Mr. Timms: Yes, it was sent to a Mr. R. Jackson at that company.
Our view is that that activity is duty avoidance and that that has been known for 25 years. Our intention to legislate to achieve legal clarity has been known for at least two years. Devon Contract Packers was informed by letter more than seven months ago, so we are proceeding today in precisely the way that we said we would and that everybody has known that we would.
The hon. Gentleman and the right hon. Member for Fylde raised concerns about the position of the bond. Customs has the power to require a bond from an excise trader operating a duty suspense warehouse.
As the hon. Gentleman said, a figure of £250,000 was discussed with that company for a bond. However, after clarifying with the company what it wanted to do, Customs concluded that no bond was needed. The company is free to obtain duty suspended bulk cider, bottle it and to send it back to the supplier, and no bond will be required. I hope that that is helpful. A contrary view was put to the company at an earlier stage but that is the current position. In that light, I hope that the Committee will see that there is no disadvantage to this supplier or any other doing something similar.
How much money is at stake? No doubt the amount for that company is small, but if Parliament decided by rejecting the clause that this practice was, contrary to the understanding of the last 25 years, legal, all cider makers would do it, and why not since it would be a way of reducing their duty bills? Tens of millions of pounds would be at stake. We must make the position clear. I hope that the hon. Gentleman will accept that there is no disadvantage, either intended or in practice, to the company to which he referred, or to anyone practising similar activities.
Mr. Howard Flight (Arundel and South Downs): I have a brief question. The Minister kindly advised me after our initial discussions this morning that the limit for small cider makers is 7,000 litres. In the case of genuinely small cottage industries, will the Government consider that limit with a view to reviewing it upwards? My understanding of the cider cottage industry is that sales of 10,000 to 15,000 litres are more typical than as little as 7,000 litres.
Mr. Timms: The generous relief given is not available to brewers, although we have made an announcement about progressive beer duty. It is important that it is clearly targeted on the smallest producers. If the hon. Gentleman wants to make a case to me, I will have a look at it.
Mr. Burnett: I am grateful to the Financial Secretary for a clear exposition of the problem and the solutions as he sees them. The crucial point is that there is no prejudice against small cider makers as to the time when they pay the duty, whether or not they are bonded. That important point goes some way towards assuaging my doubts about the clause. He also told us a little more about the extent of duty that could be lost.
According to the Financial Secretary the practice of dilution, post duty, did not take place before 1999. I cannot contradict him, but that differs from the advice that I and others have received. If there are significant differences between the Financial Secretary's instructions and ours, we will revisit the point on Report.
Our cider market is dominated by two operators who have 90 per cent. of the market and considerable influence in the National Association of Cider Makers. I advise the Financial Secretary and any other Treasury Minister to ensure that a national body reflects the views of all its members. Having said that, I do not propose to vote against the clause and believe that my fellow Opposition Members are more content than they were.
Mr. Ottaway: I shall not detain the Committee as there is much to be done, other than to say to the hon. Member for Torridge and West Devon that one cannot put a razor blade between us on the points that he has made. We agree with his sentiment on consultation, timing, and the method of implementing the proposal. Nonetheless, we will not be voting either.
Question put and agreed to.
Clause 5 ordered to stand part of the Bill.
General betting duty
Question proposed, That the clause stand part of the Bill.
The Chairman: With this, with the agreement of the Committee, we will consider schedule 1 and the following amendments: No. 2 in page 84, line 30, leave out `3' and insert `2'.
No. 3 in page 84, line 33, leave out `10' and insert `8'.
No. 4 in page 85, line 23, leave out first `to' and insert `or'.
No. 5 in page 85, line 32, at end insert:
`(1A) For the purposes of a charge under a provision of section 3 in respect of the class of bets to which the provision applies, the amount of a person's net stake receipts for an accounting period is X minus Y, where
(a) X is the aggregate of amounts which fall due to that person in the accounting period in respect of bets of that class made with him, and
(b) Y is the aggregate of amounts paid by the person in that period by way of winnings to persons who made bets of that class with him (irrespective of when the bets were made or determined) minus any losses incurred in the previous accounting period.'.
Mr. Edward Davey (Kingston and Surbiton): On a point of order, Mr. Hood. How should the rules of the House apply to the Conservative amendments on spread betting since the Conservatives benefited from a £5 million donation from Stuart Wheeler?
The Chairman: Order. That is not a point of order.
Mr. Ottaway: I had every intention of addressing the point that the hon. Gentleman just sought to make. I make no declaration of interest, other than to say that I have received advice in preparing my contribution to the debate from the Sports Spread Betting Association, one of whose members is a company that has a shareholder who has made a donation to the Conservative party.
It is clear that there is growing public resistance to paying taxes. We have seen that in the fuel protests, in the reluctance by any political party to commit themselves to raising income tax, and on the levying of general betting duty. It is a phenomenon of the past two or three years that internet and telephone betting from Gibraltar have grown extensively because firms wish to remain competitive against others that offer bookmaking services offshore, because of the growth of the use of the internet. However, the upshot is that bets placed in Gibraltar will not attract the betting duty of 6.75 per cent., nor the horse race levy of 1.25 per cent., nor the administrative costs of implementing those duties, which have resulted in bookmakers levying a tax of 9 per cent. We agree with the Government that reform is needed. The measures have been in place for around 40 years, and as I understand it, internet betting is growing and it is estimated that by 2005 off-course betting will constitute some 9 per cent. of all betting.
The proposal, as I am sure the Minister will explain in some detail, is to switch the tax from a general betting duty to a tax on gross profits, even though it is still called a general betting duty. As far as the bookmakers are concerned, the tax will be on the difference between the sums bet and the winnings. At present, if one puts £1 on at 10 to 1, one either pays £10.90 or, if one sticks at £10, one is deemed to have bet £9.10 and if one wins one gets 10 times the amount staked. What will differ is that the winnings will be subtracted from the sums bet at the bookies and a 15 per cent. tax will be levied per accounting period on the difference between the two amounts.
The tax will not be levied on the punters, but absorbed by the bookies. It will not be passed on, though I understand that the code is voluntary. Will the Minister explain what would happen if a bookmaker broke the voluntary agreement? The purpose is to encourage high-volume betting through the telephone and internet. The new levy applies per accounting period, provisionally on a monthly basis, though the Treasury has the power to vary it.
Fixed odds bookies rarely have losing months. The profit is fairly continuous from one month to the next. The competitive pressures come from rival bookmakers, but that does not apply to spread betting, which is why I tabled the amendments. I hasten to tell the Minister that they are probing amendments, designed to draw out his attitude to spread betting.
Let me explain exactly what a spread bet is. It allows people to bet not on a result, but on the incremental aspects of a result. For example, someone might bet on how many runs England will make in a cricket match.
Mr. Tony Banks (West Ham)): Or how long the hon. Gentleman will speak.
Mr. Ottaway: Yes. I would be interested to hear from the hon. Member for West Ham (Mr. Banks) what spread he would consider in that respect. To return to my cricket example, the spread might be that England will score 300 to 320 runs, and someone might bet a pound that England will score more than 320. If England scored 340 runs, there would be 20 runs at a pound a go and the winnings would be £20. If England scored only 250 runs, the bookies would be owed £70. Someone might bet that England will gain fewer than 300 runs and the same principle applies.
Cricket is only one example: it also happens with football scores, the number of corners in a football match, the distance of a winner in horse racing and even the number of seats by which a political party will win an election. If you would like a tip, Mr. Hood, the IG index for political betting at the moment is that the Conservatives will secure between 208 and 212 seats at the next election. If you would care to stake £10 per seat, when the Conservatives gain 350 seats[Laughter.] I am sorry, Mr. Hood. Hon. Members may be interested to know that in future political betting will fall under the category of sports betting. Spread bets are sometimes made on the movement of the FTSE or Dow index or of an individual share price. As we shall see, that will be treated differently from sports betting.
Spread betting is different from the bookies. First, it is regulated by the Financial Services Authority, which results in substantially higher levels of compliance costs. Secondly, the key players among the staff are registered and regulated by the FSA. They are highly skilled people who attract disproportionately high salaries. Thirdly, the general betting duty is currently absorbed by spread betters and is not passed on by the bookies. Fourthly, with financial spread betting, hedging is necessary to offset the exposures of rapid financial movements, which also has a cost. At present, only two spread betting companies are profitable. We welcome the Government's recognition that spread betting is different. Fixed odds betting will attract a levy of 15 per cent., sports spread betting one of 10 per cent. and financial spread betting one of 3 per cent., but I put it to the Minister that those figures distort the position.
The industry calculates that the levy of 10 per cent. on sports betting could represent an increase in taxation and revenues paid of 26 per cent. on the calendar year 2000. The 3 per cent. levy on financial spread betting will result in an increase of 180 per cent. compared with the calendar year 2000. If we take one company, Sporting Index, the 10 per cent. for sport represents an increase of 69 per cent., and the 3 per cent. represents an increase on financial spread betting of 170 per cent. Those are quite dramatic increases in revenues to be taken from individual companies. In the previous year, Sporting Index made a fairly modest profit of £2.5 million given its turnover. The extra tax that it will have to pay under the Government's proposals is £740,000. I hope that the Minister realises that it will not be a small incremental increase and that he will say that his object is to be financially neutral.
The situation is exacerbated when we learn that, in respect of fixed odds, it is estimated that the amount of tax paid will be halved. With spread betting, it will in some cases be doubled or nearly trebled. That is unsatisfactory and explains the thinking behind amendments Nos. 2 and 3, which simply ask for a level playing field and fiscal neutrality. After all, we do not want yet another stealth tax on spread betting.
Amendments Nos. 4 and 5 relate to the accounting period. As I said, fixed-odds profits at the bookies are fairly stable. With spread betting, they tend to be rather volatile, and it is not uncommon to have losing months. The legislation proposes that the accounting period is one month and there is no ability to carry forward losses from a previous month. That does not affect fixed-odds betting, but it affects spread betting. Let me illustrate that. If a financial spread betting company loses £2 million in one month but makes £2 million in the next, it is neutral, not up or down. However, it will have had to pay 3 per cent. on the £2 million profit, so it will end up paying a tax of £60,000 when it has made no profit whatever. The situation becomes worse when hedging is also taken into account.
Although the measure is welcome, the amendments must be taken seriously. Spread betting is an infant industry. It is a success story and brings in earnings from overseas. The industry is growing, but the legislation threatens its livelihood to quite a serious extent. I hope, therefore, that the Minister will consider our proposals seriously.