John Healey (Financial Secretary, HM Treasury; Wentworth, Labour)

To some extent, the clause is a companion of clause 11. It will amend existing excise legislation to align amusement machine licence duty categories with the categories under the Gambling Act 2005, as we announced in the pre-Budget report. In addition, it will set the new duty rates. As I said in respect of clause 11, changes will take effect from1 August 2006 to give both traders and Her Majesty’s Revenue and Customs the time that they need to adjust their systems and ensure that, from both sides, the transition to the new regime will be as smooth as possible.

When we announced in the pre-Budget report that we would align the AMLD regime with the Gambling Act, it was generally agreed that the intention was desirable as a simplification measure. It will give  operators a greater consistency between the tax and the social regulatory regimes. In general, the new duty rates on gaming machines reflect a revalorisation in line with inflation, following a freeze in last year’s Budget and a freeze in the Budget 2003.

To ensure what we believe is a more fair and equitable tax treatment for machines, the clause will introduce a new £5,000 annual rate for the unlimited stake, unlimited jackpot machines to be located in the one regional casino in future. It will introduce a £2,500 annual rate for other high-value casino jackpot machines. From the end of October last year, those machines saw their stake and prize limits double from £1 and £2,000 to £2 and £4,000.

A new rate of £1,780 will be introduced for jackpot machines with a maximum prize of £250. That reflects the inclusion in that category of some jackpot machines that offer the relatively low stake of just 10p. We decided not to wait for the implementation of the Gambling Act before the change. That is essentially because changes in the machine market mean that the old system of rates and categories is increasingly outdated. On that basis, I commend the clause to the Committee.

Paul Goodman (Shadow Minister (Childcare), Treasury; Wycombe, Conservative)

The Minister will know that the British Amusement Catering Trade Association welcomed the abolition of amusement machine licence duty on non-gaming amusement machines. However, it said that it was disappointed and concerned at a range of other AMLD increases, particularly in relation to the treatment of B4 machines that will now include 5p and 10p club machines whose duty will increase from £665 to £1,780 and £1,415 to £1,780 respectively. If they look at the clause, members of the Committee will find that I am referring to the bottom entry in the fifth column.

The association said that the change was an enormous hike and that it would cripple community and political clubs. I stress “political” because, who knows, that may include Labour clubs. The association said that such clubs often rely on the revenue from gaming machines for their existence, and it urges the Treasury to reconsider the rates. I look forward to what the Financial Secretary has to say about that.

Colin Breed (Shadow Minister, Treasury; South East Cornwall, Liberal Democrat)

To some extent, we do not have any qualms with the clause only in the sense that we worry about 2p machines and those that provide only a £5 prize. I wondered why amusement and gaming people bothered about them, but I found out why on a recent ferry crossing. Early in the morning, I discovered that vast numbers of schoolchildren were whacking their money or somebody else’s—perhaps it was their lunch money—into those low-value machines. They do not provide much of a prize, but I suspect that they enable people to commence on the road to higher stakes.

I do not have any qualms about how the Government wish to regulate or tax such machines. They are used, probably perfectly satisfactorily, in clubs and similar places. I have some difficulty accepting that they should be used in more public areas such as ferries, but I am happy to support the clause.

Stewart Hosie (Spokesperson (Chancellor of the Exchequer; Home Secretary); Dundee East, Scottish National Party)

I seek a point of clarification from the Financial Secretary on the difference between categories B1 and A. The 12-month licence fee for category B1 machines—machines accepting a £2 stake for a £4,000 maximum prize—is £2,500. Category A machines, as he described them, accept unlimited stakes for effectively unlimited prizes, yet the 12-month licence costs only twice as much. If the prize from such machines is £50,000, £100,000 or whatever, is not £5,000 for a 12-month licence on the low side? I am trying to find out the Government’s thinking on the matter.

John Healey (Financial Secretary, HM Treasury; Wentworth, Labour)

The British Amusement Catering Trade Association, which the hon. Member for Wycombe quoted, is an important trade body. It represents the fragmented and diverse industry that uses amusement machines and therefore has an interest in amusement machine licence duty.

Officials and I have had regular discussions both during and after the formal consultation that we launched a couple of years ago on the future of AMLD. We went over BACTA’s arguments in detail. We went over the complexities of the industry and the categories and, in the end, we came to the judgment that the package we are offering in clause 12 is a fair balance given the competing factors at stake.

The hon. Gentleman mentioned the situation that political, community and sports clubs might be faced with regarding category B machines. That seemed to be the emphasis of the BACTA view that he told the Committee about. Three main categories of machine tend to be operated in registered clubs: 5p jackpot machines, 10p jackpot machines and higher-stake jackpot machines. We have tried hard to work with BACTA to reassure the industry that the approximately 4,000 5p machines that are located in such clubs—including some political clubs—and about which he was particularly concerned will not be liable for AMLD at £1,965 from 1 August. Rather, they will be liable for the £735 a year rate, as was always intended.

The new rates reflect the mix of machines in the new categories. The presence of about 6,000 10p jackpot machines in category B4, although that is fewer than the number of higher-stake club machines, is reflected in its lower rate than that of B3. That is the judgment and the overall package that we have come to. We have tried to keep the differentials in place where justified and to make rate changes reflect the development of machines and their distribution in the industry. I shall take BACTA’s representations through the hon. Member for Wycombe as early representations for the 2007 Budget. We will inevitably have to take decisions at that point about the rates of amusement machine licence duty.

Brooks Newmark (Braintree, Conservative)

I should like clarification, because I was not clear about how the Financial Secretary was responding in respect of the 5p club machines. I understood that my hon. Friend the Member for Wycombe was saying that the duty on 5p machines—those in the community, political and working men’s clubs—will increase from £665 to £1,780, which is an almost 200 per cent.  increase. Is that still going through, or have I misunderstood the rate increase for those machines?

I raise this issue because, as we all know, following the smoking ban, working men’s clubs and political and community clubs feel that they will find business difficult. This measure seems to be another nail in the coffin of such small community clubs.

John Healey (Financial Secretary, HM Treasury; Wentworth, Labour)

I said in my opening remarks that we are generally revalorising the bands and rates of amusement machine licence duty and we are conscious, as the hon. Gentleman said, that the prospect of the smoking ban creates a degree of uncertainty for the trading future. That is part of the overall judgment that we have come to.

On the hon. Gentleman’s specific point, I just said that the 4,000 or so 5p jackpot machines in clubs are intended to be, and will be, liable to the duty rate at £735 a year. That is our intention and that is what will happen, despite BACTA’s fears. I hope that the assurances that we have been able to give BACTA directly will give it the reassurance that it seeks—and I am grateful for the opportunity that the hon. Member for Wycombe has given me to put another assurance on the record.

I did not catch where the hon. Member for Dundee, East (Stewart Hosie) got his information from; I am not sure whether it was sourced from the Daily Mail, which takes a close interest in this field. There has been a certain amount of misunderstanding about the new £5,000 per annum rate that we are proposing for unlimited stakes and prizes machines, which will be in the new regional casinos once they are up and running. The hon. Gentleman asked for the rationale behind our setting that rate. We set it because we think that that is a fair rate of duty to be paid on the expected profit from such machines.

Experience overseas and the assessment work done by the Department for Culture, Media and Sport in considering the social regulation implications suggests that such machines could deliver an annual average profit of around £50,000, which means a duty-to-profit ratio of around £5,000:£50,000, or 10 per cent. That is comparable with the rate that applies in the other categories.

I hope that that was a useful explanation of the essential assessment and rationale behind the judgment of this as a new rate for a new category of gaming machine in this country, once the new regional casinos are introduced.

John Hemming (Birmingham, Yardley, Liberal Democrat)

I thank the Financial Secretary for his response, which makes it clear that the objective is some form of equity in respect of a proportion of the return on the machinery. However, it also refers back to the social questions considered by the DCMS in respect of the licensing regime. Have the social issues for unlimited return gaming machines, which tend to attract people into depending on them and becoming addicted to that process, not been taken into account at all in determining the rate?

John Healey (Financial Secretary, HM Treasury; Wentworth, Labour)

The purpose of social regulation and the new Gambling Act is precisely to put in place the sort of controls regarded as appropriate for the development of the industry in future. The hon. Gentleman knows that such matters have been exhaustively debated in Parliament over the past couple of years. The purpose of the tax system is to ensure that we can get for the taxpayer and the public purse a reasonable, fair rate of tax on the profits that will be made from these activities. That is the purpose of the tax decisions that we have made and set out in the clause. The concerns about the social impact of new casinos and new forms of gambling are properly matters for social regulation and for the Department for Culture, Media and Sport. They are not properly an object or a purpose of the taxation system set out in the clause.