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Loot Boxes

Volume 824: debated on Thursday 13 October 2022

Motion to Take Note

Moved by

That this House takes note of the response by His Majesty’s Government to the consultation on loot boxes.

My Lords, I begin by welcoming the Minister to his new post. I know from experience that DCMS is an exciting department in which to be involved, although one that is sadly undervalued by Governments of all persuasions. I refer to my interest as the chairman of Peers for Gambling Reform, an organisation whose 150 members—Peers from all sides of this House—have been pressing for the implementation of the recommendations from your Lordships’ Select Committee on gambling, on which I had the opportunity to serve. Sadly, much time has passed since the publication of its report and since the Government’s own consultation on gambling legislation was concluded. A much-anticipated White Paper was approved twice by the previous Cabinet, yet has still not seen the light of day. With at least one gambling-related suicide every single day, we simply cannot wait any longer. Could the Minister tell us when the White Paper will be published, and will he agree to meet with members of PGR as soon as possible?

Noble Lords may wonder why I have begun with reference to gambling reform when this debate is actually about loot boxes. I believe there is a very clear link and, as I will argue, that loot boxes should be treated as gambling and regulated accordingly, with a change to the current legal definition of gambling. Your Lordships’ committee recommended this, as did the House of Commons DCMS Committee. The Conservative manifesto for the 2019 election also made a link between gambling and loot boxes. It made a commitment to undertake a review of the Gambling Act 2005,

“with a particular focus on tackling issues around loot boxes”.

While we await the gambling White Paper, we at least now have the response to the separate consultation on loot boxes. I was, frankly, shocked by its contents. It said that the evidence submitted to the consultation showed a link between loot boxes and gambling harms and to wider mental health and financial harms. But it went on to say that the Government do not intend to amend gambling regulation or to introduce any other statutory consumer protections to cover loot boxes. Frankly, that makes no sense. How can a Government that have stressed that they would take an evidence-based approach accept there is a link between loot boxes and harm and yet not legislate to protect people from this harm?

A report commissioned last year by GambleAware stated that links between loot box purchasing and problem gambling

“have been robustly verified in around a dozen studies”,

and argued that loot boxes were “psychologically akin to gambling”. The Select Committee heard similarly overwhelming evidence. Dr David Zendle, of the University of York, for example, has done extensive research in this field. His findings, presented to the committee, found that in every one of his studies spending money on loot boxes is linked to problem gambling, and that the more money individuals spend on loot boxes, the more severe their problem gambling. He told the committee that the link between problem gambling and loot boxes is extraordinarily robust. We also heard that research around the world, from Canada to Finland, has replicated those findings.

Perhaps the most worrying findings were in relation to young people. In the UK, we currently have around 60,000 young people aged 11 to 16 who are deemed to be gambling addicts, with a further 85,000 deemed to be at risk of becoming so. Rates of harmful gambling among 17 to 20 year-olds are increasing threefold. We should be particularly concerned that the research by Dr Zendle and others shows that the observed links between loot box spending and problem gambling were much stronger in adolescents than in adults. According to some research, young people who spend money on loot boxes are more than 10 times as likely to be problem gamblers than those who do not.

Three years ago, the Children’s Commissioner’s report, Gaming the System, also expressed concern about the impact of loot boxes on young people and, like the Select Committees in both Houses, recommended the regulation of loot boxes as gambling. More recently, GambleAware pointed out that, without action, loot boxes—used by 40% of children who play video games—will continue to normalise gambling-like activities with all the well-established consequences.

I have been careful to refer to a link between loot boxes and problem gambling rather than a causal relationship between them. The more money an individual spends on loot boxes, the more likely they are to suffer gambling harm, but I acknowledge that establishing a causative relationship is much harder. However, this effect shows very clearly that one of two things is happening: in one situation, loot boxes are causing gambling problems; in the other, the companies that sell loot boxes are profiting inordinately from children and vulnerable individuals who suffer gambling harms. Such individuals commonly spend thousands of pounds on loot boxes. Either outcome is a cause for concern. So I do not believe that the absence of definitive proof of a causative link justifies the Government’s response, which is, in essence, to do nothing except encourage further research and hope that the industry will do something.

Of course I welcome further research, so can the Minister provide an update on the video games research framework? I am a fan of the UK’s games industry. It contributes significantly to the success of our creative industries, and with developments in virtual and augmented reality will be even more important. It is a responsible industry but, with significant earnings to be made from loot boxes, asking it to take significant steps to reduce their well-documented harms is asking too much of it.

Waiting for enhanced industry-led protections was exactly the same argument that allowed the worst practices of the gambling industry to go unchecked for many years. We were told that the Government did not need to regulate fixed-odds betting terminals because the industry would self-regulate. It did not. We were told that there was no need to bring in a statutory levy to fund research, education and treatment because the industry would provide sufficient through the voluntary levy. It has not. We were told that the industry would cut down on the advertising that is constantly marketed to young people and recovering gamblers. Instead it introduced, for football, a measly whistle-to-whistle ban that does not even begin to deal with advertising hoardings, front-of-shirt sponsorship or programme ads. There has been no let-up in non-football-linked TV ads, nor the constant bombardment of online marketing.

To be told once again that we can once trust the industry to self-regulate a product that directly funds those companies is surely not the right approach to take. A business model that relies on the fiscal success of harmful products must be regulated by the Government, not by the companies themselves. If the Government will not change, can the Minister at least provide details on progress made by the technical working group set up to develop those industry-led solutions?

Even the type of industry measures that the Government are suggesting seem likely to have little effect—for example, enhanced parental controls. As one commentator pointed out, that is like allowing children to gamble in a betting shop as long as a parent is present. More worryingly, as GambleAware-commissioned research points out, advocating enhanced parental controls as a key part of the solution shows how little the Government appreciate how difficult it now is for parents to understand and adequately protect their children from gambling harms, and, given the rapid changes to online activities, how lacking in confidence parents are even about talking to their children about these issues. Surely, given all the evidence, we should expect the Government to adopt a public health approach based on prevention.

In his previous role as Parliamentary Under-Secretary of State in the Department for Health and Social Care, where I believe he did an excellent job, the Minister was a powerful advocate of such a public health approach. I am grateful to the Library for providing numerous quotes from him showing how on several occasions he praised

“public health interventions and a strong regulatory framework”—[Official Report, 3/12/21; col. 1610.]

in relation to other harms such as smoking, obesity and mental health conditions. I remind him that when in March this year, during an Oral Question, I asked him about adopting a public health approach towards gambling he said:

“I know we take very seriously that this is a public health issue that we must tackle in a holistic way. We are looking at how we can allocate funding in the NHS long-term plan to tackle gambling addiction and to ensure that we focus more on prevention rather than simply dealing with people once they have a problem.”—[Official Report, 28/3/2022; col. 1262.)

Does the Minister really believe that the Government’s response to their own inquiry into loot boxes is evidence of the adoption of a public health approach? I certainly do not.

I remind him that as part of the review his own department commissioned Loot Boxes and Digital Gaming: A Rapid Evidence Assessment, a report whose results it sat on for ages. I suspect that was because it showed a

“stable and consistent association between loot box use and problem gambling”.

Despite that, there has been no action by the Government. Leave it to the industry and to parents, and encourage more research, but do not expect the Government to act.

In moving that the House takes note of the response by His Majesty’s Government to the consultation on loot boxes, I simply say that I was dismayed by it. I hope the Government will think again and instead take note of the recommendations of the Select Committees in both Houses, the Children’s Commissioner, GambleAware, numerous academics and many others who believe that loot boxes should be regulated as gambling. I beg to move.

My Lords, I congratulate the noble Lord, Lord Foster, on obtaining this debate and on the doughty work that he does as the chair of Peers for Gambling Reform. I also welcome the Minister to his new brief.

As the noble Lord, Lord Foster, said, we had expected and hoped that the Government’s White Paper on the results of their wider review of gambling legislation would be published before the Summer Recess, but it was delayed by what the Government would no doubt describe as circumstances outside their control. There are a lot of circumstances outside the Government’s control at present; in fact, it is difficult to think of many that are within it. That is all the more reason to get ahead with discussing what we actually have: namely, the Government’s response on loot boxes.

As we know, the definition of loot boxes is

“features in video games which may be accessed through gameplay … virtual currencies, or directly with real-world money.”

As the noble Lord said, the Conservative manifesto for the 2019 general election committed to undertaking a review of the Gambling Act 2005,

“with a particular focus on tackling issues around loot boxes”.

It is worth noting those words because they imply that, at that time, the Government regarded loot boxes as falling within the definition of “gambling” for the purposes of the Gambling Act. However, the view has subsequently been taken, including by the Gambling Commission, that loot boxes do not fall within that definition because they do not give monetary prizes.

The Government have now said in their response to the consultation that they do not propose to amend the Gambling Act, despite the recommendation of the Select Committee, to bring loot boxes within its purview. I do not propose to waste time arguing today whether loot boxes are or are not a form of gambling, but I would say that most people would take the view in ordinary parlance that when someone pays for access to a loot box giving the chance of a greater or lesser prize, they are taking a gamble. If it looks, walks and quacks like a duck, it probably is a duck. The Belgian gaming commission has concluded that loot boxes are a form of gambling. As I say, I see no point in pursuing that issue today. Its significance for practical purposes is that if loot boxes were defined as gambling, they would come under the regulation of the Gambling Commission.

What matters is whether the harm which access to loot boxes can do might be prevented in other ways, particularly in its effect on children. This is a serious issue and, if we are to believe the Government’s words, they take it seriously. I have referred, as did the noble Lord, Lord Foster, to what the Conservatives’ 2019 manifesto said about this. In her foreword to the Government’s response to the call for evidence, the former Secretary of State said:

“We want all players, especially children and vulnerable people, to have the tools and information they need to enjoy games safely”.

Video games are particularly attractive to children. It follows that particular care needs to be taken to protect children. The majority of Google games and iPhone games contain loot boxes; the vast majority of them are also available to children aged 12 and over. The issue is whether existing safeguards are sufficient to protect children, and the evidence is that they are not. A 2021 report commissioned by GambleAware found that the links between loot-box purchasing and problem gambling have been robustly identified in about a dozen studies—the noble Lord, Lord Foster, cited that. It is certainly the case that only a small minority of loot-box purchasers are problem gamblers, but those who are have a serious problem. As with gambling generally, some 5% of loot-box purchasers generate half of loot-box revenue, and a third of that 5% are problem gamblers.

The Government’s objectives deriving from the call for evidence, as in their response to the consultation, go in the right direction but many of us think—as the noble Lord, Lord Foster, said—that they do not go nearly far enough. The Government’s view is that

“purchases of loot boxes should be unavailable to all children and young people unless and until they are enabled by a parent or guardian”.

Good, but note that there is no definition of “children and young people”, so 12 year-olds will still be able to spend money on loot boxes. The Government welcome the fact

“that some platforms already require parental authorisation for spending by under-18s within games.”

Good, but what about those that do not?

The Government’s solution is to

“convene a technical working group to pursue enhanced industry-led measures to mitigate the risk of harms for children, young people and adults from loot boxes in video games”.

They continue:

“We expect the development of industry-led design norms and best practice guidance with regards to loot boxes to be an output of this work”.

As the noble Lord, Lord Foster, has said, the Government appear to have more confidence in the likelihood that the industry will introduce effective safeguards than many of us do. The fact, which cannot be escaped, is that the industry has a conflict of interest. As I have said, the bulk of its revenue comes from a very small number of loot-box purchasers, of whom many will be problem gamblers. We have to face the fact that the industry has a strong financial interest in fostering addiction—but we shall see.

I see one positive aspect of the Government’s response to which the noble Lord, Lord Foster, did not refer. The Government say that if the games companies and platforms do not improve protection for children, young people and adults, the Government will not hesitate to consider legislative options. Those are not very strong words, but the best thing about the Government’s response is that they will

“provide an update on the output of the technical working group and progress made to strengthen industry-led measures, by the first quarter of 2023”.

That is only six months away and it indicates some sense of urgency. We must hold the Government to that.

This Government do not want to be a nanny state. Many of us welcome that, but sometimes children need a nanny if they are not getting adequate protection from other sources when they need it.

My Lords, I thank the noble Lord, Lord Foster, for bringing this important debate before your Lordships’ House. I also welcome my noble friend to his new role in government. Noble Lords will be relieved to hear that I do not intend to use my full time allocation, but rather to use the time I have to lay out my own position on the response to the consultation.

I begin by laying out where I stand on the gaming industry, a position that I believe is shared across this House—we have already heard from the noble Lords, Lord Foster and Lord Butler—and within the Government. There is an opportunity now to find a sensible and responsible way forward in response to the response to the consultation. I pay tribute to the games industry and the enormous contribution it makes to the creative and electronic economy across the UK. It would be remiss of me not to make a special note of the impact that the games industry has had in Scotland, specifically in Dundee—a city where it has made a huge difference to the economy.

When I was a member of your Lordships’ Communications and Digital Committee I had several very helpful interactions with the industry, including chairing a conference on its future. I am not some Luddite who in any way denigrates the enormous part that gaming now plays across the ages and sexes. This is not an industry maintained by a stereotype of teenage boys gaming in their bedrooms through the night, but rather a market which is extremely diverse in age and gender. I speak as a friend of the industry and an advocate of the positive part that gaming plays in a healthy, managed way in the lives of millions across this country. Also, I am not someone whose first reaction to any problem is to look for a ban.

However, turning to the matter in hand, the Government’s response to the consultation currently does not goes quite as far as I would like in managing the balance between a thriving industry, while protecting young people from gambling, and the potential for acting as a gateway to negative life choices as they go forward. The fact is, as far as I can see it, that nearly all empirical studies have identified a relationship between loot boxes and gambling. That relationship, as the noble Lord, Lord Foster, said, may not be conclusively causal or directional, but the fact that one has been found suggests that the matter requires a precautionary approach. This has also been the outcome of committee inquiries in your Lordships’ House and the other place.

I have no issue with the ability of players, including under-18s, to augment their playing with specific purchases that are transparent and obvious, where an informed decision, with knowledge of value, can be made. The measures to allow probability to be shown before a purchase are a good step in the right direction, but this does not go far enough in providing categorical assurance that minors are not engaged in activities that can be viewed as gambling.

My noble friend the Minister’s department has invested significant time and effort in examining this knotty problem. I and others, I am sure, are very grateful for that investment of time and resource. The issue is indeed complex, but complexity should not be an excuse to avoid action. The fundamental point is that we have laws, which in the case of the National Lottery were tightened only in April 2021, to disallow under-18s from being able to gamble.

I have absolutely no issue with over-18s being able to buy loot boxes with a knowledge of probability and good practice safeguards; they are making an informed decision. But, for under-18s, we have a responsibility to safeguard. I therefore favour loot boxes not being allowed to be available to under-18s. We read in the consultation document that there is a concern that this could lead to minors using 18-plus accounts, but this argument would be equally valid about banning anything for under-18s.

Loot boxes clearly create an element of risk in the purchase that encourages further purchases. The analogy of a Kinder Surprise egg, which some in the industry used in response to the consultation, does not hold up to scrutiny, not least in terms of the financial resource involved. I reiterate that I am not saying that younger players should not be able to buy player and performance augmentation, but this should be on a straight purchase basis, just as it is with skins and other gaming elements.

Parental safeguards just do not work when so many parents are unaware of them. In preparation for this debate, I spoke to a number of responsible parents of gamers of my acquaintance. I asked them about loot boxes: some were vague, some thought that they had already been banned, some said they were no longer credible and some said that their children never bought them. I asked them to check with their children, and every single one of them had bought one in the last year, using their parents’ credit cards. They did not know it was a loot box; they just assumed that it was an extra augmentation to the game. Surely it would be more sensible to provide clarity to parents and children that they just cannot buy loot boxes.

In conclusion, I ask my noble friend the Minister to ensure that the Government build on the very real improvements included in the response to the consultation, and I ask that they work with industry and improve safeguards for all users. I am glad to hear that the working group will report early next year, as the noble Lord, Lord Butler, said. However, I ask my noble friend to ensure that consideration of the banning of loot boxes for under-18s remains part of the discussions, and that the door is not completely closed within the consideration of the review of the Gambling Act 2005. This is not about stopping income generation within gaming; rather, it is about removing the ability to gamble from those who would not be permitted to do so by the law in other areas.

My Lords, I am also a member of Peers for Gambling Reform, led tirelessly by the noble Lord, Lord Foster of Bath, although my contribution is negligible compared to his and to the work done by the noble Lord, Lord Butler. I agree with everything that they have said, and I have also found the Government’s response to the consultation on this matter naive and unsatisfactory. I will develop certain criticisms.

First, the response recognises, fairly enough, that there is compelling evidence of an association between the purchasing of loot boxes and problem gambling. I recall that 12 peer-reviewed studies are cited, and they all come to the same conclusion. It might be thought that that represents a good reason for taking some sort of action to mitigate the damage being done by the availability of loot boxes in video gaming. But the Government’s response declines to take any such action on the basis that there is at the moment no satisfactory evidence to support a finding that there is a causal connection of the relevant type between purchasing loot boxes and problem gambling. I agree with the noble Lord, Lord Foster, that, even if that were so, it would not in itself be a sufficient reason for complete inaction of the type commended by the Government. But I find completely unconvincing the Government’s position on the quality of the evidence for a causal connection between the two things. In the course of my brief discussion of loot boxes and all that they bring with them, I will suggest that it is obviously correct to infer that there is some relevant causal connection between what one might call excessively enthusiastic and expensive purchasing of loot boxes on the one hand and problem gambling on the other.

Secondly, in the course of my speech, I will agree with and develop the point made by other speakers that the purchasing of loot boxes is, in substance, a form of gambling. The Government’s response relies, inappropriately, on a semantic analysis of the definitions used in the Gambling Act 2005. A realistic assessment of the position would recognise the very close similarities between loot box purchasing and what one might call gambling in the strict sense.

Thirdly, the response is disappointing in that it pays almost no attention to what one might call the lived or real-life experience—I suppose it is real life—of those who play video games and are motivated or incentivised to buy loot boxes. Like the majority of Members of this House, I suspect, I am not a video gamer, although I am a gambler, as I have declared on other occasions, and I know all about gambling for all sorts of reasons. However, I have spent some time on YouTube over the last couple of days, looking at some interesting presentations of the opening of loot boxes, so I have some idea of what goes on when one pays one’s money and opens up a loot box. With respect, I say that nothing in the Government’s response suggests that the authors are familiar with or have paid sufficient attention to the visual and auditory stimuli used by the gaming industry to make loot boxes attractive.

Finally, I entirely agree with the noble Lord, Lord Butler, that the core message of the response—which is that, as things stand, it is sufficient to leave it to the industry to sort matters out—is wholly unrealistic and naive. It is also unfair to the gaming industry, which is a magnificent part of this country’s economic activity, because it ignores the acute conflict of interest that arises.

I will briefly develop what I have said about the Government’s position on an absence of evidence on the relevant type of causal relationship. Generally, the paper takes a rather odd approach to the role of evidence in the preparation of this sort of document. This does not augur very well for the White Paper we have been promised for months and months on the reform of gambling legislation in general. Of course, evidence is very important; it is taken in the course of this sort of consultation process, and it must be assembled and acted on. However, when I read the report referring favourably to the provision of evidence from respondents that children have less developed impulse control than adults, have a greater susceptibility to peer pressure than adults and may have a limited understanding of purchasing decisions, I wonder why it is thought necessary for any evidence to be given on those blindingly obvious matters at all. That is an indication that something rather strange is going on in relation to the handling of evidence.

Looking at this point about causation, what sort of evidence would be required to prove a causal connection between overenthusiastic purchasing of loot boxes on the one hand and problem gambling on the other? Would the research show that children developed a taste for gambling by unlawfully gambling online, then became problem gamblers, and then started to play video games and found that the purchase of loot boxes satisfied their craving to gamble? It is not likely that that evidence would be available; children generally get into video gaming first and then gambling later—only a bit later, unhappily, because of the accessibility of online gambling. That is the general sequence.

Might there be evidence that some human beings are predestined, for genetic reasons, to become problem gamblers, and the same innate characteristics that will make them problem gamblers cause them to be overenthusiastic purchasers of loot boxes? Maybe, but there is no such evidence of a genetic or neurological nature to that effect yet. I suggest that a more sensible analysis of the position would run as follows. First, there is a very close resemblance between the act of buying a loot box and the act of gambling on, say, an online slot machine. Secondly, the gaming industry presents loot boxes in a way that makes them virtually indistinguishable from some online slot machines. Even I am not stupid enough to play online slot machines, but I know what they look like. Thirdly, the buyer of a loot box unquestionably takes a risk, using in-game currency to buy something the value of which is unknown.

Fourthly, there is an illusion of control, in that different types of box—which, visually, could be a crate, pack or some form of container—may be chosen. They have different and rather odd names, they cost different amounts of money, and a child might well wrestle for some time with what he or she thinks is a delicate decision as to which box should be purchased to obtain what is hoped to be an ultra-rare product contained within. Fifthly, suspense is generated—I have seen this on YouTube—by a delay while the box is opened, or while it explodes slowly and dramatically, issuing forth all sorts of good things. Similar effects are created by suitably dramatic background noise. Sixthly, there is the possibility of a big win: the acquisition of some so-called ultra-rare item which will enable the gamer either to compete more effectively or to dress or equip the avatar in a way that will impress other users. Seventhly, the industry uses the notorious near miss effect, which can persuade the disappointed purchaser, who finds that the box contains some humdrum piece of equipment that is already possessed, to have another go and cough up some more money. In the words of an academic study footnoted to the government paper,

“the randomness is objectified and becomes part of the entertainment”.

I therefore entirely agree with my noble friend Lord Butler that, if it looks like a duck and does everything else that a duck does, it probably is a duck. In substance, then, this is probably gambling.

The paper relies on the definition of gambling in the Gambling Act and, at paragraph 35, says,

“we view the ability to legitimately cash out rewards as an important distinction.”

That is, if you gamble in the strict sense online or elsewhere and you win, you can turn your winnings into money or they represent money—which you can spend on other things, if you are wise enough to take it out and do so. Very well, that is one point, but I suggest that the distinction is more apparent than real: video gamers are using what is called “in-game currency” to gamble on a loot box which may contain something that they value—they may win; they may lose. The fact that what they are acquiring normally has value only within the virtual universe constructed by the game— although there are circumstances in which the contents of loot boxes can be traded for real money—is nothing to the point. This can be compared and contrasted—but mostly just compared—with the position of a problem gambler in the strict sense: the problem gambler risks cash and when that problem gambler wins cash, the value of it is, as it were, contained within the gambling universe and will be used to buy further gambling time. The analogies are compelling.

I am out of time, so I simply close by respectfully inviting the Minister to assist the House by indicating precisely what the Government expect the gaming industry to do to mitigate the risks connected to loot boxes. If I were running a gaming company and I read this response, I would not know what I had to do to clean things up.

My Lords, this is one of those debates when you think that you have something to say, you wait to say it, but then somebody says it all before you. The noble Lord has probably just done the House a favour by getting rid of much of what I was going to say. I came across loot boxes and started taking them seriously while following my noble friend Lord Foster of Bath’s campaign, for which he deserves a gold star from the rest of us. I am sure that most of the Front Bench dealing with DCMS would like to give him something else, but never mind. We have a situation where something is clearly not right.

The difference between loot boxes and gambling seems to be one of semantics, as the noble Lord, Lord Trevethin and Oaksey, just said. It is totally artificial: players are taking a chance on something. It also seems to be inspired primarily by the thrill and chance of getting something good. I have a very old friend who works at a senior level in the gaming industry—I will not name him because I did not say that I was going to mention him—and we previously had a look at this issue. I will share a story about us to illustrate how senior he is in the gaming industry. I saw a picture of a BAFTA on his Facebook account, and I said, “Oh, you’ve been to the BAFTAs.” He replied, “No, I’ve won one for game design.” So this is someone who knows what they are talking about. When he asked me whether I knew about loot boxes, I said yes. He said that they were nasty ways of making more money. They really do nothing else. In our messages, he also added, “Oh, aren’t they illegal?”

Loot boxes are something that people do not quite get their hands on. The more you look at this idea that you might just get something if you purchase one, and it might just be useful, the fact is that the chance you will get that thing next time is incredibly attractive to somebody who is paying just a small sum of money, then another and another. It is an endorphin hit which makes you think, “Maybe I’ll get it.” I had not really taken on board the impact of the near-miss strike; I had only seen it a couple of times and had not really understood it properly, so the noble Lord must be congratulated on discussing that.

Anyone who does any form of gaming—even if it is, for someone like me, only card games on a phone—is in their own little world for a bit. The loot boxes are saying, “Have a look at this: you can get this thing which allows you to get further in this little world.” As has been pointed out, we all know that the adolescent male is probably most likely to want to dive into that world. That was certainly the case when I was an adolescent male. You have the idea that you are doing something that really brings you in, and that you can get a little further into it and more secure and successful by taking on that little extra hit, that little extra bit of expenditure—usually with a parent’s credit card. It draws you further and further in.

As I said, apparently only the British Government think that this is not gambling, from what we can make out—only because they devise rules that do not hit. It is also very rewarding for the games industry, which does not have to go back to my aforementioned friend, for example, and say, “Devise another level where you’ll need to make a purchase to go up.” Your development costs have actually been kept down to get a reward. Let us just have something that ensure that, to make a change in a classic shoot-‘em-up, such as body armour or extra gun capacity for someone’s video image as they blast things into the sunset—I will be told that I am being far too simplistic, but that is it—someone at least knows what they are buying. Basically, it is the case that they are very bad value. If you know what you are buying, buy it. If your game is good enough people will stay and make that purchase. Even if it is only for a limited period of time, they will know what they are getting. They will be able to come in and out of the game and ask what the value is of what they are doing and whether they can get a better product somewhere else.

If there is that eternal element of chance, you always come back to “It might be a bit better next time.” I have heard stories from colleagues about people discovering that money is being spent only when they look at their credit card and go, “No, that definitely isn’t a coffee shop and I didn’t have 43 cappuccinos in one day.” That is the level of expenditure that we are talking about.

If the Government will not do something, what sticks or carrots will they give to the games industry to do it itself? At the moment, it is quite clear that the industry has a financial incentive not to do anything. It could be made marginally more difficult by, say, reminding people to check on something. If you are doing something illegal or something you should not and someone tells you that you are doing it again, you will say “Yes, that’s right; I knew.” What will the Government do to engage on this? If the Government are not going to do this, they really have to just come down and say, “No”.

This is a creative, developing industry. If it cannot develop a monetising model that avoids this then it really is less attractive and has less capacity for the future than any of us thought. It should have that capacity within itself. Let us please make sure that people at least know what they are purchasing. There may well be an addictive element to that, but there will be some limits on it and it will be easier to spot and stop.

Can the Government please just say that they will do something? At the moment, they are obfuscating behind an odd definition and saying that nothing is going to happen. That is what it feels like—the Minister shakes his head; he will be able to tell me why in a few minutes. What is actually going to happen? If nothing, then we will simply keep coming back to this. The problems will get worse until there is some form of tragedy and the Government are dragged into doing something—that is what happens, let us face it. Then we will have to do something. Let us get ahead of the game, or at least catch up with it for once.

My Lords, it is a pleasure to follow the noble Lord, Lord Addington, and his request for action—as has been expressed by so many noble Lords today in the debate. I also congratulate the noble Lord, Lord Foster, on securing this debate and, more than that, on setting out the issues so clearly. I associate myself with the comments that he made about the need for a public health approach—that prevention is surely better than cure. That has underlined all of the debate today on an important matter that needs to be taken seriously by the Government.

Many people were disappointed when they read the Government’s response to the consultation on loot boxes prior to the summer break. As other noble Lords have highlighted, the Government acknowledged that there is a “consistent association” between the features of loot boxes and the characteristics of problem gambling, yet we await further action. We know that the Gambling Commission, various academics and multiple parliamentary committees have been calling on the Government to take action for some years. I therefore say to the Minister, who is new to his post—I have welcomed him previously and am glad to reiterate that welcome—that here is an opportunity to distinguish himself still further than he has done already. I hope that he will take up that opportunity.

As outlined in the Library briefing received by many noble Lords, a very high percentage of games available on the Google Play and Apple digital stores contain loot boxes, with a sizeable proportion of users paying for them at least once. I have previously made reference to the prevalence of media stories about high spends on loot boxes in games such as “FIFA” and “Call of Duty”, which are widely played on games consoles as well as on mobile phones. With all this in mind, the take-up of loot boxes is likely only to increase. They are becoming increasingly important to developers and, given the obvious links with gambling—as has been acknowledged to some degree—are we not looking at an exponential growth of risk in the coming years? As noble Lords have said, we should not wait for something of a crisis for action, but should seek to prevent that crisis happening.

Relatively tame controls around parental consent are indeed a step forward, but the question for the Minister is whether they are really sufficient to mitigate the risk that loot boxes become a gateway to “proper” gambling products. How are we to react to the effect of loot boxes on young people? We know that the rapid rise in online gambling activities affects not only children but parents, as the noble Lord, Lord McInnes, said—I was very interested to hear his comments about the role of parents in this. The rapid rise of online gambling activities has led to a lack of confidence for parents to understand and adequately protect their children from gambling harms. Some 42% of parents of children under 18 would not be confident in talking to their children about loot boxes—something that the noble Lord, Lord McInnes, bore out in his research. Indeed, 79% have never heard of skins betting. Should we not help parents to assist children and young people, and should we not help the children and young people themselves? Rates of harmful gambling among 17 to 20 year-olds are increasing more than threefold. There are some 55,000 children aged between 11 and 16 who are experiencing gambling harm in our country, with a further 85,000 estimated to be at risk. Does the Minister agree that this is a ticking time bomb that needs addressing?

It has been mentioned in this debate that several other countries have classified and/or applied gambling restrictions to loot boxes, yet the UK Government have opted against this. Will the Minister give us some indication as to why? One option, as we have heard, was to tie loot boxes in with the long-running and repeatedly delayed gambling review, but again the Government have declined this opportunity, as the noble Lord, Lord Butler, said. We now read reports that the Prime Minister is looking at scrapping the review altogether, meaning that practices that we know are harmful could be allowed to continue. Will the Minister comment on those reports and, if they are not true, will he tell your Lordships’ House when the much-delayed gambling White Paper will be published, so that we can ensure that the right legislation, the right regulation and the right resources are in place to protect people from gambling harms?

While I am on my list of requests for things we need, will the Minister provide an update on the video games research network, which it is hoped might guide and inform legislation to protect children and young people from gambling-related harms through video games? Further to that, it would be helpful if he would give details on progress made by the technical working group, which is due to be set up to develop industry-led solutions to mitigate the risk of harms from loot boxes in video games. We all know that the cost of living crisis is worsening, so has the department made any assessment of whether people may be tempted to try gambling as a way of covering growing household bills? If there has been such an assessment, what action is going to be taken? As we see a spiralling cost of living, this link will not go away.

On the matter of evidence, the noble Lord, Lord Trevethin and Oaksey, talked about the clear causal connections between loot boxes and problem gambling. There seems to be great resistance on the part of the Government to accept the evidence. If that reluctance continues, will the Minister consider a review of the existing evidence and perhaps identify any gaps in the evidence and seek to fill these?

Having listened to the debate today—as I have listened to debates on this subject a number of times, as many noble Lords have done—I am struck very much, and I hope it strikes the Minister equally, that there is a potential harm that access to loot boxes can do, particularly with regard to children. This is about the potential for problem gambling and it begs a question as to why the Government have dragged their feet in acting. Today gives an opportunity, I hope, for the Government to change that approach and seek to take action. I hope that we will hear from the Minister how he intends to do that.

My Lords, I begin by thanking the noble Lord, Lord Foster, for bringing this important debate to the House today, all noble Lords who have spoken and those noble Lords who took the opportunity to welcome me to my new role. I am grateful and I look forward to working with noble Lords. I am sure that those noble Lords who worked with me in my previous job will recognise that I have always been open to meetings with officials to probe further than can be done within the confines of this Chamber.

In May this year, my ministerial predecessor, my noble friend Lord Parkinson of Whitley Bay, to whom I pay tribute for his work while he was on the Front Bench, responded to an Oral Question from the noble Lord, Lord Foster, about loot boxes. Since then, in July, we published the government response to the call for evidence and this debate therefore provides a useful and timely opportunity to discuss the findings and the next steps set out in the response in more detail. As I said, I will be happy to have more meetings with noble Lords on these issues and I welcome the continued scrutiny and engagement of this House on this.

Like other noble Lords who spoke, the Government are proud of the UK’s world-class video games sector and are committed to its continued growth. We introduced the video games tax relief in 2014 and have strengthened the UK’s reputation as a leading destination for developing games. In fact, as one noble Lord said, it has become so well known, you can now win Academy Awards for it. In addition, through the UK Games Fund, the Government are providing more than £8 million over this period to support the development of new games businesses and talent across the UK. But that comes with a large “however” or “but”. The scale and reach of the video games sector bring with them a responsibility to ensure high standards for protecting players. The Government are committed to ensuring that the UK is one of the safest places to be online, and this includes video games. We want all players, whether young people and children or vulnerable people, whatever their age, to have the tools and information they need to enjoy games safely.

In response to the debate today, I will set out some of our findings from the call for evidence—a number of noble Lords have already referred to these—and the steps we are taking. To begin, it was very helpful of the noble Lord, Lord Butler, to give a definition of loot boxes, but it was only half a definition, so I will continue by saying that the distinguishing feature of loot boxes is the random reward mechanism that allocates apparently randomised items to each purchase. Players do not know what they will get before opening the loot box. There are a variety of ways in which loot boxes are implemented, designed and used within games, including rewards that help players to compete in games, and cosmetic rewards, such as new skins, for example.

In response to growing concerns, including in this House and from players and parents, the Government ran a call for evidence, which was open for public submissions from September to November 2020. We received 32,000 responses from members of the public and 50 submissions from academics, the games industry and other organisations and individuals. This includes Peers for Gambling Reform and the All-Party Parliamentary Group for Gambling Related Harm. Many noble Lords paid tribute to the noble Lord, Lord Foster, for his leadership of that group. In addition, the Government commissioned an independent evidence assessment of academic literature on loot boxes, and I am grateful to noble Lords for referring to that today. Throughout this process, we are continuing to engage with the games industry, academics and other organisations and to press the industry in these forums on improving protection for players.

We published our response in July this year, and I recognise it has been a lengthy process but there were 32,000 submissions and 50 larger submissions. It is important that we consider these complex issues properly. But let me be quite clear: we agree that just because something is complex does not mean that you do nothing about it. It means you dive deeper into those issues and look at the links. As a former academic who sometimes wrote papers or had to assess papers for their use as evidence, I have been very careful to make sure that the conclusion comes from the evidence, rather than having an intended bias, before writing the paper. We have taken account of a huge number of submissions and I again thank all organisations and individuals who responded to that call.

The evidence identified a range of potential harms associated with loot boxes. This includes harms associated with gambling, as well as other potential mental health, financial and problem gaming-related harms. It suggests that the risk of harm is likely to be higher for children and younger people; we can agree on that. While the evidence base is still emerging, one of the more thoroughly explored harms from loot boxes is the nature of any possible association with gambling-related harm. A number of noble Lords asked about the nature of that association. The 15 peer-reviewed empirical studies considered by the InGAME evidence assessment found a stable and consistent association between loot box use and problem gambling. However, the research identified a range of plausible explanations that could underpin this association between loot boxes and problem gambling, and has not established a causal relationship, as noble Lords said. Some noble Lords challenged that, but I want to explore the other potential explanations.

Explanations include the fact that loot box purchasers are already heavily engaged in a range of gambling activities; that other factors, such as impulsivity, drive this association; that loot box purchases exhibit maladaptive motives, creating uncertainty for their users; or that loot box purchase itself leads to gambling-related harms. We have to consider all these possibilities in the ongoing academic debate. For example, a third factor, such as impulsivity, may underpin higher engagement in both gambling and loot boxes. So, evidence emerged of a number of other harms in our call for evidence, including financial harms, mental health harms and a possible relationship with problem gaming behaviours. The other thing that should be remembered when we look at a definition is that it is possible to purchase loot boxes in games without paying any real-world money at all. That is something we have to be quite clear about: how do we treat those players?

In addition to harms, the call for evidence considered the voluntary and statutory protections that have been introduced. Games companies have introduced a number of measures, including those that noble Lords referred to today. In response to the call for evidence, the Government’s view is that purchases of loot boxes should be unavailable to all children and young people unless and until they are enabled by a parent or guardian—it is not enough to say that; we are engaging with industry in various working groups to make it a reality—and that all players should have access to, and be aware of, spending controls and transparent information to support safe and responsible gaming; and that better evidence and research, enabled by improved access to data, should be developed to inform future policy-making.

A number of issues came up in the debate, and it is really important that we engage with them. I do not have the exact answers here now, so I am very happy to write to noble Lords and to allow them to ask my policy officials their questions in further detail. For example, the noble Lord, Lord McInnes, talked about younger gamers buying loot boxes without parental knowledge. That is undoubtedly a problem. We have seen that even a 10 year-old kid can be much more tech-savvy than their parents and can run rings around them when it comes to these issues. I will look into that to see if I can come back with an answer, but I hope that noble Lords will also be able to ask those questions directly when I arrange meetings on request.

We have made some progress on industry-led protections, but it has been uneven. We have been quite clear about this, and we know that more should be done by games companies and platforms. However, rather than imposing a solution, we want to work with the industry to ask how it will tackle this problem, given its creativity, innovation and technical experience, and how it will deliver tangible progress in the near future.

Once again, we want parents to be able to make informed choices. We welcome the fact that some platforms require parental authorisation for spending by under-18s within games, and we are calling on those who have not yet introduced such measures to introduce them and to ensure that loot boxes are not purchased without informed parental permission. We have to do more work on that. For all players, our view is that harm minimisation and player safety should be embedded into game design, and that is why we want to work with the industry to make sure that it embeds these measures into the games, rather than saying, “You must do this.” We expect games companies and platforms to provide further information to players and to look at that minority of players who spend a disproportionately large amount of money on loot boxes, whether or not they have parental allowance or permission, who may be at a greater risk of harm.

To deliver on these objectives, we have brought together a technical working group, as noble Lords said, which includes game industry trade bodies, platforms, publishers and developers. The group engages with academics and consumer and third sector groups to ensure that solutions are workable for parents and players. It has met several times already and has heard directly from a number of academics, including—as the noble Lord, Lord Foster, referred to—David Zendle, who has also attended the loot box technical working group. The DCMS chief scientific adviser, Professor Tom Rodden, has also visited the University of York and met David Zendle’s team, so there is ongoing interaction. The working group has met several times already, and it is actually meeting again today to discuss in detail how the objectives set out in the government response can be delivered. That is what the focus of the group’s discussion today will be. We want the group to facilitate the development of industry-led best practice guidance on the use of loot boxes, which should support players and parents across all platforms, from PC to mobile games.

We will also provide an update on industry-led measures by the first quarter of 2023, which I am sure will be of interest to noble Lords, but let me be quite clear: the Government expect action. The industry should be aware that the Government will not hesitate to consider legislative options if we deem it necessary—if these working groups do not deliver the action that noble Lords are calling for today. We are also working collaboratively on the video games research framework, and we hope to publish that by the end of the year. Its purpose is to facilitate better evidence and research but also to enable better access to data to support that evidence.

In addition to setting out why we believe action is needed, the government response considers the case for making changes to statutory consumer protections for users of loot boxes. I understand the views, including those raised by many noble Lords today, that the Government should go further, particularly with regard to the Gambling Act. The Government’s response to the call for evidence has been developed alongside our review of the Gambling Act, and the crossovers between gaming and gambling have been carefully considered. For noble Lords who asked about the delayed White Paper, we expect it to be coming out in the coming weeks—the noble Lord, Lord Foster, can chalk that up as a victory.

I want to be absolutely clear that the Government share strongly the views expressed today, but we do not intend to amend the scope of gambling regulation. Regulating loot boxes as gambling is only one potential means of mitigating the risks. Noble Lords may ask why, so let me go into some detail. First, while many loot boxes share some similarities with traditional gambling products, the Government view the ability to legitimately cash out rewards as an important distinction. In addition, entering the game without real money is not gambling real money, so we have to be very careful about that. The Gambling Commission has shown that it will take action when there has been unlicensed gambling within games, and noble Lords will be aware of the prosecution of FutGalaxy in 2017, which shows that action will be taken.

Secondly, changing the Gambling Act with regards to loot boxes would have some unintended consequences. It would require substantial changes to the gambling tax system, which is not designed to calculate duties owed on gambling transactions where the component parts have no clear monetary value—loot boxes have user-defined value in games, but they do not have a clear monetary value. Regulating loot boxes as gambling would also increase the scope and costs of running the Gambling Commission at a time when we are giving it more challenges by updating gambling regulation to bring it into the modern age—as I mentioned, the White Paper will be out soon. There is also the risk of other unintended consequences or activities. In my former career as an academic and researcher, I did quite a lot of work on unintended consequences, and we have to be quite clear about this.

However, in not taking forward changes to the Gambling Act, we believe that the statutory consumer protection obligations will continue to be the relevant regulatory framework. How do we make sure that those obligations are used in a proper way to tackle this issue? That work is being progressed through the DCMS-convened technical working group and will lead to further improvements. So we believe that it is premature to pursue legislative options at the moment, but we have said to the industry at these working groups that we will not hesitate to use that option if not enough is done. With the industry’s creativity, we are looking for it to come back to us with solutions it can design into a game, rather than being bolted on, to make it as integrated as possible.

I will quickly address some of the issues raised. Even though the gambling White Paper has not been published yet, we have already taken some action. We have banned gambling on credit cards, tightened restrictions on VIP schemes, strengthened the rules on how online operators identify those at risk of harm, and updated the gambling advertising codes. That shows all the things that can be done, and more can be done before passing legislation.

A number of noble Lords referred to other countries. We are looking at the evidence from Belgium and the Netherlands, but there are some issues here. For example, there are protracted legal proceedings going on in the Netherlands over how gambling laws should apply to certain loot boxes, and we want to see the outcome of those before looking at the option here. In addition, research in Belgium suggested that there is still loot box content in mobile games, despite the Belgian regulator’s decision to consider loot boxes as a form of gambling. So, once again, these countries have done something, but has it been effective enough? We need to look at the evidence of what has worked in other countries, rather than just what has been done there.

In conclusion, there are some other questions I have not answered, and I will make sure I write to noble Lords to deal with these issues. We all share the same objective, but we may think that there are different ways to achieve it. We are working closely with industry, academics and others to bring them together to find those solutions, but we also have the threat of potential legislation if the gaming industry and others do not come forward with appropriate protections. I am sure that the industry has heard loudly and clearly from noble Lords in this debate today, even though they may well be in a working group. It is quite clear that there is a strong feeling that something must be done. We want to do it with the industry, in co-operation, but I also understand and welcome pressure from noble Lords on the industry to make sure that we deliver on this.

In that light, before I sit down, I once again repeat my invitation to have meetings with noble Lords with the appropriate officials, to allow them not only to press my officials on that but to make us aware of things we may not have considered. We think we have considered everything, but we are very happy to consider all the evidence. With that, I once again thank the noble Lord, Lord Foster, for securing this debate, and I look forward to working constructively with him and other noble Lords in the future.

My Lords, I thank the Minister for his reply to the debate and his clarity about being willing to meet, and I hope he will meet with Peers for Gambling Reform in the near future. I thank all noble Lords who have taken part in what I believe is a very important debate, not least because of the issues that have been raised about harm currently being done to children and vulnerable people. I believe that further action that is way beyond the sort of promises we heard from the Minister must be taken, although I welcome the work that is being done. I believe—and I think the Minister has heard this—that far more needs to be done.

I think we have been clear, and I hope the Minister will understand, that we are huge fans of the games industry in this country. Before this debate, I was in a meeting of the Communications and Digital Committee, hearing from one of the leading experts in the world of digital games industry, who rightly pointed out that they are leading the way in new developments in VR and AR that are not only going to help their industry but areas such as health and education also—these are very important. As I hope the Minister has heard, we are clear that where they have a significant financial vested interest in the issue of loot boxes, it is wrong to expect them to take responsibility for dealing with the concerns that we have.

While we have been debating, reports have come out that No. 10 is debating a major U-turn on the mini-Budget. I had hoped that this debate would have led to a smaller U-turn on the issue of loot boxes. Sadly, we have not had that, but I am grateful for what the Minister said and the offers that he made. We look forward to further discussions on these issues. I beg to move.

Motion agreed.