Camelot confirmed figures published in Marketing Week magazine which showed that total payments to 10 executives increased from pounds 1.67m to pounds 2.32m last year - despite money going to lottery causes falling by pounds 143m.
In a rare snap reaction, the Prime Minister's office said: "If these reports are true, his reaction is the same as that of the millions of people who buy lottery tickets up and down the country - one of outrage."
Sir George Russell, the chairman of Camelot, has been ordered to attend an urgent meeting with Chris Smith, the Secretary of State for National Heritage, to explain himself, against a looming threat that Camelot is riding for a heavy fall.
In its statement, 10 Downing Street said: "The Prime Minister attaches the highest priority to reform of the lottery. That is why there is a Bill in the first Queen's Speech. This is the people's lottery and the money raised from it should reflect the people's priorities."
Mr Smith said: "If these reports are true, I find the position completely unacceptable. I am determined to get more lottery money to good causes. The new government is committed to seeking a non- profit lottery operator when the current licence expires."
Camelot's lottery "winners" included the communications director David Rigg, who received a 90 per cent pay rise from pounds 175,000 to pounds 333,000. The chief executive, Tim Holley, received a 53 per cent pay rise, with his total package increasing from pounds 385,000 to pounds 590,000. This included a pounds 17,000 rise in basic salary, a pounds 4,000 increase in performance- related pay to pounds 127,000, a 47 per cent rise in benefits in kind to pounds 25,000 and a pounds 176,000 payment through a long-term incentive plan.
The figures showed total sales of National Lottery tickets in the year to 31 March 1997 were pounds 4.7bn, a drop of 10 per cent on 1996. Camelot's pre-tax profits showed a fall of 8.6 per cent to pounds 70.8m.
The draft copy of unauthorised year-end results, which have been confirmed by Camelot, said that bonuses paid up to 31 March 1997 were based on the previous year's results when sales were better.
A spokesman for Richard Branson, who competed for the lottery franchise, said that he would continue to press for all profits from the lottery to go to charity.
Camelot officials were, however, unable to award themselves any more than one pence in the pound under the terms of their contract, a spokesman for the Department of National Heritage pointed out. "What they do with that penny ... is obviously a matter for them."
Oflot, the lottery regulator, said the issue of profits was settled when Camelot won the right to run the lottery. A spokesman said that how Camelot dealt with their profits was "a matter for them. It was a competitive contract and they came up with the best deal for the good causes and they kept the least for themselves".
Camelot has earned more than pounds 1m a week since the launch of the lottery in November 1994. Sales revenues are split, with half of the proceeds going on prizes, 28 per cent going to the five good causes, 12 per cent to the Government, 5 per cent to retailers and the rest - about 5 per cent - to Camelot.
Mr Holley told BBC2's Newsnight that the lottery was recognised "on the world stage" as a great success and the directors' remuneration reflected results. The recent fall in sales had followed the launch of Instants tickets. A similar pattern had been seen in every country that introduced them. Sales for the main lottery grew last year."
Mr Holley said Camelot was interested in bidding for the contract for a non-profit lottery operator when the time came. But a National Heritage spokesman responded tartly, saying: "If Camelot are going to be bidding for the new not-for-profit licence, we will be looking to them to put their house in order first on issues like remuneration."
However, he stressed that although the Government set the framework for the game's operation, the regulator awarded the franchise.
A Camelot spokeswoman said the figures were high because they included the first part-payment of long-term bonuses. The scheme rewards executives if they hit performance targets and could reach 140 per cent of their base salary.
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