Moved By Lord Carter of Barnes

That the draft regulations laid before the House on 10 March be approved.

Relevant Document: 9th Report from the Joint Committee on Statutory Instruments.

My Lords, with permission, I beg to move the Motion on the Order Paper. We are debating this evening the draft Categories of Gaming Machine (Amendment) Regulations 2009. These regulations are intended to increase the stake and prize limits for all category C gaming machines, and for only specified types of category D machines.

Last year the Government received numerous representations in support of seaside arcades, which were struggling under difficult trading conditions. As noble Lords will be aware, the economic climate has not improved and many businesses continue to struggle. For example, arcade revenue is down by 21 per cent, with over 170 reported closures since July 2007, resulting in nearly 1,000 jobs lost. Manufacturing output of gaming machines is down 55 per cent since 2005, with nearly 300 jobs lost since 2007. Seaside arcades offer soft gambling environments. They are not permitted to offer higher prize gaming machines, and they form an integral part of many families' holidays. It is for these reasons the Government wish to see them prosper and continue.

That is why, on 25 June 2008, the Government announced that to examine the case for providing economic assistance to seaside arcades, as well as pubs and clubs, they would bring forward a review of stake and prize limits in respect of low-prize category C and D machines. Following an initial consultation exercise, the Government were persuaded that a modest increase in stake and prize levels was appropriate. They remain confident that such an increase will not risk the licensing objectives in the Gambling Act, which are rightly cast in terms of protecting children and vulnerable adults from being harmed or exploited by gambling.

I turn first to category C gaming machines. The maximum stake for a category C machine is currently set at 50 pence, with the maximum prize set at £35. These regulations will increase the stake limit to £1 and the prize limit to £70. Noble Lords will know that the Government consulted publicly on a number of options last August, with the preferred option being to increase the stake limit to 60 pence and the prize limit to £60, compared to the proposal of £1 and £70. It was felt at the time that a 100 per cent increase in stake and prize levels might be difficult to reconcile with the precautionary approach already taken to the implementation of the Gambling Act 2005 as a whole.

The Government were concerned that prize levels of £70 or more might take category C gaming machines in the direction of harder gaming machines, unless accompanied by additional restrictions on game speed and features. They did not want to see the important distinctions between harder and softer gaming machines eroded. However, responses to the consultation made it clear that 60 pence and £60 limits would not have the necessary benefit for the operators of seaside arcades or machine manufacturers in the way that was hoped or judged to be needed. It was unlikely, in particular, that such limits would generate adequate new business for machine manufacturers and suppliers. Market research showed that moving away from the present stake-to-prize ratio of 1:70 would deter players. That meant that as well as being unattractive to players, the limits would be too low to provide incentives for manufacturers to develop new machines and for operators to replace legacy machines. Therefore, after discussions with a number of trade associations, the Government accepted that limits of £1 and £70 for category C machines would be more practical and economically beneficial to operators and manufacturers.

The availability of higher prize category C machines is more likely to encourage operators to replace their legacy machines with new machines. This will help to invigorate the manufacturing market, which I described earlier as having a challenging time. It will also enable manufacturers to provide a range of appealing games as an alternative to the higher prize, harder gambling, category B machines. By not alienating players who might be interested in multi-stake and multi-prize machines, a £1 stake to £70 prize limit offers a real incentive to operators of soft gambling environments, such as seaside arcades, to refrain from splitting existing premises to gain a higher proportion of category B machines.

The Government also took into account advice from the Gambling Commission that, in the wider context of problem gambling, changes of up to £1 in stake would not pose a significant threat to the licensing objectives, provided appropriate controls on machine standards were put in place. The Gambling Commission is doing just that and the Government are confident that these revised standards will help to allay any concerns raised during the consultations.

I turn now to category D machines. These regulations do not affect money prize machines—that is, the lowest prize category of fruit machines. Instead, they are intended to increase the stake and prize limits for so-called crane-grabs and coin-pusher machines, also known in the trade as penny falls. These types of machine are a much present element of seaside arcades, and playing them also forms an enjoyable part of many families' weekend and holiday activities.

At present, coin-pusher machines have a maximum stake limit of 10p and a maximum total prize of £8, of which £5 can be cash and up to the value of £3 can be non-cash. This has enabled operators of such games to include small non-cash prizes to vary the offer and the attractiveness of these machines. During the first public consultation there were no representations in relation to coin-pusher machines that warranted any change to the Government's original view. They remain satisfied that any increase will not jeopardise the licensing objectives. Therefore, under these regulations the maximum stake for coin-pusher machines will remain at 10p, while the maximum prize will increase to £15, of which £8 can be a money prize.

For crane-grab machines, the maximum stake is currently set at 30p, with the maximum prize value set at £8. These regulations will increase the stake limit to £1 and the prize limit to £50. Back in August the Government originally consulted on a revised limit of 50p and £30 for this type of machine. The primary reason for this was caution, given the appeal of these machines to children. However, following the consultation, it became clear that these proposals, while not endangering the licensing objectives, would not provide the benefit to seaside arcades that had been hoped. After discussions with a number of trade associations, the Government accepted that stake and prize limits higher than those initially proposed would enable operators to offer more attractive prize items such as PlayStation and Xbox games, mobile phones and iPod Shuffles. As a parent, I know that we must, however reluctantly at times, accept that tastes for prizes have grown more sophisticated over the past decade or so. By allowing seaside arcades to offer such prizes, these regulations will go a long way to help them to address the difficult economic position in which they find themselves and to keep themselves commercially attractive. That is why it was felt that on balance that £1 and £50 limits would be more appropriate. The Government are reassured that this increase, when considered within the overall context of the regulatory regime, will not undermine the licensing objectives. Also, raising the limit of crane grabs to £1 will not be a price increase in the conventional sense. Rather, operators will continue to offer a range of stakes and prizes, from a 10p stake and a £1 prize upwards, with the average stake likely to be 33p or less. This will give operators the opportunity to offer the choice that their customers wish.

I know that some here this evening will have concerns about the stake and prize limits for category C and category D gaming machines being increased at all and, indeed, to these levels. I would like to comment on those concerns as they have featured largely in our decision-making. It is appropriate to reiterate that protection of children and the vulnerable from the potential harm of problem gambling remains central to the Government's approach to gambling and gambling regulation. That is why the decision was made to consult again on the revised proposals in December last year and to conduct that consultation clearly and over time to a degree for which we have been criticised for not concluding in advance of the Easter season.

The Government felt it important that all stakeholders who might be concerned about the risks to problem gambling should have another opportunity to voice their opinions. In particular, representatives from the faith groups were invited to a meeting during the consultation period so that their concerns could be heard and understood at first-hand. The Government took those views into account when deciding on the current proposals. Increasing the stake and prize limits for low-prize gaming machines does not represent a relaxation of the regulatory regime, nor should these proposals be viewed in isolation. Instead, they must be considered within the context of the regulatory regime put in place by the Gambling Act 2005.

All categories of gaming machines must comply with strict regulations and equally strict technical standards. To ensure that the distinction between category C and higher category B gaming machines does not become blurred, the Gambling Commission is proposing to amend the technical standards in respect of speed of play and linked games for category C gaming machines. Revised standards to this effect were notified to the European Commission on 10 March. Indeed, the Government sought the advice of the Gambling Commission early on in this process. It is its view that, in the wider context of problem gambling, changes in stake limits of up to £1 will not pose a significant threat to the licensing objectives provided that appropriate controls are put in place. Also, through operating licences the Gambling Commission licenses and regulates all those who manufacture, supply, install, maintain, adapt or repair gaming machines. In addition, further protections for consumers are secured through the Gambling Commission's licence conditions and code of practice, which include specific provision in relation to underage gambling and problem gambling through requirements in respect of supervision, access, staff training and self-exclusion.

Noble Lords will know that some stakeholders, including faith groups, have been critical of these proposals. They are concerned that the Government appear to be endorsing ever higher levels of gambling when economic conditions mean people might have less money to spend. That is not the case. The Government have listened to the case made by the gambling industry but they have also taken on board the concerns that have been raised in all the consultations carried out in relation to these regulations. Stakes and prizes form only a small part of the overall regulatory and protection regime created by the Gambling Act and these proposals, when considered within their overall context, do not jeopardise the licensing objectives. To ensure that this remains the case, the Government will, of course, monitor the implementation of these regulations.

It is important to reiterate that, for the majority of people, gambling in this form is an entertaining and entertainment pastime that presents not problems but rather enjoyment and reward. These regulations are designed to ensure that operators at the softer end of the gambling industry, particularly seaside arcades but also pubs and clubs, are able to manage in difficult trading conditions and increasingly competitive markets, but only in so far as the licensing objectives are preserved. It should be made clear that continually increasing stake and prize levels is not the only answer to the pressures faced by operators and manufacturers. The industry must explore—and, indeed, is exploring—other ways to freshen its appeal.

That said, the Government are in a position to provide some limited help. They recognise that there is a need to protect jobs and to support a challenged industry in unprecedentedly difficult times. However, there is also an obligation on them to ensure that vulnerable people, particularly children, are protected from the potential harm that excessive gambling can cause. The licensing objectives are therefore non-negotiable. Stake and prize levels for category C and certain types of category D machines are being increased to assist the industry, but only because the Government are satisfied that the licensing objectives will not be prejudiced by so doing. Noble Lords can be assured that the Government have not been cavalier with the concerns raised by faith groups and other stakeholders during this process. They have been listened to and their concerns have been considered and taken into account. Overall, the Government are satisfied that the proposed changes will give the industry the lift it genuinely needs without undermining the precautionary principle adopted throughout the implementation of the 2005 Act. It is for these reasons that I commend these regulations to the House.

My Lords, we on these Benches agree by and large with these changes, as they will help the UK gaming industry, but deplore the fact that the Government have ignored the more urgent calls for category B3 machine changes and have failed to review the muddle of UK gambling as a whole. They have said that they will consult on category B machines but, to help the industry, that should already have been done. The Government are avoiding the much bigger challenges we face in the UK gambling market. Not least, they should be looking at the use of fixed-odds betting terminals. Have they appreciated that FOBTs provide a much more dangerous form of gambling? Indeed, the particular dangers of these terminals has inspired their nickname of the crack cocaine of gambling. Surely that would not have happened unless they were dangerous.

One key objective of the Gambling Act 2005 was to protect vulnerable people from being harmed by gambling. However, because of the inadequate legislation, gamblers are being forced steadily away from gaming arcades, which have a low problem-gambling rate—just 3 per cent of players—to betting shops, which have a much higher rate, at 11 per cent of players.

Conservatives support people's right to enjoy gambling as a form of entertainment, providing the appropriate safeguards are in place to protect vulnerable players. My colleague Tobias Ellwood MP, the shadow Minister with responsibility for gambling issues, has stated:

"The Government has let down not just the bingo and arcade industry that employs so many people but also the local economies that those arcades are part of".

He has also announced that an incoming Conservative Government would reverse the most damaging aspects of the Gambling Act 2005.

My Lords, if you look at these regulations, there is not much to argue about, unless you disagree fundamentally with the idea of gambling as a form of entertainment. Issues have been raised about whether the gambling legislation that we have needs a complete review, and whether much of the structure has gone wrong. However, I shall put away that sword for another day.

We are talking about making a series of small changes at the softer end of gambling, which is being hit hard. We are talking about making category C machines more profitable, by giving people an inducement to invest in them by making them more fun to play. I remember a conversation a good few years ago with a friend in a pub who was pumping money into a machine. I said, "You didn't get anything back". He said, "Yes, but I had a good game". The attraction was the element of chance, and playing the nudge backwards and forwards. I appreciate that the Minister is trying to make a high enough profit margin for these machines to keep them interesting and keep them used. They are also used to subsidise things like pubs and other forms of club activity.

I do not have a fundamental problem here, but is this enough? Has it been done soon enough? I do not know. I feel a degree of sympathy for the Government. They are in that horrible cleft-stick position: do we consult or do we act quickly? I am afraid that they will get splinters either way—on what part of their anatomy is down to the skill of the Minister in question. Let us just say that there is no right answer here, merely the best one that you can make at the time.

What has happened here? When it comes to grab machines and penny-fall machines, my experience of them as a small child in fairs was that they grabbed nothing and gave you nothing, so you might as well have just given them your money. Making them actually work, I suggest, would be the first step forward.

I do not have a fundamental problem with this and neither do the majority of my colleagues. However, we might be dealing with a symptom rather than the main problem of the decline of much of our seaside soft gambling and machine industry.

My Lords, I thank the Minister for his speech, which put the arguments so clearly. I am sorry that the Government did not keep to their initial thoughts, but bowed to pressure from the gaming industry to raise the size of the stakes and prizes. There were several references to putting appropriate controls in place. I am not clear what those are and whether they would work. I, too, played some of these penny-fall machines as a child, and indeed have done occasionally since—with much the same results as the noble Lord.

I am completely at a loss to know why we pass laws that seem to encourage the gaming industry to expand—and I believe that this legislation does that. We have also had battles over the Manchester supercasino, which certainly did that. Why do we encourage this? We know that gambling and gaming so easily become addictive, and that they harm both individuals and society. That is why a coalition of faith bodies is opposed to this legislation.

The Minister spoke eloquently about listening to these groups, but it does not seem that their concerns have really been taken into account. There is evidence from Canada, Australia and New Zealand that at least one-third of the profits of gaming come from at-risk or problem gamblers. That is not entertainment. The Minister argued that there would be no significant increase through these proposals; that remains to be seen. I believe that they will increase problem gambling in a time of recession, and vulnerable people will be most affected. The 2007 gambling prevalence study showed that those on lower incomes have higher rates of problem gambling. We have a duty, as the Minister said, towards the vulnerable and towards children.

There has already been a threefold increase in stakes since 1997. The increase proposed is neither proportionate nor modest; it is well above the rate of inflation. The argument that children can access these machines because stakes and prizes are low, which was put in 2005, will no longer be the case. Children are being sacrificed to the demands of seaside arcades. Children will be able to accept prizes worth £50 and £70. These are getting close to hard gambling numbers, as the Minister said.

It was promised in 2005 that there would be research into whether higher stakes and prizes led to an increase in problem gambling. None has been forthcoming. There was a promise from Tessa Jowell that there would be no further liberalisation until proper research was done. Recently, the Gambling Commission released a study that confirmed the strong relationship between problem gambling—including slot-machine gambling—and high alcohol consumption. Could we have research into how many alcohol-related deaths are also linked to gaming and gambling?

It is a laudable aim to seek to stem the decline of our seaside towns. However, the way to do this is to encourage healthy activities for families. Playing fruit machines and gaming machines are largely individual pursuits, not things that families enjoy doing together. A similar argument applies to pubs. We want the English pub to thrive, but the income that landlords make from gaming machines is tiny compared with the annual turnover. Increasing stakes and prizes will not save pubs. What will save them are high-quality meals, social activities like quizzes and enough space in our overworked lives to go out and enjoy ourselves—because we live in a culture of overwork.

Voting for these regulations encourages the gaming industry to grow and expand, when much of the Christian church thinks it would be better for our nation if it contracted. At a time when we take issues of health and family cohesion very seriously—the Prime Minister repeatedly speaks of robust values—this is a step in the wrong direction that will make the vulnerable more vulnerable.

My Lords, as someone who spent a lot of time on the passing of the Gambling Act 2005, and from the word go had considerable concerns about the dangers of children being exposed to unnecessary risks, I have considerable sympathy for what the right reverend Prelate the Bishop of Carlisle has just said. There must have been better ways of spending the money in difficult times and difficult areas—ways that might have been of greater benefit to the whole community, rather than just to the gambling few.

The amount by which the prizes have gone up seems considerable. We have heard little to assuage the worry that many people have that the younger you start getting involved in gambling, the more likely you are to become a problem gambler. The evidence that we have been sent from Canada, Australia and New Zealand, where one-third of profits from gaming machines come from at-risk or problem gamblers, ought to give us pause before we pour yet more money in these directions. It is very difficult to see a proper way forward here. I reiterate my sadness that money which rightly should be going to help poorer communities in this appalling economic climate has gone in this particular direction.

My Lords, I declare an interest as chairman of the All-Party Parliamentary Betting and Gaming Group, which has spent a lot of time looking at betting and gaming. The Minister asked us to look at the impact of the Gambling Act on gaming machines, and we did so. Perhaps I should also declare an interest and say that I like gambling. I gamble within my means; I enjoy it and I talk to lots of people who like it and who are not problem gamblers. It is time that we spoke up for people who cause us no trouble whatever as well as for people who cause us trouble.

In response to our request for evidence, the group received almost 150 submissions, the overwhelming majority of which said that many problems were created by the 2005 Act which only the Government could put right. Many people reminded us that hard cases make bad law and suggested that we should try to legislate so that we cover only problem gamblers, rather than preventing people enjoying something that they enjoy. They can afford to enjoy it, and they have worked hard to be able to spend the money that they earn in the way that they wish.

Although a number of respondents blamed the category B2/B3 machines—so-called FOBTs—for enticing away their trade, we were not provided with any evidence of this. Neither, despite repeated suggestions that category B2/B3 machines are an increased source of problem gambling, were we provided with any hard evidence to support these suggestions. Until we see evidence to the contrary, any changes to the present regulations governing category B2/B3 machines are unwarranted. I am certain that the Gambling Commission will be keeping a close eye on this and that the moment that it sees something going wrong with such machines it will immediately jump up with some proposals.

We do, however, agree that bookmakers have a significant advantage over the operators of, for example, seaside arcades, who depend on machines for their livelihood. Much more needs to be done as a matter of urgency to help these operators who do not operate betting shops, or many will not survive much longer. The latest figures given by the Minister prove that arcades, especially in seaside areas, are going out of business.

More than one respondent drew our attention to the perceived high cost of the Gambling Commission's offices in Birmingham and the increased staff. They felt that, despite all the money spent, there was a poor level of service. We do not agree with that, but it was their point of view. This was causing them extreme difficulties, and resentment was building up in the industry.

We received lots of evidence of job losses in the gaming machine industry. The blame for this was being laid at the door of the Government, for not understanding the gaming industry in the way that they should have before the legislation went through. However, we welcome this small step, which we hope will help the gaming industry. We think that it has come a little too late, but nevertheless it has come.

My Lords, I thank noble Lords for taking part in the debate this evening. It is fair to say that the contributions reflected the broad spectrum of opinion that the Government received during the consultation process. I am not going to join the noble Lord, Lord Addington, in speculating about which part of the Government's, or my own, anatomy is relevant here, or in speculating about whether this is enough, too late, too little, whether there should be more, or whether there should be any at all. Suffice it to say that the Government have sought to strike a balance between these understandably competing views.

I shall answer some of the specific questions. The noble Baroness, Lady Howe, if I understood correctly, was suggesting that in some way, shape or form public money was being invested in these areas. That is not the case. We are providing a relaxation and, one could argue, liberalisation, to allow the operators to become more commercially attractive and more competitive, but this is in no way, shape or form government money, let alone more government money.

The noble Lord, Lord Addington, asked whether this is enough or whether it is too late. We believe that we have moved things on as quickly as we could and as we should. I understand the point made by the noble Baroness, Lady Golding, that there are many voices in the industry which would like to see more and would like to see it faster. The Government are trying to get the balance right. The Gambling Act is relatively new legislation. I do not think that it is a legitimate criticism from the noble Lord, Lord Luke, to suggest that it is in a muddle and it is time for a review. We do not know enough yet to know whether we should be reviewing what was essentially a new regime that was put in place. He and his colleagues in the other place may have the view that now is the time to reverse the more damaging aspects of the 2005 Act. The Government's view is that we do not yet know enough to be able to make those determinative judgments.

We thought that it was right to take the time to consider the concerns raised by groups in consultation, and we also needed to take the time to ensure that the changes to individual areas were consistent with the overall licensing objectives that were a central part of the 2005 regime. We would not describe that as a muddle in the market; we would describe it as a balance in the regime, hence the reason for taking the time that was asked for.

The right reverend Prelate asked questions around whether this is a contradiction of the comments, or possibly the promises, that the previous Secretary of State had made on this measure. This is not a relaxation in any way, shape or form of the regulatory regime. The regulations, as I said in my opening remarks, need to be considered in the context of the whole regime. The increases are being enacted via secondary legislation. Although I was not involved in the debate at the time—I was an observer—I think that the Government were referring to those aspects that were debated in Parliament through the Bill, which is the overarching regulatory regime. I was reassured to hear that the right reverend Prelate has participated in penny-falls and crane-grabs, not least because I am a parent. It would be inappropriate for a government Minister to make an observation on the odds of that crane actually ever bringing anything to the point where it gets dropped into the waiting hands of the paying customer. Nevertheless, it is the case that there is a clear level of customer satisfaction and enjoyment.

For what it is worth, I am not a gambler, at least not in the financial sense of that word, but I share the view of the noble Baroness, Lady Golding, that gambling is an entertainment activity that for many millions of people is a very legitimate form of controlled and balanced entertainment and satisfaction. It is entirely appropriate for this House to speak up for that vibrant and thriving industry.

It is clear that the arcade operators need to find a route to competition. I think that the noble Lord, Lord Addington, was making that point about the real attractiveness of those operations. Clearly, we need to get the balance right between the arcade operators and what might be called the harder gambling environments. We do not believe for a second that this provision answers all of those problems, but it will contribute to the industry's ability to reinvent itself and make it competitive.

The noble Lord, Lord Luke, asked why we had not looked at category B3 machines. Our view is that we brought forward this particular issue exceptionally to look at category C and D machines. I think that we have made it clear to the industry that we are not yet convinced that a sufficient case has been made for increasing the category B entitlement. If we were bringing that to the House today, considerably stronger voices would be raised saying that that case has not been made. I feel comfortable that the Government are in the right place on those issues.

Overall, gambling is a delicate area but not a difficult one. We need to get the balance right and these are small changes for a particular area of commercial activity. We do not for a second believe that this will reinvigorate the English seaside resort. However, as a regular attendee of UK seaside resorts, I think that it would be fair to point to the improvements made over the past 12 to 15 years in water quality and the bathing environment, in the quality of meals in pubs and in the opportunity for people to enjoy that holiday environment—not to mention the competitiveness of sterling, which is making UK resorts ever more attractive. This small measure will, we hope, allow our seaside arcades to make themselves more attractive, more competitive and more commercially viable.

Motion agreed.

Sitting suspended.