotteries

641.Previous chapters have described the rates of gambling prevalence among the general population676, problem gamblers677 and children and young people678. The Gambling Commission’s Gambling Participation in 2019: behaviour, awareness and attitudes annual report shows that the National Lottery draws remain the most popular gambling activity, followed by other lotteries and scratchcards. Of those who had only gambled on one activity in the previous four weeks, 31% had only gambled on National Lottery draws. In terms of individual National Lottery draws, the most popular games were Lotto (21%) and EuroMillions (20%).679

642.The Gambling Commission’s report shows that those in the older categories (45+) were most likely to participate only in National Lottery draws.

Table 17: Proportion of gamblers participating in National Lottery draws only, by age

Age

16–24 year olds

25–34 year olds

35–44 year olds

45–54 year olds

55–64 year olds

65+ year olds

National Lottery participation

6%

17%

30%

39%

44%

39%

Source: Gambling Commission, Gambling Participation in 2019: behaviour, awareness and attitudes, Annual report (February 2020) p 9: https://www.gamblingcommission.gov.uk/PDF/survey-data/Gambling-participation-in-2019-behaviour-awareness-and-attitudes.pdf [accessed 6 April 2020]

643.The report also shows that participation in the National Lottery is slightly higher among women.

Table 18: Proportion of gamblers participating in National Lottery draws only, by gender

Gender

Men

Women

National Lottery: participation

30%

32%

Source: Gambling Commission, Gambling Participation in 2019: behaviour, awareness and attitudes, Annual report (February 2020) p 9: https://www.gamblingcommission.gov.uk/PDF/survey-data/Gambling-participation-in-2019-behaviour-awareness-and-attitudes.pdf [accessed 6 April 2020]

Lotteries and taxation

644.Unlike society lotteries, the National Lottery pays lottery duty at 12% of sales. When the National Lottery was launched in 1994, there was very little competition in the lotteries market and many other gambling operators were also subject to taxes based on sales. Over time, all major gambling sectors other than the National Lottery have been transferred to a gross profits tax or equivalent. As the Chief Executive of Camelot, Nigel Railton, noted in oral evidence , “what has happened over time is that the National Lottery is in splendid isolation as the only part of the gaming or gambling industry on a sales-related tax.”680 Mr Railton then explained that he has “been trying for many years to move the National Lottery from lottery duty to something much more sensible, which is gross profits tax.”681

645.Camelot’s written evidence explained the rationale for transferring the National Lottery from lottery duty to a gross profits tax:

“ … all major gaming and gambling sectors have been moved to a Gross Profits Tax (or equivalent), while The National Lottery remains an outlier taxed on turnover—Lottery Duty at 12%. This tax regime restricts The National Lottery’s capacity to respond to the changing market dynamics and its ability to compete on price or value. Camelot believes that migrating The National Lottery to a Gross Profits Tax would help to meet our overarching objective of maximising returns to National Lottery Good Causes through selling lottery products in an efficient and socially-responsible way … “682

646.It went on to explain the benefits to good cases of transferring the National Lottery to a gross profits tax:

“The current Lottery Duty regime creates a misalignment between the Exchequer and Good Causes, leading to distorted incentives. This is because, under the current regime, returns to the Exchequer are based on turnover but returns to Good Causes are based on sales less prizes (gross profit). Therefore, although gross profit could be increased through a higher prize payout to players, under the current Lottery Duty regime this would likely mean more income for the Exchequer and less for Good Causes (undermining The National Lottery’s ability to meet its duty to maximise returns to Good Causes).” 683

647.This was also emphasised in oral evidence by Mr Railton, who stated that Camelot “believe that good causes will benefit to the tune of about £1 billion to perhaps £3 billion over time and our retailers will benefit through increased commission.” 684

648.We wanted to understand more about the potential impact of transferring the National Lottery from lottery duty to a gross profits tax, and particularly the potential impact on the Treasury, and asked both Camelot and the Treasury for additional information. Camelot told us that the amount the Treasury would receive from the National Lottery if it was subject to gross profits tax would depend on the tax rate set. Camelot sent us modelling which shows that a tax rate of 27.5% (which is comparable to the current 12% lottery duty) would create a small increase in the revenues for the Treasury and a significant increase for good causes. A gross profits tax set at 15% (the gross profits tax on comparable products at the time) would lead to a significant fall in the Treasury’s revenues, with good causes benefiting correspondingly.685

649.The Treasury noted that a transfer from lottery duty to gross profits tax would have significant risk:

“HMRC analyses indicated there would be risks to the Exchequer and money to good causes as revenue would be reliant on significant ticket sales growth … A change to a gross profits tax model would also have knock-on effects that would require a complete overhaul of the way that earnings are distributed between retailers, the operator, good causes and the Exchequer.” 686

650.Like Camelot, the Treasury emphasised that the “amount the Treasury would receive from the National Lottery if it was subject to gross profits tax would depend on the tax rate set. 687 It also highlighted that there are “a number of uncertainties” 688 regarding the impact on the Exchequer, and the Treasury “is mindful of non-economic impacts that may result from moving to a gross profits tax.” 689

651.We are concerned about the potential impact on the Treasury of transferring the National Lottery from lottery duty to a gross profits tax; however, it is undeniably an anomaly to keep the National Lottery on a sales-based taxation regime when most other gambling sectors are now on a profits-based tax regime.

652.In the Government’s response690 to its consultation on society lottery reform691, it stated that “society lotteries are not subject to tax, in line with the long-standing principle of not taxing charitable fundraising.”692 It is difficult to understand how the current taxation model for the National Lottery is not a tax on “charitable fundraising”, and how the Government can square the circle of having different tax regimes for the National Lottery and society lotteries.

653.Even the National Lottery’s rival, the People’s Postcode Lottery, believes that the current tax regime is “in effect a tax on charitable fundraising.”693 Its written evidence goes on to state:

“The Department of Digital, Culture, Media and Sport in their publication ‘Government response to the consultation on society lottery reform’, state that ‘Society lotteries are not subject to tax, in line with the long-standing principle of not taxing charitable fundraising’. We see no reason why the National Lottery should be an exemption from this principle, especially as the licensed operator, in common with External Lottery Managers, is subject to corporation tax.” 694

654.We agree with the National Lottery and the People’s Postcode Lottery, and see no good reason why the National Lottery should be an exception to the principle that charitable fundraising should not be taxed.

655.Lottery duty, which is in effect a tax on charitable giving, should be replaced by gross profits tax.

Lotteries and advertising

656.As explained in Chapter 7695 on advertising, the ultimate purpose of all gambling advertising is to sell more gambling products, and the same is true of lottery advertising. However, as lotteries can only be run for the benefit of good causes, and the very purpose of lotteries is to raise money for these good causes, there is also a relationship between lottery advertising and the amount that is raised for good causes. Recently, both the National Lottery and large society lotteries, such as People’s Postcode Lottery, have been spending increasing amounts on advertising. This increase in advertising spend could potentially cause more gambling-related harm as it encourages more people to buy more lottery products. Camelot’s written evidence explained the relationship between increased advertising spend and the money raised for good causes:

“ … the competitive market created by ‘synthetic’ national lotteries has forced The National Lottery to spend more on marketing in order to maintain share of voice—an indicator of future market share—at the expense of Good Causes. The result has been to establish a marketing ‘arms race’ in which The National Lottery is forced to compete for share of voice … This financial year, The National Lottery will spend three times more on advertising than it did in 2010 for half of the impact.” 696

657.Camelot’s written evidence goes on to claim that the People’s Postcode Lottery spent £6.3 million on advertising in 2010, compared to £41.3 million in 2018, an increase of 556%.697 In oral evidence, Clara Govier, Managing Director of People’s Postcode Lottery responded, stating:

“We exist to maximise the returns to good causes. We are an effective market operation. In 2018 we spent £43 million on marketing, representing about 11% of our total sales. The figure of a 556% increase is not correct and certainly I would like that changed for the record.” 698

658.Camelot and People’s Postcode Lottery could not reconcile the differing advertising figures quoted for the People’s Postcode Lottery in oral evidence, and were asked to provide additional written evidence on this point, but this did nothing to clarify the issue.

659.Regardless of which analysis is ultimately correct, the amount spent on advertising by the People’s Postcode Lottery has increased dramatically in the last eight years, as has the amount spent by the National Lottery. While advertising plays an important role in increasing sales, this should not be at the expense of an increased risk of gambling-related harm to customers.

660.Mr Railton suggested that the solution to ensure that advertising costs do not have a detrimental impact on returns to good causes “ … is an expenses cap of between 5% and 10%.”699 Perhaps unsurprisingly Ms Govier disagreed with any proposed expenses cap, stating that “a cap on marketing … would have a detrimental impact on charity lotteries.” 700

661.We are sympathetic to the call to re-introduce the expenses cap on society lotteries which existed before the 2005 Act, but are also mindful that this might lead to a fall in ticket sales and, ultimately, a fall in the amount raised for good causes. There is a need to analyse the amounts spent on advertising and administration costs by the National Lottery and society lotteries, what impact the amount spent has on the amount raised for good causes, whether there is any link between advertising spend and gambling-related harms, and the possible consequences of any proposals to curtail the amount spent on advertising and administration costs.

662.The Gambling Commission should undertake an inquiry into the National Lottery’s and society lotteries’ advertising and administration costs. The lottery sector’s advertising and administration costs should then be reviewed annually with particular regard to measuring their effectiveness, and the Gambling Commission should use its power to impose an expenses cap more effectively.


666 Chapter 2, paragraph 33

667 Repealed by the Gambling Act 2005, section 356 and schedule 17

668 Gambling Act 2005, section 19

669 Gambling Act 2005, schedule 11, paragraph 31

670 Gambling Act 2005, schedule 11, paragraph 31

671 Department for Digital, Culture, Media & Sport, ‘Consultation on Society Lottery Reform’: https://www.gov.uk/government/consultations/consultation-on-society-lottery-reform [accessed 21 April 2020]

672 Department for Digital, Culture, Media and Sport, Government response to the consultation on society lottery reform (16 July 2019): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/817544/Response_to_Consultation_on_Society_Lotteries_PDF.pdf [accessed 21 April 2020]

673 The Gambling Act 2005 (Variation of Monetary Limit) Order 2020 (SI 2020/307)

674 The Fourth National Lottery Licence Competition, ‘About the Competition’: https://www.4nlc.com/Competition/About-the-competition.aspx [accessed 21 April 2020]

675 The Fourth National Lottery Licence Competition, ‘Blog - Neil McArthur talks about the next competition to run the National Lottery’ (16 November 2018): https://www.4nlc.com/News/2018/BLOG-Neil-McArthur-talks-about-the-next-competition-to-run-the-National-Lottery.aspx [accessed 21 April 2020]

676 Chapter 2, paragraphs 69–75

677 Chapter 5, paragraphs 262–268

678 Chapter 6, paragraphs 414–421

680 Q 123 (Nigel Railton)

681 Ibid.

682 Written evidence from Camelot UK Lotteries Ltd (GAM0040)

683 Ibid.

684 Q 123 (Nigel Railton)

685 Private written evidence from Camelot UK Lotteries Ltd

686 Supplementary written evidence from HM Treasury (GAM0134)

687 Ibid.

688 Ibid.

689 Ibid.

690 Department for Digital, Culture, Media and Sport, Government response to the consultation on society lottery reform (16 July 2019): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/817544/Response_to_Consultation_on_Society_Lotteries_PDF.pdf [accessed 21 April 2020]

691 Department for Digital, Culture, Media & Sport, ‘Consultation on Society Lottery Reform’: https://www.gov.uk/government/consultations/consultation-on-society-lottery-reform [accessed 21 April 2020]

693 Written evidence from the People’s Postcode Lottery (GAM0031)

694 Ibid.

695 Chapter 7, paragraph 481

696 Written evidence from Camelot UK Lotteries Ltd (GAM0040)

697 Ibid.

698 Q 122 (Clara Govier)

699 Q 122 (Nigel Railton)

700 Q 122 (Clara Govier)




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