The potential merits of removing the caps on charity lottery fundraising

The Gambling Act 2005 sets out three forms of gambling: gaming (games of chance), betting, and lotteries. Under section 14 of the 2005 Act, a “simple lottery” has three elements: one must pay to take part; one or more prizes are awarded; and the prizes are awarded by chance. A “complex lottery” involves multiple processes, the first of which must rely “wholly on chance”.

This regulatory framework is distinct from that which applies to the National Lottery. The National Lottery etc. Act 1993 established the National Lottery as the only state-franchised UK wide lottery. The National Lottery operator is granted a licence by the Government to run it. Part II of the 1993 Act lays out the distribution system for the net proceeds of the National Lottery. Section 22 sets out the apportionment of this money to good causes. For instance, 20% of the Distribution Fund is allocated to “the arts”.

During April 2021 to March 2022, according to the Gambling Commission, National Lottery ticket sales totalled £8.1 billion. £4.6 billion was returned as prizes and the primary contribution to good causes totalled £1.7 billion. In the same period, ticket sales to large society lotteries totalled £919.1 million, of which £253.3 million was returned as prizes and contribution to good causes totalled £417.1 million.

What are society lotteries?

Society lotteries are promoted for the benefit (ie, fundraising) of a non-commercial society. For the purposes of the 2005 Act, a society is non-commercial if it is established and conducted for:

• Charitable purposes.
• The purpose of enabling participation in, or of supporting, sport, athletics or a cultural activity.
• Any other non-commercial purpose other than that of private gain.

What limits apply?

Under s99 of the 2005 Act (as amended), large society lotteries (proceeds that exceed £20,000 for a single draw, or aggregate proceeds in excess of £250,000 in any one year) are currently subject to the following limits:

• Maximum prize value: £50,000, or worth no more than 10% of ticket sales.
• Maximum ticket sales of £5m per draw.
• Maximum sales of £50m per annum.

A minimum of 20% of turnover from such lotteries must be donated to charity, and their expenses must be reasonable. Licences are provided by the Gambling Commission. Small society lotteries are licenced by local authorities.

Society lotteries are also exempt from the 12% lottery duty that applies to the National Lottery.

Why do limits apply?

According to the Government’s 2018 consultation on society lotteries (PDF), the limits contained in the 2005 Act are designed to ensure that the “primary purpose” of society lotteries is to raise funds for good causes and that they remain distinct in size from the National Lottery.

How are these limits amended?

Under s99 of the 2005 Act, the Secretary of State for Culture, Media and Sport can amend the applicable limits for large society lotteries through secondary legislation. Schedule 11, paragraph 60 provides the same powers in regard to the small society lottery limit.

Changes to the legal limits since 2005

Legal limits to society lotteries were first introduced through section 45 the Betting, Gaming and Lotteries Act 1963. The contemporary legal regime was introduced in 2005 and subsequently amended in 2009 and 2021.

2005

The Gambling Act 2005 introduced the following limits for large society lotteries:

• Individual per draw sales limits: £2m.
• Annual sales limits: £10m.
• Individual per draw prize limit: £25,000, or (if more) 10% of the proceeds of the lottery (up to £200,000).

2009

The Gambling Act 2005 (Variation of Monetary Limit) Order 2009 increased the individual per draw sales limits to £4m. This was introduced, according to the explanatory memorandum (PDF), to “enable societies to raise more money for good causes”.

2018

On 29 June 2018, the Government announced a Consultation on Society Lottery Reform (PDF). Tracey Crouch, then Minister for Sport and Civil Society, said that the consultation aimed to “achieve a balance” between enabling the “sustainable growth” of society lotteries while also “protecting the unique position” of the National Lottery. To this end, the then Department for Digital, Culture, Media and Sport (DCMS) sought views on a range of proposals regarding the limit framework. The consultation closed in September 2018.

The Government’s preferred options were as follows:

Individual per draw sales limits

Increased to £5m. The Government said that this incremental change would give the society lottery sector “space to grow and increase their returns to good causes”. Also included was retaining the current limit, increasing the limit to £10m, or reducing it to £2.5m.

Individual per draw prize limits

Raised to £500,000 (alongside maintaining the maximum prize as no more than 10% of draw proceeds). The Government said that the current prize limits had not discouraged sales, as the primary purpose of society lotteries is to “raise money for good causes”. However, it suggested that there was some scope for an uplift if linked to the other proposed changes in the document. Also included was retaining the current limit, increasing the limit to £1m, or reducing it to £250,000.

Annual sales limit

Increased to £100m. The document described this increase as a “key request from the sector”, as the pre-existing limit was “restricting their abilities to fundraise”. The Gambling Commission had also advised the Government that increasing the annual limit to £100m would “not affect The National Lottery”. Also included was retaining the current limit, or raising the limit to £50m.

The consultation also sought views on changes to the small society lottery thresholds. The Government had no preferred option here.

2019

On 16 July 2019, the Government published its response to the consultation on society lottery reform (PDF):

Individual per draw sales limits

The “vast majority of total responses” (88%) were in favour of increasing the per draw limit to £10m. For instance, the Lotteries Council described this change as “relatively small”, given that “it was doubled…in the four years from 2005 to 2009”. The Government said that it would increase the per draw sales limit to £5m:

Whilst this increase is more incremental than the £10 million preferred by the largest proportion of consultation responses, we believe it will enable the majority of societies to raise more funds for good causes from individual draws, while maintaining a clear distinction with the scale of the draws made for the main National Lottery games such as Lotto (with average weekly sales of £38.4 million) and EuroMillions (with average weekly sales of £35.8 million).

Individual per draw prize limits

The majority of total responses (82%) were in favour of increasing the per draw prize limit to the highest consultation option of £1m. The Health Lottery argued that it was “perverse that, of all organisations, only society lotteries have a law specifically banning them from offering a £1 million prize.” Camelot and some National Lottery distributors argued against any increase to the prize limit. Instead, the Government confirmed that it would lift the limit to £500,00:

Increasing to this level allows for some additional flexibility for those operators that wish to offer a larger prize, whilst remaining distinct from the life-changing prizes offered by the National Lottery.

Annual sales limit

90% of total responses were in favour of increasing the annual sales limit to the “highest option of £100 million”. The People’s Postcode Lottery, and its supporters, had begun to campaign for this option after the consultation had closed. The rationale for this change, as summarised in an Early Day Motion (EDM 2261) tabled by Sir David Amess (Conservative) on 2 April 2019, was that it would allow lotteries “to reduce bureaucracy and administration costs and thus return more to good causes”. Camelot and some National Lottery Distributors were concerned that such a change would challenge the National Lottery’s status, fragment the market, and thus reduce the amount of money distributed to good causes.

The Gambling Commission found that the growth of society lotteries had not had “a significant negative impact on the National Lottery”. However, due to what the Government described as a lack of “concrete evidence on such an uplift”, it committed to an initial increase to £50m. The ambition was to then introduce a second higher tier licence with a £100m annual limit, “when we are satisfied this will raise overall returns to good causes and not negatively impact on the National Lottery.” A further consultation would be launched to gather views about introducing a higher tier licence.

2020

The Gambling Act 2005 (Variation of Monetary Limits) Order 2020 amended the 2005 Act so as to introduce the changes suggested in 2019.

The annual sales limit was increased to £50m and the per draw sales limit became £5m. These changes came into effect in July 2020.

2022

The Government published a one-year review of society lotteries sales and prize limits in March 2022. The review analysed Gambling Commission data to understand the effect of the recent changes on the lottery sector. The Covid-19 pandemic impacted the amount of data the Commission was able to publish. This meant that the Government was unable to “fully measure the impact of the 2020 changes.” It did not see a case for further change to the annual sales limit “at present”. This was due to the fact that no individual licensed society lottery had “sales close to the £50 million” limit, and only one operator (managing 20 lotteries) would “currently benefit” from further increases.

Devolved administrations

Gambling is devolved in Northern Ireland. Society lotteries are administered by local authorities.

The law in Northern Ireland is set out in the Betting, Gaming, Lotteries and Amusements (Northern Ireland) Order 1985.

The Charity Commission for Northern Ireland’s webpage on the law on lotteries in Northern Ireland provides a summary of the 1985 Order’s key provisions.

Stakeholder views

In September 2022, the People’s Postcode Lottery published a report (PDF) that called on the Government to further lift the limits for large society lotteries. The report found that the annual sales limit remained “restrictive”, with three large society lottery trusts reaching this threshold in 2022. It argued that the current cap would restrict fundraising and “increase costs”. The organisation called on the Government to undertake a consultation on the limits that included the options of removing them or raising the annual sales limit to £100m.

A November 2022 report by the Culture, Media and Sport Committee, What next for the national lottery?, found that society lotteries did not “pose a threat to the charitable giving of the National Lottery”. It recommended removing the 10% rule for large society lottery prizes (up to a maximum value of £500,000).

Camelot, the organisation that currently holds the licence to administer the National Lottery, has consistently opposed any changes to the society lottery limits. This is due to concerns that any increase in the maximum sales of society lotteries would fragment the lottery market and thus reduce the funds distributed to good causes [subscription required]:

Allowing these operators to now offer similar top prizes to existing National Lottery games and to spend even more on their marketing will make it even easier for them to compete more directly with the National Lottery—and so jeopardise future returns to good causes and society.

Government position

The Government’s most recent comment on possible changes to the limit framework was given in response to a written question on 9 March 2023. Stuart Andrew, Parliamentary Under Secretary of State (Department for Culture, Media and Sport), said that the Government continues to keep the limits “under review”.