Considered in Grand Committee
My Lords, Section 99 of the Gambling Act 2005 imposes monetary limits on the per-draw and annual proceeds of any lottery promoted in reliance on a lottery operating licence. This order will amend the per-draw sales limit from £4 million to £5 million. As a consequence, the maximum prize limit will increase from £400,000 to £500,000, due to the rule that the prize must not exceed 10% of per-draw proceeds. This order also amends the annual sales limit from £10 million to £50 million.
In July 2019, the Government announced proposals to help society lotteries: that is, fundraising lotteries run by charities and other non-commercial organisations such as sports clubs or local community groups. Last year, society lotteries raised over £330 million, in support of a diverse range of charities, including hospices and air ambulances, which so many in this country rely on. The current annual sales limit has been in place since it was implemented in 2007, and the per-draw sales and prize limits have been in place since 2009. Indeed, the issue was looked at by the DCMS Select Committee in 2015, which recommended that the department and the Gambling Commission examine the sector in some detail. This led to the 2018 public consultation. I am grateful to the committee for raising this important issue.
I know that stakeholders on both sides have strong views, evident in the 1,600 responses the department received to its consultation. A key consideration in developing the changes being debated today has been the relationship between the National Lottery and society lotteries. Together they raise around £2 billion a year, improving our communities and life in this country in countless ways. It is imperative that any changes enable both to grow, and that society lotteries’ growth is not at the expense of the National Lottery. As Minister for Civil Society I can say that this is particularly close to my heart, as the sector benefits considerably from funds raised by the National Lottery.
I can assure the Committee that we have considered in detail the relationship between society lotteries and the National Lottery. The final package is underpinned by independent, evidence-based advice from the regulator, the Gambling Commission. It has advised that the changes I am bringing forward today will preserve the balance in the sector and maintain the key distinction between the National Lottery, which offers the largest prizes in support of many good causes, and society lotteries, which offer smaller prizes with a focus on a specified good cause.
I say very deliberately that society lotteries should have a clear focus on the charitable and not-for-profit purposes they support, and it is of the utmost importance that players know which causes they are supporting with their ticket and how much of the ticket price is going to support the cause. I am therefore delighted to see that the Gambling Commission is currently consulting on additional transparency measures for society lottery licences. I take this opportunity to thank it for its consideration of the issue and I look forward to seeing its conclusions.
The most significant change is the increase to the annual sales limit to £50 million. The current limit of £10 million is restrictive for larger society lotteries wishing to grow. Some have set up additional lotteries or an umbrella structure to facilitate growth, which incurs high administrative costs and can be bureaucratic to operate. For large charities operating at or close to the existing limits it is costly to add additional licences, either within an umbrella structure or a multiple-society structure. For example, in response to the consultation, Cancer Research UK estimated that moving to a multiple-society model would cost around £345,000 to set up, with additional annual running costs of around £130,000, thereby reducing the proportion of income for its charitable purposes.
For most societies, a £50 million limit would mean that they no longer need to hold more than one lottery operating licence, leading to cost savings and higher returns to good causes. It also means that society lotteries approaching the current annual sales limit can continue to grow and raise valuable funds for their beneficiaries without stopping or slowing their draws, as some do at present. This order includes transitional provisions to allow licence holders to benefit from the increased limits straight away on a pro rata basis, rather than having to wait until the beginning of the new calendar year.
For the vast majority of the sector, increasing the per-draw sales limit incrementally from £4 million to £5 million, combined with the new annual limit of £50 million, will provide both the headroom for further growth and the flexibility to increase the size and frequency of draws as operators wish. Where individual per-draw lottery sales exceed £250,000, the maximum prize cannot be more than 10% of the proceeds of that lottery. The maximum prize limit will increase from £400,000 to £500,000. We know that most society lotteries only offer relatively small prizes compared to their sales, but this change will allow for some additional flexibility, while remaining distinct from the largest prizes offered by most National Lottery games.
The Gambling Commission will be monitoring the impact of the changes carefully and the Government will keep a keen eye on progress, in particular to ensure that additional funds are directed to good causes and do not lead to an increase in administrative expenses. To satisfy ourselves in this regard, the Government will review the impact of the changes 12 months after implementation, looking at new data and evidence that has emerged over the course of the year. As part of this, we will look again at the case for a £1 million prize, as well as the link between sales and the maximum prize, and returns to good causes. Once we understand the impact of the current changes, we will also look at the case for a £100 million licence and any additional conditions that may accompany that.
To conclude, by increasing the limits we will enable society lotteries to raise even more funds for the causes they support by reducing burdensome administrative costs. Recent research published just last month by the Gambling Commission shows that the National Lottery and society lottery sectors are both currently growing, with participation up two percentage points for both, meaning that overall funds raised for good causes are growing. I welcome this approach. It is clear that society lottery funding brings tangible benefits. The Carers Trust stated in its response to the consultation:
“Unrestricted funding gives us the flexibility to allocate funds to projects and posts which are harder to fundraise for, and contribute towards our overheads and running costs.”
I look forward to seeing the impact of these changes on organisations working in my sector, and I commend the order to the House.
My Lords, I apologise, but this is not quite as simple a statutory instrument as the Minister has said. There are a number of issues and questions that I want to put to her. I was delighted that, on 19 November last year, we were able to celebrate the 25th anniversary of the National Lottery and the staggering £40 billion that it has been able to give to good causes since it was introduced by John Major in 1994. Equally, we should celebrate the incredible work done by small-scale society lotteries that have provided funds for hospices, schools, clubs and many other good causes alongside the National Lottery.
My concern is that the original, untaxed society lotteries were characterised by relatively low prizes and generally limited distribution footprints. Those factors traditionally differentiated them from the National Lottery and, as the Minister said, that distinction helped them both to thrive and funds to go to good causes because they were not in competition.
However, then came the idea of grouping together a number of these society lotteries under a single umbrella; two key examples are the People’s Postcode Lottery and the Health Lottery. I have argued on many occasions that, although both of them undoubtedly do good work, they are being allowed to operate contrary to the concept of there being a single national lottery.
As I intend to demonstrate, notwithstanding what the Minister said, they are already having a damaging impact on the National Lottery. Currently, they are run by private external lottery managers and their revenues have increased dramatically, from £179 million to £736 million over the last 10 years. The measures in this statutory instrument look set to cause even greater damage to the National Lottery than has already been done. We must gauge the measures being proposed against the impact that they will have on the National Lottery.
Your Lordships’ Committee on the Social and Economic Impact of the Gambling Industry, of which I am a member, has already taken evidence on some of these issues. From that, we know that running concurrently to the legislative process we are discussing today—the Minister has already referred to this—is a public consultation by the Gambling Commission in response to concerns about transparency raised by the previous Lotteries Minister.
Public trust and confidence are vital to preserve the integrity of both the lotteries and the charities that operate and rely on them. Where sales are in the hundreds of millions of pounds and the purpose is charitable, it is only right that the levels of transparency are high—higher than they are now. Players should be able easily to find out how often prizes are awarded, how good causes are chosen and how their money is spent.
For example, we know that the National Lottery has operating costs of about 5% of revenue but, as the Select Committee heard in January when both Camelot and the People’s Postcode gave evidence, the People’s Postcode Lottery has operating costs of 28%; it spends almost as much on operating costs as it does on giving to charitable causes—in marked contradiction to what the National Lottery does. I also understand that the Health Lottery spends more on expenses than it returns to good causes, although this information is not easy to ascertain. Indeed, DCMS noted that
“the two sector leaders currently return amongst the lowest proportion of revenue to good causes.”
So, the Minister says how good these society lotteries are—indeed, the individual small ones are—but we discover that the amount of money that these combined umbrella lotteries give to good causes is almost similar to the amount they spend on administration. I hope that the Minister can assure us that she will watch this issue carefully so that we can make changes leading to higher returns to good causes. As a first step, and before any result of the consultation is seen and any major final decisions are made, can the Minister at least ask those two umbrella lotteries whether they will make public the information on the various issues that I have just raised?
What is the key component of that administration cost? The vast majority of it is spent on advertising, seen in the volume of advertising on television and radio and in newspapers coming through our letterboxes. Even currently at Westminster Underground station, we see that billboards have been taken out. The advertising I get at home from the People’s Postcode Lottery certainly goes out of its way to make it look as if it is operating in exactly the same way as the National Lottery. Camelot, which operates the National Lottery, told the committee that this had led to a marketing “arms race” in the lottery market. The People’s Postcode Lottery is spending 75% of the amount spent on advertising by the National Lottery, yet is only 5% of its size. It is allowed to spend so much because the Gambling Act 2005 removed any cap on expenses, replacing it with the simple condition that expenses should be “reasonably incurred”.
Umbrella-style society lotteries can therefore spend significant sums—as they are doing—as long as a minimum of 20% is returned to good causes, and they can claim to be “reasonably” incurring expenses such as these vast sums of money on advertising. Such spending has led to this extraordinarily fast growth, undermining the original intention that there should be a single national lottery. As I will show, that has reduced the funds for National Lottery good causes. What does the Minister understand by a “reasonably incurred” level of expenses? Does she believe that the expenses currently incurred by the two umbrella lotteries are reasonable under that definition?
I have argued for many years for the reintroduction of the expenses cap on the large-scale umbrella lotteries. Is the Minister prepared at least to look at reintroducing a limit of, say, 5% or 10% on the level of expenses allowable for them?
We read in paragraph 10.2 of the Explanatory Memorandum that the Government received clear evidence from the Gambling Commission that
“licensed lotteries have had no … significant detrimental impact on National Lottery sales to date.”
I accept entirely that the National Lottery has continued to grow in the face of growing competition from these other organisations. However, a detailed independent report commissioned by Camelot showed that, contrary to the evidence that the Minister and the Explanatory Memorandum gave us, between 2011 and 2017, the impact on the National Lottery was estimated at £703 million in reduced sales and £266 million in reduced returns to good causes.
Understandably, the National Lottery distributors are concerned because they have relied on this funding. Paragraph 7.4 of the Explanatory Memorandum acknowledges that the order increases the per-draw limit, allowing more headroom for these lotteries to continue to grow and providing even greater competition to the National Lottery. If further evidence were needed, we read in paragraph 7.6:
“It is noted that this will bring the top prize potentially offered by licensed lotteries directly in line with the National Lottery’s Thunderball top prize.”
So, if one wanted evidence that there will be growing competition and impact on the National Lottery, it is provided in the Government’s Explanatory Memorandum —on top of the clear evidence that, even before these changes are introduced, there has already been an impact.
Not only will the good causes continue to lose out, but the Treasury has already lost out. The Minister will know that, as the National Lottery is taxed, Governments have lost 12% of the income lost by Camelot and the National Lottery.
Incidentally, I acknowledge that this is outwith the statutory instrument, but it is relevant to the issues we are debating. I wonder whether the Minister is aware of the very strong case that has existed for many years for changing the way in which the National Lottery operates: if the National Lottery was taxed in exactly the same way as other gambling organisations, the evidence shows that there would be increased money not only for good causes but for the Treasury—so I hope the Minister will agree to review that evidence.
Returning to the measure before us, the economic case for whether good causes are best served by having a single National Lottery provider has been revisited on numerous occasions. I am sure that the Minister has been advised of this. Surely, she would have agreed with the evidence, which is there for all to see. It shows that, if there were 10 lotteries offering a jackpot of £1 million each, far less would be returned to society than having a single lottery with a £10 million jackpot. If she is not swayed by that argument, will she at least acknowledge that the evidence on which she is basing today’s decision is outdated? The evidence provided to her by the Gambling Commission was, at the time, already outdated—it is now four years out of date—and we have now seen a further erosion of the potential levels of income that we would have had from the National Lottery. I hope that the Minister will acknowledge that it is out-of-date information on which we are basing this decision.
Large prizes are the preserve of the National Lottery, as acknowledged by the Government, who said that
“for many societies, the good cause, rather than the prize, is the primary motivating factor for playing.”
However, at the time of the consultation, as the Minister acknowledged, some in the sector were even arguing for a £1 million top prize. That would seem to be parking the umbrella lotteries’ tanks on the National Lottery’s lawn. It would be a real danger if the Government were to even contemplate going in that direction. I know that it is contained in the statutory instrument, but it would be enormously helpful if the Minister, when she responds, states categorically that she and the Government believe in there being a clear distinction between society lotteries and the National Lottery.
I am supportive of the National Lottery and society lotteries, but I am deeply concerned about the impact of umbrella lotteries that operate in a loophole within the legislation, and in a way that is detrimental to the National Lottery and the good causes it supports. This is not particularly efficient, and it takes vast sums of money in operating costs, rather than giving money to good causes. As a comparison, the National Lottery has a 5% operating cost, whereas one of the umbrella lotteries has a 28% operating cost—that should support the case I am making.
Having said all of that, I am well aware that there is no support for opposition to this, so I shall not seek, at any stage, to divide the Committee on this issue—but I believe that there will be continued erosion of the National Lottery and good causes.
I end by saying that I hope that the Government will consider and improve transparency measures, reintroduce an expenses cap, review the system of taxing the National Lottery and ensure that there are no further changes that disproportionately benefit, as these do, the umbrella-style lotteries.
My Lords, I have no difficulty in agreeing entirely with what the noble Lord, Lord Foster, has said about some of the questions that do, and must, remain under review. Certainly, the hardest thing of all is the balance between the interests of the National Lottery and the society lotteries, and this statutory instrument seeks to establish such a balance. It is clear from the supporting documentation and the National Lottery’s responses to these proposals that the National Lottery does not feel terrifically positive about that as far as its own interests are concerned.
The present limits on prize money and amounts to be raised were set 15 and 12 years ago, and therefore for me—and, I think, for my party—at this stage it seems reasonable and proportionate to contemplate an increase from £4 million to £5 million, with the same percentages for the top prize money. I do not think that anyone on our side wants to oppose this SI, but we urge that close attention be given to how it all works out.
This is a more satisfactory statutory instrument than some of the ones that I have stood here to ask about. There has been a consultation and an attempt to work out some of the likely impacts of the proposals. The proposals in this statutory instrument seem okay, but we should take with a pinch of salt the suggestion that we might go rather quickly towards much higher totals. We would need robust evidence that the pace of increase was proportionate and appropriate—so that hint ought to be squashed straightaway. As and when it is time to look at further increases, let us do so, but let us not give that hostage to fortune within the proposals before us now.
The umbrella lotteries have been amply referred to by the noble Lord, Lord Foster: I understand that the Minister will clarify that and I shall see whether my thinking on this is right. But one of the objects of moving the figures upward is to make these umbrella lotteries less necessary, and therefore to avoid duplicating administrative costs because of the multiplicity of bodies that come together to form the umbrella. I do not know whether metaphorically you can bring bodies together to form an umbrella, but noble Lords will know what I mean. It would be very good to have a word of clarification on that. Will there be a material reduction in administrative costs? That would go some way towards meeting the point raised, properly, by the noble Lord, Lord Foster.
The extra transparency that the Gambling Commission and committees of the House are looking at has been hinted at. We certainly need to have some answers to the questions that have been raised, and I hope that we will. It is important to note that there has been cross-party approval and support for these proposals, including from the Liberal Democrats—or, at least, named Members in the paperwork that I have received.
Finally—there is no need to say more than needs to be said—a proper process has taken place and a proportionate set of suggestions about increasing the amounts seems to be contained within these papers. I would be very careful about giving a hostage to fortune regarding further increases at the moment, although perhaps later that could be brought to our attention as a separate matter. I would like to know how these umbrella bodies will be affected by the increases in administrative costs that we are talking about. With all that said, we do not want to stand in the way of this SI being approved.
I start by thanking both noble Lords for their careful scrutiny of the instrument that we are discussing, and for their questions. Perhaps I might start by trying to reassure the noble Lord, Lord Foster. I spend my life trying to reassure noble Lords, but I will try again. Our clear aim is to set a framework that encourages both the National Lottery and society lotteries to thrive. We will monitor the impact of the changes very carefully, and we will not allow the growth of society lotteries to come at the expense of the National Lottery. I hope that that goes some way towards confirming our intent.
The noble Lord, Lord Griffiths, said that part of the purpose of the instrument was to remove the pressure to create umbrellas out of bodies. None of us is quite clear about that; it feels uncomfortable. But, by raising the limit to £50 million, all the current society lottery providers, with the exception of the People’s Postcode Lottery, will be able to move from an umbrella structure back to a single structure. This goes back to the point raised by Cancer Research UK in its response to the consultation: that that will remove some administrative costs, which will allow more money to go to good causes. I think that all of us can align on that. I understand that the People’s Postcode Lottery has also indicated that it will seek to reduce the number of lotteries under its umbrella. So I hope I have addressed that point.
More broadly, the noble Lord, Lord Foster, questioned whether the changes could have a negative impact on the National Lottery. As the noble Lord knows, the Gambling Commission has advised that changes to the limits will have minimal impact on the National Lottery. The reforms are designed to allow society lotteries to raise more money for the good causes they support, but they take very careful account of the relationship between the society lotteries and the National Lottery. The distinctions remain in terms of the size of prizes and the frequency of draws, so we continue to believe that substitution between the two is likely to remain minimal.
The noble Lord cited the Camelot report in terms of the negative impact on National Lottery sales. Again, I can only reiterate the Gambling Commission’s advice, which was based on independent research. It does not believe that it has had a negative impact, and obviously that impact will be carefully monitored. The latest research, published just last month, shows participation in the National Lottery and society lotteries going up by about 2 percentage points. I believe that that evidence was given to the committee that the noble Lord sits on.
The noble Lord also asked about reasonable costs. Obviously with the National Lottery there are economies of scale, but the noble Lord will also be aware that society lotteries have been in existence for a lot longer, and we have a diverse range of business models. The minimum acceptable return that has been agreed with society lotteries is 20%, but obviously the average is 45%. The People’s Lottery is at 32%, but we know that it hopes to increase that. Again, the one-year review will look at this in detail.
I vowed I would not intervene, but on this I really must, because it is incumbent on the Government at least to define what they mean by “reasonable” in this context. For example, does the Minister think it is reasonable that the People’s Postcode Lottery is spending on advertising 75% of what the National Lottery spends? Is that reasonable when the People’s Postcode Lottery is currently only 5% of the size of the National Lottery?
I am sure the noble Lord will understand that the decision on what the People’s Postcode Lottery spends on its marketing budget is for it. What we look at for reasonableness is the growth in money going to good causes, and, given that both parts of the sector are increasing at the moment, we are comfortable with that, but we will keep it under close review.
On transparency, which both noble Lords raised, and the consultation that the Gambling Commission is undertaking at the moment, the Government absolutely agree that society lotteries need to demonstrate the highest levels of transparency. The consultation seeks views on new guidance which will allow society lottery operators to provide players with more information about their odds of winning a prize, how good causes are selected and the breakdown of lottery proceeds. I know that my honourable friend the Minister here would not be afraid to legislate if there were concerns about transparency.
The noble Lord, Lord Foster, asked about reintroducing the expenses cap. He will be aware that that was removed in 2005 and, since then, the approach has been to focus on the minimum return of 20%, with flexibility for operators to split the balance. Obviously, the return is currently significantly higher than that, so there are no current plans to reintroduce the cap. The Gambling Commission consultation will also make players aware of how to access information about the breakdown of proceeds before they buy a ticket.
Returning to the noble Lord’s question about reasonably incurred levels of expenditure, I should have added that that is handled by the Gambling Commission, as the regulator for the sector.
Turning to taxation models for the National Lottery, we have discussed them, and options for changing to a gross-profit tax model, with the Treasury, but that remains a matter for the Treasury to decide on.
I apologise profusely, but too often we hear from Ministers that decisions on taxation are a matter for the Treasury. I entirely accept that that is true, but there is a duty on, in this case, her department to provide evidence to the Treasury to suggest that it should seriously consider making a change to taxation that would, in this case, benefit good causes and the Treasury itself. My question now is simply: has her department recently provided any of the clear, detailed research evidence that shows that a change would make the benefits that I suggest? Has it done it or not? If it has not, will it agree to so do?
The answer is yes. As the noble Lord is aware, the fourth national licence competition will open in April, and both my department and the Treasury have been looking at the case for how the taxation system should work. I have managed to reassure the noble Lord on one thing, which I shall regard as a triumph.
As we have all agreed, the National Lottery is a uniquely important part of British society. Each year, it raises about £1.6 billion for good causes in the heritage, arts, sports and community sectors; that has amounted to an impressive total of £40 billion over its 25 years. Society lotteries raise more than £330 million a year for good causes, and that amount is increasing year on year. It is right that we do everything we can to support both sectors to grow, thrive and optimise the contributions they make to funding good causes across the country.