Triple jackpot for the Government: A national lottery is a seductive way to levy taxes while evading public-spending responsibilities

The National Lottery Bill is currently wending its way through Parliament. Companies will soon be tendering for the exclusive right to run the game and, around the end of 1994, we shall all be able to punt for the pounds 1m jackpot.

Meanwhile, the five 'good cause' sectors to benefit from the proceeds - arts, heritage, sports, charities and the millennium fund - have all in their dreams spent the proceeds several times over. Lord Palumbo at the Arts Council has dreamt of an Eiffel Tower for London, Nicholas Serota at the Tate Gallery wants a new museum, the Sports Council wants to transform the nation's sporting facilities and so on. To these and many others the lottery is a warm breath of financial fresh air after the long years of grubbing funds out of the Treasury permafrost. Millions, billions are to rain down upon the land, at last offering the British the kind of glossy public projects we thought only the French could manage.

Who, on the face of it, could object? Perhaps a few Moral Majority types could wail about the institutionalisation of gambling. But the moderates and, indeed, the Government have been convinced by the lottery lobbyists - notably the energetic and intelligent Lottery Promotion Company. Government, argues the LPC, has never been a reliable provider of funds for the good things in life, such as theatres, sports facilities and museums. Inevitably these are cut in bad times and, in Britain, they are never provided with adequate revenue after the initial investment.

And the LPC has the shining example of Australia, where lottery money built the Sydney Opera House - one of the greatest buildings of the century and one whose very exuberant capriciousness seems to advertise an independence from the civil-servant imagination. The modern British have never managed anything half as good and, when they try, they end up with bureaucratic fiascos, such as the British Library. So, perhaps, a novelty such as the lottery is just what we need.

What, however, does a national lottery mean? It means that the good intentions and aspirations of government and people are too feeble and divided. We cannot agree that our compulsory taxes should be spent on these projects because we do not share any national ideal that would provide a consistent consensual rationale for theatres, concert halls and sports facilities. Instead, weak-mindedly, we have to throw in the tacky gimmick of a gamble. A gesture of cheap populism is the only way we can sugar the elitist pill of a gallery or opera house. It is an admission of failure.

But maybe we just have to accept that tackiness if we want these grands projets. Maybe, but unfortunately, even if we do choke back our larger objections, we then have to face the glaringly obvious fact that the lottery plans we now have are catastrophically ill-conceived.

The justification for the lottery is the provision of new money to spend on 'quality-of-life' projects. The independence of the procedure is the whole point. This is not ordinary, run-of-the-mill public spending, it is separate, additional and distinct. If it is not, then the lottery is pointless.

Yet this strikes at the omnipotence of the Treasury. It implies a big flow of money outside its complete control. So some in the Treasury opposed the lottery. They said that the process involved a charge on the public. It was, therefore, a tax. And it was a tax that set a dangerous precedent. It was utterly 'hypothecated' because it was committed to the five predetermined sectors and any hypothecation, in the treasury mind, is mortal sin.

However, once it became clear that the lottery was going ahead, this argument was rapidly dropped. The lottery, it now transpired, was not a tax, rather it was found to come under the heading of consumption, sub-heading gambling. Now the Treasury could insist that the gross proceeds must be taxed. It could not have said this before since that would have been to argue that a tax should be taxed. But now it was gambling, pure and simple, and must be taxed heavily because gambling is traditionally regarded as a Bad Thing. The pools companies, for example, pay 37.5 per cent.

David Mellor and, subsequently, Peter Brooke, as Secretaries of State for National Heritage, have therefore had to fight the Treasury's demands. They have negotiated downwards from 37.5 per cent to 20 per cent. Some say they may go as low as 15 per cent. But these are straitened times, so let us assume 20.

This, frankly, is madness. The case that the lottery is not a form of tax is feebly jesuitical. The lottery raises money mainly for use in areas otherwise dominated by public spending. It will be a government-created monopoly and, as a gamble, it will be heavily rigged. The plan is to return 50 per cent of the gross proceeds as winnings. This compares with 97.5 per cent from casinos, 80 per cent from race tracks and 70 per cent from slot machines. So the market is closed and winnings are held down. You do not have to play but, if you do, you are obliged to accept very adverse government-determined odds and you cannot compare it to any competing game.

So it is a tax with the sole qualifier that it is voluntary. To buy a lottery ticket, therefore, is to accept double taxation - the cost of the ticket and the Treasury share of the gross. But since you will be paying out of income that has already been taxed, it is triple taxation. This is a rip-off that would shame the Corleones.

The greed of the Treasury has the further, less theoretical effect of devastating the proceeds from and, therefore, the whole point of the lottery. Assume, as the Government is forecasting, that the lottery grosses pounds 1.5bn. A fifth goes to the Treasury and a half of the remainder goes in winnings. This leaves pounds 600m. Administration costs are, at this point, uncertain and the range in comparable games overseas is from 4 per cent to 18 per cent. There are reasons to believe we shall be at the high end of the scale, so let's say 15 per cent. This takes another pounds 225m, leaving pounds 375m for equal distribution among the five beneficiaries. The arts, for example, thus receives pounds 75m, a pathetic sum after all the fuss and not enough for an Eiffel Tower. With the Treasury taking pounds 300m, the civic-minded punter might reasonably feel he was being taken for a ride.

So the lottery can be no quality-of-life jackpot and cannot really be perceived as an effective or fair way of supporting a good cause. The Treasury's refusal to accept its independence compromises both its efficacy in raising money and its special status as a well-intentioned flutter. Taxing the lottery is, it is said, like taking blood from an anaemic in order to give him a transfusion.

Worse still: from the beginning it has been insisted that lottery income would not be used by the Government as an excuse for cutting public funding for the various sectors, that there would be no 'substitution'. There is, however, no constitutional safeguard against this and, in any case, substitution would be impossible to detect - a pruned arts budget could be justified by any means you cared to choose when, in reality, it was being cut because the lottery was taking up the slack. In every other country lotteries have automatically led to substitution.

One safeguard would be to guarantee the Government's share of funding for the beneficiaries well into the future, irrespective of lottery receipts. We would then recognise at once any attempted cuts. This is, predictably, unthinkable in Treasury terms. After hypothecation, the next most deadly sin is to enter into future commitments unnecessarily.

But there could be another safeguard - less certain, but reasonably effective. This would be an independent body spending the lottery funds rather than simply handing them over to existing institutions such as the Arts Council. Substitution would, thereby, be more easily detected since the lottery money would be kept obviously separate. Such a body would have the added benefit of allowing specific projects to be advertised as being the fruits of the lottery, thus reinforcing the virtuous 'good cause' aspect of the game. But no such body is yet planned - in spite of intense lobbying - so the lottery money will just vanish into the same old black holes.

The tax situation and the virtual certainty of substitution make it clear that our National Lottery cannot be an idealistic crusade to spruce up the nation. It can be only a government gimmick that might help politicians tinker with the increasingly frightening Public Sector Borrowing Requirement figure. It is a tax with a rather tatty 'fun' element attached. Apart from hysterical monthly stories about the winners, that is how it will be perceived. The only way to restore the game's image would be to institutionalise its independence with a board to spend the money and a freedom from tax. Neither is now likely because nobody in government is sufficiently committed to the underlying inspiration of the lottery.

What our great National Lottery amounts to, therefore, is a thing we are about to do very badly which we should not be doing at all. We can blame Kenneth Baker, the Marie Antoinette of the Thatcher years, who committed us to the lottery and who recently said that the Bill would 'substantially increase the sum of human happiness'. Did he mean the flutter or the spending? If the latter, why can't we do it anyway? If the former, then Mr Baker's happiness is no more than an infinitely slender thread of hope in a rigged game or, for a lucky few, an unearned cash mountain. One way we are being cynically tricked, the other corruptly patronised. But, these days, we seem to like that sort of thing. Roll up, roll up.