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Clause 9 - Investment income

National Lottery Bill – in a Public Bill Committee at 2:45 pm on 27th October 2005.

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Question proposed, That the clause stand part of the Bill.

Photo of Don Foster Don Foster Shadow Secretary of State for Culture, Media and Sport

I was desperately hoping that the Minister would catch your eye and lead the debate on this important issue, Mr. Gale. As this is a Government clause, one would have thought that that would be helpful. If I am able to catch your eye in a moment, after the Minister has spoken, I shall be delighted to make my contribution.

Photo of Roger Gale Roger Gale Conservative, North Thanet

The hon. Gentleman is well aware that I am entirely in the Committee’s hands. If no Committee member leaps to his or her feet, I have no choice but to put the question.

Photo of Richard Caborn Richard Caborn Minister of State (Sport), Department for Culture, Media & Sport

I was not going to speak in this stand part debate, Mr. Gale, but if the hon. Member for Bath wants to have a debate, I shall give him some background. I hope that this debate will be more focused than the last.

Clause 9 changes the way in which income earned from the investment of the national lottery distribution fund is divided between lottery distributors. We proposed changes to the method of allocating investment income because we considered that the existing method created an unintended advantage for distributors that hold high balances in the national lottery distribution fund, thus potentially depriving communities of realising the benefits of lottery spending on the ground as fully and as soon as they otherwise might.

The proposed changes will remove that unintended advantage. The Public Accounts Committee report on national lottery distribution fund balance management, published on 18 October, said that the public benefit of lottery money is delivered only when the money is spent in the community. Distributors that follow that advice and get funds out of the door quickly will no longer be penalised because their balances are lower. This measure will not reduce overall returns, all of which will continue to benefit lottery good causes.

The proposed change has other advantages too. The July 2004 National Audit Office report highlighted a lack of clarity on the part of many distributors about their likely future income from the lottery. Of course, there will always be inherent uncertainty about that, but the proposed new arrangements will make it much easier for distributors to calculate their share of the potential future income to the national lottery distribution fund from the Department’s income projections.

The proposed new arrangements are designed to make things fairer and more transparent for all and not to penalise particular good causes or distributors. As the overall balance and distributors’ individual balances continue to fall in line with Government policy, the new arrangements need not, by the time they are likely to take effect, have a major impact on any particular good cause or distributor.

Photo of Don Foster Don Foster Shadow Secretary of State for Culture, Media and Sport

I shall be brief. I fundamentally disagree with what clause 9 proposes; our current arrangement works perfectly well. The Minister has said that the clause will not significantly affect the funds available for any distributor. The truth is that the National Heritage Fund, following the research that it commissioned, is firmly of the view that the provision will mean that it will lose £15 million a year from the total money that it has available for its activities. I could argue at great length about that.

Photo of Don Foster Don Foster Shadow Secretary of State for Culture, Media and Sport

I will in a second, because I will be so brief that the Minister can respond to the two points that I shall make.

The Minister has been at great pains to point out in our deliberations on Tuesday and today that what a Minister says is crucial and that it should be a key determinant of how the legislation is interpreted. The Minister said on Second Reading:

“Nothing in the Bill will allow money to be taken from heritage and spent on something else.”—[Official Report, 14 June 2005; Vol. 435, c. 169.]

Will he confirm that that is what he said, and will he tell us clearly that the National Heritage Fund is incorrect in its estimation that it will lose out?

Photo of Richard Caborn Richard Caborn Minister of State (Sport), Department for Culture, Media & Sport

In terms of the allocation of the lottery funds as per the prescribed percentage of distribution of lottery funds, the answer is no, the National Heritage Fund will not lose out. However, if the hon. Member for Bath is asking me whether it will lose out on interest accrued from large balances, the answer is yes, because that will be distributed.

All income from moneys gained from interest on balances will be distributed as per the agreement that we had on the distribution between arts, sport, heritage and the Big Lottery Fund. In terms of the Act and the distribution of moneys from the lottery to the lottery distribution fund, the answer is no, they will not lose out. However, the distribution of any moneys accrued through interest on large balances will be distributed as per the agreement on percentages. That is the reasoning we gave for the distribution.

Photo of Don Foster Don Foster Shadow Secretary of State for Culture, Media and Sport

I am grateful to the Minister. He has given a clear answer, and I fully understand the proposal. He did not need to tell me what it says three times. He seems to make it clear that if this proposal goes ahead, notwithstanding how most normal people would have interpreted what he said on the Floor of the House, the amount of money available to spend on heritage by the relevant lottery distributor will be less each year than it currently is. It currently gets its normal distribution according to the formula and its money from the interest on balances.

The money on balances will be less, so there will be less money. I think the Minister is confirming that, and that is a great cause for concern for many people in this country who value the work being done in the heritage field. For that reason, I for one will vote against the clause.

Photo of Hugo Swire Hugo Swire Chair, Speaker's Advisory Committee on Works of Art, Shadow Secretary of State for Culture, Media and Sport, Shadow Secretary of State for Culture, Media and Sport

I for two, Mr. Gale. That is quite extraordinary. It is a sort of Ruritanian politics. We have a Minister on the Floor of the House saying that the heritage sector will not lose out, and then in Committee a few months later saying that the heritage sector will not lose out, however it will lose out “if this happens”. Either it will lose out or it will not lose out. It is perfectly clear from what he has said that it will lose out.

Photo of Adam Afriyie Adam Afriyie Conservative, Windsor

Perhaps my hon. Friend might ask the Minister to tell us how much interest the sector will lose through the redistribution process. If we could see the numbers, we should be able to see by how much the sector will lose out.

Photo of Hugo Swire Hugo Swire Chair, Speaker's Advisory Committee on Works of Art, Shadow Secretary of State for Culture, Media and Sport, Shadow Secretary of State for Culture, Media and Sport

I am pleased to act as the conduit for my hon. Friend’s question. Table 10 of the Big Lottery Fund’s corporate plan shows clearly who the real winner is under clause 9. Lo and behold, the big winner is—you will have to wait until Saturday night. No, the big winner is the Big Lottery Fund. That might come as a tremendous surprise to people in the Room, but that is the situation.

How much will the heritage sector lose? By its own estimate, as the hon. Member for Bath said, it will lose £15 million a year, which is a considerable sum. The Minister is looking at me in disbelief, and his officials are no doubt scribbling away so that he will be able to tell us that that figure is completely erroneous, that we   have dreamed it up and that it is yet another example of the Opposition being only 99 per cent. accurate, but I am happy to be challenged on it or to hear another figure. Clause 9, therefore, is designed to reward the Big Lottery Fund, which is fine if that is what people want, but the loser is, yet again, the heritage sector.

The earning of interest on balances in the national lottery distribution fund is not, as the Government have said, a perverse incentive to keep high balances.

Photo of Hugo Swire Hugo Swire Chair, Speaker's Advisory Committee on Works of Art, Shadow Secretary of State for Culture, Media and Sport, Shadow Secretary of State for Culture, Media and Sport

The point is that the money held by the Heritage Lottery Fund has already been committed; it is not sitting idle. The interest allows for more heritage projects to be completed, which seems a good argument to me. Whatever one’s position on whether the balances in the NLDF should be high or low, it is a fact that the interest earned on those balances pays for more good-cause projects. That is surely a good thing and should be celebrated—a word that is overused these days.

That brings me to my final point—I do not want to rehearse all the arguments that we went over on clause 8, nor would you allow me to do so, Mr. Gale. The Big Lottery Fund is the winner in this. The Government, not satisfied with the Big Lottery Fund, will control half of all lottery funds, but they must surely have realised when drafting clause 9 that it will benefit the BLF by between £22 million and £26 million a year between now and 2009.

The BLF’s corporate plan for 2005, to which I referred in answer to my hon. Friend the Member for Windsor (Adam Afriyie), confirms that the BLF stands to gain most from any redistribution of interest. Since the BLF takes 50 per cent. of all lottery income, it will presumably take 50 per cent. of all interest on balances. In 2006–07, the BLF’s total lottery income would be £616 million under the current system of interest distribution, but £642 million under the proposed new system. That bonus goes to the BLF, despite its admission that its balances in the national lottery distribution fund will average more than £400 million.

Very simply, my point is that the clause will not work as the Minister intends it to—if, indeed, this is how he intends it to work. It will be not a disincentive to all distributors to reduce their balances but, curiously, a positive incentive to the BLF to keep high balances. I hope, therefore, that the Minister will agree to leave clause 9 out of the Bill. To give him an excuse to do so, I quote the responses to his beloved lottery consultation. Of those who gave an opinion, 25 disagreed with the measure and only 15 agreed. The Government called that a mixed response, but it is crystal clear to me. I call 25:15 a clear majority.

Photo of Hugo Swire Hugo Swire Chair, Speaker's Advisory Committee on Works of Art, Shadow Secretary of State for Culture, Media and Sport, Shadow Secretary of State for Culture, Media and Sport

I am concluding my remarks, and the Minister will now have an opportunity to respond. However, I am extremely unhappy and I urge him to withdraw the clause.

Photo of Richard Caborn Richard Caborn Minister of State (Sport), Department for Culture, Media & Sport

To make things absolutely clear, in the consultation it was proposed that we move underspent moneys from one good cause to another. That argument was not sustained in the general consultation; it was believed that it was too harsh a discipline for any part of the lottery fund with large balances. We have taken the consultation seriously: we said that we will keep the money for the same good cause, but might change the distributor. The distributor can be another body, as outlined in the previous clause. The action proposed in the consultation was to move moneys from one good cause to another, but we are not doing that. We are keeping the money for the same good cause, but may well give it to another distributor after taking account of all the caveats and safeguards that I outlined.

It is not necessarily the Big Lottery Fund but those funds that keep balances down that will gain. I was looking at the figures this morning, and they stick in my memory: the gainer from the provisions will be sport, because it has just about got its balance down to zero. Even though the Big Lottery Fund has 50 per cent. of the funds, if it has balances, interest will accrue on them. That will be put into the central pot and distributed, so that those who get their balances down to zero will be the big gainers, if there are any, from the redistribution of the interest that accrues on balances.

Photo of Adam Afriyie Adam Afriyie Conservative, Windsor

If there are to be gainers, may I be bold enough to ask who will be the losers,?

Photo of Richard Caborn Richard Caborn Minister of State (Sport), Department for Culture, Media & Sport

Those who have the largest balances. The interest on those balances accrues and goes into a pot, and that is redistributed according to the agreed proportions set out. Let us take sport: if it has zero balance, and the rest of the funds have huge balances, they all put their interest into a pot and sport will gain.

Photo of Jo Swinson Jo Swinson Opposition Whip (Commons), Shadow Spokesperson (Culture, Media and Sport), Liberal Democrat Spokesperson (Culture, Media and Sport), Liberal Democrat Whip

Does the Minister not accept that, due to the long-term nature of projects funded though the Heritage Lottery Fund, it may need to hold balances in its account? That means that it will lose out.

Photo of Richard Caborn Richard Caborn Minister of State (Sport), Department for Culture, Media & Sport

It seems that just one part of the lottery fund is being mentioned here. The only lobby that seems to get its point across is the Heritage Lottery Fund, but it has brought its balance down by 10 per cent. in the past year, so the discipline is starting to work.

We believe that what we are putting in the Bill is absolutely in concert with what the NAO and the PAC have asked us to do to bring about better financial management of balances. It is in the interests of every lottery distributor to get its balances down. That is good financial management. That is exactly what people have been asking for, particularly the NAO and PAC.

According to the figures at the moment, the Big Lottery Fund will not gain. It could well contribute to an increase for sport because it holds balances. The interest that accrues on the balances will be put into the central pot and redistributed as per the usual distribution of lottery funds. So it is those who can get   the nearest to zero balances that will gain, whether sport, arts or heritage. If heritage gets down to zero, it will gain, too.

Photo of Don Foster Don Foster Shadow Secretary of State for Culture, Media and Sport

The Minister fails to understand the argument. He has accepted—indeed, he is a proponent of the scheme—that there is a need to reduce the balances for what he calls good management. That is not disputed. He has introduced clause 8, which gives draconian powers to the Secretary of State, but told us that balances have already reduced significantly without the powers in that clause being in existence. He has suggested that the addition of its powers as a stop-gap will lead to a dramatic reduction in balances.

We are now debating clause 9. The Minister is talking about the clause as though it were a belt-and-braces additional means of reducing balances. I can understand his argument that it is an additional tool in the armoury to reduce balances further. However, I believe that there are already enough powers under clause 8, notwithstanding our failure to amend it. Now he has the additional powers in clause 9. If the powers under clause 8 were the only ones for the purpose of reducing balances, I would understand from the Minister’s case. What the right hon. Gentleman does not seem to understand is that he has given no justification for why he needs yet another power to achieve his objective. What justification is there for changing a well established way of dealing with interest of balances, a method that has been used since the lottery came into being and which has enabled the various distributors to know where they stand and to plan accordingly?

The Minister is right that the provision will have a bigger effect on heritage than anything else, but that means that people who plan will have those plans thrown out. No good reason has been given. He said on the Floor of the House that funds would not be taken away from heritage to give to something else. At the end of the day the Minister has a clear argument for what he wants to do, but the Opposition argue that there is no need to do it. If the Government go ahead, they must acknowledge the consequences. We think that those consequences are damaging. There is a difference in opinion.

Photo of Richard Caborn Richard Caborn Minister of State (Sport), Department for Culture, Media & Sport

This is an interesting point. First, on the consultation: there is a school of thought that we ought to be tougher about balances than we are in the Bill. It says that those balances ought to be taken—[Interruption.] I see that the House has got up. We are on overtime now—double pay.

Photo of Richard Caborn Richard Caborn Minister of State (Sport), Department for Culture, Media & Sport

As I said, there is a school of thought that argues that we should introduce stringent financial discipline and that balances above a certain level should be redistributed as part of the redistribution mechanism for lottery funds. The hon. Gentleman is absolutely right. We consulted on that, but withdrew because there was a school of thought that said no, that would be too harsh.

The argument has been advanced that we should allow lottery distributors to build up balances and project their future business plans based on the income that comes from the interest accrued on those balances. We say that that is fundamentally wrong. We need to bring in some discipline to ensure that balances are distributed—obviously with value for money in mind—as quickly as possible to the good causes, which is what the lottery and the distributors were set up to do. They were not set up to accrue large balances through what some would describe as inefficiency. The balances have decreased from just under £4 billion to just over £2 billion. Compare that with the target that was given to a Secretary of State back in 1997, when it was believed that the balances for the whole of the lottery ought to be around £1.5 billion.

We are trying to bring back some financial discipline. We put forward the proposition and people said no to it. We then said that we would simply take the interest accrued on balances to be redistributed, which is an incentive to get balances down without affecting the business plan. That is the increment coming in from the national lottery on the proportions that we had agreed in Parliament. That is a halfway house that introduces good financial discipline and responds to the PAC and the NAO reports.

Photo of Adam Afriyie Adam Afriyie Conservative, Windsor

Does the Minister agree that by their nature and the kind of project that they fund, certain distributors will require higher balances? The proposal is that they should be penalised for fulfilling the duty and responsibility that has been set up for them. It seems rather alarming.

Photo of Richard Caborn Richard Caborn Minister of State (Sport), Department for Culture, Media & Sport

That is true to an extent, but when we started to introduce further financial disciplines, those balances come down by 70 per cent. over 18 months to 2 years and a further 10 per cent. this year. That money is out in the marketplace where it should have been some time ago. With the extra discipline that we are adding, balances will continue to decrease. That is absolutely right. The lottery distributors are there to get the money out as quickly as possible. Yes, value for money must be borne in mind, but they have to get the money out to the good causes. It should not be accruing in balances.

The measure is about good financial management. I give an absolute assurance that we are not taking balances away from other good causes, that any action we take will consider all the people within that distributor’s influence, and that after that there will be a vote in both Houses.

Photo of Hugo Swire Hugo Swire Chair, Speaker's Advisory Committee on Works of Art, Shadow Secretary of State for Culture, Media and Sport, Shadow Secretary of State for Culture, Media and Sport 3:15 pm, 27th October 2005

Is there not a danger that in the desire to get all the money out—the driving force seems to be to get all the money out as quickly as possible—the Heritage Lottery Fund may be more inclined to fund smaller projects because it will be terrified that if larger projects, such as the stables at Castlemilk, tied up large sums of money that were allocated but not spent it would be penalised. The Heritage Lottery Fund will   have an incentive to get its money out as quickly as possible to quick-fix schemes. Bigger and more complicated schemes that need funding at different times will suffer as a result. The message going out from the Committee this afternoon is that a big and complicated project is less likely to receive funding from the Heritage Lottery Fund and that small, catchy, quick-fix projects are more likely to receive funding as a result of the way in which the Minister is enshrining the provision in law.

Photo of Richard Caborn Richard Caborn Minister of State (Sport), Department for Culture, Media & Sport

It beggars belief. The whole predication is on the back of the Heritage Lottery Fund. I am going to Leicester tonight to open one of the Millennium Commission’s biggest projects. It is not only the Heritage Lottery Fund that runs big schemes. No one runs bigger schemes than the Millennium Commission. The Opposition’s whole defence seems to be the briefing notes of the Heritage Lottery Fund. If the hon. Gentleman reads Hansard he will see how many times the Heritage Lottery Fund has been mentioned during this debate when we are discussing good governance and good financing, and ensuring that the lottery is used in a way that benefits good causes.

I said clearly that in 1997 all the lottery distributors came together and agreed that the balances should be about £1.5 billion by the end of 2004. At the end of 2004 the balances were well in excess of £2 billion. The NAO and PAC are saying that, broadly, £1.5 billion to £1.8 billion is a reasonable reserve. I think that that is reasonable and if the balances continue to come down, we will not have to use the power in clause 8. The provision in clause 9 will be an incentive to get balances down.

Photo of Hugo Swire Hugo Swire Chair, Speaker's Advisory Committee on Works of Art, Shadow Secretary of State for Culture, Media and Sport, Shadow Secretary of State for Culture, Media and Sport

Well, perhaps as we go forward during the next few years and the social and built infrastructure of this country continues to deteriorate under a Labour Government there will be more calls on lottery funding, which will be a quick way of drawing down funds. Perhaps that explains the acceleration of projects that need funding, but we can have that debate at another time.

I make no apology for arguing on behalf of the heritage sector and the Heritage Lottery Fund because on this side of the House we care very much about our built heritage. It seems from the Minister’s irritation at us for citing examples that he does not care at all. That confirms what the sector already believes.

The Minister is painting with a very broad brush and obliterating with his paint the difference between the New Opportunities Fund, other lottery distributors and the Heritage Lottery Fund. I hear on the grapevine—the Minister will deny this—that the Government, as well as the Minister himself, are somewhat uneasy about the clause. When he has finished wrestling with his conscience, I invite him to accede to our amendment, which would protect those bodies that he is charged with protecting.

Question put, That the clause stand part of the Bill.

The Committee divided: Ayes 10, Noes 7.

Division number 0 Nimrod Review — Statement — Clause 14 - Functions

Aye: 9 MPs

No: 6 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

NOES

Question accordingly agreed to.

Photo of Roger Gale Roger Gale Conservative, North Thanet

We have a considerable amount of work to get through. For the convenience of the Committee, I indicate now that unless I receive a message from some arcane source between now and then, I propose to suspend the Committee at 3.30 pm. If between now and then the usual channels seek to work their magic, that is up to them.