Horse Racing (Funding)

Matt Hancock Excerpts

Tuesday 22nd November 2011 Westminster Hall

[Matthew Hancock (West Suffolk) (Con)]

It is a pleasure to speak under your chairmanship, Mr Williams, and to see my hon. Friend the Under-Secretary of State for Culture, Olympics, Media and Sport, or the Minister for horse racing, as he is known in Newmarket, in his place.

I applied for this debate because the future funding of horse racing remains in a parlous condition. Although the Government have shown willingness to deal with the matter—no one doubts the Minister’s personal commitment—more action is needed.

Horse racing has, for centuries, been part of our national heritage. It has been interwoven in our national life from the time King Charles II took Nell Gwynne to Newmarket for a month in the spring and a month in the autumn and races were used to keep up the quality of bloodstock during times of peace. The current exhibition of early actresses at the National Portrait Gallery shows the beauty and other attractions of Nell Gwynne, so I understand the desire of King Charles II to spend two months on the plains of Suffolk to enjoy all the riches on offer.

The sport was about not just bloodstock but high entertainment, and so it is today. Racing is the second most watched sport after football in this country. It contributes more than £3 billion to our economy, and employs more than 100,000 people, 5,000 of them in and around racing in Newmarket. None the less, racing’s finances are in jeopardy. In 2010, the number of foals born in the UK fell by a sixth. The number of horses in training has been falling consistently over the past three years. The root of the issue is a breakdown in funding. The most important part of the funding for the industry is the levy—the money that betting pays to racing in return for the races on which people bet—and as we know, it has fallen dramatically.

The changes in the way that people bet and the move to more and more online gambling are at the heart of the matter. Racing has moved into a modern world and outstripped the outdated and outmoded outfit that has determined its funding—the levy system. Prize money has almost halved since 2009, dropping from around £65 million to £34 million this year. Prizes are in freefall compared with our nearest competitors. At Newmarket, a win in a middle-ranking race will net around £6,500; at Longchamp the equivalent is more than £21,000. Across the country, prize money has fallen by about a third over a couple of years.

[Julian Smith (Skipton and Ripon) (Con)]

Does my hon. Friend agree that for smaller race courses, such as Ripon in my constituency, the issue of prize money and its value is a major prohibitor to attracting good races, and for smaller race courses that is one of their biggest challenges?

[Matthew Hancock]

If the problem is serious for Newmarket, it is even more serious for many smaller race courses, especially if the prize money hardly pays for the diesel to get the horse to the race. If a horse comes third or fourth, the owner’s costs are not even covered, and if an owner’s costs are not covered even when their horse wins, one of the great incentives for owning a horse is removed. Of course people own race horses for all sorts of reasons, not least the glamour of the winning enclosure and the thrill of their horse being the first to cross the line. None the less, it is important for an owner at least to have the dream that they may make money from their horse. People who own race horses are normally realistic about the fact that they may not get back their outlay, but they should at least have the hope that they can. The fall in prize money is central to a fall in the attractiveness of owning and breeding race horses.

The fall in prize money reflects the fall in the value of the levy itself—from £111 million in 2003 to £60 million in 2010. Will the Minister assure us that we can make the changes that are necessary to put the funding on a sustainable footing; that in the sale of the Tote there are commitments to racing that will be fulfilled; and that the money that used to come directly from the Tote and will now come through the deal agreed during its sale will still happen? The Tote, although smaller in cash terms, is another important part of the funding of racing.

Some progress has been made. It looks as though last year’s yield on the levy will come in at around £65 million, well below the target of £71.4 million, which in itself was too low. This year’s target is marginally higher, and it has been underpinned by a guarantee from three of the big bookmakers. The Levy Board will spend an extra £5 million in 2012, £4 million of which will go in prize money. Welcome as such a move is, it is merely damage limitation. A long-term solution to the levy needs to be put in place, not least because of the adversarial nature of the levy. Instead of the racing industry and bookmakers working together to provide a product that is great for the punter and good for racing, they have an adversarial relationship, which needs to be addressed.

[Grahame M. Morris (Easington) (Lab)]

I congratulate the hon. Gentleman on securing this important debate on the future of horse racing. Does he agree that the most important factor is a level playing field between onshore and offshore betting operators to fund the future of British horse racing?

[Matthew Hancock]

I was just about to come to exactly that point, so the hon. Gentleman is prescient. There is consensus that the system is broken and needs to be reformed. We have no God-given right in Britain to some of the best racing in the world.

[Philip Davies (Shipley) (Con)]

My hon. Friend mentioned the fact that the levy is going up, which must be welcomed by everybody. Does he not agree though that that is only half the story and that one of the other major costs for bookmakers is the media rights that they pay? After 2012, those will increase by £50 million a year, which is a huge windfall for the racing industry. It will even benefit race courses such as the one in the constituency of my hon. Friend the Member for Skipton and Ripon (Julian Smith).

[Matthew Hancock]

I am not surprised that the amount being paid by bookies for picture rights is going up, not least because of the attractiveness of the sport and the amount of interest in racing. Of course the rise is good news but picture rights are only part of the story, because when a punter bets on a race the bet is based on the racing product that underpins it, so picture rights alone cannot be the answer to the question of how to fund horse racing.

I come now to what will be the core of my argument today and the core of the question that I will put to the Minister. During the last decade or so, what has been central to the fall in the value of the levy is the removal from British shores of almost all the big bookmakers. Of the 20 biggest bookies, only two are now domiciled in the UK. As I said earlier, that change reflects changes in technology that mean we can bet more online and over the phone. However, we must recognise the change and deal with it, if we are to put matters right.

The fact that bet365 and Coral are still onshore is great news, but we should not be in a position where we have to be grateful to bookies for staying onshore. The idea that we should thank people for paying the tax that they are due to pay is not one that we apply anywhere else in the tax system. In fact, everywhere else in the tax system we are pretty firm if people do not pay their tax. Although I am grateful that those two bookmakers—bet365 and Coral—have stayed onshore, many independent bookmakers cannot move offshore; they do not have the capacity to do so, as they are too small. Consequently there is not a level playing field even within the gambling industry to ensure that there can be fair competition in gambling.

The impact of that offshoring is felt across the board. There is a loss of millions in levy contributions and a loss to the taxpayer, estimated at £62 million a year, in lost betting duty. I would be very interested to find out whether the Minister has an updated estimate of the amount of tax that is lost in betting duty because of the number of offshore bookmakers.

[Andrew Griffiths (Burton) (Con)]

I have been told to thank my hon. Friend on behalf of Uttoxeter race course, which is in my constituency, where his work on behalf of the racing industry has become legendary. People at Uttoxeter have asked me to pass on their personal thanks.

My hon. Friend raises the very important issue of betting going offshore. Obviously we live in a global world and the internet makes it incredibly difficult for us to regulate betting offshore. However, many offshore bookmakers still advertise in the UK; in magazines, on billboards and on the side of bus stops. Does he agree that one of the ways we could get them to understand the consequences of not being based in the UK is to regulate their advertising in those kinds of media?

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[Matthew Hancock]

I think that the consensus in the House on the need to make such reforms is demonstrated by the fact that all the interventions so far have anticipated the next page of my speech. I am very grateful to my hon. Friend for his intervention, because dealing with that offshore loophole is the first thing that we need to do if we are to sort out the problems of financing the racing industry.

When I talk to individual bookmaking companies that are offshore, each of them argues that they would really like to be onshore and that the only reason they are not onshore is that all their competitors are offshore. I have worked in a small business and I understand that argument. If somebody else has taken a chunk of tax and levy contributions out of their cost base, of course others will want to do the same.

I have a solution, which is to create a level playing field; let us have everybody onshore and paying their fair share of tax and levy contributions. The solution that the Minister put forward in July was a neat and quite simple one. Changing the designation of the location of a bet from where the bookie is based to where the punter is based would turn what at the moment is legitimate tax avoidance into tax evasion. Because of the internet, we might not necessarily catch 100% of bets by making that change, but we could capture the vast majority. All the major bookmakers who want to advertise or do other business in the UK will come onshore because they would not want to break the law by not paying tax and levy on the bets placed with them. Most bookmakers are good corporate citizens, so a change such as this would ensure that all the major players would come onshore. That would not only help with the funding of racing, on which bookmakers’ own business models depend, but with the lack of a level playing field, which is a scourge of independent and small bookmakers.

[Philip Davies]

I understand the point that my hon. Friend is making. May I suggest a more conservative approach? I understand that he has great influence with the Chancellor. Has he thought about persuading the Chancellor to reduce the rate of tax on those offshore businesses, which will tempt them back onshore? As a keen economist, I am sure that my hon. Friend will appreciate that 5% of something is far better than 15% of nothing.

[Matthew Hancock]

I do not believe in tempting people to pay tax; I believe in ensuring that people pay tax. I myself am not tempted to pay tax, but I have to pay tax. Indeed, the tax is taken out of my wages before I even see it. People across the country would not understand a system in which we merely tempt people to pay tax; we need to insist that people pay tax.

Nevertheless, my hon. Friend makes an important point. As he suggests, if all bookmakers came back onshore, the amount that went into the racing industry through tax and the levy would be substantially higher and it may well be that at the same time we could look at the rates of tax being applied to bookmakers. Indeed, there is a Treasury consultation on that very point at the moment. I am sure that he and others will make a contribution to that process, and no doubt the Chancellor will listen to all Conservative Back Benchers equally.

The argument that the Minister made in July in his written ministerial statement, and in response to a question that I put on the Floor of the House, concentrated on widening the regulatory net and ensuring that gambling regulations cover all people in the UK who make bets; it focused on the regulatory aspect. Of course I support the argument that the appropriate regulatory net should cover all people gambling in the UK and the principles behind that argument, but expanding the reach of regulation is not as urgent for the financing of the racing industry as closing the tax and levy loophole. I urge the Minister to look at the issue from the perspective of fair and appropriate funding of horse racing rather than the wider changes to the coverage of gambling regulation that he seeks. I am sure that people will support him in both those aims but one is urgent and the other is important, and the distinction between urgency and importance is one that I am sure he recognises every time he opens his ministerial red box.

I am very pleased that the Treasury is conducting a consultation, but I want to ask the Minister some questions about how we will make the progress that is necessary and how we will turn tax avoidance into tax evasion through legislation. A tax change and a financial change to the levy could be made through the Finance Bill, and Finance Bills happen regularly. If that means that we cannot make the wider regulatory changes that the Minister seeks, so be it. The urgent task is on the financial side, because it is only when we tackle the offshore problem that we can go on to make the broader changes in the levy that many people want to see; indeed, I think that there is cross-party consensus about the need for broader changes in the levy.

With bookies back onshore and paying their share, we can finally establish the long-term funding structure that is both sustainable and fair to everybody involved in racing, including bookmakers, and it could improve the relationship between racing and bookmakers.

[Ben Gummer (Ipswich) (Con)]

My hon. Friend has used a key word, which is “sustainable”. As he rightly said, one can understand the business reason for bookmakers going offshore in the short term, but such a number of bookmakers going offshore is ensuring their own destruction and the destruction of the industry on which they survive, so this is bigger than paying tax onshore—it is about ensuring that the industry, and therefore bookmaking itself, continues.

[Matthew Hancock]

Indeed. Bookmakers tend to value having racing on regularly so that there can be product in their shops—races on which people can bet. Around the country, having regular racing and a full fixture list is good not only for the paying punters who want to go, but for bookies, and it is important to ensure that that can be appropriately financed, because the number of fixtures cannot be increased without increased support. Ensuring that prize money per race returned to a reasonable level would provide the impetus for people to own the horses on which the rest of the industry depends. There is a chain of causation through the fixture list and the prize money, and ensuring that the appropriate levy is paid is critical.

[Sir Alan Meale (Mansfield) (Lab)]

I assure the hon. Gentleman that I am going to refer not to the next page of his speech, but to the first one. He mentioned the fall in the number of foals produced in the UK. The levy is not simply about betting in betting shops or prize money at race courses; it is about the British breeding industry and the support necessary to maintain it. I hope he will assure everybody in the Chamber that he is also supportive in that direction.

[Matthew Hancock]

Absolutely. On that point and more broadly, I declare a very wide interest: I am heavily supported in Newmarket, including by people from the breeding fraternity, or sorority—there are an awful lot of extremely impressive men and women involved in breeding—but this is also about racing welfare, which is supported by the levy. There is a much broader point, and I am grateful to have the opportunity to put that on the record. This is about not only the flow from prize money into the activities of horsemen, but the direct payments from the levy system to breeding, welfare, veterinary research and other important associated aspects of the sport, and indeed ensuring that the regulation of racing is adequately funded to guarantee high-quality and well-regulated racing. I do not want to dwell on that point, but I am sure that those of us with an interest in debates on the matter have noticed it over the past couple of months.

[Julian Smith]

If the Minister got his skates on, how quickly could the change happen? We have talked about Finance Bills, but what would his optimal timetable be for this tax change to happen?

[Matthew Hancock]

The proposed change is relatively simple. It would require primary legislation, but take only a couple of clauses in a Bill. The legislation would be fairly simple because it would change the designation of where a bet was and everything else would flow from that. That is the foundation of unlocking all the other changes for which there is cross-party support.

I urge the Minister to act. It is rare for the Government to have in front of them a proposal that is popular, important, timely, simple, money-raising and necessary. Since the proposal has all those attributes—and indeed, as we have discovered today, cross-party support—I ask him to act with the greatest possible speed. He cares deeply about horse racing, the people of Newmarket care about horse racing, and the country cares about the future of horse racing, so let us make this change and put the finances of horse racing on the sustainable footing that they deserve.

[Several hon. Members]

rose—

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[Mr Laurence Robertson (Tewkesbury) (Con)]

It is a pleasure to serve under your chairmanship, Mr Williams, and to follow the hon. Member for Bradford South (Mr Sutcliffe), who works so very hard to try to resolve what are extremely difficult issues. I congratulate my hon. Friend the Member for West Suffolk (Matthew Hancock) on introducing this important and timely debate, and thank him for many of the things that he said.

I want to declare two non-declarable interests. I am joint-chairman of the all-party group on racing and bloodstock industries, along with the hon. Member for Mansfield (Sir Alan Meale), whom I am pleased to see present. With respect to other Members, I also have the honour of representing what I consider the greatest race course in the world—Cheltenham race course, where each year we have the world-famous Cheltenham gold cup. That is one of the greatest, if not the greatest, steeplechases in the world. I am delighted that my hon. Friend the Minister is a holder of one of those gold cups. I know that it is not the tradition of Government to have people who know what they are doing in post, but he is a very welcome exception to that rule.

I can only really endorse a lot of what my hon. Friend the Member for West Suffolk and others have said. In this country, we have what is probably the greatest racing in the world. It is certainly up there with the best, if not the actual best. As the hon. Member for Bradford South said, we had the most fantastic spectacle at Haydock on Saturday, when Kauto Star won against all expectation, providing such excitement in the world of horse racing and in the world of sport. Last year, Tony McCoy—AP McCoy—won the BBC sports personality of the year because of his exploits, yet all that gets overshadowed by the constant wrangling about funding and the constant falling out over the levy—not just the level, but the details.

I agree with my hon. Friend the Member for West Suffolk, who said that that is one of the best reasons for getting rid of the levy. It is divisive. It pits bookmaker against people in racing, whatever racing means in that respect. The levy was finally decided at quarter to 12 on the night of Halloween, which made for an unedifying spectacle. This is a very outdated and impractical system. As has been said, it has also delivered falling revenue. As the hon. Member for Mansfield said, that is important in many respects, not just for prize money, although it is significant with regard to prize money. Prize money is not everything, but it does filter down and find its way to trainers, jockeys and stable staff. It is extremely important not just so the rich can get richer, to coin a phrase, but so that those who work at the bottom can continue to work in the sport. Therefore, it is important to find a better funding mechanism, if mechanism is the right word. I will come on to that.

The principal point made by my hon. Friend the Member for West Suffolk was about how overseas operators are avoiding paying the levy. I do not object to anything he said, but I have quite a bit of sympathy with the point made by my hon. Friend the Member for Shipley (Philip Davies). We have to analyse why people have gone abroad. It is not just because of the levy. To draw a brief analogy, I have the honour of chairing the Northern Ireland Affairs Committee and one recent proposal was for the Northern Ireland Assembly to have the right to set a corporation tax that would be attractive to companies and businesses, compared with corporation tax in the Republic of Ireland. The tax is 12.5% in the Republic and 26% in the UK—a bit of a no-brainer when thinking about where to put a factory or business. We should explore why companies have gone abroad in the first place and consider having the kind of tax regime that attracts them. That is not just about bookmakers; I could expand that argument to all sorts of other businesses, especially in the competitive world in which we live. I therefore hope that that point will be considered.

I have no objection to the proposals that my hon. Friend the Member for West Suffolk made to the Minister, nor indeed to the considerations that the Minister is making, but we ought to think about why businesses went abroad in the first place. The constant pursuit of the exchanges is not healthy for the sport, or indeed for bookmakers, at this point. If we are talking about a levy replacement, let us get on with replacing it. Let us not get on with trying to tinker with the existing levy arrangement. If we do that, all we will end up with is levy mark 2—a similar arrangement to the one we have now, but called something else. I want us to move on from that.

How do we find the future funding for horse racing? That will not be particularly easy. If it were easy, the problem would have been solved a long time ago. We have heard a lot about a commercial solution. In terms of name and concept, I am all in favour of that commercial solution, but I am a little concerned that some of the proposals are not a commercial solution at all, but a rerunning of the levy. We need to avoid that.

There has been a call for any arrangement that is designed and agreed to be underpinned or guaranteed. We have to be very careful over how we go about that. Are we talking about underpinning through legislation? If we are, we have not really moved on much from where we are now. Indeed, we could find ourselves up in the European Court in relation to state aid rules. My view on state aid is that we are an independent country with a Parliament here, and we should do as we will. I would not bow to—[Interruption.] I thought that my hon. Friend the Member for Shipley would agree with me on that point. However, we are where we are at the moment, although we may change those rules in the future, and we do not want to fall foul of state aid rules. Any solution that we reach must be compliant. If the Minister will allow me to say so, we were rather too obsessed with state aid rules when it came to changing the status of the Tote—we gave them far too much credibility—but there is an issue here, no question about that.

[Matthew Hancock]

On the question whether a transfer should be underpinned by legislation, would it not be better in the long term to have it underpinned by contract—by agreement—based on, for instance, a racing right or sports betting right? That could be the basis of a commercial agreement. However, is it not important in the short term to solve the offshore problem, so that we have an appropriate basis from which to go forward to a truly sustainable position?

[Mr Robertson]

Just as many hon. Members anticipated my hon. Friend’s next statement, he has anticipated mine. The arrangement has to be consolidated and underpinned by the civil law, rather than by legislation. I entirely agree with him for a number of reasons, and the state aid issue is one. Another is that, if we are going commercial, we are going commercial—that is the way we should go. I understand his point. We have to bring offshore companies back onshore, but I would prefer to explore that through the way that I have described—perhaps by making it attractive for companies to do business in this country. We may need to go a little further than that, but it should certainly be explored.

On coming up with the commercial solution, I am not entirely convinced that the Government should decide the replacement for the levy. The Government have proposed three options, although I do not suppose that they are the only options that they would consider. However, there are other options that are perhaps not for the Government, but for racing and bookmakers, to put in place.

My hon. Friend the Member for Shipley talked about the increase in media rights. I understand that over the next year, from 2011-12 to 2012-13, they will increase by 26%. That could be considered different from the levy, but when an owner gets his cheque for £5,000 or £10,000, I do not think he is too concerned whether that has come from media rights, race courses, the levy or wherever; he is concerned about the size of that cheque. The whole cake is the important thing, not necessarily which particular segments have come from where.

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[Ian Swales]

Absolutely. I cannot beat my hon. Friend’s lyrical description, but in Redcar, the race course is particularly important because it brings people into the resort activities of Redcar as well as for racing, often on the same day. Race courses play a key cultural role.

We must also remember—a point that has not been made—that bookmakers are key tenants on our hard-pressed high streets. I recently visited a bookmaker’s in Redcar, along with a representative of the Association of British Bookmakers. Although the ABB likes to remind us that UK racing is a smaller slice of the cake these days, the manager of the shop confirmed that it is still the major source of footfall in the shop. People using casino machines, for example, will most likely have come through the door because of racing. That is also true for many of those putting a bet on football on a Saturday; they are in the shop because of racing, even though the bet will appear in the bookmaker’s turnover as a bet on football. We should not accept too many scare stories from bookmakers.

[Matthew Hancock]

Does that not reiterate the need for a level playing field? Betting shops inevitably pay the levy because a shop cannot be moved offshore.

[Ian Swales]

That is absolutely true. My hon. Friend made the point earlier that independent bookmakers do not have the option to move offshore and, typically, they operate from fixed premises.

I support everything that has been said so far, and I welcome the Minister’s statement of 14 July. The suggestion that operators, wherever based, wishing to transact with UK customers would have to pay for a licence makes sense. I congratulate my hon. Friend the Member for Tewkesbury (Mr Robertson) on his hard work on behalf of the racing industry, and I agree that we have to think a bit bigger. It is high time that the levy system was scrapped; the tinkering that he mentioned will not provide a long-term solution. Commercial negotiations over the sale of the product, and a more entrepreneurial attitude from the industry, could have dramatic effects. We have seen what happens in other sports such as football, cricket and even darts when proper negotiations take place.

There is also sponsorship. Newcastle United has just decided, controversially, to rename its ground from St James’s Park, but that will net something like £10 million a year. What opportunities do race courses have in that regard?