Under the microscope: how political society is changing UK gambling regulation

The intersection between UK gambling regulation and facets of political society has deeply intrenched itself at the heart of the UK gambling industry over the last quarter century, beginning with the initial review of UK gambling laws by Sir Alan Budd in 2000. Since then, the sector’s relationship with the highest levels of government has only deepened, rather than switching to a more hands-off approach as time progressed.

Fast forward to 2020 and this intertwining of politics and regulation has never been more prevalent.  We have seen government committee after committee weigh in, proposing significant changes to a sector that is what some would call the gold standard in worldwide regulation. There is enough blame to go around for this; the UK government retains some culpability in not choosing to evolve gambling regulation beyond the 2005 and 2014 acts, but the industry should also bear responsibility for the actions of operators failing to adhere to those self-same regulations.

So, what does the industry do? Simply accept the change, or get on board and try and motivate the decision-makers to a more operator-friendly environment? Where is the middle ground and who can oversee a process that might achieve that?

Dr James Noyes served as a special adviser to the Labour Party’s former deputy leader, Tom Watson, and during his time with the ex-politician worked on many of his biggest projects in respect of gambling regulatory changes, so he is perhaps uniquely qualified to traverse that political/regulatory line. He has since gone into a role with UK-based non-partisan thinktank the Social Market Foundation (SMF), which believes that fair markets, complemented by open public services, increase prosperity and help people to live well.

James Noyes, Social Market Foundation

A fair market sounds like music to the ears of a gambling industry long hammered by the media, the government and by the actions of a few bad apples. Last month, Noyes delivered his own take on changing gambling regulation in the UK for the better in a wide ranging and very thorough analysis, aimed squarely at the government, industry and regulator alike.

However, where this report differs from the more punishing ones being bandied about by groups including the Gambling Related Harm All Party Parliamentary Group, the National Audit Office and the Public Accounts Committee is just that: its commitment to fairness.

“I understand that the industry needs to protect its commercial interests and the industry understands that there are campaigners who are rightly very worried about harm, addiction, vulnerability, social deprivation and suicide. In the middle, there are those of us who are concerned about a legacy of regulatory failure and who want to see some of these more policy-focussed, often political questions, answered satisfactorily,” Noyes explains.

“The question I have always tried to ask is this: how can we come together as stakeholders, with our different concerns about profit, harm and regulation, and have those discussions in a respectful manner?” the Social Market Foundation senior fellow asks.

Culture club

As Noyes explains, the three central themes that run through the 82-page report are simple: creating a culture of excellence among UK-based operators, dealing with what he calls the “long tail” of offshore operators working in the UK market, and lastly addressing the issue of regulatory failure.

Discussing the first point, Noyes highlights the recent good work of the Betting and Gaming Council (BGC) in raising standards among its members, which include some of the biggest names in the UK gambling market, but calls for more efforts in making the UK market truly excellent.

“I appreciate what the BGC is trying to do [but] I do feel that the setting of standards cannot be left to a trade body alone. There is a need to formalise this process at a legislative level, enshrining greater standards as part of the licensing conditions. Only that way can operators be held truly accountable, and consumers be able to have confidence and trust in the market.” Noyes adds.

“This is why my report highlights the need for a kitemark,” he explains. “Standards should be the decree of the regulator, not a gift from the industry.”

Enshrining a culture of standardised excellence into the entire industry is something which would undoubtedly be welcomed by the head honchos of the BGC, but it’s easy to be excellent when you have the financial resources enjoyed by the likes of GVC and Flutter. The challenge is getting those lower-rung firms to level up their efforts in a way which makes regulation an easy job for the Gambling Commission.

It is a challenge that is answered by the SMF adviser’s second main recommendation, that of addressing the so-called long tail of operators based across the world but targeting UK players. In discussing this issue, Noyes argues that the 2005 Gambling Act created an “inbuilt inequality” into the UK market, which expresses itself at all levels of running a gambling business in the UK.

“A lot is said about the black market, but I am equally concerned about the prevalence of grey-market operators, many of which are based offshore but which are still licensed by the Gambling Commission to operate in the UK. These long-tail outfits often lack the standards and suitability that we expect of the British market, and I do not understand why the regulator has not been stricter in its dealings with them. We have seen cases of offshore operators arriving on the scene, they might be around for a couple of years, sometimes they go bust, sometimes they detach and reattach themselves to different licence holders,” he explains. “The situation is totally unacceptable. White labels are a prime example of this problem.”

“Too often, the long tail seems to escape a lot of the regulatory scrutiny that parliament and policymakers are expecting of the more established household brands, who aren’t entirely in the UK but retain a UK presence. Those brands have been held up to increasing scrutiny based around this principle that they have to abide by a certain set of standards and many of those brands have now collected under the umbrella of the BGC,” he adds.

Noyes highlights the big four – Flutter Entertainment, William Hill, GVC and bet365 – as being the most obvious example of the household brands at the one end of the spectrum, in that they conform to five criteria identified within the SMF report. The criteria include having a capital, human, social, legal and digital footprint in the UK, as he explains giving examples including paying corporation tax, employing individuals in UK offices and basing their servers in the UK.

“I have regular communication with senior decision-makers in these companies, and while it is clear that they remain tarnished with a legacy of market excess and regulatory failure, I am convinced that some of these decision-makers are increasingly committed to do the right thing in terms of their capital, human, social, legal and digital presence in the UK. Interestingly, some operators seem to be going even further than the BGC when it comes to changing their culture of corporate responsibility and practice, even if for the time being these efforts remain internal rather than public-facing,” he explains.

“At the same time there are brands like MoPlay, which emerge on the market with grand statements about marketing deals and shaking up the industry, but two years later go into administration, leaving consumers in the lurch and the regulator once again, lagging behind. This sort of thing must stop.

“We can’t have this kind of asymmetry whereby different operators are playing by different rules, setting different types of standards, paying different types of taxation, overheads, wages, and are subject to different legal accountability. There is a need for a fairer, more standardised system, which demands that a minimum footprint is expected of all operators if they want to have an entry into the UK market,” Noyes adds.

Money, money, money

One of the more ground-breaking ways to do this, identified in the report, is the removal of the ability to sign white-label deals between suppliers and B2B operators, a practice which provides the backbone of the industry’s technological advancement. Another identified within the SMF report is to provide taxation incentives for the industry to base its operations here, while penalising those who do not.

“It seems grossly unfair to me that operators who are already paying remote gaming duty (RGD) as well as associated overheads with being based in the UK, including corporation tax, might then be made subject to an increase on tax should the Treasury decide to raise gambling duties as part of a package of fiscal consolidation following the Covid-19 crisis. In our report, we put forward a principle that the greater an operator’s footprint in the UK, the more this should be reflected in some sort of rebating system when it comes to the duties that an operator is expected to pay,” he explains.

“It would seem to be fair that some sort of incentive exists that determines the more presence that you have in the UK (according to those five criteria), the more advantageous it would be to you as an operator to be located in the UK, and that will be reflected in the tax burden on you,” he adds.

Among the taxation changes proposed by the SMF report is a potential increase in online betting duty from 15% to 21% to bring it into line with RGD, a measure which Noyes claims would not be “unduly burdensome” for a sector playing its part in strengthening the UK economy following Covid-19. As an additional justification, Noyes cites the fact that betting duty in the UK is already among the lowest in Europe.

“To be clear, with all the recommendations included in my report, I have tried to keep the commercial sensitivities of the industry in mind. When making the case for market fairness, it is important that an agenda of reform is not unduly punitive. Before making each of my recommendations, I engaged with industry experts, operators and investors,” the SMF author explains.

“I don’t expect the industry to agree in public with all the recommendations contained in the report. I appreciate that it would not be politically expedient for the industry to give too much ground at this stage before the forthcoming government review of the Gambling Act. And I also know that some of what I have put forward is quite radical and could be perceived as detrimental to commercial interests.

“However I think it’s not unreasonable to expect different gambling sectors, the gambling industry, who lobbied government very hard to benefit from financial assistance when times were bad, to now be expected to put their shoulder to the wheel at a time when the British economy – and British society – needs all the support it can get following this awful pandemic,” he adds. “We really need to see action now, not just words. Talk about corporate social responsibility is no longer enough. We need to see meaningful reform put into practice.”

Building a better machine

Anyone who has observed the debate surrounding UK regulation over the last two years cannot help but notice the staggering amount of criticism directed towards the UK Gambling Commission (UKGC), an entity which more than one scrutineer has described as “not fit for purpose”.

Whether or not this criticism is deserved is not a matter for this article, and even Noyes himself baulks at the thought of unduly criticising the UKGC, which he claims faces a “difficult task” in regulating the inbuilt inequalities of the UK market.

For Noyes, this doesn’t go as far as just the onshore versus offshore issue, it is also manifested at a UKGC level, through the mechanisms of the UK’s regulatory framework and the various government departments which intersect with it.

“It seems to me that even with the best team at the regulator, the best intentions and the most fabulous secretary of state for DCMS [the Department for Digital, Culture, Media and Sport] supported by the most committed advisers and civil servants, our gambling policy would still be in a mess. This is because of inherent flaws at the heart of the existing legislation and regulatory framework. My agenda for reform is not about blaming personalities, it’s about identifying structural problems. For example: it is an international anomaly that in the UK a Ministry of Culture has oversight of anti-money laundering legislation and questions of public health,” the SMF author explains.

For Noyes, the issue of government and departmental oversight hamstrings the effective regulation of the UK market before it even gets to the UKGC level. However, he also suggests this giving of responsibility to organisations which are not equipped to deal with them also manifests within the UKGC, leaving it without the ability to tackle the issues for which it faces the most criticism.

“It’s an absurdity that the regulator, which has a statutory function of a licensing authority with approving, monitoring and sanctioning licences, feels obliged to stray into matters of consumer protection and public health, but without either the authority or the resources to adequately do anything about these matters.

“The result is that the UKGC gets criticised. It talks about consumer protection because there’s no ombudsman but at the same time it says it cannot help individual consumers. It talks about harm and public health but at the same time it is not a public health body. In such a situation, where the regulator ends up spreading itself too thin, criticism from the National Audit Office, the Public Accounts Committee and the Gambling Harms APPG becomes inevitable,” Noyes adds. “The regulator needs to be allowed to focus on its core function: licences.”

[quote]We can’t have this kind of asymmetry whereby different operators are playing by different rules, setting different types of standards, paying different types of taxation, overheads, wages, and are subject to different legal accountability. There is a need for a fairer, more standardised system, which demands that a minimum footprint is expected of all operators if they want to have an entry into the UK market[/quote]

The buck stops here

This failure, for Noyes, is fundamentally due to the tripartite nature of the 2005 Gambling Act failing to change to suit the demands of today’s UK market. The act, which separates responsibility over the UK market between three entities, the DCMS, the UKGC and GambleAware, is set to be reviewed and potentially changed as a way of addressing these concerns, at some point in the near future.

Addressing the forthcoming review, Noyes points to his own thoughts on the UK’s regulatory framework emphasising the need for a “radical rethink” to avoid having the same issues crop again in 20 years’ time. Indeed, Noyes’ solution is a total redrawing of the regulatory structure in the UK, encapsulated in what he calls a “gambling quartet” of entities all with different duties and purviews.

Explaining how this works, he states: “It is beyond question that the current tripartite arrangement is not fit for purpose. Under our alternative arrangement, we allow scope for four public agencies to work as equals, each focussing on four core functions but collaborating when necessary, and sponsored by four different departments.

“That’s four types of ministerial oversight and responsibility, spreading out across government in a way that enables both holism and expertise to combine in what is a highly complex policy area. We believe that this approach is preferable to the current arrangement where one department is left to struggle to make sense of things which are basically outside its remit and expertise,” he adds.

This new quartet would include the creation of a Gambling Licensing Authority (replacing the Gambling Commission), a new gambling ombudsman and a health-related body to oversee funding and commissioning of RET services through a statutory levy. DCMS would retain a portion of its regulatory power, looking after the oversight of advertising, the National Lottery and sporting and cultural events relating to gambling.

This all forms part of the philosophy of giving departments responsibility for things they have the knowledge and expertise to effectively deal with. “The UKGC needs to focus on its core function, which is that of a licensing authority, which is essentially a legal function.”

Noyes argues that this legal function of the licensing authority necessitates sponsorship by the appropriate department, the Ministry of Justice, so the regulator can be supported by the expertise of civil servants and the wider apparatus of the department in the way that it needs. He points out that this system of a gambling licensing authority sponsored by a Ministry of Justice is common practice in other countries.

The identified need in the SMF report for a UK gambling ombudsman to deal with disputes between consumers, operators and the regulator is not a new call. Indeed many have said that a middleman would reduce the number of incidences of non-compliance – although it should be added that Noyes was at the origin of this call when he made the case for an ombudsman in a speech he wrote for Tom Watson back in 2019.

“It’s a non-starter to entertain the idea that [Independent Betting Adjudication Service] IBAS can be transformed into the level of ombudsman that we need. We need something which is a public agency, with statutory authority equivalent to the gambling regulator, the licensing authority, and sponsored by its own government department,” he explains.

“That way, the ombudsman would look after consumer protection, the consumer-facing side while the licensing authority looks after the industry-facing side. We would have two agencies working as equals and in parallel, both with distinct yet complementary roles,” he adds.

[quote]However I think it’s not unreasonable to expect different gambling sectors, the gambling industry, who lobbied government very hard to benefit from financial assistance when times were bad, to now be expected to put their shoulder to the wheel at a time when the British economy – and British society – needs all the support it can get following this awful pandemic[/quote]

Gambling regulation and treatment as a public health issue is a very thorny area for many international regulators because gambling is and remains a pastime, much the same as going down the pub or playing sport. The intersection between that activity and public health-related issues only occur when those pastimes become destructive to the individuals involved.

The public health debate has been at the centre of many issues for the industry as governments use this as justification for imposing draconian regulations, often with no evidence that these are needed. You need only look at Sweden and Spain to realise how much this issue can shape significant changes to the sector.

Far from running away from the issue, Noyes highlights a role for the NHS and public health organisations in something which is directly within their wheelhouse: research, education and treatment (RET) and administering funds devoted to this endeavour.

“Following the logic of my proposed gambling quartet, I argue that the NHS and UK research councils should be responsible for RET, drawing resources from a statutory levy, and supported by the Department of Health and Social Care,” he explains.

Paying your part

For Noyes, the action of giving the NHS and public health organisations oversight over RET funding is an appropriate and necessary move to ensure those with the know-how can effectively fund RET that delivers results. However, the SMF fellow also cites a central linchpin in this approach: making the current voluntary levy system a mandatory one, something which he claims would address a central issue in the report – that of inequality between operators.

“We see that some operators have led the drive to commit to 1% of GGY. These operators are open to the principle of research and commissioning independence. They’ve been exploring options in terms of making that happen, and some of them aren’t against the idea of making that statutory,” Noyes explains.

“On the other end of the scale, there are some operators which have made desultory, cynical, unacceptable contributions – for example, those operators which have sent a cheque for £50 to GambleAware. This has led to accusation and acrimony between operators, public health experts, parliament and public perception,” he adds.

The action of making the levy mandatory would not only level the playing field when it comes to operator contributions to RET causes, but it would also “depoliticise and detoxify” the debate surrounding it in the media and parliament. Any statutory levy, he claims, would have to be spent in a smart way, something which feeds back into the regulatory change of giving the NHS authority over these funds.

“If I were advising an industry leader, and that industry leader was giving 1% of the company’s gross gambling yield – a not insignificant amount of money – to RET and I saw that money being wasted on talking shop, marketing and middle managers sitting in offices in central London rather than on clinicians, frontline services and health programmes around the country, that would irritate me,” Noyes explains.

“I would want to know that every penny of the money my company was contributing was being spent on really helping people who are suffering from gambling-related harm. That is why I would advise an industry leader to welcome the idea of a statutory levy. It would ensure that healthcare professionals spend that money in an efficient, targeted and transparent way. In many ways, the biggest hurdle last year was over the level of contribution. Now that the big four are committed to 1%, why would they fear making it statutory? They have nothing to lose, and everything to gain.”

Reality check

At the top of this article, we discussed the central principle of the Social Market Foundation, that of building a fairer market for services, and it’s something which has undoubtedly bled into Dr Noyes’ report into gambling reform in the UK. However, if recent experience has taught the gambling community anything, it’s that not all reports and research lead to realistic and beneficial change.

It’s something that Noyes himself acknowledges, calling for industry support for the “easy wins” for the industry proposed in his report. “Recommendations like PML’s for online VIP managers, kitemarking of BGC members, transparency for the UKGC on sanctioning, all of this could be done easily and with minimal cost to the industry.

“In terms of practicality, a lot of those smaller recommendations are probably the most powerful in terms of how quickly they could be achieved,” he adds.

Judging the potential adoption of his most wide-ranging recommendation, that of the gambling quartet, Noyes sounds a note of pessimism, highlighting the twin issues of Covid-19 recovery and Brexit as why fundamental changes to the regulatory framework might not a priority for government.

The recommendation for an end to the so-called long tail by changing taxation requirements for offshore operators is, however, one he wholeheartedly cites as a palatable and potentially lucrative one for the government.

“Nobody likes tax avoiders and evaders, and polling shows that there is public appetite for change. I reject the charge that changes to offshore tax arrangements is anti-industry or nanny statist; this is about putting together the framework for a market that is fair and encouraging operators to do the right thing,” Noyes explains.

“Ultimately, it’s about supporting British business, so I guess there’s a patriotic element to my report when viewed in the context of Brexit. We have in the UK our Sky Bet’s, our bet365’s – these are local companies which employ local people and I recognise that they are embedded in their local economies. We need to see more benefit, and less harm, to people and their communities  – this above all is the responsibility of government” he concludes.