Labour fudges promised attack on lottery profits

The National Lottery White Paper today is expected to fudge the pledge on which Labour fought the election to pass the running of the lottery to a non-profit making company when the contract expires in 2001.

While still paying lip service to the idea of removing the profit, Whitehall insiders said the White Paper would allow flexibility for financial incentives on top of the fee for running the lottery.

Chris Smith, the Secretary of State for Culture, Media and Sports, has had difficulty in defining "non-profit-making" but the compromise is expected satisfy Camelot, who could win the bid for a new contract when it comes up for renewal after seven years, in spite of criticism of six- figure bonuses for the company directors.

Tony Blair, the Prime Minister, has ordered that the good causes to benefit from the lottery should be extended in the White Paper to a sixth category for funding environmental improvements, homework classes in schools, and National Health Service clinics to improve the nation's health.

Mr Smith will insist that he is preserving the "additionality" rule - that the Treasury accepts the money from the lottery is additional to funding by taxpayers for education and health services.

Mr Blair has also demanded that the "Opportunity Fund" should be geared more to the Government's priorities for education and developing individuals skills, while continuing to support the arts, sports, and other existing categories. In addition there will be a new National Endowment for Science and the Arts.

Mr Smith will announce that the money to be raised by 2001 will be more than pounds 10bn, over pounds 1bn more than than the previous target.

Officials believe the extra money from the mid-week lottery will answer criticism that the additional needs of education, health and the environment will rob millennium schemes across the country.

The Treasury will also publish a memorandum announcing a split in the role of the regulator for the lottery, to hand the job of selecting the winner of the contract to a new independent body. That will answer criticism that there was a conflict of interests over the regulator's dual role when it was awarded to Camelot.

Mr Smith has privately told officials he is impressed with the efficiency shown by Camelot, in spite of the row about bonus payments, which forced the directors to agree to make voluntary donations to charity.

Camelot has been fighting a rearguard action since it was leaked in Marketing Week that total payments to Camelot's 10 executives and non-executive directors soared by two-fifths from pounds 1.67m to pounds 2.32m as contributions to good causes fell by pounds 143m. Camelot used the courts to try to identify the "mole", and defended the bonuses on the grounds that they were a one-off three-year roll-over of payments.

Camelot privately threatened to pull out of bidding for the new contract if denied incentives to increase the good causes income. However, the consortium - Cadbury Schweppes, Racal and De La Rue, ICL and Gtech - will be favourite for the contract because of its expertise and computer system. Richard Branson's Virgin company has dropped out of the running.