(11 years, 3 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
Miss Anne McIntosh (Thirsk and Malton) (Con)
I beg to move, That the Bill be now read a Second time.
I am delighted to present the Bill on behalf my hon. Friend the Member for West Suffolk (Matthew Hancock). As one of its early sponsors, I want to take this opportunity to pay tribute to him for initiating it and thank him for his excellent work, which has stood us all in good stead. I am pleased to be taking the Bill forward today with his support and I congratulate him on his preferment and the excellent work he is doing as the Minister responsible for skills and apprenticeships. It is already bearing fruit, bringing extra apprenticeships to my constituency of Thirsk, Malton and Filey.
The Bill aims to amend the Gambling Act 2005 to regulate remote gambling on a point of consumption basis; to require all operators selling into the British market, whether in the United Kingdom or overseas, to hold a Gambling Commission licence to enable them to undertake transactions with British consumers and to advertise in the United Kingdom; and to provide that all relevant operators contribute to the horse race betting levy.
Philip Davies (Shipley) (Con)
It would help if my hon. Friend set out the main purpose of the Bill and if we pinned down its main thrust at this stage. Is it better to regulate the online market to raise revenue for the Treasury or to raise more income for the horse racing industry?
Miss McIntosh
I am grateful to my hon. Friend, who takes a close interest in horse racing. He and I share a love of horse racing, and I shall a say little about the contribution that racing makes to the rural economy in my constituency. The Bill’s main purpose is to bring things onshore to the United Kingdom, where the racing takes place, and to emphasise that when a bet is placed online the point of consumption is in this country. The whole thrust of the Bill is to bring money back into racing, and I shall explain how. The Treasury’s proposals, which I understand can be introduced in any Budget—perhaps not this year; possibly next year—will restore the tax situation to those offshore betting companies. That is not the purpose of this Bill. The main difference between it and the draft Gambling (Licensing & Advertising) Bill, which has been drafted by my right hon. Friend the Minister, whom we welcome to the Chamber—we look forward to his response—is that this Bill relates to the levy.
Lyn Brown (West Ham) (Lab)
One of the issues that I should like the hon. Lady to address is enforcement. An awful lot of international co-operation will be necessary. What mechanisms will she be able to employ to achieve that?
Miss McIntosh
I pay tribute to my hon. Friend the Member for West Suffolk for the groundwork that he has done in that regard.
One of the unintended consequences of offshore betting has been to remove this activity from the remit of the Gambling Commission. It is my understanding that that was not the intention of the House when the Gambling Act was introduced in 2005. The Gambling Commission plays a key role in protecting young people and vulnerable people from such activities, and many of my right hon. and hon. Friends will agree on the need to protect the young from parts of the internet; indeed, one of my hon. Friends has just been appointed as adviser to the Prime Minister on that matter. In my view, it was never the intention of the House that this activity should be summarily removed from the remit of the Gambling Commission, which offers an enforcement mechanism.
Regarding the levy, we have to look at the European Commission, which should allow the proposals in clause 4.
Paul Farrelly (Newcastle-under-Lyme) (Lab)
The hon. Lady is correct to highlight the flight offshore of online gambling as an unintended consequence that the Government are now addressing. Does she acknowledge that there is a major exception—bet365, which holds a Gambling Commission licence, and is based in north Staffordshire? It is one of the biggest employers in the area that I represent.
Miss McIntosh
I am delighted to do so, and I shall say a little more about bet365. Not only is it a major employer but it demonstrates what can be done to keep that type of operation onshore in this country while contributing to the local and national economy and employing people in the hon. Gentleman’s constituency.
James Duddridge (Rochford and Southend East) (Con)
My hon. Friend has referred several times to this country, and I am not sure what she means. The Gambling (Licensing & Advertising) Bill includes explanatory notes, with a section on territorial extent around Scotland, Northern Ireland and Wales. I could not find in the Vote Office explanatory notes for her Bill, which is another excellent measure, and wondered whether it provided similar provisions.
Miss McIntosh
On a closer reading of the Bill, my hon. Friend will see that it
“extends to England and Wales, and Scotland”
and, in part, to Northern Ireland. That is obviously a matter for debate.
Horse racing is important for both business and tourism, with a number of race courses in and around my constituency. Thirsk is the main local race course, but there are also courses at York, Wetherby and Ripon. The industry is vital, and a large number of trainers, jockeys, breeders, bloodstock agents and stable lads and lasses depend on the racing industry for their livelihood. My constituency home is on a former stud farm. The contribution that racing makes locally in Thirsk, Malton and Filey is considerable. There is a direct link to point-to-point racing, as well as a contribution to local pubs, shops and restaurants, which benefit from the visitors, thus making a contribution to leisure tourism. One need only visit Thirsk on race day, or race evening, to see the town come alive.
I thank my constituency chairman, Peter Steveney, who has been extremely helpful in enabling me to prepare for the debate and introducing me to many of the main players in the racing community both locally and nationally. I thank everyone who briefed me for today’s debate.
Philip Davies
My hon. Friend will be delighted to know that I contribute to the local economy in her constituency by owning and breeding a number of horses stabled there—at great expense, I might add; I cannot advise anyone to get involved in that activity on commercial grounds. Does she agree that it is not just the trainers and the breeders but the stable staff who work in our constituencies who rely on the racing industry, not just for income but for their jobs?
Miss McIntosh
I shall try to speak more slowly, because I referred to the stable lads and lasses. I yield to no one in my admiration for the work they do. Mucking out horses, taking them out of the stables and returning them to the stables at this time of year is a hard job. I have visited a number of stables, but I have not had the good fortune to see any of my hon. Friend’s rides saddled in my own constituency.
I should like to recall the tragedy that occurred in Malton three or four years ago. Two successful jockeys—rising stars—lost their lives in a tragic fire. For that reason, we very much hope to establish an injured jockeys facility in Malton.
Philip Davies
Has my hon. Friend had the pleasure of seeking out the advice of Mr Michael Easterby, the trainer of my horses and a supportive constituent of hers? If she has not, I suggest that she does. I am happy to facilitate such a visit, because she will learn an awful lot from him, not least some colourful language.
Miss McIntosh
Indeed, my ears are still smarting from my last visit, when I witnessed the severe flooding suffered by the Easterby stables. We must not forget Michael Easterby’s brother, Peter, and I congratulate all the trainers based in my constituency on having the good sense to bring horses such as those owned by my hon. Friend to a marvellous constituency where there are many excellent opportunities to train them.
Having said that, I have visited Middleham in the constituency of the Foreign Secretary, my right hon. Friend the Member for Richmond (Yorks) (Mr Hague), where there are some major racehorse trainers, which only emphasises how important racing is to the north Yorkshire economy. Indeed, many rural market towns depend on local race courses as a source of enjoyment and employment, and as a contribution to the local economy. However, those race courses are under increasing pressure, and it is all too easy for smaller, rural race courses to be under threat from other purposes such as housing. The House would wish to record its disappointment at the recent closure of race courses such as Folkestone and Hereford, and I hope that that process will be halted and kept under review. This is a desperate state of affairs, and many fear that local communities are losing out, with jobs being lost and people being made redundant.
In 2011, 93 races were held at Thirsk race course, with 2,253 entries. These fixtures attracted 55,000 people over one year. This proves that racing is entertainment, which draws people to the area to spend money and contribute to the local economy. In 2011, according to the Sheffield Hallam economic impact study, York race course contributed £58 million to the local economy. The wider racing industry in Yorkshire, with nine race courses, the Northern racing college, Doncaster bloodstock sales, and 120 training yards and stud farms, was calculated to contribute more than £220 million a year to the economy and to support more than 2,300 full-time jobs from the core activity. A further 830 jobs were also supported in the region.
York race course is widely recognised for its good racing. I was honoured to attend during the Royal Ascot at York week. In the past decade York race course has invested over £30 million in capital projects, including the new stands, the track and race-goer facilities. The key part of its income is from the levy board, which helps to fund prize money, and from the wider investment that York race course enjoys through non-interest-bearing loans for capital expenditure for things such as the new stands. Funding from the levy went towards the major developments of the Knavesmire stand in 1996, the excellent Ebor stand in 2003 and the upgrading of the Melrose stand in 2011, as well as the track project in 2009. There is currently a £5 million development at the northern end of the race course to provide a new weighing room, a pre-parade ring and a saddling box. If York race course had not made the improvements to the track, it could not have hosted Royal Ascot at York because the track was not big enough.
The current situation with the levy, which needs to be addressed, means that eventually there will be fewer and fewer entries in races. My hon. Friend the Member for Shipley (Philip Davies) has given us a few markers as to why. Owners and trainers will want to enter their horses in races held overseas to capitalise on the high prize money available there. This would be devastating for north Yorkshire, Yorkshire as a whole and the rest of the country, as the number of active race courses in the UK would decline, a large number of people would lose their income, and livelihoods dependent on racing would decrease.
Philip Davies
I hope my hon. Friend will not over-egg that pudding. Most small owners—and most owners are small owners—own horses because we want to see them run. It is therefore not very likely that we would send them off to be trained in France because the prize money is better there. The races with the most prize money tend to have the fewest entries, and the races with the lowest prize money tend to have the most entries, so I am not entirely sure that the correlation my hon. Friend is presenting stands up to a great deal of scrutiny.
Miss McIntosh
That is a matter for debate. The five-year trend shows that there has been a 15% drop in prize money in flat racing. Perhaps my hon. Friend enters horses only in jump races and is not affected by that.
Philip Davies
My horses run on the flat and over jumps. Any prize money that anybody gets back from owning a horse is a bonus. Most people write off the money and do not expect to get anything back. About 85% of all prize money goes to the top 10 or 15 owners, so increasing the prize money tends to be an exercise in throwing apples into already full orchards.
Miss McIntosh
I disagree on the basis of the conversations that I have had with the industry. Over the past five to 10 years, the percentage change in prize money has been almost minus 8%. Racing takes place on almost every day of the year. On 364 days of the year there is at least one race meeting. It is only on Christmas day that there are no meetings. That means that by any definition the prize money has reduced. Against the backdrop of the cost of owning a horse—perhaps my hon. Friend is so comfortably off that it does not dent his finances, but I am a little alarmed that my brother has taken a share in a syndicate for a racehorse, which might affect the family economy—the trainer who keeps the horse has found that the cost of bedding has gone up, the cost of feed stuffs has gone up, and fuel costs for transporting a horse to the races have gone up. It is a matter of some regret to those in the industry that the prize money and the money coming into racing generally has gone down.
Mr David Nuttall (Bury North) (Con)
Although my hon. Friend states that the prize money from the levy has gone down, I have figures that show that although it may have gone down between 2010 and 2011, when there was a significant fall, it has recovered since then and gone up from £34.7 million in 2011 to £38.9 million in 2012, and is forecast to be £50.2 million in 2013.
Miss McIntosh
I shall come to that point in a moment. The levy yield has gone down in the past 10 years by almost 35%, and the five-year trend shows that it has gone down by almost 21%. The current financial problems with racing revolve around betting companies having moved their businesses offshore, meaning that they are exempt from paying both tax and the levy. As soon as one company moved offshore, there was a need for others to follow, enabling more competition between those companies. My understanding is that, as the hon. Member for Newcastle-under-Lyme (Paul Farrelly) said, only one betting company, bet365, remains based in the UK for these betting operations, and it is a significant employer in his constituency.
As a result of this mass exodus offshore, the Government are losing approximately £300 million in tax each year, and the amount being paid into the levy has been reduced by between £5 million and £10 million. I repeat that the tax situation is properly a matter for the Treasury to address in the Budget. The point that I want to make for the purposes of the Bill is that the drop in levy and the drop in tax has meant that less prize money is available, making other countries such as Ireland and France more attractive for owners to buy horses there and enter them in races there.
To address the point made by my hon. Friend the Member for Bury North (Mr Nuttall), the figures that I have show that the average prize money per race over the past 10 years on flat race courses has seen a reduction of more than 16%, and for jump racing a reduction of almost 10%. Overall the reduction has been almost 14%. The five-year trend for flat racing shows a reduction of more than 3% in average prize money per race and in jump racing a reduction of almost 20%. Overall, average prize money per race has dropped by more than 9%. By comparison, the prize money available in France is approximately seven times higher than that on offer in the UK.
To give an idea of the difference between the UK and France, in 2011-12, £67.7 million on betting activity on British racing was returned to racing through the levy, but in France the PMU, the state-owned tote monopoly—I will talk more about this later—returned approximately £735 million to racing. In Australia approximately £280 million was returned to racing. British owners receive the lowest return from their investment in training fees for racehorses of any major racing nation. I think that the international statistics are powerful and show how weak British racing is in comparison because of the falling yield.
My hon. Friend the Member for Shipley serves with great distinction on the Culture, Media and Sport Committee. The Committee addressed this question in 2012 in its report, “The Gambling Act 2005: A bet worth taking?”, for which it took some compelling evidence. I will share with Members one of its conclusions:
“The failure of the Department for Culture, Media and Sport to work with the Treasury to set remote gambling taxation at a level at which online operators could remain within the UK and regulated by the Gambling Commission has led to almost every online gambling operator moving offshore whilst most are still able to advertise and operate into the UK. We therefore welcome the announcement, made in the 2012 Budget Statement, that the online industry will be taxed on a point-of-consumption rather than a point-of-supply basis. We also welcome the detailed consultation with the industry since the Budget over the design of the policy framework and look forward to the Government's response. To give certainty to online operators, and their investment plans, we urge the Government to adhere to its timetable for implementation by December, 2014 and to make plans to deal with any challenges to the proposed new system. However, the Treasury still needs to work with industry stakeholders to establish the correct level for online gambling taxation, taking into account the need to encourage companies to accept UK regulation and taxation and to discourage the formation of a grey market.”
There we have it. My hon. Friend the Member for Shipley, a distinguished member of the Committee, did not, to my certain knowledge, dissent from or disagree with that conclusion, seek to distance himself from it, express an opposing minority view or table a minority report, so I am delighted that we will no doubt enjoy his full support today. In his own Committee’s report, he has drawn two conclusions: it is for the Treasury to close that gap to ensure fairness in taxation, but it is for the House today to ask the Minister either to accept the Bill or to give an assurance on the precise date and timetable for when the Government will bring forward their proposals for the remote gambling Bill. Should the worst happen today and the Bill falls, will my right hon. Friend the Minister accept an amendment on the levy when he brings forward the remote gambling Bill? I will move on to that momentarily.
Paul Farrelly
Heaven forbid that the hon. Lady should suspect the hon. Member for Shipley (Philip Davies) of ever opposing a private Member’s Bill. Clearly, the timing of the legislation is not entirely in the sport Minister’s hands, because it is dependent on the Treasury. I emphasise the importance of the December 2014 deadline, because of the investment plans of operators such as bet365 and the need for certainty. I must say that the plans of companies such as bet365, which is a European operator, might have been somewhat jolted by the Government’s announcement on holding an in/out referendum by 2018.
Miss McIntosh
I think that the hon. Gentleman might find some reassurance in the remarks I am about to make. I will answer the point the hon. Member for West Ham (Lyn Brown) made earlier about enforcement. I hope that the Bill will satisfy her in that regard. The Select Committee’s excellent report sets out why we need the Offshore Gambling Bill, as opposed to a remote gambling Bill. I will now go through the relevant clauses.
Philip Davies
The hon. Member for Newcastle-under-Lyme (Paul Farrelly) is a far more distinguished member of the Committee than I am. Has my hon. Friend given any thought to the legality of her proposal to add the levy requirement on to this issue, because it seems to me that it might contradict European law? She is much more of an expert in that field than I am, so I wonder whether she could tell us about it. If it did fall foul of the European Union, perhaps that would encourage her to join me in voting no when the referendum comes.
Mr Speaker
Order. It was, I think, predictable that the intervention of the hon. Member for Newcastle-under-Lyme (Paul Farrelly) would provoke the hon. Member for Shipley (Philip Davies). I simply say to the hon. Member for Thirsk and Malton (Miss McIntosh) that there is a substantial canvas available to her in offering the House a speech on her Bill, but it does not extend to covering the merits or demerits of an in/out referendum on the European Union.
Miss McIntosh
I hope that I might please you, Mr Speaker, even if I disappoint other hon. Members, when I say that I have no intention of going down that path today. I do not wish to enter into a competition about who is the most assiduous or distinguished member of the Select Committee. Suffice it to say that I yield to no one in my admiration for the members of the Committee here today.
James Duddridge
All members of the Committee are distinguished and their advice should be considered carefully. Both the Department and the Treasury should work closely together, which is why I am encouraged to look at the Government’s alternative Bill, rather than my hon. Friend’s Bill. Perhaps she could reassure me and explain some of the discussions she has had with the Treasury and the Department.
Miss McIntosh
I believe that the debate we are about to have on clause 4 goes to the heart of that matter, but I would like to remain in order and to go through clauses 1, 2 and 3 first before addressing the issue of the levy, which is set out in clause 4 of the Bill, which I am promoting on behalf of my hon. Friend the Member for West Suffolk.
Clauses 1, 2 and 3, as the Select Committee has made clear, set out the problem. The Bill proposes to put the operation at the point of consumption, which means where the customer is in the United Kingdom. I do not think that any customer placing a bet, either through a betting exchange or online—I saw yesterday for the first time a betting exchange work on someone’s mobile phone, but I am afraid that I resisted the temptation to place a bet—assumes that the company through which they are placing it is based anywhere other than the United Kingdom. I think that it would come as a surprise to them to learn that the company is based in Gibraltar, the Isle of Man or some other such place.
The background information provides a reason for bringing offshore operators into the United Kingdom for the purposes of advertising, licensing and the levy. Betting companies that provide gambling facilities for British customers will be required under the Bill to be licensed by the Gambling Commission, which will ensure that the correct tax and levy are paid, and the tax situation will be resolved in future by the Treasury. If a bet is placed in the UK, under the point of consumption licensing, that bet and the company behind it should be covered by UK law and domestic regulation to protect consumers. That should be welcomed by the betting companies because it gives them, to use the idea expressed by the hon. Member for Newcastle-under-Lyme, clarity and legal certainty and sets the relationship on a sound commercial basis on which they can operate. It will be completely transparent and open to scrutiny by the regulator.
Philip Davies
If the Gambling Commission had to license each individual betting operator wherever they operated around the world, as opposed to simply accepting a white list and the regulation that takes place in a particular jurisdiction, has my hon. Friend given any thought to what the resource implications would be for the commission and how many extra staff it would need to take on to deal with that extra licensing?
Miss McIntosh
I hope that my hon. Friend will not mind me answering in plain Yorkshire by saying that that is plain daft. The Gambling Commission had the right number of people in place from the outset; they are just not being put to good use. The so-called white list is being completely avoided, contrary to the terms set out by my hon. Friend’s own Committee, which wants to discourage the formation of a grey market. The white list is not working—a grey market is coming in and undermining companies such as bet365.
It is absolutely clear that an unintended consequence of the Gambling Act 2005 was the movement offshore of the major betting operators. All it took was for one operator to move offshore and the others followed, as it became less competitive for them to remain in the UK. This was neither the wish nor the stated intention of the House when the Gambling Bill was going through its stages, and now the problem must be rectified once and for all. The Offshore Gambling Bill would restrict what betting operators can do on the internet without a licence, and it would make it harder for operators to find customers in the UK, because they would be banned from advertising and marketing if they did not obtain a licence.
Philip Davies
My hon. Friend claims that that what I said was daft, but could she give some examples of betting companies that operate on the grey market and that do not offer proper protection to punters? As far as I am aware, there is very little evidence of betting by UK punters on any grey market whatsoever. The danger is that the Bill would create a grey market, not that there is a grey market at the moment. We would all be interested to hear whether my hon. Friend has evidence of any companies with UK customers that are operating on what she would describe as a grey market.
Miss McIntosh
I do not think that the purpose of this debate is to draw up a grey list or a black list; the purpose of the debate is to set out the problem, as identified by my hon. Friend’s Committee, and to address it.
Obviously, it is impossible to restrict all internet use because of its sheer size, but we want to make the situation much fairer and clearer for anybody placing a bet and put everything on to an even keel. I think that one point that my hon. Friend and I would agree on is that we want to bring more money back into the UK so that it can then be spent on racing.
Because of the increased use of the internet for gambling purposes, it is crucial that the integrity of the sport is maintained. Therefore, information-sharing between betting operators—for example, the information on account holders—must occur when suspicious gambling takes place.
As I said earlier, the Gambling Commission would play a crucial role in the public policy aspect of clauses 1, 2 and 3 in protecting the young and vulnerable. It surely must be in the interest of bookmakers to have a healthy racing industry. The purpose of the Bill is not to pit bookmakers against other sectors of the racing industry; its purpose, and that of the positive conversations that I have had with those in the racing industry, is to promote partnerships. That is something that successive Government have done. The Labour party chose to call them, rather vulgarly, stakeholders, but we prefer a more cuddly partnership approach. That is precisely what we want to achieve—a partnership with bookmakers, whom I think have become one step removed from other partners in the racing industry. We also want to create fair competition between onshore and offshore bookmakers.
Hon. Members may raise the fear later in the debate that the operation of online betting will be moved further offshore to China. I would like to know from those hon. Members how that can happen when it is completely illegal to place a bet in China, either online or offline. China is a bad example to use.
Mr Nuttall
I am not sure why my hon. Friend has mentioned China. It has not been mentioned before or in any of the conversations that I have had in the run-up to this debate. What we do know is that, in other countries and jurisdictions that have tried to go down the road of regulating remote gambling, there has been a leakage and the development of grey markets.
Miss McIntosh
I think that my hon. Friend’s argument helps mine and disagrees with that of my hon. Friend the Member for Shipley, who might, therefore, like to explore it.
The purpose of clauses 1, 2 and 3 is to bring offshore activities back onshore to allow the Gambling Commission to intervene in order to be able to discharge its public policy role and promote consumer protection. The sports integrity of racing, football and cricket is also important. The gambling scam in cricket captured everybody’s attention, but we now know that that could so easily happen in racing and football, too. This is, potentially, a big and growing issue. If a relevant website was licensed by the Gambling Commission, that would give it the opportunity to report all suspicions activities. They could be monitored and the commission could discharge its public-policy and consumer-protection role.
James Duddridge
The hon. Lady mentions suspicious transactions in cricket and football, but would she also include politics and politicians placing bets on that list? Our Liberal Democrat friends, who are no longer in their place—if they ever were during this Friday sitting—are well known at by-elections for placing bets of relatively small amounts on their candidates, in order to move the odds and then place a leaflet in “Focus”, or whatever their little yellow paper is called. If this is moved offshore, would it not be even harder to catch them in the act?
Miss McIntosh
My hon. Friend throws new light on the debate with an issue of which I was unaware. I do not know whether my hon. Friend the Member for West Suffolk knew of it when he was drafting the Bill, but I am sure that it has caused great consternation to the House.
Racing is still the main sport that attracts those who place bets online or offline into a betting shop or on to a computer to place a bet, and that is why this Bill is so important.
Mr Speaker
Order. May I just say, with reference to what has been said, that periodic reference to and use of the word “offshore” because it is part of the title of a Bill does not render orderly an intervention that is otherwise disorderly?
Philip Davies
Thank you, Mr Speaker. I am grateful to my hon. Friend for giving way, but would she accept that most of the corruption she mentions with regard to sport and gambling has had nothing to do with any UK-based company or even one based in Gibraltar? It has been fuelled by illegal activity in the far east—perhaps that is why she got mixed up on China earlier. Any changes to regulation here would make no difference at all to that illegal betting activity in the far east.
Miss McIntosh
What we are trying to do is help racing in the UK by bringing activities that are deemed to be in the UK back here so that they fall within the remit of the Gambling Commission. That would lead to, I hope—mindful of those placing bets—a duty to behave responsibly and would provide legitimacy for licences based in the UK. I will come in a moment to why it would introduce a level playing field.
Paul Farrelly
Perhaps I can help with some facts. Will the hon. Lady acknowledge that it is important to compare like with like? There are examples of well-thought-out point of consumption regimes in Denmark and Spain that capture the vast majority of online gambling and bring revenue back to the Exchequer. In changing the regime here, the Government are showing every sign, I am pleased to say, of taking that very careful, considered and measured approach so that it will be effective at the end of the day.
Miss McIntosh
The hon. Gentleman makes a powerful and pertinent point that I hope will satisfy my hon. Friend the Member for West Suffolk.
The purpose of clauses 1, 2 and 3 is to bring unlicensed offshore companies back under UK law and back under the regulator, making sure that they advertise here, have a licence here, and are under UK public policy provisions and the UK consumer protection remit of the Gambling Commission. Offshore betting online—remote gambling —would be back under UK regulation so that all those betting activities could be regulated equally by the commission.
Clause 4 relates to the horse racing levy. This provision is the main difference between the Bill before us and the remote gambling Bill that we hope Ministers will introduce in the next parliamentary Session. When betting shops were legalised in 1961, that was the first time that a bet could be placed other than on course. Now, even more gambling is taking place with internet gambling, and there is a wider choice of how to place a bet. That raises the question of how to bring the money placed on an offshore bet into the levy so that it can return to racing.
It has been pointed out to me in the course of preparing for this debate that an unintendend consequence of the Bill is that the UK could become a centre from which illegal markets operate. Foreign companies that are not subject to tax and the levy could find it more competitive to attract British consumers in this way. There is a fear that operations could move from the EU to third world countries, as the ordinary consumer—the person placing the bet—would not be able to tell where the website was licensed. In addition, the EU Commission needs to be persuaded that clause 4 is acceptable, and for that purpose there has to be proof that consumers are not benefiting from the current system. However, Bills similar to this have already been passed in other EU countries.
The Government have voiced concerns over a potential state aid issue whereby a tax is applied to companies based in other EU countries to fund racing in those countries. I hope that the Minister will respond to this point. Some companies based offshore thereby avoid paying tax and the levy despite the fact that they operate almost solely in the UK. It has been suggested that there could be problems in compelling the whole market to pay at the point of consumption, as betting operators are not keen to pay the tax and levy unless they can see that everyone else is doing so. This would increase the currently uncompetitive nature of being based in the UK and mean that less money is put back into racing.
Betting operators who are based offshore are reaping all the benefit of accessing the British market but are not contributing financially to the future of horse racing. The UK has the most liberal gambling market imaginable, with open competition, betting shops, the internet and the legalisation of gaming machines in shops. If betting operators are brought into the taxable area, their biggest concern will be the rate at which the tax is set. I accept that that is a matter for Her Majesty’s Treasury. However, it has been put to me that if the tax were set at 15% of gross profits, a number of betting operators would become unprofitable. The purpose of the Bill is not to increase tax, which is properly a matter for the Treasury, but to level the playing field for those contributing or not contributing to the levy. I hope that that addresses any potential misunderstanding of the purpose of clause 4 and the Bill, as opposed to the remote gambling Bill.
James Duddridge
If hon. Members are concerned about the levy—I have a few concerns—would it be possible to propose the removal of clause 4 in Committee to make the Bill more like the Government Bill? That would give the House the opportunity to consider today whether to take forward this Bill or the Government Bill.
Miss McIntosh
Perhaps I am not being very clear, but I think that the wish of the House is to include clause 4 to address the levy situation. Together with any potential Treasury action in the Budget, we need to ensure not only that a sensible rate of tax is set by the Treasury but that the levy and tax contributions together cannot be left as voluntary. We have recently seen too much of corporations such as Amazon and Starbucks avoiding tax in this country.
Philip Davies
I understand the thrust of my hon. Friend’s point. However, when the Secretary of State comes to a determination on the levy, or an agreement is reached on it, the mechanism used is designed to reach a particular figure of, say, £75 million. If the Bill succeeded and money were added on, the target figure of £75 million would still apply. All that would happen is that the mechanism used to calculate it would change in order still to hit £75 million. We would not get any more money through the levy; we would just have a different mechanism for getting to that figure.
Miss McIntosh
That is a matter for debate. I would hope that there can be some flexibility in this regard. Tax is a matter for the Treasury, while the levy is a matter for the Department for Culture, Media and Sport.
As the levy already exists, there should not be a problem in extending it to overseas operators to equalise the conditions of competition so as not to generate a new state aid issue. If it is thought that the levy raises such an issue, the Gambling Commission has waited an incredibly long time to say so. The levy is not paid directly to economic operators in the field of horse racing but directly to the Horserace Betting Levy Board, which then distributes it for the improvement of horse racing as an industry, including veterinary science and education. Without the levy, it is hard to see what contribution bookmakers would make. The levy fell to a very low level, but it started to rise and now seems to have stabilised again.
James Duddridge
Have the Government not asked the levy board to look at a consultation on the voluntary arrangement that is not concluding until autumn 2013? Could it be argued that this is the wrong time to legislate and that we should let the Government encourage that consultation? Without intending to use too many puns, is not my hon. Friend putting the cart before the horse in pushing this Bill through now?
Miss McIntosh
Perhaps we are in danger of the horse having bolted. I would say, as we canter around the course, that the voluntary idea simply does not work. A lot can be said for the one company, which I shall try not to name, that has proceeded on a voluntary basis. It has entered into a commercial deal that has safeguards in place to ensure that the contribution is made at the point of consumption. The time has passed for a voluntary option, and we have to move on to some sort of compulsion. It would be helpful if there were a further level playing field in that those who had entered into a voluntary deal were allowed to sponsor prizes and races. It is unfair that the one company that has so far entered into the voluntary arrangement is not allowed so to do.
James Duddridge
My hon. Friend is defeating her own argument by mentioning the one company that has come forward and done the right thing on a voluntary basis. Does that not show that some people are starting to come forward and that the process is working, and may I urge her to name the company? It sounds like a company that, although it might not be perfect, is doing better than the rest of the marketplace. We should encourage it.
Miss McIntosh
Let me make the case, and then perhaps I will satisfy my hon. Friend’s request. Importantly, the levy was created and enforced prior to our entry in 1973 into the Common Market, as the European Union was then called. Let me state clearly and graphically that the levy enjoys grandfather rights—that is the big difference between the Bill under consideration and the remote gambling Bill—and cannot therefore be said in any shape or form to constitute a state aid.
What authority do I have to make this case? I hesitate to say this, but as a mere youth in 1978 I spent six months on a stagiaire placement as a trainee with the Commission in the Directorate General for Competition, then known as DG 4. The House will be familiar with the competition rules—originally articles 85 and 86 of the treaty of Rome, and now known as articles 105 and 106 of the snappily entitled treaty on the functioning of the European Union—that set out the common rules on competition, taxation and approximation of laws. As the levy existed prior to 1973, and because it has grandfather rights, it cannot be deemed to constitute a state aid, and the fact that we have not been pursued by the European Commission emphasises that. I hope the Minister will listen closely to and support those arguments, and that he will either give the whole Offshore Gambling Bill a fair passage today, or say that when the remote gambling Bill is brought forward, clause 4—or its equivalent relating to the levy—will be included.
Clive Efford (Eltham) (Lab)
I suspect that the hon. Lady is coming to a conclusion, but I was expecting her to refer to discussions she has had with the Government about her Bill. I cannot help noticing that the clauses in her Bill are—with one exception—almost identical to those in the Government’s Bill, which suggests some form of dialogue between the hon. Lady and the Government. It would be desirable for that part of the Bill to make progress. Has she discussed with the Government when they intend their Bill to complete its progress? Perhaps we could succeed in that and deal with the levy separately. Has she considered that?
Miss McIntosh
I am not concluding quite yet, but I have always considered myself to be particularly close to the Government having served for nine years as a shadow Minister. I have had loose discussions on that issue; I am sure the Minister will elaborate in summing up and—hopefully—accepting this Bill, and we will then have a space in the legislative programme from May for another Bill such as the water Bill. I am sure the whole House joins me in looking forward to that.
We are seeking reassurances about when the Government will bring forward their remote gambling Bill. It is not sufficient for the Minister simply to say that it will be in the next Session, which will start in May 2013 and end in May 2014. I think that would be unacceptable, and I hope that the Minister will comment not only on when the Bill will be presented but, as the hon. Member for Eltham (Clive Efford) said, on what the timetable will be and when the legislative stages will conclude. I hope he will also respond to the point about the levy, which, as I have said several times, is the main point of contention when comparing the Offshore Gambling Bill and the Government’s remote gambling Bill.
James Duddridge
My hon. Friend is perhaps being unfair on the Minister. Although he has indicated that the Bill will make progress in the third Session of this Parliament, would it not be unprecedented, given all the enormous problems in the country, for such a Bill to be given preference following the Queen’s Speech? He has already gone some way to making assurances, but to hold back praise purely on the issue of timing in the next Session seems rather unfair and churlish.
Miss McIntosh
I do not want to appear ungracious and I congratulate the Minister on the work he has done in preparing the remote gambling Bill. However, there is a sense of urgency. Every time I visit a stable yard—whether or not it is the one housing the horses of my hon. Friend the Member for Shipley—I have the acute impression that a crisis is hanging over the racing industry that we need to address. Competition is currently distorted and some companies are reaping the benefits of the industry—consumers wanting to place bets—but do not contribute financially to the long-term upkeep and maintenance of horse racing.
Although the levy is provided from state resources, its extension to overseas operators would only equalise, not distort, competition. The overall impact of betting operators having moved offshore has been the decline in prize money I referred to earlier. Race courses have therefore had to fund part of the prize money themselves, as well as fund the levy, which is its biggest overhead. Therefore, if the levy decreases, race courses have to contribute more to maintain the same level of prize money. That is difficult to do, because if more money goes into prize money, less is available to spend on the integrity of the sport and things such as the photo finish and dope testing.
Philip Davies
That is not necessarily the complete picture, as I am sure my hon. Friend knows. Racing and race courses get income not just from bookmakers through the levy; increasingly it comes from picture and media rights, which those have gone up massively in recent years to the extent that, if the levy and media rights are taken together, we see that bookmakers are now paying far more for the racing product than ever before.
Miss McIntosh
Picture rights are only part of the story, however, and are up for renegotiation at frequent intervals. That is a very recent development. When the budgets of race courses are squeezed, competition reduces and, it is argued, lower-quality races are run.
Let me share with the House the figures for the average field size. Over a 10-year trend there has been a reduction of more than 11% for flat turf racing, and a reduction of more than 9% for hurdles. Between 2006 and 2010 there has been an 8% change overall in the average field size, which means that less money is going in. The average number of runners overall has gone down by 8% over the past 10 years. That is obviously setting alarm bells ringing through the racing community. If the number of runners go down, the contribution to racing and the level of prize money will also go down unless the race courses make up the shortfall.
Mr Nuttall
My hon. Friend makes an interesting point about the reduction in the number of runners. She mentioned that she spent time visiting stables, including in her constituency. Does she know of reasons other than the level of prize money that contribute to the reduction in the number of runners?
Miss McIntosh
As I have said, other reasons include the cost of keeping a horse in training, to which I am sure my hon. Friend the Member for Shipley will testify. Feeding costs have gone up hugely for all livestock, including horses. Bedding costs have gone up hugely. Alternatives to straw are being considered. Corn is being produced so that more corn goes to cereal and there is less straw, which has a huge impact on the stabling costs. Many of the stables I have visited had considered alternatives such as cut-up newspaper. However, I understand that stabling horses with newspaper—this also applies to using newspaper for chickens—leads to a cough and is a health hazard that can prevent horses from running.
There are therefore reasons other than economic ones—though costs are increasing—for smaller field sizes and fewer runners. In turn, that reduces the footfall at the race course, and so yields less income from admission prices. Figures for the past five and 10 years show that average attendances are down by a considerable 7%. Trainers are training fewer horses, and therefore require fewer stable staff and fewer farriers, which will have huge knock-on effects in rural areas such as my own of Thirsk, Malton and Filey. The trainers require fewer saddlers and horse boxes. The knock-on effect on the whole rural economy is potentially huge.
The results are the same if there is less prize money, because owners enter their horses in races from which they will see a greater return, and at this point in time that means overseas. My hon. Friend the Member for Shipley seems to be bucking the trend, because it appears that the number of owners is down. The number of sole owners has dropped in the past 10 years by 13%, which is less than the drop in partnership or company owners whose numbers are down by more than 31% in the past 10 years, and by almost 20% in the past five years. I do not think the House can argue that the racing industry is not facing a crisis. That is why the Bill is so urgent. My hon. Friend the Member for Rochford and Southend East (James Duddridge)—I am delighted to have had the honour to represent that area in the European Parliament between 1989 and 1994—must now be satisfied about why the racing industry is in penury and why racing needs the money.
It is true that the wealthy end of the sport—I am looking at no one in particular—is unaffected by the reduction in prize money. However, at the budget end of the sport, the smaller syndicates and individual owners are struggling.
Philip Davies
Lest anyone be confused by my hon. Friend’s musings, I assure her that I am certainly not at the wealthy end of any spectrum, and that I own my horses through small syndicates, which she said were not decreasing in number as much as sole owners. I am at that end of the market rather than the Sheikh Mohammed end.
Miss McIntosh
I have a link with Sheikh Mohammed—his horses were at stud where I live in the constituency—but I take my hon. Friend’s point.
The fact is that the problem affects the race courses that are in far more remote areas of the country, located further away from racing centres. I am not thinking particularly of my area in that regard, but of further- flung courses in Scotland and the UK, which are feeling the effects of the reduction in the levy because they have less to offer to owners and trainers. A further consideration is the price of fuel and the location of the race course in relation to the trainer’s yard. The trainers to whom I have spoken have made that point most vigorously. They take not just one horse to one course on a given day, but multiple horses to multiple race courses. That makes certain race courses far less appealing than others.
I have argued that state aid rules should not be a significant issue, but if they are, a way around them has been suggested: all betting operators could require a UK licence. However, in order to obtain that licence, they must enter into a commercial deal with the British Horseracing Authority that ensures that a percentage of their gross profit goes back into racing. That approach has already been taken up by one betting operator, to which I have referred. Pressure must be placed on others to follow. There could be a further incentive: betting operators must have a commercial deal if they want to sponsor the big races and meets.
On the so-called problem of competition law—[Interruption.] I ask for the Minister’s attention at this point, because this is the crux of my argument and the main difference between the Gambling (Licensing & Advertising) Bill, which deals with remote gambling, and the Offshore Gambling Bill. I struggle to see why the Minister, the Department or the Government should so categorically state that extending the levy to overseas operators would breach the rules on state aid. I mentioned my own background information in that regard, but I have also taken advice from a legal counsellor.
To state the obvious, the levy already exists, so its extension to overseas operators would purely be to equalise the competition conditions and ought not to generate any new state aid problem. Those arguments arose at the time of the sale of the Tote—I argued vigorously with successive Governments that there were no state aid issues. We are often fearful in this country of debating with the European Commission, and yet, in my experience, Commission officials are even more open than officials from UK Government Departments. The existing levy of the 1960s pre-dates our entry into the Common Market in 1973 and has grandfather rights, as I have said. If it is thought to raise a state aid issue—as I have explained, there are good reasons why it should not—why has the Commission waited so long to raise this point? I put it to the Minister and the House that the Commission has chosen not to do so because there is no state aid issue. I want to help the Government and my right hon. Friend the Minister in this regard. The Government might be nervous that the Commission is currently examining the state aid aspects of the parafiscal levy on online horse race betting in France. France has been notified that such a measure is, in the Commission’s view, a state aid.
The Commission has opened proceedings under article 108(2) of the treaty on the functioning of the European Union. The case that the Commission brought against France commenced in 2010 and has still not been completed some three years on. It relates to a levy to finance the public service mission of
“improvement of the equine species and the promotion of horse breeding”—
this is from official journal, which is the reason for the legalese—and
“training in the horse racing and breeding sector and rural development.”
The invitation to submit comments under the treaty on the functioning of the EU was published in January 2011.
The case against France is that the French authorities notified the Commission of a proposal for a parafiscal levy on online horse race betting in order to fund a public service mission entrusted to horse racing companies. The notified measure comes in the context of the opening up of certain online games of betting and chance under the French law of 12 May 2010. That law ends the monopoly on online horse race betting held by Pari Mutuel Urbain, commonly known as PMU, an economic interest grouping of 51 horse race companies that, however, retains the monopoly of online horse race betting through its physical network of sales outlets. The French authorities argued their case that the purpose of the levy was to fund the public service mission improvement. They subsequently submitted this to the Commission and it considers that the aid measure contains all the features constituting the concept of state aid, and published its decision inviting comments and consultation.
My question to the Minister today is: have we, as a party, joined that case? Did the Government respond to that invitation to clarify the legal situation? That would have been immensely helpful to the Minister, both in responding to the Offshore Gambling Bill today and in preparing his own remote gambling Bill. I want to strengthen the Minister’s and the Government’s arm. We have nothing to fear on this point from the European Union. We have a very strong case to put, and it appears to me that there are distinctions between it and the French case. I hope the Minister has joy and that the Government did respond to that consultation and can use it as an opportunity to clarify the difference between the French proposed parafiscal levy and our levy which has existed since the early 1960s and enjoys grandfather rights, which by no stretch of the imagination can be said of the French proposed parafiscal levy. If the Minister did not respond to that consultation, he owes the House an explanation of why the Government chose not to respond, as it would have been a unique opportunity to clarify the law in this regard.
There are distinctions between the French case and the Horserace Betting Levy Board. Most importantly, the levy in this country is not paid to economic operators in the field of horse race betting, but paid direct to the Horserace Betting Levy Board, which then distributes the proceeds of the levy for the improvement of racehorses: and breeds of horses, and for the advancement of veterinary science and education. There is no direct participation by bookmakers in the proceeds of the levy, and if any advantage is conferred on them it is only on the maintenance of the stock of good quality horses, the provision of grants to cover the costs of regulating races and to provide loans for the improvements to racehorses. It is very hard to reconstruct what contribution bookmakers might have made without the levy, but it cannot be sensibly said that the levy relieves bookmakers of the burden that they would otherwise have had to assume. Indeed, the paradox before us today is that the existing levy confers an advantage on overseas operators, since they derive, albeit indirectly, the benefit from a healthy horse stock and well-provisioned race courses without having to make the contribution that their domestic competitors have to make. That must surely distort competition.
We are not proposing state aid. In no way would the Government, were it to agree to clause 4, be proposing state aid. Clause 4 seeks to equalise unfairness and to remove the distortion to competition between bet365 and others who place their bets in the UK, and those offshore operators who place their bets in Gibraltar and in other offshore territories. It may be that I have to concede that the levy is provided from state resources, because it is a statutory levy. However, there seem to be powerful arguments that its extension to overseas operators would tend to equalise the conclusions of competition, not distort it.
I therefore put it to the Minister that today is his opportunity to explain his views, his Department’s views and the Government’s views on state aid once and for all. We have never had the opportunity in the House to discuss this—this is a unique opportunity to do so. It is incumbent on the Minister to explain why, if he did not, he did not respond to the consultation’s points in the official journal called by the European Commission to the French-proposed parafiscal levy. I ask the Minister to explain his views on state aid, and explain why they are at such variance from mine and those of the Under-Secretary of State for Skills, my hon. Friend the Member for West Suffolk who is sat next to him on the Front Bench. We believe that this does not constitute state aid but merely seeks to close the gap and remove the existing distortion from competition.
Paul Farrelly
The hon. Lady will probably be aware that there have been challenges to point of consumption legislation in Europe from operators affected. On that point, does she think that it may be better to deal with the levy separately from the rest of the legislation backing point of consumption, so that there is less opportunity for challenges to the change of the framework, which may just delay the Exchequer getting more money and the levelling of competition across the board in general, not with specific reference to horse racing?
Miss McIntosh
I see where the hon. Gentleman is coming from, but I think that would be unacceptable to the racing industry. The message that I want to go out from the House today is that the House cares about the racing industry, recognises the contribution the industry makes to the micro-economy in rural north Yorkshire—Thirsk, Malton and Filey—and to the greater economy of the United Kingdom. Racing has been cheated for months and years ever since these offshore operators have been operating out of Gibraltar, the Isle of Man and other such unacceptable points of establishment.
This is a unique opportunity to take the challenges facing racing in the round. I fully accept that we cannot deal with questions of taxation today—that has to be the remit of the Treasury. I am sure that my right hon. Friend the Chancellor of the Exchequer will address that point, giving those affected sufficient time to prepare for this tax. Some of the betting companies are alarmed about this, but I think unnecessarily so. That is a separate argument, however. Clause 4 and the matter of the horse racing levy is an integral part of the whole problem of racing being cheated out of the money. The consequences of licensing and advertising offshore and not paying towards the levy onshore need to be addressed together. We seek to improve competition and equalise the market. I notice that my right hon. Friend the Minister is shaking his head. He must be bold. He has nothing to fear. He has the whole of the House and the industry behind his not inconsiderable stature. I therefore hope that the Minister will march forth today and take on those companies, which want to do the right thing—one of them is already doing so. They should join in line and make the Minister’s life easier and the racing industry’s future much more certain.
The Bill aims to remedy the current flaws in the system to ensure that all betting companies pay the correct amount of tax and contribute to the future of racing by paying the levy. I accept that the levy in its current form is no longer fit for purpose and must change. The industry has some time to do so—it has been invited to do so by the Government, which I welcome. The purpose of today’s Bill is to equalise the competitive situation, as in France, to ensure that everybody pays the tax and the levy and that everybody knows and can see that they are doing so. The Bill is not anti-competitive; quite the reverse. It seeks to encourage competition by removing the current distortion in the market. Without this Bill, racing will continue to lose out on much-needed funding.
I recognise that costs are increasing—the costs of trainers, feed, bedding, fuel and travel—and prize money has gone down. I fully accept that racing has long been considered the sport of kings. In north Yorkshire it is also recognised as bringing tremendous enjoyment to local participants and tremendous returns—on a good day or a in a good year—to the trainers, stable boys and lasses, jockeys and owners, and also the local economy. It gives me great pleasure—it is also an honour—to take over the Bill today from my hon. Friend the Member for West Suffolk. I hope that the House will give it a fair hearing. We wait with great anticipation to hear the Minister’s response, to ensure that racing can proceed on a much firmer footing than in the recent past.
Paul Farrelly (Newcastle-under-Lyme) (Lab)
I, too, start with a double congratulation to the hon. Member for West Suffolk (Matthew Hancock)—or perhaps the honourable Member for Newmarket, as he might more appropriately be known today—first, on securing this private Member’s Bill in the ballot and, secondly, on his promotion to Under-Secretary of State for Skills at both the Department for Education and the Department for Business, Innovation and Skills. He has certainly got a lot on his plate, so it is kind of the hon. Member for racing at Thirsk, if not Malton (Miss McIntosh) to take the Bill on so ably for him.
At this point I was going to say that I will make a short contribution, because I realised that the Bill’s promoters were not seeking to take it forward in its current form, but the hon. Lady’s lengthy speech has left me in some confusion about that. If she wants to intervene on me, I would be grateful for some clarity.
Miss McIntosh
What we are seeking is a number of assurances from the Minister, as I set out in my speech.
Paul Farrelly
It seems clear from that intervention that the Bill will not go forward in its current form, because the Government have just published their draft Gambling (Licensing & Advertising) Bill and, with the exception of the racing parts, today’s Bill covers the same ground. In fact, we will be scrutinising that draft Bill in the Select Committee on Culture, Media and Sport on Tuesday, so perhaps the promoters and sponsors of today’s Bill will want to make a detailed written submission to the Committee—or, indeed, send the Hansard report of this debate—as we perform that scrutiny. That draft Bill is the DCMS/regulatory end of what the Government propose as a major reform of the taxation regime—the move to point of consumption as the basis for taxation of remote online gambling. The business end of that change—the Treasury part—is at the detailed policy design stage, which has been the subject of extensive consultation by the Government.
We are still awaiting a response to that consultation, but the Government have just published their response to our report from last July, “The Gambling Act 2005: A bet worth taking?”, in which, as we heard from the hon. Lady, we unanimously welcomed the change of emphasis towards taxing remote gambling on a point-of-consumption basis, for three very good reasons. It may well encourage online operators to rebase themselves here, following a flight overseas—in particular, to Gibraltar. Changing the emphasis would level the playing field for operators such as bet365 that have chosen to remain here and pay tax in this country, and it would raise tax for the hard-pressed Treasury.
For certainty’s sake, we also recommended that the Government adhere to their timetable of December 2014 for implementing the new regime, bearing in mind the possibility of a challenge in Europe if the tax level in particular is not right or acceptable to the operators, which might wish to challenge it, as they have challenged other moves in the EU. Such a challenge might be a vexatious challenge at the last moment, simply to delay things as far as possible. That would have major repercussions for operators such as bet365 or others that might wish to return to the UK, as well as for some expensive investment plans, particularly in IT and servers, and in sales.
In their response to our report, the Government have said that they are still analysing the responses to the detailed policy design to make the system effective. I recognise that the Minister today is from the Department for Culture, Media and Sport, not the Treasury, but it might be useful in his summing up if he could give some guidance on when that response will be published, because we are all interested to see it. Indeed, the representations that the Government have received may well cover the same ground as the representations that our Committee has received for our scrutiny, because they will be from all the members of the Remote Gambling Association.
The RGA has much to commend it, not least the way it goes about promoting the industry in other jurisdictions—in particular, the other 26 members of the European Union—and making the case for sensible market reforms that are workable. The RGA is led well, works well and is respected as a body for the case it makes. However, the reality is that, in the UK, the RGA is a lobbying organisation with a strong vested interest, because the vast majority of its members are already based offshore and will therefore by definition oppose a point of consumption basis for taxation.
Miss McIntosh
As the hon. Gentleman has mentioned bet365 in his constituency and the RGA’s lobbying power, does he not accept that—with Malton as the main centre of training in my constituency, but with a few trainers in Thirsk as well—the trainers and, indeed, the whole racing industry are perhaps not as cohesive, but instead fragmented, which means that their views are not heard as clearly as those of a focused lobbying organisation such as the RGA?
Paul Farrelly
I take the hon. Lady’s point, but I think she is rather doing herself down, because the case made in this Bill and the fact that the horse racing levy exists at all show the power of the industry and the representations made on behalf of racing.
On the thrust towards a point of consumption basis, the vast majority of the RGA’s members are based offshore, where they pay very little tax. Therefore, although I respect the RGA in many respects, we have to take its arguments against the thrust of the change to the regime with a pinch of salt. The big exception among its members is bet365, which in 10 years has become the biggest employer in north Staffordshire. It is largely UK-based—all its sports betting has always been UK-based—because the founding Coates family believe in creating employment locally and paying their fair share of tax. Their commitment to our local area and sport in general is shown in their ownership of Stoke City football club, as the hon. Member for Shipley (Philip Davies) will very well know. Indeed, unless someone is a very wealthy racehorse owner—I am looking to Manchester—owning a premier league football club is going to make a big dent in their pocket. The commitment of the Coates family is demonstrated and well regarded.
We do not see it in the RGA’s representations, although it appears in its previous submissions to the Select Committee, but bet365 wholly welcomes the Government’s change to a point of consumption basis for taxation. By virtue of that, it is important to recognise that the RGA does not speak for all its members on that matter or, because of the success of bet365, for a big slice of the UK online market.
James Duddridge
It is interesting to hear what bet365 has done, for good reasons, within its community. Has the hon. Gentleman learned from his discussions with the company whether it has managed to persuade any other organisations to start thinking in a similar way and to come back onshore on a voluntary basis, or are those organisations so far removed from bet365 that it will remain an isolated case?
Paul Farrelly
I do not want to get involved in the internal politics of the RGA. All its members are reputable, and the vast majority—the likes of William Hill, Coral and bwin.party—will of course accept a licence if we move to the new regime. They will not want to be unlicensed operators. That is not how they do business and they would not make money in a big market such as the UK as comfortably as they do at the moment.
Cutting through the bluster, we can see that tax is the fundamental factor. It is important to recognise that, for those operators, this is about getting the tax right. The other arguments are incidental, and those operators will be able to live with the changes. Some will have different experiences because of their distance from the UK market, but they will all be able to live with the changes as long as they are comfortable with the tax arrangements. That very point was highlighted in William Hill’s submission to the Select Committee for our scrutiny of the Government’s draft Bill. Having made all its arguments, the RGA has effectively suggested that it could live with all the changes if the gross profits tax were reduced from, say, 15% to 5%. That is the crux of the argument. We will test all those objections in our scrutiny Committee on Tuesday. As the hon. Member for Thirsk and Malton said, our report called on the Treasury to establish what should be the current level of tax for online gambling, taking into account the need to bring everyone on board and not to encourage an unlicensed grey market.
The continued presence and success of bet365 in sports activities is rather inconvenient for the rest of the industry, because it shows that the doomsday arguments do not have any substance. Bet365’s success proves that it is fully able to compete here, and there is no reason why the other big names should not do so as well.
Let me set out some of the facts for the House. In the year ending March 2012, bet365 took £12 billion in wagers, which was 45% up on the previous year. It made pre-tax profits of £116 million, which was up 22%. That is a record that most UK businesses can only envy in the current economic environment. Its total contribution to the UK Exchequer, including betting duty, VAT and £20 million corporation tax, was £130 million; and, importantly for our area in these difficult times, it recruited another 500 staff.
Bet365’s record is exemplary, and if it can be so successful there is no reason why the likes of William Hill, Coral or Ladbrokes—all the names, old and new, that we know so well—cannot be successful here too and contribute to the UK Exchequer. This is all about tax, and for the Government it is all about revenue. It would be helpful for us, and for the industry, if the Minister shed some light on any conversations that he has had with the Treasury on how its modelling of the tax take has progressed and on the discussions it has had with the industry on tax levels.
If tax is the nub of the argument for the industry, the core issue in the Bill is, as the hon. Lady has made clear, a special plea for the horse racing industry. I do not have the opportunity to indulge myself in racing as much as the hon. Member for Shipley does, but I enjoy the odd visit to the races and the odd flutter. We have Uttoxeter nearby in Staffordshire, and Chester races are just across the border.
I am not intrinsically against a special deal for the racing industry, because it is a reality that the racing levy is part of the landscape—the hon. Lady talked about grandfather rights—and it is a national lottery for the horse racing industry. However, I do not believe that she made the point as strongly as she might have done for Ministers to back the case for the racing industry and not to cave in to special pleading for, say, a football levy to help struggling clubs. An example of such a club is Port Vale, which is at the opposite end of the city from Stoke City FC—owned by bet365—and recently went into administration. If the hon. Lady would like to intervene on me, I would be interested to hear why she thinks the Minister should not listen to special pleading from other sports.
Miss McIntosh
It is for the simple reason that the levy was set up to help the racing industry but is now being circumvented in a very obvious way. Also, as I have said, at least 50% of the bets placed online—it is probably more in betting shops, but for the purposes of the debate we are concentrating on online betting—are attracted because of racing.
Paul Farrelly
I thank the hon. Lady for that response. As the day goes on, she will probably have to listen to the argument from the gambling industry that racing owes its success in large part to the ease of having a flutter at the races. The industry will argue that it already does enough. Similar arguments will be made about how racing has become less important because of the development of online gambling and of in-game betting alongside result betting. Those are arguments that she and the sponsors of the Bill will have to take on. I am sure that they will be presented again and again as the Government’s Bill proceeds and as the hon. Lady and others table amendments to it.
I conclude by returning to a point that I made in an intervention on the hon. Lady, and on which I hope the Minister will be able to comment. There is great merit in keeping this Bill simple and in dealing with racing separately. The Bill is the regulatory end of the changes to the taxation regime that will benefit everyone in the country through increased contributions to the Treasury coffers, and that will benefit operators who have remained here and face competition from organisations overseas that do not pay tax. The real danger is that a vexatious complaint could be made, causing delays because of the European Union angle. The Government’s approach has much to commend it, if they proceed with careful thought and simplicity, and if the racing element is dealt with separately.
George Freeman (Mid Norfolk) (Con)
I pay tribute to my hon. Friend the Member for Thirsk and Malton (Miss McIntosh) for leading the debate this morning, and to my one-time office mate, the Under-Secretary of State for Skills, my hon. Friend the Member for West Suffolk (Matthew Hancock), whose constituency includes Newmarket.
As a sponsor of the original Bill, it is a pleasure for me to be here on this Friday morning to support this Bill. I support it because I believe the racing industry needs it, and I shall say something about why this great industry requires our support. Contrary perhaps to the wishes of the Whips, I do not intend to talk the House through my family’s long connection with racing, other than to acknowledge it, as I think that will reveal something about the extent of this great industry’s footprint out in the rural economy.
As one or two Members know, my father was a one-time national hunt jockey who rode for Her Majesty the Queen Mother and won the grand national in 1958. My brother is a racehorse trainer in California, where the funding for racing is rather more sustainable. It a place to which many of the British diaspora in racing have headed because of its more sustainable model of funding. Other members of my family have for many years been involved in breeding. My uncle Christo Philipson was a one-time chairman of the British Bloodstock Agency, and I grew up Newmarket, so I know very well that it, along with a number of towns such as Newbury, Malton and others in the UK, is totally dependent on this industry.
I also have a constituency interest. I am not lucky enough to have Fakenham race course in my constituency, but it sits on its northern boundary. It sits at the heart of a deep local, rural and equestrian economy of which Norfolk is proud and on which it relies—a network of point-to-point races, local equestrian activity and pony clubs, which are all part of the grassroots footprint, particularly of national hunt racing, and a cluster of trainers and breeders around the Attleborough area on the fringes of the Shadwell Stud in the corridor between Fakenham and Newmarket. This is the invisible side of racing that one does not see when tuning in to watch the Derby, the 2,000 Guineas or even the grand national. It is for the benefit of those communities and the rural economic impact that I stand here today.
We are debating this important issue because the health of racing is vital to our overall economy, yet it is under severe threat. The crisis in prize money and the crisis in respect of the leaching away from the industry of revenues on which every other racing industry around the world is able to rely is undermining the health of this great industry, It is, as I say, an issue of vital national importance.
Let me take the opportunity of reminding the House of the industry’s size. More than £10 billion a year is placed in bets; more than 6.5 million people attend our race courses, with a total turnover of over £3 billion. About 7,000 staff are employed directly, but more than 80,000 full-time equivalent staff are employed in supporting and associated activities. There are more than 4,000 breeders. We hear a lot about the top 10 or 15 breeding operations, but there are many small breeders and small-time trainers at the bottom of the pyramid who rely on prize money to keep them in business.
I would also argue that the horse racing industry has a disproportionate impact in the rural economy—an area that the Government have rightly put at the heart of their economic mission to drive a rebalanced economy and to help this country claw its way out of the debt crisis that confronts us. Its wider footprint—the feed suppliers, the hauliers, the farriers, the saddlers and the tourism associated with local race tracks—is very significant.
The truth is that our racing industry faces a crisis in respect of prize money, and it is a crisis that is particularly affecting those in the bottom half of its pyramid. At the top of the racing industry, particularly in the flat sector, the cost of racing is easily met by the rewards associated with breeding. For those at the bottom of the pyramid, however, prize money is the central method for covering costs and maintaining racing as a sustainable and viable activity. I shall say a little more about that in a few moments.
Philip Davies
As my hon. Friend knows, I share his passion for horse racing, but does he not accept that the levy model largely works by taking its income from low-quality racing, which some people might describe as betting office fodder? The money raised from that tends to be used by the levy board to increase the prize money at the top end rather than increase it at the bottom end, which might help the small-time owners, trainers and breeders to whom he refers.
George Freeman
My hon. Friend makes an interesting point. I dare say there is an extent to which the industry needs to think about how it allocates its prize money, but the fundamental point is that unless it has a sustainable link to a reliable source of revenue from its principal input, which is betting, all this discussion is academic. The central point we are confronting today is how this great industry, which successive Governments have acknowledged needs a statutory basis, continues to ensure that the betting activity that feeds off it puts back a sustainable and responsible contribution to promote it.
The truth is that the levy has not been able to react quickly enough to the transformation in the gambling industry, which has seen so many of our gambling businesses move offshore. Eighteen of the 20 biggest bookmakers are now offshore. We have heard of one this morning—it is an “n of 1”—proudly maintaining a presence here in the UK, but the trend is indisputable and has been very significant in reducing the industry’s income.
Prize money has been significantly affected. It is important to acknowledge that prize money is vital for ensuring that we attract the best horses for breeding here, the best horses in training and the best people in the industry. Our elite racing sector at the very top is, of course, world beating, but prize money is also crucial to sustaining the less glamorous part of the industry out in our more diverse parts of the rural economy.
The levy contribution has nearly halved over the last five or six years. I want to highlight that by having a look at today’s Racing Post, which will illustrate some Members’ points. I do not intend to read it all, but let us look at today’s card at Lingfield. The first race at 1 o’clock is the Bet at bluesquare.com claiming stakes. The prize money is £2,045. If we divide that up between the first, second and third and between the owner, the trainer and jockey, and we take off the costs—of fuel, of staff, of getting a lorry to get a horse to the races— we see that that simply does not add up. Across the country, we are seeing small trainers and breeders packing up.
The other interesting thing to notice about the 1 o’clock at Lingfield is that there are only four runners in it. What is happening across the sector is that in that lower half of the market, fewer and fewer people are able to survive. That feeds in on itself. The smaller the fields, the less attractive for TV coverage and the less attractive for betting. In case anyone is concerned that there is a bumper race with huge prize money somewhere in the middle of the afternoon, the 1.30 prize money is £2,000, the 2 o’clock is £2,700 and the 2.30 is £2,040. These are disproportionately small sums compared with prize money in France or in Ireland. That is why we are seeing increasing numbers of trainers leaving this country and going to those territories. We are allowing this structure to undermine one of our great industries at a time when the Government are rightly doing everything they can to remove obstacles to growth and to drive economic recovery.
Miss McIntosh
I am following my hon. Friend’s arguments very closely. Does he share my concern that the average prize money in British racing is £10,135, while in France it is approximately £21,500 and £15,700 in Ireland? I think that helps to make the case that the hon. Member for Newcastle-under-Lyme (Paul Farrelly) was making.
George Freeman
As ever, my hon. Friend makes an excellent point. That was exactly the point I was about to make. The differences in prize money are significant and make a very significant difference. We are not talking here about marginal competitiveness, but fundamental differences in the rate of prize money that no sensible or rational operator in the industry could ignore. Indeed, they are not ignoring them. In the last few years there has been an 8.4% drop in the number of horses in training, and that continues year on year. There has been a 32% drop in foal production, which is an even more significant figure in the context of forthcoming years. Britain now ranks bottom of the global league in terms of the percentage of trainers’ costs that they are able to recoup through prize money—the figure is 21%—which means that trainers are increasingly dependent on their fees. That raises the costs of having a horse in training, with the result that fewer and fewer people—such as my hon. Friend the Member for Shipley (Philip Davies)—can afford to do it. We want to make racing an activity that more and more people can access, enjoy, participate in and contribute to, but by allowing the present structure we are doing exactly the opposite. We are feeding an increasing diaspora of British racing talent overseas.
The last Government’s attempt to deal with this problem, as with so many others, failed. The Gambling Act 2005 did not sort the problem out. It allows betting operators to base their remote operations offshore, often simply by placing the servers offshore while many of the offices are in the United Kingdom. It creates loopholes by allowing offshore bookmakers to avoid Gambling Commission regulation, and by exempting them from payment of their fair share of the levy.
Mr Nuttall
In what ways does my hon. Friend think the operators who have moved offshore are enjoying any less regulation by being based in, for example, Gibraltar rather than in the UK?
George Freeman
Those operators are not required to comply with the regulation that applies to operators based in the UK. The Bill will simply create a level playing field by making offshore bookmakers subject to exactly the same regulation, which I do not think anyone would consider unduly onerous. Such a level playing field would also encourage new entrants into the betting market, a development of which Conservative Members in particular would approve.
I support the Bill principally because I think the amendments that it proposes to the 2005 Act will create that level playing field. It will
“regulate remote gambling on a point of consumption basis; to require all operators selling into the British market, whether in the United Kingdom or overseas, to hold a Gambling Commission licence to enable them to undertake transactions with British consumers and to advertise in the United Kingdom; to provide that all relevant operators contribute to the Horserace Betting Levy”.
That does not strike me as a radical package of anti-business measures. It does not strike me as a dramatic attack on the freedom of the market, or a contravention of any simple, basic business principles. It is simply common sense. We need a structure that supports our industry, is fair, and provides a level playing field for all operators.
I believe that the Bill will unlock three important benefits. It will provide better protection for consumers. If all operators are subject to Gambling Commission requirements, everyone who places a bet will know that wherever they are placing it, it will be subject to the same regulation. Operators will be mandated under the Gambling Commission’s licence condition 15.1 rather than being able to operate on a voluntary basis. The Bill will, as I have said, return a level playing field to the market, and in so doing will make it easier for small to medium-sized operators to enter the sector.
At the heart of the debate is an issue similar to the one that we face across the board. Industries are increasingly dominated by big players, while smaller placers are locked out at the bottom. The pyramid of racing, which at the top relies on the glamour and prestige of the Derby, the grand national and other big, celebrated events, has deep roots at the bottom. Unless we look after those roots and introduce a system that maintains their viability and sustainability, we will see them wither. I believe that the Bill does what the 2005 Act failed to do. It resolves a very simple and fundamental funding crisis at the heart of racing, and gives hope to the 60 race courses in the country—including Fakenham, which is on the edge of my constituency—by reassuring them that they have a sound basis on which to continue to thrive, and to support both racing and the local rural economy.
I understand that the Government intend to give effect to these measures with legislation of their own, and that they have published a draft Bill. I hope that the Minister will assure me that in pursuing their own legislation, the Government will seek to give effect to undertakings given previously. On 20 January 2011, at the end of the debate on the funding of British horse racing, my hon. Friend the Member for Weston-super-Mare (John Penrose)—who was then the Minister responsible for tourism and heritage—said:
“It has also been pretty much universally agreed in today's debate that the current levy system is old-fashioned and, if not broken, in the process of breaking.”
He also said:
“It is absolutely right for the House to urge the Government to come up with concrete proposals before the end of the year, and I am happy to accept that challenge, in line with the mood of the House.”—[Official Report, 20 January 2011; Vol. 521, c. 1067.]
Since May 2011, racing has been involved in a pre-consultation process and subsequent bilateral discussions with the betting industry, represented by the industry’s recognised trade body, the Association of British Bookmakers, and under the auspices of the Department for Culture, Media and Sport, to achieve a sustainable long-term replacement for the levy. Despite its best efforts, and notwithstanding the aims of the Bill, racing is continually told that the levy is incapable of the reform that would enable it to capture modern forms of betting. It is therefore vital for the work to establish a mechanism that is fair, enforceable, commercial and sustainable to be completed. Solutions, including a racing right and a Gambling Commission licence condition requiring bookmakers to have commercial terms agreed with racing, are available and the consultation is due to begin this year.
I understand the Government’s preference for legislation of their own. Having looked at the draft Bill and heard the views of the British Horseracing Authority, I should like to raise a number of issues which I hope the Minister will address in his closing remarks.
James Duddridge
My hon. Friend has referred repeatedly to the contribution of horse racing specifically, but the industry does not benefit the country equally. It is targeted on helping those in rural communities, some of which have suffered particularly badly over the last decade or so.
George Freeman
My hon. Friend has made an excellent point. While of course the industry has a general economic impact on the UK economy, certain pockets of the country are being hit particularly hard, including some of the areas that most need the economic growth that the Government are doing their best to unlock.
I move on to the areas that I wanted to ask the Minister to address. As I understand it, the clause in what might be called the “McIntosh/Hancock” Bill providing that once all operators selling into the British market have a Gambling Commission licence the legislation must provide that all operators contribute to the levy has been omitted from the Government Bill. Will the Minister provide reassurance that the Government Bill or some other measure will provide that all operators will contribute fairly to the levy?
Does the Minister agree that we need to tackle the basis on which we fund racing, and that voluntary arrangements for the funding of an industry and a sport as important as racing are unsatisfactory in the long term, unless they are enshrined in some sort of contract, with legal underpinning, on the basis of which the industry can plan and invest? Does he agree that we would do well to look at some of the overseas examples, as different countries have tackled this problem in different ways? Australia, in particular, has very effective legislation that ensures a commercial basis between the sport and the bookmakers, providing a sustainable basis for funding the industry.
On regulation, I note that the Government Bill says that the enforcement of licensing at the point of consumption will be light touch. We are all in favour of light-touch regulation, but will the Minister guarantee that the Government’s interpretation of “light touch” will still mean appropriate provision for enforcement is made to prevent many operators from escaping its provisions? Such a situation occurred as an unintended consequence—I am sure it was that—of the Gambling Act 2005.
I hope that the Minister will reassure the House that the ambitions of this Bill, the ambitions set out by the House in discussing its original presentation and the undertakings given by the former Minister will be dealt with in due course by the Government. I understand, as I am sure all hon. Members do, the pressures and complexities that the Minister faces in legislating in this field, but we have a duty to get this right. We have an historic opportunity to do so in this Bill, in the interests of our economy, at a time when we need to do everything we can to ensure growth in key industries in this country, and, in particular, in the interests of our rural economy and British leadership around the world in a great and growing business.
We are having this debate on the day the Prime Minister returns from Davos having given major undertakings about this generation of Conservatives’ commitment to fair tax and to ensuring that we believe in and will support responsible capitalism and moral markets. As Conservatives developing an agenda for growth, enterprise and entrepreneurship, we need a fair tax regime that ensures that those who benefit from the sector pay their fair share in supporting it. I very much look forward to hearing the Minister’s remarks.
James Duddridge (Rochford and Southend East) (Con)
It is a pleasure to follow the excellent speech by my hon. Friend the Member for Mid Norfolk (George Freeman). When looking around the Chamber, I was surprised to find that he was handing out a copy of his speech to other Conservative Members, who were taking great interest in it. I then realised that it was not his speech but the Racing Post. Mr Speaker, who was in the Chair at the time, noticed that and allowed it, thus establishing a precedent that although it is, rightly, not permissible for hon. Members to read newspapers in the Chamber, unless, like the Vice-Chamberlain of Her Majesty’s Household, the right hon. Member for East Yorkshire (Mr Knight), who was previously the Chair of the Procedure Committee, they read them on their iPad, they are allowed to look at the Racing Post.
Philip Davies
I just want my hon. Friend to clarify something. Is he advancing the case that hon. Members are able to read the Racing Post in the Chamber at any time or merely when it relates to a Bill under discussion?
Mr Deputy Speaker (Mr Nigel Evans)
Order. Before the hon. Member for Rochford and Southend East (James Duddridge) responds to that, may I just say that no precedent has been created whatever. If the hon. Member for Mid Norfolk (George Freeman) would like to place the Racing Post back on the Bench, we will be able to continue with the debate.
James Duddridge
Obviously I abide by that very wise ruling, Mr Deputy Speaker.
The hon. Member for Newcastle-under-Lyme (Paul Farrelly) referred to bet365. I had seen some promotional material for that company, but I was able to look on my iPad to find out a little more. The company should be very proud of the taxation it is paying rather than going offshore, and although I am not a heavy better, I will try to bet with bet365 and, thus, keep that money in the UK rather than send it offshore. I hope that that sends a message to other gambling firms that not only is doing the right thing moral, but individual consumers will change their behaviour and firms will benefit from that approach—Starbucks is starting to learn that lesson here in the United Kingdom.
I welcome the opportunity to discuss the detail of the Bill and I add my congratulations to those given to my hon. Friend the Member for West Suffolk (Matthew Hancock). He is now the Under-Secretary of State for Skills, but he first introduced this Bill last summer. I also congratulate my hon. Friend the Member for Thirsk and Malton (Miss McIntosh). My hon. Friend the Member for Mid Norfolk refers to this as the McIntosh/Kinnock—sorry, not that.
The Parliamentary Under-Secretary of State for Skills (Matthew Hancock)
What did I do to deserve that?
James Duddridge
My hon. Friend has done many things to deserve that, as he well knows. However, I think it best that I move on swiftly.
My hon. Friends have been a great double act in preparing and explaining the Bill and, whatever happens today, legislation should be introduced. Regardless of whether that happens through this Bill or another, there will be a great improvement.
George Freeman
Although attendance in the House and Public Gallery is relatively sparse today, as it is a Friday, does my hon. Friend acknowledge that the debate is being closely followed by the many thousands of people involved in the industry? The attendance today is not a sign of paucity of interest; a substantial degree of interest in the Government’s getting this right has been shown in the newspapers and online.
James Duddridge
I could not agree more. That is very important and I am sure that if there is a vote, if we reach that point in our proceedings, hon. Members who are working studiously in their offices and Committees will rush to the Chamber to express a view.
Although some might say that there is limited value in having the two Bills progressing through Parliament at the same time, it provides an excellent opportunity for Members of Parliament to undertake additional scrutiny that goes above and beyond the excellent work done by the Select Committee on Culture, Media and Sport.
Hon. Members will have two options, if they choose to legislate. The first is to pass the Bill today, to allow it to go to Committee and to make progress in that way. The other will be to receive reassurances from the Minister on clause 4 and allow amendment of the Government’s Bill. It is good to have that dual-track approach. I have listened to the debate carefully and would be minded to allow matters to be taken forward in the Government Bill.
In an intervention, I asked about the territorial extent of the Bill and I received some reassurances. I shall come to that later, although I managed to tease out from my hon. Friend the Member for Thirsk and Malton that there are no explanatory notes. They would have been useful and would have helped its case.
I intend to speak primarily about the parts of the Bill that are shared with the Government’s draft Gambling (Licensing & Advertising) Bill, although I wish to make some additional points on the levy.
George Freeman
My hon. Friend makes an interesting point about the lack of explanatory notes. Does he agree that the Bill is admirably short? It does not even cover the two sides of the page and has no more than five very short clauses? It is also incredibly simple, making provision for the three things that we have all described. Does he agree that it does not need substantial explanatory notes and that it is a wonderful example of proposed legislation? Perhaps we could take that up more generally in the House and encourage the Government to produce simple and short Bills for our consideration.
James Duddridge
I would certainly encourage the Government to produce simple and short legislation, and less of it. My hon. Friend mentioned that the Bill has only five clauses, and clause 5—entitled “Short title, commencement and extent”—is needed for every Bill, so it actually has only four clauses. We have already questioned whether another clause can be taken out or amended in Committee, further shortening the Bill. The hon. Member for Eltham (Clive Efford) talked about the Government’s draft Bill and said that there are many similarities. I am not sure who has copied whose Bill, but they both seem to be operating with equal brevity, which should be encouraged.
I want now to give some of the background to the Bill. My hon. Friend the Member for Mid Norfolk mentioned the Gambling Act 2005, and despite his criticisms I think that there is general consensus outside the House and among most Members of Parliament that that Act was a step in the right direction. It brought together other pieces of gambling legislation, particularly the Gaming Act 1968, and had an awful lot of good stuff in it that I would not want to see go. It might not have been not bold enough, and perhaps it did not have sufficient foresight about how the offshore industry might work and how internet gambling might fit alongside all other forms of gambling.
Philip Davies
My hon. Friend might be being far too kind to the 2005 Act. As far as I can see, it was intended to introduce a range of casinos into the country that did not materialise and to make the UK a hub for gambling businesses. Since the introduction of that Act, not only has there been no expansion in casinos but betting companies are all clearing offshore rather than moving to the UK.
James Duddridge
My hon. Friend is right to chastise me in relation to super-casinos. I was referring to the broad objectives, which were to prevent gambling from being associated with crime and disorder; to prevent it from being used to support a crime; to ensure that it was conducted in a fair and open way; and to protect children and other vulnerable persons from being harmed or exploited. I thought that those aims were laudable, as opposed to the excessive regulation of super-casinos, to which I shall return anon.
Miss McIntosh
I am following my hon. Friend’s remarks with great interest. Did the 2005 Act not liberalise and deregulate some casinos?
James Duddridge
The 2005 Act was a bit of a pig’s ear in relation to a number of issues. In Southend, for example, we had three casino licences, and were pushed to bid for a super-casino, to which my hon. Friend the Member for Shipley (Philip Davies) referred, not because we particularly wanted it, but because a super-casino on the Thames corridor would put the three casinos out of business. I shall return to the casinos in Southend, because they are relevant to the responsibilities envisaged by the Bill. The further the regulation from the person making the bet, the easier it is not to take responsibility.
I particularly welcomed the provisions in the 2005 Act on the protection of children, because as a child I placed a bet. I am clearly not very good at betting— I did not win—but I placed a £1 bet. Someone kindly explained to me that I had a better chance of winning if I placed an each-way bet. I did so, only to find that it cost me £2. They said, “Would you like to pay tax?” I thought that that was rather strange, because as a 16 or 17-year-old I was not used to paying tax, so I said, “No.” Then I realised that I had to pay tax if I won. Children need to be protected. [Interruption.] My hon. Friend the Member for Shipley (Philip Davies) should have better sense than to barrack me from a sedentary position. I have known him for a number of years, and have discussed betting on a number of occasions, and every time I come away with him trying to sell me a horse’s leg or urging me to place a bet. Invariably, not knowing how to place a bet, I end up giving him a fiver and asking him to place an extra bet for me. He has never given me anything in return, so when he says that horse ownership is not a commercial business, I can well believe it.
The Gambling Commission—the new regulator set up by the 2005 Act—has duties including the operation of licences for organisations and individuals who provide gambling, as well as personal licences for certain individuals working in the gambling industry. Remote gambling is the key issue addressed by this Bill and the Government’s Bill, and indeed the desire to impose order and regulation on the online sector was one of the motivations behind the 2005 Act, alongside the interests of the Treasury following a visit by Americans who thought that it would be a great boost to the UK economy to introduce super-casinos—which was certainly not the case.
The intention of the Act was to protect British customers from unscrupulous operators and to make Britain a base for the growing online gambling industry. It has clearly failed, and many Members have evidenced that today. I do not think that I need to go into the details, as that would prolong the debate for the sake of it, which I do not want to do, as I have a number of issues of substance that I want to cover.
Under the Act, remote gambling operators are required to hold a Gambling Commission licence only if they have remote gambling equipment located outside Britain. Operators based outside Britain but licensed in the European economic area and Gibraltar are permitted to advertise gambling services in the UK with reliance on the licence issued in their home jurisdiction. I believe that other operators are allowed to operate in Antigua, Barbuda, the Isle of Man, the States of Alderney, and Tasmania. Quite why those countries are allowed to operate on the same basis, I do not know, because they are a bizarre collection of countries and geographies that are not usually put together. Perhaps later in the debate someone will explain why they stand out. This has created a number of key problems and challenges around consumer protection and the regulation as competitiveness issues of British licensed gambling operators. I would like to spend some time developing these points further.
Participation in remote gambling is steadily increasing. According to the British gambling prevalence survey in 2010, 73%—that is, 35 million—of the adult population participated in some form of gambling in the year prior to the survey, with 14% using the internet to gamble. I thought that was an awfully large proportion. As a novice gambler I thought that I was not a participant in this great project, but then I realised that state gambling included the national lottery, which I do online, and well as the pools, which some people do online. Some of those silly games—Monopoly or similar—that I have been persuaded to play while topping up my national lottery game are included as well, so it is quite a broad area.
Like most people, I had no idea where the tax on those games on websites was going. There is a complete lack of clarity. It is a growing industry and a growing problem. A report by the Gambling Commission on industry statistics estimates that the total global revenue from gaming, the gross gambling yield, which for some reason excludes telephone betting, was more than £20 billion in 2001, representing 10% growth on the previous year.
The UK consumer gambling yield which, as opposed to the broader statistics, includes telephone betting, is estimated to have grown by 5% between 2010 and 2011 to reach £2 billion, so this is big business. It has an impact on many people, which makes the need for reform so much more important and relevant. The Government rightly recognise that the current system is flawed and can no longer adequately ensure the protection of British consumers that had originally been envisaged.
I said that I would return to the subject of Southend and gambling. There are three casino licences in Southend. I go into those casinos, as one would expect of a Member of Parliament, and talk a lot to operators about the responsibility for problem gamblers. People with British licences onshore are responsible for that regulation. Having listened to the debate, I think that the position offshore is less certain. In some cases operators could have no responsibility.
If a problem gambler in Southend goes into the casino and is in remission, for want of a better word, and going to Gamblers Anonymous, they can say to casino staff, in effect, “Look, I’ve got a gambling problem. Please don’t serve me when I come in.” A register is maintained. I believe this goes across the board. If that person, for whatever reason—stress, perhaps—is worrying about whether they should gamble or not and subsequently says, “I’ve changed my mind. I want to gamble again,” they are not allowed to do so. They are opted out, but that same person can nip on to a computer and bet.
It is wrong that that differential exists between online and offline, onshore and offshore. It is not a level playing field. It is not to the benefit of the gambler. Most gambling is perfectly legitimate and does not cause a problem, but for some people it does cause problems. Bringing the legislation, the supervision and the taxation closer to the individual would be a great help.
Philip Davies
My hon. Friend is right about the importance of people being able to self-exclude from gambling. We all want to see as little problem gambling as possible, but I am sure it is just as possible for somebody to self-exclude online as it is to self-exclude in a shop or in a casino. I am sure the facility to self-exclude applies online as well.
James Duddridge
What my hon. Friend says is logical, but I challenge him. I have not seen examples of that. I notice that he has his iPad, so perhaps he can zip through a few websites to see whether there are any that are self-excluding. I know that the casinos and the operators were very proud of that facility.
George Freeman
My hon. Friend was developing an interesting argument about onshore and offshore taxation. Does he agree that there are strong parallels with the message that the Prime Minister has been giving at the Davos summit in preparation for the British leadership of the G8, that one of our central themes and ambitions will be to ensure an appropriate regime for tax accountability generally for companies offshore and to close the loopholes that have seen major corporations in other areas moving offshore and denying the Exchequer appropriate tax revenues? This is part of the much bigger debate about responsible capitalism.
James Duddridge
I entirely agree. The Prime Minister’s other speech this week will receive much more coverage in the coming weeks and months, but I think that his Davos speech was equally important because it sent a message to companies about how they should conduct their tax arrangements, whether they are banks, Starbucks or online casinos. They need to do the right thing and pay tax on their online business, as John Lewis does, or pay tax on the betting framework, as bet365 does.
Miss McIntosh
On the point about self-exclusion, is it not the case, as I found when I visited some high street betting shops in Thirsk and other towns in my constituency, that self-exclusion is more difficult online? The staff in betting shops are trained to identify at-risk and vulnerable people and will step in to discourage them from placing a bet, but I am not sure how that control can work on a home computer.
James Duddridge
I apologise to my hon. Friend, but I will have to defer to others on that point, because I have placed a bet only twice. The first time was around the ’92 election, when there was a runner called Party Politics, which I thought was a sign. The election result was not as pleasing as I had hoped, but I did win on that bet. The other time was to bet on my becoming the next Prime Minister. I will indulge the House a little more on that unlikely subject, because I think it illustrates some points in relation to supervision.
James Duddridge
Without hesitation, on the condition that I have a first supporter.
Mr Nuttall
Will my hon. Friend enlighten the House on the odds he was able to obtain on his becoming the next Prime Minister?
James Duddridge
I will illustrate the point I was trying to make by placing the bet. Initially, staff pretty much told me that they had never heard of me, but I pressed the issue, particularly when I saw some of the people who were listed. They gave me odds of 250:1. I was not trying to earn money, because I thought that the chances of my ever becoming Prime Minister, let alone the next one, were zero. Instead, I was looking at how the odds could be changed and at suspicious betting patterns, particularly given my comments about Liberal Democrat betting. Within the day they had suspended taking bets on me because I was so popular, based only on one or two bets that I had other people across the country make for only another few pence. That demonstrated how easy it is to manipulate the betting statistics and, in relation to the Bill, how important it is that betting is regulated, supervised and licensed locally, rather than simply offshore.
George Freeman
I apologise for interrupting my hon. Friend’s argument. He mentioned that the 1992 grand national included a horse called Party Politics, which he thought was a sign. I have just noticed that the Blue Square website claims that the favourite for the race to which I referred in my speech, the 1 o’clock at Lingfield, is a horse called Wind for Power. I wonder whether he thinks, particularly in the light of the business of the House, that that, too, is a sign.
James Duddridge
I am not sure whether I might not still be on my feet at 1 o’clock, but perhaps if I rush through my comments I will find time to place a bet on behalf of myself and my hon. Friend.
Although the majority of operators currently targeting British consumers are subject to established and effective regulatory regimes, not all of them are, so we are suffering from those problems now. For example, some online operators have begun to target British consumers and very little is known about the level of their regulation or, indeed, consumer protection. There is concern about that issue and others when it comes to European operators and, in particular, operators beyond Europe without sufficient regulatory oversight. There has been some debate about light-touch regulation and what is sufficient, but there needs to be a level playing field. I will not go into details of my particular view on the level of regulation—that would be wrong and I do not think that it applies to this Bill.
Even where operators are subject to appropriate levels of overseas regulation, there are different regulatory standards and approaches. This lack of parity inevitably leads to British consumers receiving different levels of protection depending on which operator they use. I recall discussing case work with another Member of Parliament in the Tea Room. A constituent of his had lost £25,000, by which I mean that their online betting account, which had been very successful and had a balance of more than £25,000, was hacked into, a losing bet was made and that money was lost. They maintain that it was not they who made the bet and I am not sure—I was not privileged to sit in on the relevant debate—whether that online gambler was subject to online regulations.
We wander around and make decisions in the United Kingdom under the security of British law. Although there are exceptions when there are problems, largely we are very well protected as UK citizens when making purchases. It is clear that that is not always the case in the gambling arena and that the 2005 Act has not allowed for it. I welcome the exploration of how we can solve some of those problems, whether through the Offshore Gambling Bill or the draft Gambling (Licensing & Advertising) Bill.
My hon. Friend the Member for Thirsk and Malton referred initially to the remote gambling Bill. Perhaps that was the working title of the Government Bill. My hon. Friend nods in assent, for which I am grateful. I was somewhat confused when preparing for this debate, because I thought there was a third Bill in play, so I am grateful to find that that is not the case. It is difficult enough to deal with two Bills at one time.
Without specific requirements imposed by overseas jurisdictions, operators may not be compelled to report certain information, such as suspicious betting activity, to the Gambling Commission or relevant sports bodies, even when such an activity may involve a British sportsperson and/or British consumers. As such, there is a potential risk of match fixing. The hon. Member for Newcastle-under-Lyme used the term “in-match betting”, I think, which I was not familiar with, but I suspect it covers things such as how many times a bowler will stray away from the wicket during the course of one over. I understand from press reports that that is an increasingly popular sign of betting.
Paul Farrelly
The hon. Gentleman is right, but the not very technical term is “in-game betting”, as I understand it.
James Duddridge
I am grateful for that correction. One of the things emerging from this debate is that I need to spend some more time betting in order to be able to contribute more fully to debates such as this.
There is a potential risk of match fixing and suspicious betting practices taking place on overseas-licensed sites, including those that may have an impact on sports in Britain. The British authorities may not be notified, thereby placing individuals at much greater risk.
Some offshore operators do share information with the Gambling Commission, in addition to their home regulator, and they do so on a voluntary basis. I would be interested to hear more examples and details from the Minister. It is all very well to say that they share some information, but is it sufficient? I suspect there may be some smoke and mirrors regarding what is and what is not shared.
The detail is often insufficient for it to be used in an investigation. In fact, I cannot find many examples of investigations taking place. That limits the Gambling Commission’s ability to conduct thorough investigations when it does not have powers of jurisdiction. There have been instances when the commission has not received the relevant information and has been unable to obtain information from its overseas licensed operators or regulators. That is clearly not in anybody’s interest or in that of the market to work effectively. Let us face it: if the market is not robust, people simply will not place a bet. Why would they place a bet with an organisation—be it online or offline, onshore or offshore—if they thought that it would wriggle out of the contract? It is important to look at the benefits of bringing all this back to the UK for the sustainability of the industry.
In some cases, the Gambling Commission is told that the refusal to provide information is down to overseas data protection requirements. I would be interested to hear whether the Minister thinks that that is a legitimate concern or just a veil that these organisations are using. There is currently no way of ensuring that the protections of the gambling regulations framework, particularly those afforded to licence condition 15—for those who do not know, that is about the reporting requirements on restrictions of betting activity—are applied on a consistent basis to operators who transact with British consumers or are allowed to bet on British events.
With technological advancement, it is becoming increasingly difficult to identify the level of regulatory oversight of gambling service provision and where the key equipment is, which is important in relation to the legislation.
Miss McIntosh
I understand that countries such as Denmark have made the point of consumption the basis of advertising licensing, as well as tax. The technological changes are obviously happening, so does my hon. Friend think that there may be a reluctance on the part of some operators to engage with the technology?
James Duddridge
I am not sure that there is a reluctance to engage with the technology per se, but there is a reluctance to do so where it might be disadvantageous rather than advantageous. I recall going to a business in Southend that specialised in online marketing. I did not question it on the taxation arrangements of the companies they were helping or those of the company itself, because that was not the focus of my visit. I think I will go back and ask a little more about the online gambling firms it is working with and the implications of how technology can be used to assist not only in compliance with regulations but in best practice, which is in the interests of the whole industry.
Many operators have different products licensed in different jurisdictions, and it might be thought that this provision could be a regulatory burden. I know that my hon. Friend the Member for Shipley will pull me up very quickly on that issue. However, several companies deal across different jurisdictions, and I do not think that it should trouble them too much.
Philip Davies
I am struck by how much faith my hon. Friend has in the Gambling Commission over and above any other regulator in any part of the world that has been assessed as having as good a regulatory standard as ours. On what basis does he have such complete and utter faith in the Gambling Commission and know for a fact that it is so much better than any other regulator in any other jurisdiction?
James Duddridge
I think that my hon. Friend is putting words into my mouth in relation to the Gambling Commission. I would say, though, that we have more control over the Gambling Commission in comparison with a foreign commission or an area that is completely offshore and completely unregulated. There is no great history of regulation in this area, but we do sometimes focus on some of the more problematic cases.
To return to the idea of working across jurisdictions, one can often go on to a website and not be sure which jurisdiction one is trading in. I mentioned my dabbling in the national lottery. A friend who used to live in Southend and moved away to southern Spain—Southend being as sunny as it is, it comes as a surprise that anyone would want to do that—bought a lottery ticket there. Although they had a modest win—£10, I think—they were outside the jurisdiction and blocked from receiving that money. We need clarity because there is confusion even with something as simple as a lottery ticket in the EU, and we should look at the issue in detail.
The Gambling Commission reported that it receives inquiries about social responsibility and unfairness in relation to offshore gambling—I am sure it also receives such inquiries in relation to onshore gambling—but that it is not able to do much about what is going on. It has been unable to investigate complaints or inquiries, so it is difficult for me, or indeed anyone, to understand the size of the problem. It would be advantageous to solicit information and hard numbers, and I urge other Members of Parliament to consider the issue.
Mr Nuttall
My hon. Friend makes the valid and interesting point that some people may complain that they have accessed sites and did not realise which jurisdiction they were in. Equally, however, will not many customers be satisfied that they are getting better value by accessing sites in other jurisdictions? Perhaps they even go out of their way to seek those other sites.
James Duddridge
That is a reasonable point. There could be better protection in other jurisdictions, or simply better odds, and people may be very aware of the risks they are taking in response to those odds. During the problems with the Icelandic banks, people felt that they knew the risks they were taking for an extra couple of per cent. If I were to place a bet on bet365—I was tempted to place one on the next leader of the Labour party—I might be tempted to use a site I had never heard of if I got better odds. It is worrying, however, because people must know the details and be confident that when that eventuality—the change of leader—takes place around 2015, the site will pay up. Will the site pay up against a person standing in as temporary leader or must it be a long-term leader? Will it pay up for someone who is just keeping the position warm before another Member of Parliament takes on the role? I am not sure, but offshore gamblers need clarity about when the site will pay up, and it is clear from this discussion that such clarity does not currently exist.
Having set out my broad position, I will now look at the specifics of the Bill and in particular the point of consumption, which goes to the heart of the Bill. The Government are already introducing measures on remote gambling, which in many ways will provide greater protection for British-based users of remote gambling services. The case for change is clear, but there is limited consensus on standards of software testing and what it means to be a British consumer—where the hardware is, whether it is a software issue. Those matters are quite complex as information is pinged around the world within seconds.
There is concern about a lack of fairness towards British-licensed operators that operate overseas or have overseas consumers. We must look at that issue and at what happens when British citizens travel overseas. If I travel to America and use a site to place a bet on Stoke City, what would the regulations be compared with those covering a bet made in the country where the event takes place?
Both Bills seek to amend the Gambling Act 2005 so that remote gambling by consumers living in Britain is regulated on a point of consumption basis, rather than on the point of supply, and there is broad agreement that that is the right way forward. Such a measure is sensible and a fundamental change to the basis on which the system of remote gambling is regulated in the UK. By moving from the current place of supply basis to a place of consumption basis, the British consumer becomes the focal point around which the system is based, rather than the location of the gambling operator. In terms of consumer protection, that is the right way forward.
All operators selling into the British market will be required to hold a Gambling Commission licence, and will therefore be subject to all the provisions of the previous Government’s Gambling Act 2005 and its regulations, to the Gambling Commission’s social responsibility and technical standards requirements, and to the provisions I have referred to. That will bring the original intent of the Act up to date. My hon. Friend the Member for Shipley was entirely right to say that I should tar not the whole Act with the brush of success— I am thinking of super-casinos—but only its broad understanding.
Bringing the original intent of the Act up to date will give consumers greater confidence that the operators they choose will be subject to the same standards. For example, an offshore operator that makes remote gambling facilities available to consumers around the world on the internet will need to obtain an operating licence from the Gambling Commission if people in parts of Great Britain are capable of using them, regardless of whether they are used in Great Britain. If operators want to avoid having such a licence, they would need to block internet access from consumers in Great Britain at their own cost, so that people are incapable of using remote gambling facilities illegally in the UK. The measure will also mean that there is a requirement for operators to contribute British problem gambling issues and regulatory costs. Effectively, they would have to make a contribution where they are part of the problem, which is an extremely welcome development, and will go some way to levelling the playing field for UK-based companies.
I have concerns about the whole arena of gambling. Recently, the Southend Standard, a weekly publication in my patch of Rochford and Southend East, set out the number of betting offices on the local high street. I was surprised to find that there were five, including two run by the same company. I cannot help but think that we need to look again at the broader issue of gambling, and particularly at how online gambling based offshore encourages people to bet money they may not be able to afford.
Switching to a point of consumption basis will mean that the location of the gambler and not the operator will be the deciding factor on what tax to pay. For example, money collected by an online casino that is attributed to a UK player will be subject to British taxation, which seems entirely fair. Although there is no mention of the rate, the current rate of 15% on gross profits clearly puts domestic operators at a disadvantage. The hon. Member for Newcastle-under-Lyme rightly said that the level of taxation is the crux of the matter. I believe William Hill accepts the principle of changing to the point of consumption from the place of supply if the rate of taxation is right. I understand it has pitched for 5%, but it would suggest a low figure, wouldn’t it? I have never been a fan of high taxation—I prefer lower and flatter rates—so I encourage the Government to consider whether 15% is right and competitive, and whether it will encourage growth in the UK and people in other jurisdictions to bet in the UK.
The new licensing arrangements will also mean that, for the first time, overseas-based operators will be required to inform the British Gambling Association of suspicious activities, which will help the fight against illegal activity and corruption in sports betting, which discredits not only the betting community but the sporting community—people cannot enjoy sport if they believe the result is fixed. I welcome the inclusion of that measure, which, as I have said, removes the potential risk of match-fixing and suspicious betting practices in sporting events on overseas-licensed sites.
The second half of the Bill relates to the horse racing levy. My experience of horse racing is not much better than my experience of betting in a shop or online, but I have been to Aintree, and to Lingfield a couple of times—they were enjoyable events. As a Member of Parliament whose constituency is partly rural, I am particularly concerned about rural communities. Quite often we make decisions here that have an impact on them. A number of Members have mentioned the great benefits of the horse racing industry, with 60 race courses across the UK.
Miss McIntosh
As I think I said, two race courses have closed, so we are have only 58 race courses at the moment.
James Duddridge
I thank my hon. Friend for that correction. I had not picked up on the fact that that figure was the old figure, rather than the new figure after those closures.
The numbers are immense. I shall not repeat them, partly because I might get one of them wrong again, but also because I think similar numbers were read into the record by my hon. Friend the Member for Mid Norfolk. However, the contribution is massive.
I had not realised how peculiar the levy was. Nobody is suggesting that we have a similar levy for similar industries. I am sure that even the Labour party in search of funds would not argue that the political levy should be more or less likely to be enacted just because bet365 has political betting. Many marketplaces survive without receiving a subsidy from the people who bet on them. For example, the revenues for cricket and football come from different sources. My hon. Friend the Member for Shipley made an interesting point about the case for looking more holistically at the levy. While there has largely been a decline over five years—there has been a little up-kick in the past couple of years—it would be much more interesting to see the figures going to horse racing based on TV revenues plus the levy.
As a Conservative, I do not start every debate with a blank piece of paper and decide what there should be. I am very cognisant of what there already is. The levy has provided a backbone to the horse racing industry, and it would be unwise to have a revolution in this sector. My hon. Friend pointed out that it is not perfect in its distribution of funds. While I am trying to build up a resistance to his betting advice, I will take his political advice on that.
On the broader landscape in relation to the horseracing levy, I welcome the fact that my hon. Friend the Member for Mid Norfolk raised the issue of the Davos speech. It will not turn out to be as important as the Europe speech, but it was significant in turning things on their head and saying that companies need to take a greater degree of responsibility themselves. That applies to the offshore gambling issue, but also to the levy.
I am not minded to support clause 4 in its current state. If the Bill goes to Committee, I would love to serve on it and table a probing amendment that might force a vote—I am not sure what one calls such an amendment; an aggressive probing amendment, perhaps—and remove clause 4. That is not to say it is not the right way forward in the longer term. If the Minister’s consultation and encouragement to the levy board and the voluntary system does not work, I would come back to the provisions in clause 4. It may be that, rather than removing the clause, we could make the measures provisional on what happens under the voluntary arrangement. Let us give the industry the chance to fix it and, if it does not, let us impose another solution on it.
Miss McIntosh
Today we are seeking a reiteration from the Minister of his six-month time frame for the current levy board-led process before he proposes a replacement. It would be good to know that that process is in place. I am a little disappointed that my hon. Friend the Member for Rochford and Southend East (James Duddridge) does not agree with what I said about the importance of clause 4, which seeks to remove a distortion in the market. I predict that the Minister might resist clause 4, if not the rest of the Bill, on the grounds that he believes it will constitute a state aid. However, I thought I made a powerful case—if not by PowerPoint, which I do not think would be admissible in the Chamber—for why clause 4 goes to the heart of the Hancock/McIntosh version.
James Duddridge
My hon. Friend made a very powerful argument. The case she made persuaded me to move far more towards her position than when I arrived in the Chamber. I will listen with great care to the Minister’s remarks, but I am given great security by the fact that I can listen to her comments and other hon. Members who make a contribution—via intervention or a substantive speech—and not have to come to a final view today. Either the Bill can be passed into Committee, where we can probe it in more detail, or we can amend the Government Bill in Committee, as and when it appears in the third Session. In fact, if it ends up appearing nearer the end of the third Session, we will have had more time to consider the issues.
I am not commenting on the urgency of dealing with this matter. I appreciate that Government time should not necessarily be committed at the front end of the programme, but my hon. Friend the Member for Thirsk and Malton quite understandably sees the need for a certain amount of urgency in this regard. However, that needs to be balanced against doing the right thing. My gut feeling, not having heard the Minister’s formal remarks yet, is that I would like to know a little more before full-heartedly supporting the position she has outlined.
I said that there are two ways to go forward. One is to let this Bill pass; the other is to consider and perhaps amend the Government’s Bill. At this stage I will continue to listen to the debate before making up my mind, but I am minded to prefer to see the Government Bill go through and be amended. However, that should in no way be a distraction from, or criticism of, the case made by those who have very ably brought these matters to our attention.
I have a number of other points to make, but I am conscious that other colleagues want to contribute and they may have fresh matters to raise. Rather than my reiterating and adding more detail to some of my points, I will conclude and listen to them. I thank my hon. Friend the Member for Thirsk and Malton for bringing this matter before the House. She is a passionate individual—passionate about her constituency and about all businesses, specifically the horse racing business today. The House appreciates her efforts, and I am sure that her local community and everyone associated with the broader industry will see the excellent work she is doing.
Mr David Nuttall (Bury North) (Con)
As ever, it is a great honour and privilege to follow my hon. Friend the Member for Rochford and Southend East (James Duddridge). I thank him for a comprehensive speech.
Like my hon. Friend, I have no race course in my constituency—I am not lucky enough to have one. Unlike the hon. Member for Newcastle-under-Lyme (Paul Farrelly), I am not a member of the Culture, Media and Sport Committee. Indeed, it almost feels as though Members have to qualify to take part in this debate, either by having stables in their constituencies or by being members of the Select Committee. However, I have a number of bookmakers operating in my constituency, providing valuable jobs for my constituents. Many of my constituents will be customers of those bookmakers and no doubt many will avail themselves of online gambling facilities—or, as we are referring to them today, remote gambling facilities.
I am not a sponsor of the Bill, but I suspect that many hon. Members—certainly many of my hon. Friends on the Government side of the House—will wish that they had put their names to it because, since it was printed on 25 June last year, no fewer than three of its sponsors have found their way on to the Government Front Bench.
Miss McIntosh
I hope that it is appropriate for me to point out that, although it is now too late to bet on Andy Murray going through to the final of the Australian Open, the fact that he will do so will add to the celebrations of Burns night. I hope this will encourage people to place their bets on future matches and, as we are discussing a sporting event, I hope that my hon. Friend will take his lead from that.
Mr Nuttall
I am most grateful to my hon. Friend for her intervention. I am pleased to hear that Andy Murray has got through to the final. I am sure that that will generate more business for bookmakers—online and terrestrial—because I am sure that there will be far more betting activity on the Australian open with him in the final than there would have been without his involvement. Following that intervention, I should like to thank my hon. Friend sincerely for her opening speech and for the comprehensive way in which she took the House through the complicated issues in the Bill. She dealt with interventions courteously, and her speech was most informative. I thank her for that.
As I was saying, no fewer than three of the Bill’s sponsors are now on the Government Front Bench: the Under-Secretary of State for Skills, my hon. Friend the Member for West Suffolk (Matthew Hancock), the Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Great Yarmouth (Brandon Lewis) and the Under-Secretary of State for Communities and Local Government, my right hon. Friend the Member for Bath (Mr Foster). All are now members of Her Majesty’s Government. That is a pretty high success rate, and I suspect that any future Bill on this subject will attract a rush of Members wanting to put their names to it in the hope that that might spur a move to the Front Bench.
I feel rather like the warm-up act before the main event in a theatre, because I am sure that the whole House is waiting to hear from my hon. Friend the Member for Shipley (Philip Davies), if he is fortunate enough to catch your eye, Mr Deputy Speaker. His knowledge of these matters is far greater than mine. As I said earlier, I have no particular knowledge of the horse racing industry or the bookmaking industry. As ever, I am looking at the Bill purely from the point of view of what is best for my constituents.
The Bill has come into being because the Gambling Act 2005 has failed, in that it was designed to make the United Kingdom an attractive place for operators and a magnet for new operators flooding into the UK market. In fact, it has had the opposite effect, with 18 of the 20 largest operators having moved offshore. This Bill is an important measure. It will impact on the lives of tens of thousands of people employed in the betting industry and tens of millions of customers. Depending on whether clause 4 is included in the Bill, it will have an enormous impact on the horse racing industry.
The UK betting industry employs about 40,000 people across the UK and supports the jobs of some 60,000 more, contributing about £1 billion to the Exchequer every year. Just over half—52%—of the gross gambling yield in the United Kingdom is generated by the retail betting sector, as compared with casinos, for example, which account for only 14% of the gross yield.
Betting and gaming have for many years been a popular pastime for many people. For most, it is a pastime carried out and enjoyed safely and responsibly. The British gambling prevalence survey was carried out by the National Centre for Social Research, and in 2010 the Gambling Commission sponsored the third in a series of prevalence surveys. The National Centre for Social Research is an independent social research institute, and the 2010 survey followed on from two previous surveys in 1999 and 2007. The 2010 survey found that 73% of people aged 16 and over—around 35.5 million adults—had participated in some form of gambling in the previous year, while 56% of adults had participated in a form of gambling in the year before that. The difference there, of course, is that some forms of gambling can take place at 16, but others only at 18. It was reported that 4% of adults said that their involvement in gambling had increased in the previous year; for 13% it had decreased; and for the rest it remained the same. In 2011, the bookmakers William Hill reported that its customers had staked almost £80 billion, and that it processed around 1 million bets every single day.
All that gives us some idea of the popularity of the industry and the importance of the measure before us. As the preamble to the Bill states, it is designed to
“Amend the Gambling Act 2005 to regulate remote gambling on a point of consumption basis; to require all operators selling into the British market, whether in the United Kingdom or overseas, to hold a Gambling Commission licence to enable them to undertake transactions with British consumers and to advertise in the United Kingdom; to provide that all relevant operators contribute to the Horserace Betting Levy; and for connected purposes.”
It is perhaps worth asking why it is that an Act passed just eight years ago, which did not come into force until 1 September 2007—in force for less than five and a half years—now requires amendment. What is it that has gone wrong? I would submit that, as with many other previous attempts to try to regulate and control the market—whether it be the betting market or any other market—loopholes soon become apparent as human nature takes effect and people try to get round those controls. The Gambling Act 2005 was in part a consolidation measure, but it was also a reforming measure, seeking as it did to reform and update the regulation of online gambling. The Act also created a new single regulator for the betting industry—the Gambling Commission.
I realise that many people would like gambling to be banned outright, but I do not agree with them. I believe that in a free society it should be for the individual to decide whether or not to gamble. Until 1960 betting was largely illegal in this country, but the Betting and Gaming Act 1960 liberalised the gambling laws and legalised betting shops. However, despite that Act and the Betting, Gaming and Lotteries Act 1963, commercial gambling became a source of criminal activity, and a new Act, the Gaming Act 1968, was therefore necessary. It was largely successful in removing the criminal element from gambling, and it established the Gaming Board as the new regulator for the gambling industry.
The 2005 Act sets out, in its very first section, the three key principles that we must all keep in mind in considering this Bill. Gambling must not be
“a source of crime or disorder”;
it should be
“conducted in a fair and open way”;
and
“children and other vulnerable persons”
should be protected
“from being harmed or exploited by gambling.”
We should be clear about what the Bill seeks to regulate. As I understand it, the remote gambling market covers all betting and gaming transactions that are effected without the customer’s coming into contact—physical contact, that is, as when a customer goes into a traditional bookmaker’s office—with the operator. It covers, for example, the placing of a bet on the telephone or the use of a computer to bet on the internet. It would also cover new mobile technologies—for instance, bets placed via a tablet computer or a mobile telephone.
Most United Kingdom operators started to offer customers the opportunity to place bets online in the mid to late 1990s, as improvements to internet technology opened up the market to a whole new segment of the population who had previously been denied a chance to participate. These were people who, for whatever reason, had been prevented from visiting a bookmaker’s premises—and presumably, for whatever reason, had not been attracted to telephone betting—perhaps because of infirmity, because of the nature of their work, or simply because they lived in a location where there were no bookmakers. The new development enabled customers to play casino games and poker online whenever they chose to do so. Previously such opportunities had been available only to those with access to a casino, of which there were fewer than 150 in the United Kingdom.
The Gambling Commission itself reports that fewer than one person in 100 has a problem with gambling. In other words, 99% of the population who chose to engage in betting do so safely and responsibly, and enjoyably. Our level of problem gambling compares favourably with that in other countries. For instance, the United Kingdom’s rate is lower than the rates in France, where it is 1.3%, South Africa, where it is 1.4%, and the United States of America, where it is 3.5%.
Those who are involved in the industry take their responsibilities very seriously, providing training for their staff so that they can recognise customers who are at risk. It is, of course, legitimate to argue—indeed, it was argued earlier in the debate—that the risk posed to people who are engaged in remote gambling may be greater than the risk posed to those who visit traditional bookmakers’ premises. All licensed gambling operators in the UK have to abide by strict licensing conditions designed to protect and help problem gamblers, and the gambling industry is unique in financing relevant research, education and treatment activities on a voluntary basis. Licensed operators offer clear guidance and advice to customers on responsible gambling and, for example, are clear that gambling should not be used as a source of income or as a means of paying off debt. This year, the industry will be contributing some £6 million to the Responsible Gambling Trust, an independent national charity that works to ensure that the gambling industry in Britain, including the remote gambling industry, retains its world-leading reputation for promoting responsibility in gambling and to demonstrate that legitimate business growth and job creation is balanced with social protection of the weak and vulnerable in our society. Licensed operators also signpost customers to helpful websites such as those run by GamCare, Gamble Aware and Gamblers Anonymous. Nobody wants to see lives ruined by gambling, and this debate gives us an important opportunity to highlight the enormous amount of help available to those struggling with a gambling habit that is perhaps getting out of hand.
As I hope to demonstrate, one problem with the Bill is that it would have many unintended consequences. For example, it runs the risk of forcing customers into the hands of unlicensed operators—the black market— who may not operate in the same responsible way as the household names on our UK high streets do. We are being told that one of the reasons for trying to regulate offshore gambling is to protect customers, but I have to tell the House that, unfortunately, all the evidence from other countries suggests that that laudable aim will not be achieved.
In essence, the Bill seeks to regulate the internet, and we know from other countries’ attempts to regulate the remote gambling market that it is easier said than done. Different means of enforcement are available—for example, payment process blocking or website blocking. They have all been tried in various guises and all have their shortcomings. We may ask why customers will seek to circumvent attempts at enforcement, but the answer is simple: human nature. It is human nature for customers always to seek out the best value, and operators who are unlicensed in the UK and operating from a jurisdiction where there are fewer controls will be able to spend more on advertising and on marketing. They will be able to keep coming up with new offers to make their offering attractive to customers. It is also possible that they will be able to offer better odds, giving better value to customer, although in reality the UK-based operators will try to match the odds offered by foreign operators and absorb the extra overheads themselves by reducing spending in other areas.
In an attempt to stop customers using companies operating from outside their jurisdiction, other European countries have pioneered the use of restrictive tools to stop customers accessing authorised websites. The three main methods in use are: payment process blocking; website blocking; and the imposition of advertising restrictions. Norway has led the way on payment process blocking as a means of preventing customers from taking advantage of offers from black market operators. It must be said that that has not been entirely successful, because more than half of gamblers said that they play as frequently on foreign websites as they did before the ban came into effect. Norwegian customers soon cottoned on to the fact that if they wished to access blacklisted market products, they could get around the payments ban by using third party payment solutions such as e-wallets.
Another unwelcome side effect was that, as a result of over-zealous compliance by operators, legitimate payments could sometimes be blocked. Website blocking has been tried in Italy and has proved to be just as easily circumvented by the use of technology by end-users or service providers. Consumers can easily get around website blocking by using the internet protocol address of a website rather than the website’s domain name. Alternatively, a blacklisted provider can simply change the name of a blocked site in order to evade a blacklist. A common feature of many markets is the imposition of advertising restrictions. Whatever method of enforcement is used, the mere existence of such a method sends out a signal to customers that there is something out there to which they are being denied access. Human nature being what it is, there will be a natural desire to find out what they are missing out on. Consequently, it is clear that no single measure has been proven to be 100% effective. We have heard much debate this morning, but I have not heard anything about how the Bill will be enforced. What magic bullet do we have in this country that other European countries have been unable to find?
The whole issue of enforcement raises the thorny question that increasingly arises in modern life when we try to put together legislation: to what extent is it possible or indeed desirable to try to regulate the internet? To put it another way, how can we stop people accessing the world wide web? How can their access to the web be restricted? Some might think that such questions were of interest only in closed societies such as North Korea, and although I am not suggesting that that is what is being proposed, it is a dangerous path to venture down. Why should the Government attempt to deny citizens who want to access gaming sites run by overseas operators the right to do so?
It has been suggested that such sites do not offer the same protection as those based in the United Kingdom. As my hon. Friend the Member for Rochford and Southend East said, there might well be jurisdictions with more favourable control and regulation. We must not always assume that we have got it absolutely right in this country. Equally, UK customers might well want to seek out the better value that is available from a foreign jurisdiction that has less regulation and is therefore in a position to offer slightly better odds and slightly better value.
Most of the offshore operators used by UK customers are based in Gibraltar or the Isle of Man, jurisdictions whose place on the white list is down to the fact that their regulatory regimes are essentially equivalent to those found in the UK. In any event, is there not a real danger that if these measures become law remote gaming operators not only will be based offshore but will go underground? I am not suggesting for one minute that any of the household names in this country’s market would do that. They will soldier on, and deal with the problems that they face. They will abide by the new restrictions and bureaucracy, and secure a licence, but that will undoubtedly impact on their businesses.
I am worried about new entrants to the market—people we have never even heard of—who could well be located in a distant, unregulated jurisdiction. To that effect, the Bill will be another complete and utter failure in the long line of failures to try to regulate the market. I suspect that those seeking to regulate the market will realise that that danger would undermine the effectiveness of the Bill. Customers will quickly become aware of competitive black market offerings, whether via blogs or information websites. Value-conscious consumers will actively seek out those operators once they realise that they are more competitive and offer better value than the regulated operators under the Bill.
The 2005 Act regularised the status of online gambling, which had previously operated in a twilight world that was often referred to as the grey market. The Act provided a new legal framework, allowing online operators to locate within the UK under the jurisdiction of the Gambling Commission, and it allowed all remote gambling, or offshore operators, to advertise to UK customers, provided that they were licensed in a jurisdiction within the EEA or were on what the Gambling Commission called the white list which, as we have heard, includes Antigua, Barbuda and Tasmania. Helpfully for those offshore operators, the list includes low-tax jurisdictions such as the Isle of Man and Alderney, so it is not surprising that operators listed on the UK stock market have an obligation to the shareholders to do what is best for them and their employees, and remain competitive. As soon as one operator decides to go, effectively others have to go as well to remain competitive.
The 15% gross profits tax is the root cause of the problem, and that is what the Bill is all about. It may well be argued that when the 2005 Act was introduced the then Chancellor should have been thinking about what was the best rate at which to set the tax. How could the tax rate be reduced to attract more operators to the UK, rather than driving operators offshore? Household names such as William Hill, Ladbrokes and Betfair have all moved offshore.
The Bill, as we have heard, is almost a mirror image of the Gambling (Licensing & Advertising) Bill that has been published by the Government. The first three clauses of the Government’s Bill are identical in all respects to the Offshore Gambling Bill. The only difference, as we have heard, is the addition of a horse racing levy measure in clause 4 of the Offshore Gambling Bill. I am conscious of the fact that other hon. Members wish to catch your eye, Mr Deputy Speaker, and that we have not heard from the Minister or the Opposition spokesman, so I will not go through the Bill in great detail. Suffice it to say there are real problems with it. It is not clear exactly what sort of equipment will be caught by the Act. I know that operators will make their submission to the Government on these matters, and I hope the Government take seriously what they say.
Clause 4 deals with the levy. As we have heard, the levy is a statutory way of transferring money from bookmakers to the racing industry. It was, in essence, a compromise that was reached in the 1960s between bookmakers and the racing industry, once bookmakers were legalised. The Betting Levy Act 1961 created the statutory body, the Horserace Betting Levy Board, which still exists. We have heard concerns expressed about state aid and whether reforming the levy could fall foul of those state aid rules. I do not want to go down that path again, but there are problems and I look forward to hearing the Minister’s views later. I would like to know what advice he has received on the issue of state aid and the legitimacy of potentially bringing the levy within the scope of these reforms.
Much of the debate surrounding the current levy system has focused on the levy in isolation. That is misleading and unhelpful to a sensible debate on the issue. Although the levy may well be in decline for a range of reasons, let us not forget that there are several avenues of funding for horse racing, apart from the levy.
I shall touch on one point that was raised earlier about the amount of racing, as opposed to the other forms of betting that go on. I have from the largest bookmaker in the country, William Hill, figures which show that for its shops, the horse race business accounts for only 25% of revenue. The remaining revenue comes from greyhound racing, football, other sports and gaming. For online gambling, the percentage is even lower. The whole of the sports book accounts for 35% of online revenue, and 65% is made up from other products such as casino games, bingo and poker. So the idea that racing forms a major part of the revenue of bookmakers is not backed up by the facts.
As we heard, there is revenue for the racing industry from on-course bookmakers, overseas picture rights, picture rights for UK betting shops paid through the media rights, and sponsorship. A significant proportion of the sponsorship comes directly from the bookmakers in order to help promote the sport. The amount raised by the levy may be in decline, but the cost of racing to bookmakers is increasing. Racing is now by far and away the most expensive product for bookmakers. Figures collated recently by the Horserace Betting Levy Board show that the combined profits before tax and loan capital repayments of Britain’s race courses—as we heard, there were 60 race courses in 2011—amounted to some £20.9 million, compared with £20.6 million in 2010 and £20.2 million in 2009.
Furthermore, horse racing is not in as bad a state of health as some might think. Rachel Hood, president of the Racehorse Owners Association, said in December that she believed there was more cause for optimism than there had been “for some considerable time”. She added:
“British racing’s funding model has changed so much in recent years and while there remains a lack of total transparency around the issue of media rights, to its credit the Racecourse Association has recently confirmed that by 2013 racecourses will be receiving media rights of at least £84m, nearly £30m more than in 2010.”
I appreciate racing’s need to guarantee prize money and that it needs certainty of funding in order to plan ahead. In the most recent levy agreement, William Hill, Ladbrokes and Coral agreed to guarantee that their combined contribution to the horse racing levy will be not less than £45 million, and Betfair has undertaken to make a contribution to British racing through the levy board, which is assumed to be in the region of £7 million. In response to the latest levy agreement, the chairman of the Horserace Betting Levy Board, Paul Lee, said:
“The Board is extremely pleased to have reached unanimous agreement. This will provide further stability and make possible significant additional expenditure on prize money in 2013. I would like to give recognition to Betting and Racing for the constructive approach that they have taken in seeking early resolution to the terms of the next Levy Scheme.”
Although there are problems facing the horse racing industry—we have heard a lot about them today—it is worth considering that there are problems facing the bookmaking industry, too. Betting shops have been part of our communities for decades. Despite what some would have us believe, there has not been an explosion in the number of betting shops. The number in the UK has, in fact, remained relatively stable over the past decade, at around 8,900 shops. In fact, since the 1960s the betting industry has seen a vast decline in the number of betting shops, because in those days there were close to 16,000 in the UK, and fewer betting shops of course means less money for horse racing. The UK betting industry is already highly regulated and subject to significant levels of taxation. I believe that additional regulation and higher taxation would only make it less likely that the industry will be in a position to consider spending more on supporting horse racing.
Philip Davies (Shipley) (Con)
We have had an excellent debate today, and I commend everybody who contributed to it. It has been very informative. Some strong opinions have been expressed on both sides of the argument, but I think that they have also been well informed.
Before I get into what I want to say, I refer Members to my entry in the Register of Members’ Financial Interests. Unusually, I do not think there is anything in there that is worth declaring, but in case anyone does, I would like them to have a look at it and pore over it themselves to see what they can find. Just to give a complete disclosure, the only thing that I think is of any relevance is a subscription from which I receive no financial benefit whatsoever, from a company called Peninsula Business Services Ltd. It does what it says on the tin: it deals with employment services, and that is how I dealt with it when it approached me about an employment matter. It happens to be owned by Peter Done, the brother of Fred Done, who owns Betfred and now the Tote. You might think it a rather tenuous link, Mr Deputy Speaker, but others might not, so it is all there on the record for anyone to pore over. I reiterate that I receive no personal financial benefit from it. If I was ever to invoke the subscription I receive, it would be to the benefit of the taxpayer, rather than me.
Even though we have had an informative and extensive debate, I think it would be fair to say that it has not been incredibly helpful to the Minister or the Government. My hon. Friend the Member for Thirsk and Malton (Miss McIntosh) made an excellent speech. I did not necessarily agree with all the points she made, but she made them very well. In my first intervention on her, however, I asked her what she thought the main thrust of the Bill was—whether it was to improve regulation of the gambling industry and player protection, whether it was to raise money for the Treasury, or whether it was to provide more money for the racing industry. I stand to be corrected, but my hon. Friend seemed to say that the thrust of what she is trying to achieve was to bring in more money to the racing industry. As she made perfectly clear, she represents a community in which racing has a large presence, and she is, quite properly, trying to do the best for her constituency, constituents and local community. That is why she feels so passionate about it, and more power to her elbow in that regard. I take it that that is why clause 4, which relates to the levy, is so important to her and why its omission from the Government’s own Bill, which covers many of the same matters, is unacceptable to her. That is her opinion and we all appreciate the clarity with which she expressed it.
The hon. Member for Newcastle-under-Lyme (Paul Farrelly) also made an excellent speech. I, like him, commend bet365, and not just because it has stayed in the UK to pursue its business interests and has not gone abroad like everybody else. It has been helped by the fact that it is family-owned and does not have any shareholders to account to. I think I am right in saying—I will apologise to the company profusely if I am wrong—that, when its representatives gave evidence to the Culture, Media and Sport Committee as part of our inquiry into the Gambling Act 2005, they themselves acknowledged that had bet365 been a public company on the stock market, they would have found the pressure to move abroad irresistible. Nevertheless, it could still do that as a family-owned business. The fact that it has not shows—this is what I took from the evidence its representatives gave us—a deep-seated commitment to its local community. That should be commended. They are very proud of the fact that they employ so many people in Stoke and of the impact that they have on the local community—the hon. Gentleman mentioned the football club—and that is to their credit.
However, by talking so much about bet365—as he is entitled to do, because it is a big employer of his constituents—the hon. Gentleman seemed really to be focusing on the tax implications of the Bill and the idea that it offered an opportunity not only to level the playing field with regard to the competition that bet365 faces from people who have moved abroad, but for the revenues that such a move would generate for the Treasury. This seems rather inconvenient for the Government and, no doubt, for the Minister.
The Minister’s knowledge of these matters is greater than mine, so I would happily be corrected, but, as I understand it, the thrust of the Government Bill, which so closely mirrors this Bill—the point of consumption bit is virtually the same, if not identical—is not actually about bringing money in to the horseracing industry, which may well fall foul of European law. It would probably be tested in the courts and, as we have seen in the past, it is very difficult to predict the verdict of the European Court of Justice.
To illustrate the point, there was a court case in which the racing industry was trying to argue that it had data that it could sell on to bookmakers on a commercial basis. I think that the industry was very certain that it was going to win its case against William Hill when William Hill challenged it in the courts, and it seemed to be a great surprise to the industry when it lost. Court cases seem to be unpredictable.
Miss McIntosh
I am following my hon. Friend’s remarks carefully; I apologise for missing the start of his speech. Is he aware of the basic concept in European law that the European Commission is the arbiter of competition law, and that it has had an unconscionable length of time in which to bring the British Government to task if it wished to do so? I believe that we are on very strong ground in that regard.
Philip Davies
I accept what my hon. Friend says. She is far more of an expert on these matters than I will ever be. The House will listen to her opinion with great interest and deference because she is an expert on this subject. I am not a lawyer. People like my hon. Friend the Member for Bury North (Mr Nuttall) are much better qualified to speak on legal matters than I am. I am not an expert, I do not pretend to be an expert, and I will just have to see how events unfold, as will everybody else.
My hon. Friend the Member for Thirsk and Malton may well be right, but whatever the merits of the case, I suspect that were the purpose of the Bill to increase levy payments for the racing industry—notwithstanding the fact that she thinks that is perfectly reasonable—it would face a legal challenge that the Government could probably well do without. Furthermore, it would in many respects entrench the levy system in the industry at a time when the Government have been trying to get away from that system for funding horse racing, so it seems to be moving in the wrong direction in that regard too. I accept my hon. Friend’s legal opinion on the matter, but this measure would certainly add a legal complication that I suspect the Government would rather avoid.
As regards raising revenue for the Treasury. I think I am right in saying that the same issue applies. If it is felt that the reason for the point of consumption legislation is simply to fill the coffers of the Treasury, that in itself could well fall foul of the European Union’s rules, because it certainly would not want to get into a situation where people in one part of the EU are introducing point of consumption taxes on places in other parts of the EU, because the whole thing starts to fall apart at that point. If that was the main motivation behind the legislation, I think that the EU would want to avoid it.
Miss McIntosh
The point of consumption tax has already been established in other member states for the purposes of licensing and advertising activities. That is a separate point from the levy, which is the purpose of clause 4. As I said at some length, the tax issue should rightly be separated from this Bill. I understand that the Treasury has already consulted on the tax situation in 2012. It is for the Treasury to come forward with tax proposals.
I do not wish to mislead my hon. Friend and the House, so I merely say that the purpose of clauses 1, 2 and 3 is purely to establish the point of consumption for the purposes of obtaining a licence, being a licensed operator, having a commercial deal, and advertising the activity, all of which are deemed under the Bill to take place in the United Kingdom. There is common ground between what the Government are proposing and what my hon. Friend the Member for West Suffolk (Matthew Hancock) and I are proposing. Clause 4, on which the debate and the Bill hang, would extend the levy in the way that I set out.
Philip Davies
My hon. Friend is right. Such measures have been established in other parts of the European Union, and there is no problem with having point of consumption in principle. I have no problem with that, and if I remember rightly my hon. Friend quoted the conclusions of the Culture, Media and Sport Committee on which I serve. She was absolutely right; it was a unanimous report in every regard. There was no minority report or any divisions on the recommendations, and the Committee agreed the report in full. I certainly stand by the recommendations highlighted by my hon. Friend.
This is not about the principle of point of consumption, but the Government may run into problems when considering the purpose for which such a measure is being introduced. If they can satisfy the European Union that they are introducing it to regulate better the gambling sector, they will be on strong ground, and I suspect that test was satisfied in other parts of the EU where such measures have been introduced. In those cases, however, people may have been starting from scratch and deciding to start their regulation of the gambling industry on that basis. That would not apply in the United Kingdom where we already operate on a different basis that we would need to change, thereby introducing a complication that might not have applied elsewhere.
The Government want this debate to focus on why a point of consumption tax, this Bill and the Government’s version of it are so necessary. This is not about increasing funding to the racing industry by increasing levy payments, because that would introduce a complication, and the Bill’s main purpose is not one of increasing revenues to the Treasury—the Government do not want to go down that route because they will run into different legal problems. The Government want to concentrate on the fact that the Bill is necessary only to regulate the gambling industry better. That it may also increase revenues to the Treasury, or that my hon. Friend the Member for Thirsk and Malton may use it to increase revenues for the racing industry, is merely a useful coincidence, and, as I understand, certainly not what the Government would like us to believe the Bill is about.
As the Minister knows, I have an awful lot of respect for him—he is a great man and we are very lucky that he holds that position. I suspect, however, that he has been passed what might in rugby terms be described as a hospital pass with this Bill, and it will take all his considerable abilities, charm and finesse to extract himself and the Government from this situation. His position was not helped—he will certainly not want to agree with me on this, although he is entitled to feel it—by our right hon. Friend the Chancellor of the Exchequer who signposted the proposed legislation in his Budget speech.
Perhaps I may remind hon. Members of what the Chancellor said:
“One area where I am today making substantial changes is gambling duties…The current duty regime for remote gambling introduced by the last Government was levied on a ‘place of supply’ basis. This allowed overseas operators largely to avoid it, and much of the industry has, as a result, moved offshore. Ninety per cent of online gambling consumed by our citizens is now supplied from outside the UK, and the remaining UK operations are under pressure to leave. This is clearly not fair—and not a sensible way to support jobs in Britain. So we intend to introduce a tax regime based on the place of consumption—where the customer is based, not the company—and, from this April, we will also introduce double taxation relief for remote gambling. These changes will create a more level playing field, and protect jobs here.”—[Official Report, 21 March 2012; Vol. 542, c. 803.]
The genesis of the legislation is therefore clear—the Chancellor’s Budget. It will be no great surprise that my hon. Friend the Under-Secretary of State for Skills, whom all hon. Members regard highly, was and remains a close friend and ally of the Chancellor of the Exchequer. I suspect it will not be difficult for people to put two and two together and think, “Well, hold on a minute. The Chancellor said what he said in the Budget, and we have the Offshore Gambling Bill. Hey presto! That is how the Government will introduce the legislation.”
The problem is that the Chancellor made no reference in his Budget to the need to introduce the measure to improve player protection or better regulate the gambling industry. He made no reference to that being a problem that needed solving. We are beginning to understand what motivated the Government to introduce the Bill. I do not criticise the Chancellor: what he said was perfectly reasonable and fair, and many hon. Members on both sides of he House agree with his analysis, but I suspect that it has been unhelpful. He may not have been aware of the legal minefield he was in at the time, but people have become aware of it, and the Government have backtracked to change the nature of the debate. The debate must now be based, therefore, on player protection and the regulation of gambling rather than on—we can probably guess this is the real motive for the measure—getting money into the Treasury, which is no bad thing, and levelling the playing field for companies such as bet365 so that they do not go abroad, which no hon. Member wants.
I believe the Chancellor was also hinting that, if we get the measure right, we may even be able to reverse the trend. It would be fantastic if we were not just trying to stop bet365 leaving the country, but putting a regime in place that encouraged companies that have left the UK to come back. Not only would we retrieve lost revenue; we would also get jobs back. Lots of people in the UK would love the jobs that have been exported to places such as Gibraltar because of the current situation to come back to this country. With the best will in the world, neither the Offshore Gambling Bill nor the Government’s alternative Bill will make any difference in that respect.
There is no prospect whatever of any of those organisations relocating to the UK, whatever rate of tax the Government introduce. I think that would be a missed opportunity. My hon. Friend the Member for Rochford and Southend East (James Duddridge) mentioned a rate of 5%. If we had that rate and the Government asked the gambling industry whether it would agree to come back in return for that rate, there might well be scope for negotiation, but VAT will scupper such a plan, because gambling industries in the UK cannot reclaim their VAT. The money they spend on advertising is not reclaimable, but it is reclaimable overseas.
The House would support a regime that levelled the playing field, and that means companies paying more in taxation than they currently pay—no one would argue with that. The House would support a regime that gave companies an incentive to bring their operations back to the UK and the jobs that would come back with them. Surely that is a great prize to aim for, and I urge the Minister to lobby the Chancellor. All that is required is for the Chancellor to help with taxation—not just point of consumption taxation for the online industry, but VAT relief. Those two things combined could get those jobs and companies back. That is what we should be aiming to do. It is a strange state of affairs when we are spending lots of time trying to stop one company leaving—it is a negative thing to try to achieve—when much bigger prizes are at stake.
In many respects, the main thrust of what my hon. Friend the Member for Thirsk and Malton said concerned the levy. I should thank my hon. Friend, because from what she and my hon. Friend the Member for Mid Norfolk (George Freeman) were saying, it seems that, in essence, the Bill is designed to help me. As we discussed earlier, I am a very modest owner of racehorses. I am an owner of very modest race horses, too, to be perfectly honest. Contributing to the odd shares and legs and other parts of the anatomy—I am sure that it does not make a great impact on the considerable wealth of Mr Michael Easterby, in the constituency of my hon. Friend the Member for Thirsk and Malton—provides me with a great deal of pleasure. I seem to be the kind of owner that my hon. Friend says she wants to help. I regret to inform the House that I am also a very small-scale breeder of racehorses, too. The saying goes in racing circles that the only thing worse than having one broodmare is having two. There is no better way of leaking money as quickly as possible than breeding horses. The only thing that can compete is owning horses. Whichever one chooses, the only possible outcome is that one will be considerably poorer at the end of it than at the start. I think that somebody once said that the best way to gain a small fortune out of owning and breeding racehorses is to start with a large fortune—there is a considerable amount of truth in that. I should therefore be grateful to my hon. Friend for having me in mind to try to boost the modest returns I get from my horses. It is a rare pleasure when any of them trouble the scorers.
In passing, my hon. Friend the Member for Mid Norfolk encouraged us all—I think I am right in saying this; we can all check Hansard later—to back a horse called Wind for Power in the 1 pm at Lingfield today. I am sure that that was partly directed at the hon. Member for Brighton, Pavilion (Caroline Lucas), who was waiting to debate her Bill. I am sure she would have been encouraged to back a horse with that particular name, and I am delighted to announce that the horse won. If anybody took my hon. Friend’s advice, they are now considerably richer than they were when this debate started.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I loved the hon. Gentleman’s description of his horses, whether he has a leg and which horse is going to win. I am sure that it is very relevant to offshore gambling, but we seem to have lost that for a little while—I think we got lost in the leg somewhere. I am sure he is going to bring it back into line for me.
Philip Davies
I am very grateful, Mr Deputy Speaker. You are, as ever, absolutely right. I was getting carried away with my hon. Friend’s tipping prowess and I promise not to return to it. I will take your chastisement as an indication that you are keen to acquire a leg or two of your own, and I will certainly be happy to negotiate a deal for you.
Even though the horse racing levy is supposed to benefit people like me, I am not entirely convinced by the argument given by my hon. Friend the Member for Thirsk and Malton. Clause 4 is well meaning and I do not want to decry that, but I do not think that it will have the impact she thinks it would. I spoke about this briefly in an intervention. The levy is determined, hopefully, by agreement—it has been recently, which is to be welcomed—between the betting industry and racing industry through the auspices of the levy board, and we should all thank it for its work. When they come to an agreement about how much money should be handed over from the betting industry to the horse racing industry, rather than concentrating on the mechanism of how that money is raised, people are really thinking about how much it will raise. People think, “Well, what we need is a certain amount of money from the betting industry to make the racing industry viable which is reasonable to ask the gambling industry to provide based on the money it makes from the horse racing product.” A figure is therefore arrived at that seems reasonable.
I cannot remember, but I have a feeling—the Minister will be able to help out on this—that the last time the Secretary of State determined what the Government thought was a reasonable price for the betting industry to pay the racing industry, the figure arrived at was somewhere around £75 million. The Government then introduced a mechanism in the levy, making slight amendments to try to deliver £75 million—or whatever figure they thought was a fair amount for the gambling industry to pay—and that was that. The mechanism was arrived at to deliver the figure.
My hon. Friend the Member for Thirsk and Malton seems to presume that everyone will continue with the same mechanism, which will simply deliver more money to the racing industry, but I suspect it would not really work like that. I suspect that the levy board would still go through the same deliberations and work out what was reasonable to expect the gambling industry to provide, and that a mechanism would be worked out to deliver around £75 million. Therefore, the 10.75% of gross horse racing profits that go to the levy would probably be reduced to hit that target. As a consequence, the Bill —clause 4 in particular—would generate no more money for the racing industry. Rather, it would simply mean that the money came from a different mechanism.
Miss McIntosh
Obviously we hope to hear the Minister give the reassurances that we have requested, but the whole point is that—I hope he will confirm this—we have set in place a six-month time frame for the current levy board-led process to come up with a replacement. That is why the Bill, particularly clause 4, is so pertinent and so appropriate at this time, and why we need it on the statute book.
Philip Davies
I understand my hon. Friend’s point, but in some respects she argues against herself. As she says, the Government are looking at this issue—indeed, everybody has been looking. I think even she said in her speech, in passing, that the levy system was broken to a certain extent—everybody starts these debates like this—or that it was not ideal and was not delivering the right outcome. However, it seems rather strange to say, “The levy system’s broken; let’s introduce a measure that entrenches it even more.” I do not quite follow how that is the solution to the problem that she rightly highlights.
I am not a big fan of the levy system either. My hon. Friend the Member for Rochford and Southend East would describe himself as a layman, but he made some pertinent points about other sports and industries being subsidised, and all the rest of it. I certainly do not think there is any justification for that. Really, the levy is something historical, because that is how it started. If we were starting again now, would we have the levy system? Possibly not—I do not know; probably we would come to a commercial agreement—so I am not sure that entrenching the levy system is the solution to the problem that my hon. Friend the Member for Thirsk and Malton identifies, nor would it deliver any extra funding for racing. Therefore, I am not sure that this proposal is worth persevering with, given that it would also add legal complications—again, I accept her point about the legal position as she sees it—that the Government could well do without. I see lots of downsides for the Government in pursuing this proposal; I do not really see any great upside, for the reasons I have given. Therefore, it is probably not worth while persevering with. Again, however, I am sure that the Minister will have a view on that.
Let me return to the point about the levy. There is a slight misnomer—I am certainly not alleging that anybody is trying to mislead anybody when they trot it out—that can give a false picture, which is the idea that the levy is essential for the small trainers, the small owners and the small breeders, whom we have got to support, and that without the prize money the levy generates, they would go under. I do not think that that is the case. If we look at the figures more closely, we can see that it is not quite as simple as that. There is an element of that involved: the levy board supports fixtures at the bottom end that might not otherwise be viable, and I am not going to decry that, but that is not the only destination for the levy board’s money. It might not even be where most of it goes; I am not entirely sure. It would be interesting to have a breakdown of where the board’s funding goes, so that we can see whether it represents a sensible way of diverting resources.
As I said, a very high percentage of prize money in this country goes to a very small number of people, including the top owners and the top trainers. In effect, we are asking for money to be transferred from poor people in betting shops—they are the ones who pay the levy, after all; it is the punters, not the companies, who are paying in one form or another—to wealthy racehorse owners. That set-up represents a strange redistribution of wealth, and it is not one that I recognise. There are not many calls in the House for the very poorest to pay more to the very wealthiest people in the world, but the levy, in essence, brings about just such a transfer of wealth. I do not think that that arrangement stands up to scrutiny.
The levy is certainly used to prop up the prize money of some of the top races in the country. I am sorry if I am returning to a subject that you would rather I did not mention, Mr Deputy Speaker, but with the best will in the world, a small owner like me is not going to win the top classic races on the flat. That is simply not going to happen, so I will not benefit from an increase in the levy. The people who win that kind of race are Sheikh Mohammed, the Coolmore stud in Ireland and the new people from Qatar, who are a welcome addition to the racing industry. It would be stretching the imagination to suggest that any of them were struggling to get by, based on what they have at the moment. We cannot pursue that particular avenue too far. We should be careful about what we say the levy is used for; it is not used just for the purposes that my hon. Friend the Member for Thirsk and Malton claims it is.
The figures that my hon. Friend gave earlier rightly showed how the levy had reduced over the years. My hon. Friend the Member for Bury North was right to point out that it had stabilised and started to move back up again, and I am sure that everyone is happy about that. It is not right, however, to say that the only contribution that bookmakers make to the racing industry is through the levy. In recent years, for example, they have been asked to pay a vastly increased contribution to race courses for picture rights. That money is going to the race courses and the media companies.
I accept where my hon. Friend the Member for Thirsk and Malton is coming from and what she wants to achieve, and I would like to think that there is no greater supporter of horse racing in the House than me. It is my great passion in life—to be perfectly honest, it is a greater passion than politics—and I want to see the horse racing industry thrive. My point is, however, that the money that bookmakers pay for the racing product is not being efficiently passed down the racing food chain. A lot of it gets stuck with the broadcasters who are supplying the pictures, for example. Perhaps we could explore the possibility of finding a better mechanism for getting the money from the broadcasters down into the racing industry, as my hon. Friend the Member for Thirsk and Malton wants to do. It is also possible that the race courses are piling up the money from the picture rights and not passing it on in prize money.
James Duddridge
I apologise to my hon. Friend for not being here right at the beginning of his speech. Having sat through three or four hours of the debate, however, I have started to get a feel for the issues involved and I understand the points that he is making about the levy. It has been pointed out that we should not look at the levy in isolation, and that we should look at other sources of revenue. Does he have any idea of the amounts that are being acquired, or could be acquired, through picture rights or other avenues? The Bill tries to make the case that the levy does not raise enough money, but without being able to see the bigger picture, it is difficult to say whether there is enough money in the industry at the moment.
Philip Davies
I am grateful to my hon. Friend and I will try to assist him by looking at the data from 2009-10 and then from 2010-11. In 2010, the levy was £75 million and the picture rights were £140 million—the betting industry was paying for them—and other costs came to £26 million. That total of £241 million was, in effect, what racing cost the betting industry. The total dropped to £228 million in 2010-11, which was largely the result of a drop in the levy by £16 million, and the overall amount that betting gave to racing dropped by £13 million. Since then, however, it has steadily risen. In 2011-12, the picture rights went up by £11 million and the levy went up by £60 million, so the total went up from £228 million to £256 million. For this year, 2012-13, the betting industry is forking out £267 million for racing products compared with £256 million last year. In the current climate, that is a considerable rise. Next year, with the agreements that have been made, it is going to go up from £267 million to £275 million.
If we take all that together, it is difficult to sustain the argument that bookmakers are not paying a fair amount for their racing products. It might not be through the levy—the levy is at a level similar to what it was five or six years ago, now that it has stabilised and gone back up—but it is not the levy that is costing the bookmakers more: it is the other things. Given that we have heard from a number of Members today how horse racing makes up a smaller and smaller part of the income bookmakers receive, it is not, in my view, sustainable in the long run for, on the one hand, horse racing to take less and less of the bookmakers’ share of the bets they are taking, while on the other expecting bookmakers to pay more and more every single year for the horse racing product. At some point, it is going to snap; it will reach a point where it is no longer sustainable.
I point out gently to my hon. Friend the Member for Thirsk and Malton that it is always easy in this place to say “Let’s get those awful bookmakers to pay more money.” They have paid more money and they are paying more money, but that will not be possible in the long run: we need to find alternative ways to get the money into racing. We need a commercial agreement based on picture rights, as we must find a mechanism for getting money into racing.
Before the intervention of my hon. Friend the Member for Rochford and Southend East, I mentioned race courses, which are one of the main beneficiaries of the increase in picture right costs. As my hon. Friend the Member for Thirsk and Malton said, two race courses have closed, which is a matter of great regret. I am very sad about that, as one of the great virtues of British racing is the diversity of race courses all around the country and the ability of people living nearby to get to them. I am sure that this is also a great regret to the Minister, given that one of the courses that closed down was in his area of Kent.
People might get the idea that the race courses must be struggling, too, if they have to close down, but I do not think that is the case. I think there has never been a better time for race courses; they have never had more money coming in from picture rights and other sources. The reason for the closure of the two race courses, as I see it, is that they were owned by this big company—it was Northern Racing, but is now in a bigger group, ARC, Arena Racing Company, owned by the Reuben brothers—which took advantage of the fact that fixtures could be transferred from one race course in a group to another race course in the group. It thus closed down the least profitable race courses to move the fixtures to the most profitable race courses—not because the two race courses were not viable, but simply because profits could be enhanced by moving fixtures to other race courses in the group. That is a very sad and serious state of affairs, and I hope the racing industry will wake up to that, and change the allocation of fixtures to stop that happening. I do not believe, however, that any of those issues need to be dealt with by clause 4. As I say, it would not help the situation; it could make it worse because of the legal problems that it will bring about.
James Duddridge
My hon. Friend is explaining very well how money flows from the bookmakers via the picture rights. We have been concentrating on the levy, but is not one of the problems the fact that the race courses are not filtering the money further down to the jockeys and some of the industries mentioned by my hon. Friend the Member for Mid Norfolk (George Freeman)? If that hold-up were dealt with and the money flowed down properly through the industry, we might not need to do all this work on the levy.
Philip Davies
That is essentially the point that I am making. In the past, there has been a “racing versus bookmaker” attitude that has got neither side anywhere. There have been faults on both sides of that polarisation. Bookmakers need to accept that horse racing must thrive if they are to do well in their business, and, equally, the racing industry needs to understand that without betting, it has not much of a product to sell. Each side needs the other; a “them and us” approach gets us absolutely nowhere.
Rather than rehearsing those decades-old arguments, let us look at the facts in the cold light of day. Let us see where the money is, and how it can be filtered down. I think that there is an awful lot more money in the race courses now than there was before, but what we want is for the prize money to filter down. The amount of prize money could be increased if funds were passed down efficiently, and the smaller trainers, owners and breeders could benefit in the way that my hon. Friend the Member for Thirsk and Malton wants if that increased prize money were passed on by the race courses.
Another problem is the fact that the Horsemen’s Group, which represents racehorse owners, trainers and so forth, placed a minimum tariff on different race classifications. The prize money for a class 5 race, for instance, will be at a certain minimum level, while for a class 4 race the level will be slightly higher. Although that was done for a good reason—to end what I am sure my hon. Friend would consider to be the worst excesses of paltry prize money and establish some minimums —it has encouraged race courses to put on lower-grade racing so that they can get away with providing the minimum maximum, as it were. A well-meant initiative has had an unintended consequence. Race courses have been given a perverse incentive to “dumb down” the quality of the racing that they offer so that the prize money can be as little as they can get away with, although it will still hit the minimum prescribed by the Horsemen’s Group. That, too, is not of much benefit to anyone.
There is money in the system. Money has been flowing from the betting industry. What we need to do is find mechanisms that will enable it to be conveyed to the people whom my hon. Friend has rightly identified.
Mr Nuttall
Does my hon. Friend agree with the comments of Rachel Hood, the president of the Racehorse Owners Association, to whom I referred earlier? She said that there was more cause for optimism than there had been “for some considerable time”.
Philip Davies
I do. Rachel Hood is the wife of John Gosden, one of the top trainers in the country. She is also, I believe, a lawyer by profession. She is an extremely talented person, and the Racehorse Owners Association is lucky to have her representing it. She is a formidable character, and we do not always see eye to eye, but my hon. Friend was right to quote her. She also said:
“British racing’s funding model has changed so much in recent years and while there remains a lack of total transparency around the issue of media rights, to its credit the Racecourse Association has recently confirmed that by 2013 racecourses will be receiving media rights of at least £84m, nearly £30m more than in 2010.”
She herself has identified the fact that the race courses are receiving a windfall from the media rights that the bookmakers are paying. She may also have cottoned on to the fact that there may well be more mileage for the owners in trying to pass some of it on in prize money.
I am well aware, Mr Deputy Speaker, that time is passing, and it is a shame when there is so much to say about such a big subject and so little time in which to say it—unfortunately, I seem to encounter that problem regularly, and on Fridays in particular. However, I want to talk about regulation because, as I said at the start of my remarks, this will help the Government to a certain extent; they want us to get on to discuss regulation because as far as they are concerned that is what they are all about. That is probably about as helpful as I am going to get for the Government, but I thought I would help in that respect.
The Minister is on the horns of a dilemma, because he has to say that this issue is about regulation. The problem is that I do not see, and neither did our Select Committee when we took evidence, a great deal of evidence of a massive problem with the regulation of the betting industry in this country. If anybody has any evidence of the failures of regulation, the Select Committee would love to see it because we genuinely did not see any. If we are to take the Government’s word on what this is all about, the Bill seems to be the perfect example of a solution looking for a problem. I am not aware of what the problem is, but it will be for the Government, either today or at a later date, to spell out what the particular issue is. I do not know whether the Minister sees the Bill as an irritant—perhaps he will be able to tell us. Some aspects of the Bill are superfluous, because the Treasury and the Department for Culture, Media and Sport have already indicated that they are going to carry out much of what is in it, and some of it may be illegal.
Let me discuss some of the particular regulation issues. At the moment, we have a white list, which is based on the view that the regulation in the other regimes involved is just as rigorous and onerous as it is in this country, and we are satisfied as a country that those regimes are just as good. So the principle goes: given that we are happy with the regulatory regime in those jurisdictions, we are happy to accept the licences that they issue. If we are simply looking at this in terms of regulation, the model of regulation seems to be sensible. So if we are happy with the overall standard of regulation, why do we need to get bogged down in issuing each individual operator a licence, given that they have already been given a licence in a regime that we think is good enough? That is the basis on which we have operated our regulation in this country and it has worked particularly well.
This country has a very small number of people who bet with illegal operators, although, again, I am happy to listen to evidence to the contrary on that and I will certainly accept it if it exists. In other countries, particularly those in the European Union, illegal betting is a massive problem. These countries give licences to a very small number of people on different bases. In Belgium, someone has to have shops—they have to have a physical presence in the country—in order to be given an online licence. There are all sorts of rules like that. The inevitable consequence is that a massive amount of illegal gambling goes on, in the sense that people bet with operators abroad who have no licence in their home jurisdiction.
All sorts of mechanisms are put in place to try to prevent such betting from happening, such as the site blocking that some countries put in place to try to stop people betting on illegal sites. That has not worked and we know why: modern technology means that as soon as one site is closed down, another one opens up within five minutes and by the time people get round to closing that one down, another one opens up within five minutes flat; you are for ever chasing your tail and you never deal with the problem.
Some jurisdictions therefore have a block on payments, whereby the Government come to an agreement with the banks and the credit card companies that they will not allow any transactions to take place with the unlicensed operators abroad. Of course, that can have more success than site blocking. I am a luddite, as you know, Mr Deputy Speaker, so I am probably not the best person to go through all the ways that people get around such restrictions. As I understand it—hon. Members who know more about it than I do will be able to correct me—operations such as PayPal enable people to get around those restrictions, so they are not totally successful.
The problem is that in every jurisdiction that has tried to restrict the licences it issues and whom it allows people to bet with, that approach has never worked. I do not see why we think we will solve a problem that no other country appears to have solved. It seems to me that the only possible consequence is that the levels of betting with illegal operators or operators without a licence will go up. Given that we have virtually none of that at the moment, which must be good for regulation and player protection, how can it improve regulation to set up a regime when the only possible consequence is that people will go into the grey market and will not get a licence but will still operate? How will we stop people betting with those operators? They will be able to offer better prices as they will have lower costs and lower tax liabilities, so in many respects we will be in danger of setting up a regime that actively encourages people to go to unlicensed operators abroad who do not contribute anything in this country.
We treat the online industry as if it contributes nothing to racing or to the Exchequer. Some of the big online companies are Ladbrokes and William Hill. They have thousands of shops in the UK and are massive employers. They do not contribute nothing to the British economy; they contribute an awful lot. The danger is that in the online world, fewer people will bet with the companies such as Ladbrokes and William Hill that make a contribution, if not on an online basis but though their shops, and instead will go to operators that contribute nothing to the UK economy.
We will set up a system that inadvertently pushes people to such operators and I do not see how that is a triumph for regulation or for player protection. We should be grateful that we do not have the problems that other counties do, but we would be in danger of creating them. If this is about regulation, as the Minister would like us to believe, he must explain where the big problem is and why regulation is necessary to solve it.
The white listing system means that the Gambling Commission can accept regulation from other jurisdictions and can trust it in the knowledge that those jurisdictions have as tough a regulatory system as we do—one in which we can have faith. That means the commission can accept such operators in the same way as it would one from the UK. The problem with the Bill and the Government’s draft Bill is that the Gambling Commission will have to issue individual licences to Lord knows how many gambling companies. On what basis will it do that? On what basis will it assess the abilities of betting companies in foreign lands? How will it decide whether they are legitimate, whether they can pay out to punters and whether they are ring-fencing the punters’ stake rather than putting it all in a pot? How will it do that when companies are in far-flung jurisdictions? Will all the Gambling Commission staff be off on permanent jollies, going around and looking at all those industries? Who will issue all the licences? How many more people will the commission need?
I bet the commission thinks that this is the best thing since sliced bread. Quangos love empire building; we have seen it time and time again. The commission must think all its Christmases have come at once. Instead of having to accept the licences issued by jurisdictions whose regulatory regimes we are perfectly happy with, it will have to consider every company individually. That seems to me to be what my hon. Friend the Member for Thirsk and Malton and the Minister are proposing: great stuff if you work for the Gambling Commission, but probably not so great for anyone else. Will those companies, including UK companies, that employ many people in the UK have to get an individual licence in every jurisdiction in which they operate? That is unnecessary, as we could just recognise regulatory regimes elsewhere. It is bureaucracy gone mad, and I hope that the Government can make a good case for why that should happen.
I am sure that we are all anxious to hear what the Front-Bench spokesmen have to say about the matter, but I am sorry that we have been short of time for this debate, because there is a lot more stuff that I wanted to mention. The revenue raised by the measure is not all a net benefit to the Exchequer, as there is a negative side too. There are gambling companies such as tombola—Members might have seen it advertise its product before “Emmerdale” on television—and it is a fairly new company that has enjoyed massive growth. I apologise if this is not true, but I believe that it is based offshore, so it does not contribute the taxation that people would like, and that is the problem the Bill is designed to tackle. Tombola employs an awful lot of people in the UK to work on things such as its marketing and advertising strategies. If we imposed extra taxation on such companies, which is difficult to justify given their margins, they will reduce their marketing spend—we do not have to be great geniuses to work that out—because they will not be able to afford to spend as much on it. Ultimately, therefore, they will employ fewer people in the UK to work on marketing.
We should think through the consequences of what we are doing. The Government seem to have pound signs in their eyes, thinking that this is an easy way to make money: there is no downside, it is all upside. Life is never quite as simple as that. There are no painless panaceas, and there may well be some unintended consequences, including the fact that fewer people will be employed in these industries in the UK. I am sure that none of us, whatever our view of the Bill—again, I have no problem with it in principle—wants to see unintended consequences that result in people losing their jobs in this country and in the economy losing money. We want a regime that increases revenue for the Government and increases the number of jobs. The Government can do that, but they need to be rather more careful than they have been, and rather more careful than has been the case with this Bill. However, I commend my hon. Friends the Members for Thirsk and Malton and for West Suffolk (Matthew Hancock) for introducing the Bill, because it has allowed us to have a very good debate and informed discussion. We should all be grateful for that.
Clive Efford (Eltham) (Lab)
I feel like I have been under starter’s orders for four and a half hours and I have finally got out of the traps. I congratulate the hon. Members for West Suffolk (Matthew Hancock) and for Thirsk and Malton (Miss McIntosh) on securing this debate. It has been an interesting debate, although it has been heavy going at times. I feel like I have been waiting for a taxi: you wait for a Bill, then you get two at once.
I will leave the Dispatch Box after asking the Minister if he can clarify where we are. We have two identical Bills: the only thing that is different about the Offshore Gambling Bill is clause 4—where have we been before on clause IV?—which deals with the levy. The levy is important, as it provides essential funds for an important industry, particularly in rural areas, but will the Minister explain how he intends to proceed with the Bills? Will we see legislation in this Session? It is shame that his draft Bill was not submitted to the Select Committee on Culture, Media and Sport any earlier, given that there has been a paucity of Government business to fill the time. We could have completed scrutiny of this piece of legislation had it been introduced earlier. In the time remaining today, the Minister will want to contribute to the debate as much as possible, so I shall leave it to him to answer those points.
The Minister of State, Department for Culture, Media and Sport (Hugh Robertson)
I start by thanking my hon. Friend the Member for Thirsk and Malton (Miss McIntosh) for securing a debate on such an important topic, and I thank the Under-Secretary of State for Skills, my hon. Friend the Member for West Suffolk (Matthew Hancock), for his support in the earlier stages. Despite much of what has been said today, I am delighted to see that there is a considerable amount of cross-party support, in almost every corner, for the regulation of remote gambling on a point of consumption basis and for the requirement that all remote gambling operators engaging with British consumers hold a Gambling Commission licence.
In the limited time available to me, I shall go through some of the questions that were asked and try to cover as many of the points as possible. My hon. Friend the Member for Thirsk and Malton and the Opposition spokesman, the hon. Member for Eltham (Clive Efford), asked about the timetable for the Government Bill. As both are aware, the draft Bill is before the Culture, Media and Sport Committee. Providing it passes that stage, it will go forward as a third Session Bill. Clearly, it is then up to the business managers in the House to decide whether and when to take it forward, but it is our intention to do so, if legislative space can be found, as a third Session Bill.
My hon. Friend the Member for Thirsk and Malton asked about the levy, which is the subject of clause 4. The best thing I can do is read to her the legal advice that I have been given by the Government Law Officers, which says that although a levy is permitted in its current form, since it originates from before 1972 and therefore pre-dates state aid rules, the European Commission is likely to consider that the collection of contributions from overseas operators would substantially alter the levy, such that it was no longer compliant with state aid. I am afraid that, regardless of how many high-priced opinions are obtained elsewhere, once the Government Law Officers have opined that the Bill is therefore defective in that respect, the Government cannot accept it.
Let me turn to the reform of the levy board, which was the second part of my hon. Friend’s question. Given the success of the levy board in concluding the most recent negotiations, and the fact that the advice that I was given, both by the industry and by the lawyers, was that the proposed solution around secondary legislation was unlikely to withstand legal challenge, should it appear, and since the advice that I received from the chairman of the levy board was that there was much more good will in the industry—I pay tribute to the work that he and his organisation have done—it seemed sensible to allow him six months to see whether he could put together a voluntary agreement.
I think that is the right thing to do. No Government want to legislate unless it is absolutely necessary, and they need to exhaust all avenues before they do so. The chairman of the levy board is aware that the bar in that is quite high, because such an agreement would have to be sustainable, it would have to carry the confidence of both sides, and it would, I hope, bring security and stability to the industry in the medium term.
Philip Davies
At present the levy situation has to be resolved on an annual basis. Will the Government be able to facilitate longer-term agreements, rather than having to go through an annual procedure, which is sometimes a bun fight?
Hugh Robertson
The best way of answering that is that I have not in any way restricted the chairman of the levy board over that, but I have made medium-term stability a key criterion by which we will judge any deal. If he is able—I wish him the very best of luck—to conclude a three-year or five-year deal that brings stability to the racing industry and commands the confidence of both sides, which I realise is a high hurdle to jump over, I would look at such a deal very carefully.
My hon. Friend the Member for Thirsk and Malton talked a little about integrity and sports. I seemed to spend a considerable amount of my time last year locked in rooms in Switzerland talking about integrity and sports betting before the Olympics, and it is worth saying here that the system that was set up for London 2012 worked so well that it is now being imported into other games as the model of how these things should happen. Rather to our surprise, there was very little of that sort of activity around London 2012. We might find, as we discover more about it, that it is quite sport-specific, and more specific to football and cricket than to some Olympic sports, but the system worked well.
The key point, of course, is that many of the threats come not from established betting markets here and in Europe, but from illegal betting markets in the far east. When I was in Delhi for the Commonwealth games, a journalist got access to one of the illegal dens, and one could hear the buzz about it. I do not know how these things are calculated, but it is rumoured that for a one-day cricket match between India and Pakistan $1 billion was traded—