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Offshore Gambling and the Horseracing Levy

Volume 531: debated on Wednesday 13 July 2011

Motion made, and Question proposed, That this House do now adjourn.—(Stephen Crabb.)

It is an honour and a privilege to speak in this House on any day, but on a day like today, when the voice of the House has called so loudly, it is an honour indeed.

I shall speak about an issue that is extremely important to a large part of my constituency: offshore gambling and its relationship with horse racing. When they talk about hacking in Newmarket, they tend to be talking about something rather different to what the House was talking about earlier, because Newmarket is the global centre and headquarters of horse racing. Five thousand people employed in the town get their jobs and livelihoods directly or indirectly from the sport. That means that one third of employment is linked to the sport.

This is not just an issue for Newmarket, however; it is an issue for our whole country. I want to set out the argument that over the past few years, funding for horse racing has been in crisis and that the problem has in part been that those who make a profit from the sport through gambling have gone offshore to escape contributing to the sport on which they rely. I then want to propose action that the Government should take and set this in the wider context of changes that need to be made. We need to put this sport, which gives so much excitement to so many people, back on an even keel so that its funding is fair and secured for years to come.

I am grateful to my hon. Friend for raising this subject again in the House. As he knows, my constituency has a number of racing stables. I was recently at Richard Hannon’s stables in Herridge. It is not just the excitement that the sport brings; it is the employment that it provides for thousands of people across the country and the support that those people then bring to the rural community—to the shops and the pubs. It is an unbelievably important industry in so many of our constituencies. I commend my hon. Friend again for raising this important matter.

My hon. Friend makes a typically passionate intervention. I am talking not just about the beauty and heritage of horse racing, but about jobs—not just those directly involved in the horse racing industry, but those in breeding, training and all the connected livelihoods that support the sport. I will give some examples of the problem. Over the past two or three years, funding of racing through the levy has declined rapidly.

I congratulate my hon. Friend on securing this debate. Does he agree that the levy is long past its sell-by date, that all parties should try to come together to find an alternative and that that alternative, as far as offshore business is concerned, must be mandatory, not voluntary?

My hon. Friend makes some important points. A future for the levy built on funding that is not onshore will be a system built like a house without foundations. Unless we deal with the problem of gambling going offshore before we tackle the wider problems of the levy, which is a broken system, we will not be able to build a strong and sustainable future for racing in this country. Over the past few years, the levy has fallen from £110 million to £59 million last year. We were delighted when the Minister announced that this year’s levy would be between £75 million and £80 million, but now, halfway through the season, it looks as though the levy contributions will in fact be less than £60 million—lower than last year—and will be lower still next year. Crucially, that means that prize money in British races is falling fast.

I pay tribute to my hon. Friend’s leadership on this issue, and I would like to align my comments with those of my hon. Friend the Member for Devizes (Claire Perry). This sport is often referred to as the sport of kings—its more glamorous side is often the side seen by the public—but is it not also a vital part of the wider rural economy? As with so many other industries, its grass roots are essential to its continuation, and in fact the effect on prize money at the bottom is even more severe. Prizes are falling and small trainers and owners are struggling to maintain the industry.

My hon. Friend makes an important contribution. Prize money is critical to the sport and its future, but it has fallen by almost a half in just the last two years. Also, betting duty—the tax that the Exchequer takes—has fallen from £420 million to £340 million, so it, too, is on the decline. I am a low-tax Tory, but I do not think that we were talking about that.

What my hon. Friend is suggesting sounds like a good idea, but—he will have to forgive my ignorance here—can he assure me that it will not have an adverse effect on point-to-point racing, which is also a major contributor to local economies and provides great enjoyment to those who do not go to major race meetings?

Absolutely, because almost all betting on point-to-point racing is on-course, and one cannot be both offshore and on-course at the same time. Point-to-point racing is a critical part of local and, especially, rural livelihoods. I know that my hon. Friend the Member for Hexham (Guy Opperman) would also like me to make the same point in his absence. He cannot be here because he is recovering from a serious illness, but he is an experienced point-to-point rider.

The levy, prize money and tax revenues are all falling sharply. Why is this? Over the past few years, more and more betting companies have moved offshore. Only two of our 19 biggest bookmakers are now onshore for tax and levy purposes. The previous Government did a deal with the gambling industry—they would not put the levy up, and in return the bookies would stay onshore—but the bookies have gone. I can understand their reason, because once one competitor has moved offshore and does not pay tax or the levy, the competitive pressure on others to move offshore becomes great. I have had many bookies come to me and say, “We would like a level playing field, because it isn’t fair to be driven offshore by competitors who are not paying tax when you are.” Today I would like to propose that instead of having what has essentially become a voluntary tax, we create that level playing field by ensuring that all gambling in the UK pays UK tax and the UK levy. Let us also make it a compulsory level playing field.

I greatly appreciate my hon. Friend’s giving way, as well as the contributions by my hon. Friends from rural constituencies. I represent an urban centre, and he is making some excellent points about levelling the playing field, because another consequence of the levy falling into disrepair has been onshore betting shops siting gambling machines in their premises, which play to people’s addiction when they are gambling. It has had a detrimental impact on horse racing and played to addiction. Is that not another argument why his proposals are so important?

It absolutely is, because bookies who go offshore for tax purposes also go offshore for regulatory purposes, and that means that all the high standards demanded by the British Horseracing Authority are not required of them. There have been instances of poor practice by bookmakers based elsewhere—for instance, in Gibraltar—who fall outside the regulatory practice in the UK. That is not necessarily because the bookie wanted to be outside the regulatory net; rather, they went because of the competitive pressure to reduce their tax and stop paying what had become a voluntary tax and a voluntary levy.

I come to the action that we need in the narrow sphere of offshore gambling. The case for action is strong, but what can we do? I propose a simple solution: we should make the requirement to pay tax and the levy in the UK part of a gambling licence. It is a simple change, but the consequence would be that no serious bookmaker could avoid what has become a voluntary tax, because they would be liable to the law of the land and would be unable to advertise in the UK. Indeed, they would also be unable to come to the UK, because what is currently tax avoidance would become tax evasion. My proposal is for a straightforward change that is being looked at in many other countries. Indeed, it has been enacted in Ireland, and a similar but bigger change has already been put through in France. In any other walk of life, we would not accept an industry choosing not to pay tax by moving headquarters offshore while continuing operations onshore in precisely the same way as before. Why should we allow the gambling industry to avoid tax in that way, when no one in this room could simply choose not to pay their income tax?

I am sure that my hon. Friend is aware, given his wide experience of economic matters, that we have debates in the Chamber and elsewhere all the time on tax evasion in other industries. Indeed, the way in which we tax people whose main sphere of operation is in the UK, and the need to prevent the kind of tax-shifting mechanisms that so many companies use, form a big part of the political discussion. Is he saying that we need another simple mechanism to ensure that an industry that primarily gets its funding and its excitement from the UK market properly pays its taxes in that market?

I agree wholeheartedly with my hon. Friend. We need to ensure that the foundations on which the funding of racing is built are strong. We can then go on to deal with the wider task of replacing the broken levy system, which the racing industry, the gambling industry and the Government do not like, with a commercial arrangement that recognises the contribution that racing makes to the product on which gambling bases its bets.

I have spoken before in the Chamber about the need for a racing right, and I was delighted to see that that is one of the three proposals in the consultation put forward by the Minister. I urge him to push in that direction. Before he does so, however, it is critical that we solve the problem of offshore gambling. From the romance of the misty gallops on a Newmarket morning through to the excitement of the finishing post, racing is threaded through the history of our country and through the history and culture of my constituency. Let not its future be built on sand; instead—

My hon. Friend has put forward his proposal very eloquently. Does he agree that any solution must specifically address the issue of betting exchanges?

My hon. Friend raises an important question. Betting exchanges should of course be brought onshore as part of the creation of a level playing field. We must also address the question of what constitutes a bet, for tax and levy purposes. I strongly believe that when two people interact to make a bet, that is a bet. We should go forward on that basis.

I congratulate my hon. Friend on raising this issue. As he knows, I represent Cheltenham race course, which I would argue is the greatest race course on earth, especially in the national hunt field. He is absolutely right to say that the levy is broken and needs to be replaced. Does he agree that its replacement, whatever it might be, should be based on a commercial arrangement so that there can be no room for manoeuvring or slippage? Should it not be a purely commercial arrangement, perhaps between bookmakers and race courses? Does he have that in mind as the best way forward?

The future of the levy should be based on a commercial arrangement so that the Government do not constantly have to get involved, but that commercial arrangement must be based on the sale of a right to bet on a race. Otherwise, racing will be putting on something for nothing, and the gambling industry will be making a profit—which I support—using the input from racing for which it is not paying. So long as such a commercial arrangement was based on a contract relating to the sale of a right, I would support it.

Resolving this issue is critical to ensuring that we can build the future of racing on a sustainable foundation, so that this vital sport can be fully and properly funded and the people who run it and work in it can know that it has a strong, long-term future. In the name of racing, and of all those whom I represent and who support me, I urge the Minister to act.

I join other colleagues in congratulating my hon. Friend the Member for West Suffolk (Matthew Hancock) on securing this debate on an important issue. It is a timely debate in that, as he mentioned, we are in the middle of a consultation process on how to move forward with the levy. My hon. Friend is also absolutely right to say that one of the major issues around the levy is the problem of offshore gambling. He has timed his debate beautifully; I shall try to address the points he raised.

I agree with everyone who has either spoken or intervened in the debate that it is common currency and commonly agreed that the levy as it currently stands is broken. It does not work. People on all sides—whether they are involved in the gambling industry or in racing—are pretty united in their criticism of the levy. The solutions they propose, however, are quite divergent, which is part of the political problem I face. I think that everyone is united at least in their critique of it. People often make three or four points, but they all revolve around the issue that my hon. Friend raised several times—that we need to create a level playing field. It is essential to do that.

The current levy fails to deliver a level playing field in a number of ways. It can be seen, first, in the comparison between onshore and offshore betting, as rightly and eloquently set out by my hon. Friend. I would not dream of disagreeing with his analysis of the problem; it is self-evidently true, and it is a problem that, I think, has grown steadily as the migration from onshore to offshore has taken place over the last five or more years.

The levy also fails to create a level playing field—in the minds of many, at least—between classic traditional bookmakers and betting exchanges. It would be wrong for the Government to try to play favourites between either of those two parts of the gambling industry. As a free-market Tory, I think that would be particularly wrong, but from the point of view of the levy, it is important to avoid any inbuilt bias one way or another between bookmakers or exchanges. At the moment, because these are two different kinds of businesses—they operate on a different kind of business model, with betting exchanges being much higher-volume and lower-margin organisations than traditional bookmakers—there is a great deal of disquiet about the absence of a level playing field between those different kinds of business within the gambling industry.

It would also be fair to say that the way in which the levy is currently set up and the levy board is required to operate is almost guaranteed to create an adversarial relationship between bookmaking or gambling in general and the racing industry. That cannot be helpful. If we could get the two sides to co-operate, we could achieve a unanimity of purpose in terms of trying to grow the total amount of interest in, and betting on, horse racing. With an adversarial relationship, it is extremely difficult for such productive discussions to take place.

I do not want to take much time out of the Minister’s response, but many of my constituents work for Betfair, which is based in my constituency. I know that the Minister has said some warm words about Betfair, which is voluntarily paying £6 million to the levy and is on record as saying that it believes the whole industry should contribute either to the levy or to whatever replaces it. I was a little concerned to hear the Minister say that there might be a distinction to be drawn between online firms and traditional bookmakers. It would be useful if he could put it on the record that the Government have no intention to make the customers of online betting firms such as Betfair subject to the levy, as some parts of the industry have indicated that they should be.

I am very happy to repeat my previous comments that it was extremely responsible, and extremely welcome, of Betfair to decide to make a voluntary contribution to the levy. That was a very responsible reaction from the company. I also echo the hon. Gentleman’s remarks in that I too wish that more offshore organisations of any kind would follow Betfair’s lead and behave in a similarly responsible fashion. As for whether people using betting exchanges should or should not pay the levy, that is precisely what we are in the middle of consulting on, so it would be rather premature for me to prejudge that. I know that organisations like Betfair and other betting exchanges are making strong representations as part of the consultation, which will, of course, be listened to extremely carefully for precisely that reason.

As my hon. Friend the Member for West Suffolk mentioned, we are in the middle of a consultation. We have ended a pre-consultation and are now digesting the results before starting an official consultation on the levy, which will be more broadly based. I shall quickly sketch out the three options under consideration.

The first option would involve relatively little change to the current levy, but would have the important benefit of removing politicians from the decision-making process. I cannot claim that that option offers to fix some of the other issues, such as that of offshore betting, but the requirement for extensive political lobbying from both sides would be reduced. That would be a step, although only a partial one, in the right direction. The suggestion has drawn relatively limited comments and contributions from both sides of the debate, but it is at least an option.

The second option, which I think my hon. Friend mentioned in passing, is effectively a voluntary or contractual arrangement between gambling and horse racing, along the lines mentioned by my hon. Friend the Member for Tewkesbury (Mr Robertson), who represents Cheltenham race course, an important part of the jump racing organisation. That option would involve a contractual arrangement between racing and the gambling industry, in which politicians would, by definition, have no direct involvement. We might help to broker the discussions leading to it, but it would be a private contractual deal, although the Gambling Commission might then require both sides to be party to the arrangement in order to be granted a gambling licence. That would provide back-up.

The third option on which we are consulting is the betting right, or racing right, which my hon. Friend the Member for West Suffolk suggested. That option is widely desired in the racing industry, although for perhaps obvious reasons the gambling industry is a great deal more concerned about it, and it has been sketching out the reasons for that concern in some detail, as is only fair and proper.

I want to place on record that, as part of our pre-consultation arrangements, the Association of British Bookmakers has proposed an interesting fourth option, which we shall unveil in due course. It would be improper to breach the association’s confidence in that regard, but we will publish its proposal as another alternative. I mention that purely to illustrate that there is a great deal of involvement, engagement and creative thinking on all sides about how to square the difficult circle of fixing the levy in a way that will be sustainable and stable, that will provide a source of income that is fair to both the gambling industry and the racing industry, and that will be a stable solution for a long time to come—stable not only economically but politically, so that it will not require endless political intervention that would be regarded by other sports as alien and unexpected.

On my hon. Friend’s point about offshore gambling, I am delighted to be able to provide some breaking news. Tomorrow, a written ministerial statement will be tabled in the House—I trust that I am not breaking parliamentary rules by pre-announcing it in the House, as I cannot be accused of ignoring the House of Commons. I am delighted to announce that we intend to move, as fast as possible, towards a system that will, to a great extent, fix the problem of offshore betting. We will switch away from the current system, which has driven many bookmakers offshore for entirely understandable and logical commercial reasons, to one based on point of consumption rather than point of production. That rather arcane phrase means that anybody based anywhere in the world who wants to sell gambling services of any kind—this applies more broadly than to horse race betting alone—to any consumer of gambling services based in the UK, will in future have to have a Gambling Commission licence.

That gives rise to a number of important changes in the current arrangements. As I said earlier, it will apply not just to horse race betting—although it will obviously have implications for that—but to a far broader range of activities. It will apply to online poker, online roulette, and all the other gambling services that are provided. What is vital is that it will increase the amount of consumer protection for any punters in the United Kingdom who use those services. At present, those who use an online gambling service provided by a UK-based company already regulated by the Gambling Commission can be pretty sure that it is a reputable company which is properly looked after, and that they are therefore protected to the full extent of the law. A provider based offshore may also be regulated by a reputable jurisdiction, but it may not be. It is extremely hard to know where some of the websites are based, and it is just possible that someone might find that he was gambling with the equivalent of Arthur Daley Gambling, based off Tripoli, and that as a result he had very little consumer protection. We aim to fix that.

I warmly welcome the Minister’s announcement, which will come as a huge relief to the racing world. I am also surprised and delighted by the speed with which I have received a response in policy terms, and by the Minister’s recognition of the pressure that exists. Will he tell us how much he thinks the reform will raise, and what impact it will have on the levy?

I am afraid that I cannot do that, much as I would like to, for a couple of reasons. We are dealing first with consumer protection, and reform of the horse race betting levy will be a subsidiary issue. However, as my hon. Friend knows, we have stated explicitly that some of the three options in our pre-consultation document will require primary legislation in order to be feasible, and that will open the door to their feasibility.

The change that we propose will have other benefits. It will not just improve consumer protection; it will also help to level the regulatory playing field in the way that my hon. Friend has requested. It will improve our ability to deal with betting integrity, because it will be easier to capture information about potentially suspicious betting patterns and refer it to the relevant authorities as required.

House adjourned without Question put (Standing Order No. 9(7)).