Clause 7 - General betting duty: betting exchanges
Finance Bill
10:30 am
Mr George Howarth (Knowsley North and Sefton East, Labour)
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
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.
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—