Windfall tax raid on Camelot and big shake-up at watchdog Oflot among measures proposed
The Government is considering a raid on the massive profits of Camelot, the National Lottery operator, by including the company in its windfall tax.

At the same time it is planning a wholesale shake-up of the lottery watchdog body, Oflot, headed by the controversial and much-criticised accountant Peter Davis, who may be axed.

Chris Smith, the new National Heritage Secretary, is reviewing regulation of the lottery with a view to curbing some of the excessive profits made by Camelot since the game was launched two-and-a-half years ago. The Government believes that the regulatory framework can be improved.

Mr Smith wants to give Oflot more power, make it more proactive and give it the ability to impose heavy fines if Camelot fails to perform satisfactorily.

His move follows the announcement last week that revenues raised for "good causes" from the mid-week draw will in future go to education and health projects, under legislation to be announced on Wednesday. It also follows Mr Smith's declaration that the next lottery licence, due to begin in November 2001, will be for a non-profit-making game. Asked on Friday whether Camelot's profits would be curtailed before then, a source close to the Prime Minister said: "I think they will get the message pretty quickly."

In its election manifesto, Labour promised to levy a one-off windfall tax on the privatised utilities such as water, electricity and gas, but was careful not to name the companies involved. Camelot would fall into a new category and some in government feel this would complicate the legislation which might already attract a legal challenge.

Others argue that Camelot is a state-created monopoly and that it could be made subject to the tax with little legislative difficulty. Creaming off some of Camelot's hefty profits would be a popular political move.

On each pounds 1 ticket sold, Camelot, owned by a consortium of companies including De La Rue, Racal and Cadbury Schweppes, makes just under 1p profit. This translates into a profit of more than pounds 1m every week.Camelot also takes pounds 4m a week to cover running costs.

When Camelot was awarded the seven-year lottery contract it claimed it would not make a profit for more than three years. In fact, such was the popularity of the jackpot draw that the consortium took less than six months to recoup its start-up costs and enter the black. Negotiations for the new licence will begin shortly, giving the government new bargaining power.

But Camelot, which owns the terminals and hardware which run the lottery, may take a hardline negotiating position by threatening not to apply for the new licence.

Richard Branson, the Virgin chief and the loser in the race to run the National Lottery, has been pressing Labour to include Camelot in its windfall tax as a privatised monopoly.