Future of society lotteries, the Health Lottery and limits on prize values

What are society lotteries?

A lottery is a kind of gambling that has three essential elements:

• payment is required to participate
• one or more prizes are awarded
• those prizes are awarded by chance.

[Gambling Commission, Promoting society and local authority lotteries, September 2014, p1]

The Gambling Commission website explains the types of “society” lotteries:

Lotteries (or raffles) can only be run for good causes. Society lotteries are promoted for the benefit of a non-commercial society.

A society is non-commercial if it is established and conducted:

• for charitable purposes
• for the purpose of enabling participation in, or of supporting, sport, athletics or a cultural activity
• for any other non-commercial purpose other than that of private gain.

A large society lottery:

• has proceeds that exceed £20,000 for a single draw
• has aggregate proceeds from lotteries in excess of £250,000 in any one year
• requires a licence from the Gambling Commission.

A small society lottery:

• does not have proceeds that exceed £20,000 for a single draw
• does not have aggregate proceeds from lotteries in excess of £250,000 in any one year
• does not require a Gambling Commission licence
• must be registered with the local authority in the area where the principal office of the society is located.

An external lottery manager (ELM) can make arrangements for a lottery on behalf of a society or local authority but is not a member, officer or employee of the society or local authority. A society or local authority and an ELM must be separate entities and be able to demonstrate that they are independent of each other.

The Gambling Commission’s website includes further information on:

• Promoting society and local authority lotteries
• External Lottery Managers

Culture, Media and Sport Committee report (March 2015)

In March 2015, the Culture, Media and Sport Committee published a report on society lotteries. This looked at concerns about larger “umbrella lotteries”:

The vast majority [of society lotteries] are small, often local, and raise sums of money that, though not substantial, are vital for the work of the organisations they support. The Gambling Act 2005 relaxed some of the restrictions on such lotteries. This was not a cause of concern until the recent launch of some larger, 'umbrella’ lotteries, advertised nationally, run by commercial operations and giving close to the statutory minimum percentage of the proceeds of ticket sales to the good causes they supported. These are controversial in part because they are alleged to stretch the definition of a society lottery as primarily intended to raise money for good causes, and in part because they are seen by some as direct competitors to the National Lottery. As a result, there have been calls for restrictions to be imposed on large society lotteries, while others have suggested the success of the umbrella lotteries could be replicated elsewhere if regulations on society lotteries were relaxed.

According to the Committee, the most prominent of the umbrella lotteries is the Health Lottery:

(…) The Health Lottery is a collection of 51 Community Interest Companies (CICs) each of which holds a single lottery licence, with an extensive national retail distribution network through newsagents, supermarkets and post offices under the one brand. The operation of the lotteries is contracted out to an ELM, The Health Lottery Ltd, which is part of the Northern & Shell Group, and which provides marketing, the operation of the draw and the management of the retailer network. The Health Lottery Ltd is a commercial company and entitled to make a profit as an ELM. Each week, one CIC promotes “the Health Lottery” of that week and all the proceeds raised by sales for that week’s Wednesday and Saturday draws belong to that CIC. There is rigid segregation of CIC accounts to ensure that, week upon week, there is no intermingling of funds between CICs but rather all the good cause’s proceeds from that week go to a specific CIC…

The Health Lottery submitted written evidence to the Committee.

The Committee’s report concluded:

We have been guided in our approach by the principle that the regulatory regime governing society lotteries should encourage the maximum return to good causes and, provided that the lottery remains focused on its primary purpose, the licensing regime should be light, including continued exemption from gambling and lottery taxes.

Accordingly, we recommend greater differentiation between the regulations applied to the great majority of lotteries, which are small and local, and those applied to larger ones, especially those run on behalf of the good causes by commercial organisations, which tend to return smaller proportions of their funds to the charity than single-cause lotteries.

We recommend an amendment to legislation to recognise a class of umbrella lotteries, with its own set of limits on individual draws, annual sales and prizes. A number of options are possible: setting overall limits on the amounts that may be raised or paid out in prizes, limiting the number of individual society lotteries that may join together under an umbrella lottery (and thus limiting the multiplier effect) or stipulating different ‘large society lottery’ limits on the constituent societies. We suggest that the limits on the single society large and small lotteries should be raised, following research by the Gambling Commission into what might be the appropriate limits, and that the limits should be reviewed every three years by the Government, on the basis of information about the market supplied by the Gambling Commission.

We wish to see a lifting of burdens on the smallest lotteries, so we recommend that, for new lotteries, the current requirement for at least 20% of the ticket receipts from each lottery to be given to good causes (rather than allocated to prizes or operating expenses) should be spread over an extended period, perhaps three years, to help lotteries to cope with high start-up costs. On average, lotteries are able to return about 45% of their ticket receipts to good causes, many make much greater returns. It would be a disincentive to innovation to increase the requirement for the minimum return of 20%, but we do not think it appropriate that large, well-established lotteries should provide only the minimum return to good causes. We therefore recommend for the largest lotteries the reintroduction of a cap of 35% on operating costs other than prizes and money set aside for roll-overs.

We do not consider that the National Lottery is at risk from any of the lotteries currently functioning, but we accept that the potential for competition remains…

The Committee’s detailed conclusions and recommendations are set out on pages 34-7.

In its September 2015 response (HC 415 2015-16), the then Government said that it agreed to accept or explore further all of the Committee’s main recommendations. This would involve “seeking detailed advice from the Gambling Commission before reaching final conclusions”.

Gambling Commission consultation

A Gambling Commission consultation (July 2017) sought views on changes that will make it easier for consumers to understand where money raised from society lottery ticket sales is going. The consultation closed on 30 September 2017. The findings have not yet been published.

What next?

On 19 September 2017, in response to a parliamentary question on when proposals to reform society lotteries would be published, the Government said:

(…) We are carefully considering the issues raised by the Select Committee and continue to take advice from the Gambling Commission as we consider policy options.

We expect that the Gambling Commission will publish their advice in due course, when Government has made an announcement on its conclusions…

On 16 November 2017, during Topical Questions to the Department for Digital, Culture, Media & Sport (DCMS), Amanda Milling asked about increases to jackpot prizes:

Society lotteries provide invaluable funding for charities and local causes, but they could provide a lot more if the jackpot prize was increased. Will my right hon. Friend outline what plans there are to reform the society lottery sector and the timetable for doing so?

The Secretary of State replied:

My hon. Friend makes a very important point about society lotteries. As Government, we of course want to ensure that we have one strong national lottery, but that does not mean that we cannot also have strong society lotteries. We are looking carefully at the role of society lotteries and we will make announcements in due course.