The Treasury manages public spending within two ‘control totals’ of about equal size:

  • departmental expenditure limits (DELs) – mostly covering spending on public services, grants and administration (collectively termed ‘resource’ spending) and investment (‘capital’ spending). These are items that can be planned over extended periods.
  • annually managed expenditure (AME) – categories of spending less amenable to multi-year planning, such as social security spending and debt interest.

National Lottery spending as recorded in the National Accounts reflects money spent from the National Lottery Distribution Fund (NLDF) – a fund for good causes, overseen (but not controlled) by the secretary of state for Culture, Media and Sport – and is included within AME. Money for the NLDF is raised via a transfer from the National Lottery operator. As such, public sector receipts are boosted by the precise amount of the transfer, which we then assume is spent in its entirety, meaning the NLDF is neutral for borrowing in our forecast. These receipts are separate to ‘Lottery duty’, which is a duty on taking a chance or ticket in a lottery promoted in the UK. All lawful lotteries are exempt from the duty, except the National Lottery.

In our latest forecast, we expect total NLDF good cause income and expenditure in 2017-18 to amount to £1.8 billion (with £1.3 billion of current spending and £0.5 billion of capital spending). That would represent 0.2 per cent of total public spending, and is equivalent to £60 per household and 0.1 per cent of national income.

  • Recent trends

  • Latest forecast

    Our latest fiscal forecast was published in March 2017. National Lottery current expenditure was £1.3 billion in 2015-16 and is forecast to rise gently to £1.4 billion in 2021-22. National Lottery capital expenditure is forecast to be around £0.5 billion a year on average, rising gently to £0.6 billion in 2021-22. The latter is included in ‘Other PSGI items in AME’ in the Total Managed Expenditure (TME) table in our Economic and fiscal outlook. As a share of GDP, total expenditure is forecast to be just below 0.1 per cent throughout the period.

    Expand to read the extract from our March 2017 EFO

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  • Forecast methodology

    Forecast process

    Our forecast for NLDF income reflects our estimate of the overall level of National Lottery ticket sales (including scratch cards and other games) and the share of those stakes that are transferred from the operator to the fund. Our forecast for the overall level of stakes is informed by the assumptions in the HM Revenue and Customs (HMRC) Lottery duty model that we use in our receipts forecast. As the overall level of stakes is the key driver of the spending forecast, with the rest being largely assumption-driven (i.e. that the full level of annual income is drawn down from the Fund by distributing bodies), most of the scrutiny takes place on the receipts side of the forecast. The assumptions that drive the spending forecast are reviewed each year to ensure they remain appropriate. The Department for Digital, Culture, Media & Sport (DCMS) provides us with outturn figures for how spending is split across current and capital, as well as across economic categories. Our forecast assumes these splits remain constant at the same level as the most recent outturn year over the forecast period, and are applied to our forecast for total fund income.

    Forecasting model

    Income to the Fund is derived from the share of all National Lottery ticket sales allocated to good causes under the terms of the National Lottery operating licence. Total income from sales is derived from our Lottery duty forecast by dividing the receipts forecast by the duty rate.

    Our forecast assumes that total AME (current and capital) spending fully aligns with the income from the NLDF – i.e. the entire amount is drawn down by the fund. Around three quarters of that total is current spending and about a quarter is capital. The latest outturn data are used as the basis for arriving at the proportions across the two dimensions (current or capital spending and economic category breakdown), with the proportions held constant over the forecast period. Total NLDF income is fully consistent with our latest duty forecast (which may differ from the internal DCMS view).

    Main forecast determinants

    The main determinant driving our forecast for overall stakes is nominal household consumption. We grow the latest in-year estimate for fund income, (which is informed by the published HMRC data on Lottery duty receipts), in line with nominal household consumption over the forecast period. This means that the share of total household spending on National Lottery tickets and other games is held constant over the forecast period.

    Main forecast judgements

    The main judgement in the spending side of the National Lottery forecast is that the full amount of NLDF income is spent each year, with no allowance made for any addition to or drawdown from reserves, or any lag in income being spent (both of which would affect borrowing, meaning the forecast would no longer be neutral for borrowing). This assumption is reviewed each year to ensure estimated fund income remains a good proxy for total fund expenditure.

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  • Previous forecasts

    The main sources of volatility in our previous forecasts have been the expected income from National Lottery sales that is available for good causes and the assumed drawdown of these resources. Up until March 2014, our forecasts were based on The Department for Digital, Culture, Media & Sport (DCMS) projections of ticket sales and the allocation of funds to projects, informed in turn by outturn behaviour and operational plans of the Lottery distributors.

    A decline in spending in our early forecasts after strong sales in 2008-09 and 2009-10 reflected cautious expectations that the economic slowdown would lead to a delay in the start of approved projects, as the outturn data suggested at the time. These projects, including high-value capital projects, were assumed to draw NLDF funds later than planned. In subsequent forecasts, we expanded the scope of our projections by including not only known funding commitments, but also anticipated future programmes. This led to a shift from downward to upward trends across the forecast period. Strong sales of Lottery tickets between 2011-12 and 2012-13 also led to upward revisions to our forecasts. In spring 2013, Camelot (the operator) announced that it would increase the price of the main Lotto game to £2 per ticket (double the previous price), which was assumed to raise total sales and therefore spending.

    In March 2014, we changed the basis of our Lottery income forecasts and anchored them to our Lottery duty receipts forecast, which is produced using HMRC’s Lottery duty model. One aim was to improve consistency across our receipts and expenditure forecasts. We also revised down estimates for Lottery income in light of weaker-than-expected outturn data. Since then, the movements in our forecasts have reflected changes in the expected proceeds from Lottery sales.

     

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