Clause 4 - Length of licence

National Lottery Bill – in a Public Bill Committee at 12:00 pm on 1st November 2005.

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Photo of Frank Cook Frank Cook Labour, Stockton North

With this it will be convenient to discuss the following amendments: No. 22, in clause 4, page 3, line 13, at end insert—

‘(1C)Any provision included under subsection (1B) may not enable the licence period to be extended for a longer period in total than that allowed by subsection (1A)(b).’.

No. 74, in schedule 1, page 15, line 26, leave out ‘15’ and insert ‘10’.

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

We now enter the choppy waters of the licence renewal and the length of licence, and we have just heard who can apply for the licence. I suspect that what is really behind all this is the fact that a sense of panic is beginning to creep into the Government because, given the constraints that they and the Bill impose, there are perhaps not that many people out there who are particularly keen to apply for the next national lottery licence when the present one expires in 2009. No doubt we shall pursue that further during our discussion of this group of amendments.

Amendment No. 21 relates to proposed new subsection (1A), which states:

“The period specified under subsection (1) must—

(a) begin with the date of grant of the licence, and

(b) not exceed 15 years.”

The amendment would limit the length of a licence to operate the national lottery—it is currently held by Camelot—to 10 years instead of the proposed 15 years.

The second amendment in the group, amendment No. 22, inserts a new subsection. It ensures that any extension to an operator licence granted by the commission does not exceed the length of licence as stated in subsection (1A)(b), which, as I said, we seek to amend to 10 rather than 15 years. The third and final amendment, amendment No. 74, is a consequential amendment to schedule 1, which will be necessary if we are to change the length of the licence under section 7 of the 1993 Act.

Taken together, the amendments signal our concern at the Government’s proposals in the clause as a whole. I shall not detain the Committee for long, but I want to find out why the Government want not only to extend the licence period beyond the current seven years to 15 years, but to allow licences to be carried on ad infinitum.

Having seen the national lottery—that great Conservative creation—operate, I think that we all acknowledge that it can be an expensive operation at the outset, given the new machines, the technology that is required and the advertising. There is a need constantly to update networks to take advantage of up-to-date technology, new games and so forth. However, I do not see that that in itself is sufficient argument for granting licences for up to 15 years. Perhaps a near equivalent is the charter given to the BBC—a topical subject, given that Lord Fowler’s interim report was published this morning. That is granted for 10 years, of course.

Now that the national lottery is up and running, I do not believe—I am happy to be corrected by the Minister—that the same huge start-up costs that Camelot faced in 1994 would be faced by anyone who was granted a licence. Indeed, from what we read,   Camelot appears to have no problems turning in a profit. I think that £30 million was paid to shareholders last year. If Camelot were to be the successful bidder for the next licence, no doubt it would make huge economies of scale by virtue of being the original operator.

I hope that the Minister can assure the Committee that there will be no pressure on the lottery commissioners unduly to extend operator licences. I hope also that he will assure the Committee that a decision to extend licences would not be based on any fear that there may not be another bidder for an operator licence in 2009. After all, such a fear could explain the power in the clause to extend operator licences and we saw during the last licensing process just how badly the Government got it wrong.

I have described the fear that lies behind the amendments and my thought process in drawing them up. We all hear on the trusty grapevine that the Government are in something of a quandary. We are approaching the end of 2005 and the new licence has to be issued in 2009. The gap is beginning to close. I suspect that when Ministers first turned their attention to the issuing of a new licence, they thought that there would be a clamour of activity and that people such as Sir Richard Branson would be queuing round the block to become the new operators of the national lottery.

I hear that the reverse is the case, and that the Government are now moving into that indefinable area otherwise known as near panic. That is why they are trying to give themselves “flexibility”, which is the Minister’s favourite word—flexibility in allocating a licence to a person or a body corporate; flexibility in giving one licence or multiple licences; and flexibility in extending the period for which the licence can be granted or in allowing it to be extended by the commissioners. Flexibility seems to be the Government’s answer to the looming crisis—I use the term advisedly.

I do not seek to undermine the national lottery. It is an excellent game; when it works, it benefits causes in each of our constituencies. I do not wish to undermine the lottery at a time when new games designed to fund the Olympics are being introduced, particularly as it is being undermined by the Government.

I see that the Minister is writing something and circling it in pink; he is chuckling to himself because he clearly thinks that I have been undermining the lottery. It is not me who has undermined the lottery but the Government. They have been keen to siphon off at least 50 per cent. of lottery spending to make up for the lack of Government expenditure. That is why sales in recent days have not been as good as everyone had hoped.

The Minister’s answer is to extend the licence. The question is who has been getting at the Minister to make him want to do it? He agreed to write to Committee members telling us about his thought processes on the granting of a licence to a body corporate or a person; and he agreed when I intervened   on him, saying that he would make correspondence available to the Committee and say whether pressure had been applied on him to change the wording. In much the same way, I hope that he will tell us what representations he has had on extending the period of the next licence.

Photo of Adam Afriyie Adam Afriyie Conservative, Windsor 12:15 pm, 1st November 2005

I am glad that my hon. Friend has raised that point. It would seem shocking that the Minister should respond to pressure from an incumbent in whose interests it would be to make such changes.

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

My hon. Friend goes further than I would dare in suggesting that it might be the incumbent—but it could be. We will not know if it is the incumbent unless the Minister shares that information with us. He may say that it is privileged information, and that it could be prejudicial to the incumbent. One never knows what kind of information one will be given by Ministers.

My hon. Friend the Member for Windsor makes a good point. If it is the incumbent and the Minister is willing to act under pressure, whether from the incumbent or from anyone else, will that be done for reasons of logic—because the Minister and the Secretary of State believe that the previous licence was too short—or in response to the fact that there is only one bidder, and that the bidder is calling the shots? I suspect that my hon. Friend is hot on the trail of something, and it would be good if the Minister allowed the Committee to share whatever information he has.

Photo of Adam Afriyie Adam Afriyie Conservative, Windsor

I have an extensive background in technology, and I recognise that the situation with regard to the technology that delivers the national lottery service has changed. In 1995, the internet was pretty much embryonic, whereas nowadays it is ubiquitous. I suspect that technology cannot really be the justification for extending the licence, and that there must be some other reason for doing so.

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

As I said, I agree with my hon. Friend, particularly if Camelot is, in effect, the only bidder and is granted this new long licence. I cannot believe that it will have to replace all the technology in year one. I presume that some of the technology could continue and that Camelot could phase it in and out, as could any corporation turning in profits of £30 million a year. All of us who still hold shares—declared or otherwise—in companies and are not obliged to sell them would be very happy to hold shares in a company that already had a licence of this sort, that was already returning profits of £30 million and that was, in effect, being given the opportunity to bid for a longer licence and that would not have to spend huge amounts of money in start-up costs, which it had to do right at the beginning. My hon. Friend makes an extremely good and valid point.

I hope that I am wrong. I hope that the Minister and the Government have created such a thirst and hunger for the licence that there are bidders, who might listen to the debate or read the record of it, who would be pleased to bid for the next licence because there is such faith in the Government’s handling of the national lottery, despite all the things that they have got wrong—from the dome to the creation of the Big Lottery Fund, from the merging of Government spend with lottery spend. We return, however, to the question of the length of the licence. I still do not believe that a licence should be granted for this long. The fact that the licence should not exceed 15 years means that it could be for 15 years, which could well be the duration of three Parliaments, thereby binding three Parliaments to using the same operator.

Three Parliaments hence the Minister will no doubt be ennobled and might even be the chairman, with expenses, of a lottery distributor. He might even be a lottery licensee, or be involved in one of the gambling areas. He will be entitled to do all that, provided that he notifies the civil servants and complies with all the forms.

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

Perhaps by then, after 15 years of another Conservative Government, it will be Labour’s turn again. We could waste a lot of time looking towards those far-off days, Mr. Cook, and you, for one, would not allow me to do so.

Three Parliaments is a long time to grant a profitable licence of this sort. It is profitable, because if the company is turning in £30 million now, what will it be turning in once it gets its act together in 15 or 20 years? This is, in effect, a licence to print money.

Photo of Adam Afriyie Adam Afriyie Conservative, Windsor

My hon. Friend makes the key point that the operation of the lottery is, in effect, a private monopoly and a licence to print money. Perhaps the Minister is simply proposing that we extend that licence to print money, but I am not sure that we all want that to happen when technology is not driving the decision.

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

Indeed. We return to the basic problem; if the national lottery were given a DNA test, the test would show that the Conservatives were the mother and the father.

Photo of Frank Cook Frank Cook Labour, Stockton North

Order. May we return to the basic problem in a less repetitive way?

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 grateful for your protection, Mr. Cook. I was about to return to the question of the length of the licence, and to say again that this represents a move away from what the Conservative party had in mind when the licence was introduced. Unless the Minister is prepared to give us the information we seek, he should accept our amendment.

Photo of Andrew Turner Andrew Turner Shadow Minister (Cabinet Office) 12:30 pm, 1st November 2005

One of the things that concerns me about a lengthy licence is that with the guarantee of the business the lottery operator may become complacent, distribute more of his profits than perhaps he should and invest less in the development of the lottery. Let me take an example referred to by my hon. Friend the Member for Windsor. If, at the beginning of a 15-year licence, one invests in a lot of technology, there will be no great incentive to invest in new technology in seven or eight years time, despite the fact that it may have changed over that time as much as it has over the past 10 years.

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

My hon. Friend is of course entirely right. The Minister will almost certainly argue that we have to provide that length of time to allow any operator to make the worthwhile investment needed. That does not add up, because technology will change and will constantly need to be renewed as the years roll by. Clearly, that is not a sufficient argument, particularly if Camelot is given the new licence, as it will not have to phase in new terminals and technology in year one anyway and will write that off in the same way that any company in the corporate sector would.

Somebody or some group has got to the Minister or his officials at some point to argue that the length of the licence needs to be extended. All we seek to do is to establish who they are and why they did that.

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

I congratulate the hon. Member for East Devon, who has brought to the Committee a whole new approach to probing amendments. For example, if the hon. Gentleman desperately wanted to ensure that more people rode bicycles, he would no doubt table a probing amendment to change taxation law, introduce huge additional taxes on bikes, add a bicycle road tax, and extend congestion charging and even the end-of-life EU regulations to bikes. It seems to me that he has done exactly the same with this series of amendments.

The hon. Gentleman, quite rightly, told us that it was a probing amendment that sought to ascertain why the proposed length of the new licence was what it was in the Bill. He said that he had concerns about what was going to happen, and I share those concerns. He will be aware that during the last round of bidding for the lottery licence, there were only two compliant bidders. There is cause for concern that next time around not many competitors will enter the field. I share wholeheartedly the hon. Gentleman’s belief that competition is crucial. It is the only way we will ensure that the process is not a licence to print money, as he and his hon. Friend the Member for Windsor put it, but is rather a means to ensure that the maximum amount of money is given to good causes. We are at one in believing that.

We are not at one on all the remarks made by the hon. Member for East Devon. He referred to the fact that sales are not as good as was hoped for. The whole Committee ought to express pleasure at the way in which the sale of lottery tickets continues to rise in marked contrast to what is happening in a number of other countries. I think that we can say,   notwithstanding the inevitable blip that happened a few years into the operation, that we have, overall, the most successful lottery in the world. We should praise that and not be critical of it. That does not stop the hon. Gentleman and me from taking exactly the same approach, in our belief that competition is crucial if we are to ensure the maximum income for good causes. Where we fundamentally disagree is over the belief, implied in the amendment, that reducing the length of the licence will improve the chance of decent competition. The reality is in my view the exact opposite. Only with a new licence that lasts for a realistic, sensible length of time will we guarantee reasonable competition.

Three years ago, when the Public Accounts Committee reviewed competition for lottery licences, it concluded that there was a real risk that there would be no effective competition for future licences to run the National Lottery. The Committee was concerned three years ago, just as the hon. Member for East Devon and I are concerned now. The question, then, is how to generate competition. Is it, as the amendments suggest, by reducing the length of the licence, or is it, as the Government propose, by accepting a longer period? In this instance, we agree with the Government’s line.

It is worth reflecting that the Department consulted extensively on the issue, as the Minister will no doubt remind us in a second. After that wide consultation, the decision document stated, in November 2004, that it was considered

“that a longer licence length would allow the operator to better manage capital outlays.”

The implication is that it would encourage more applications.

The hon. Member for Windsor and the hon. Member for East Devon made several references to what they called “the incumbent”, by which I assume they meant Camelot. They implied that it would be wrong for Camelot to put any pressure on the Government. I agree, but it would be wrong if Camelot, which is the body with experience of running the national lottery in this country, did not at least share its views on the matter with the Government. It has, indeed, done that, and deserves at least a hearing. In a briefing to all members of the Committee last week, Camelot stated:

“The longer licence period is a key driver for a robust competition process as it gives potential operators more time to recoup their investments.”

I am not an experienced business person, but that seems like common sense to me, and it is borne out by all the consultation that the Department did. Camelot went on to say that it did not

“support a scenario where a licence plus extension would be capped at ten years” such as seven years with a three-year extension, or eight plus two. That also makes sense to me. That requirement, set out in the amendments, would reduce competition.

The Government and previous Governments have become involved in many competitions. It is worth reflecting on what was done in those instances. Did the Governments in question decide on shorter and   shorter periods? In the case of digital terrestrial TV multiplexes the period decided on was 12 years. It was chosen to maximise competition. For national savings and investment 10 years with a possible five-year extension was decided on. For 3G GSM mobile licences the period was an even longer one of 20 years. The wisdom appears to be that licences as short as those that the amendments would impose would probably achieve the opposite of what the hon. Member for East Devon wants. They would reduce the likelihood of decent competition, rather than increasing it.

It appears that the lottery licence is likely to be as set out in the Bill, and there are already far more than two potential bidders showing an interest. Lehman Brothers, Gala, Sportech, the People’s Lottery and of course Camelot are already indicating an interest in bidding. With the length of licence that is in the Bill and not the one proposed in the amendments, it is more likely that those five and possibly others will put in bids that will ensure the maximum return for good causes.

I accept that the amendment was a probing amendment, and I look forward to what the Minister has to say. However, if such an amendment were pressed to a vote, the Liberal Democrats would not be able to support it.

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

By way of an introduction to my comments on the amendments, let me say that it is good that the Government are in crisis. If it is a crisis when the company that is operating the licence, which we are again putting up for bidding, makes a £30 million profit, I like crises. I can manage such crises any day of the week. The hon. Member for Windsor said that technology had advanced over the period of the licence. It certainly has, but is he suggesting that technology will stand still from now on? That does not make a great deal of sense. He may be an expert on technology, but not on logic.

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

No, it was only a joke.

Clause 4 will amend existing legislation to place a limit of 15 years on the length of licences issued by the National Lottery Commission to run the national lottery and to promote individual lottery games. I make it absolutely clear that the commission will remain free to decide the precise length of each licence, subject to that maximum limit. I emphasise “maximum limit”, as the debate has focused on an automatic length of 15 years.

Amendment No. 21 would reduce the limit to 10 years, and amendment No. 74 would make a consequential change. We do not believe that it should be possible to issue a licence for an indefinite period without further competition. We consider competition healthy and necessary to maximise operator   innovation, investment and motivation to benefit good causes. It is therefore right that a maximum term is specified.

There is no precise science in selecting the maximum period, but we consider that 15 years gives the National Lottery Commission the greatest flexibility to fulfil its statutory duty of maximising returns to good causes. It provides sufficient time to incentivise bidders to propose the necessary investment and for the selected operator to gain a return on such investment. The previous licences to run the National Lottery were for seven years. The 15-year period was chosen on the basis of experience worldwide and in the UK, with a view to allowing room for extensions in certain circumstances.

Moving on to licence extensions, I want the hon. Member for East Devon to listen carefully to what I am about to say. He might be shocked by it. As the Government’s policy is that the new power to extend the licence must be subject to a maximum total licence length of 15 years, there will never be more than 15 years between competitions. For instance, if the NLC chose to grant a 10 year licence, the maximum extension possible would be five years. We believe that the Bill as drafted provides for that but that amendment No. 22 would allow a licence to be extended by up to 15 years. I suspect that the hon. Gentleman’s intention is the same as ours. Subject to his confirmation of that, I am happy to assure him that we will double-check that the Bill achieves what we both want, and, if it does not, to table an amendment on Report to remove any doubt about the intention. On that basis, I ask the hon. Gentleman to withdraw the amendment.

Photo of Adam Afriyie Adam Afriyie Conservative, Windsor

Technology is changing all the time. My point was that it becomes less expensive to change the technology.

Considering that the Bill allows flexibility in the length of licence issued, will people who are bidding for a licence be able to make a bid in terms of margins? Could they bid for a lower margin on a longer term contract, rather than the margin that is currently available? Is that degree of flexibility available in the bidding process?

Photo of Richard Caborn Richard Caborn Minister of State (Sport), Department for Culture, Media & Sport 12:45 pm, 1st November 2005

I think it is. The process is about maximising the take for good causes. We are giving them negotiation tools to use in what I hope will be a wide field. The hon. Member for Bath says that four or five companies have already expressed an interest. That is far from a crisis, and I think that there will be a good number in the field this time for the very reason that he gave. New technologies have come on stream and they will be a factor.

The Bill will give the NLC the tools to maximise the commercial gain for good causes. If the NLC believes that that is part of the negotiations, it will be factored in. The maximum licence is 15 years, but that is not to say that bidders will be granted a 15-year licence; some bidders may obtain a 10-year licence, which they will   be able to maximise, rather than obtain a 15-year licence initially. The NLC will make the judgment when awarding the licence. It is a sensible approach.

As I have said, I shall consider amendment No. 22. I hope that the hon. Gentleman and I come together at least on that amendment.

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

Others may be in need of nourishment; I am in need of medication, such is my dumbfoundedness that late in the day the Minister has gone some way towards accepting one of our reasonable and carefully thought out amendments.

At the outset the Minister laughed at my saying that the Government were in crisis. He misrepresented me. I said that the Government are in crisis, but I did not suggest that Camelot is in crisis. We could all live with £30 million a year, although some of us would find it more difficult than others. The Government are in crisis because I do not believe that the number of companies or individuals he quoted is interested in bidding for the licence, regardless of its length.

The Minister did not enlighten the Committee about the representations that he had or had not received about the licence, or about whom they were from. Perhaps he will reflect on that and share it with the Committee at a later stage.

I am so amazed by the Minister’s friendliness and compliance that, bearing in mind the reassurance he has given to you, Mr. Cook, and to the Committee, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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 apologise to the Minister, but I wish to speak briefly on clause stand part. I understand that the NLC is preparing the documentation that will go out to potential bidders and that it has been consulting widely on the contents of the documentation. Will the Minister assure the Committee that as soon as the document is available it will be made available to those Members of both Houses who have an interest in the matter?

I accept that the NLC is responsible for my next point, but will the Minister also confirm that it will be possible for the NLC to include in the requirements a facility for players of the lotto game to provide an identifier such as their postcode, their name and address or whatever, so that if they win and do not come forward, it will be possible to identify them? I accept that, for various reasons, some people will not want to have their name, address or other identification on the ticket, but there should be a facility to provide such information. What is the Minister’s view about that suggestion? Can he at least confirm that it would be possible to put that in the bid document?

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

The statement of principle will be published in the next few days and I will ensure that it is circulated.

On the second point, the hon. Gentleman’s suggestion seems sensible. I do not how practical it is, but I take on board what he said. Being unable to identify winners is always a problem and if there is a way of addressing that, fine. We will consider it.

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

Will the Minister undertake to write to the NLC within the next few days drawing its attention to the exchange that we have just had and his comments on how sensible the proposal is?

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

I will write. I have no doubt that representatives from NLC will read the record. They may be listening and if they are, will they please take the suggestion on board, which would save me writing? However, I will write.

Question put and agreed to.

Clause 4 ordered to stand part of the Bill.

Further consideration adjourned.—[Claire Ward.]

Adjourned accordingly at ten minutes to One o’clock till this day at Four o’clock.