Draft Horserace Betting Levy Regulations 2017

Tracey Crouch Excerpts

Monday 27th March 2017 General Committees

[The Parliamentary Under-Secretary of State for Culture, Media and Sport (Tracey Crouch)]

I beg to move,

That the Committee has considered the draft Horserace Betting Levy Regulations 2017.

The Government propose extending the horserace betting levy to betting operators that are based offshore, which will correct the current unfairness in the levy system whereby betting operators in Britain are required to pay the levy, but those based offshore in otherwise identical circumstances are not. The issue has become more acute as the shift to betting online has increased. The levy will be due on bets on British racing made by consumers located in Britain. As part and parcel of that, we are setting down the rate of the levy in legislation, moving away from the fractious annual negotiation process and providing long-term certainty for betting and racing. It will be set at 10% of a betting operator’s gross profits on such activity.

Next week is horse-racing awareness week. This Committee allows me to fire the starting gun seven days early and place on record that British racing has long been a source of entertainment for many, a provider of jobs and a focal point for many rural communities. The mutually beneficial principle of transferring funding to racing from the proceeds of betting under statutory arrangements dates back to 1928. The levy itself has been in place since 1963. The levy supports funding for a range of areas, including prize money, integrity, equine welfare and veterinary science. Since 2000, more than £32 million has been invested through the levy in veterinary science and research alone.

However, changes to the market have meant that the levy is no longer fair and fit for the modern world, as betting operators based offshore are not liable to pay it. That has created a system that puts British-based operators at a competitive disadvantage and has contributed to a reduction in levy receipts. There have been a number of efforts over the past decade to broker voluntary deals to ensure a fair contribution from all who make sizeable profits from the racing product. I thank those operators that have done the right thing and made voluntary contributions over that period, but regrettably history shows that it has not been possible to reach a satisfactory solution to the problem of the many offshore bookmakers that benefit from the British racing product without being required to make a fair contribution to the industry. British racing is the envy of the world, with a rich history and traditions dating back hundreds of years. It is imperative that there is, via the levy, a solid foundation that will continue to support the sector and attract investment in sport.

The levy is a pre-existing state aid, as it was in place before the United Kingdom joined the European Economic Community, but any material change, as is the case here, requires state aid approval from the European Commission. Colleagues may recall that, in the debates considering the power to extend the levy in 2014, it was made clear that changes to the levy scheme were likely to be necessary before it could be extended. We have thought carefully about the right way to apply the state aid requirements to the British context, and we consider that the package of levy reforms taken together represent the right approach for the British industry. The Government are seeking state aid clearance and, as set out in the statutory instrument, the regulations will not come into force until state aid approval is granted. I am confident that clearance will be received shortly.

The principle of the levy is simple: all operators that benefit from British racing above a minimum threshold should contribute to its funding. The levy will apply to bookmakers—including pool betting and spread betting operators—and betting exchange providers in Britain and offshore. The levy will apply in the same way regardless of where the bet is placed, whether that is at the course, in a high-street bookmakers or online. That ensures that the levy will apply equally to all operators, with no differential treatment based on how or where customers place their bets.

The Government have considered a range of evidence in arriving at a fair rate. There have been three public consultations, and I have held a number of meetings with representatives from betting and racing. The Department commissioned an independent report on the funding of racing, and regard has also been given to the recent history of the levy and the overall landscape of the betting market.

It is important to reduce the risk of the levy acting as a barrier to betting operators entering the market. We are therefore introducing a threshold amount. No operator will pay a levy on their first slice of gross profits derived from taking bets on British horse-racing, and it will be set at £500,000. The majority of small and medium-sized operators will therefore not be liable to pay the levy. In order that the exempt amount does not create perverse incentives for an operator to artificially split their business, the regulations make provision to ensure that an operator does not benefit from multiple allowances.

The Government are of the view that the overall package of a rate of 10%, with the £500,000 de minimis threshold, is a fair and proportionate contribution from the betting industry to the mutual interest it has in a good quality racing industry. The Government consider that a fixed rate provides certainty for betting and racing. However, it is important that the levy can be responsive to future changes in the market. The Secretary of State is therefore required to review the levy rate within seven years. This period is intended to strike a balance between allowing the betting and racing industries to plan commercial strategies and long-term investments with confidence while ensuring that the levy can respond to the evolution in relevant sectors.

The Government have previously announced that we intend to make separate changes to reduce the cost of administering the levy, currently done by the Horserace Betting Levy Board, and remove the Government from day-to-day involvement in levy expenditure. We will consult on the second phase of reform in due course.

In conclusion, the reforms will create a level playing field between all betting operators. They will provide a fair return to racing and will ensure that the industry can continue to be the home of the best quality racing in the world for years to come. I commend the draft regulations to the Committee.

[Several hon. Members rose—]

--- Later in debate ---

[Tracey Crouch]

I thank Committee members for their engagement and their contributions to the debate. Although the principle of an extension to the levy is, on the face of it, simple, it has been demonstrated by the important points that have been made during this debate that it is more complex than it might seem. I will address each of those points in turn.

I thank the hon. Member for Tooting and the Opposition for their support for the regulations. The hon. Lady is right in her assessment of why this is a necessary step forward. As she said, the industry and the sector have evolved, so we can all now gamble in very different ways than we could 50-odd years ago.

The hon. Lady’s comments about greyhound racing are very topical. I recently wrote to Bet365, the only major online operator contributing to the voluntary fund, to thank it for taking a lead in this key area, and I have also written to trade bodies representing all the betting operators to ask that they take part in discussions to improve the current funding position. Lord Lipsey has volunteered to chair that act of mediation. Although there are no plans to introduce a statutory levy for greyhound racing, we will try to encourage more money into the sector.

[Maria Caulfield (Lewes) (Con)]

May I support the Minister’s argument? Greyhound racing grounds are closing in record numbers, which is exactly why we need these regulations. Plumpton racecourse in my constituency welcomes them, because it needs that extra funding to make it sustainable.

[Tracey Crouch]

I thank my hon. Friend for that comment. We are incredibly proud of the whole racing industry. I have met greyhound industry representatives on a number of occasions to tell them that we continue to support them. We will try to encourage more money into the sector on a voluntary basis. We want to ensure, through the levy for horse-racing, that it has a fair amount of money going into it from the offshore sector.

The hon. Member for Tooting also asked about the living wage. Although that is not a matter for the levy, we expect racing to work with racecourses to ensure best practice. As she is aware, the Government have increased the national minimum wage, and all those working in racing will benefit from it.

The hon. Lady and other Committee members mentioned the timeframe for a review. We believe that the seven-year review set out in the regulations strikes a balance between certainty and a reasonable timeframe. The rate can be reviewed at any time if there are changes in the industry that suggest that the rate no longer remains appropriate. Otherwise, it is required to be reviewed automatically within seven years. I hope that that answers the hon. Lady’s questions.

I thank my hon. Friend the Member for Torbay for his contribution, although given that I contributed significantly to the profits of a bookmaker during Cheltenham he had probably better not rely on tips from me for the forthcoming Grand National.

The hon. Member for Paisley and Renfrewshire North asked specific questions about Scotland, and I should say at the outset that I am grateful for the Scottish National party’s support on this issue. Officials have kept the Scottish Government informed about levy reform throughout the entire process. Courses in Scotland do, and will continue to, receive levy funding, and the extension to offshore means that more money will be available for courses across Great Britain. Last year the levy board distributed almost £4 million to the five racecourses in Scotland; I hope that addresses his question.

My right hon. Friend the Member for Newbury is a long-standing advocate for reform, and I am enormously grateful for his sage advice on the sometimes complex issues in this area. He spoke eloquently about the need for these changes and then asked a specific question about governance. This is where I explain that it is quite a complex issue, because there are actually two stages, and today is merely the first phase.

In the short term, the levy board will remain responsible as the governing body, but we will consult on transferring responsibility to a nominated racing authority who will act on behalf of the racing industry. At the moment, the levy board is required to provide an annual report making clear how the money is spent; that is important to make sure that money gets to all parts of the racing industry, as others have raised, and we expect a similar to process to occur under the new racing authority.

I will quickly refer to the transitional phase and some of the administrative changes. The Government will consult on using a legislative reform order to effect the transfer of responsibility to the gambling commission and the racing authority. We will consult affected stakeholders on the detail of those proposals shortly, and we intend to complete transfer of responsibilities in early 2018. It is absolutely crucial that we minimise any disruption when moving to the new arrangements, which is why the administrative changes are intended to be completed in early 2018.

My hon. Friend, as I will call him, the Member for Jarrow has not returned from voting, but I want to put on the record my thanks for his kind words—although I was worried that he was about to reveal all my secrets as a researcher. Distribution is a matter not for Government, but for the board at the moment, and the racing authority in the future. All areas of Great Britain benefit from the levy, and that will not change. As it has done, the levy will continue to benefit the grassroots of the sport, and we expect the new racing authority to have clear criteria for allocating funding and to report that transparently. He also asked about state aid. As the statutory instrument makes clear, the legislation will only come into force once state aid clearance is received.

There is a specific provision within the statutory instrument that says it will come into force on 1 April 2017 or the day after it is made—so, the state aid clearance is expected. My officials have engaged extensively with the European Commission, and as a result I am confident that we will receive that clearance shortly. To be perfectly honest, we would not have introduced these regulations to the House if we did not have that confidence.

My hon. Friend the Member for Tewkesbury spoke very kindly about the reforms. I welcome his support for this; his experience and expertise on all things racing mean that it is even more appreciated. I am grateful.

I turn to my hon. Friend the Member for Shipley. I am pleased that Parliament’s procedures allow him, even as a non-voting member of this Committee, to express his views. I feel that some of his speech was 54 years too late. The levy exists, and it is my duty to make sure that it reflects the world we live in today.

My hon. Friend asked some very specific questions about the need for primary legislation. There is no need for primary legislation; the power in section 2 of the Gambling (Licensing and Advertising) Act 2014 allows the Government to extend the levy in a state-aid-compatible way using secondary legislation. The point of securing the power in 2014 was to allow us the flexibility to use secondary legislation, and the power is broad enough to address all the issues necessary to secure state aid approval.

We do not agree that these regulations are ultra vires. As was made clear in 2013, the levy is a state aid and, as I have said, extension to off-shore operators is a material change to the existing scheme, which requires notification and approval. On-course bookmakers and the Tote have always been liable to pay the levy since 1963, but my hon. Friend is right—state approval is required, and we have sought it and are confident we will get it shortly. The Department’s legal advice has not changed, because we have always been clear that the levy is a state aid.

Finally, my right hon. and learned Friend the Member for Harborough spoke with passion about the breadth and depth of the industry. Racing is an important sector, and it is essential that we do all we can to support it, from the small racecourses to the large ones. These reforms are long overdue, and I hope the Committee will agree that they will make a profound difference to the British racing industry and to the thousands of hard-working stable staff, jockeys, trainers and all those who make racing what it is today.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Horserace Betting Levy Regulations 2017.