The Moral Issues

By Gambling Insider
Jason Chess, Gambling Insider contributor and Founding Partner at law firm Wiggin, discusses two consultations being carried out in the UK market; the first on affordability by the Gambling Commission, the second on the Gambling Act 2005 by the DCMS

Gambling Insider always carries extensive coverage of the regulatory and legal issues affecting the industry but at the present time the major issues are not so much regulatory as political. Gambling has always been an industry that has attracted the attention of the authorities. It is one of those annoying activities where ordinary folks exercise the personal freedom to do something of which the elite disapproves. The first significant statute dealing with gambling was enacted in 1541, albeit that convictions for using loaded dice are recorded as far back as 1311.

Other major instruments were passed by Parliament in the form of the Gaming Act 1710 and the Gaming Act 1845. The rhythm or pattern of the relationship between the legislature and the gambling industry takes the form of Parliament re-evaluating its attitude to gambling about every generation or so. The Gaming Act 1968 was replaced in2005 and now, some 19 years or so after the Budd Report 2003, the debate is being had once more.

At the present time the debate takes the ‘official’ form of two major public ‘consultations’ which are currently in progress relating to gambling. The first of these was launched by the Gambling Commission in November of 2020 in relation to the subject of ‘affordability.’ In simple terms, this is the extent to which a gambling business should assume responsibility for deciding what each of its customers can afford to gamble, and stopping them from gambling once this limit is reached. The second consultation is much broader and of a more strategic nature – launched by the Department for Digital, Culture, Media and Sport (DCMS). In broad terms this consultation is taking a look at the present system of regulation and the work of the regulator, based on the 2003 Budd Report, the consequent Government White Paper ‘A Safe Bet for Success’ and their child, the Gambling Act 2005.

This regime – the current one under which all participants in the British market must operate – is based on the need to achieve a balance between two imperatives. The first is the imperative to permit and encourage gambling for the purposes of economic growth, and to allow persons who wish to gamble the freedom of choice to do so in a lawful and well-regulated environment. The second imperative is the need to ensure the protection of children and ‘the vulnerable’(in the words of statute), i.e. persons who may be at risk of developing harmful patterns of gambling. Whether this balance is broadly being achieved and whether the regulator is doing a proper job is the more strategic matter being investigated by the Government.

The Commission’s November 2020 Consultation is, however, much more significant than many other routine regulatory consultations. It is significant because of its potential to harm the economic interests of the nation (in the shape not only of the gambling industry but media, horseracing and the Exchequer) and curtail freedom of choice on the part of the overwhelming majority of persons who gamble without suffering harm. All this is being hazarded in return for questionable gains in consumer protection, and without anything like the detailed and sophisticated research and analyses such a major change deserves.

In its 2020 ‘Enforcement Report,’ the Commission cited the Office of National Statistics figures for average British incomes. The Commission noted that median gross weekly earnings for full-time employees in the United Kingdom is some £585 ($825). Out of this must be deducted ‘income tax, national insurance, mortgage/rent payments, telephony contracts, travel costs, food and utilities’ to produce a figure for the ‘true level of available disposable income for that individual’ (i.e. their available leisure spend). Even that figure should not be spent entirely on gambling – the Commission seems to regard gambling as undesirable whether affordable or not. These calculations produce an extremely low financial threshold – on the basis of these calculations, a couple of £25 bets in a single week might look unaffordable. Accepting them without extensive financial disclosures from the consumer might well, as the Commission puts it, ‘render the operator non-compliant’ and the target of a lengthy, hostile and expensive review of its licence. The Commission’s requirement is, effectively, that consumers must be stopped from gambling at these financial levels and the following process should occur: ‘Customers wishing to spend more than the national average should be asked to provide information to support a higher affordability trigger such as three months’ payslips, P60s, tax returns or bank statements, which will both inform the affordability level the customer may believe appropriate with objective evidence, whilst enabling the licensee to have better insight into the source of those funds and whether they are legitimate or not’.

So the prospect is that 100% of gamblers– quite regardless of whether they are showing any other signs of difficulty or harm – must be stopped from gambling and required to make extensive disclosure of private financial information to a gambling business, to be able to wager at an extremely low level of spend. The Commission’s previous interim CEO, Sarah Gardner, acknowledged recently that the rate of problem gambling has fallen from 0.6% to 0.4%, the rate of moderate risk gambling from 1.5% to 0.6% and low-risk gambling from 2.7% to 1.9%. So the first question here is why on earth do the overwhelming majority of gamblers have to undergo this exercise when they are clearly at no risk of harm?

The follow-on question is why rates of problem gambling appear to be declining, and declining significantly, at that? How do we know a measure as blunt and indiscriminate as this affordability regime is needed without any understanding of how effective, say, the updated July 2019 customer interaction guidance has been? Or the tightened VIP regulations? Or the ban on credit cards and reverse withdrawals? Or the Commission’s vigorous programme of enforcement actions and financial sanctions? Or the Commission’s Covid-19 guidance?

It must surely be crucial to this debate for everyone to understand how and why these reductions are already occurring. What has driven them? Which bits of the current regulatory regime have caused this decline? How can we best capitalise upon whatever it is that is working within the current body of regulations, and seek to turbocharge them in a way that focuses on the problem and hones in on those persons who are genuinely at risk?

The Commission received some 12,000 responses to the ‘short survey’ that formed part of this consultation. It is to be hoped that as many as possible of these responses will be from the overwhelming majority of customers who enjoy a harmless bet from time to time and who balk at the idea of having to respond to intrusive and disproportionate financial enquiries when they are in absolutely no danger of ‘harm.’ The Commission declares it has taken on board issues of evidence and objectivity: in the latest press release it takes pains to signpost that ‘we have carefully considered the responses’ and notes widespread concerns around proportionality, the need for a targeted approach, freedom of choice and privacy.

The Commission comments, in response to all of these responses, ‘we take that seriously.’ Let us hope this is so. A renewed commitment by the regulator to the balance demanded by statute – between the right to provide and enjoy gambling and the need to uphold the licensing objectives – would be very welcome, and a return to the sort of objectivity the Commission’s own ‘Statement of Principles’ (not to mention the Gambling Act itself) clearly expects from the regulator. The conclusion to all of this currently seems to be that the Commission will, this summer, put forward proposals in two areas. Firstly, in relation to taking action where customers ‘are known to be in a vulnerable situation.’ Secondly, in relation to ‘thresholds for operators to take action and guidance on what those actions should be.’ How these two concepts will work out in practice remains to be seen. But there is at least some nuance in the Commission’s latest statements that gives hope it may be rowing back somewhat – from the rather Soviet idea that gambling companies must calculate everyone’s household budget and decide on their behalves how much each individual should be spending on gambling.

The Commission also refers to ‘broader public policy questions’ being the prerogative of the DCMS. The hope must be that mandatory low-level affordability enquiries, whereby huge numbers of customers at no risk of harm would see their accounts suspended for no reason, has now been put into this basket. That would be entirely appropriate because any regulation along these lines risks such harm to both the consumer and industry, it should properly be the preserve of the legislature.

Turning to the DCMS review, this is of a more strategic nature. Unlike the Commission’s consultation, the DCMS is totally ‘on-point’ and obviously acutely aware of the need to achieve a balance. As the department puts it in its ‘terms of reference’:

‘This Review is about using the evidence to assess whether we have the balance of regulation right. Gambling is a fun leisure activity for many people, with nearly half of adults gambling each month. We respect the freedom of adults to choose how they spend their money and the value of a responsible industry which protects players, provides jobs and pays taxes. But it is essential that we prevent exploitation of vulnerable people…’ This is extremely encouraging because it stays true to the spirit of the existing law and regulation. Crucially, it does not say that everyone needs to be rationed or limited in their free personal choice on whether, and if so how much, to spend on gambling – rather it seems to acknowledge that vulnerable persons should be targeted – as indeed they should and are.

One of the points made by the industry to the Commission and indeed the DCMS in this regard was that the concept of ‘unaffordability’ itself needs to be understood before there is major alteration to this balanced approach. How does ‘unaffordability’ relate to ‘vulnerability’ and how do either of them relate to or translate into ‘harm’? These things are currently not really clear. For example, the Commission’s claim that unaffordable gambling is a major issue rests in large part on findings from the Health Survey for England in 2018. These showed that 21% of those who had gambled online (slot-style games, online casino, online bingo and National Lottery instants) provided a positive response (i.e.‘sometimes’, ‘most of the time’ or ‘almost always ’) to the question ‘How often have you bet more than you could really afford to lose?’However ‘bet more than afford’ is not a very good test of affordability in that most of the people who answered positively also stated they ‘never’ experienced financial problems. Of this 21%, only 4% considered that they gambled unaffordably ’most of the time’ or ‘almost always;’ only 1% of past-year gamblers stated that their gambling had resulted in ‘financial problems’ with 0.7% responding ‘sometimes’ and 0.4% responding ‘most of the time’ or ‘almost always.’ The point seems to be that ‘harm’ is more connected with ‘unsustainable’ spend over time, rather than people losing more than they bargained on an occasional basis but who might then, for example, not gamble for a time afterwards, or set their own budgets and so on. So the question arises as to whether one is in fact looking at financial patterns rather than the crossing of a threshold and whether that, as seems logical, is a better way of anticipating real ‘harm.’

The issue feeds into a more philosophical one. The draftsmen of the Gambling Act 2005 had a fairly clear idea of what the word ‘vulnerable’ meant. It referred to persons who cannot control the temptation to gamble to excess. Excess gambling can be monitored and appropriate customer interactions can be instigated. However, some of the Commission’s comments on the issue seem to envisage a far wider group of people. In its Consultation, the Commission offered as one of several categories of vulnerability the following:

‘If the individual is experiencing financial difficulties, is homeless, is suffering from domestic or financial abuse, has caring responsibilities, experiences a life change or sudden change in circumstances such as divorce or bereavement, job loss.’

The question here is to what extent it is fair or reasonable to expect any commercial business to identify and diagnose these sorts of issues on the part of its customers. It is fair enough to expect a gambling business to use the data available to identify what are called the ‘proxies for harm’ and it is true that some businesses, particularly historically, have not been quick enough to raise a flag on what is clearly excess spend by their customers in extremely short periods of time. But the question has to be asked whether these issues are better addressed by the current, ongoing improvements in process and analytics, rather than making gambling businesses liable to enquire about things that only the customer’s GP might otherwise know. It is difficult to think of any entertainment industry where customers have to undergo such levels of disclosure.

As the reader will spot, there is of course a latent moral issue at the root of all this. In fact, there are two moral issues, one where society is in agreement and one where society is in disagreement. The first issue is whether children and persons at risk of harm should be protected by the regulations imposed upon gambling by the state. The answer to this is obviously and clearly affirmative, from all sides. It is beyond question, barring some sense of proportion and common sense as to who are the ‘vulnerable’ who need this protection. Contrary to what some politicians and newspapers believe, gambling companies see themselves as suppliers of digital entertainment and don’t want customers to suffer harm.

The second question is really the question that is powering the current social debate and it is nothing other than the age-old issue of the morality of gambling itself; and the fact there will always be people in society who regard any money lost at gambling as ‘harmful.’ The current legislation, very deliberately, treats gambling as a morally neutral activity and it was the clear intention of the Blair Government at the time to consign to history the ‘moral’ debate around gambling. Few other nineteenth-century moral attitudes survive.

The old prohibitions and restrictions imposed upon gambling from time immemorial were all deliberately revoked in 2005. However, instances where consumers have experienced harm can be extremely sad and compelling stories. They engage everyone’s empathy and make it very easy to lose sight of the size and trend of the problem, and the fact prohibition never makes anything better – especially when people have the vast power of the internet at their fingertips. It is also easy to lose sight of the huge upside of the current regime. The industry contributes millions to sport, broadcasting and the Exchequer, and provides numerous high-quality digital-sector jobs.

One has to try to be objective and point to the success of the current regulatory regime, as reflected not just in economic terms but in the direction of travel of the statistics evidencing problem gambling. Believe it or not, there is something of a success story to be told. The current arrangements have the clear potential, and are already having the clear effect, of achieving the balance Parliament envisaged in 2005. If we take Gardner’s numbers, a 0.4% rate of problem gambling certainly doesn’t allow anyone to be complacent, because no one wishes that even a single individual should suffer harm.

But is it such a figure that the whole statutory balance, along with all the upsides, should be sacrificed? The issue is that this is clearly not enough for the voices for whom gambling businesses are on a par with drug dealers. It is for this reason that it is encouraging the DCMS has involved itself in the debate: public sector regulation must be objective and evidence-based. The hope is that not only will the DCMS take in-house the Gambling Commission’s shaky proposals on affordability, but that it will also restate the principles of balance and moral neutrality that underpin the existing regime.