Fear of "super casinos" must not prevent us reforming gambling laws

The UK's outdated gambling legislation still needs updating.

Sir Alan Budd, the distinguished economist who was commissioned by the government to review gambling legislation a decade ago, has described the Blair government’s capitulation to anti-gambling campaigners in the run-up to the 2005 election as “quite shocking”. Budd has rarely commented on casino regulation in the years since he wrote a detailed report for the Department for Culture, Media and Sport in 2002. That publication — known as the Budd Report — recommended that local councils be given the power to decide what gambling activities, if any, would be permitted in their area. The Labour government initially endorsed his recommendations but a subsequent press campaign against so-called "super casinos" led to the Gambling Bill being watered down and the boldest attempts at liberalisation were abandoned.

At a meeting at the Institute of Economic Affairs held to launch the IEA’s review of the 2005 Gambling Act (Seven Years Later: Casinos in the Aftermath of the 2005 Gambling Act), Budd explained that his proposals had not been designed to help the gambling industry, nor to raise extra money for the treasury. The interest of consumers always came first, he said, and their interests were “best left to the market”, albeit within the constraints of what local authorities and the Gambling Commission would countenance.

Reflecting on the government’s panicky response to the Daily Mail’s “Kill the Casino Bill” campaign of 2004-05, Budd accused ministers of “dashing around like frightened rabbits in response to a press campaign”. The government’s climb-down left casinos working in a regulatory environment that was created in the 1960s. The Budd Report set no limit on the number of casino licences that could be issued and would have allowed "resort casinos" of the kind seen abroad which incorporate restaurants, hotels and live music venues. The government later set a limit on such "super casinos" of eight, which was then reduced to one and then, under Gordon Brown, to zero.

Ultimately, casinos and their customers bore the brunt of a government’s pre-election jitters, but whilst the super casino became the symbol of attempted liberalisation, it was always peripheral to the main task of updating the archaic 1968 Gaming Act. In its haste to appease its critics, the government discarded necessary reforms which would have attracted little attention had they not been part of a broader package of deregulation. The casino industry had waited forty years for the gambling laws to be updated, but it never sought the free-for-all that was implied by “unlimited” development.

Sixteen smaller casino licences were created by the legislation but only one has yet been built. Arbitrary planning restrictions, high taxes and regulatory anomalies make it unlikely that more than a handful of new casinos will be built in the years ahead. In total, more than a quarter of the UK’s 202 casino licences are lying dormant. Some towns and cities have more licences than they need while others have none at all. There are, for example, more than twenty casinos in the couple of square miles around Westminster and Chelsea, but go south of the river and you will not find another one until you get to Brighton. The IEA recommends allowing unused licences to be transferred to councils who wish to make use of them. Budd described the think tank’s proposals as “sensible”.

Christopher Snowdon is an IEA Research fellow and author of "Seven Years Later: Casinos in the Aftermath of the 2005 Gambling Act"

The proposed site in Manchester that was announced in 2007 for the UK's first super casino. Photograph: Getty Images
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Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation