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Horserace Betting Levy Regulations 2017

Volume 782: debated on Wednesday 29 March 2017

Motion to Approve

Moved by

That the draft Regulations laid before the House on 7 March be approved.

Relevant documents: 29th Report from the Secondary Legislation Scrutiny Committee

My Lords, the Government are proposing to extend the horserace betting levy to betting operators based offshore. Currently, betting operators in Britain are required to pay the levy, whereas those based offshore but otherwise in identical circumstances are not. This is manifestly unfair. Alongside this we are setting the rate of the levy, providing long-term certainty for betting and racing industries.

Horseracing is an extremely popular sport, being the second best-attended sport in Britain last year. Some 6 million people enjoyed a day at the races in 2016 and it is an important contributor to the economy. The symbiotic relationship between betting and racing is well established. The principle of transferring funding to racing from the proceeds of betting under statutory arrangements dates back to 1928 and the levy itself has been in place since the early 1960s.

The levy generally works well, providing distinct funding for specific purposes. Areas of expenditure include prize money, veterinary research and education, and upholding integrity. These areas are also crucial from a betting perspective. For example, a healthy prize supports large and competitive field sizes, ensuring that racing remains attractive as a betting product. However, wider changes have meant that the levy is no longer fair to either betting or racing. Given the introduction and subsequent rapid growth in remote—primarily online—gambling in recent years, this has created a system which puts British-based operators at a competitive disadvantage. It has contributed to a significant decline in levy receipts.

While I applaud and pay tribute to those betting operators that have chosen to make voluntary contributions to the sport, efforts at securing a long-term arrangement have failed to materialise. The Government have been left with little choice but to take action to ensure fair competition among betting operators. The UK is by no means unique in this regard. France, Ireland, Germany and others all have similar statutory arrangements in place.

The Government’s proposed changes to the levy have two principal objectives. They will create a level playing field between all betting operators and provide a fair return to the racing industry, helping to sustain and develop the sport. The levy is a pre-existing state aid, as it was in place prior to the United Kingdom’s accession to the European Economic Community, as it then was. As we are making material changes to the levy, we now require state aid approval from the European Commission. The Government are seeking state aid clearance and these regulations will come into force only once this approval is granted. We have today been informed by the European Commission that state aid approval will not be received before 1 April. Therefore, the reformed levy will not be in place on this date. However, we are confident that clearance will be received shortly. The statutory instrument provides for the reforms to come into force once state aid clearance has been received. Until that time, the 56th levy scheme, as determined by the Secretary of State, will take effect from 1 April, ensuring a continued flow of funding to the racing industry.

I turn now to the levy itself. The levy will be payable on bets on British racing made by customers located in Britain. The location of the operator will be irrelevant. The levy will apply equally to all: bookmakers, including pool-betting and spread-betting operators, and betting exchange providers. The levy rate will be set at 10% of a betting operator’s gross profits on such activity and it will apply whether the bet is placed at a course, a high-street bookmaker, or online.

The Government considered a range of evidence in arriving at a fair levy rate. This included responses to three previous consultations on the levy and extensive engagement with representatives from the betting and racing industries. We have also considered the recent history of the levy, the overall landscape of the betting market and the findings of an independent report on the funding of racing.

Alongside the headline rate, we are proposing a threshold amount. As a result, no operators will pay levy on their first slice of gross profits derived from taking bets on British horseracing. This exempt amount will be set at £500,000 and will mean that the majority of small and medium-sized operators will not be required to pay the levy. The Government are of the view that a rate of 10%, with a £500,000 de minimis threshold, is a fair and proportionate contribution from betting to the mutual interest it has in a good-quality racing industry.

A fixed rate provides a foundation for betting and racing to make longer-term investments with confidence. However, the market can change, so it is important that the levy can respond. Therefore, the regulations require the Secretary of State to review the rate of the levy within seven years.

The changes I have outlined will make necessary alterations to the levy scheme itself. In addition, the Government have previously announced that we intend to make changes to the administration of the levy to reduce administration costs and remove government from day-to-day involvement relating to levy expenditure. We will consult on this second phase of levy reform in due course and the issue will return to this House then. That is a matter for another day.

These reforms will ensure a level playing field for competition for all betting operators, and will give racing a fair return from those who make significant profits from the British racing product. The levy will support funding for a range of areas, including prize money, integrity, veterinary science, and equine welfare.

As we approach the final furlong towards these much-needed reforms, the Government believe that resolving the unfairness in the current system will enable betting and racing to move forward and to work together to grow both industries in the mutual benefit of a sustainable and vibrant racing product. I beg to move.

Amendment to the Motion

Moved by

At end insert “but this House regrets that Her Majesty’s Government have taken insufficient account of authoritative legal opinion that the draft Regulations are ultra vires.”

My Lords, I beg to move the amendment in my name. I declare a remote interest as a member of the Starting Price Regulatory Commission, chaired by the noble Lord, Lord Donoughue, and as a recipient of occasional hospitality from bookmakers, as stated in the register.

The Minister said that this is approaching the final furlong: I think this is the first of three gigantic Becher’s Brooks, at which this legislation will fail, and I shall explain why.

I make no secret of the fact that I am against the levy—I am against statutory support for a particular industry. I believe that racing should stand on its own feet through a proper market-oriented system of money from bookmaking. Of course, that is what has been happening, because media rights have now far dwarfed any yield from the levy—they are three times as much as the levy, which was fading away. I oppose the levy because it is a state-mandated picking of the pockets of poor punters to fill the boots of rich owners such as me. But I do accept that, if you are going to have a levy, it is right that everybody should pay it and that offshore operators should not escape it. So to that extent, I sympathise with the Minister, and if that was the objective, the Government could have proceeded in a perfectly straightforward way and introduced primary legislation, which would be subject to full parliamentary scrutiny, to reconstruct the levy.

Indeed, it was the clear advice of the parliamentary authorities that that is what the Government should have done. Mr Colin Lee, Clerk of Bills in the Commons, said in a note to Philip Davies MP:

“I can say with reasonable confidence that changes to the levy itself and its scope would need primary legislation”.

However, we do not have primary legislation before us tonight. The truth that Mr Lee was speaking unto power has had no effect, and DCMS, no doubt under pressure from some of its Ministers, has cobbled together a two-phase process to reconstruct the levy: the order before us now, and another in the autumn to abolish the levy board and hand over collection to the Gambling Commission.

This House is rightly sensitive about secondary legislation, the use and abuse of Henry VIII powers, ministerial attempts to minimise parliamentary scrutiny and so on. However, in this case there is a further problem. According to legal experts who have examined the order, it is not only the wrong way of doing things, it is actually ultra vires. I will cite the opinion of two such authorities: Olswang, the leading firm of gambling lawyers; and Tim Ward QC, in counsel’s opinion prepared for the Remote Gambling Association. The Library has copies of their documents if anyone wants to read up on this in more detail. I shall paraphrase their arguments.

In the latest note from Olswang, Mr Dan Tench does not dispute that an order to impose levy on foreign betting operators who do not at present pay it is in order; the 2014 Act provides for that. However, Mr Tench says that this order goes “well beyond” that. It mandates a fixed levy of 10% for all bookmakers, in place of the present process of annual levy fixed by the Levy Board. It mandates the extension of the levy to the Tote’s on-course operation. Incidentally, it was rather telling that the DCMS told a delegation only a week or two ago that the Tote already pays levy on its on-course business. It does not. I was a director of the Tote, so I am something of an authority on it. The DCMS just got that wrong, as it has got this order wrong. There is a £500,000 per annum exemption limit for on-course bookmakers, but it is an extension.

To summarise Mr Ward’s opinion, in paragraph 4 he says:

“DCMS has failed to establish a robust legal basis for the measures in these Draft Regulations. The explanations now given by DCMS raise serious concerns in circumstances where DCMS is seeking to enact under delegated legislative power a wide-ranging reform of the statutory Levy regime in the absence of any express statutory power to do so … On DCMS view, the Henry VIII clauses can be used to effect a wide-ranging restructuring of the Levy, even though on its face it affords only a power to ‘secure’ the levy is extended to offshore bookmakers. Such a broad reading of the clause is in stark contrast to the restrictive approach approved by the Supreme Court”.

I should say that this evidence was not available to the Joint Committee on Statutory Instruments when it considered the order.

I know why the DCMS has made these extra changes: it thinks they will help to get state aid approval. However, it may be significant that Ministers have been disappointed in their hope that they would have that state aid approval by tonight. The thing is, Commission approval is not enough. As we have seen before in the horseracing field, the Commission can be taken to the European court, and I can say with total confidence that this order will be challenged in the European court. I am not a legal expert and I cannot judge the chances of success of that challenge. However, the lawyers I have spoken to think that the Government’s retort that this is rather similar to the French parafiscal case, where something slightly similar was approved, will crumble on examination, the French system being so different from ours. We have a competitive market, they did not.

More broadly, what are the prospects of this balsa boat surviving the rough seas into which it is being launched? Not strong, I think. Any interested party can challenge the order, and in the opinion of those I have cited, they would have a good chance of success. Next, the Government have to launch their second order, a legislative reform order, in the autumn. I will have a chance to make my views on that known—or rather, the views of the lawyers I have consulted—but again, there is a strong legal view that this is outside the scope of the legislative reform order they are seeking. Then, there is the possibility, which I have mentioned, of a state-aid challenge to the European court. I do not think Brexit will come along fast enough to affect that and if it does, there are likely to be other restrictions on state aid and whatever arrangements follow.

I make one closing point. Ministers, in proceeding with what I fear they must know is a dodgy order, are making a political calculation. They thought, wrongly, that the new levy was uncontroversial in both Houses of Parliament. They think that they have the bookmakers by the short and curlies so long as the triennial review is impending, with the threat of slashing FOBT stakes deterring them from making legal challenges.

They might be right, but let us suppose that they are wrong. Let us suppose that a challenge arises, if not from the big bookmakers then from some other betting firms, and the Government lose. For racing—and there are many present in this House tonight because they are supporters of racing, as I am—that could be a catastrophe. In all likelihood, they would end up not even with the existing levy but having to pay back the money that had been collected under the terms of this order; that is, roughly £50 million a year.

For Ministers, too, I have to say to the noble Lord that it would be a catastrophe. They were warned by the lawyers, by me tonight and by others that if they went ahead, they would be behaving illegally; they went ahead anyway; and they have been caught. I can see the short-term advantages to Ministers of going ahead with this scheme. The Queen will no doubt warmly thank the Prime Minister at her weekly audience because her horses will cost her less. Mr Hancock, the Minister of State for Culture in another place, will no doubt feel confident that his Newmarket constituents will be minded to add still more to his 13,000 majority. But those thanks will turn to ashes. Far from providing certainty to racing, the order promises prolonged uncertainty. Long term, there is every chance that this half-baked legislative scheme will collapse at the hands of the courts. The Queen, Mr Hancock’s constituents and indeed the racing public will ask: “Why did you plough ahead? You had been warned”. I beg to move.

My Lords, I declare my interest in that I took the Bill through in place of Matt Hancock when he started his ministerial career. I also did a six-month stage, or apprenticeship, in DG IV of the European Commission, now known as the Directorate-General for Competition. Like the noble Lord, Lord Lipsey, I have enjoyed hospitality through membership of the all-party horseracing group.

I do not share the noble Lord’s pessimistic approach and entirely endorse my noble friend the Minister’s recommendation that we support the statutory instrument before us. That the Government have set the threshold at a rate that will exclude the majority of small and medium-sized businesses is to be welcomed.

Perhaps I may say why there is such a need for the regulations and for the levy to be applied in this way. The regulations answer a basic question: why should bookmakers who are based offshore and who take bets on British horseracing not pay the levy on bets placed in this country, albeit remotely, and therefore put money back into horseracing? Self-evidently in my view, they should pay.

I had the opportunity to look at the briefing and saw that receipts from the statutory levy fell from £115 million in 2007-08 to £54.5 million in 2015-16. The action that the Government propose to take is much needed. Having practised for a short period in Brussels as a European lawyer, I dispute the legal advice that the noble Lord, Lord Lipsey, has put before the House. Although the levy proposed is a form of state aid, it shares many of the characteristics of the French parafiscal levy. I can therefore see no reason for the European Commission to do other than rule in favour of what the Government propose nor for it to be challenged in the European Court.

I had the privilege to represent for 13 years the Vale of York and then for five years Thirsk and Malton, which were home to some of the most successful trainers, jockeys and stable lads and lasses in the country. The benefits of what is proposed to the rural economy of North Yorkshire and to Britain’s racing grass roots, and to the wider horse sector, deserve our support. I urge the House to support the regulations.

My Lords, I support the Government’s measures and think the noble Lord, Lord Lipsey, is wrong. That is primarily because I live in the village of Lambourne. Lambourne might claim to be one of the beating hearts of the racing scene, but I will not contest with the noble Baroness who has the biggest claim to that status. I live in a community dominated by racing and by people who work and live in it. These people are not fat-cat owners; they are people who get up, usually when it is still dark, to go and deal with the horses. They risk life and limb in dealing with a half-tonne of animal which has a mind of its own and muscle, which moves up and down. People are hurt regularly, and then there is the task of supporting the horses themselves. The rest of the horse community benefits from that, because when you get one type of horse, you get others going down there and congregating around them in hubs. The levy supports them, but receipts from it have halved. We need something down there. Those communities and people benefit from that money being spent.

Anti-corruption and anti-doping, which racing has taken a real lead on and which the rest of the sporting sector can learn from, has been tackled well in this industry. It is money well spent as a whole and I recommend that we proceed with these regulations. Those people’s livelihoods depend on this money or at least on being able to live with a degree of certainty and support. If we have to take a little bit more off a person who is sitting or standing fatly back and watching as opposed to taking part, I have no objection to that. Those who work in racing should receive that support, thus I hope that the Government will stand firm.

My Lords, I should declare my interests as in the register, particularly as secretary of the racing and blood stock all-party group and of the Betting and Gaming All-Party Group. I am also chairman of the Starting Price Regulatory Commission. In 2005, I chaired on behalf of the racing industry the independent review of the future funding of racing, with particular reference to the levy and the commercial alternatives to it. That was against a background of the chairman of the then British Horseracing Board having recently called for the abolition of the levy from his racing base. Our three-stage review—I shall not delay your Lordships on it, but they will see the relevance—concluded that we should replace the levy. It had been introduced 40 years earlier to compensate racing for the assumed, although unproven, damage to its revenues caused by the introduction of off-course bookmakers. We identified commercial alternative revenues to racing, with race courses selling race data and television pictures to bookies, but because of then doubts regarding the legal security of such revenues, we reluctantly decided not to recommend abolishing the levy until alternative commercial revenues were legally secure. That is the background I come from. The then Minister accepted our report and the levy was resumed for three years.

However, I think I can say that we assumed that the levy would go; its original purpose was achieved. I note that the Government have helpfully and cleverly defined a new justification, which is well drafted. Since then, the levy debate has rumbled on, as we have seen, through different Governments. It has wobbled between replacing and reforming the levy. Sometimes we have seen different proposals from the Treasury and from DCMS, the department sponsoring it. A year ago, the then Chancellor announced dramatically a new racing right. Now that has quietly disappeared. The levy is restored at 10% for seven years. As I mentioned, a new justification has been produced, replacing the earlier outworn one. Presumably, that was drafted to meet Brussels’ requirements in not discriminating, reconciling racing and betting interests, and with a fixed rate. Elsewhere, the offshore avoidance loopholes have rightly been closed. I am sure all noble Lords support that and will thank the Government for doing it.

Meanwhile, media revenues to racing have continued to rise as our 2005 review predicted, more than doubling since then to around—I read—some £120 million, and double the current levy. Personally, I am always instinctively pleased to see racing receive revenue from any source. I love racing. I can also see the political attractions to the Minister of getting this annual irritation of the levy settlement off his desk for seven years. However, a number of issues clearly remain, including those my noble friend Lord Lipsey so strongly set out. I trust the Minister will address them adequately in his response. I am not sure that it can be a case of just one person trained in law claiming they know a bit more about the law than, for instance, Olswang—a major City firm.

I will summarise my concerns, some of which of course share ground with my noble friend. I see that the new measure may—I hope will—avoid a Brussels challenge over European state aid, thought it clearly seems to be state aid. I assume and hope that Brussels assisted drafting to ensure its safe passage over that hurdle. I accept that French support, wishing to protect French racing, should help there. We will see but my noble friend raised serious doubts. We also have the question of the domestic legal challenge from our bookmakers’ body which may trip it up, as happened—as some of us remember painfully—with William Hill in the past. Again, we will see.

The use of the regulatory order to transfer the levy collection to the Gambling Commission seems unusual. I trust the Minister will be convincing in explaining that. I hope that the Gambling Commission, for which I have great respect, is fully resourced for its new and unexpected task. I note that as recently as 16 March last year, when DCMS published its plans to replace the levy, it specifically stated that the existing Levy Board would collect the funds. Why was that changed? I assume that the Gambling Act 2005, which many of us were deeply and painfully involved in, properly authorises the commission to do this job. Incidentally, at this point we should pay tribute to the fine work done by the Levy Board in its past very tricky job.

However, the biggest remaining problem is the familiar financial one: securing adequate future funding for racing. My view remains, as earlier, that that financial path must be basically a commercial one. This new levy may help in a small way for a while but we should be aware—this is my key point—that it also makes it more difficult for bookmakers to assist racing. This renewed levy impost plus the growing charges for pictures, over which there are current disputes, inevitably make horseracing an expensive betting product. Bookmakers, already under great commercial pressure, will increasingly, inevitably, focus on cheaper betting products such as football in its various betting forms.

If the FOBT machines are soon hit—as they should be, in my view, and recent bookmaking managements have been guilty of gross complacency in approaching or ignoring this social problem—then these commercial pressures will increase. Hence, as that happens, the recent decline in the importance of race betting revenues to bookmakers may, ironically, be accelerated by these proposals. That will not help racing in the long run.

For the future, racing and betting must always where possible seek to work together and not be, as too often it seems, in adversarial opposition. As industries, they are joined at the hip. In the long term, each prospers best if the other prospers. They would be prudent to plan that future as being not always with a state levy. This seven-year break should not be wasted. With DCMS, betting and racing should spend some of that time preparing a secure commercial future for racing, which is what all sides want. Finally, and above all, I hope the Minister has indeed taken good legal advice or the department and racing may be in a little trouble.

My Lords, briefly, I welcome this order and congratulate the Government on it. I claim some very small credit for it because the noble Lord, Lord Collins, and I, in a cross-party movement, managed to persuade the Government to accept an amendment to the earlier Bill, one that had been rejected in the Commons, which allowed these regulations to be brought forward.

I note that when the regulations went through another place they were endorsed and supported by the Opposition. They were even supported by the SNP, although I am not sure your Lordships would necessarily regard that as a terribly good endorsement of any prospect. However, it gives certainty to racing and to the bookmakers. They know that we will avoid the annual or tri-annual reviews that have beset racing and various Secretaries of State. I am sure my noble friend Lord Howard will refer to that.

I always noted that the noble Lord, Lord Lipsey, never liked the levy. Of course, we know his interest in greyhound racing, which has never benefited from the levy. However, I saw that the Minister in another place said that the noble Lord has volunteered to chair an active mediation. Although there are no plans to introduce a statutory levy for greyhound racing, we will try to encourage more money into the sector. I hope that gives him some assurance that greyhound racing will be supported.

I thank the noble Viscount for drawing attention to that. Of course, the reason I took this job on is precisely in order that a statutory levy is not necessary for greyhound racing and that sensible parties working in a market environment sort it out between themselves, perhaps with a little help from me.

I am sure that the noble Lord’s involvement will be very helpful to greyhound racing. I was recently at the new greyhound track in Towcester for a very successful event.

I will not say anything about the legal things as my noble friend Lord Howard will mention them. I just note that, should there be any involvement of and appeal to Brussels, after what happened today one would have thought that by the time the appeal got resolved other events might have made the whole thing unnecessary.

My Lords, the last time many of us who are in the Chamber tonight spoke was in 2014, during the licensing and advertising Bill. Many of the topics that we are touching on today we discussed then. But as the song goes, times are a-changing. The great change, of course, took place in 1963 when the levy was born and betting shops arrived on the scene. At that time, which I remember well, when I used to gamble quite a lot—I do not now—racing and greyhound racing were the two methods by which people who liked to have a gamble could do so.

In his concise introduction, the Minister mentioned the sport of racing as having high attendance and popularity among the public. That may well be so but that is against a very sharp decline in betting on horses, which is one of the reasons why bookmakers have been extremely worried and extremely tight in responding to the levy demands. The reasons for that are quite obvious. One is the different ways in which you can bet, many of which I would recommend. If some young man came to me and asked, “What is the best and most amusing way to have a bet”, I would say, “If you had come to me 30 or 40 years ago, I would have said: go racing, take a limited amount of money and enjoy it. But I would not say that today because there are far better ways of making money out of gambling”. I would suggest snooker or tennis—all these things people gamble on nowadays. Racing is a very difficult business in which to win. I ought to know; I suffered for many years.

In fact, I had a friend at school who I used to go racing with. I used to stay with his family in the holidays. They were great racing people. Unfortunately, he became a compulsive gambler, so much so that he found himself in court for fraud, trying to make up his gambling losses. The judge said, “This is a sad day for me to have to impose a custodial sentence on someone who comes from such a good family background and has had so many advantages and a good education. It is a sad duty for me and I expect my dismay will be shared by many in court. Perhaps I could ask the accused if he would like to say anything to the court to explain how he finds himself in this position”. My friend’s answer was simple. It got a great round of laughter but it was serious. He said, “Bad information, my lord”. The thing about betting on racing is that it is entirely on information. You need good information and the only good information you can get in racing is from either the trainer or the lad—male or female—who looks after the horse. They are well protected these days, I am glad to say, by the security people who work for the horseracing association.

Nowadays we are in a different world and I am worried about the seven-year period before we have a review. I probably will not be here. Some other Members of this House may not be here in seven years. It seems an enormously long time to wait to see whether there are any satisfactory results. But you will get satisfactory results only if people go back to racing and start betting. I am afraid that I have come to the conclusion that they will not do that. The betting pound, if you like, is limited and people will choose the way in which they want to spend their betting pound. They will move to cricket. Cricket is very popular. In fact, it is the area globally in which there is the most crime—not in this country but in other countries in the Indian subcontinent and elsewhere. Most other sports here on which people gamble are generally well controlled. People bet on every kind of thing and bookmakers will give them the odds.

One thing that puzzles me, which has not come up in the debate so far, is: what about the betting exchanges? Another important change in this country was the arrival of betting exchanges, where not only could you back a horse to win but you could back it to lose, which caused a great deal of concern among people in racing because it increased the chance of skulduggery and getting the information that I referred to.

I listened very carefully to the noble Lord, Lord Lipsey, as I always do. I remember his definition, which I will not repeat in the House, of the drawbacks of FOBTs, which stands for—I hate acronyms—fixed-odds betting terminals. What on earth does that mean? It means nothing at all. What in fact it refers to are casino games in betting shops, which the Labour Party decided was a good thing to do when it was in power. Each betting shop has four of these things and that is why they are still open. People are not backing horses. What the people who can least afford it are doing with the little money left in their pockets is putting it in casino machines in betting shops. There is a lot of denial about this.

I declare my position as a deputy chairman of the Racing and Bloodstock APPG, and I also belong to the Betting and Gaming APPG, but I fear that the betting and gaming group does not agree with my views on the social damage from these machines. This is a complicated area. I do not criticise the Government for bringing this in. The great thing it does—temporarily, anyway—is to bring in a flat rate of 10% with a discount for more than £500,000, if I can put it that way. It will be administered by the levy board. The endless unseemly wrangles between bookmakers and the levy board will cease. That is a good thing, and I hope it will go on for longer than I suspect it will.

I do not think that in seven years’ time the betting scene will be the same as it is now. Horseracing will continue. British horseracing has a world reputation, and the people who work in racing—in the stables and in the breeding—have a reputation which they cherish. They will find a way of surviving. They do not need an enormous amount of money, as long as there are owners, and there are people who love owning well-bred horses. You do not need a racecourse and all the money you have to pump into it. You really only need a bit of land with suitable turf on which horses can compete. We may go backwards towards the 18th century when rich people had matches with one horse against another.

I am pessimistic. I do not think I am as pessimistic as the noble Lord, Lord Lipsey, but we have to pay attention to him because state aid is a complicated business. When the Minister sums up, will he explain to the House, because I do not understand it, the effect of this French parafiscal decision? I have consulted my friend on the Labour Benches, the noble Lord, Lord Donoughue, about this. He lives in France, so he should know, and I know the French pretty well. They have found a way of getting round European law. If they have done that, they will not be too busy making life difficult for us.

What the noble Lord, Lord Lipsey, described contains a lot of sense. I am not going to bet on a fight between the noble Baroness, Lady McIntosh, and the noble Lord, Lord Lipsey, although I know which one I would back in the long run. I hope they will not come to blows on this, but my opinion edges towards the noble Lord, Lord Lipsey. We have to be very aware of the dangers of state aid.

I appreciate that time is very short, so I shall be very short. I strongly support these regulations, and I pay tribute to the Minister in the other place, Miss Tracey Crouch, who has made enormous efforts to try to bring both sides together and produce a workable set of regulations. As my noble friend Lord Donoghue said, the betting and racing industries are pretty well joined at the hip, but they are also a minefield of conflicting interests. How to craft a fair and mutually acceptable system for funding a £3.5 billion industry has been the subject of a number of earlier failed—or, at best, imperfect—attempts. Indeed, the turf is scattered like confetti with, to use my noble friend Lord Lipsey’s phrase, “authoritative legal opinions”, usually conflicting, on how it should be done. I well remember one of them. Some years ago, when I was an independent member of the British Horseracing Board, we relied on such an opinion and fell foul of it later when challenged in the European court.

Every effort has been made by the Government to produce an agreement on which both sides can meet. That has proved difficult, if not impossible. We cannot leave things as they are. The levy is dwindling. The levy makes essential investments not solely in rich owners but in the sort of people who work in racing who were spoken about by the noble Lord, Lord Addington: 6,500 of them. I know them, and I declare my interest as a trustee of Racing Welfare, the charity that looks after them, and their union, the National Association of Stable Staff. There is also the money that goes straight to research which benefits not just the racing industry but the whole of the equine population. We cannot afford to see that continue to dwindle, and with it the small grants that go to keep the gene pool of our native species. That all comes from racing. Without the changes that are being proposed today, the levy is going to shrink. The needs are the same or greater, and we cannot meet them. As a lawyer, I know that there is no such thing as legal certainty—but there are times when, as in racing, you must simply do your best and go for the gap. I think this is one of them.

My Lords, it is a pleasure to follow the noble Baroness, and I agree with everything she said. I declare my interest as a member of three horseracing syndicates and as a former chairman of a racecourse group. The issues before your Lordships this evening have bedevilled racing for decades. They were a matter of great contention when, more than 20 years ago, as Home Secretary I had responsibility for the racing industry and betting. Like the noble Baroness, I congratulate Tracey Crouch, the Sports Minister, on having had the courage to grapple with this issue, which has eluded the attention of Ministers for far too long.

I, too, listened attentively to the noble Lord, Lord Lipsey. As far as I could make out, apart from his principled opposition to the levy as a whole, his main objection to these regulations related to the possibility that they might fall foul of the courts, either in this country or in Europe. It grieves me to say that, given the growing assertiveness of the courts, that could be said of very many measures of legislation, both primary and secondary, which come before your Lordships’ House. If that were a sensible and satisfactory basis for opposing legislation, the legislative burden on your Lordships’ time would very light—much lighter than it is today. As the noble Baroness rightly said, we have to do the right thing—and if in due course the courts take a different view, I fear that that is something we all have to live with in these days of growing judicial intervention. I strongly support these regulations.

My Lords, I will speak just for two minutes, and start by declaring my interest, first as the chairman of one of the three regulatory bodies of point-to-point racing, which is the smallest area of racing. I should also say that I too have received entertainment from bookmakers from time to time, although by the time I have finished this evening I probably shall not receive any more.

I listened very carefully to the noble Lord, Lord Lipsey. The noble Viscount, Lord Falkland, said he did too, as it was important to do so, because the noble Lord knows what he is talking about in these matters and deserves our careful attention. I have some sympathy with the comments that he made and understand the whole principle that he is opposed to. The idea that the Government should impose a levy to support one particular industry and not another is a ridiculous one, in theory. But the reality is, as my noble friend the Minister said in starting and as I think other noble Lords have said, that the relationship between racing and betting is symbiotic. They are, as the noble Lord, Lord Donoughue, said, joined at the hip, and we should not do anything to break that join if either is to continue successfully. One comes to the conclusion that this is indeed a bit of a fudge, but the relationship between racing, government and betting has been a bit of a fudge since long before my noble friend Lord Howard was Home Secretary—indeed since the 1960s—and it has been a fudge that has sort of worked. Occasionally, it has to be given a bit of a nudge to continue the relationship and make it go further. It is unsatisfactory that, every year over the last few years, the Secretary of State has had to reset a levy because the two industries have not been able to find a way forward.

What we have before us today is a fudge but, as several noble Lords have said, the Minister in another place, Tracey Crouch, has worked very hard to come up with a very nice a sweet piece of fudge, which certainly the racing side of the industry approves of, although I suspect that some of the bookmaking side of the equation will not be quite so happy. But it is reasonable that the online betting operators should contribute as they have not before, and I conclude that this is a fudge worth going for. As my noble friend Lord Howard said, if we rejected every single statutory instrument that we thought might end up in the courts, we would have nothing to do in dinner hour after dinner hour from now on—that may be a very splendid idea, but the reality is that we must not be put off with that. Yes, this is not without problems going forward, and it may not work for ever, but on balance I think we should support the Government and let this statutory instrument go forward.

My Lords, I will try to be very brief as I am very aware of the time, but want to support these regulations, which simply extend the reach of the levy to include offshore betting and which, in my opinion, quite simply right a wrong. One of the major benefits of the levy in the past has been, as I hope it will be in the future, the support it gives to equine veterinary science, research and education. Here I declare an interest as a former head of a veterinary school. Over the past 15 years, something like £32 million has been contributed by the levy to research and education. It has led to real improvements in the health and safety of horses, to a reduction in injuries, and to the prevention of infectious disease and many other facets of ill health. It has also contributed to the education of equine specialists, ensuring that here in the UK we are a global leader in equine healthcare.

I emphasise that that support is important because there are very few other sources of support for funding equine research. The research councils generally do not do it. In summary, this legislation corrects an unfair anomaly and makes eminent sense. By restoring and maintaining the support for equine veterinary research, education and disease surveillance, it will contribute widely to equine health and welfare in general. In particular, it will help ensure the health of the racehorses on which both the racing industry and, ergo, the racing betting industry depend.

My Lords, I am conscious of the time, and we must allow the Minister time to respond. I simply indicate the support of these Benches for the proposals. We have had many knowledgeable contributions from around the House, most of which I support. We do not support the noble Lord, Lord Lipsey, in his amendment to the Motion, but I thank him for the courtesy of providing a copy of the legal advice. I was very interested to hear what the noble Baroness, Lady McIntosh, and the noble Lord, Lord Howard, had to say on that score. It seems to me to be pretty thin, but there is always an arguable case, as the noble Baroness, Lady Mallalieu, said. That does not seem to me to be a barrier to the adoption of this excellent scheme.

As the noble Lord, Lord Donoughue, outlined, it has been quite a saga. It is now since 2005 that the very existence of the levy has been up for grabs, so to speak. Then we had the discussion about racing rights, and so on. I think we have come to the right place. I entirely agree with the noble Lord, Lord Howard, that Tracey Crouch has grasped the nettle in the right way. The Secondary Legislation Scrutiny Committee had no great things to say about the scheme. We very much welcome the £500,000 threshold. Some questions have been raised about why it is the Gambling Commission and why seven years, but I am sure that the Minister will answer them.

My Lords, I shall try to be brief, but the Minister and I will not have any sort of dinner break if we are to go straight to the next group of amendments to the Bill.

I welcome the Government’s initiative in bringing this forward. It reflects the amendments that the noble Viscount, Lord Astor, and I submitted three years ago. Last April, we had a lengthy debate initiated by the noble Viscount about this precise issue. So it is not that Parliament has not had sufficient opportunity to scrutinise the principle. Unlike my noble friend, I support the principle. I know what the levy can do for rural industry. I know that it is not simply about rewarding rich horse trainers or owners: it is also about providing a system of support for education and training; ensuring that the industry is in a strong, healthy position; and, as noble Lords have pointed out, ensuring that it is a clean industry in which people can have faith when gambling.

That is the point I want to come to. I firmly believe that the people who profit from gambling should pay. Of course, it is not the punter who profits, it is always the bookmaker. I am not pro gambling, but I do not think that you can ever stop people gambling. I think we should create a situation in which people can have faith and confidence in what they are gambling on, and this is one way of doing it.

State intervention and state gambling provides the biggest support in this country to sport through the National Lottery, something that I firmly believe in and support. Since 2005, we have had debate after debate about the alternatives. The alternatives to the levy were proposed because of the changes to the way in which people gambled and how they could support the industries which they were gambling on. I see today’s statutory instrument as a natural progression of the debate. I would have liked to have seen alternatives to the levy; I would have liked to have seen that sporting right. The noble Viscount, Lord Astor, knows that when we talked about offshore during the passage of the Gambling Act, we were faced with the Treasury saying, “We want to bring offshore gambling onshore”. It was nothing to do with the levy. The Government did not want the levy—it was to do with the Treasury wanting to capture that income. It was the pressure in this Chamber that forced the Government to consider the continuation of the levy. I hope that in the next seven years we will see that matter progress.

From these Benches, I would like to see the betting right cover more sports so that, when people gamble on football, grass-roots football benefits and when they are gambling on other sports, grass-roots sports benefit. That is not what tonight is about—and I welcome the debate initiated by my noble friend. I welcome the fact that he has tried to avoid having a wide debate about the principle. He has raised important issues about legality, and I am sure that the Minister will respond to those points but, as a point of principle, this side strongly welcomes the continuation of the levy.

My Lords, I thank all noble Lords who have made interesting contributions to this debate, and a number of very important points. The levy has been around for many decades and needed fixing. It is clear that the existing system is unfair and that the fudge, as my noble friend Lord Mancroft called it, creates more money for horseracing in general and is fairer. It includes things like veterinary research, which the noble Lord, Lord Trees, talked about. Since 2000, £32 million has been raised from the levy. This will raise more money and some of it can go to things such as veterinary research.

The noble Lord, Lord Lipsey, raised a number of points. His opposition to the levy is something of a well-trodden path, and he was honest enough to say that some of the technical reasons he was putting forward were really based on the fact that he does not approve of the levy. Before I go on, I should acknowledge that he has been completely open, and we have had useful meetings. We absolutely listen to his views and respect his knowledge but, ultimately, we have agreed to disagree.

Betting and racing have a well-established, intertwined relationship, and the Government are clear that the levy continues to be necessary to aid horseracing and the equine sector, reflecting that mutual interest. But it must be right that all operators who derive significant benefit from British racing should contribute.

On the legal basis mentioned by the noble Lord, Lord Lipsey, the levy is a state aid. Section 2 of the Gambling (Licensing and Advertising) Act 2014 allows the Government to extend the levy in a state-aid compatible way, using secondary legislation. At the time, my noble friend Lord Gardiner, who I am glad to see is in his place, was explicit that the power had to be broad enough to enable the Secretary of State to make changes to ensure state aid approval. That was Parliament’s clear intention when enacting the power in 2014. So there is no need for primary legislation. The point of securing the power in 2014 was to allow us the flexibility to use secondary legislation, and that power is broad enough to address all the issues to secure state aid approval.

We have thought through very carefully the right way to apply the state aid requirements to the British context. We consider that our proposals, taken together, represent the right approach for Britain. The exempt amount means that we can protect smaller operators, and the diversity of the betting market at racecourses in particular. There is no justifiable reason for differential treatment between different types of betting operators going forward.

There was talk about the challenge to state aid approval in the European court. The noble Lord, Lord Lipsey, questioned whether racing would have to repay funds in the event of a successful challenge, but that will depend on the reasons why the European court sets aside the Commission’s decision. Racing would not be liable to repay historic funds. We are confident that the European court will uphold the decision of the Commission to approve the levy as compatible state aid, as it did in the French case, so we do not expect that to happen. The noble Viscount, Lord Falkland, was worried about the seven-year period being a long time, but I can confirm that the Secretary of State has to review the levy within seven years—if need be, it can be sooner than that. Looking ahead, in terms of the transfer of functions to the Gambling Commission and racing authority respectively, we will consult on this in due course. This will provide an opportunity for all interested stakeholders, including the noble Lord, Lord Lipsey, to inform our consideration of this issue.

The noble Lord, Lord Donoghue, talked about media rights and he is right that they have increased in recent years. For example, they were £90 million in 2012 and increased to £128 million in 2014. But media rights are a distinct commercial product and are voluntarily entered into. Many online operators do not purchase media payments, so relying on media payments alone would not secure a contribution from many online betting companies to racing. Racing has told us that the current price for media payments has reached a peak. Since January 2017, some high street betting shops—Ladbrokes, Coral and Betfred—have not been showing pictures from Arena Racing Company racecourses due to a media rights dispute. This demonstrates the uncertainty attached to this form of income. The noble Lord also asked whether we had changed our mind on the Levy Board collection since March 2016. For the time being, collection remains with the Levy Board and we will be consulting on the transfer of the collection function to the Gambling Commission in due course.

The noble Lord, Lord Lipsey, said that we were wrong about the Tote paying the levy; the Tote on course is liable to pay the levy but amounts paid are negotiated with the Levy Board. These regulations abolish that differential treatment and apply the levy equally to all operators.

We think that these reforms will make a profound difference to the British racing industry and will help the sport to grow as an attractive betting product. I hope that my explanation will have satisfied the noble Lord, Lord Lipsey, sufficiently and will allow him to withdraw his amendment.

My Lords, this has been a really excellent debate and the arguments on all sides have been well expressed. I just say that the Government, by laying these regulations, have disposed but—at the end of the day, and whether the noble Lord, Lord Howard, likes it or not—the Commission, our courts and the European court will decide. I do not wish to put this to a vote tonight. We will see in the light of history who turns out to have been right. I beg leave to withdraw my amendment.

Amendment to the Motion withdrawn.

Motion agreed.