Patriot Games - Scottish Nationalism and the future of gambling in Great Britain

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By Dan Waugh, Partner, Regulus Partners

At first appearances, it might seem that the gambling industry hit the jackpot in the General Election...

The electorate returned to power the only major political party which had not pledged to get tough on gambling (or more specifically, FOBTs); the Prime Minister appointed as Secretary of State for Culture, Media and Sport an MP with genuine interest in (and empathy for) the sector; and the Labour Party’s post-mortem recriminations have hinted at a return to the Blairite brand of politics that provided such a benign environment for gambling in the first half of the last decade.

As my colleague, Paul Leyland has argued in his post-election article (‘General Election 2015: Sounding the All Clear?’), any relief felt by the bookmakers or belief that a bullet has been dodged may well be premature; but it has also distracted attention from what is a far more significant development for the whole industry – the potential devolution of Britain’s gambling laws.

If the Smith Commission opened the door on the question of localised regulation by recommending that Scotland be given specific powers to control machines in new betting shops, the SNP’s election landslide may well have knocked it off its hinges. Indeed, Nicola Sturgeon’s party has already called for devolved authority on all gambling (not simply FOBTs) – something that would appear to be one of the simpler concessions for David Cameron to grant.

The suggestion that FOBTs alone should be a matter for devolved regulation was a choice piece of political fudge - carving out one isolated aspect of the industry’s activities never made a great deal of sense in the real world. If Holyrood is to control 50% of gambling in a betting shop, why not the other 50%? If there are to be Scottish laws governing roulette machines in betting shops, why not Scottish laws for roulette wheels in casinos?

Whether the SNP recognised these shortcomings or whether its desire for wider powers is simply another instance of doubling down on devolutionary concessions, specific gambling laws for Scotland are now a distinct possibility.

If it comes to pass, the stakes for gambling companies may be much higher than simply the welfare of their northern-most businesses. For two reasons, the development of a Scottish system of regulation may prove to have far-reaching consequences for British gambling at large.

The first and most obvious of these is that localised control of gambling may be extended to other authorities – to the Welsh Assembly, the Greater London Authority or to George Osborne’s putative ‘northern powerhouse’ – as part of a more general trend to decentralisation.

The second is that change in Scotland (for the good or ill of the industry) might trigger successive reappraisals of gambling laws across the rest of the United Kingdom.

The domino effect has been an observable characteristic in the development of the global gambling market in recent decades. Perhaps the most obvious example has been the expansion of gambling in the United States of America. In 1968, New Hampshire broke ranks with the rest of the Union in launching a state lottery to support public spending. In the years that followed, state after state followed suit until only Hawaii and Utah were left with gambling prohibition intact. Similarly, Nevada enjoyed a nationwide monopoly on casino gambling for almost half a century before New Jersey licensed casinos on Atlantic City’s Boardwalk. Today, no fewer than 23 (and rising) states feature commercial casinos while 28 host tribal gaming casinos (39 states have some form of casino gaming). A number of companies are banking on this pattern being repeated in remote gambling in the decade ahead.

To take an example closer to home, the gambling laws of Spain have undergone radical transformation over the course of the last few years - most notably the opening up of sports betting and remote gambling markets and the creation of a regulatory (and importantly fiscal) framework for resort casinos. The fact that gambling in Spain is largely a matter for the 17 regional autonomous communities has been central to this process. Had it been a matter for the federal government, it is unlikely that these modernising proposals would have progressed as far or as fast. 

The domino effect works in gambling because regulatory reform is quite simply easier to achieve at a local level than at a national or federal level. There are three reasons why this is so. The first is that the expansion of gambling in one state will often be accompanied by tax leakage in neighbouring states as citizens are forced to cross borders in order to gamble. In such instances, the logical response is to protect revenue by correcting the regulatory imbalance.

The second reason relates to political risk. Normalisation of gambling, based on visibility, familiarity and proximity is the most effective means of addressing societal fears of gambling-related harm (chiefly problem gambling and crime). Put simply, the best way to defuse the political risks of gambling liberalisation is to see it expand (profitably, cleanly and responsibly) in a neighbouring state.

The third reason is that while gambling tends to be a fairly trivial economic activity at a national level, it can be significant at a local level where there is greater awareness of the jobs and taxes (if also devolved) it brings. Of course this can cut both ways and it’s worth reflecting on the fact that the current FOBT controversy became a national issue in large part due to agitation by local councillors and constituency MPs.

There are of course a number of reasons to be wary of a decentralised gambling market. There is a danger that fragmented regulation would lead to a dilution of regulatory expertise and effort and that this in turn would involve risks for the consumer. Companies are also likely to be concerned that localised regulation would give rise to greater operational complexity and higher licensing and compliance costs. Some would undoubtedly prefer the preservation of the status quo - no matter how unsatisfactory – than run the risk that change might be negative.

Yet life is about the risks we take. As unlikely as it seems, changes to gambling laws in the land of John Knox and Gordon Brown might just crack open the door for a more vibrant and enterprising gambling market for Britain as a whole.

General Election 2015: Sounding the All Clear?

By Paul Leyland, Founding Partner, Regulus Partners

"You may have to fight a battle more than once to win it" - Margaret Thatcher

The UK gambling industry is probably feeling very relieved right now, perhaps even jubilant. Not only have voters returned a surprise Conservative majority, but John Whittingdale has just been announced as Secretary of State for Culture, Media and Sport.

The Conservatives were the only major party not to have a manifesto commitment to increase the regulation of FOBTs. They are also the only major party that was not committed to raising taxes to combat the deficit (albeit no party mentioned gambling taxes explicitly). Finally, Whittingdale has proved himself to be pragmatic and sensible as head of the Culture Select Committee, even presiding over the (stillborn) recommendation to increase the number FOBTs permitted per betting shop in order to alleviate clustering (back in 2012).

As outcomes go, this is probably better than anyone in the industry dared hope for. But is it right to sound the ‘All Clear’ on the sector?

I would advise considerable caution for five reasons.

The first reason is that the Conservatives have only the slenderest of Commons majorities (12), meaning that this will be a parliament driven by consensus, lobby tactics and quid pro quo. The views of the smaller parties cannot therefore be ignored, especially if they coalesce and/or find resonance with elements of the Conservative party. It should be remembered that Labour, SNP, Liberal Democrat and UKIP manifestos all contained references to toughening FOBT regulation. It should also remembered that the highly influential but non-ministerial Boris Johnson came down in favour of tougher FOBT regulation prior to the election. 

(for more detail on party policy relating to gambling in the run-up to the election, see the Regulus - Olswang Election Briefing piece here: https://goo.gl/B5bFe8)

Second, the SNP is determined to wield its newfound influence in Westminster. Given his overall majority Cameron may well be tempted to be hawkish and push the English agenda, though a slender majority may tempt a more consensual approach (eg, Smith-plus in return for support on Europe). The SNP are on record that Smith did not go far enough in limiting FOBT numbers via licensing only for new shops: they could get more powers, and if they do the Local Authorities of England and Wales (not least Boris’s London) are highly likely to demand the same.

Third, pressure from external sources is likely to redouble rather than diminish, given that the Conservative manifesto effectively implied that enough had been done. This pressure has proved highly effective in the past (vide the number of manifesto commitments on a relatively narrow issue; as well as ministerial action last year) and it would be dangerous in the extreme to write it off now.

Fourth, Osbourne has made several spending commitments that look unfunded (most notably £8bn extra for the NHS) and is on the hook for material cuts elsewhere. He has limited room for manoeuvre in increasing the major taxes given the Conservative Party’s electoral stance. He is also facing an increased anti-austerity voice from the opposition. In such an environment, any tax rises which are not felt by the wider public or business as a whole are highly attractive. Gambling is an obvious area for raiding on this basis.

Finally, with attention fixed on FOBTs, the Racing Right, and potentially tax, it is easy to forget that there are large swathes of land-based gaming, remote gambling and lottery which are currently ‘below the radar screen’. History has shown that it does not take much to put other sectors in the firing-line and it would be dangerous to be blind-sided by complacency.

Despite these notes of caution I am not necessarily gloomy. The industry has had a very lucky break in being presented with a pragmatic government in terms of gambling policy, that it willing to listen to its side of the argument as well as the anti-lobby. This is good fortune: not a vindication of past errors. 

For anything like the regulatory status-quo to remain, the government will have to be confident in defending it, or it will be thrown under the bus for political leverage. The industry must therefore redouble its efforts in being (not just appearing) open, transparent, compassionate and responsible.

The old industry has been given a stay of execution while it reforms; only by maintaining the pace of reform can it get out of the danger-zone.