Grand Committee
(2 years, 7 months ago)
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Arrangement of Business
(2 years, 7 months ago)
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The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)
My Lords, if there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells ring and resume after a few minutes.
Gambling Harm (Social and Economic Impact of the Gambling Industry Committee Report)
(2 years, 7 months ago)
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Lord Grade of Yarmouth
That the Grand Committee takes note of the Report from the Select Committee on the Social and Economic Impact of the Gambling Industry Gambling Harm—Time for Action (Session 2019–21, HL Paper 79).
Lord Grade of Yarmouth (Con)
My Lords, it is now three years since, out of the blue, I was appointed chairman of the Select Committee on the Social and Economic Impact of the Gambling Industry. Being chairman of this committee taught me a number of things. The first was how Members of your Lordships’ House, of all parties and none, can come together as a committee to pool their diverse knowledge and experience and produce a unanimous report on such a complex, contentious and important subject—a matter of life and death. I am immensely grateful to all the most diligent members of the committee who worked with me on this inquiry. The second thing that I learned was the importance of the large volume of written and oral evidence that we received from all interested parties in the sector, which we were able to evaluate and on which our report is, I hope, securely based. The third thing that I discovered as our inquiry progressed was how urgent is the need for action—a matter to which I shall return.
I start by making clear what the committee did not do: we did not recommend preventing gambling. For those who enjoy it, we recommended nothing to make it less enjoyable. Everyone spends money on things that they enjoy, such as travel, sport, the arts and other things, and, if people wish to spend their money on gambling, that is their prerogative. But “affordability is absolutely key”—that was said to us in evidence by the then CEO of one of the largest gambling operators. The problems start the moment someone begins to spend on gambling more than they might otherwise happily and safely spend on any other leisure activity. As we heard time and time again in evidence, once the problems start they escalate until, in too many cases, they get out of hand and what was once an enjoyable leisure activity becomes an addiction.
As with so many addictions, things can deteriorate disastrously and quickly but with gambling, unlike other addictions, this can happen unknown to even the closest family and friends. The committee held an informal meeting with the families of gamblers who had taken their own lives and heard heart-rending stories of how they discovered only after the deaths of their loved ones that their husbands, sons or brothers had been gambling far beyond their means. We also took formal evidence on this, and I pay particular tribute to Charles and Liz Ritchie, whose son Jack took his own life at the age of 24. They have set up a charity, Gambling with Lives, so that other parents and relations in the same situation can join with them to promote reform of the law and regulations and improve the treatment available to problem gamblers.
What is the size of the problem? As I said, our inquiry was entirely evidence-based, as it should be. Although some of the evidence is conflicting, the best estimate is that some 0.7% of the adult population—about 340,000 people—are problem gamblers. Some 55,000 of those are schoolchildren aged 11 to 16. In excess of 2 million family and friends are affected by harm to physical and mental health, loss of savings and homes, loss of jobs, criminal activity, family breakdown and sometimes, tragically, ultimately death.
When we said in our report that, on average, one problem gambler committed suicide every day, a fact-checking organisation wrote to take issue with us. It said that the annual figure was only 250—as if that was acceptable. In fact, our evidence was that between 250 and 650 people commit suicide every year. Since we reported, a survey by Public Health England has estimated that there are 409 suicides associated with problem gambling each year in England alone. Since our committee was set up three years ago, not less than a thousand young men—it is almost invariably young men—will have taken their own lives, and this will continue for as long as nothing is done.
Who, then, should be taking action to ensure that no one gambles more than they can afford? All of us, of course, but principally the industry, the Gambling Commission and, ultimately, the Government. First, on the industry, it will take every opportunity to tell you that problem gamblers are only a small number compared to the many who enjoy an innocent flutter. It will not be so keen to tell you that although only a small proportion gamble excessively, the profit from those gamblers is out of all proportion to their number. The greater the problem, the higher the profit.
The industry’s story—in particular the story of the Betting and Gaming Council, the trade body—is that it recognises the problem but that much has already been done on a voluntary basis. The industry accepts that more needs to be done but says that it is making a major contribution to research and treatment, while working with the Gambling Commission and the Government to change law and practice so that problem gambling can be reduced. The industry welcomes the Government’s review of the Gambling Act, which will give it another opportunity to argue that a few small changes—preferably on a voluntary basis—are all that is needed. I call this approach “confess and avoid”.
Nobody, problem gambler or not, can place a bet unless an operator is prepared to accept that gamble. The operators are ultimately in control. They have an immense amount of data about their customers, especially those gambling online, which is where most gambling happens these days. They know how much their customers spend, their spending patterns and the time they spend gambling. They know who spends three hours gambling at night and who gambles heavily immediately after payday. They can access detailed information on a customer’s financial situation from bank statements, proof of income and credit checks. They know whether a customer has previously self-excluded or tried to do so, and whether a customer has more than one account with them or with other operators. They know the transaction history and risk indicators. They already have to do money-laundering checks. They could be using all their information to make sure that they accept bets only from those who can afford it. If in doubt, they should refuse the bet. Since they will not do this voluntarily, the rules must be changed to force them to do so.
One obstacle that the sector has repeatedly thrown up is the issue of data protection. It points out, correctly, that most problem gamblers have accounts with more than one operator; it says that no single operator can deal with affordability issues if it does not have the whole picture. Operators told us in evidence that they could not share the information they have with other operators. We put this to the Information Commissioner’s Office, and the ICO told us categorically that data protection legislation does not prevent gambling operators sharing the personal data of vulnerable users. That was two years ago.
Since then, there have been tripartite conversations between the industry, the ICO and the Gambling Commission to formulate ways in which data can be processed, exchanged and used. The ICO is there in an advisory capacity, and it is not for it to take the initiative. The industry has no incentive to advance matters. The Gambling Commission, which should be taking matters forward, seems to detect no great need for urgency. That is why the exchange of data is still very partial and very patchy.
I harbour a faint hope that, when my noble friend the Minister replies to this debate, he will tell us what the Government have in mind as a solution to this crucial issue. I fear, however, that your Lordships will be told in reply to this and many other questions that we will raise that we must wait even longer for the White Paper, when all will be revealed.
I can already confidently identify one major failing in the White Paper: its title. The whole exercise is labelled a review of the Gambling Act 2005. It is nice and catchy to say and a good soundbite that the Act is an analogue law in a digital age. That is true, but the full truth is much more nuanced. Although in 2005 the smartphone—in this context, a betting shop in every teenager’s pocket—was in its infancy, the Act had flexibility built into it. It is indeed a law passed in a largely analogue age, but it was already able to cope with most digital developments. It is not the Act itself that is at fault; the fault lies with those who have failed to use the powers already enshrined in it.
The Act gives the Gambling Commission almost total control of licensing conditions and codes of practice. The commission has always had the power needed to enforce them, with the ultimate sanction of suspension or removal of an operator’s licence. By amending the licence conditions as developments occurred, it could have kept pace with them. It could have dealt with most of the affordability issues that I have mentioned. To be fair, it has tightened the rules on the age and identity checks that operators must do before allowing someone to gamble online. It has also banned the use of credit cards for betting—at last. But so much more could have been done. So many lives might have been saved. The Government need to address the lack of accountability of the gambling regulator.
Among the many recommendations that the committee made, the Gambling Commission could have established a system for testing all new games against a series of harm indicators, including their addictiveness and whether they will appeal to children, and not approving a game that scores too highly on the harm indicators. It could have introduced equalisation of speed of play and spin, so that no game can be played quicker online than in a physical casino, betting shop or bingo hall. It could have required the licensing of affiliates. It could have prohibited bet-to-view and other inducements. It could have required every operator that has been notified of an individual’s self-exclusion not to send them any communications during the period of self-exclusion and thereafter to do so only if the individual removes the self-exclusion. All of this would have led to a significant reduction in problem gambling—and it still could, if action is taken now.
There are inevitably changes—just a handful—that need primary legislation. One of these is the setting up of a statutory gambling ombudsman service to settle disputes between gambling operators and gamblers. This is not a matter for the regulator. It is right that the Gambling Commission should adjudicate on breaches of licence conditions, such as when Sky Betting & Gaming distributed a promotional offer of “Bet £5, get 100 free spins” to 41,395 self-excluded customers and a quarter of a million customers who had unsubscribed from the operator’s marketing emails. However, where a punter has lost money or been otherwise affected by the failures of an industry giant, it is right that there should be an ombudsman to adjudicate, similar to the Financial Ombudsman Service.
It would also take primary legislation to create a duty of care owed by operators to their customers. To be clear, I am not just referring to operators being careful of the interests of their customers; I am talking about a duty, the breach of which could give rise to proceedings brought by a customer against an operator for breach of statutory duty. But, I repeat, the changes that need primary legislation are very few.
I conclude with a little history. It was in 1999 that Ministers of the Labour Government first considered reviewing and liberalising the law on gambling. The Budd review reported in 2001, a draft Bill was published in November 2003 and it was sent to a pre-legislative Joint Committee, which reported in April 2004. The Bill received Royal Assent in April 2005 but did not come into force until September 2007—eight years after reform was first proposed.
Fast forward 20 years: the Government promised a review of the Gambling Act in their manifesto before the 2019 election, as did the other major parties. The consultation paper was not issued until a year later. The consultation closed in March 2021, more than a year ago. A White Paper was promised by the end of that year; we are now promised it next month. If primary legislation is needed, it will be lucky to get a slot next Session but might be passed by the end of this Parliament in 2024. If, as in the case of the 2005 Act, we have to wait another two years before it is brought into force, that takes us to 2026—seven years after the first undertakings for reform. Given the gambling-related suicide rates, that cannot be acceptable.
If, in replying to this debate, the Minister tells the Grand Committee that reform of the Gambling Act itself needs to wait for an opportunity for primary legislation, that will of course be true, since the Act can be amended only by further primary legislation, but if my noble friend tells us that other gambling reform must also wait, I shall be deeply disappointed—as, I am sure, all the members of my committee will be. As I have tried to explain, so much could be done—indeed, could already have been done—by Ministers, but mostly by the Gambling Commission with the powers that it already has. The title of the committee’s report was Time for Action. That was two years ago. Meanwhile, today, like every other day, a young problem gambler may already have taken his own life. I beg to move.
Lord Layard (Lab)
My Lords, I had the honour of being a member of this committee. It was beautifully chaired by the noble Lord, Lord Grade, and had a brilliant secretary. It is an outstanding report.
I will talk about the problem of addiction. As we know, there are many forms of addiction—tobacco, alcohol, drugs and gambling—which are all very serious. Gambling is as serious as the others. The numbers addicted to gambling are, in fact, very similar to the numbers addicted to drugs and alcohol. Each affects roughly 1% of the population, yet we treat these addictions completely differently. It is quite extraordinary when you look at it.
On tobacco, for example, we ban all advertising and the NHS spends billions on treating the consequences of tobacco consumption. On drugs, we ban their consumption totally. On drug and alcohol dependence, we spend more than £1 billion each on treating those who suffer from them. What about gambling? Regulation is pretty minimal, as the noble Lord, Lord Grade, pointed out, and we provide almost no treatment to the victims. This all has to change.
I will focus on just two issues: the regulation of gambling advertising and marketing, and the treatment services for those addicted to gambling. Until the 2005 Act, most advertising of gambling was banned. Quite simply, that is the position that we need to re-establish. Nearly half of all children aged 11 to 16 report that they see gambling advertisements at least once a week. No wonder the rate of problem gambling is higher in that age group than in any other. Is this not an incredible fact about our society? It is illegal to gamble under 16, yet people aged 11 to 16 have the highest rate of addiction. That is also, of course, extremely serious for their future. As a committee, we met many gambling addicts, who almost invariably said that they had got hooked before the age of 18. At least a third of all gamblers say that it was advertising that brought them in and there is other good evidence that advertising directly causes more people to gamble.
Surely we should be banning the advertising of gambling, and with it the sponsorship of sports by the gambling industry, which is another form of advertising. The only exceptions could be horseracing and other similar sports, which children do not watch. The ban should also cover all forms of direct online marketing.
This is not a draconian approach, compared with what is done with other forms of addictive behaviour and substances. In fact, the YouGov poll says that two-thirds of the British population want gambling advertising banned. So why can we not have that? It simply means going back to where we were before 2005.
Since 2005, of course, a massively profitable industry has developed, with a yield of £14 billion in 2019. But 60% of those profits come from 5% of gamblers—the 5% who are either addicts or at risk. We have to protect people from getting hooked, and that means protecting them from advertising.
Then, when people are hooked, we must provide help. As the chairman said, roughly one gambler a day dies through suicide. This is a major public health problem. Yet of all addicts, only 2% to 3% get any form of treatment. This compares with 30% of those with drug and alcohol problems. There are good treatments for gambling disorders and the NHS should be providing them. As we know, 15 clinics have been promised, which should open as soon as possible, but rapidly after that we need there to be a comparable number.
There is a good model of how to organise all this in the NHS’s so-called Improving Access to Psychological Therapies—IAPT—programme for depression and anxiety disorders. In remarkable contrast to the speed of the Government’s gambling proposals, this set up nearly 100 services within its first three years. How can we tolerate just 15 clinics being proposed over an unspecified period? It is not good enough.
This problem must not get muddled up with the levy issue, because it is a duty of the NHS to treat health problems, and we know there is going to be a problem over the levy—its method of disbursement, and so on. The Government should be mandating the NHS in its annual mandate to rapidly expand the number of clinics for gambling disorder.
We know that this is not a marginal problem. The noble Lord, Lord Grade, referred to 340,000 addicts, including 55,000 aged under 16, but, of course, in addition to those numbers, their families and colleagues are affected, the community is affected and crime increases. It is estimated that altogether some 2 million people in our community are affected by this problem. The main point I am trying to make is: let us think about gambling addiction as a problem as serious as tobacco, drugs and alcohol.
I believe that we have a Minister who understands the issues and I really hope that his department can produce a White Paper which matches the scale of the problem.
Lord Bourne of Aberystwyth (Con)
My Lords, it is a great pleasure to follow the noble Lord, Lord Layard, and I found myself in much agreement with what he was saying. I pay tribute to the committee and particularly the chairman, my noble friend Lord Grade of Yarmouth, for the work it has done and the very balanced, erudite and compelling report it produced, Gambling Harm—Time for Action.
There is a widespread if not universal view that more action is needed, and urgently. Although I accept that there is a balance to be struck between the leisure aspect of gambling and the protection of the public, particularly vulnerable members of the public—we have heard the truly chilling statistics about young children problem gamblers—the scales at present are heavily weighted in favour of the betting industry, in broad terms. There is a need for action and the public health dimension needs accentuating more. I have the greatest respect for the Minister but DCMS and the Gambling Commission have been slow to act. They need to do much more, and much more quickly.
There is a need to protect the vulnerable much more. The committee heard clearly about the problems of debt, homelessness and relationship breakdown, career and work problems, and particularly the problems of depression and suicide, which should cause us all to stop and think. The betting industry makes considerable profits; I note what the noble Lord, Lord Layard, said about distinguishing the levy from the need for the NHS to step forward, but a 1% levy on the betting industry would generate £140 million per annum, which would help to fund some of the organisations doing such great work at present. But they could do far more and, on the “polluter pays” principle, I see no problem with saying that the betting industry should pay towards the treatment of addiction services so that we can improve them to the extent of having first-class services, which is what we really need.
As I say, the Gambling Commission and DCMS could be doing more. We need not to wait for legislation but to act urgently now. The fines and penalties are not sufficient in their impact on large corporations, as I think the committee found, and there is a need for increased powers for the Gambling Commission. It may be that that needs to wait for legislation, but I am not convinced that it does. I thank the LGA for its briefing on this, as local authorities need additional powers to stop clusters of betting shops in communities, and those would be very welcome.
Perhaps I may say something about the fast-changing nature of the gambling industry, which is why urgent and forward-looking action is needed. During the pandemic, we obviously saw a slowdown in relation to casinos and betting shops—indeed, a shutdown of them. That was temporary but meanwhile there has been a large growth in online gambling, which continues. It was of course happening before the pandemic started; between 2015-16 and 2018-19, online gambling grew by 18%. There has been a massive and continued growth online during the pandemic, as would be expected, and that continues with home working. That presents problems, particularly with the young who, as we have seen, tend to be more vulnerable. Action is therefore needed to stop the exacerbation of harm that we see in that area.
The Government and the Gambling Commission need to act decisively here and I very much agree with the noble Lord, Lord Layard, in relation to advertising. It contributes to and exacerbates the harm, and urgent action is needed on that. The Government need to extend the remit of the Gambling Commission to act to prevent future harm. As my noble friend Lord Grade said, the sharing of information on affordability problems and that exchange of data is crucial. Too often, in all areas, the excuse given is of the GDPR. I sit on the Select Committee on Public Services and we have heard the same thing: “We’re restricted on the exchange of information between government departments by the GDPR”—nonsense. This is not the case, or if it is it needs changing swiftly to ensure that the reason for the legislation is to protect personal freedom and data. It is not to stop the greater good that we need to step forward to do.
There is a need for urgent action and we should not wait for legislation. I look forward to hearing what the Minister has to say on that but it really is the time for excuses to end. The time for action is now.
The Lord Bishop of St Albans
My Lords, I too served on the Select Committee and am grateful for the contributions of so many people, as we worked away at this subject and took evidence over an extended period. I also declare my interest as a vice-president of the LGA.
I became involved in this area long before the Select Committee started its work because, in my day job, a family came to see me and simply broke down as they told me the story of their son’s addiction and how he eventually took his own life. It was the most extraordinary and transformative hour, for me, as I listened to the sheer, raw pain of a family that had been destroyed—and to this day is still destroyed. They have not gone public; they still feel a mixture of deep hurt and shame because of what has gone on. They have not been able to rebuild their lives.
At the end of that hour, I found myself rather lamely trying to make a few comforting comments. Then I came to the House and put down a series of Questions over two or three weeks to find out about the nature of the problem, because I knew nothing about this. Much to my surprise, my inbox was filled with people contacting me to say, “Can we come and talk to you to tell you our story? Do you know what this has done to our family? My cousin’s son has just died”. Another family had lost their home. I was absolutely shocked by what I heard.
I hear the arguments that many people enjoy gambling. Our committee decided that we are not prohibitionists and do not want to stop people gambling, but there is an underbelly to this that simply has not been seen. Even on the Select Committee, some were shocked by the testimonies we heard of what is going on. It is a very different story from the wall-to-wall adverts of groups of people happily shouting and being joyful; it is actually one of lives being destroyed.
I will highlight and comment on three areas. So far, I feel the response of Her Majesty’s Government has been deeply disappointing. It does not take account of the depth and scale of the problem, and the Gambling Commission has not been much better. Often, the commission has acted because there has been a head of steam and a number of people have been raising issues. Rather than taking a proactive stance, shaping this industry and people’s response to it, it is rather lamely following behind. There are some notable exceptions in one or two things it has done, but that is my general point.
Recommendations 54 to 63 are about the statutory smart levy for research, education and treatment, and the need for it to be independently funded. This is fundamental to what we are doing and arguing for. If we are not able to provide independent funding, virtually no respectable researcher or university department will be taken seriously in today’s world. This really matters. We need to ensure that we make a division between the money coming from the industry and the way it is bounded and then distributed. As has been pointed out, the powers to introduce a statutory smart levy already exist within Section 123 of the 2005 Act. It would produce significantly more money for us to undertake the research that is currently funded by a cash-strapped NHS. As one person summed up the problem, the gambling industry has brilliantly privatised the profits and nationalised the costs: taxpayers are paying to treat the problems created by these gambling companies.
I shall say a brief word on affordability checks. It is self-evident that limiting how much an individual can deposit, based on their income, will inevitably reduce the overall harm caused. The important thing is that affordability checks have to be meaningful, not symbolic. It would in reality be no good to set the affordable limit before checks are required at £300 when, particularly at a time of rising costs, that £300 might be crucial to feeding, housing or clothing a family. I know the committee’s report never committed to any specific affordability mechanism, although my opinion is that the £100 per month soft cap proposed by the Social Market Foundation represents a sensible, evidence-based solution that would enable the majority of gamblers to continue “having a flutter”—to co-opt the industry’s language—while protecting the most vulnerable from harm.
I also want to say something on advertising and the social normalising of gambling through its very close association with—some would say hijacking of—sport. The number of adverts that you see when you watch, say, a soccer match, is striking. It is so much so that, as the Committee knows, groups of passionate soccer fans are now campaigning against them and a number of important clubs have taken a principled stand of not taking any money from the gambling industry. I salute them for what they are doing and point out that they are managing to fund their clubs without relying on the gambling industry. The argument at the moment is that if this money were not available, the whole edifice of professional football would collapse. That was the argument about tobacco a few years ago: that if football did not have the advertising revenue from tobacco, it would all collapse. It did not. Football found new ways to fund what it was doing.
On advertising, the prime recommendation is to try to end the association between sport and gambling. As has already been said, we know that something between 55,000 and 62,000 children are diagnosed with some sort of gambling problem when in law they should not be able to gamble at all, so goodness knows how many are gambling if that number are diagnosed with it. I think ending it is in the industry’s best interests. I now know three families who have decided that they do not want their young children to watch some Prime matches because they feel their children are being groomed—they use that language—and given a message which they strongly disagree with. I agree with that point.
When I was young and watched football matches, I did so because I found excitement in watching the sport, with the two teams competing. Watching a soccer match nowadays with one of my young relatives, I thought he was texting somebody but I discovered that he was placing bets on it throughout. His understanding is that you get your pleasure not by watching the sport but by betting on it. Is that not a brilliant move by the industry? It is very clever how it has changed.
There is a fundamental issue here. The independent economic research by NERA shows that the worries of the industry that it will not be able to fund itself are dubious when you look at the facts. We provided that research for those who need it. If the principle underlying the Government’s gambling reform is a public health approach, they simply cannot continue to allow gambling to dominate every facet of sport and to promote an industry that was previously merely accepted, rather than being the norm. I am proud to have been part of this Select Committee. I am dismayed to feel there is a complacency, and I urge Her Majesty’s Government to look seriously at this empirical data and take some radical steps quickly to try to stem this serious social problem we face, even if it is not quite an epidemic of suicides. I hope we will see some action on this before too long.
Lord Butler of Brockwell (CB)
My Lords, I declare my interest as a vice-chair of Peers for Gambling Reform. I, too, was a member of the House of Lords Select Committee on the Social and Economic Impact of the Gambling Industry, which was so excellently chaired by the noble Lord, Lord Grade, and supported by a splendid secretariat, as has been said.
I found membership of this Select Committee a sobering experience. As we have heard, gambling is a very big industry and it brings enjoyment to many people. but there is another side of the picture. The committee heard how addictive gambling causes homelessness, loss of employment, imprisonment, depression, alcohol dependency and, most seriously, suicide. When we take into account the figures for problem gambling, particularly among young people, as quoted by the noble Lord, Lord Grade, it is clear that this is a really serious problem in our society. All political parties have acknowledged that by committing themselves to addressing it—and that now needs to take place. But effective action to prevent the excesses, while allowing the pleasure to continue, needs joined-up thinking across government.
I and the Select Committee feared that my old department, the Treasury, would be one of the things that would drag the anchor on reform of this problem. We thought the Treasury would be inhibited by fear of killing the goose that lays the golden egg, in the form of contributions to the Exchequer each year. But this is to look at only one side of the account. It is not just about the yield from the revenue, but, even if it were, Peers for Gambling Reform commissioned NERA Economic Consulting, as the right reverend Prelate said, to assess the economic effects of the reforms that the Select Committee recommended. NERA’s report is well worth reading. It assessed, first, that the industry’s profits are easily robust enough to exceed the effects of a mandatory levy, which could fund education and treatment of those addicted.
On the Exchequer side of the account, NERA’s report assessed not only that there would be a net gain to the Exchequer on the revenue side, but that this would be all the greater when one takes into account savings in the amount that the Government currently spend on dealing with the effects of gambling, primarily through healthcare costs. This really is a problem that can be addressed only by looking across the range of departments. In addition, by diverting some of the expenditure by the public in the form of problem gambling to other sectors that are more labour-intensive, there could be a net gain of some 30,000 jobs to the economy. So it is not simply an Exchequer matter; this is an issue where there are gains to the economy as a whole—
The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)
If the noble Lord will forgive me, I am afraid that we are about to have a vote. We will take a small moment to press our buttons and then reconvene in a moment. I apologise to the noble Lord; he was mid-flow.
The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)
My Lords, we would normally delay for 10 minutes for a vote, but I suspect your Lordships have all pressed your buttons already. We might be able to continue if the Committee does not mind occasional interruptions by the jingling Bells. Shall we do that? Lord Butler, do you wish to continue?
Lord Butler of Brockwell (CB)
My Lords, before the interruption I was saying that this is not just an issue for the Exchequer. There are gains for the economy as a whole if expenditure by the public in the form of problem gambling is reduced and diverted to other sectors which are more labour-intensive. The gambling industry itself is not very labour-intensive and the expenditure of those sorts of sums will generate more employment elsewhere. NERA has assessed that there could be a net gain to the economy of as many as 30,000 jobs and up to £400 million in employee earnings, which of course in itself would generate revenue to the Exchequer.
The coming publication of the White Paper is a once-in-a-generation opportunity to address deep-seated social issues. By addressing the harms of addictive gambling, the Government’s review has a chance to bring about not only a major social reform but one which is economically viable and fiscally advantageous.
Lord Kirkham (Con)
We live in a world that is hungry for data, where every business, charity, NGO and government department is eager to gather more and more information about our health, habits, motivation, interests and desires. Whether we like it or not, every journey we make is tracked by CCTV, and every keystroke we make on a laptop, tablet or smartphone can be analysed so that we can be ever more effectively targeted by marketeers. I am sure we are all familiar with the eerie way that typing the name of a place, product or service into a search engine immediately leads to our being swamped with ads for that very thing.
As a lifelong professional retailer of scale eager to grow my business, I quickly recognised the value and importance of data and communications in fulfilling my corporate ambitions. The more I could learn about a prospective customer and their needs and aspirations, the better I could target and personalise my communications to persuade and encourage them to do business with my company. It worked for me then, and it is working for the gambling industry now, but with several key differences. To the best of my knowledge, no one has ever become addicted to buying sofas—and we certainly tried hard—I never attempted to sell our products specifically to children, and I was working in the age before the smartphone became universal.
Now nearly every adult, young person and very many children in this country carry around a device that allows them to play games, have fun and gamble around the clock, and provides constant feedback on what they enjoy. This gives unscrupulous operators in the gambling industry the perfect opportunity to identify an individual’s weakness and exploit them—accentuating the thrill of risk taking, the adrenaline rush and the chance of winning money, and giving them every possible encouragement to gamble irresponsibly to the maximum. The speed of change facilitated by advancements in technology has been stellar. Regulations, legislation and implementations have clearly been left far behind, and they now desperately need to catch up and become relevant to fit the digital era.
I am no puritan; I have never been strongly against gambling as a legitimate source of entertainment. Social gambling can add interest, enjoyment and spice to sporting events, and it has become a cultural norm, but we still must take care. Giant oaks from tiny acorns grow, and the current proliferation of the compulsive behaviour of dangerously addictive gambling, particularly among young people looking for a buzz and easy money—including those under 16 whose participation is already illegal—is an evil that we just cannot allow to continue. It is a rich seam for the gaming operators to mine, but, as we have heard, it is literally destroying lives. It creates financial hardship, emotional pain, and social, job and relationship problems, and poses a major health and suicide risk. It has progressed to a magnitude and extent that I believe are not generally recognised and acknowledged. Having spent many years working with young people through the Duke of Edinburgh’s Award and Outward Bound to help them build their confidence, maximise their potential and realise their ambitions, I find it heartbreaking that so many young people are now at risk of being blighted by gambling addiction and gambling to excess, with lives even being lost because of it, as we have heard.
Gambling is not going anywhere. It has been around for ever, and it is here to stay; of that I think we can be assured. More than half the nation’s adults are regular gamblers. While most people do not develop a gambling problem, it can be a nightmare of epic proportions for those who do—at a massive cost to the gambler, their family and society at large, appealing as it does to those from all walks of life. It is a big money business and, consequently, it wields power and influence and can easily succumb to the temptation to compromise values and standards in the race for big profits.
We need to inform and regularly remind the public of the true magnitude of the problem, and urgently add gambling education to the national curriculum to make young people aware of its risks as clearly as we teach them about the dangers of drink and drugs and the importance of safe sex. Gambling is a bigger problem among teens than it is in adults, and research by the Mayo Clinic indicates—perhaps unsurprisingly—that gambling during childhood and teenage years increases the risk of developing compulsive gambling tendencies. Addressing this must be our priority. More widely, we need to look at ways of achieving a change in public attitudes to addictive gambling in the same way that we have successfully persuaded the overwhelming majority of the public that drink-driving is socially unacceptable, that it is irresponsible to get into a car without wearing a seatbelt, and that cigarette smoking is passé.
In the short term, we need urgent action by the Government to enforce the existing law that makes gambling by children illegal, and for the Gambling Commission to make much more use of its existing powers to mitigate the encouragement of problem gamblers spending more than they can afford. The Government have a manifesto commitment and a moral responsibility to invest in making gambling safe and honest, with strong and substantial protection for the most vulnerable.
This report is substantial, comprehensive, wide-ranging and most impressive. The process to start implementation is crucial and pressing. It should begin right now, with particular focus on online gambling, protecting the young specifically; stricter operator control; tighter statutory regulations on both gambling advertising and the promotion of inducements—the noble Lord, Lord Layard, went further and suggested a total gambling advertising ban; and the introduction of regular and hard-hitting education and information campaigns. It would be irresponsible in the extreme to add further delay.
Gambling is a compulsive behaviour, a process addiction that is chronic and progressive and can start off from the lightest touch: making a casual, recreational wager, simply buying a lottery ticket or scratchcard, or even having a flutter on the Grand National. I do not think we should make it easy for the young to be lured into gambling. Let us not make the gateway to gambling tempting and attractive, spurred by loosely restricted, heavyweight, focused marketing.
Gambling has brought pressure on society for generations, but now technological advances have allowed new, highly addictive games to be developed and made personalised communication easy and gambling convenient and accessible from almost anywhere at any time, allowing problem gamblers to wager and place bets at all hours of day or night, exacerbating the problem and fuelling its growth. The time is long overdue to mitigate this chronic scourge of society. Problem gamblers are gambling not only with money but with their lives. We should not. It is time for action.
Viscount Colville of Culross (CB)
My Lords, I add my praise for the insight and care with which the Select Committee has put together this report. It quotes the Government’s evidence that 0.7% of the adult population of this country are problem gamblers. However, much of this information is self-reported and it is inevitably an underestimation.
I find more convincing a report from HSBC, which investigated the accounts of 1.5 million of its customers to look at their actual gambling spend compared with their disposable income. It concluded that 2% of customers, classed as “Very Concerning”, spend more than 60% of their disposable income on gambling, and 8% spend more than 20% on gambling; these were classed as “Concerning”. These figures not only show the need for the banking industry to become the first responder for these vulnerable customers but emphasise many of the report’s recommendations.
I will focus my speech on the exponential growth in online gambling and the increasing gamblification of online gaming, which is affecting users as young as three. As the noble Lords, Lord Bourne and Lord Kirkham, said, we have seen a huge increase in online gambling, available 24/7 on all sorts of devices, including mobile phones. Researchers’ anxiety is that the fastest growing of these apps are not regulated by the Gambling Commission.
There has been a big increase in what are called social casino apps, which fly below the radar. These include simulated casino games, roulette and slot machines. All involve the original chips or plays being paid for with money, but the rewards are not in money but in tokens that can be used only in the game. One of the most successful is 777 Slots, which allows users to make fast, repetitive slot plays online. The players are nudged into continuing to play and put down stakes, using a software program carefully crafted to excite and engross them. The operators make massive amounts of money, of course, but the apps do not qualify as gambling because, as the Gambling Commission points out in the report, under UK legislation the definition of gambling is that the prize includes “money or money’s worth”. If it does not, it is not gambling. Surely, with the growth of these social casino apps that fall outside this definition, there is potential to cause addiction. The definition has to be changed to create an important extension to the Gambling Commission’s remit.
Nowhere is the revision of the definition of gambling more important than in the world of online gaming. Many researchers talk of the gamblification of the gaming world. In the last decade, it has changed out of all recognition. A decade ago, video games were products to be bought and taken home to be played on a console; now they are given away free as online sales platforms. They lure players into spending more and more money on buying additional benefits in the game to enhance their chances of performing better. Recent studies online show the skilful design techniques that keep players in the game, spending ever greater amounts of money.
This is also happening in the new generation of virtual reality games that are coming through the metaverse, but nothing has attracted as much attention as the loot boxes, which are so worrying because they are accessible to children, especially young males under 18. There is little information about the money being made by the operators, although Juniper Research estimates that the worldwide market is worth $30 billion annually. Young players can buy in-game features that allow them to either spend real-world money or take a stake on in-game items for the chance of winning something of unknown value.
I have read the evidence given to the committee by Dr Zendle—he is the expert on loot boxes—and I have spoken to him at length. He says that loot boxes are similar to gambling in many ways; they provide a powerful gateway for many young people to train as gamblers. They encourage spending, often excessive spending. More importantly, Dr Zendle confirms that, in all his studies, there is a link between problem gambling and spending on loot boxes. His finding is that young people who spend money on loot boxes are more than 10 times as likely to become problem gamblers as those who do not. This rings alarm bells in the report and it should among all of us.
Two Select Committees have already recommended extending the Gambling Act to cover loot boxes and bring them into scope but, in reply to this committee’s report, the Government pointed out that the call for evidence on this issue closed in November 2020. There have been over 30,000 responses. Last summer, the Minister in the other place announced that the government response would come in months. Now we are told that the response will come two years after the consultation has closed—a shockingly long time on this important issue.
I understand that the Government do not want to impose unnecessary regulation on the booming gaming industry, but there are now so many studies and reports to show that loot boxes look and feel like gambling that they should wait no longer. They should urgently ensure that they are regulated under Section 6 of the Gambling Act, as soon as possible.
I ask the Government to look at the bigger picture online as the gambling and gaming worlds collide. They need to take deeper preventive action to deal with problem gambling, particularly among the youngest users. I ask the Minister whether he could look at some of the provisions in the Online Safety Bill, which he will be shepherding through this House. Its duty of care provisions compel larger platforms to take into account the protection of users from harm, both legal and illegal, within the algorithms and software programs which moderate and disseminate content.
This should be the best model for the future of online gaming and gambling. The Gambling Commission’s remote technical standards specify that games should not include features to encourage players to chase losses, nor continue playing when they want to exit the game. Clearly the level of problem gambling in this country means that this is not working effectively. I urge the Minister to consider imposing a duty of care on operators that is baked into the design of games. That would go a long way to alleviating many people’s concerns and, more importantly, would future-proof the technology against the dramatic and unforeseen changes that are coming down the line.
Baroness Bennett of Manor Castle (GP)
My Lords, it is a pleasure to follow the noble Viscount, Lord Colville. I agree with everything he said on both loot boxes and unconventional games that are currently not classified as gambling. I will not repeat any of it, but I agree with pretty much everything he said on those issues.
I declare my membership of Peers for Gambling Reform. I am also a vice-president of the LGA and the NALC.
I begin, as I think everyone has, by welcoming this important report and the clear and powerful introduction from the noble Lord, Lord Grade. As everyone has noted, this was published two years ago and yet we are here today. Often, when we talk about reports, we say that things have moved on, but none of the issues covered by this report has got any better in the last two years.
Those are two lost years during which, as we have discussed, so many individuals and families have suffered so much, but communities have also suffered. I want to focus on those communities—the place-based damage which is highlighted in the report—but the Government’s response is sadly lacking in acknowledgement of the damage done to communities; it acknowledges the individual but not the community damage.
When we think about what has moved on since then, the focus in the past few months has been the cost of living crisis. We have heard a lot of talk about gambling as a leisure activity, an optional thing, so one might expect that the gambling industry would be seeing a big collapse when there are reports out just today that more than 2 million meals have been handed out at food banks in the past year and almost one in 10 parents expects to go to a food bank in the next three months. You might think, “Well, people won’t have money for gambling.”
However, we need to think about what gambling is for very many people. It is not a pleasure or a leisure activity; it is a tax on desperation, on people’s desire for some kind of hope. They cannot see anything improving in their day-to-day life, with their zero-hours contract, gig economy job, low wages and costs going up and up. In that moment when you put down a bet, you think, “This could really make a difference, things could change.” You know that the chances of that happening are vanishingly small, but you really need that moment of hope. It is a very human need to think, “Suddenly things could be much better for me.” That is a tax on the state of our society.
I agree with many things that the right reverend Prelate the Bishop of St Albans said in his powerful speech, but the report powerfully highlights the link between sport and gambling. We have seen a perversion of sport: it has become a vehicle for gambling. We talk about gambling being a leisure activity. How many other leisure activities have effectively been denied to people? We think about sport. We might hope that people might have watched that Premier League football game and then gone out to the local football pitch, had a kickaround and tried to recreate the brilliant free kick they had just seen, but, very likely, that local football pitch has been privatised and now has a significant charge for access to it. So many other leisure alternatives have been closed off.
Again, picking up on what the right reverend Prelate said, paragraph 524 of the report is worth highlighting. It is the report of a carefully considered, evidence-based Select Committee investigation. It says:
“Gambling operators should no longer be allowed to advertise on the shirts of sports teams or any other part of their kit. There should be no gambling advertising in or near any sports grounds or sports venues, including sports programmes.”
That is the carefully considered recommendation of a committee of your Lordships’ House. The right reverend Prelate’s comparison with tobacco is interesting. There was a huge row and expressions of concern when tobacco was banned from such advertising, and from all the advertising, but no one would go back now. We have in view the idea of zero tobacco: think of what social progress that is.
The Gambling Commission’s chief executive Andrew Rhodes gave a speech this month which pointed out that the gross yield for the gambling industry equates to taking £450 a second off customers in the UK. That is a lot of money. He made a very interesting comparison. He said that the industry is worth some £14 billion, which is roughly the same size as the agriculture industry. Elsewhere in your Lordships’ House, we are rightly having lots of debates about food security. We have an industry that is the same size as the industry feeding us, but it is the gambling industry.
When I was putting this speech together, I thought, “I’m going to come out here sounding like a real radical by saying, ‘Let’s shape our society according to what kind of society we’d like to have’”. But I had some unexpected support earlier from the noble Lord, Lord Butler, who in our previous debates has identified himself as a Treasury man. We heard the Treasury man say, “We want to think about and shape the size of gambling in our economy, and how we might better allocate the resources to see that capital used to create more and better jobs”. I thank him for that support; I was very pleased to hear it.
Coming to the point of not just the broader issue of the general economy, in paragraph 112 this report clearly focuses on how the damage done by the industry is not evenly spread across the country. Go down to Chelsea, or up to some of the posh bits of Manchester, and you will not find very much sign of the gambling industry. The report cites evidence that
“‘more than half of the nation’s 6,000 bookies are in the UK’s most deprived areas’, and that 56% of all the big four’s betting shops are … in the top 30% most deprived areas in England”.
I put it to the Minister that if we are, as I believe, to expect a levelling-up Bill in the Queen’s Speech then action to address gambling, particularly place-based gambling, should surely be in that Bill.
Looking at the time I have spoken already, I am not going to go through this report in great detail, but I want to go back to the Local Government Association and highlight a couple of points made in the detailed briefing that it released on this debate. If people have not looked at that, I really urge them to do so because it very much addresses how concerned our local authorities are about their lack of powers, or inadequate powers, to deal with this place-based situation. Although we often focus on what is happening on the internet, a lot of this damage is still very place-based. The Local Government Association is calling for more flexible powers for councils to determine the number and location of local gambling premises in their area, and the levelling-up Bill might very well help with that.
I have focused mostly on area-based issues but also want briefly to address problem gambling and the need for treatment for gambling addiction. Again, the Local Government Association is calling for the mandatory levy. We saw this on big tobacco, and the “polluter pays” principle has become a big thing, given Grenfell and the Building Safety Bill that we were debating yesterday. Surely, we need “big bet” to pay its way for the damage that it is causing.
My final thought is that, as I think the right reverend Prelate and several other speakers referred to, we saw a huge change to and growth in gambling after 2005. That was a result of policy choices and decisions made by government that gave us the position we have today. Very often we are told, “Oh, we can’t regulate or control—we can’t create new rules. That’s restrictive and anti-liberty”. But choices were made that allowed the situation we have today, and they allowed the industry to operate at vast profit without paying taxes or for the damage it is causing. It is not a case of acting or not acting; we have acted and created where we are now. We can act to create a different kind of model for society.
Lord Smith of Hindhead (Con)
My Lords, it was an honour to serve on the Select Committee under the chairmanship of the noble Lord, Lord Grade. I thank him for his leadership, and I thank the staff who supported the committee and our witnesses, as well as colleagues who together produced a report which I believe is both balanced and considered. I declare my interests as a member of this committee and my other related interests as set out in the register.
Having become so used in recent months to a speaking time of just three minutes—and, in one case, two—I hardly knew what to do with myself when I learned that today we would have an advisory speaking time of five to six minutes. However, as the subject of gambling is so wide-ranging, I shall endeavour to stick to just a couple of topics.
As we are aware, a great deal has changed since 2005 in the way we gamble, socialise and spend our leisure time and money. The internet is the biggest catalyst in this change, with 24-hour access to online gambling in our pockets. The review our committee undertook was overdue and I hope our findings and recommendations will provide a measured framework for responsible and safe gambling while, at the same time, protecting the individual rights of those who enjoy gambling. As we said in our report, our aim was to make recommendations which
“will make gambling safer for all, but no less enjoyable for those who do participate safely.”
I hope our recommendation that triennial reviews should be reinstated will be given serious consideration. This is an efficient way to officially and systematically evaluate the gambling industry, the social landscape and key players such as the Gambling Commission, GambleAware and others. Can my noble friend the Minister clarify this point?
I clearly recall the look of panic, followed by temporary blankness, when I asked the then CEO of GambleAware what GambleAware does. The additional funding it had recently received seemed to have increased the size of its offices and admin staff, yet it was still unable to confirm its funding of, for example, GamCare, one of the excellent providers of help for people with gambling problems, for more than 12 months.
My question is whether GambleAware remains fit for purpose—whatever that purpose is—and, importantly, whether the funding of GambleAware is to be removed from voluntary industry donations and provided instead by the new, often mentioned levy. If that is the case, I ask my noble friend the Minister whether the Government are considering any alternatives to a statutory levy to fund research, education and treatment. Critically, do the Government recognise the disproportionate impact that a one-size-fits-all rate might have on land-based operators, which carry fixed costs and support large numbers of local jobs in their venues, compared with online operators?
If a statutory levy is being considered, will it apply to the National Lottery? Your Lordships will be aware that I have often set out my views on how the National Lottery has moved so far away from its original objectives that it is really now a gambling operator, albeit one governed by a separate Act. With the number of draw-based players declining and more of Camelot’s record profits being made via scratchcards and online instant win games, that would appear to be the case.
However, the mixed message continues when one considers that a person who plays just the six draw-based games each week, excluding scratchcards and online games, would spend £1,092 each year—and would be considered as being socially responsible as well as supporting good causes and, of course, Team GB. By contrast, a person who wishes to spend the same amount of money in a casino or betting on sports should, in the view of some experts, have to undergo an affordability check and might be regarded by others as some sort of social degenerate.
Camelot has recently been fined £3.15 million for mistakenly telling 20,000 players that they did not have winning tickets and sending marketing material to 65,400 people with potential gambling addictions. Noble Lords will not be surprised that I welcomed the Gambling Commission’s decision not to renew Camelot’s licence to operate the National Lottery beyond 2024, but I urge the new operator not to fall into the same trap as the Ontario Teachers’ Pension Plan did of “Dream Big Play Small”.
Finally, I hope that a happier balance between those who enjoy gambling and those who are rightly concerned about gambling harm can be achieved. Significant strides have already been taken by the industry to make gambling safer. Yes, it is an important industry in terms of tax yield and employment but a shared view that more can always be done without spoiling the enjoyment for the overwhelming majority who enjoy the occasional flutter is a target we should all collectively hope to achieve.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, I congratulate the noble Lord, Lord Grade of Yarmouth, on setting out the case for gambling reform so eloquently. I regret that I was not a member of his Select Committee. I declare my interests as a vice-president of the LGA and a vice-chair of Peers for Gambling Reform.
The report Gambling Harm—Time for Action covers many aspects, including personal and economic. It made more than 50 recommendations to alleviate the problems associated with gambling harm, including bringing loot boxes in video games within the scope of the Gambling Act 2005. Children are particularly targeted via these, as the noble Viscount, Lord Colville, alluded to. Gambling can take place in many ways: at a racecourse, at a sporting event, online, at a casino or in a betting shop—there are myriad ways to do it.
District and unitary licensing authorities have a statutory role in regulating local gambling premises. Licensing and planning teams do their best to prevent gambling-related harms occurring on premises. This may include identifying specific local gambling risks. Currently, councils do not have the power to prevent new gambling premises opening. These could be sited close to schools, treatment centres or housing estates, thus leading to a situation where several gambling outlets may be close together, making it very difficult for those with addictions to avoid the temptation to gamble beyond their means. It is therefore important that councils are given powers over the possible location of gambling outlets in their areas in order to prevent clustering. This would help reduce the risks to the vulnerable. Are the Government prepared to consider this?
There is a difference between gambling in betting shops, online gambling and the gambling that takes place at a racecourse. Being shut indoors with a computer or mobile phone and continually betting online because you have an addiction that is ruling your life is a miserable existence. But the gambling that takes place in the open air at a racecourse needs a more nuanced approach. The business models that apply to off-course and on-course gambling should be acknowledged and dealt with differently. In both instances, the identification of problem gamblers should be simplified, and effective measures should be taken to ensure that those addicted cannot gamble beyond their means.
Running up thousands of pounds’ worth of debt is deeply depressing, and help should be readily available to those affected. Gambling can be fun—many enjoy the occasional flutter—but it can also become an overwhelming addiction that ruins lives. It is important that gambling harms are clearly understood and that education, prevention and treatment programmes are sufficiently well funded to be accessible and effective. The isolation caused by the pandemic and the current cost of living crisis, coupled with a significant move to online gambling, are putting an increased number of people at risk of becoming entrapped by gambling.
The introduction of a mandatory 1% levy on gross gaming yield for the gambling industry, to help to fund a significant expansion of gambling treatment services, is essential. During the passage of the Environment Act, the phrase “the polluter pays” was frequently used. It is appropriate to use the same phrase in relation to a levy on the gambling industry.
Much of the support and prevention work for those suffering from gambling harms is provided by charities outside of the NHS. However, it is often the case that the NHS picks up the cost of dealing with the aftermath of the mental health issues of families affected by gambling-related suicides. The National Gambling Treatment Service, which is funded by GambleAware, provides advice through a helpline and essential treatment for sufferers of gambling disorders—I hear what the noble Lord, Lord Smith of Hindhead, says. Raising awareness is essential, especially for young men, who may regularly gamble at sporting events. It is clear that no one organisation has a catch-all solution but, by working in partnership, more is achieved, much suffering is alleviated and tragic deaths are avoided.
A levy would help pay for extra capacity in health officials, debt advisers and faith leaders to respond to the likely growth in the number of those suffering from gambling harms. Can the Minister say whether the Government are ready to acknowledge the need for a 1% levy on the gambling industry? Raising awareness of gambling harms is essential before young people and children become entrapped. Children are particularly susceptible to online games and television advertising, which draw them in. The stigma associated with gambling harms needs careful handling in order to allow those affected to access the services which will help them.
I am pleased that we are holding this important debate shortly—I hope—before the publication of the gambling White Paper. One crucial reform the committee called for was online gambling affordability checks to ensure that people do not lose more than they can afford. There can be catastrophic consequences for those who gamble beyond their means and for their families, who are often left devastated. I was encouraged to hear that in a speech to the GambleAware conference in December 2021, the Minister responsible for the gambling industry recognised that these checks are key in helping to prevent gambling-related harm. The question now is how they should apply.
The Social Market Foundation published a powerful report in August 2020 which recommended the introduction of a standardised affordability threshold set at losses of £100 per month. At this stage customer due diligence checks should be applied by gambling operators. However, this does not always happen. A study carried out by the University of Liverpool found that 73% of slot players and 85% of non-slot players have a monthly loss of £50 or less. Other studies have similar conclusions, with the PwC report for the Betting and Gaming Council stating that the median spend is up to £75 per month. The proposed soft cap of £100 would allow most gamblers to enjoy a flutter without any major checks. Do the Government agree with the SMF’s carefully developed proposals and will they consider setting the affordability threshold at £100 per month?
The Government’s review of the gambling White Paper has taken place, but it has not yet been published. Can the Minister give an undertaking that that will take place in the next Session of Parliament and before the Summer Recess? Public Health England estimates the economic cost of gambling harms at £1.27 billion per year. Given this figure, surely there can be no reason not to take action now, especially as many families are suffering as a result of the increased cost of living and energy prices as well as struggling with gambling debts.
Lord Trevethin and Oaksey (CB)
My Lords, it is a great pleasure to follow the noble Baroness. I declare various interests. I was honoured to be on the committee chaired by the noble Lord, Lord Grade. I make a very modest contribution as a vice-chair of Peers for Gambling Reform, which is so ably and vigorously led by the noble Lord, Lord Foster, who will be speaking shortly. I also draw attention to the interests I declared in the committee which might be thought to travel in conflicting directions. I grew up in a horseracing family; I have been surrounded by gamblers all my life; I gamble, usually with enjoyment but almost invariably unprofitably; and I still have family connections with the horseracing world. Those are my amateur interests which might be thought to be relevant. I have a professional connection with gambling problems in that I have acted as a barrister in a number of cases involving very serious allegations against gambling operators. In the course of that work, I have seen alarming evidence of deliberate and, it might be said, even cruel exploitation of gamblers with serious problems, and it is with that in mind that I shall address only one recommendation that the committee has made.
Before I do that, I echo what the noble Baroness just said about the distinction to be drawn between, as she put it, open-air gambling at the races on the one hand and online gambling on the other. Horseracing, which is dear to me and my family and about which the next speaker may well have a bit to say, is part of the fabric of British life. There is a danger, which I am sure the Government will be mindful of, that the necessary reforms in this area might have an unfortunate effect on the horseracing industry. The time to address that will be when we know what the Government’s proposals are, but I am aware from contact with the horseracing authority that there are concerns in respect of restrictions on advertising and affordability checks. Horseracing should, within reason, be protected.
Having made that modest plea for horseracing, of which I am fond, I will now briefly speak from a forensic perspective, if I am able to achieve that, about one recommendation that I think is critical. The starting point is to recognise that gambling operators are subject to a considerable conflict of interest when they are asked by the law or the regulator to take steps to protect problem gamblers. The conflict is obvious: the bigger the problem, the more profit the gambling operator makes. I have seen cases in which that problem is vividly brought out. The existence of that problem means that the Government’s reforms must recognise that it is completely unrealistic to expect the gambling operators to cleanse their own stables and act properly in future. The necessary standards have to be imposed on the gambling operators, and I suspect that they would accept that. It is almost unfair to expect them to behave entirely properly, given the commercial interests at work.
The recommendation that the committee has made and that I wish to speak to is that the office of a gambling ombudsman be created. I am quite familiar with the work of ombudsmen in my world, the legal world, so I know how they operate. They have very important powers. When a complaint is made to an ombudsman, the ombudsman normally has the power to drill down into the underlying evidence and, in particular, to get the relevant emails—which is where the devil is to be found—if the ombudsman thinks it appropriate to do so.
I am doubtful that effective redress will be available in every case in which a gambler has been unfairly treated by a gambling operator; sometimes it will and sometimes it will not. It will not be obtained in the courts, because the courts are too expensive. It might sometimes be provided by the ombudsman, but the real value of creating an ombudsman is that in cases of abuse and unfair exploitation, where a complaint is made to the ombudsman, the ombudsman can then make a comprehensive and searching inquiry into the underlying facts. That is critical, because it will expose misconduct by the gambling operators. The misconduct can be referred to the Gambling Commission, which I think is beginning to wake up to the scale of the problem that confronts us. The Gambling Commission has the power to impose extremely substantial fines, as it is beginning to do.
That seems to me to be one very effective potential route to a reform of the industry and a mitigation of the harms of which so many of your Lordships have spoken. I am not entirely confident at the moment, but I very much hope the Government’s proposals will include that which the committee has suggested in relation to the creation of an ombudsman. We shall see.
Viscount Astor (Con)
My Lords, I welcome this very good report from the Select Committee chaired by my noble friend Lord Grade, which we finally have a chance to debate this afternoon. I will address my remarks primarily to gambling in relation to horseracing, but it is important to start by pointing out what is missing from this report: the huge growth of illegal gaming sites. A PwC report published in February 2021 estimated that there were 260,000 users of these sites, gambling £1.4 billion a year. We know that those numbers have risen since that report, and there are now estimated to be at least half a million people spending over £2 billion a year on illegal sites.
The reason that this is such a serious concern is that problem gamblers barred from legal sites move seamlessly to illegal ones which have absolutely no protections—no player protection, no anti-money laundering, no tax collection and no sporting integrity. What is even more worrying is that the Gambling Commission seems to concern itself only with legal operators and ignores the evidence of the problem of illegal gaming. It may be that the commission does not see its remit extending to illegal operators based either in this country or outside it. If that is the case, its remit should be extended and it should have those necessary powers.
With the rise of internet gambling, the Government have to make a judgment on regulation. Too little, and it does not work; too much, and it will lead to an explosion in the growth of the black market. Too often in the past, as my noble friend said, the Gambling Commission has not used the substantial powers it already has, whether by fines or orders to make book- makers or gaming companies return bets.
I declare that I own a racecourse—sorry, a racehorse, not a racecourse. I occasionally put a bet on the horse when it runs. It does not win very often, but it did win last year. I ought to also declare that many years ago, on behalf of what was then the Department of National Heritage, I took the Bill which introduced the National Lottery through your Lordships’ House. After the Bill became an Act, we were encouraged to buy a lottery ticket, which we all did. There was then a sudden panic, because we had a letter from the Cabinet Secretary—perhaps the noble Lord, Lord Butler—asking us to promise to give the money to charity should we win. My response, which I am not sure ever got back to the Cabinet Office, was that if I won a fiver, I would certainly give the money to charity, but that if I won the jackpot, I would consider my position in Her Majesty’s Government very carefully.
Viscount Astor (Con)
I am grateful for the noble Lord’s response.
Turning back to the Select Committee report, it thoroughly highlights the difficulty of gambling issues. We need some workable basis of affordability which protects without pushing problem gamblers into the illegal unregulated sector. As I understand it, the remit of affordability was not originally part of the role of the Gambling Commission. If it is to be, the Gambling Commission must improve its understanding of the new technology faced by the punters. I believe that that should be a major part of its role, but it must be up to the Government to bring forward guidelines that have a sensible system for both the commission and the industry to manage affordability, and that process must be subject to parliamentary scrutiny. The guidelines on affordability to be followed by operators having been set out by the Government, the Gambling Commission must be the regulator.
Gaming operators have the technology; they are quite capable of rigorous checking and spotting those who regularly lose significant amounts of money. It should be in their interest to manage affordability, but, as my noble friend said, it is a conundrum that this business faces all the time. We must make sure that the gaming companies have to prove that they are managing the issue of affordability. If not, they should be fined or, as a last resort, have their licences withdrawn by the Gambling Commission. Indeed, the idea of having an ombudsman to deal with problem gambling is a very good one.
It is important to stress how illegal gaming is spreading throughout the world. For example, in France and Norway, where there are state monopolies for gaming, the black market is now 60% of all money staked, so it is a serious issue. Gambling companies are quick to entice one to have a bet, but I know from talking to those who occasionally bet on horses that if you win three races three days running, they are quick to close your account. They have the technology; we must make sure that they use it and that must be enforced.
Racing is one sport that benefits from a hypothecated tax: the horseracing betting levy. It is based on the gross profits of bookmakers. It provides over £80 million a year to racing and, without the levy support, many racecourses would not be viable. The Horserace Betting Levy Board does a very good job of helping racing. As an aside, I hope that the Government have given up the ludicrous idea a couple of years ago of abolishing the levy board and subsuming it into the Gambling Commission—not a good idea.
As some of your Lordships will know, the levy needs reform because it is based on gross profit. Over recent years, as turnover has increased, gaming companies’ gross margins have fallen but they still make the same net profit, so the levy income is under threat of decline. This is a lesson for anybody who promotes a levy or a tax to deal with problem gambling: if there is to be one, it cannot be based on gross margin, it must be based on turnover; otherwise, it is subject to huge fluctuations.
Your Lordships would expect me, as someone who is keen on racing, to say that online games and slot machines are a much more serious problem than betting on horses. That does not mean to say that racing does not have issues; it has problems and we must deal with them. There is a strong argument that there should be an age limit on betting on horseracing. It might be 21, some even argue for 25, but there certainly should be a rise in the age limit for those betting on horseracing either at a racecourse or online.
I hope the Government will not allow themselves to be bullied by the large gaming companies, now capitalised in their billions and focused primarily, I have to say, on the rapidly expanding US market. I am glad that the Select Committee report recognised that bookmakers should still be allowed to sponsor horseracing and greyhound racing; it allows them to give something back to racing, and racing needs their support to have decent prize money.
I should also say that racing is affected by illegal gambling by the loss of media rights income. If you go to a racecourse, you often see a drone flying adjacent to the course relaying pictures to illegal operators at a much faster rate than television, because they operate at a high-spectrum frequency, as opposed to the low spectrum used by terrestrial television. This allows illegal betting not only in this country but offshore and beats the standard bookmaking market, so it is affecting the integrity of racing. It is very difficult to control, because drones can fly higher or slightly further away and their cameras are so good that you cannot stop them.
I believe there is a solution: follow the money. That is my key message to your Lordships. It is a way of dealing not only with drones but with illegal betting, whether in this country or through foreign-based operators. It is a £2 billion problem and growing. We need an amendment to the Gambling Act 2005 so that we can follow the money, trace it and stop it; otherwise, all the hard work to be done to help problem gamblers will be wasted. It is important to note that black market bookmakers target those who are self-excluded from regulated bookmaking sites. They go for those vulnerable people, and that is why it is important.
I hope the Government will look seriously at an amendment to the Gambling Act 2005. If they do not, I have drawn up a Private Member’s Bill that I hope to get a chance to propose in the next Session of Parliament that will do the same. I have it in my back pocket and am happy to give a copy to the Minister.
Baroness Fox of Buckley (Non-Afl)
My Lords, it is fascinating to follow the noble Viscount, Lord Astor. I will come back to some of the issues he raised. It is quite a relief, in the midst of frenetic ping-pong, to have a chance to discuss potential legislation changes and to look at something dispassionately and objectively. I appreciate that this has been a slow process for members of the committee, but it is quite nice to take a step back.
I have a few declarations. I do not gamble and have never gambled. I do not own a racecourse. Some close family members and friends have had serious issues with harmful gambling, and I have lived with the grim reality of that. I find the relentless gambling adverts everywhere we go to be tiresome, repetitive, crass and over the top. But it has to be said that even though I feel like I have seen tens of thousands of them, I have never been tempted to gamble. I do not know that we can always draw the inference that, if you see an advert, you will rush out to gamble; that is not quite the way it works.
I also think we need some proportionality and calm assessment of the facts, when considering legislating and regulating. I worry that the issue of gambling brings with it an emotive quality and some negative cultural assumptions about gambling, the portrayal of gamblers as vulnerable and a demonisation of the industry. I was glad to hear so many noble Lords say that they are not puritans—that was a great relief—but the gambling industry employs 119,000 individuals and brings billions of pounds into the Treasury. It is a legitimate industry, but it is treated as something of a pariah. The emphasis today was that it makes huge profits but, as far as I know, that is not yet considered to be completely morally reprehensible. I wish that more British businesses did the same. I sometimes think we can get ourselves into a state of confusion.
For balance, I suggest that gambling is a normal and popular activity, enjoyed by millions of people. For the vast majority, it is not a problem. The perception that problem gambling is on the rise is not based on evidence. Indeed, according to all the evidence and facts, it is statistically stable and has been for some years. We should not encourage misinformation by challenging the figures and facts that we know: 0.7% are problem gamblers.
The narrative we always hear focuses almost exclusively on the potential harms of gambling. As such, it treats everybody who gambles as being at risk. That can end up misleading us about the threat of gambling, creating a climate of fear and leading to some dangerously illiberal policy proposals designed to save people from this sort of evil. I am concerned that a paternalistic framework does not focus just on underage gamblers—I am not talking about children in any way, and completely accept that they need to be protected—but sometimes treats adult gamblers as though they are children. That worries me.
I pick up particularly the demands for affordability tests that we have heard put forward today, referenced and backed up by the noble Baroness, Lady Bakewell, in the Social Market Foundation’s affordability proposal that would limit people’s maximum spend to £100 a month, across multiple gambling operations. I hope the Government will just throw that idea out. It is notable that, in no other area of life or leisure, is there even discussion of a legislative cap on how individuals spend their own money—as I would hope.
However, if we take it out of the realm of gambling, let us take my friend Mrs Smith, who goes to the shops and decides to treat herself to a dress that she cannot really afford and then goes off for a pricey meal and even treats the family to an extravagance, such as a holiday they cannot afford without getting into debt. With the cost of living crisis, there are all sorts of decisions that will mean that all sorts of people will get into debt and there will be an affordability issue. Are we advocating that the Government put a cap on what people can spend because they cannot afford it?
I noted that the noble Viscount, Lord Colville, made the point that HSBC challenges the statistics because it says, “We’ve looked at your bank accounts and you’re all spending too much on gambling.” I hope HSBC does not reveal what I am spending all my money on. It might not be gambling but I am spending too much money on things I should not spend too much money on. Such is life but such is the freedom of an adult in a free society.
Of course, a small minority of gamblers can get into some terrible, escalating problems, with tragic consequences for themselves and their families—as I know too well. Yes, perhaps the gambling industry has historically been negligent in deploying common-sense intervention when alarm bells signal a problem. But we should also recognise that there is a moral dilemma here. A de facto demand that individuals open up their financial details to betting companies, casinos and so on would not, in other contexts, be something we would encourage. We warn people not to share such sensitive data. This is not just the GDPR being used as an excuse. It is legitimate to say to people, “Be careful about letting your personal financial details be harvested by outside agencies.” There is a question of privacy, and that matters, yet here we are advocating that we allow big business to use our data to control our behaviour and manage the choices of adult citizens. This sets a dangerous precedent that should at least give us pause about the expansion of corporate control over our data and our choices—or, indeed, the encouragement of state intervention in our spending habits and our individual liberty.
I also want to query any proposed ban on gambling sponsorship of and advertising at sports events. Despite everything, there is no evidence of an increase in problem gambling since gambling advertising was made legal by Tony Blair’s Government in 2007. I am concerned that we have become complacent about a soft form of censorship, but this is likely to cause devastating financial damage to a whole swathe of cash-strapped sports clubs.
The right reverend Prelate suggested that sports clubs should just get different sponsors. That suggests that he may not have been part of a small organisation trying to get sponsorship, but I have and, believe me, it is not easy to raise money. Lower-league football clubs face ruin if they are deprived of this revenue. We have heard that it was okay after the banning of tobacco advertising, but actually snooker nearly collapsed as a national sport. Then it was saved. Who saved it? The gambling industry and its sponsorship. While I am glad that horseracing may be protected, and I am sure that is appropriate, I wonder why it has this special measure. I want all sports clubs and all sports to be allowed that sponsorship. I do not think it is damaging.
I listened to a brilliant podcast recently on the potential huge problems all this could cause across sport, with a particular emphasis, actually, on horseracing. It is called “Wright on the Nail”, hosted by Chris Wright, and I encourage noble Lords to listen to it. It tackles this assumption that as soon as, for example, football fans see a logo on a football shirt they will rush off and place a bet, as though they are being groomed and are just one punt away from addiction. They just go to watch the sport and they want their sport funded and they see some adverts. But as one snooker fan noted, consumers can benefit from gambling advertising without ever using a product or putting a bet on, although some of them will. He said that
“those of us who actually watch the sport are delighted to have them on board, pouring in the money and keeping the tournaments rolling.”
I believe that sport matters and community sports need that support.
Just as we should trust sports fans to cope with the adverts, we should trust the millions who gamble and remember that, for them, spending leisure time at the bookies, at the races, in casinos or playing poker is enjoyable and can involve skill. Yes, there can be escapism. You want to earn some money because you are poor but there is also the thrill of risk taking. It is not all negative. In fact, the thrill of risk taking also fuels big business and entrepreneurial instincts. As gambling writer and poker player Jon Bryan notes:
“Gambling is fun. It has certainly cost me money but I would not change anything about it.”
I think this antidote is necessary. I understand the harms but it is not all harmful and it is not harmful for most people.
Lord Foster of Bath (LD)
My Lords, I would normally begin by saying how much I enjoyed the speech of the previous speaker, but I have to say that I fundamentally disagree with quite a lot of what the noble Baroness said—I will touch on that in a few moments.
I declare my interest as the chairman of Peers for Gambling Reform, which has over 150 Members of your Lordships’ House and was established to press for the implementation of the recommendations contained in the report of the Select Committee so ably chaired by the noble Lord, Lord Grade, on which I served. I too pay tribute to the excellent clerk, Michael Collon, and his staff. The committee was concerned by some of the information that we were given very early on in our deliberations, when we heard about gambling companies making billions of pounds in profits—and about the CEO of one company getting a pay cheque of nearly £500 million, for example. At the same time, there were over one-third of a million problem gamblers —probably far more, as the noble Viscount, Lord Colville, said—with, staggeringly, 60,000 children also being problem gamblers, 2 million people affected by it and, most tragically of all, more than one gambling-related suicide every day, as the noble Lord, Lord Grade, said.
We concluded that we simply cannot continue as we are with the outdated legislation from 2005, introduced long before the advent of the smartphone. Of course, we reflect that we are no longer just talking about trips to the casino or the betting shop for a flutter on the horses because, with smartphones, everyone has a mini-casino in their pocket. The gambling on offer is largely unrestricted, with no limits on stakes or prizes and with VIP deals from gambling companies offering huge incentives for gamblers to chase their losses and ever more new gambling opportunities regularly coming online. We are bombarded by gambling adverts on TV, around football pitches, on shirts, online and often directly sent to us in emails, pop-ups and so on. This means that we and our children are constantly being exposed to advertisements and incentivised to gamble. No wonder that the noble Lord, Lord True, speaking from the Dispatch Box—although perhaps in a personal capacity—recently said that, as a sports fan, he was
“sick and tired of gambling advertising being thrust down viewers’ throats.”—[Official Report, 27/1/22; col. 446.]
As we have heard, the recommendations of the committee were wide-ranging. But central to all of them was the need to adopt a public health approach to gambling, just as we already do for policies in respect of tobacco, drugs and alcohol, as the noble Lord, Lord Layard, pointed out. This is where I fundamentally disagree with the noble Baroness, Lady Fox. For far too long there has been an assumption—which she expressed—that, if only we could identify and protect those relatively few people who are supposedly vulnerable to gambling, we need not worry about the rest. But, as illustrated and demonstrated by the excellent video made by Gambling with Lives, which supports family members of those who have committed suicide because of gambling, anyone can become addicted. The gambling companies, which, as we have heard, make a high percentage of their profits from problem gamblers, design their offerings and marketing strategies to persuade as many of us as possible to start down that road and, once on it, to continue.
Last month, in a debate on gambling advertising in your Lordships’ House, I referred to Annie Ashton’s description in the Guardian of the predatory actions of gambling companies and of how her husband Luke committed suicide after relapsing into his gambling addiction. She said:
“the pattern of his gambling was obviously harmful. He took advantage of a free bet offer, deposited money, lost money, was immediately advertised another free bet offer, and the cycle would begin again.”
Luke found that being “bombarded with ads” on his mobile
“made it a problem that became impossible to escape.”
Such examples, and there are many more, illustrate the need for a public health approach.
I am delighted that the gambling Minister Chris Philp says that he agrees, but it requires, as the noble Lord, Lord Layard, said, a co-ordinated effort between several government departments and policymakers from education to health, to DCMS and beyond, but from what I have been able to ascertain there seems to have been little involvement of the Department for Health and Social Care in developing the anticipated White Paper. When he winds up, can the Minister confirm whether that is correct and, if so, why?
The public health approach informed the committee’s recommendations. They include, as we have heard, the establishment of a gambling ombudsman and the introduction of affordability checks, to which many noble Lords have already referred. Incidentally, the Gambling Commission just announced that it is going to look at them. I am surprised that the proposals supported by Peers for Gambling Reform have attracted so much criticism from the gambling industry and the noble Baroness, Lady Fox. After all, the majority of gambling companies already do affordability checks, in one form or another. We are arguing for one that is standardised across all gambling companies and independently monitored.
We are not seeking a hard limit on what people can spend, merely a soft check to ensure that they know what they are doing, that they can afford to do it and have decided to do it. Since this is for online gambling only, it would not, as some are concerned it would, apply to on-course betting. So the noble Lord, Lord Trevethin and Oaksey, and the noble Viscount, Lord Astor, need not fear. I point out to him and to others that there is a huge difference between horseracing and online gambling. If you bet at a racecourse—he does not have one, but other people do—there is a huge time gap between placing a bet on one race and on another. In modern online gambling, the rate of play is so frenetic that you can go on and on, chasing your losses. There is a significant difference between the two.
We want a change from the current voluntary levy to a statutory one. I note, as the noble Viscount did, that the statutory levy for horseracing brings in about £80 million. It is worth reflecting that the voluntary levy for other forms of gambling on two-legged animals brings in only £20 million or less. It seems at least reasonable to get the two to be comparable. The report makes clear that this can be done immediately. We have not specified precisely how—a formula could be based on profits, fees or something else—and the point made earlier was that it could be done in such a way that it is less for land-based businesses, which often have products that are less addictive, than for online gambling.
The object is to raise enough money for research, education and treatment and to raise it compulsorily so that the industry cannot opt out abruptly. It would break the link between giving the money and deciding what should be done with it. We need independence in determining what the research, education and treatment activities should be. I believe that there is lots of support for that from all sorts of communities.
Two other reforms have been referred to: reform of online gambling, not least to introduce stake and prize limits, just as we already have for land-based gambling, and, as we discussed in that earlier debate, limitations that curb gambling marketing. Currently £1.5 billion is spent marketing these products to us, with all sorts of inducements and so on. We believe that there should be a ban on direct marketing, an end to all inducements, such as those free bets, and a phasing out of sports sponsorship. We have suggested—I again suggest that the Minister have a look at the details of this—that there are ways of finding alternative funding for sports clubs, for instance through the introduction of sports rights, which would also begin to address the concerns the noble Viscount expressed in respect of drones.
Many of the recommendations do not need primary legislation, as we have heard, and I am delighted that there has been some movement since the report came out: the banning of credit cards, tighter restrictions in some aspects of gambling advertising and, not least, the establishment of more problem gambling clinics, with more to come.
As we have also heard, some raise the concern that this will have an impact on the Treasury. I am delighted that reference has been made to the NERA report that we commissioned, which demonstrates that not only would there be a reduction in gambling harm but that at the same time there would be huge benefits to the economy, with something like 30,000 additional jobs, more money going into the Treasury and so on, and more money available for research, education and treatment.
I welcome the fact that there has been some movement, but I desperately believe that much more is needed. As has already been said, the report was introduced more than two years ago and it said it was time for action. That action is now long overdue.
Earlier, before I came here, I went to a meeting of GambleAware, which has changed dramatically in the past two or three years. Only today it published a document, and I noticed this paragraph in it:
“The ongoing impact of the pandemic, a growing cost-of-living crisis and shift to online gambling means there is a potential increased risk of people experiencing gambling harms that remains unseen until an individual reaches a crisis point. Without action now, many more people and families could suffer.”
I hope the Government will at last get on with it. Unless they do, there will be more gambling harm and more lives ruined.
Baroness Merron (Lab)
My Lords, this has been an extensive and well-informed debate, and I express my thanks to noble Lords on all sides for their contributions. I have felt privileged to listen to the contributions, particularly those from members of the committee, of course led by the noble Lord, Lord Grade, who I congratulate on securing this debate. I join the other tributes made today, both to his chairmanship of the committee and to the contribution of the many committee members—one of whom, I note, was the Minister before he was the Minister. I hope that even such a short spell on the committee during the course of the inquiry engendered a personal sympathy to many of the extremely sensible and wise points made in the report.
Baroness Merron (Lab)
I shall refer to a couple of points made in opening by the noble Lord, Lord Grade. He observed that affordability is key when we are talking about gambling harms. We are in the middle of a perfect storm when we consider affordability. As we heard earlier in the debate, the shift to online gambling, the increased cost of living and the continued financial impact of the pandemic come together to make that perfect storm in which gambling harms can thrive. The other point from the introduction by the noble Lord that I want to pick up is that we are talking about addiction; we are not talking about the pursuit of a simple leisure activity. It is important in this debate that we acknowledge the seriousness of that point.
While there have been some changes to gambling regulation since this report was published more than two years ago, as was observed in the debate, for example in the operation of online slot games, the current piecemeal approach is just not delivering the change that we need, and I am left with a feeling that the Government have just not kept pace with the changes that we observe and with the impact of those changes.
Her Majesty’s Government clearly agree with the need for broader reform, and I welcome that. Otherwise, the review of the Gambling Act would not have been launched way back in December 2020. While we appreciate that this is a very complex area, that there must be due process and that it is vital to preserve the general right, of course, to partake in gambling-related activities, it is not acceptable that this review process has taken so long. With each passing day, a significant number of people remain vulnerable to gambling-related harms, while others are being sucked into gambling through a never-ending stream of adverts.
As the noble Viscount, Lord Colville, observed, even the existing definition of gambling has limitations. The Advertising Standards Authority argues that while changes—such as the recent announcement that celebrity endorsement of gambling firms are to be banned—will reduce the appeal of gambling to under-18s, in isolation, this ban will do nothing to reduce the prevalence and general appeal of gambling adverts. I also ask the Minister why it has taken so long to take action to protect the young and to clamp down on what I believe is a very irresponsible move by celebrities to endorse gambling in the way they have. My noble friend Lord Layard referred to the YouGov poll that said that two-thirds of the public want to see a ban on gambling advertising: that is the public mood and it is not there by accident.
The committee warned in its report that the young are most at risk. That has led campaigners, including Annie Ashton, the widow of a gambling addict who took his own life, to accuse firms of grooming children and young people. The right reverend Prelate reminded us all of the very human face of gambling harms when he spoke about the impact upon him personally of hearing from a family that was bereaved, and the shame, the hurt and the loss that they were feeling. It is the human face as well as the facts that we need to be remembering.
The committee also warned that some gambling operators are using unscrupulous methods to exploit their customers. While operators carry messages around responsible gaming, time after time we all hear of firms not respecting customer self-exclusion requests and/or failing to act when there is clear evidence of problematic behaviour. Last month, 888 UK Ltd was fined some £9.4 million by the Gambling Commission following a series of social-responsibility and money-laundering failings. As the commission noted, 888 was also fined in 2017, which suggests, of course, that current sanctions are insufficient to change behaviour. Just as many responsible gaming initiatives are voluntary, so are the contribution of firms to research into and treatment of gambling-related harms. I think it is right that we should expect more from them.
I am sure the Minister will shortly outline progress towards the opening of 15 specialist gambling clinics by 2023-24, and yes, we welcome a greater emphasis on treatment, but it begs the question of why the Government allowed demand for such services to grow exponentially in the first place. If there is one positive from all this, it is that more people are engaging in what is becoming a national conversation on gambling harm. Increased awareness of the risk of gambling is important, as is enabling people to speak out about their experience without fear of judgment and shame. More clearly needs to be done to make this pastime safer and we very much hope that the eventual publication of the Government’s work in this area, which we hope will be earlier than “soon”, will show genuine understanding, ambition and drive. Let us hope that, as in the name of this report, the time for action is soon.
The Parliamentary Under-Secretary of State, Department for Digital, Culture, Media and Sport (Lord Parkinson of Whitley Bay) (Con)
My Lords, I thank all the members of your Lordships’ Select Committee for the thorough and diligent work which led to the report before us today. I hope that does not sound self-congratulatory given that, as has been noted, I had the privilege of serving on the Select Committee, albeit for a limited period. It gave me a deeper appreciation and understanding and the opportunity to hear directly from not just those working in the industry but those whose lives have been affected by problem gambling. It has informed my thinking and approach to the issue, which we have discussed many times since I have had the privilege of speaking from this position. My time on the committee also means that I can congratulate from personal experience my noble friend Lord Grade on his expert chairing of the committee and thank all the staff and witnesses who contributed to its work, as well as all noble Lords who sat on the committee.
Peers for Gambling Reform has been especially well represented today, as it often is when we discuss this issue, but I know that gambling reform is a priority for many people across your Lordships’ House, whether they are a member of that group or not. Indeed, it is a priority for Her Majesty’s Government as well, and it is clear that change is needed to respond to risks and capitalise on the opportunities which have emerged in the 17 years since the Gambling Act 2005 was passed.
As my noble friend Lord Grade and others highlighted, many people enjoy gambling and do so without harm, but technology has very clearly transformed where, when and how people gamble as well as what they gamble on. We have heard some powerful examples in today’s debate. While it is certainly true that the Act gives broad powers to the regulator, the time is right for the Government to take a wide-ranging look at the evidence for change. That is why we have been carrying out a review across many aspects of the regulatory framework to make sure that our law and regulation are right, particularly for the digital age.
Evidence is an important point and one that has been echoed in many noble Lords’ contributions today. Throughout our review we have looked to consider the best available and highest-quality evidence. As part of that, we have looked at the extensive oral and written evidence received and published by your Lordships’ Select Committee. We are again grateful to the committee and its clerks for having put together such a wide-ranging evidence base. We have been able to consider it alongside the 16,000 submissions to our call for evidence last year, as well as the hundreds of stakeholder meetings which Ministers and officials have held and other sources.
I now turn to the recommendations in the report. Clearly, many of the more than 50 recommendations are within the scope of the review of the Gambling Act and are being considered through that process. The noble Baroness, Lady Bakewell of Hardington Mandeville, was glad that we are having today’s debate shortly before the publication of the White Paper, but unfortunately it means that I will disappoint but not surprise my noble friend Lord Grade when I must say that I cannot pre-empt everything that the review will conclude and the publication of our White Paper, which will be in the coming weeks.
However, the report of your Lordships’ Select Committee identified a number of areas for action in which we, working together with the Gambling Commission and others, have made significant progress since it was published. A key priority for the Select Committee was rightly the protection of online gamblers. It was while the committee’s report was being finalised that the Government took the important steps of banning the use of credit cards for online gambling and mandating integration with the national online self-exclusion scheme. Self-excluded customers cannot log into their gambling accounts and must not be contacted by operators. If they are, the operators have clearly breached the rules and will face enforcement action by the Gambling Commission.
A few months after the committee’s report, in October 2020, the Gambling Commission brought in significant new rules on VIP schemes to tackle many of the risks identified in the Select Committee’s report. There are now tough checks to make sure that customers on such schemes are not being harmed and that they can afford their losses. Personal management licence holders are now individually accountable for the schemes and, as the report recommended, the rules are clear that incentives for relationship management staff should not be based on customer losses. These measures have led to a reported 70% reduction in the number of customers on such schemes, but we are none the less looking at the issue again through our review to ensure the right mitigations are in place.
There was also significant progress last year to make online slot games safer by design, the need for which was underlined by the speech of the noble Viscount, Lord Colville of Culross. Features that make games more intense or that give a player the illusion of control have been banned. These include slam stops, turbo boosts and auto-play. Also banned were losses disguised as wins, which can give players a false idea of their gambling success. As your Lordships’ committee recommended, online slots have had their spin speeds equalised with the land-based equivalents in bookmakers, bingo premises and casinos. We are exploring whether further controls are needed through our review.
The committee’s report rightly recognised that customer data can be key to protecting online gamblers at risk of harm, and progress has been made here too. Earlier this month, the Gambling Commission announced new measures on customer interaction to make sure that operators use the wealth of data they hold effectively to identify and intervene with people at risk of harm. It is bringing in new requirements on markers of harm, which operators have to monitor, the automatic nature of interventions, and evaluating the impact of customer interactions. These new protections will improve the standard and consistency of how online operators protect their customers, and leave no room for excuses for failure in this regard.
My noble friend Lord Grade and others spoke of data sharing between operators, which has great potential within the array of tools that form harm-prevention measures, as online gamblers have an average of three accounts. Significant progress is being made in this area, driven by the Gambling Commission, which has worked with industry and others such as the Information Commissioner’s Office. The Betting and Gaming Council is currently leading a pilot, with GAMSTOP as the delivery partner, which has been accepted into the ICO sandbox process for real-world trials. This will make sure that there is close scrutiny from both the data and gambling regulators as the system is developed and refined, and that the system is used only for harm prevention, never for commercial objectives.
A further protection the committee highlighted was transaction blocks offered by financial services firms to customers who do not want to be able to gamble. I am pleased that around 90% of current accounts now offer this service, as do other payment service providers such as PayPal. Many of these have followed the gold standard by including a cooling-off period of at least 48 hours.
Many noble Lords touched on advertising in their speeches. The report made several recommendations on advertising, many of which have been mentioned. This is a complex area, as the contributions from the noble Lord, Lord Layard, and the noble Baroness, Lady Fox of Buckley, perhaps exemplify. Advertising can help reputable companies to differentiate themselves from the black market, the dangers of which were powerfully outlined in the contribution from my noble friend Lord Astor. We deliberately called for evidence on advertising and sponsorship in our review, so that we can look at this area properly. We will set out our conclusions in the White Paper but, as I was pressed on this by the noble Baroness, Lady Merron, I will highlight the recent changes made by the Committee of Advertising Practice, which will help to protect young people from gambling-related harm.
Earlier this month, that committee announced that content with strong appeal to children will be banned from gambling adverts. This responds to research on the topic commissioned by GambleAware, which showed the impact that certain aspects of gambling advertising can have on young people, in particular depictions of the association between football and gambling.
Children’s exposure to gambling advertising has declined over recent years but, in the Gambling Commission’s survey of 2020, some 58% still said they had seen gambling advertising or sponsorships. The new rules will help mean that, if children do see adverts, these adverts will be less appealing to them. The use of prominent celebrities such as Premier League footballers will be banned, as will the use of influencers associated with youth culture.
This is not the only action we have taken to protect children and young people. A few months after the Select Committee’s report and in line with its recommendations, we announced that we would increase the minimum age to participate in the National Lottery to 18. That change came into effect early last year. Through the review of the Act, we are looking at whether other products, such as society lotteries, should have their age limits raised as well. A significant number of operators have already made the change voluntarily.
Additionally, your Lordships’ committee made recommendations about education. I am pleased that, shortly after the report’s publication, the risks associated with gambling, including the accumulation of debt, were added to the relationships, sex and health education curriculum for all secondary school pupils—reflecting a point raised by my noble friend Lord Kirkham. As the report envisaged, Ofsted has a role here and its school inspection handbook sets out that inspectors will consider the provision of such education as part of a wider judgment of pupils’ personal development.
A further recommendation with particular relevance to children was in regard to loot boxes in video games—a point made by the noble Viscount, Lord Colville, and a number of other Peers. We launched a bespoke call for evidence on loot boxes and received more than 30,000 responses, which we are considering carefully. We will publish a response to that soon.
Recommendations about the regulator were prominent in the report and have featured heavily in the debate today. Of course, the Gambling Commission’s powers and resources are being thoroughly examined through the review, but I would like to highlight some of the action we have taken. For example, from October last year we increased the fees that the commission charges operators. This is projected to increase its resources by about £5 million per year, or 25%. It will help it to tackle some of the challenges that continual innovation in the gambling sector has presented.
Similarly, like your Lordships’ committee, the commission has now formally recognised the value of listening to people with personal experience of gambling-related harms. It has appointed a lived experience advisory panel, which feeds into decision-making and any advice the regulator provides to government.
A key recommendation in the report was that fines issued by the commission should reflect the seriousness of the offence and the size of the offender. I am pleased that since the revamping of its enforcement strategy, the commission has continued to take increasingly robust action against operators that breach the rules. In the last financial year, operators paid more than £20 million in penalty packages as a result of regulatory failures.
I will also touch on the recommendations regarding research, where there is some progress to report. As the committee recognised, and as the right reverend Prelate the Bishop of St Albans and others mentioned, good evidence on gambling participation and the prevalence of harm is essential to informing policy. I am pleased that the commission is making progress with work on a new approach to collecting participation and prevalence data. This will make sure that we have timely, accurate and robust data. It will improve on the current system of gold-standard but infrequent health surveys and the regular telephone surveys by the commission, which use shorter problem gambling screening. A number of key pieces of research have also been published since your Lordships’ report, along with the Public Health England evidence review of gambling-related harms, which we have heard cited in our debates on many occasions.
The right reverend Prelate the Bishop of St Albans, my noble friend Lord Bourne of Aberystwyth, the noble Baroness, Lady Bakewell of Hardington Mandeville, and others referred to proposals for a levy on the industry to fund the costs of treatment and research. We called for evidence on the best way to recoup the regulatory and societal costs of gambling. We have also been clear that if the existing system fails to deliver what is needed, we will look at a number of options for change, including a statutory levy. We will set out our conclusions in the White Paper.
The noble Baroness, Lady Bennett of Manor Castle, talked about the place-based impact of problem gambling and the clustering of betting shops in certain parts of the country. Local authorities already have a range of powers under the planning system, and as licensing authorities under the Gambling Act, to grant or reject applications for gambling premises in their areas. We have also been looking at the powers that local authorities and other licensing authorities have in relation to gambling premises licences as part of our review.
My noble friends Lord Smith of Hindhead and Lord Astor spoke about the National Lottery. Since its launch in 1994, it has contributed more than £45 billion to good causes, supporting more than 660,000 projects up and down the UK. National Lottery legislation imposes a duty on the Government and the Gambling Commission to ensure that the interests of all those who participate in the National Lottery are protected. The lottery operator is held to account for doing so and must have controls in place to stop underage players and to prevent excessive play. Evidence from the latest Health Survey for England in 2018 shows that National Lottery games were associated with the lowest rates of problem gambling of all gambling products considered.
The noble Lord, Lord Trevethin and Oaksey, and my noble friend Lord Astor spoke about the horseracing industry, and we are certainly aware of the long and close relationship between horseracing and betting. The main area of concern from the racing industry is in relation to affordability checks. As I said, these are important but must also be proportionate. We are carefully considering the impact of all our proposals.
Finally, the noble Lord, Lord Foster of Bath, asked about the work we are doing with the Department of Health and Social Care in preparing the review of the Gambling Act. We have worked closely with the Department of Health and Social Care and other departments throughout the review to consider the links between gambling policy and their remits. As ever, the White Paper will be agreed across government in the normal way, but I can confirm that the Department of Health and Social Care has been involved in its preparation.
The Government made their formal response to the Select Committee’s report in December 2020. None the less, today’s debate on its conclusions remains important and timely, especially given that we will publish our White Paper soon. Like the members of your Lordships’ Select Committee, many of whom I am pleased to have heard speaking today, I recognise that we in government have an important responsibility to get that reform right. We need to strike the right balance between protecting people from gambling harm and respecting the freedom of adults who gamble as a leisure activity. I also recognise and agree with the sentiment widely expressed today that we must take action as swiftly as possible where we can; clearly, not every reform measure will need primary legislation. Following the publication of the White Paper, we will work with the Gambling Commission, and others as needed, to make the necessary changes as swiftly as we can.
I am sure that we will continue this debate following the publication of the White Paper and on many other occasions, but I am very glad to have had the opportunity to debate this issue again today. I congratulate my noble friend Lord Grade and all the members of the Select Committee on their work in informing this important debate.
Lord Grade of Yarmouth (Con)
My Lords, I have no desire to impair those who are addicted to ping-pong by continuing their withdrawal this afternoon. At the risk of sounding like an Oscar winner, I have to thank my agent—no, I thank all those who have taken part, particularly the absolutely brilliant committee, and the brilliant team behind it, which produced this report. On the evidence of what my noble friend the Minister said, I do not think that this report is going to languish on the shelves of government departments like too many other Select Committee reports which leave this great House. I am encouraged by my noble friend’s response. To paraphrase the late, great Bernard Levin, a moron in a hurry would get the messages that have emanated from this debate today.
I thank everybody who has taken part. This is a difficult subject, and I am very grateful to the noble Baroness, Lady Fox, for addressing the balance and reminding us of civil liberties and so on in this debate. However, in trying to compare these activities with shopping and other things, we must not forget that gambling can have a toxic side-effect. That is proven over and again, and I do not think anybody in this Room or outside it would wish to deny that fact. We have a duty of care to do what we can to reduce the incidence of harm and addiction.
I am very proud of this report, and I hope that all my colleagues share that feeling. It was unanimous. The task of chairing the committee was not difficult because of the brain power and commitment of all its members. I thank my noble friend the Minister for his reply. I am encouraged, but your Lordships can rest assured that the noble Lord, Lord Foster, and the group that he has put together will be holding the Government’s and the Gambling Commission’s feet to the fire. We look for immediate action, and we look forward to the White Paper. Again, I thank everybody who has taken part.
The Deputy Chairman of Committees (Baroness Fookes) (Con)
I propose to allow a few moments for the changeover to take place before I announce the next business.
Off-Payroll Working (Economic Affairs Committee Report)
(2 years, 7 months ago)
Grand CommitteeRead Full debate Read Hansard Text
Lord Bridges of Headley
That the Grand Committee takes note of the Report from the Economic Affairs Committee Off-payroll working: treating people fairly (1st Report, Session 2019–21, HL Paper 50).
Lord Bridges of Headley (Con)
My Lords, I am delighted to open this debate on the Finance Bill Sub-Committee’s report Off-payroll Working: Treating People Fairly. I will try to be quick because I gather that we are under a bit of time pressure. Before I go any further, I thank my noble friend Lord Forsyth, who was chair of the Sub-Committee when the inquiry took place, our excellent clerk, Tristan Stubbs, and our advisers, Robina Dyall and Sarah Squires, all of whose input was invaluable.
Onlookers might be surprised that we are debating in 2022 a report written in 2020. They may think that its findings have passed their sell-by date but they would be very wrong, for it anticipated many of the problems that might result from extending the IR35 reforms into the private sector. Our committee concluded that the approach to this issue—that is, off-payroll working —should be certain, simple, supportive of growth, administratively straightforward, enforceable and, above all, fair. We found the current approach lacking on all counts.
In light of Covid, the Government wisely delayed extending the rules to the private sector until April 2021, so the committee recommended that the Government use that time to rethink their approach, learn lessons from the public sector’s rollout and address issues that our inquiry unearthed. At the end of last year, we conducted another inquiry into the implementation of the rules, and we wrote to the Financial Secretary with our conclusions, to which she replied. I thank her, her predecessor Jesse Norman, and the Treasury and HMRC officials for all of their co-operation. Therefore, now is a good time to take stock of our report and letter-writing and see where we stand. I will draw on both the report and the letter that we sent to the Financial Secretary.
My first question is on whether businesses and contractors are finding that the new rules are simple, are administratively straightforward and offer certainty. We flagged problems regarding HMRC’s tool for checking employment status for tax, CEST, in 2020. Last year, we were told that it was still “not fit for purpose” and did not provide accurate results. The CBI said that, although businesses had found CEST helpful, where HMRC guidance and case law diverge, businesses are left in a position of being told that they can rely on an outcome that would likely differ from that which would be handed down by a court. CEST cannot and should not be a substitute for law. Although it cannot be expected to cater to every scenario, a 20% undetermined rate means that a significant number of people need additional support to identify their status. This support must be improved.
Furthermore, the continued absence of questions on mutuality of obligation within CEST means that many people affected by the off-payroll rules do not have confidence in the accuracy of the results. Only today, we see the lack of clarity on this point highlighted by another current case between HMRC and Atholl House. This uncertainty has contributed to unfair employment practices, blanket bans and decisions. We heard that 21% of freelancers had reported that their client had simply determined all engagements as inside IR35, a blanket assessment. Although the Financial Secretary said it was legitimate for companies to decide against using contractors working through personal service companies, the committee concluded that it is regrettable if such decisions are driven by tax rather than commercial considerations. Tougher compliance action is needed where engagers are effectively evading their obligations under the rules to make individual determinations.
Then there is the issue of appealing against a state of determination. Research from IPSE showed that more than three-quarters of those who disagreed with their status determination challenged the outcome and, of those, 79% reported no change as a result of the challenge. The National Audit Office has said
“there is not a clear legal route to appeal further. If workers believe they have been taxed incorrectly, their recourse is to use HMRC’s self-assessment and NIC reclaim routes.”
On appeals, HMRC told the Public Accounts Committee:
“If everyone co-operates and there are no challenges, it will take a few months. If it is complex and there are multiple reports, it can take years”—
years, my Lords.
So, in response to my first question, this system is not simple, not easy to administer and does not offer certainty. Let me ask a second question: are these changes supporting growth? Here, I freely admit, it is difficult to disentangle the impact of Covid, Brexit and other macro events. But in the words of one of our witnesses, the UK’s reputation as
“an easy place to start up”
businesses has been replaced by a “huge compliance burden” and a “punitive tax regime”. That is why research into the impact of the measures must consider changes in the UK’s labour market and the broader economy. The committee said that the scope of this research should be more comprehensive and invite input from affected contractors as well as engagers and intermediaries.
Specifically, the actual cost of these changes on business is still unclear. HMRC estimated the one-off administrative cost incurred by business in preparing to operate the off-payroll rules would be £14.4 million, with a negligible ongoing impact. The committee challenged this estimate, as witnesses judged it to be too low. HMRC revisited its estimates and increased that one-off cost to £19.7 million, with an ongoing net saving of £0.3 million. The CBI told us that that £19 million is still an underestimate, and the NAO agreed that HMRC might have underestimated the cost to employers. So, to answer my second question, there is no evidence that this change is supporting growth.
I turn to the question of whether these changes are making the system fairer and whether they are enforceable. For contractors assessed as within the off-payroll rules by an engager, we were told there is likely to be a financial cost, given the difference in employee tax and NIC treatment compared to contractors. We were told that a key issue is employer NICs: how the cost of contributions is allocated between the engager and the contractor.
The CBI and the Federation of Small Businesses explained that people in the more skilled end of the market are more able to ensure costs are paid by the engager. However, for the lower skilled end of the market, it seems many engagers are passing costs on to contractors via reduced rates of pay. It is these lower paid contractors who are falling into the clutches of so-called rogue umbrella companies. In our 2020 report, we warned of the risks presented by umbrella companies and the likelihood that their use would increase when off-payroll rules were extended to the private sector. Look at what has happened: HMRC estimated that 100,000 individuals were working through umbrella companies in 2007-08, but that by 2020-21 this had increased fivefold to at least 500,000. External commentators estimated the figure to be 600,000.
No doubt some of these umbrella companies perform a useful function, but the committee was told there is
“very clear evidence that it”—
IR35—
“has driven up tax avoidance.”
Here lies the tragedy and irony of this sorry saga. This whole policy was meant to tackle tax avoidance, yet it seems that it is giving birth to a new cottage industry of tax avoidance.
I have not the time to go into the measures that HMRC is taking to tackle rogue umbrella companies, but the sub-committee was obviously concerned and remains concerned about this and that the off-payroll rules are encouraging the insertion of unnecessary intermediaries into the supply chain, increasing the opportunities for rogue operators. A nagging question is whether HMRC is focused too much on non-compliant contractors and not enough on individuals and others who set up these rogue companies, often offshore. That is why the committee has said that the Government should commit to a date for introducing legislation to create the proposed single enforcement body to regulate umbrella companies.
As I am conscious of time, I shall end with a final question: are these changes, and the entire IR35 edifice, achieving their overall aims and objectives? It was said that these changes would protect the tax base. HMRC assessed that the loss of tax from non-compliance with IR35 could cost £1.3 billion. It now states that improved compliance raises much more—£4.1 billion in 2024-25—so it appears that revenue raising, not simply protecting the tax base, has become the main driver of changes.
The second objective is the word in the title of our report—fairness. Everyone doing the same job should pay the same tax. We agreed with this in principle, but the assessment of what is fair cannot be restricted to just tax; it must also apply to rights. It is unfair to tax individuals as employees while denying them the rights of employees. That is why we recommended that the Government take forward proposals set out in the Taylor review, which considered tax, rights and risk together. Failure to address these issues in the round has created the muddle we are in today. Listen to what the Office of Tax Simplification said way back in 2015. It said that
“the tax system is still in many ways stuck in an out-of-date mindset: of categorising workers as either employees, firmly on the payroll, or self-employed … This made sense in the 1950s and 1960s but the huge growth in freelancing as a way of life (and work) doesn’t fit readily into this traditional model.”
The need to properly define employment rights for the purposes of both tax and employment is now ever more urgent. Two years on, nothing has been done about this. We are told that the Government will set out more detail in due course—Whitehall speak for “we don’t know when”. The report’s title was Treating People Fairly. For a Government who want to level up, they are doing the reverse. They are perpetuating a system that is uncompetitive, complex, burdensome and, above all, unfair. Fundamental change is needed. I beg to move.
Baroness Noakes (Con)
My Lords, my noble friend Lord Bridges has given us a masterly summary of the work of the Finance Bill Sub-Committee on off-payroll working, and I pay tribute to his chairmanship of the sub-committee’s latest look at off-payroll working. I agree with everything my noble friend said, in particular on CEST, which is widely regarded outside HMRC as unsatisfactory.
I was a member of the Finance Bill Sub-Committee for its latest update work, though not when the initial off-payroll working report was produced. I did, however, chair the Select Committee of your Lordships’ House on Personal Services Companies, which reported in 2014 and was the first time your Lordships’ House ventured into this difficult territory. When we prepared the 2014 report, we had a very unsatisfactory engagement with the Treasury, which flatly refused to provide either Ministers or officials to give evidence, and the Treasury response to our report was disappointing, to say the least. I concluded the debate on the report in your Lordships’ House by saying that the issues would not go away and that your Lordships’ House would return to them, and I am very grateful that the Finance Bill Sub-Committee has enabled the House to do just that. I am also pleased that the Treasury has engaged with the sub-committee this time—though that engagement does not mean, however, that the Government have fully engaged with the issues.
In principle, I support the Treasury’s efforts to ensure that tax is not avoided on earnings if they are, in truth, disguised employment; there is a genuine fairness issue here. Work which is identical and carried out in substantially the same circumstances should be taxed in the same way. The problem is that the solutions the Government have used do not achieve fairness in an holistic way, as my noble friend Lord Bridges has said. In particular, the latest set of actions that, in effect, outsource IR35 compliance to employers has produced a new form of unfairness—namely, the creation of a class of zero-rights employees. These are contractors who are not technically employees of the engaging employer but are brought on to the payroll for tax purposes. They pay tax as employees but have no rights as employees to such things as maternity pay, and this is most definitely not fair. The Government have allowed this to happen because they focus on tax yield at the expense of seeing the issues in the round.
It was good when the Government commissioned the Taylor report into modern working practices, but very disappointing that, since the report came out in 2017, it has been consigned to the long grass. The Financial Secretary’s latest letter to my noble friend Lord Bridges following the recent Finance Bill Sub-Committee’s work confirms that it remains solidly in the long grass.
The Government’s sole focus on collecting tax has also resulted in employers pushing workers into the use of umbrella companies, as my noble friend said. This avoids them taking those workers on to their own payrolls. As we heard, there has been a fivefold or sixfold increase in the number in the last 15 years, with 500,000 or 600,000 individuals working through umbrella companies. While there are some well-run and responsible umbrella companies, there are also some very bad ones, and there have been egregious cases of tax avoidance associated with them. Many of the workers in this category are low-paid workers, not the higher paid IT contractors; these are relatively low-level manual workers. These people have a relatively dim understanding of their worker entitlements and rights in any event, but they are pushed into this model. The Government’s priorities ought to be to ensure that they have appropriate employment rights and protections, but the Government have been focusing on tax collection and that alone.
The call for evidence last year was a belated attempt by the Government to wake up to the problems in this area, but I am not sure that I have confidence that there will be a good outcome from that. In other instances, employers have either declared that they will not hire contractors or have made blanket decisions that they will put all contractors on to the payroll for IR35 purposes. Some contractors have in turn decided that they will not work for those engagers, and we had evidence that some were now working from outside the UK in order to get away from IR35. The one thing that seems highly likely is that the off-payroll rules themselves have distorted the labour market and may well have diminished the prized flexibility of the UK labour market. The Finance Bill Sub-Committee has urged the Government to undertake research into the impact on the labour market, but I do not have high hopes that the research currently being undertaken will provide definitive answers, based on the Treasury’s response to the sub-committee.
The root of the problem is the foundations on which our tax system has been built. The UK taxes income according to its source and we treat income from employment and self-employment differently and, in particular, have made a conscious decision to tax unearned differently again. The tax system positively incentivises people to work on a self-employed basis and to seek to convert earned income into dividend income via service companies. The biggest distortions arise from the choices that have been made in the design of national insurance, including the new health and social care levy. These are taxes in all but name. There is a fairly big difference between the way in which employed versus self-employed people pay national insurance—the gap is three percentage points in the main national insurance rate—but there is a massive difference in employers’ national insurance contributions. It is now just over 15%, for which there is no equivalent for the self-employed. Therefore, employment income can attract a tax rate of 18 percentage points higher than self-employment income, and dividend income attracts no national insurance at all.
Last year, the Institute for Fiscal Studies published a study on taxing work and investment across legal forms. The clear finding was that the distinctions between different forms of income involved unproductive work in policing the boundaries. In particular, in relation to IR35 it said that this approach is failing, and will continue to fail, because it cannot overcome the core problem:
“there is no coherent principle underlying the distinction”
between legal forms.
A fundamental reform of the taxation of income, including national insurance, is now long overdue. It is the root cause of the problems with IR35 and the many types of unfairness that IR35 promulgates. I know that there are no easy solutions and that it will take a brave Chancellor to reorient the basics of our tax system, but equally there is no easy answer to the IR35 problem, as the past 20 years have shown. It is time for the Treasury to be bold.
Lord Desai (Non-Afl)
My Lords, I served on this committee. I was specially drafted to serve on it and it was a great experience, because I found it very difficult to understand the problem. I was aware that various people had suddenly declared themselves to be self-employed which I knew to be completely fraudulent, especially when Ken Livingstone, my socialist friend, decided that he could avoid tax by becoming self-employed. I always regarded this particular thing as a problem of fairness. It is quite clear that if you give people half a chance they will invent themselves all sorts of ways of avoiding paying tax. As far as I am concerned, that is a tax avoidance problem.
Obviously, there are different kinds of income. Some are more uncertain than others. It seems to me that the principle is that you treat more uncertain incomes differently from incomes that are more or less certain. All my life I was a lecturer—or a professor, at LSE. My income was known, I had to pay my PAYE and that was that. However, there are people who are actors, musicians or playwrights or whatever and whose income is uncertain, so to some extent I think what we need here is a preliminary anthropological study by the tax authorities into how different people make their money in different ways. You have to have genuine uncertainty of employment to be able to qualify as self-employed. That seems to me to be absolutely standard.
Actually, while I was doing this work, the Equity trade union contacted me and asked if I could give my learned opinion on this matter. I said that I had absolutely no idea how to tackle this problem, because it is not the size of income but its uncertainty that determines the fairness—or unfairness—of the tax system.
I still consider that we should find a way of distinguishing between different incomes, not so much by size but by variability over a period. We should distinguish people who are not sure of employment, such as actors or musicians, who may make a lot of money while they are employed but whose employment is not guaranteed from month to month, from people who have absolutely no reason to think of themselves as self-employed because they are just contracting themselves differently with an employer and have a perfectly well-known and certain contract between them and their employer. So, to the extent that this is a tax avoidance scheme which helps both the employer and employee, it is a very damaging phenomenon, because it makes people doubt the fairness of the tax system.
All I can say about this matter is that I still find it very hard to get to grips with this problem. As and when HMRC, or whoever else, wants to do a different study, they ought to do an empirical study of different kinds of employment and incomes and genuinely establish the variability of employment prospects and income. They are the two aspects in which employed people differ from the self-employed. If we can establish that distinction in some legal way that is guaranteed not to be evaded, I think we can set up this concession that some people can be treated differently for tax purposes.
There are problems with employment rights and all that that involves as well, but I presume that it is the variability of employment and income likely to be earned when you are employed that are the main things. That cannot be dealt with without a proper anthropological survey of what kinds of employment people have. To that extent, as and when anybody wants to do research again, please let them do it properly. I know that there is the Taylor review, but we need something more than that. We need proper anthropological research into what kinds of employment and incomes there are in this economy.
Lord Balfe (Con)
My Lords, I thank the noble Lord, Lord Bridges, for instigating this debate. I did not serve on the committee, and this is not my area of expertise, but I would like to offer a few thoughts. It seems to me that this is a very classic case of when the market works out a solution to or a way around a problem that has been given to it by the Government.
The key thing here, of course, is the figure in the report that the number of individuals working through umbrella companies has increased from 100,000 to 500,000 in the last 15 years. This has clearly happened because it is of value to work for an umbrella company, although the report also makes the point that
“many contractors had been left in an undesirable ‘halfway house’: they do not enjoy the rights that come with employment, yet they are considered employees for tax purposes. In short, they are ‘zero-rights employees’”.
This is the problem.
As we come up to a new Queen’s Speech, now would be an ideal time for the Treasury to try to get to grips with the whole problem of how you treat people who are earning money from others. The problem is not just as outlined here; it is endemic in society, and I have come across it many times. I wonder whether other noble Lords have—I would be surprised if they have not come across the tradesman who says, “Cash only, of course”. I do not know of a single cleaner in the city of Cambridge, where I live, who pays tax. My wife had a very interesting conversation with a Polish cleaner whose child had gone into hospital. She said to the cleaner, who was a very nice lady, “Who do you think is paying for this hospital?” The cleaner said, “The Government”, and my wife said, “No, we are, because you are not paying any tax on the money that you get from us”. There is this great gap.
One of the things that not just the Government but the country has got to get to grips with is the way in which people are remunerated. I remember when I was an MEP and we had a nanny, and I was advised very firmly by the Labour Party that I should make sure that I paid tax on what we paid the nanny, because the one thing it did not want was a scandal involving an MEP who was hiring a nanny and not paying tax—so we paid tax. Most of our friends were absolutely astonished; they just could not believe it, until it was explained to them that it was because the Daily Mail might get hold of it and we would be all over the papers.
In this country, we run a system in which the evasion, frankly, of tax is built in and widely accepted. We need to look at this, keep the efficiency of off-payroll payments under review and make sure that the legislation is fair. But we also need to look at the Taylor report, which is what brought me into this, because there are a number of trade union issues that need to be looked at to ensure that workers are being given a fair crack of the whip. This has to be done by legislation: you cannot go around the country saying to individuals, “You must do this”, but you could get them to sign a form saying that any payments they have made have been declared to the Revenue. Alternatively, you could get them to sign a simple form for taking tax.
But my view is that, unless we tackle the very basis of the problem, gradually there will be another way around the situation, and another. It will be rather like our garden hose: every spring, when we turn it on, somehow, without any help from us, it seems to have sprung four or five new leaks, which then need binding up—and, by the next spring, you have four or five more. That is what our tax system seems rather like at the moment.
I ask the Minister, who I realise is strongly constricted in what she can say today, at least to say that she will go back to the department and see whether we can have a root-and-branch look at the ways in which remuneration is paid and rights are given to and taken away from people. It is a matter of basic fairness that, if you live in a society, you should pay your taxes and you should all get the same benefits. It should not be possible for employers to get out of giving benefits, in a fiscal way, because it is good for them financially not to give them to the people who are doing the work.
There is a big challenge ahead, a much bigger one than some would like to admit, but one that has been left to lie dormant for probably the last 20 years. This is not a matter of this Government and this Prime Minister; it has not been faced since the Blair Government came to power. It was resolved to make it easy for people to work and move around, and that laxness has been in the system for a long time. I hope the Minister assures us that she will try to make some reforms.
Baroness Bowles of Berkhamsted (LD)
My Lords, I was a member of the Economic Affairs Committee and the sub-committee at the time of this report and I mainly want to address those principles. I agree with the analysis of what has happened since, which has already been brought forward by other members, referring back to the principles. The problem is that IR35 has not worked from the start and, as the noble Lord, Lord Bridges, explained, it is still not working fairly.
A key issue in the IR35 space, as has already been said, is non-compliant umbrella companies. The Financial Secretary to the Treasury told the committee that HMRC recognised umbrella companies as a strategic risk in its compliance plan. Note that “compliance plan”, its tax-collecting plan. It is clear that HMRC had only a tax-collection perspective, rather than what might be compared to a consumer or worker protection perspective and fair treatment.
We should not forget that non-compliant umbrella companies brought us the loan charge, effectively scamming people. How HMRC handled that is still among the most egregious injustices of recent times. Its treatment was tantamount to, “It doesn’t matter that you were, in effect, swindled; here is your extra tax bill because we cannot find the swindler or the client company, so it is all on you”. HMRC caused ruin and suicide by the intransigence of its perspective. That is unforgivable.
When it comes to IR35, and individuals and small businesses in particular, there is a valid comparison with consumer protections when the biggest financial risk to which individuals are being exposed is around their work, how they are paid for it, and when employment law and its benefits are not applicable. But then, you do not get the same kind of protection that you would, for example, if you put that amount of money at risk in a financial service fund.
Against that background, I would like to know more about what the Government are doing to ensure the quality of umbrella companies. With scamming and fleecing active in this area, amplified by the rules on recovering tax, a step change is required. Many more people are looking to umbrella companies to sort out their compliance and IR35 issues, as others have said. It is easy to find the adverts. This morning, I found an umbrella company promising compliance solutions, keeping the same Ltd status and income, and carrying an ERA certification mark. Can it be trusted? Is it right to rely on a private certification organisation anyway? Do the Government endorse that and should there not be more regulatory protection around umbrella companies? They are clearly responsible for the creation of the leaky hose that the noble Lord, Lord Balfe, described.
HMRC has looked only at tax and NI contributions, not at rights, responsibilities, risks or benefits. It rejected a new kind of body, as suggested in the Taylor review, but then created one by carving out an “employee just for tax purposes” that brings manifest unfairness to the individual and condones undermining employment protections. The HMRC approach also seems to miss the whole picture about risk management and particularly how smaller and new businesses get started and grow. They will be caught before they even have lift-off.
Determinations focus on tests, such as the red herring of mutuality of obligation, which is a description—effectively, a definition—that can apply to any contract, whether of employment or not. That is a fact even admitted in HMRC’s Employment Status Manual. What else does the contract do other than define your mutual obligations to one another, whatever it is about? Other tests such as substitution and not relying on the skill of a particular individual fly in the face of how businesses and reputations are established in the professional field, and certainly discriminate against microbusinesses, start-ups and sole traders.
I am not sure how some businesses are supposed to get started with this hanging over them. I founded my own business from scratch and operated it for 30 years, but this would have stopped me in my tracks, because I started as a sole trader and, believe it or not, on day one or day 10, or in month three, you might get your first client—and whoops! Oh dear, you are an employee.
Other tests are equally absurd. I can see many reasons why things that are prohibited will become desirable. Of course you want a timetable of when you will function, because you want to know when you can offer services to other potential clients you might raise or because you have other matters you want to attend to. But if you have a fixed timetable, they say you are dancing to an employer’s tune. In the real world, there can be other reasons for wanting a more generalised contract. How many of your Lordships have wrestled with some of the rather difficult and complex purchase order systems of many large companies, which make it difficult to keep having a new one for every new project, as HMRC now suggests should be the case? It is much easier and less time-wasting to have an overarching contract that, yes, flexes as you need it to.
I am not surprised by the number of 20% that do not get a decision under CEST, but given HMRC’s track record, I have no confidence that an enlightened and sensitive approach will be taken. Indeed, I would not even be surprised if bonuses were paid for allocating a business to employee status and upping returns. In fact, will the Minister find out the true situation on bonuses paid to those who are dealing with allocations and let me know in writing? I recall being given some very wrong answers about this kind of thing and bonuses given by HMRC when we were discussing the loan charge. Given where we are at, as I said, my greatest concerns are for small and developing businesses, which are given new responsibilities to sort out status and yet are the most likely to be in uncertain, developing and changing positions, having fewer resources and where these tests about timing, location and substitution really do not work.
As a final point, will the Minister explain what work has been done on providing exemptions for microbusinesses and start-ups, so as not to apply tests that are inappropriate and clearly discriminatory to the circumstances? For example, could there be a three-year period of consideration before any assessment and determination starts, or exemptions for small turnover that rules out looking at a building-up phase?
Overall, I still consider the Taylor review proposals better, not least as the Government have not avoided the creation of a different body—no matter that it is hybrid and, unfairly, for tax purposes only.
Lord Tunnicliffe (Lab)
My Lords, I first join in the congratulations for the noble Lord, Lord Bridges of Headley, and the rest of the Finance Bill Sub-Committee on their work in this area.
I am surprised at the extent to which I have been impacted by this debate. I knew peripherally that this was a bag of worms; this debate has brought out what an enormous bag of worms it is. The noble Lord, Lord Bridges, criticised CEST and illegal or dodgy umbrella companies. I found myself agreeing with the noble Baroness, Lady Noakes—I get very worried when that happens, but she is absolutely right. She talked about the Taylor report and this conflict between tax and rights, and the word fairness came through. “Fair” is an incredibly complex issue, and the phrase I took from her speech was “no coherent principle”. That is the issue; you just cannot do it from one point of view.
The noble Lord, Lord Desai, brought in this concept of uncertainty and the issue of start-ups. The noble Lord, Lord Balfe, said that the whole point is that this has to be root and branch and that it is a big challenge. The words I come back to are that it needs an holistic approach. I will say very little more about the debate, but I somehow pray that this issue will not be allowed to go away. Until it is tackled on an holistic basis, it will generate its own industries, there will be lots of people from all sides making it more and more complicated and there will be more and more laws to patch up little points here and there. Any Government, whatever their general political persuasions, should really be addressing this issue and getting back to that lovely idea of trying to see a coherent principle.
Through the sub-committee’s 2020 report and the subsequent February 2022 correspondence with the Treasury, it has held the Government’s feet to the fire. It was clearly right to raise the concerns it did. The trends we are seeing with off-payroll working very much reflect the sub-committee’s warnings.
When the so-called IR35 system was established under the last Labour Government, it was with the intention of ensuring greater fairness in the tax system. It could not have failed more, could it? I think that was not a political failure but a failure to grasp the complexity of it. There had been a steady increase in the number of employees managing to become contractors and enjoying significant tax benefits as a result. As others have observed, the system was designed to identify so-called disguised employees. These individuals may have been working under the same conditions as an employee but avoided certain tax liabilities by entering a contract through an intermediary, such as a personal service company.
For many years, the IR35 determination was made by the contractor themselves. Such a determination is based on several factors and can be complicated, inevitably leading to incorrect decisions. The sub-committee flagged in its original report that the Government’s own “check employment status for tax” tool may not be fit for purpose. Listening to the debate, clearly it is not. As we have heard, the burden for determining whether IR35 rules apply has gradually shifted from the contractor to the fee payer. This occurred first in the public sector, and those reforms have since been extended to the private sector.
The Government were right to delay the extension by a year, citing the pandemic. We endorsed that decision, as to delay gave businesses and individuals more time to adjust in an already uncertain world. However, in truth, the extra year was already desirable, or even necessary, before the pandemic struck. As the sub-committee noted, there was early evidence that the 2017 public sector reforms were not working as intended. I believe we have now reached a total of five Whitehall departments that have admitted incorrectly classifying contractors. These departments—Work and Pensions, Home Office, Health, Justice, and Environment, Food and Rural Affairs—have had to compensate HMRC for their oversights to the tune of around £250 million.
Part of the problem seems to be the use of blanket declarations, which is a topic covered by the sub-committee, but other forces may have been at play too. For example, it may reflect the simple fact that IR35 has become too complicated. If Whitehall departments cannot correctly apply the rules, what hope is there for others?
Earlier this year, the broadcaster Adrian Chiles won a long-standing legal dispute with HMRC. The authority believed that the IR35 rule should apply to his work for the BBC and ITV between 2012 and 2017, but the tribunal disagreed. What assessment have the Government made of that ruling? Can the Minister comment on how much was spent pursuing the case, given that it ran over several years?
Taken collectively, these events raise the question asked by an increasing number of commentators in the light of the rapidly changing nature of the UK employment market: does the IR35 system continue to serve its original purpose?
Other questions raised by the sub-committee, including how to counter the potential misuse of umbrella companies, are by no means new either. There are genuine fears around the exploitation of workers, particularly those on low incomes, as people seek to avoid tax through rogue umbrella companies and, indeed, former employers seek to avoid tax by forcing low-paid workers into these unsatisfactory conditions. Addressing these questions is therefore increasingly urgent. The sub-committee has pointed to a variety of other possible risks and the Government have at least acknowledged the need to understand them better. In her response to February’s correspondence, Lucy Frazer outlined several workstreams which are under way, as well as committing to ensuring that they are conducted expeditiously.
To be fair to the Government, not all the concerns raised in the report and during this afternoon’s debate could have been addressed during the 12-month delay from April 2020. However, should not some of this work have been under way well before that decision was taken? IR35 rules came into force in 2000. Our economy clearly functions very differently in 2022. While the tax system has seen some changes, it has not kept pace with the developments and trends in the employment market. It seems that there is consensus around the need for modernisation and simplification and the problem appears to be with the political will to deliver.
Of course we must consider this topic in the context of the Government’s continued failure on the Taylor review of modern working practices. As others have noted, employment status for tax purposes and status under employment law have long been separated. The Taylor review made some important recommendations in this area. They include the creation of a special category for those who are neither employees nor genuinely self-employed. These people pay taxes as if they are employees but lack many of the basic employment rights enjoyed by others. It cannot be right for certain workers, often those operating in the gig economy, to remain what the sub-committee labelled zero-rights employees. In some instances the courts have acted to grant new rights to such workers. However, as a rule it should be for the Executive rather than the judiciary to confer adequate protections.
Workers’ rights were prioritised in the Conservative Party manifesto, but the Government seem to have forgotten their promises since the election. Addressing some of the loopholes identified by the sub-committee will improve the situation, but so too would bringing forward the long-promised employment Bill. This question may not directly relate to IR35 but, had the Government legislated to improve employment rights, would we have witnessed the recent P&O ferry situation? We await Her Majesty’s most gracious Speech in a couple of weeks’ time, but if reports are to be believed it will not contain anything on tax reform or employment protections.
The Government want us to believe that everything is under control. However, that is clearly not the case if they are repeatedly unable to deal with pressing issues such as these. We await the findings of HMRC’s research but what we really need is a joined-up approach. We must look at these issues in the round and then, crucially, bring forward that long-awaited legislative package. The sub-committee has called for an off-payroll working regime which is simpler, fairer, more straight- forward, properly enforceable and provides greater certainty to all involved. Which one of these wishes can the Government possibly disagree with and what exactly is the hold-up when it comes to achieving that?
Baroness Penn (Con)
My Lords, I thank my noble friend Lord Bridges for securing this debate. He is right that it remains a timely debate, because of the recent extension of IR35 to the private sector, which was delayed by a year due to Covid, and with the update provided by the Finance Bill Sub-Committee in its letter to the Financial Secretary, and because, as I will touch on and as has been touched on in the debate, there are live issues with regard to the implementation of IR35. The Government are committed to continuing to learn lessons as we press ahead with its implementation. This matter is not closed but one where we want to continue to learn and improve on how we do things.
The Committee has also shown clearly that there are a number of issues for the Government to consider. There has been a remarkable amount of consensus on that from this debate. The noble Lord, Lord Tunnicliffe, should not be so worried about agreeing with my noble friend Lady Noakes. I may not like it, but she can often be right.
Let me also thank the Finance Bill Sub-Committee for the time it has taken in making its careful analysis of this important policy area, both in 2020 and in its more recent follow-up inquiry.
I am grateful to noble Lords in this select group today for their well-considered points. Noble Lords are right that the issues we are debating are key for workers and businesses, and of course to the UK’s financial health. Before I respond to specific points raised in the debate, it is perhaps worth taking a step back to remind noble Lords of the reasoning behind the introduction of the off-payroll working rules.
As I am sure noble Lords are aware, these rules have been in place for over 20 years. Ultimately, they aim to ensure that people working like employees but through their own limited company are taxed like employees. Initially, it was for workers to decide whether they were working like an employee and in scope of the rules. However, it became clear over time that individual workers were often not best placed to properly assess their own employment status; as a result, there was widespread non-compliance. HMRC estimated that only one in 10 people who should have been paying tax under the off-payroll working rules were paying the right amount, prior to the reforms. In fact, non-compliance was forecast to have cost £430 million in 2015-16.
As a result, the Government brought forward legislation to change who made the decision on whether a worker met the rules and should pay tax like an employee. The reform shifts the responsibility for determining employment status and ensuring the right tax is paid to HMRC from the individual’s intermediary to the client, which could be a business or a public sector body. The Government started by implementing these reforms with regard to the public sector in 2017, and then, following significant engagement, extended them last year to medium and large organisations in the private and voluntary sectors, where non-compliance had been forecast to reach £1.3 billion per year by 2023-24 if it had not been addressed.
I stress that these changes simply ensure that the rules that have been in place for the last 20 years are actually followed—and that two people who are doing similar jobs, but through different structures, are not paying very different amounts of tax. It is about ensuring fairness and protecting the tax base. It is not about revenue raising, as has been implied at points in this debate. This is not to ignore the wider points—which I will come on to—about the status of employment with regard to tax and rights, which are two different systems, as all noble Lords have noted. This question has been considered by the Government over some years.
The Government have not changed the way in which the genuinely self-employed are taxed. If someone is running their own business through their own company, these rules will not apply to them. The reform does not create a new tax on contractors or change the principles of tax status in any way. It simply moves responsibility for determining employment status to the party in the labour supply chain that is best placed to take it on: employers who already make these assessments for their regular staff on a routine basis.
So far, the evidence suggests that the reform is successfully achieving its primary objective: to ensure fairness and improve compliance with existing rules. As a consequence, it has resulted in additional tax revenue of £250 million in 2017-18 and £275 million in 2018-19—money that has helped to fund vital public services, as noted by my noble friend Lord Balfe. It is therefore heartening that the Finance Bill Sub-Committee acknowledges that these reforms are helping to reduce non-compliance.
However, I recognise that the sub-committee raised further issues. As noble Lords will be aware, last month the Government set out a comprehensive response to the sub-committee’s conclusions and recommendations in its follow-up inquiry into the off-payroll working rules. In that response, we first set out how our engagement work with taxpayers, businesses, agencies and other organisations has been at the heart of our approach to this reform. Indeed, before extending the reform to the private and voluntary sectors, the Government carried out two consultations in 2018 and 2019. We listened closely to stakeholders’ feedback on how the legislation was working and introduced changes that provided more certainty to parties in the supply chain. To answer the point from the noble Baroness, Lady Bowles, about an exemption for micro-businesses or start-ups, we decided not to include 1.5 million small businesses in the reform’s scope. The Government also carried out a further review of the off-payroll working rules in 2020 and have acted on stakeholder feedback by expanding the consequences for those who provide fraudulent information and introducing anti-avoidance provisions.
The sub-committee welcomed the fact that HMRC has learned some lessons from the public sector reform when rolling it out into the private sector. This additional insight has led to a range of important improvements, including adapting HMRC’s education and support to better suit the needs of specific stakeholders and customers. When the rollout of the reform to the private sector was delayed by a year due to Covid-19, we put this extra time to good use by expanding the support offered to taxpayers, businesses and other organisations to help them prepare, and this has continued since the reform’s implementation last year.
The noble Lord, Lord Tunnicliffe, made several points about the implementation in the public sector. He talked about the use of blanket declarations being the most significant reason why the public sector got its determinations wrong. The most common error that HMRC identified through its compliance work with public bodies was the understanding of the impacts of substitution clauses in their contracts. HMRC has worked with the Tax Centre of Excellence to improve understanding in this area. HMRC has not seen any evidence of the widespread use of blanket determinations, which is supported by its internal data and external research. In fact, HMRC compliance activity has found that many public bodies did take reasonable care when implementing the rules. None the less, many lessons have been learned from the 2017 reforms, as I have noted, feeding into the approach that we took in the expansion in 2021.
Another issue raised was the Check Employment Status for Tax tool, CEST. HMRC has spent £1.1 million enhancing that tool to help employers, workers and agencies determine their tax status, following feedback. On the point raised by my noble friend Lord Bridges about a tension between case law and the CEST tool, the tool was rigorously tested against known case law and settled cases and is the only status determination tool for which HMRC will stand by the result produced, provided the information inputted is accurate and the tool is used in accordance with the published guidance. However, while we believe we have responded to some of these points, as I said to noble Lords, monitoring the impact of the reforms is still very much a priority for the Government. We have commissioned external research into the 2021 reform that will gather further information on the effects of the reform on the way contractors are engaged, rates of pay for contractors, challenges with implementing the rules and the effectiveness of HMRC’s support and guidance.
Noble Lords asked whether this research would take into account the changing post-Covid labour market. Indeed, it does ask for information on the reasons for any changes in the use of contractors since March 2021, including Covid. In addition, insights from our evaluation of the 2017 reforms show that the impact is broadly in line with HMRC’s expectations so far.
Almost all noble Lords in the debate raised the issue of umbrella companies. We have seen some evidence since 2017 of some contractors changing the way they provide services, moving to the use of other structures. As noble Lords noted, some clients and contractors will reasonably take the view that direct employment on the payroll of the client, an employment agency or an umbrella company is preferable to having contractors work through their own limited companies. This is expected and perfectly acceptable. None the less, we recognise the concerns about the scope for non-compliance in the umbrella company sector. As my noble friend noted, there is no problem where an individual is working with an umbrella company that is compliant with the rules; it simply means that the right tax is being paid and that the individual may be receiving the benefits that come with employment. But we have published guidance for those working for and with umbrella companies and have also recently completed a call for evidence on the umbrella company market. We are analysing the responses to that call for evidence and, at risk of aggravating my noble friend, the Government will respond publicly in due course.
At the same time, the Government are focused on tackling the promotors of tax avoidance schemes. Indeed, we introduced a tough new package of measures at the Autumn Budget which came into force in February this year. These included new powers for HMRC to freeze promoters’ assets, so they pay what they owe; steps to deter offshore promoters; and legislation allowing HMRC to shut companies and partnerships that promote these dubious schemes.
I am conscious of time. I think the main point of substance that all noble Lords touched on is the difference between employment status for rights and employment status for tax. Noble Lords are correct: those systems are separate. However, officials across HMRC, the Treasury and BEIS work closely to ensure joined-up thinking on common issues. It is worth emphasising that the current employment status frameworks for both tax and rights work for the majority of individuals and businesses. However, we recognise concerns about employment status, and we are considering options to improve clarity, making it easier for individuals and businesses to understand which rights apply to them. We are working externally and across government on how best to address this in a post-Covid scenario.
The work of the Taylor review is an example of the Government considering this question, and while we are progressing on a number of aspects of that review, it is important not to forget that we have already implemented a wide range of its recommendations. We have delivered non-legislative commitments such as launching a holiday pay awareness campaign. We have passed a raft of secondary legislation to boost workers’ rights and deliver the Taylor review recommendations, including by extending the right to a written statement of core terms of employment to all workers and introducing a right for agency workers to receive a key information document when signing with an employment business. I would say that it is right that we do not change the employment law framework until we are sure that any changes will address the needs of businesses and workers in the post-Covid economy. In the meantime, we will continue to take the necessary action to support businesses and protect jobs.
The noble Lord, Lord Tunnicliffe, asked me a specific question about the ruling in the case of Adrian Chiles. While I cannot provide information on specific cases because of taxpayer confidentiality, I should answer his broader point. HMRC has disputed a number of cases regarding television and radio presenters in the courts. Just yesterday, it won two cases in the Court of Appeal, setting down useful principles in such cases. Since April 2019, HMRC has won more than 80% of cases in litigation. Where no other route to resolving issues is possible, it is right that some cases are decided in the courts. In terms of the wider approach, I hope that would be the last place that we want to end up, even though it is necessary in some cases. The noble Baroness, Lady Bowles, asked me a question about bonuses, which I am happy to write to her on—and, indeed, if there any other points that I have not managed to cover.
I reiterate my thanks to all those who have contributed to this debate. I end by emphasising that our changes to the off-payroll working rules have been made with the aim of improving compliance with existing rules and increasing fairness in the tax system. As a consequence, these changes have brought in additional revenue to fund vital public services. However, I reassure noble Lords that we are not complacent. Our approach to these reforms is a collaborative one. Therefore, we look forward to very much continuing the conversation with those affected by these changes, so that we can work together to build a tax system in which everyone pays their fair share.
Lord Bridges of Headley (Con)
My Lords, I thank my noble friend for that response. Indeed, I thank everyone—this little band of us—who has debated this topic. It is rather appropriate that we are meeting in the Moses Room, because I somehow feel that IR35 has become a tablet of stone for the Treasury and HMRC. I fully accept what my noble friend says: there are some sort of scratchings or graffiti on the tablet of stone that have made alterations here and there, but it essentially says that we must not change IR35 in a profound way.
The problem that my noble friend grappled with—I was not expecting her to announce grand changes in tonight’s debate—is that, as all of us have outlined, the underlying unfairness of this system remains. Let me remind everyone of what the committee concluded:
“It is unfair that contractors within the rules are treated as employees for tax purposes but do not qualify for employment rights, thus creating a class of ‘zero-rights employees’. The Government is replacing one unfairness with another.”
That is the fundamental truth that we have to confront and why we have to see change. I fully accept that aspects of the Taylor review are being implemented but that is not enough, and we have to grip this. Indeed, it is even more important that we grip this post Covid because of the need to have a flexible workforce.
I do not want to delay everyone with lots of changes but to make just two points. The noble Lord, Lord Tunnicliffe—he is my noble friend tonight, because we agree on this—said that this policy could not have failed more. I was really struck by that; it is a very interesting point. I accept that the Government made changes to IR35 before implementing it in the private sector, in light of what we saw in the public sector, but let us just understand what has happened in the public sector.
The noble Lord, Lord Tunnicliffe, mentioned the figure of £263 million. That is the amount owed or expected to be owed by government departments for failing to administer the reforms correctly. That is an eye-watering amount of money. What do we already know? HMRC told the Public Accounts Committee in the other place that key personnel in those departments did not understand the contractual framework they were operating in and how they were engaged as the contractor in the labour market. The NAO found that half of all respondents found the reforms difficult to comply with. It also found that
“public bodies have reported incurring additional costs … and challenges in recruiting or retaining contractors … Public bodies we interviewed explained that they had dedicated a lot of ongoing resource to employment status determinations, such as full-time staff, supporting teams and review panels.”
This is a problem we are already seeing in the public sector, and we are now beginning to see what it is meaning for the private sector. I am delighted that my noble friend says there will be research on this, because it is well overdue. I make just one point. Computer Weekly showed that the number of self-employed is falling fast. It has gone from 130,000, or thereabouts, in 2016-17 to 97,000 in 2020-2021. The impact on the nature and shape of our workforce is quite profound, so we need that research and we need it fast.
As my noble friend Lady Noakes and others pointed out, this is having a real impact not just on professions at the high end of the workforce, the more skilled, but on those who are on low pay, the people who are being hit really hard right now by the cost of living. I very much hope that we will learn those lessons and that the Government will publish that research very quickly. Most of all, I live in hope that something might come along soon—if not in the Queen’s Speech, soon thereafter—that will address this fundamental unfairness that must be gripped quickly. I thank noble Lords for taking part in the debate.