Finance (No. 2) Bill

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The Committee consisted of the following Members:

Chairmen: Mr. Joe Benton, Sir John Butterfill, †Mr. Edward O'Hara

† Balls, Ed (Economic Secretary to the Treasury)

Banks, Gordon (Ochil and South Perthshire) (Lab)

† Barlow, Ms Celia (Hove) (Lab)

† Breed, Mr. Colin (South-East Cornwall) (LD)

† Dunne, Mr. Philip (Ludlow) (Con)

† Francois, Mr. Mark (Rayleigh) (Con)

† Gauke, Mr. David (South-West Hertfordshire) (Con)

† Goldsworthy, Julia (Falmouth and Camborne) (LD)

† Goodman, Helen (Bishop Auckland) (Lab)

† Goodman, Mr. Paul (Wycombe) (Con)

† Griffith, Nia (Llanelli) (Lab)

† Healey, John (Financial Secretary to the Treasury)

† Hemming, John (Birmingham, Yardley) (LD)

† Heppell, Mr. John (Vice-Chamberlain of Her Majesty's Household)

† Hesford, Stephen (Wirral, West) (Lab)

Hoban, Mr. Mark (Fareham) (Con)

† Hodgson, Mrs. Sharon (Gateshead, East and Washington, West) (Lab)

† Hosie, Stewart (Dundee, East) (SNP)

† Keeley, Barbara (Worsley) (Lab)

† Khan, Mr. Sadiq (Tooting) (Lab)

† McCarthy, Kerry (Bristol, East) (Lab)

† MacDougall, Mr. John (Glenrothes) (Lab)

† Marris, Rob (Wolverhampton, South-West) (Lab)

† Newmark, Mr. Brooks (Braintree) (Con)

† Primarolo, Dawn (Paymaster General)

† Reed, Mr. Andy (Loughborough) (Lab/Co-op)

Reed, Mr. Jamie (Copeland) (Lab)

† Selous, Andrew (South-West Bedfordshire) (Con)

Tami, Mark (Alyn and Deeside) (Lab)

† Thurso, John (Caithness, Sutherland and Easter Ross) (LD)

Villiers, Mrs. Theresa (Chipping Barnet) (Con)

† Wright, Mr. Iain (Hartlepool) (Lab)

† Wright, Jeremy (Rugby and Kenilworth) (Con)

† Young, Sir George (North-West Hampshire) (Con)

Frank Cranmer, Emily Commander, Committee Clerks

† attended the Committee

Column number: 85

Standing Committee A

Thursday 11 May 2006

(Morning)

[Mr. Edward O' Hara in the Chair]

Finance (No. 2) Bill

(Except clauses 13 to 15, 26, 61, 91 and 106, schedule 14, and new clauses relating to the effect of provisions of the Bill on section 18 of the Inheritance Tax Act 1984)

Clause 9

General betting duty: gaming machines

9.5 am

The Financial Secretary to the Treasury (John Healey): I beg to move amendment No. 1, in page 10, line 4 [Vol. 1], leave out

‘, where VAT is charged in respect of the use'.

I welcome you back to the Chair, Mr. O’ Hara, and I welcome hon. Members from all parties back to the Committee. If you permit me a degree of indulgence, I propose to refer to the purpose of clause 9 in explaining amendment No. 1. It is rather difficult to do the latter without the former.

The Chairman: As long as the Financial Secretary realises that, in the light of that, I may judge that we do not need a clause stand part debate.

John Healey: I would be grateful for your guidance on the clause stand part debate, Mr. O’ Hara, if and when you choose to give it.

The Chairman: We will see how the debate on the amendment goes, and then we shall determine that.

John Healey: Thank you, Mr. O’ Hara. The clause amends the scope of the exclusions to general betting duty in existing excise law and it does so with retrospective effect from 6 December last year. It ensures that any bet made using a gaming machine, within the meaning of section 23 of the Value Added Tax Act 1994, is excluded from a charge to general betting duty where VAT is charged in respect of use.

If the clause were not amended, bets made on gaming machines would be excluded from general betting duty only if they were charged with VAT. This means that if the bookmaker providing the machine were trading below the VAT registration threshold, VAT would not be charged and the bookmaker would continue to have to account for the general betting duty on the gross take of the machine. That would put smaller businesses at a disadvantage because general betting duty is charged at 15 per cent., while the net rate of VAT is typically about 12 per cent., which was clearly not what we intended in our pre-Budget report announcement or the drafting of clause 9.

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The amendment will ensure the removal of the charge to the general betting duty from all machines defined as gaming machines for VAT purposes, andit is designed to have retrospective effect from6 December 2005. As a consequence of the VAT changes we announced in the pre-Budget report, bookmakers’ fixed-odds betting terminals have become gaming machines for VAT purposes. As it is not the Government’s policy to charge both VAT and general betting duty on the same transactions, we announced in the pre-Budget report that general betting duty would not apply to fixed-odds betting terminals from 6 December. However, the exclusions to general betting duty that are provided by the Betting and Gaming Duties Act 1981 could be amended only by primary legislation, which is what we are doing in the clause. On that basis, I hope that hon. Members will accept the amendment and the clause.

Mr. Paul Goodman (Wycombe) (Con): It is certainly a pleasure to see you back in the Chair, Mr. O’ Hara. I have to confess that I did a double take when I arrived in the Committee this morning and saw these red boxes flying around. I thought that the Government had greatly enlarged their ministerial team and that my hon. Friends and I would have to work even harder than we already are.

We have no quarrel with the amendment. This is the first amendment in the Committee where the Government have had to correct a drafting error in the Bill. I have not led for my party in debates on any of the Bill’s provisions before, but I recognise that this often happens in legislation. The quality of a Bill can often be judged by the number of such amendments that are tabled, so my hon. Friends and I shall be watching Ministers closely. We have no intention of opposing the amendment. If we did, we would make bookmakers liable for general betting duty when the measure in the clause is trying to separate betting duty from VAT.

We have no problem with the amendment, but if you, Mr. O’Hara, want me to refer to the clause at this point, I could certainly do so.

The Chairman: As the debate is going, I do not think it is necessary to group the clause stand part debate with this one. We shall have a separate clause stand part debate.

Mr. Colin Breed (South-East Cornwall) (LD): Some of us at this end of the room are struggling to hear. I do not know whether that is because people have quieter voices, but we can only just about hear. I do not know whether we have the microphone system on, but it is difficult to hear at this end. I suspect that it is impossible at the far end of the room.

I often receive letters from constituents—perhaps other hon. Members do too—complaining that they get doubled taxed. They pay tax in their working lives and then they tend to get taxed on all sorts of things after they have retired. They may not be sympathetic to the idea of letting the gambling industry off from double taxation. It is a sensible amendment and we have no difficulty in accepting it.

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Rob Marris (Wolverhampton, South-West) (Lab): I would like a slightly greater explanation from the Financial Secretary as I am not sure that I followed it. I thought that the amendment was designed to protect betting agencies or companies that are below the VAT threshold, but the VAT threshold is well below the 2.5 per cent. levy referred to in clause 10, which we have not yet come to. I may have misunderstood the amendment, but my understanding is that, if it goes through, someone running a betting operation below the VAT threshold will pay only 2.5 per cent. tax. If that is the case, it is far too low.

John Healey: Levying VAT, rather than general gaming duty, has two consequences. First, those small bookmakers who are not registered for VAT will have to register. We estimate that there will be around 200 of those. There are approximately 500 to 800 small bookmakers’ premises that belong to bookmakers who fall below the VAT threshold. They will be affected by clause 9 if we do not amend it, because they will not be able to levy VAT and will therefore have to charge the general betting duty, which is not our intention. They would, in effect, be penalised. While the general betting duty is levied at a rate of 15 per cent., the effective rate of VAT is around 12 per cent.

Amendment agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

Mr. Goodman: As the Minister said in view of the amendment, the Government are attempting, as a result of the European Court judgment—the Financial Secretary did not refer to that—to separate out general betting duties and VAT. This is clearly something that has to be done in the light of the judgment. Unless some point is raised in this debate that would make us want to look at this clause again, we have no intention of opposing it.

John Healey: I welcome the intention of the hon. Member for Wycombe (Mr. Goodman) not to oppose this clause. I hope that the Committee will allow it to stand part of the Bill.

Question put and agreed to.

Clause 9, as amended, ordered to stand part ofthe Bill.

Clause 10

Rates of gaming duty

Question proposed, That the clause stand part ofthe Bill.

John Healey: We move on here to gaming duty and gaming duty bands. Clause 10 will increase the gaming duty bands in line with inflation for accounting periods starting on, or after, 1 April 2006. Increasing the value of the duty bands in line with inflation ensures that the real value of the thresholds above which the casino operator is liable to pay the higher rate of tax are maintained.

In looking at the decisions on gaming duty bands, there has been a question on the taxation of remote

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gaming. As we confirmed in the Budget, we are not looking to make announcements on the taxation of remote gaming until Budget 2007 so that the tax system can reflect detailed regulations for the sector. They are currently being developed by the Gambling Commission and are planned to be ready by the autumn.

9.15 am

The industry acknowledges the international nature of the remote gaming industry and recognises that it raises difficult issues for taxation. Nevertheless, the Government will continue the work with the industry over the coming months to consider the shape and rate of a valid tax regime for remote gaming. It is not an easy issue. There are many factors influencing the decision by remote gaming operators about where to locate. It is not clear that the rate of remote gaming duty will be the decisive factor. There may not be a tax solution to the aspiration of bringing remote gaming operators onshore into the United Kingdom and therefore under UK jurisdiction for social regulation purposes.

The decision to delay an announcement resulting from the Budget 2006 on the remote gaming system and bands has been warmly welcomed by the Remote Gambling Association. Officials and I met members of the Remote Gambling Association before the Budget and shall continue meeting them to discuss the implications of this issue. Clause 10 therefore revalorises the existing duty bandings. That is in accordance with the industry expectation and has been the practice of the Government in recent years. I commend the clause to the Committee.

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Prepared 12 May 2006