Finance Bill

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Adam Price indicated assent.

Mr. Howarth: The hon. Member for East Carmarthen and Dinefwr indicates that he has done so. The letter is from the British Horseracing Board and is signed by its secretary-general, Mr. Tristram Ricketts, who is well known to many Committee members. The fourth paragraph of page 1 says:

''While betting exchanges are, in principle, a consumer-friendly addition to the traditional betting scene, it is important that they operate on a level playing field with other betting facilities to minimise the scope for market distortions and maximise the opportunity for fair and open competition. BHB is aware of, and supports, the view of the betting industry generally that such a level playing field is currently compromised by the present taxation arrangements for betting exchanges.''

The penultimate paragraph says:

''BHB shares the disappointment and concern of bookmakers that the Government did not respond positively to these proposals and proposes instead to change the basis of the taxation of betting exchanges in a manner which does not fulfil the key objective of creating a level fiscal playing field. Such a level playing field is a prerequisite of fair competition, the absence of which is proving deeply damaging to the revenues of the Racing Industry, with the implications that may have for employment and investment, as well as to bookmakers. We therefore wish you every success in at least securing a commitment from Government to reconsider the matter as a matter of urgency before further damage is done.''

It might be for the convenience of the Committee if I run through the implications of all that.

I know that betting exchanges are a relatively new concept to some members of the Committee, who perhaps take a less close interest in such matters. They act as intermediaries between the layers of bets and

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punters. The majority of their customers do not hold bookmakers' permits, and a significant number are located outside the UK. There is nothing objectionable about betting exchanges, as Tristram Ricketts makes clear. They provide another opportunity for punters to bet in an entirely different way and employ modern technology to facilitate that. However, the problem is that the proposals as set out in the Bill do not, as my hon. Friend the Economic Secretary said in his letter to me, create a level playing field.

The Budget proposals in the Bill require exchanges to pay 15 per cent. gross profits tax only on commission income. That means that those who use the exchanges to lay bets and who do not hold bookmakers' permits will not pay tax, but only a small commission on winnings. Let me illustrate that. A £1,000 losing bet with a bookmaker generates £150 in duty, while the layer on the exchange pays nothing. In terms of any gross win generated by the betting exchanges, the Treasury will be totally dependent on the commission level of the exchange. As a result, the same £1,000 losing bet made through an exchange would generate a maximum of £7.50—or less if the commission rate is less than 5 per cent. In fact, the average commission rate is thought to be about 3 per cent.

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That does not represent a level playing field for either the bookmaker or the Treasury. The current proposal, based on betting exchange commission, is flawed, as it gives an unfair advantage to layers on betting exchanges, some of whom may not even reside in this country. It must be appreciated that betting exchanges compete directly with licensed bookmakers. There are not many opportunities to place bets. One can go through a betting exchange or a bookmaker. Some of us might have a friendly wager that has nothing to do with the Chancellor or anybody else, but that is becoming less and less usual.

The betting exchanges regularly advertise in the Racing Post, advising punters to ''join the revolution''. Matching £4 billion worth of bets annually is significant business, and as they claim to have 500,000 matched bets a day, it really is big business. On current proposals, that would produce about £9 million in duty. It is estimated that, if the same volume of business passed through a traditional bookmaker, the duty generated would be about £35 million, so the proposals would involve a significant loss to the Exchequer.

The main marketing approach of betting exchanges is that they offer the punter better value. That is true, but they can do so only because they are not paying their fair share of the costs. The amendment would not penalise betting exchanges, but ensure that the layers operate under the same tax regime as UK bookmakers, with whom betting exchanges clearly compete.

I shall not say a great deal more—

Mr. Jack: I have been following the hon. Gentleman's argument closely. I am not an expert in this area, so can he tell me whether, in the traditional sense of placing a bet, one can place bets through the

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internet offshore of the United Kingdom, where the tax regime is more beneficial, notwithstanding the change in tax arrangements on betting? That would seemingly put offshore betting on a par with the exchanges that the hon. Gentleman mentions in the amendments.

Mr. Howarth: That possibility clearly exists, and the right hon. Gentleman is right to point to it. I have no doubt that, if this provision goes unchecked, that will happen. It is not simply a matter of competition. I referred in my opening remarks to the integrity of the industry. The reason why there is so much integrity and trust in the industry is that it is well regulated. If the developments that the right hon. Gentleman describes take place, people will not know how the people they are betting with are operating or what their level of integrity is.

Betting exchanges are not unique to the United Kingdom: because of its nature, the technology becomes worldwide very quickly. We are all aware of that from other contexts. I understand that Australia and Hong Kong are talking about banning betting exchanges altogether, and there have certainly been complaints from the French racing authorities about their activities in France. I am not proposing anything as draconian as banning them because, in the right context, they provide an alternative opportunity for punters and I would not want that to be taken away. The UK betting industry is fully prepared to compete with betting exchanges, provided the competition is fair. My amendments would create a level playing field in contrast with the arrangements in the Bill, which will not.

Adam Price: From his expert knowledge and for my understanding, will the hon. Gentleman elaborate briefly on the implications for horse racing in this country of an expansion in betting exchanges' market share vis-à-vis the licensed bookmaking trade?

Mr. Howarth: At the moment, British horse racing benefits through the levy, all of which is collected from bookmakers. There is a debate about whether that should be a statutory levy and the Government are thinking about replacing the levy with a more commercial arrangement. That may or may not happen. The basic principle is that the British Horseracing Board owns fixture lists, although the Office of Fair Trading is inquiring into the ownership of those lists. At the moment, the British Horseracing Board benefits from being able to sell the fixture lists and the money that they receive from bookmakers through that arrangement helps to support racing in this country. Betting exchanges are not involved in that and because they do not participate in the levy, racing does not benefit from it in any way.

I am conscious that I have spoken at some length and I do not want to test the patience of you, Sir Nicholas, or the Committee any further. I shall listen carefully to the response of my hon. Friend the Economic Secretary because the matter is important for the betting industry and for racing.

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Mr. O'Brien: I have read the amendments and received representations from the Association of British Bookmakers Ltd., which the hon. Gentleman so ably explained. I have considered them carefully and one issue that he is relying on is open to question. He will detect from the tone of my comments that we are not minded to support him today. However, he has raised some valid issues, which, in the circumstances of this rapidly changing market, must be addressed. It is simply not good enough to ignore them.

The hon. Gentleman based much of his argument on the issue of a level playing field and I understand where he is coming from and why. In terms of a level playing field, one tends to think of rights and responsibilities but also of unfair competition. It is on that latter limb of the level playing field argument that he must be basing his case.

There is a challenge to that because we are discussing a market of choice for customers and, as with all marketplaces, whether the product is available and affordable. With betting, affordability is an interesting notion for the normal marketplace test, but it is entertainment, so we can put to one side the issue of whether it goes beyond entertainment to compulsion. However, that is not what is behind the hon. Gentleman's amendments and, because it is that type of marketplace, we as a Parliament and a legislature must be very cautious when considering passing laws, as suggested in the amendments, that would defy the way in which the market is moving. However, the hon. Gentleman has raised valid concerns. If he is, through the amendments, providing a serious and well-thought-through marker of what needs to be addressed, that is fair and helpful to the Committee, to the House and to those beyond. I in no way criticise that, but I am not in a position to offer the official Opposition's support for the amendments today.

I take seriously the concerns that the hon. Gentleman raised in regard to the British Horseracing Board. I am a little more familiar with that, although I do not partake in the ownership of a leg or even a forelock. I have had representations on such matters on various occasions, not least because I have a constituent who has been a member of that board and who has ensured that I am aware of its views.

We have to recognise—as did the hon. Gentleman—that betting exchanges are a very successful new phenomenon. Although it is absolutely right for the margin earned by an exchange to be taxable, we have to be extraordinarily careful in addressing the issue of how to make that equivalent to what happens with other forms of betting and gaming under the GPT regime. The real complaint from the Association of British Bookmakers is, as I understand it, that there is a chance that it will be forced to compete against what is in effect an unregulated sector of the market.

There is always a problem with the word ''regulation''. My party and I abhor red tape. We abhor bureaucracy and the overwhelming culture among legislators and the civil service—with the greatest of respect to them—that they all the time

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must find something to do, rather than something to undo. We should all always assume that regulation is the worst of all options. However, in this case, I think that it is proper to look at the complex issues that arise, although perhaps not at law. We are dealing with a type of business that is not only cross-border but even ethereal, or ether-driven. That challenges our normal notions of jurisdiction.

I am conscious that one could go down a long cul-de-sac on that point—it would certainly be a cul-de-sac where my personal knowledge of the conflicts of laws and rudimentary legal education are concerned—but there is a major issue here. This is the sort of real-life example that can impact on what are often academic and learned issues, upon which it would be wholly presumptuous of me to give an opinion.

 

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Prepared 15 May 2003