Big Business in Britain Asks If Labour Is Friend or Foe

Britain's new Labour government has served notice that it intends to abolish the profit-making status of the country's highly successful National Lottery.

Until that happens, Chris Smith, the Cabinet minister who supervises the lottery, has ordered executives of Camelot - the consortium that has run the lottery for the past three years and is 22.5 percent owned by the American gambling firm GTech - to hand over part of their future personal income to charity.

The government's tough line means that when Camelot's license runs out in 2001, the lottery will become nonprofit-making. But it is also fuelling doubts among top industrialists about Prime Minister Tony Blair's claim to be a friend of big business. Mr. Blair and his party have consistently said that all proceeds from the lottery should go to good causes and that there should be no profit motive for those running the lottery.

After Mr. Smith's intervention, Ruth Lea, an executive at the Institute of Directors, an umbrella employer's organization, attacked the government for "not coming to grips with the concepts of risk and profits".

A very public clash

Early this month Camelot's top management found itself in a head-on public clash with the government after a press leak revealed that the directors had voted themselves bonuses of up to 90 percent and worth a total of 3 million ($4.8 million ).

The hikes were decided at a time when the government is trying to keep pay raises at under 3 percent.

Mr. Smith summoned the directors to his office. After what his officials later called an angry meeting, he went on TV and upbraided the directors and rejected their offer to pay to charity, out of Camelot profits, a sum equal to their raises.

Noting that the pay hikes coincided with a fall in lottery profits, Mr Smith said the directors' actions threatened to "undermine public confidence in the lottery." He gave them five days to agree to hand over their raises to charity. At first the directors defended the increases and threatened to resign as a group. After a week of tense confrontation, a compromise was struck June 6.

Under it, the directors will keep their latest pay raises but must pledge to give an undisclosed proportion of all future hikes to "good causes." Under pressure from Smith, Camelot also agreed to give charities 25 million in bank interest on unclaimed prizes.

The National Lottery is widely judged to be a great success. Camelot was awarded the lottery franchise by the former Conservative government. Last year, out of profits of 4.7 billion, it donated 1.8 billion for a wide range of charities.

The company claims that in terms of profit the lottery is three times more successful than originally had been expected. Camelot has placed 36,000 lottery terminals around Britain, and surveys show that up to two-thirds of adult Britons are purchasing tickets for the twice-weekly draw.

Past troubles

But the lottery is no stranger to controversy.

In 1995, Virgin Airlines chairman Richard Branson, unsuccessful in his bid for the franchise, accused GTech Holdings of having tried to bribe him to drop his bid. GTech denied the charge. At the same time, Peter Davis, the government-appointed lottery watchdog, admitted accepting free flights from Gtech before the contract was awarded to Camelot.

As tempers began to cool, Prime Minister Blair confirmed June 7 that when Camelot's franchise lapses in four years the lottery will be turned into a nonprofit venture.

The latest dispute reflects the Labour government's long-held view that it was wrong of the previous government to allow the lottery to be run by a company eager to make money. But it has also revealed an apparent contradiction in Blair's attitude toward capitalist enterprise.

In the two years before the May 1 vote, Labour made massive efforts to shed its image as an enemy of big business.

Blair and Gordon Brown, now chancellor of the exchequer, committed themselves to maintaining and furthering free capitalist enterprise. They said they looked to business to help fund schemes to cut unemployment and boost industrial investment.

But in the wake of the government's clash, the London Financial Times criticized Blair for putting pressure on Camelot's directors and said the confrontation had "blown a hole in Tony Blair's hard-won credibility with business."