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Gambling Act 2005 (Gaming Machines in Adult Gaming Centres and Bingo Premises) Order 2011

Volume 729: debated on Tuesday 5 July 2011

Considered in Grand Committee

Moved By

That the Grand Committee do report to the House that it has considered the Gambling Act 2005 (Gaming Machines in Adult Gaming Centres and Bingo Premises) Order 2011.

Relevant document: 23rd Report from the Joint Committee on Statutory Instruments.

My Lords, the legislation we are debating this evening concerns category B3 gaming machines. These are slot machines which currently allow a maximum stake of £1 and a maximum prize limit of £500. They are most commonly found in adult gaming centres – which are more frequently referred to as “AGCs” – and bingo premises. Under the provisions of the Gambling Act, a maximum of four of these machines can be offered by an AGC, while bingo premises may offer a maximum of eight.

The Categories of Gaming Machine (Amendment) Regulations 2011 will increase the stake limit for B3 machines—that is, the maximum amount that can be staked on a single game—from £1 to £2, while the Gambling Act 2005 (Gaming Machines in Adult Gaming Centres and Bingo Premises) Order 2011 will vary the maximum number of these machines that AGCs and bingo clubs can offer customers to 20 per cent of the total number of gaming machines available for use on an individual premises.

The changes have been requested by the amusement and bingo industries. The AGCs and bingo clubs have been struggling for some years with difficult trading conditions arising from the economic downturn. These difficult trading conditions are also affecting other related sectors, in particular British gaming machine manufacturers and suppliers. The British Amusement Catering Trade Association—which represents the majority of the AGCs and gaming machine manufacturers in Britain—estimates that revenues across the industry are now down some 36 per cent since 2007, with over 250 arcades and 1,300 jobs lost. BACTA also estimates that gaming machine manufacturing output has dropped by 40 per cent since 2006, with employment in the sector down by 33 per cent during 2009. Alongside this, figures produced by the Bingo Association show that 128 clubs have closed since 2006, with gross gaming sales having fallen by some £900 million since 2008-09 and employment down by nearly 30 per cent since 2006.

Category B3 gaming machines are an intrinsic part of the business model for AGCs and bingo clubs. They are very popular with adult players and generate significant levels of revenue for these businesses. These changes will allow them to adapt and develop their business model to meet the challenges of the current economic climate.

Amusement arcades and bingo halls are some of the oldest tourism and leisure businesses in Britain and occupy unique roles in the leisure industry. The AGCs in Britain employ nearly 20,000 people. They are often a vital part of many seaside towns, where they form an integral part of the local tourism offer and are significant employers not only in terms of individual premises but also in supporting businesses involved in manufacturing, supply and maintenance.

Bingo clubs also form a significant part of local economies in terms of employment. The industry employs some 17,000 people. But they also play a wider role. Some 3 million people in Britain play bingo, and bingo clubs very often provide a valuable social amenity. They fulfil an important social function in many communities, especially for older and retired people—older women in particular.

However, gambling is different to other industries. For the overwhelming majority of people in Britain, gambling is a pastime, and does not present any problems, but for a tiny minority of people it is a darker business. The 2010 gambling prevalence survey showed that problem gambling levels in Britain had increased from 0.6 per cent to 0.9 per cent of the adult population over the last three years. That is nearly half a million people. This risk is why gambling in Britain is carefully regulated. In the case of gaming machines, a robust regulatory framework is in place. There is a comprehensive licensing system for operators, manufacturers and suppliers; and stringent rules covering access, supervision, and the technical standards of the machines. Regulations also strictly control the amount that customers can stake and win, and the numbers and types of machines gambling premises businesses can offer.

This regulation works. Britain has very low rates of problem gambling compared to other jurisdictions. However, as a consequence operators face restrictions around the types of commercial decisions they have to take to maintain and grow their businesses. They are unable to adjust product pricing to absorb increasing costs, and as machine numbers are set centrally, they are limited in how they can respond to demand and tailor their offer to meet local circumstances. Amusement and bingo industries have therefore asked the Government to change the rules around category B gaming machines to allow the stakes permitted to be raised and the incidence of such machines increased.

Following a public consultation, the Government are persuaded that the situation facing AGCs and bingo clubs is sufficiently grave to justify a recalibration of the stake limits and entitlements for B3 machines. By bringing forward these measures the Government want to give greater flexibility to these businesses to make the necessary commercial decisions about the products they offer customers for B3 gaming machines in Britain—both through new machines and new game formats, thereby offering a boost to the manufacture and supply sectors.

The Government would like these businesses to thrive, but not at any cost. I referred earlier to the level of problem gambling in Britain and I want to make it clear that protection of the public—especially young and vulnerable people—will remain paramount. A public consultation on these measures closed in January, and a wide range of views for and against was expressed. The Government have taken notice of these views and are confident that these matters do not present a risk to problem gambling. They balance meeting the needs of business with protection of the public. The fact is that what research there is about the impact of gaming machines on problem gambling is inconclusive. There is no clear evidence—further research is continuing; but it will take time to bear fruit, and in the mean time businesses are suffering and jobs are being lost.

Let us bear it in mind that the 2010 prevalence survey showed that participation in slot machines has decreased since 2007 from 14 per cent to 13 per cent. Based on the available evidence, the Government do not see B3 gaming machines as a risk to the public. In fact, the current regulations have led to unintended consequences: such is the demand for B3 machines from customers in AGCs and bingo clubs that operators have often resorted to splitting their premises artificially in order to meet this demand. This is not conducive to effective regulation.

The measures we are debating this evening are not simply about allowing operators to install more machines and charge more for their use. They should stimulate demand for new B3 game formats and new machines across the amusement and bingo industries, thus offering a timely boost to manufacturers and suppliers as operators look to refresh their offer. Operators will be able to respond to customer demand without having to play fast and loose with the regulations by artificially splitting their premises.

The Government estimate these measures should see an injection of up to 3,000 new B3 machines into the market as operators take advantage of more flexible machine entitlements. This could see an increase in revenues of £8.5 million a year across these industries. This is a modest amount, but it will offer security for social and economic assets in local areas and protect jobs. It will make the difference in keeping smaller bingo clubs open and provide a potential lifeline to many small family-run arcades, particularly in seaside towns, which are struggling in the current economic climate.

Finally, the Government are committed to removing unnecessary red tape and barriers to create the conditions for growth in the leisure economies. Consequently, these measures are a minor adjustment to the regulatory framework put in place by the Gambling Act. They are not about promoting gambling; they are about providing long overdue help to many tourism and leisure businesses. We want amusement arcades and bingo clubs to remain competitive in these tough economic times. These are some of the oldest tourism and leisure businesses in Britain, employing between them some 37,000 people. They are important elements of many local economies, particularly in seaside towns, as I said. We want them to thrive. I commend the regulations and the order to the Committee.

My Lords, I thank my noble friend the Minister for her introduction, which I believe makes a strong case for redressing the balance, as I see it, between licensed betting offices on the one hand, and arcades, AGCs and bingo clubs on the other. She mentioned figures, which are contained in the Explanatory Memorandum, about the closures of bingo clubs and AGCs over the last few years. There are some 400 closures—391, to be precise. That illustrates the problems that those establishments have faced over the past few years.

I pay tribute to BACTA and some of the other organisations for the persistence with which they have pursued this issue on B3 machines. We have to accept that the previous B3 regime encouraged premises to get round the limits by splitting their space up into separate areas, as the Minister mentioned. This announcement has been mooted for some time; indeed, when one looks back at debates on orders on C and D category machines under the previous Government, it was clear that there was a debate over whether the B3 changes could be made at that time. Certainly, favourable noises were made by Mr Sutcliffe and others, but nothing was ever really done about it. So I welcome very much that that is now happening.

There are some issues, however. What worries me is that these things are done so often in a piecemeal fashion. We had the C and D changes in 2009, and we are having these B3 changes now. It is extremely important that there is a regular review of these issues, and that the state of economics of bingo clubs and AGCs is regularly examined. They are an important part of the amusement economy—indeed, the seaside economy. I note that the Minister in the other place is a Member of Parliament who represents a seaside town. It is very important that there should be regular reviews. I believe that a regular stakes and prizes review used to take place. I do not know whether it is planned to reinstitute that on, say, a regular three-yearly basis. There seemed to be some hint in what Mr Penrose said in the other place that that might be the case. However, it is important, if possible, to make that commitment.

Review is also important to see the impact that these new machines will have, not only on the establishments but on the public’s gambling habits. It was notable from the debate in the other place that there are differences of view over the impact of this order on the sheer number of machines that might be introduced. There was clearly a wide discrepancy between the Government’s quite low figure of 3,000 extra machines and the figure cited by others, which was considerably higher.

There is also the question of which other establishments should be able to benefit from changes in machines. Not everybody goes to bingo halls or AGCs. Snooker halls have also come up in debate. I hope that the Minister and her colleagues in the DCMS will also consider that issue.

Finally, one thing puzzles me. I think that this is a sensible order and the right way to proceed. However, it appears that the Gambling Commission has a different view on how these additional B3 machines should be calculated. It would be helpful if the Minister could explain where the Government differ from the Gambling Commission, and why they have decided not to accept its advice in these circumstances.

My Lords, I also support the government proposals before the Committee. I echo the comments of my noble friend about the effectiveness of BACTA, the trade body for the British amusement industry. It is good to see highly professional trade associations working with small, family-run businesses, many of which are based at the seaside and more than 500 of which are members. BACTA does excellent work and has done so for several years.

What struck me about the Minister’s speech was that she looked at the economic impact over the past five or six years; indeed, she went back as far as 2006 at one stage in her statistical analysis. Over the past five years, the reality is that the serious decline has happened in the past two years. In other words, the economic impact of this is getting more and more serious. We can see that from the background against which, over the past two years, there have been approximately 200 arcade closures, representing some 800 job losses. However, there are many more than those 800 when you consider the part-time nature of positions over the summer. In addition to the loss to local businesses, there is a direct knock-on effect on related enterprises such as souvenir, gift and high street food and beverage shops, many of which are based in seaside resorts. The life-blood of those seaside resorts is local businesses—those gift shops and high street shops. It is good to note that the work being done by so many of these small, family-run businesses at the seaside generates local activity and employment.

However, those businesses are under very serious economic constraints, because of which the Prime Minister made a pre-election pledge to throw a lifeline to the traditional British amusement industry by reversing changes made under the Gambling Act 2005 to the operation of amusement machines. These proposals give effect to that pledge and would see a return of a maximum stake for category B3 machines from £1 to £2, as the Minister said, and an increase in machine entitlement to 20 per cent of machines sited, or four machines, whichever is the greater. According to some of the estimates in the impact assessment, this small change that the Committee is considering would raise in the order of £8.3 million for the industry. I ask my noble friend: is that the correct figure? If so, the financial assistance will alleviate some of the pressures threatening the industry since the introduction of the Gambling Act 2005, and other economic pressures felt by the sector. I therefore support the measures.

Out of interest, I ask the Minister whether, given the proposed increase, the next generation of machines will have the capacity to take a £2 coin, or will we have to plug in two £1 coins? We have not touched on the related issue of whether the Government are considering increasing the prize limit from £500 for category B machines in the future and, if so, when.

I thank my noble friend for her comments—it was, again, another eloquent opening speech. I emphasise that given the speed of economic decline in this sector it would perhaps be of value to the Government in the future to revise the levels we are talking about today on a more frequent basis than they have done in the past.

My Lords, I start with a complaint. In volunteering to undertake this slot—no pun intended—I felt peculiarly disadvantaged because I have never knowingly interacted with a gambling machine of any type. I may have led a very sheltered life but it has never come my way. There is plenty of space in here so we could have had a demonstration or a machine to play with while the Committee sat for hours on earlier orders. At least we would have better understood the mechanics, if not the economics, of the industry. I hope that when the Minister replies she will respond to that in an appropriate way.

There is no concern about the aim here, which is to allow the business more flexibility to respond to the economic climate. I recognise the unintended consequences of the current regime, where operators are manipulating the rules by artificially splitting premises. I wonder what an artificial split of premises is, but I think we get the picture.

The key is that in the Government’s judgment this will not undermine the central aim of the Gambling Act 2005, which is, of course, public protection and ensuring that gambling is crime free, fair, open and protects children and vulnerable adults. We have heard reassurances from the Minister and I do not think that these changes will undermine that.

The noble Lord, Lord Clement-Jones, referred to the Gambling Commission, which is the Government’s principal adviser in this area. It is interesting that its various comments, which are seeded throughout the impact statements and other documents that we have seen, suggest that gambling machines are becoming a little less popular—although the decline is relatively small—and that they do not seem to lead to problem gambling. In our regime, prizes are quite low by international comparison, and the combination of that and a robust licensing regime suggests that there is room to make the changes proposed.

On the other hand, the recommendation from the Gambling Commission is that we should not look at changes in areas such as B3 machines in isolation, a point picked up by other noble Lords; we need a wider prospectus when we are considering changes. That point did not come through well in the documents that I saw. This is a complicated situation, and not only within the venues and places we are talking about. Changes here will redouble pressures for changes elsewhere, as has been mentioned. In some senses— although one does not wish to restrict choice in these matters—if we are really concerned about the growth in gambling, any increase in availability is, in principle, a bad thing.

On the consultation, I read in the documents that there were 92 consultees—mainly from the industry, although there were some consumer groups—and that they were offered a wide range of options, ranging from do nothing to changes in relation to floor space. Like the noble Lord, Lord Clement-Jones, I was perplexed that the Government did not accept the advice from its principal adviser, the Gambling Commission, on this matter and went for option 5, the model wanted by the industry. The Gambling Commission wanted option 6, which required that the increased number of machines permitted should be related to floor space, which is the common sense and logical position. Anything else would be rather odd to calculate as you would have an assessment of the total number of machines and then a proportion of that subject to a floor limit. That does not seem a robust way of doing this. The size of the premises is important because it will reflect the number of people who can use it. That would be a better way but, nevertheless, it will be interesting to hear the Minister’s response on this.

There are three or four points on which the Minister might reflect before she responds. Clearly, the Government have to balance the growth in popularity of the B2 machines in betting offices and the impact of the proposal on other gambling centres, which might draw customers away, rather than try to maximise the spend from existing customers in existing premises. That would be a problem, and I am not sure whether the view is that that will be the case. I think that it is not the case, but we nevertheless need to keep an eye on this.

I agree with the noble Lord, Lord Clement-Jones, that there will be a need for a regular review of this whole area, not just because of the integrated way in which all the various venues and machines fit together, but because we do not know enough about the way that gambling trends are going—particularly problem gambling trends. If we are talking about 500,000 people, that is a sufficient number for us to want to keep an eye on the situation. We do not really know what will be the total number of machines, consequent on the changes, and it would be interesting to have regular feedback on that.

There is mention in the documentation of the impact of tax on the way that the industry will work, and there is the suggestion of a machine games duty. I am not sure whether the level for that has yet been set, or whether that proposal has been implemented. When the Minister responds, can she give us some information on that, because it will be an important aspect of this? It would also be useful to track more accurately the change in takings. The figures that the noble Lord, Lord Moynihan, mentioned were startlingly large. If the measures indeed generate more than £8.3 million in additional revenues in this area, we would like to know about that. It was also mentioned somewhere in the documentation that the Government are a bit doubtful about the BACTA figures on generating income. Again, it would be helpful if the Minister could respond on that.

Finally, there is mention of further research being carried out by the Responsible Gambling Strategy Board and the Responsible Gambling Fund that could feed into this regular review. The outcome of that will be awaited with interest.

My Lords, this has been a very helpful debate and I thank all noble Lords who have spoken. I thank my noble friend Lord Clement-Jones for his support, and I will try and answer his three questions. The first was regarding a regular review, which the noble Lord, Lord Stevenson, also wanted to know about. We would like a more systematic approach to be in place, and we are minded to return to a triennial review system, as the noble Lord, Lord Clement-Jones, mentioned. We hope to develop this area with the industry and the Gambling Commission, and to explore how it might work. There are no plans for the moment to make changes to stake and prize limits for B2 machines.

The noble Lord’s second question was regarding other establishments. The Government have made clear their commitment to the British amusement industry to deliver these measures. The Minister for Tourism is meeting Rileys Clubs Ltd tomorrow, Wednesday 6 July, to discuss this issue, and it would be wrong to pre-empt that meeting.

On the noble Lord’s third question, also mentioned by the noble Lord, Lord Stevenson, the Gambling Commission originally favoured an approach based upon floor space. The Government took these views into account but felt, on balance, that the 20 per cent formula would be better placed to meet the needs of both the AGCs and bingo clubs, plus, it would offer a real boost to the machine manufacturers.

My noble friend Lord Moynihan is very knowledgeable in this area, because I believe he took through the previous Bill. I totally agree with him regarding the seaside resorts and that the Prime Minister supported this at a very early stage. As to the estimate of the economic benefit set out in the impact assessment, the impact assessment was considered by the independent regulatory policy committee and was assessed as being a reasonable estimate of impact. We therefore believe that it is an accurate estimate.

The noble Lord asked whether the new generation of machines would take the £2 coin. Yes, they will.

I am sorry that the noble Lord, Lord Stevenson, has never tried slot machines, because they are rather fun for a flutter, but perhaps your Lordships' House is not quite the right place to have them.

Oh, well. Perhaps that is another place and another time.

The noble Lord asked a more serious question about tax, which of course is a matter for the Treasury. Decisions on the eventual rates and thresholds for a new duty will be made by the Chancellor in the 2012 Budget. The Treasury has launched a consultation on the design characteristics of the new duty. We would urge all interested parties to engage as fully as possible with the Treasury on this matter. I am aware of the industry’s concern about any additional tax burdens and have made my Treasury colleagues aware of the industry’s difficult economic situation and the need to minimise burdens on operators.

This has been a very constructive debate. I thank all noble Lords who have contributed. I commend the order to the Committee.

Motion agreed.